By Christopher Farrell The numbers are striking. In an era of unprecedented prosperity, 1 in 7 American families spends more than half its income on housing, or eats and sleeps in a dilapidated shelter. "Affordable housing" has become a contentious political battle cry in some major metropolitan areas, such as Tampa, Minneapolis/St. Paul, and San Francisco.
Spend time in almost any big American city, and worries about the shortage of decent, affordable housing are apparent from reading the local newspaper and listening in on everyday conversations among friends. Rents are skyrocketing with low vacancy rates. And few new apartments are being built for the low- to moderate-income market. Even though the homeownership rate is at record levels, high home prices are now a steep financial barrier to new buyers. Actually, the economics of housing is a far easier problem to solve than the politics.
Many of the nearly 14 million families facing housing difficulties are on welfare, earn the minimum wage, or bounce in and out of poverty. Yet some 3 million are moderate-income households with full time jobs, according to "Housing America's Working Families," a recent Center for Housing Policy study. "The purpose of the report is to say that the anecdotes add up to a national crisis," says Michael A. Stegman, one of the study's three authors and professor of public policy and business at the University of North Carolina at Chapel Hill. (You can download the study at the Mortgage Bankers Association of America's Web site at www.mbaa.org.)
HEED THE SIGNAL. Perhaps "housing squeeze" is a better term than crisis. Policymakers and scholars are now paying far more attention to housing concerns, especially among the working poor. A ferment of ideas and solutions are being tossed around city halls and academic conferences -- from encouraging employers to offer employees subsidized housing, to new government incentives for developers that build low-income dwellings.
A close look at the supply-and-demand equation suggests the affordable housing squeeze is relatively easy to fix. For one thing, much of the concern is misplaced. Rising rents and home prices are a market signal that should be heeded. For instance, nosebleed rents and steep housing prices in California's Silicon Valley are telling businesses and workers to go elsewhere to build their companies and find employment openings.
Any artificial limits on that market "signal" simply means that an area like Silicon Valley will get too crowded, while economic expansion in cheaper parts of the country gets delayed. Indeed, away from some of the New Economy's crown-jewel regions, plenty of reasonably priced apartments and homes can be found. Indeed, a country as large as the U.S. has scads of affordable housing -- just not in San Francisco or New York.
BUILDING BARRIERS. On the market's supply side, the major hurdles are the formidable restraints local governments have erected against new apartments and housing. This is especially true in communities with strict zoning laws and a passion to contain urban sprawl. Portland's widely admired urban-growth boundary policy has also made it one of the country's least affordable housing markets. "Green stuff and antisprawl are barriers to increasing the supply of housing," says John Quigley, economist at the University of California, Berkeley. "It's very easy to rally around a distaste for sprawl, but it really means rallying to create barriers to increasing the supply of housing."
On the demand side, many economists favor increasing the supply and worth of housing vouchers good anywhere in the country, rather than extending subsidies to developers, landlords, or a particular neighborhood. A housing voucher is a capped or restricted subsidy that gives a family or individual the aid, rather than a real estate developer or landlord. Vouchers don't add to the supply of housing, but they are extremely efficient at increasing affordability. For instance, the federal government spends 24% more to construct a subsidized rental unit than to offer a tenant a voucher, according to research by George Peterson of the Urban Institute.
An intriguing new program will allow housing rental vouchers to go toward mortgage payments. "Let's make housing vouchers more widely available than they are since they are attached to a person rather than a place," says Ed Glaeser, economist at Harvard University. In the landmark 1961 book The Death and Life of Great American Cities, Marshall Shaffer of the U.S. Public Health Service was quoted as constantly reminding himself in the 1950s, "A fool can put on his own clothes better than a wise man can do it for him."
Solving the distress surrounding the lack of affordable housing won't be politically easy. The trade-offs are difficult. Rapid economic growth does upend the quality of life in many communities. The debate over what to do about urban sprawl is a work in progress -- complicated and multifaceted. Policymakers never seem to be able to anticipate and react quickly enough to rapid growth. Nevertheless, rather modest changes in supply constraints and an increased reliance on vouchers could go a long way toward substantially reducing the problem. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over National Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BW Online