The High Costs of High Cost Housing Michael C. Lens UCLA Luskin School of Public Affairs Department of Urban Planning 1

Definitions Housing affordability commonly measured by looking at the percent of households (or renters) spending more than 30% of their income on rent. – “Rent burdened” “Severely rent burdened” – spending more than 50% of income on rent. Both measures combine housing costs and household income. 2

Trends in Rent Burden Stagnating incomes and rising land costs have led to steadily increasing rent burdens over the past few decades. Accelerated increases during and since Great Recession – Housing bubble  rapidly rising rents  slow rent decreases during and since Recession. – Large income losses during G.R., slow recovery 3

Great Recession Bean (2012): median rental prices rose 3 percent from 2007 to 2010, median rental household income dropped 6 percent. Four year period over Great Recession saw 44% increase in the number of severely rent burdened households (HUD 2013) 4

Percent of renters devoting more than 30% of income to rent, s s All renters23%26%34%37%40%52% Poor renters 55%64%68%71%77%81% 5 Sources: Quigley and Raphael (1994); American Community Survey, Desmond (2013) Average renter spends 31% of income on rent Average poor renter spends over 64% of income on rent

California <$20,000$35,000-49,999>$75,000 U.S.89%39%5% California92%64%9% LA County92%64%9% Sacramento MSA92%55%4% SF-Oakland MSA88%70%9% 6 Source: Kroll (2013) Percent of Renter Households Spending More than 30% of Income on Rent, 2010

Low-Income Renters Low on Options In the vast majority of markets, there are many more low-income households than units that would be affordable to them. – Over 3 low-income households per unit at 30% of income nationwide. – Almost 1:1 ratio between number of low-income households and units at 50% of income nationwide. In LA metro that is a 2:1 ratio. Huge increases in renter households in 2010s. 7

Potential Social Costs Households have less to spend on other necessities Rising eviction rates and housing instability Higher-cost neighborhoods out of reach – Neighborhood effects – Concentrated poverty Higher-cost cities out of reach Regional economies depend on diverse labor force 8

Spending on Necessities Compared to not-burdened renters, severely cost-burdened renters (50% of income on rent) spend: – 60% less on transportation – 55% less on healthcare – 38% less on food – 42% less on retirement and pensions On average these households have $550/month to spend on all other expenses. 9

Eviction Data is spotty, but all evidence points to a staggering rise in evictions in recent decades. Nationwide estimates are that between 2 and 6% of renters that moved in the last year did so because of an eviction. Milwaukee – roughly 16,000 people evicted annually in a city of 105,000 renter households. Big hit for city budgets and housing instability has profound impact on household outcomes. 10

Neighborhood Effects As housing becomes more costly, high- amenity neighborhoods become out of reach. – Income then determines the quality of available schools, access to jobs and transportation, crime and safety, the socioeconomic status of your neighbors. If affordability problems exacerbate concentrated poverty, likely to increase aggregate crime, negative outcomes for poor. 11

How Does Neighborhood Matter? Growing evidence that living in distressed neighborhoods bad for: – Physical and mental health – Long-term outcomes in schooling and employment – Upward economic mobility 12

Other Location Considerations Some metro areas (i.e. Bay Area) are comparatively good places to be low-income. – Lots of jobs, good transit, evidence of increased upward economic mobility. Massive differences across metro areas in terms of economic mobility. What happens when these are out of reach? – Recent evidence shows that population flows to high-income areas is starting to slow, particularly among low-skilled workers. 13

Effects on Regional Economies Are nurses/teachers/construction workers increasingly priced out of some metros? Thriving economies require workforces with diverse skill sets and occupations. 14