What the U.S. Census bureau calls a “conventional” amount of money to pay for housing (PDF) is 30%. According to economics experts, a family is considered financially responsible if it spends just under one-third of its income on housing costs. More than that, and the household is considered financially “burdened.” About one-third is the standard for most rental housing programs.
A Census Bureau report says:
Because the 30 percent rule was deemed a rule of thumb for the amount of income that a family could spend and still have enough left over for other nondiscretionary spending, it made its way to owner-occupied housing too.
But there are exceptions. Indeed, a mortgage website says that it is following the guidelines of most lenders by allowing a total debt-to-income ratio of up to 36%. The government report explains this:
Many households whose housing costs exceed 30 percent of their incomes are choosing then to devote larger shares of their incomes to larger, more amenity-laden homes. These households often still have enough income left over to meet their non-housing expenses.
In other words, for some people, affordability is not an issue, no matter how big a chunk of their income they spend to put a roof over their head. Lifestyle choice is the only consideration. They want gourmet kitchens and swimming pools, and if they can afford it, good for them. However, the report goes on to say:
But for those households at the bottom rungs of the income ladder, the use of housing costs in excess of 30 percent of their limited incomes as an indicator of a housing affordability problem is as relevant today as it was four decades ago.
The 30% figure is generally accepted now, and is conventional in the sense that it has been quoted since around 1980 when the government set the rent standard for subsidized housing, which shouldn’t charge more than one-third of what a family had.
But there is a strange historical wrinkle that people don’t seem to think about. This recommended proportion that came into vogue 30-odd years ago was not the same as it had been a few years before. The number had “evolved,” as the government report explains. The received wisdom about the amount of family income that should be spent on housing was different wisdom from what it had been previously.
Some of us remember Home Economics class, where we were taught that only a fool would ever consider moving into a place that costs more than 25% of your income. You spent one-fourth on housing, and there were other recommended percentages for other things the budget needed to cover. But for renting or buying a place to live, a quarter of what you made should definitely be the limit. To commit to a greater obligation was the act of an irresponsible person.
In 1968, there was the Housing and Urban Development act, and the next year, the Brooke Amendment set the rent threshold at one-fourth of family income. For the mathematically unskilled, one-fourht is less than one-third. The recommendation used to be to spend even less of the family’s total income on housing.
And guess what? Before that, it used to be considered prudent, rational, and logical to spend only one-fifth of the family income on housing, which is an even smaller proportion. The National Housing Act in 1937 created the public housing program, which had a rent standard that stopped at 20%, or one-fifth of income.
In other words, our idea of the portion of income that is reasonable and prudent to pay for housing has suffered from expectation creep. Every so often, we are presented, by the shifting sands of the affordability concept, with a new normal. Somehow, while we weren’t looking, one of the Great Universal Truths was swapped out for a different Great Universal Truth. Within one human lifespan, the expectation went from “housing should cost one-fifth of what you make” to “housing should cost one-third of what you make.” One-third is more. A lot more.
So, all other talk of housing costs is resting on a big, slimy, insidious con job. That being said, the struggle continues to provide housing that people can afford, and to get people into jobs that pay enough so they can afford housing.
House the Homeless is located in Austin, TX, where the issues of work, wages, and the affordability of housing are particularly acute lately because of the Waller Creek project which is remaking the downtown area. HtH President Richard R. Troxell recently contributed to the public discourse about subcontractor wages, informing the County Commissioners and City Council about the Universal Living Wage campaign. The concept is staggeringly simple: Any person who performs a standard 40-hour-per week job ought to be able to afford shelter (including utilities), food, clothing, and at least public transportation.
It’s kind of amazing that anybody should need this explained. But subcontractor pay is not the only matter being discussed in Austin these days. Much more on Richard’s mind, and the minds of people experiencing homelessness in the city, is the redevelopment project. Matters seem to be poised at a cusp where the agencies serving the homeless can either seize a huge advantage or lose a great deal of their ability to benefit the destitute and the striving.
The Austin Chronicle‘s Ari Phillips interviewed Richard for a thoughtful piece about the Waller Creek project and its ramifications. We quote from that article:
Troxell estimates that about 1,000 homeless individuals use the creek corridor daily. Lately, he says, the city has been encouraging the police to keep the homeless out of the area, he believes to prepare for coming development. He imagines the future Waller Creek as much like the heavily commercialized San Antonio River Walk — homeless-free…
Troxell thinks nonprofits aiding the homeless need to work together and plan ahead to build resources and move their organizations elsewhere; otherwise, the business community will buy them out one at a time. ‘If they do get bought out, the homeless community will be run over by this wave of new energy that’s coming,’ he said. ‘A wave that will be very moneyed and very police-secure.’
By the way, Looking Up at the Bottom Line, by Richard R. Troxell, is now available in electronic formats, i.e. the Kindle and the Nook.
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Source: “Who Can Afford To Live in a Home?” (PDF), U.S. Census Bureau, 2006
Source: “Going With the Flow,” The Austin Chronicle, 01/11/13
Image by Tim Patterson.