by Elizabeth Blessing | August 10, 2020
Affordable housing family under umbrella next to house

What Is Affordable Housing?

Affordable housing is frequently defined as housing that is affordable based on the income of a household’s members. Housing experts in the United States say housing is affordable if people living in the same household spend no more than 30% of total gross income on housing.

The reason for the 30% income guideline is this theoretically should leave the household enough money left to pay for other essentials. The other 70% is available to spend on food, clothing, health care, transportation, education, and savings.

Basically, the rule means that after paying for housing costs people should have enough money to pay for all the other necessities that make life livable and enjoyable. (Oh, and let’s not forget taxes, which will also need to be deducted from gross income.)

As you can see, that 70% really needs to stretch to cover a whole lot of living expenses!

So, in theory, the 30% spent on housing each month sounds like a nice budget rule. In reality, though, many households spend much more than 30% of their income on housing costs.

In some high-cost areas, people routinely spend 40%, 50% or more of their income for a place to live. For these people, their housing is not affordable, but decidedly unaffordable. These households may be forced to cut back on necessities or go into debt to pay for housing.

For these households, the idea of “saving for a rainy day” goes out the window, as many are living paycheck to paycheck.

We can see the stark reality of what this means when considering how the COVID-19 pandemic has impacted housing. According to the Aspen Institute, 30 to 40 million renters in America are at risk of losing their homes by the end of 2020.

A Visual Representation of Affordable Housing

For over 30 years, the National Low Income Housing Coalition (NLIHC) has published their annual report, Out of Reach, documenting the gap between what people earn and the cost of housing.

They say a picture is worth a thousand words. So, let’s take a close look at one of the more startling visual representations of how unaffordable housing has become in the U.S. as shown in Out of Reach.

This map shows by state the hourly wage a full-time worker (40 hours a week, 52 weeks a year) must earn to afford the fair market rent for a two-bedroom home without paying more than 30% of their income.

U.S. map shows 2 bedroom rental housing wages for 2020
Click to Enlarge Image

Not too surprisingly, you need a high hourly wage in the expensive North East and West Coast just to afford a modest (not lavish, according to the NILIHC) two-bedroom home. You’ll need to earn $32.53 an hour in New York, $35.52 an hour in Massachusetts, and $36.96 in California.

Certainly, this is well out of reach for someone who is earning the federal minimum wage in the U.S., which as of 2020 is $7.25 an hour (the same amount it’s been since July 2009). With few exceptions, a couple each working full-time making minimum wage still couldn’t afford a two-bedroom home.

And while some state minimum wages are higher (California, for example, is $12 an hour), in many cases it’s still not enough for a couple to afford a two-bedroom apartment without spending more than 30% of their income.

Let’s look at how many hours at minimum wage somebody would need to work to afford a one-bedroom home…

United States map shows minimum wage for one bedroom rental in 2020
Click to Enlarge Image

Affordable Housing and the “Housing Wage”

Are you shocked by how many areas of the country somebody making minimum wage would need to work 61 to 80 hours per week to afford a one-bedroom apartment? And what about those dark blue areas? Can you imagine working 80 hours or more per week?

You might be tempted to think that affordable housing is just a low income, minimum wage problem. However, that’s not the case. People in occupations that pay well above minimum wage struggle with housing costs, as this “housing wage” chart illustrates:

Graph shows jobs that pay less than housing wage in U.S.
Click to Enlarge Image

The Median Income Rule for Affordable Housing

Another affordable housing definition brings in the concept of affordability for the median income in a given area. This definition takes into consideration the fact that incomes can vary dramatically within districts of the same city.

Median household income for an area is the amount that acts as a dividing line. Half the households in the area will have an income over that amount, and half will have an income below. By establishing a median income for a given area, housing programs can then determine affordability guidelines for the area.

For example, housing lotteries run by government agencies often stipulate that people applying for an affordable housing unit must earn no more than a certain percentage of the area’s median household income.

Income requirements for a housing lottery might read something like these examples (paraphrased and adapted from the requirements listed on various affordable housing sites):

Example 1:

Forty percent of the units are for households earning up to $75,000 yearly (or 80% of the area’s median income). Sixty percent of the apartments are reserved for those earning between $25,000 and $60,000 a year. Depending on household income, monthly rents for the two-bedroom units range between $575 and $1,400.

Example 2:

To be eligible to live here, residents’ incomes must be less than 50% of the area median income (AMI). Twenty percent of the units will be set aside as workforce housing for teachers and first responders.

Example 3:

The new building has 118 new units of affordable housing. They range from studios to three-bedrooms for families earning between 60% and 130% of area median income. This is roughly $31,000 to $143,000. The community includes about 7,000 square feet of childcare, community, and retail spaces.

The Bottom Line

Housing experts cite many reasons for the lack of affordable housing. Some feel government is to blame by implementing land use laws, rent control, zoning restrictions, and taxes that discourage development. Some blame the NIMBYs (short for “not in my backyard”) who petition against new housing developments in their neighborhoods.

Others say demographic shifts due to where jobs are located is the culprit in certain large cities. Some feel it’s simply a supply and demand problem. Build more housing and the prices will go down. And many note disparities in housing caused by redlining practices that have impacted the ability of minorities to buy homes.

No matter the reasons, the lack of affordable housing impacts the ability of people to achieve economic freedom and prosperity. Safe and decent housing is quite literally the foundation upon which people build their lives. And, as we’ve seen with the coronavirus pandemic, it’s essential for good health.

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