Pluralistic: The housing crisis considered as an income crisis (24 Oct 2024)


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A cowboy-hatted, tuxedoed, cigar-smoking Ronald Reagan sits at a coffin/table with the angel of death, which is gesticulating wildly. Reagan holds a green Monopoly house; several more, and a hotel, rest on the coffin before him. The hazy edges of the scene give way to a sepia-tinted, vintage aerial photo of the Levittown suburbs.

The housing crisis considered as an income crisis (permalink)

A paradox: in 1970, everyday Americans found it relatively easy to afford a house, and the average American house cost 5.9x the average American income. In 2024, Americans find it nearly impossible to afford a house, and the average American house costs…5.9x the average American income.

Feels like a puzzler, right? Can it really be true that the average American house is as affordable to the average American earner as it was in 1970? It is true, as you can see from Blair Fix's latest open access research report, "The American Housing Crisis: A Theft, Not a Shortage":

https://economicsfromthetopdown.com/2024/10/23/the-american-housing-crisis-a-theft-not-a-shortage/

Fix also points out that is even more true of rents than it is of house prices. The ratio of rent to average income has actually fallen slightly since 1970. Rents are also, in some mathematical sense, "affordable."

Now, those of you who are well-versed in statistical card-palming will likely have a pretty good idea of the statistical artifact at the root of this paradox: the word "average." If you remember your seventh grade math, you'll recall that "average" has more than one meaning. Sure, there's the most common one: add several values together, then divide the total by the number of values you added. For example, a nonzero number of people have one or zero arms, so the average human has slightly fewer than two arms.

That average is called the "mean." The mean US wage is pretty robust: $73,242/year:

https://fred.stlouisfed.org/series/A792RC0Q052SBEA/1000

But the majority of Americans are not earning anything like $73k/year. Since the Reagan years, the number of Americans living in poverty and extreme poverty has climbed and climbed. And while their declining income sure drags down that average, it's dragged way, way, way up by another group of Americans – the ultra-rich.

You see, as Fix writes, back in the Reagan years, America initiated an experiment in redistribution. Reagan enacted policies that moved most of the nation's wealth from the great majority of working people to a tiny minority of people who ended up owning pretty much everything. Throw their income into the mix, and the average American's income is sufficient to finance the average American home, with plenty to spare.

In other words, this isn't an "average human has fewer than two arms" situation, it's more like a "Spiders Georg" situation. Spiders Georg is a Tumblr meme about a guy who eats 10,000 spiders every day and is thus single-handedly responsible for the (false) statistic that the average human eats two spiders a week:

https://en.wikipedia.org/wiki/Spiders_Georg

The American rich – Reagan's progeny – are the Spiders Georg of house prices. By hoarding the great mass of American national wealth, they create a statistical mirage of affordable housing.

Now, that's interesting, but where Fix goes next with this is even more fascinating. If the average price of housing (relative to average income) has stayed fixed since 1970, then it follows that the price of housing isn't being driven up by a problem with supply. Rather, these numbers suggest that America has enough housing, it's just that (most) Americans don't have enough money.

If that's true – and I have a couple of quibbles, which I'll get to in a sec – then the most common prescription for solving American housing (building more of it) is somewhat beside the point. For Fix, using public funds to subsidize cheaper housing is like using public funds to pay for food stamps for working people whose wages are too low to keep them from starving. Sure, we should do that: no one should be without a home and no one should be hungry. But if working people can't afford shelter and food, then we have a wage problem, not a supply problem.

Fix – as ever – has a well-thought through, painstakingly documented "sources and methods" page to back up his conclusions:

https://economicsfromthetopdown.com/2024/10/23/the-american-housing-crisis-a-theft-not-a-shortage/#sources-and-methods

And while Fix acknowledges that reversing the mass transfer of wealth from working people to their bosses (and their bosses' idle offspring) is a big lift, he rightly wants to keep the question of wages (rather than housing supply) front and center in our debate about why so many of us are finding it hard to keep a a roof over our heads. We need progressive taxation, higher minimum wages, protection from medical and education debt, and hell, why not a job guarantee?

https://pluralistic.net/2020/06/25/canada-reads/#tcherneva

I love Fix's work, and this report is no exception. He does it all in his spare time. Some nice progressive think tank should give him a grant so he can do (a lot) more of it.

That all said, I do have a quibble with his conclusion about the adequacy of the American housing supply. In California, we have a shortage of 3-4 million homes, a number arrived at through the relatively robust method of adding up the number of California families that would like to have their own homes and subtracting the number of homes available near those families:

https://en.wikipedia.org/wiki/California_housing_shortage

How to explain the discrepancy? One possibility is that the price of housing is artificially low, because more than 181,000 people are homeless here. Hundreds of thousands of more people are living in overcrowded housing, with multiple families inhabiting spaces intended for just one (or even a single person). If all of those people were competing for housing, the price might rise even higher.

Think of the people who have given up looking for work – because they're not in the workforce, wages go up. If they were competing in the labor market, wages would fall. Maybe all those people would prefer to have a job, but they're missing from the statistics.

That's one theory. Another is that we're getting tripped up on averages again here. California does have some towns with many vacancies, extra supply that is pushing down prices; it's also got many places with far more people who want to live there than there are homes for. It's possible that there's enough supply on average across the states, but – as we've seen – averages are deceptive.

Ultimately, I think both things can be true: we have a wage problem and we have (many, localized) supply problems. Both of these problems deserve our attention, and neither is acceptable in a civilized society.

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This day in history (permalink)

#20yrsago Why market-forces can’t correct DRM https://web.archive.org/web/20041109090959/http://www.theinquirer.net/?article=19246

#15yrsago Awful 1962 marriage textbook speaks out against feminism, communism and interracial dating https://www.amalah.com/photos/when_you_marry/index.html

#10yrsago UK Tories propose life sentences for using a computer to “damage the economy” https://www.theguardian.com/law/2014/oct/23/computer-users-damage-national-security-face-jail

#5yrsago BBC launches a Tor hidden service mirror to help people evade their countries’ censoring firewalls https://web.archive.org/web/20191025120544/https://www.theinquirer.net/inquirer/news/3083006/bbc-news-tor-dark-web-site

#5yrsago The Youtubers’ union just wants Google to give them the rulebook https://www.wired.com/story/youtube-union/

#5yrsago An important, elegant thought experiment on content moderation regulation https://twitter.com/Klonick/status/1186718183513907202

#1yrago Microincentives and Enshittification https://pluralistic.net/2023/10/24/cursed-bigness/#incentives-matter

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Upcoming books (permalink)

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Colophon (permalink)

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