Friday, May 13, 2005

Something's Gotta Give 

WARNING: This post has been deemed too complicated by some weekend viewers. Brains have been scrambled. Thinking caps have been broken. You have been warned.

I'm going to ask a personal question: What percentage of your income do you pay for housing? I'm not asking because I want to know, but because I want you to know. Here's the calculation: Along with your mortgage or rent payments, include in the numerator of this equation the cost of your household utilities and, if you are a homeowner, your property taxes. Your adjusted gross income, rather than your take-home pay, goes in the denominator. Calculate the percentage, but don't tell me your number yet.

If you are paying up to 30% of your income, your housing is considered to be affordable for you.

If you are paying over 50% of your income for housing, you have a "severe housing cost burden." And, if yours is a "working family" - one working the equivalent of a full-time job and earning anywhere from the federal minimum wage of $10,700 up to 120% of your area's median income - there are lots of housing researchers who are studying, and worrying about, families just like yours... and mine.

The area median income in King County, Washington, is $63,120 for a family of two. Not many architects around here make more than 120% of that amount. (When architects who design affordable housing joke that we're designing for ourselves, we're not always joking.) And, having done that little affordability calculation myself, I see that Paul and I are paying between 30% and 40% of our income for our old house. Our housing is not quite considered to be "affordable" for us, but neither are we "severely burdened."

Two weeks ago, the Center for Housing Policy released a study on housing affordability in the United States called Something's Gotta Give: Working Families and the Cost of Housing. The study begins:
Something’s Gotta Give: But What?

Struggling with severe housing cost burdens is not supposed to be so commonplace. General rules of thumb for housing say that about one-third of income is what most working families can afford. But at last count, at least 13 million families in America paid more than half their income for housing and more than 4 million of these families worked full-time jobs.

Yet, we may be underestimating the extent of the problem. Housing is usually the largest and least flexible item in the family budget. How do working families — i.e., those that earn between minimum wage and 120 percent of local median income — cope with high housing costs? Do they put off buying food or healthcare and other necessities? Do they run up a mountain of debt? Do they live long distances from work? And if working families are devoting so much of their expenditures on housing, or on housing plus transportation, what does this mean for the quality of life of these families, especially their children?

To answer these questions, researchers looked at the federal government’s Consumer Expenditure Survey, which provides "line items" of household budgets — the shares of income and expenditures spent on housing and other necessities. A study of the 2002 National Survey of America’s Families provided an in-depth look at the "bottom line" of how individual families are affected by high housing costs. These studies were supplemented by a focus group of working families from around the country.

So what did the researchers find? Working families that pay more that half of their income for housing are, not surprisingly, reducing expenditures for other essentials: food, clothing, health care. The greatest reduction in spending is for transportation.
Working families that spend more than half their total household expenditures on housing put 7.5 percent of their expenditures toward transportation. Contrast this with working families in affordable housing spending 30 percent or less of their total expenditures. Their expenditure shares for transportation are more than three times higher, or nearly 24 percent of their household budget.

These are interesting statistics. One family pays 50% of household expenditures for housing and 7% for transportation; another family pays 30% for housing and 24% for transportation. These families are paying 57% and 54%, respectively, for housing and transportation. Is one family really doing any better financially than the other?
Commuting is a common strategy for working families to cope with high housing costs. When the cost of transportation is considered together with the cost of housing, the percentage of working families paying more than half their total expenditures increases five-fold from 8.3 percent to 44.3 percent of working families. Calculations show that working families spend 77 cents on transportation for every dollar decrease in housing costs. Although not all of family transportation cost is attributable to commuting, the journey to work from less expensive housing likely accounts for a substantial part of it.

This bears repeating: For almost half of America's working families, paying for housing and transportation takes more than half of their monthly financial resources.

Because my office is only 1.5 miles from our house, Paul and I don't have car payments, and we don't drive long distances regularly, our transportation costs are fairly low. How much does the cost of commuting and other transportation add to your family's "fixed" monthly expenses? Is the length of your commute related at all to the cost of your housing?

I haven't finished reading all of the methodology and conclusions of the report. More on that later.