This week, Nick and Goldy are joined by Whitney Airgood-Obrycki from the Joint Center for Housing Studies at Harvard University to discuss the urgent issue of housing affordability in the United States. Despite its status as the wealthiest country in the world, America is grappling with a housing crisis, marked by record-high levels of homelessness and a growing number of individuals spending between 30% to 50% or more of their income on rent. Together, they unpack the housing affordability crisis, discuss how it contributes to the perception of a struggling economy, and explore the innovative solutions local governments are proposing to address it.
Whitney Airgood-Obrycki is a Senior Research Associate at the Joint Center for Housing Studies at Harvard University. She conducts research on affordable rental housing for low-income households and served as the project manager and lead author of their recent report on America’s Rental Housing. Dr. Airgood-Obrycki’s latest research includes affordable housing policy, housing affordability measures, rental housing markets, and suburban neighborhood change.
Twitter: @airbrycki, @Harvard_JCHS
Further reading:
Montgomery County has found a way to reinvigorate public housing in America
What if public housing were for everyone?
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
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Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
President Joe Biden:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle out economics is the answer.
President Joe Biden:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Whitney Airgood-Obrycki:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Speaker 4:
Where are you podcasting from today, Nick?
Nick Hanauer:
I’m podcasting from London, England.
Speaker 4:
Oh, man. Sometime, Nick, we’re going to have to do an episode about the plight of the home full.
Nick Hanauer:
Yeah, that’s right.
Speaker 4:
Your horrible life on the road from home to home to home. But this episode is not that.
Nick Hanauer:
Yeah, no. Today we’re going to talk about the opposite, the terrible challenge of housing affordability in the United States. It’s a global problem, but we’re probably doing it worse than most places.
Speaker 4:
Well, certainly worse than most wealthy countries. And we are the wealthiest country on earth, and yet we have homelessness at record highs and our housing affordability crisis at a record high. More people than ever before are paying 30, 50% or more of their income in rent and have very little money left over at the end of the month for other expenses.
Nick Hanauer:
This is one of the reasons no doubt, that so many people feel right now that the economy isn’t doing well, even though it is because on a relative basis they’re paying more in rent. Their wages may have gone up, but not very much. And everybody is squeezed. Everybody is squeezed.
Speaker 4:
And particularly at the low end, it’s the lower income, the bigger a bite this takes out in terms of what you have left over at the end of the month to spend on other expenses. And man, the numbers look grim.
Nick Hanauer:
They do. Well, and we know the numbers look grim because with us today is Whitney Airgood-Obrycki, who’s a senior research associate at the Joint Center for Housing Studies at Harvard University. And she and her colleagues have just published this frankly fairly massive report on rental housing and affordability. It is long, it is detailed and it is depressing because it’s just so clear that the country has not adequately addressed this problem. And the longer we as a country refuse to address this challenge at scale, the worse it gets.
Speaker 4:
Well, why don’t we talk to Whitney?
Whitney Airgood-Obrycki:
I am Whitney Airgood-Obrycki. I’m a senior research associate at the Joint Center for Housing Studies of Harvard University. I mostly work on issues related to rental housing and I’m the lead author of our signature report, America’s Rental Housing. Our latest edition was 2024. It came out in late January.
Speaker 4:
So we read through the report. It’s kind of grim. Why don’t you give us the top line, just set the scene for us.
Whitney Airgood-Obrycki:
Yeah, so I’ll say first of all that we kind of have a moniker of the Joint Center for Gloom and Doom because the housing market often is a grim story. And this case, it was really a pretty bleak year to be writing about rental housing. We do this report every other year and we’re really trying to understand the state of rental markets and what’s going on with renter households. And so we’re always looking at issues of what’s going on with demand and characteristics of renter households, how multifamily properties are performing and what construction activity looks like.
And one of the biggest things where we get some of the bleakest stories are documenting the affordability crisis that exists and then also thinking about policy challenges, which has for a long time included the shortfall in federal rental subsidies. And so we always work within this basic structure, but a lot of the headlines this year were really highlighting how bad things are at the moment.
So what we were seeing was that rent growth had started to slow finally after these record high increases during the pandemic, but un-affordability was still at its worst that it’s ever been in recorded history. We saw a record high number of cost burdened renter households, about half of all renters are now cost burdened. And that had worsened considerably just during the pandemic.
I think the other two big headlines where that homelessness hit an all time high, including unsheltered homelessness also at a record high. And then we just see this range of investment needs that the rental stock has. So just getting the stock up to basic adequacy standards, making it more energy efficient, making it more resilient to climate change, and those needs all have to be balanced with this huge challenge of affordability.
Speaker 4:
So let’s get some terminology settled for folks who don’t know, when you talk about cost burdened or severely cost burdened, we’re talking about 30% of pre-tax income is what’s considered cost burdened and above 50% is what’s considered severely cost burdened. Is that right?
Whitney Airgood-Obrycki:
That’s correct.
Speaker 4:
Where do those numbers come from? Because honestly, 30% feels high.
Whitney Airgood-Obrycki:
There’s a long history, it’s been documented in a really great brief from several years ago by the National Low Income Housing Coalition, and it’s a history that goes back about a century. So in the 1920s, the rule of thumb was it’s a week’s wages for a month’s rent, so that’s 25% of income on housing. And we see this start to be enshrined in housing policy in the 1930s with the Housing Act that was in relation to who sort of qualified for public housing programs. That effectively put the rent cap at about 20% but in practice, a lot of public housing authorities were going up to 25% when they were figuring out who was eligible for public housing. And over time, this has shifted upward. So one of the challenges of the public housing program that sort of doomed it from the very start was that these housing authorities were expected to cover all of the ongoing costs of the maintenance, the operation of public housing units, completely from rent revenues.
So they were raising rents to keep up with these costs, but then the households they’re trying to serve are paying a higher and higher share of their income. So then 25%, which was used as sort of the maximum amount, it sort of flipped and it became the minimum amount that they were spending. So this keeps accelerating. These assisted households are paying more and more of their incomes on rent and by the 1960s we start to see this get flipped again and say, “No, this should be a maximum amount that people in assisted housing are paying.” A lot of people point to the 1969 Brooke Amendment as where this gets really enshrined in housing policy at the 25% standard.
But then in the 1980s did we get another amendment that raises that cap to 30%. And I don’t know all the politics around that, but it’s likely done in part because the government needs to spend less than to assist these households to get them to 30% than to 25% and they’re already severely underfunded. So in some ways it’s a cost savings mechanism, but from that point on sort of becomes enshrined in how we think about cost burdens and housing costs.
Nick Hanauer:
So Whitney, why did rents go up so dramatically during the pandemic and how much in aggregate did they go up?
Whitney Airgood-Obrycki:
We really saw an acceleration of pre-pandemic trends that just really blew things through the roof. So we had this condition before the pandemic where we weren’t really building enough supply. We’ve had quite a few people locked out of home-ownership for a while, and we’ve also seen the entrance of higher income renters staying in the rental market longer. That puts pressure on things. During the pandemic, you have this pressure cooker though, so early on things sort of just stop. We see a slowdown in demand, we see people sort of waiting to see what’s going to happen. And then if you’re living with a roommate and you’re in the middle of this virus and you don’t want to get COVID and you don’t want to be working from home with somebody in confined spaces, we get this surge in household formations for the first year of the pandemic. So you start to see-
Nick Hanauer:
People wanted to be alone?
Whitney Airgood-Obrycki:
… You start to see households breaking up. So some of the evidence in the data is that you see some household dissolution, some household formation as a result. And what that does then when you have a constrained supply environment, is that landlords can bid up rents quite a bit. And we started to see in the professionally managed market, which is about a quarter of the rental market and is sort of the upper end of it, but it’s where we have good timely data, asking rents were up by 15% year over year at the peak. So we have this really fast acceleration due to just a record high demand that we hadn’t seen before.
Speaker 4:
Did we see as high an increase at the low end of the market?
Whitney Airgood-Obrycki:
We don’t have a ton of information about the loan to the market, so we’re not entirely sure. Yeah, the one thing about the rental market is that the data are really hard. We don’t have a lot, right? It’s not like the homeowner market in some ways where you know what things are selling for when things are changing hands. There’s a lot more transparency on the homeowner side, things in the rental market. We have little bits and pieces that make it hard to understand what is happening in the market as a whole at times.
Nick Hanauer:
So can you tell us how much rent went up sort of generally from pre-COVID to now?
Whitney Airgood-Obrycki:
So it depends on the market. And so you saw markets like Austin where rents went up by more than 20% and then came down a little bit, but on net are still up. I don’t have the specific numbers on their rent increases over that period, but basically what we see is in the data is you start to see this tapering off of rent growth in the last couple of quarters, but if you look across time that you’re still above where you were pre-pandemic. And so on its face, it sort of looks like things are getting better, there’s some relief, but rent increases during the pandemic just really blew a hole in affordability that we’re still digging out of.
Nick Hanauer:
And if you had to guess, do you think that rents are up 10%, 20% in aggregate generally?
Whitney Airgood-Obrycki:
I don’t think they’re up that high. I’d probably put it at closer to 5% when all is said and done because part of it is that these are asking rents. And so if you’re a renter who currently lives in a unit and you’re renewing your lease, your rent is not going to go up by that much in general. And so these are sort of the most extreme cases that we see. I’ll say when we look over the longer term, and one question is, so if you’re cost burdened, what does that actually mean? And the 30% standard could also seem kind of arbitrary.
What we’d see over time, and when we look, especially over the last 20 years, we see this trend of rent chipping away at household incomes and that accelerates during the pandemic. So over the last 20 years, we saw, and this is all in real terms, so adjusted for inflation, rent increases by 21% at the median income for renters increases by 2% at the median. And so when we look at the amount that renters have left over after they pay rent each month on sort of a household level, that residual income amount has dropped 4% over the last two decades. So you have this condition over the longer term where renters are in a worse position than they were 20 years ago.
Speaker 4:
And of course it’s a more meaning if Nick is paying 30% of his income in rent, who cares, right? He’s got plenty of money left over. But if you’re making $30,000 a year and you’re paying 30 to 50% of your income in rent, you have very little money left over and your report actually puts some numbers on that and it’s pretty shocking how little money people have.
Whitney Airgood-Obrycki:
It is, and especially when we look at the lowest income, which as I mentioned is sort of the segment I worry the most about that over that 20 year span, they’ve had a 47% drop in residual income so much worse off than they were 20 years ago. The residual income for the median household who makes less than $30,000 a year is just $310 a month. And so when you think about every other expense that a household has to cover, there are certainly going to be trade-offs that have to happen.
Nick Hanauer:
Yeah. So one of the things that your very long and detailed report covers is the geographic nature of this. Can you speak to these findings? Is this happening in just cities or is it happening in rural areas too? How widespread are these trends?
Whitney Airgood-Obrycki:
I would say they’re extremely widespread, and that’s part of I think why we’re seeing more attention to affordable housing policy in general, seeing more momentum at state and local levels because this is something that is affecting a broader geography and also a broader income span of people as well. And so when we look across states, every single state in the country, at least 37% of renters are cost-burdened. So it’s not like there’s some magical state that’s super affordable. If you look at a place like Louisiana and New Jersey, they have exactly the same cost-burden rate at 51% so you have this really big span of geography.
In terms of whether this is sort of a city problem. We do see that larger, more populous metros that tend to have higher rents do have higher cost-burden rates, again at about 51%. But if you look at small cities and rural areas, their burden rate is also about 40% so it’s not like the spread is huge. And you see kind of a staircase step from the largest cities down to rural areas, but really this is places all over the country that are experiencing this problem.
Speaker 4:
And again, in these higher income areas, it’s different paying 30% of your income in rent when the median income is a hundred thousand dollars than when it’s $30-40,000 because well, the rent may be much higher and the incomes are higher, a lot of the other costs aren’t. So food is not twice as much, fuel is not twice as much. So it really, in these lower income communities, the cost burden is actually much more of a burden.
Whitney Airgood-Obrycki:
We wrote a paper that sort of examined a different metric of looking on affordability that has been around for a long time, but it is really hard to operationalize. And it’s really, I’ve used the term residual income before, but this is a residual income cost burden measure. And we find that if you compare to the 30% standard, you get millions more households who can’t afford a basic standard of living when you think about housing in the context of all of the other expenses that exist too. And so part of the problem is that yes, housing is really expensive, but also we’ve had this period of really high inflation and it’s squeezing households from a lot of different angles. And it’s just really making it difficult for households across the country.
Nick Hanauer:
Why don’t we pivot a little bit to what to do? Obviously more rental housing would be better, correct?
Whitney Airgood-Obrycki:
Right. The constrained supply is certainly part of the problem right now.
Nick Hanauer:
And maybe you can clarify this for us. There are these numbers in the 4 million range that people are throwing around, describing the gap between the number of homes we have and the number of homes we need, that there’s something like a four million deficit. Does that include rental housing?
Whitney Airgood-Obrycki:
That does. So I think the four million is somewhere in the neighborhood of the Freddie Mac estimate, and that’s looking at both homeowner and rental housing. And there’s a lot of assumptions that go into that about things like headship rates at different ages and different demographic cohorts. And so they’re putting a lot into that estimate to try to model what we would need to get sort of the counterfactual of the household formation rate that we should see if we had those constraints removed. The estimates are all over the board though. It really does depend on the assumptions you use. It could be one million, I’ve seen up to six and a half million or something like that. And so we know that constraints apply as a problem. The specific numbers I think are a little hard to get at and really depend on what you assume is normal.
Nick Hanauer:
But in your opinion, would just building more rental housing solve this problem?
Whitney Airgood-Obrycki:
I think it has to be a multi-pronged approach. And so part of the problem is constrained supply. Part of the problem is that construction costs are rising, and we see that for single-family and multifamily. Land is up, labor, materials. We have regulation that’s increasing time creates unpredictable ability and block affordable and even market rate construction in a lot of communities.
And so even if you say you can build whatever you want, a lot of it’s coming online at the high end just because the construction costs are so high. And there’s this a filtering process that can happen over time. But when we look at where the affordability needs are greatest, it’s at the lowest income households and we’re not going to filter housing down fast enough to meet their affordability needs now.
Nick Hanauer:
What do you mean by filter?
Speaker 4:
You mean allow it to decay to the point where only poor people will live there, Nick?
Whitney Airgood-Obrycki:
Okay, yeah. Where lower income people can start to inhabit it, where the rents start to come down. So the idea is that if you build enough supply, even if it’s luxury or the most high end stuff, then you’re freeing up units because the higher income residents who can afford those will move there and then that creates a chain effect. And so there’s a huge [inaudible 00:18:45] movement that is just build and build anything, and we’re going to fix a lot by just increasing supply. The reality though is that our lowest income households have never been served by the private market and it’s not going to reach them fast enough, right?
Speaker 4:
Well, that was my next question. Whitney, historically, has unsubsidized housing ever served? Have we ever been able to build new unsubsidized housing that serves low income households?
Whitney Airgood-Obrycki:
We’ve always had affordability challenges at the low end. I did a really long term analysis of this looking at the lowest income renters and their cost burden rates have always been relatively high. What we’ve seen in the last 10 years or so though is that we’re losing units at the bottom of the market. So we look at units that rent for less than $600. I live in the Boston area. That doesn’t seem like a lot, but that’s actually about what a quarter of renters can afford is no more than $600. And we’re losing those units over time through upgrading, and this whole stock is shifting into these higher rent categories.
And so that’s a problem. We can’t build at that level without subsidy, typically. There’s some interesting stuff going on across the country with regulatory relief and it’s pulling the private market developers into the affordable housing space more. But in reality, if we want to serve the lowest income households, you have to do that with some kind of either federal, state or local subsidy to make it happen.
Nick Hanauer:
Yeah, it’s such a hard problem because construction costs are so high.
Whitney Airgood-Obrycki:
Exactly. Right.
Nick Hanauer:
They’ve doubled, they’re tripled in lots of places.
Speaker 4:
In terms of wealthy industrialized countries, is the U.S. unique or are other European nations, Canada, et cetera, is suffering a similar problem?
Whitney Airgood-Obrycki:
I don’t know that I have seen a recent estimate comparing countries. There was one from many years ago, so I’m not sure on that. And we are so U.S. focused that that is where my attention is completely.
Speaker 4:
Because homelessness does seem to be… The number of unsheltered and homeless people in the U.S. does seem to be completely out of proportion to other wealthy nations.
Whitney Airgood-Obrycki:
Our homelessness crisis is terrible right now. We hit about 653,000 people experiencing homelessness. We’re at about 256,000 people experiencing unsheltered homelessness. So that’s just out on the street, places not intended for human habitation. We had the worst single year increase in homelessness as we saw the pandemic relief measures end on top of a migrant crisis on top of the highest rent growth we’d seen in probably ever. So it’s all sort of coming together in this really terrible situation where it’s getting harder to address the needs of people experiencing homelessness, and it’s also harder to stop the inflow of people into homelessness.
Nick Hanauer:
There was recently a group of lawsuits were filed by tenants that alleged that some landlords are sharing and using sensitive data from real estate software. There’s a software provider called RealPage to effectively price fix the market rate of rent. Did you hear about this?
Whitney Airgood-Obrycki:
Yeah, I’ve heard about this.
Nick Hanauer:
Been watching, and apparently the DOJ is taking some interest. What do you think about this?
Whitney Airgood-Obrycki:
I think it’s complicated. Yeah, it’s a complicated topic, and what I think it speaks to though more broadly is all of these forces that are impacting housing markets in the country right now and even globally. So we have the financialization of housing that’s been going on. So using it as an investment strategy and pension funds and all kinds of people investing in housing. We have this issue of the role of tech in housing, which this kind of speaks to. There’s a lot of concern, especially in the academic sphere, but also in practice right now about institutional investors coming in and swooping up single family homes, as well as short-term rentals, increasing competition and limiting housing options.
And on top of all of that, we’re a country that does not have strong tenant protections like we’ve talked about. We have these really supply constrained environments and we’re not providing enough subsidy for the lowest income households. And so we have this confluence of forces, and it’s hard to know the extent to which any of these individual things is contributing to this growth in rents. Certainly all of these trends and potentially the software use is adding fuel to the fire. But we’ve also seen these really longer term, deeper affordability challenges that I think go beyond just an explanation of an algorithm is doing it. And there’s so much happening in the housing space right now. It’s hard to disentangle exactly what is driving things.
Nick Hanauer:
And the higher order bit of course is 50 years of neoliberal economic policy, which suppressed wages for the bottom 90% of Americans for a generation. Obviously if the typical person made 50% more, the housing circumstances would be very different. So why don’t we move to just more explicitly what you would do to fix it. We have the benevolent dictator question, which is if you were in charge, what would you do? What are the top five things you’d do?
Speaker 4:
No political constraints.
Nick Hanauer:
Yeah.
Whitney Airgood-Obrycki:
Oh man.
Nick Hanauer:
Tell us how to fix this mess, Whitney.
Whitney Airgood-Obrycki:
Well, I do tend to side toward a public response, and so we had a massive public housing program, but we basically tanked it from the start. We never gave it a fair chance. I think there are emerging models, if you look in Montgomery County, they’re looking at a financing model of public ownership that’s kind of interesting right now. And I think there’s been this resurgence of discourse around what could public development and public ownership look like? How can we take units sort of out of the market to be able to serve people? And like I said, I am interested in how we help the lowest income where the affordability challenges are the greatest, and it is hard to do that through the private market.
And so I think these options where we expand things like the voucher program where we come up with these financing models that start to rethink public ownership again, are really, really exciting. I’ll say that a lot of the policy and momentum right now that I think is also needed is around zoning and zoning reform and regulatory relief. And so it’s about saying we can’t just have entire swaths of the city that are only for single family homes. We can’t have processes that totally shut down any affordable housing or that create so much requirement around it that it’s impossible to build.
And so those are really important steps. But again, I think without the way that we think about subsidy and the way that we think about financing models, it’s only going to get us so far. And so housing is interesting because there are some federal policy levers, but a lot of it happens at the state and local level. And I think that’s where we’re starting to see more experimentation. That’s really interesting.
Nick Hanauer:
So what are the public models that you’re most enthused by?
Whitney Airgood-Obrycki:
There’s a growing discussion about how we can do public development again and how we can do public ownership. And so Montgomery County is the big one right now. They’re using bond finance.
Nick Hanauer:
Montgomery County Maryland, to be clear.
Speaker 4:
Considering I grew up in Montgomery County, Pennsylvania, they’re not doing this.
Whitney Airgood-Obrycki:
Wrong one, wrong one. They’re looking at a bond financing model. They’re interesting, I think it’s called the Housing Opportunities Commission. They are a public owner as well as a housing finance agency, which means they can issue bonds and they’re creating a revolving construction loan fund that’s helping to subsidize basically mixed income communities that maintain some kind of public ownership with actually limited subsidy put into it from the county. And so it’s this interesting model that is starting to be explored in places like Atlanta. I think Chicago is possibly looking at it.
And the reason I think it’s exciting is that it’s something new in a industry in a space that has not changed much. We’ve iterated on our federal policies and we kind of add these programs and then they get layered on top of each other. But this feels like something that’s saying we need something new in addition to everything else that we’ve been doing. And then you have places like Rhode Island exploring, “Could we be a public developer and really think about this again?” I think it’s exciting to see that in some ways we’re at such a crisis level that people are willing to rethink policy and to say, “We have to do something about this, and we have to think of every tool we can use.”
Nick Hanauer:
Yeah, we’re in agreement with you. We’re hoping to spin something like that up here too.
Speaker 4:
We’re big fans of what we like to call a public option for housing as opposed to public housing or social housing.
Nick Hanauer:
And it won’t solve all the problems immediately, but over time, if the public maintains ownership of the housing, you can begin to bend the cost curve on rents.
Whitney Airgood-Obrycki:
If you can start to create some permanent affordability, if you can just start to think about housing differently in relation to the market. I think it’s an exciting thing. Of course, there are contentious aspects of it right now. We’re seeing a growth in middle-income housing programs, recognizing that middle-income housing cost burdens have really grown over the last 20 years or so. And I think a lot of those same questions come up when we do this mixed income development when we’re using public land in some cases, is that the best use of these public goods? But at the same time, we have to do something, right?
Speaker 4:
Right. Well, the advantage is that you can actually afford to build middle-income housing without subsidy.
Nick Hanauer:
Yes.
Whitney Airgood-Obrycki:
Or with less subsidy.
Nick Hanauer:
Yeah, yeah, yeah.
Speaker 4:
So, it is a scalability. If you’re only building to 40% of AMI, that’s going to be heavily subsidized and it’s going to limit the amount that you can build.
Whitney Airgood-Obrycki:
And I think it’s really about how you balance those priorities and how you make sure that if you are doing something further up the income scale that you at least get some corollary benefit for the people who need it most as well.
Nick Hanauer:
Yeah, absolutely. And one final question, Whitney, why do you do this work?
Whitney Airgood-Obrycki:
Oh, goodness. It can be really depressing from day to day thinking about all of the housing affordability challenges. One of the things that I love about working at the Joint Center is that we have this incredible platform that reaches policy, reaches practice, it reaches academia, and we really get to shape some of these conversations and some of the policy in a lot of cases too. We see our work cited in a Treasury press release or in the Economic Council’s publications, and it’s very exciting to be able to shape such an important conversation and housing and home is just so fundamental to people’s lives and to their well-being that it seems so crucial to everything else. So that’s why I keep doing this.
Nick Hanauer:
That’s fantastic. And what’s next for you guys?
Whitney Airgood-Obrycki:
Well, we have the state of the Nation’s housing report that we do every single year coming out in June. So we’re busy working on that right now. We’ve got a bunch of great work in process too. We’re working on a paper on middle income housing programs that should be coming out soon. I’m working on a paper about rental housing geographies and where things are restricted and renters just don’t have options. So that’s another project I’m really excited about right now.
Nick Hanauer:
Awesome. Well, thank you for being with us.
Whitney Airgood-Obrycki:
Thank you so much. It’s been great.
Nick Hanauer:
Goldie, I think you and I are just more and more convinced, and certainly nothing Whitney told us made us less convinced that letting the market sort this out is not going to work.
Speaker 4:
The market cannot solve this problem. This is one of our basic fundamental disagreements, not just with neoliberalism, but with orthodox neoclassical economics. The market cannot solve this problem, Nick. And the reason why the market cannot solve this problem is that the market does not see it as a problem.
Nick Hanauer:
Exactly.
Speaker 4:
One of the things that people miss, because there are certainly, we live in an expensive city. Well, you’re in an expensive city right now, London even more expensive than Seattle, but here in Seattle, very expensive city housing is very expensive, but incomes are higher here too. So in fact, you see other parts of the country that have much lower housing costs and people think, “Oh, well, that’s more affordable.” But as Whitney points out, it’s not that this problem is broad, it’s endemic. You have the same levels of housing burden in New Jersey and Louisiana, two very different states with very different median incomes and very different housing costs, are equally as unaffordable.
You have this problem in big cities and in suburbs and in rural areas, and let’s get to an orthodox economic term. When we talk about the market clearing price, the equilibrium price, the reason why half of Americans are cost burdened, half of Americans are paying over 30% of their income in rent, half of renters, is because the market has determined that that’s the equilibrium price, that that’s what people can pay when they’re forced to pay it.
Nick Hanauer:
And no property developer wants to develop property at a minimum profit, right? You’re trying to maximize your return on this stuff.
Speaker 4:
And nobody wants to be homeless. Nobody wants to be sleeping on somebody’s couch or sleeping in their car or sleeping on the street. So we do whatever we can to maintain our shelter when we have it. And if that means paying almost all of your income in housing costs, that’s what you’re going to do.
And I think it also speaks, another thing that jumped out, Nick, is we don’t hide it. We’re partisans. We desperately want Joe Biden to win reelection so that our democracy doesn’t collapse into an authoritarian dictatorship. And it is depressing to us that the economy is so strong historically and compared to other countries, it’s so strong, and yet people think it’s so bad and never give Democrats any credit for the fact that the economy always does better under Democrats than it does under Republicans. These are just numbers.
And yet it’s kind of understandable when you look at the numbers in the report that since 2001, in inflation adjusted terms, rents are 21% higher as of 2022. From 2001 to 2022, rents have increased by 21% in real dollars, that’s adjusted for inflation. Whereas at the median, whereas median incomes only rose 2% during that same period.
Nick Hanauer:
Yeah, no wonder everybody’s pissed off.
Speaker 4:
In real dollars. Now, since 2022, inflation has come down, real wages have grown. We’ve actually had quite a bump in real wages over the past year and a half, but cumulative over the past 25 years, things have been really bad. And a lot of that has to do with housing costs. If not for that rise in rents at the median and below, people would be feeling a lot better. They’d have a lot more money extra to spend on themselves and their children, and maybe people would be feeling a little better about the economy. So if we want to address this populist rebellion that could lead to the collapse of our democracy, we need to address housing and desperately.
Nick Hanauer:
Yeah, no, absolutely. It is just so true, and I think, again, just letting property developers deal with it is not going to work. I think the only solution really is going to be some kind of public entity building housing at scale and ensuring-
Speaker 4:
And maintaining it outside of the market.
Nick Hanauer:
… outside of the market forever, so that you can maintain it, but you don’t have to raise rents with the market. So if there’s an imbalance between demand and supply, at least there will be some housing in the market that doesn’t go up by 20%, and that will be good for both the people who are in that housing, but also it puts downward pressure on the market overall. And in the absence of doubling everybody’s income, we’re going to have to do something like that.
Speaker 4:
To you orthodox economists and economic thinkers in the audience, the handful of you left who just are rolling your eyes at this, this is a market failure. And when the market fails, that’s when the government needs to step in and provide a remedy. And that’s why we need a public option for housing.
Nick Hanauer:
Absolutely.
Speaker 4:
Right. And there’s a link in the show notes to America’s Rental Housing Report from the Joint Center for Housing Studies at Harvard University.
Speaker 5:
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