What is affordable housing?
Historically, people tended to pay for their housing using one-third to one-quarter of their monthly gross income. Given this historic equation, housing was considered “affordable.”
However, over time and for a number of reasons, the cost of housing as a percentage of a person’s monthly gross income has grown. In effect, the cost of housing has become less and less affordable. Today, it is not uncommon for people to allocate as much as seventy-percent of their monthly gross income to paying for their housing.
Hence, once the relationship of a person’s monthly housing payments go beyond the traditional one-third to one-quarter of their monthly gross income, their housing becomes “unaffordable.”
Who needs affordable housing?
The demographic profile of people needing affordable housing includes every demographic profile – from old people to young people, etc.
From an economic standpoint, the people needing affordable housing breaks out as follows:
Government Dependent People: There is a large percentage of the population that do not make sufficient money to pay for housing. There are many people working with a wide variety of social service agencies in need of help with their housing. In the United States, the Section-8 housing program was designed to offer permanent long term support for people.
Working Class People: There are many people that have a job but the job does not generate sufficient monthly income to support one-hundred percent of their monthly housing expense. They are often referred to as “the working poor.” Advocates for these people are trying to establish a “Living Wage” so they will be better equipped to pay their monthly housing expense.
Middle Class People: There are many middle class people that make a good monthly income that also struggle to find affordable housing. Over the years, the price of housing has risen at a much faster pace than wages and, as a result, it has become very hard for middle class people with good monthly income to afford housing. For example, a middle class family living in New York City fifty years ago could afford housing. Today, New York City, like many other urban centers, have become so populated that the price of housing has risen out of the reach of many middle class families.
What are the reasons for the Affordable Housing Crisis?
There are a number of factors that explain the Affordable Housing Crisis. Here are just a few:
- People are unable to earn an income. The fact of the matter is that there are many people in any society that just do not earn a monthly income or do not earn a sufficient monthly income. The social service agencies around the world are working with all types of people to help them with their daily living requirements. For example, a disabled veteran may have a number of physical problems that make it impossible to work.
- Over-crowded urban areas. The law of supply and demand is real. Urban areas that are the center of many jobs continue to attract more and more people. As a result, the price of housing rises with the greater demand for housing. It is simple economics.
- Natural Disasters. There have been a number of natural disasters – such as the fires in northern California – that have eliminated a large supply of housing in a geographic region. Given the resulting smaller supply of available houses, the price for housing rises.
- Cost-push Inflation. The global economy I growing and, as a result, putting greater demands on the limited supply of raw commodities used to build housing. Plus, the cost of labor has risen over the years. The net result of these two factors has been to increase the cost of housing. The cost of new housing is greater than the cost of the existing housing inventory.
- The need to change zoning codes. There is a need to change many zoning codes in order to make room for new innovative housing alternatives. For example, there is a growing trend by people to purchase or rent “tiny homes.” However, most cities do not recognize “tiny homes” as an acceptable option and, as a result, their zoning code regulations work against the development of more “tiny homes.”
- The cost of investment capital. Investors direct their money to the opportunities that provide the greatest return on their investment. If investors do not see the opportunity to invest in more and more housing, they will not invest. The inventory of housing will not expand at a faster pace if the existing investment constraints remain. Governments, at every level, have to create better financial incentives in order to attract more investment into the affordable housing area.