Before getting into the details, I want to cover a few angles in this debate that are too often ignored.
First, countless groups call for more widespread mortgage lending as a response to higher home prices, but that policy causes home prices to rise. The easier it becomes for people to get mortgages, the more buyers it enables to bid on the same set of houses. Holding all other factors constant, that influx puts upward pressure on prices.
Second, many groups justify federal policies to boost homeownership as a key to building wealth. The conflict between this idea and affordability should be obvious: Falling home prices constitutes a decrease in homeowners’ wealth. Put differently, a home is a risky investment that depends on home prices going up, an attribute fundamentally opposed to increased affordability.
Next, policymakers love to promote ownership by citing beneficial “spillover effects,” such as increased engagement in civic institutions and positive educational outcomes for children. But much of the evidence that owning a home causes these outcomes is weak, and the size of such spillover effects, where they do exist, appears relatively small. (Evidence also suggests that homeownership is associated with negative spillover effects, such as higher unemployment due to an incentive against relocating.)
Finally, although the desire to help people struggling to earn higher income is laudable, saddling them with long-term debt and exposing them to unexpected maintenance costs that could further strain their budgets is no way to help. No competent financial advisor would advise a struggling client to take on a 30-year, low-equity mortgage, especially not as an investment. The federal government should remain neutral regarding Americans’ decision to rent or buy, just as it should remain neutral in terms of which stocks to buy.
More Details on the So-called Housing Crisis
Now, getting back to the details of the supposed crisis. I want to preface my arguments by acknowledging how difficult it is to be stuck in poverty and to consistently earn a higher income, or even enough to more easily afford rent.
I am in no way minimizing this struggle. In fact, I have always argued that poverty is the problem, not housing affordability.
For instance, Diane Yentel insists that “Housing cost burdens make it more difficult for poor households to accumulate emergency savings.” Well, yes, but poverty makes it even more difficult.
Policymakers should have frank conversations about why certain people have difficulty making it out of poverty. But the problem is no more a housing affordability problem than it is any other type of affordability problem. The way out is to improve one’s ability to regularly earn more income, and that’s a broader economic problem.
But few of these groups seem interested in that conversation. Instead, they insist on promoting the idea that America has a housing crisis. And as if that isn’t bad enough, they often make their point by exaggerating America’s poverty problem.
For instance, Yentel testifies that “the shortage of affordable homes is most severe for extremely low-income (ELI) households.” She offers as examples “a family of four, with two working parents who earn a combined $25,100 annually,” low-income seniors, and persons with disabilities.
By all means, let’s have a conversation about our families, our seniors, and our citizens with disabilities who cannot meet their needs. But let’s also acknowledge that there are relatively few families of four who earn a combined $25,100 per year.
In 2018, when Yentel testified, the estimated number of U.S. households with two working parents and two children for the entire country was 8,287,304. Of those, 144,974 households made less than or equal to $25,100. That’s 1.75 percent of households with 2 children and 2 employed parents. And that’s less than 150,000 families in a nation of more than 330 million people.
Ignoring the question of what types of government assistance is available to such low-earning families, it simply isn’t true that this example represents anything like the typical American family.
But Yentel doubles down in her testimony. She bemoans that “…there is no jurisdiction in the United States where a full-time worker earning the prevailing minimum wage can afford a modest two bedroom apartment at the fair market rent.”
Most Americans Have Done Better
What she leaves out, though, is that the number of Americans earning minimum wage—not just those working full-time and earning minimum wage—is small and has been shrinking. Data from the Bureau of Labor Statistics show that the share of Americans making at or below the minimum wage declined from 1.1 percent in 2012 (3.55 million workers out of 314,725,000 Americans) to 0.3 percent in 2022 (1.023 million workers out of 333,568,000 Americans).
These groups also ignore that most Americans have been doing better for many years, moving up the income ladder in real terms. As this blog post demonstrates, even Americans at the lower end of the income distribution have been doing better.
For example, from 1967 to 2023, the share of households earning less than $35,000 fell from 31 percent to 21 percent, and the share earning between $35,000 and $100,000 fell from more than 53 percent to 38 percent. During the same period, the share of households earning more than $100,000 essentially tripled, from 14 percent to 41 percent.
And it simply is not the case that most lower income Americans remain stuck at the lower end of the income ladder. Tracking the same Americans from 1968 to 2011, for instance, shows that remaining in either the bottom 10 percent or 20 percent of the income distribution for 10 or more years is practically unheard of in the United States.
Almost 95 percent never spend 10 or more consecutive years in the bottom 20 percent, and nearly 99 percent never spend 10 or more consecutive years in the bottom 10 percent.
So, let’s discuss why that one percent remains stuck in the bottom 10 percent for so long. But let’s stop pretending it’s a housing affordability problem.
My next column will say more about the so-called housing crisis, especially regarding what these groups mean by “affordable.” And for those interested, my Cato colleague Jerome Famularo and I have a new blog series that discusses these issues in more depth.
