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The Link Between the Affordable Housing Deficit and Homelessness

September 15, 2019
K.Y. McChesney wrote a now-famous analogy between homelessness and a game of musical chairs. The people playing the game are low-income households and the chairs are affordable housing units. When the music stops, all of the players rush to claim a chair. If there are more players than seats, some players are left standing. In the same way, if there are more low-income households than available affordable housing units, some people are left homeless. In the current US game of “affordable housing musical chairs,” more players are being added and more affordable housing chairs are being removed – leaving more people standing when the music stops.[1]

In order for housing to be deemed affordable, no more than 30 percent of gross income can be spent on total housing costs, including rent, mortgage, upkeep, and utilities.[2] Under this framework, the United States is currently experiencing an affordable housing crisis. From 2013 to 2015, there was an increase in renters with worst case housing needs, meaning these consumers have very low incomes and “do not receive government housing assistance and […] pay more than one-half of their income for rent, live in severely inadequate conditions, or both.”[3]

There is a deficit of affordable housing stock combined with an increasing need for low-income affordable housing. There are many causes of this shortage. In Philadelphia, for example, one of the main reasons is the decline in low-income households earnings coupled with the increased cost of housing. Shifts in Philadelphia and the US’ labor markets towards more part-time and temporary unemployment has particularly hurt the earnings of low-income households. Furthermore, the value of minimum wage has deteriorated, leaving many without a living wage.[4]

There has been a slight decrease in the supply of affordable housing units in the housing market in conjunction with a large increase in the number of families who have worst case housing needs and thus need low-income affordable housing.[5] As should be expected, there is a high rate of competition in the market for affordable housing. While this makes it difficult for anyone to obtain affordable units, it particularly hurts low-income renters who may have less time to search for units and less financial leverage in negotiating rents. Also, just because units that are affordable to low-income renters are available does not mean that those units will be occupied by low-income renters. Affordable rental units are harder to find and more likely to be occupied by higher income renters. Higher-income renters occupy 43.3 percent of the units affordable to extremely low-income renters.[6] Affordable rental units are also the least likely to be vacant, which only increases their market demand, putting more power in the hands of landlords to inflate rent.[7] Thus, it is not a surprise that, nationally, less than a third of very-low income renters were able to avoid severe housing problems in the unassisted private rental market in 2015.[8]

From 2013 to 2015 the overall number of rental units increased; however, the number of rental units affordable to very low-income renters decreased.[9] The lower the income of potential renters, the fewer the number of housing units that are available and affordable to them. For every 100 extremely low-income renters, only 66 affordable units exist. Of these 66 affordable units, only 38 of them are both affordable and available. Of these 38 units, only 33 are physically adequate, leading to the conclusion that there are only 33 affordable units for every 100 extremely low-income renters. While there appears to be a clear lack of housing options, the problem is not a lack of units. In fact, with perfect allocation in the private housing market, there are enough units to provide affordable housing.[10]

This inefficient allocation is caused by people with higher incomes occupying rental units that would be affordable to people with lower incomes. Thus, people with higher incomes are renting a large number of rental units affordable to low-income renters, decreasing the supply of low-income affordable units for these individuals. This leaves high-income affordable units as the only options available to low-income renters. Some of these high-income affordable units remain vacant, while others are filled by low-income renters who struggle to pay the rent. This can be seen in Philadelphia, where eighty-three percent of renters and sixty-four percent of homeowners pay thirty percent of their income or more for their housing. Seventy percent of these low-income households that pay thirty percent or more of their income for housing actually pay fifty percent or more of their income for housing, illustrating how low-income renters are being forced to pay rents affordable only to higher-income renters.[11]

Image: Gap in affordable housing units for low-income households in Philadelphia. Sourc...Image: Gap in affordable housing units for low-income households in Philadelphia. Source: University of Pennsylvania.

There is a clear link between a large number of people who are struggling to pay rent and homelessness. According to Cushing N. Dolbeare, an expert on low-income housing, the “‘affordability gap’ is the underlying cause of homelessness.”[12] As real incomes continue to drop, real rents continue to rise. The result is a growing number of renters, particularly low-income renters, spending a higher percentage of their income on housing. This causes renters, especially low-income renters, to occupy units with rents that require large portions of the renters’ incomes. Dolbeare wrote that when we consider how many people experience short-term episodes of homelessness, the link between housing unaffordability and homelessness becomes clear. Since so many people are living in economically unstable units, constantly unsure of whether or not they will be able to pay the month’s rent, it is only logical that there will also be large numbers of people who experience short periods of homelessness.

The musical chairs example shows the significance of the affordable housing deficit as those left standing when the music stops, or those unable to obtain affordable housing, are at an extreme risk of experiencing homelessness. As the number of available affordable housing units continues to decrease, more people will be left wondering where they will live. Some will struggle to pay rent in housing that is not affordable. Others will begin to experience homelessness, hoping that they can eventually find affordable housing and exit the cycle. Recent market trends, however, underscore the difficulty of this task. In order for people to exit the cycle of homelessness and simply never enter the cycle to begin with, changes in housing policy are needed. When the music stops in this particular game of musical chairs, everyone needs to be able to find a seat.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1]https://journals.sagepub.com/doi/pdf/10.1177/0002764294037004006, p. 505

  [2]https://repository.upenn.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1000&context=cplan_papers, p. 6

  [3]https://www.huduser.gov/portal/sites/default/files/pdf/Worst-Case-Housing-Needs.pdf, p. ix

  [4]https://repository.upenn.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1000&context=cplan_papers, p. 6

  [5]https://www.huduser.gov/portal/sites/default/files/pdf/Worst-Case-Housing-Needs.pdf, p. 22

  [6]Ibid. p. 13

  [7]Ibid.

  [8]Ibid.

  [9]Ibid.

  [10]Ibid. p. 14

  [11]https://repository.upenn.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1000&context=cplan_papers, p. 4

  [12]https://scholarworks.wmich.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=2047&context=jssw, p. 151

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