NLIHC Report Documents the Gap between Wages and the Cost of Rental Housing
In order to afford a modest two-bedroom apartment in the U.S. without spending more than 30 percent of income on rent, renters need to earn a wage of $22.10, according to the National Low Income Housing Coalition’s Out of Reach 2018 report. This “housing wage” of $22.10 is nearly $15.00 higher than the federal minimum wage of $7.25 per hour. According to the annual report, a renter earning the federal minimum wage would need to work 99 hours per week to afford a one-bedroom rental home priced at the national average Fair Market Rent (FMR) and 122 hours per week – that is, three full-time jobs – to afford a two-bedroom.
The report, which documents the gap between wages and the cost of housing, and breaks down and maps housing wage data by state, metropolitan area and county, also points out that in no jurisdiction can a worker earning the federal or prevailing state minimum wage afford a two-bedroom rental home at FMR by working a standard 40-hour week. In fact, a full-time minimum wage worker can only afford a one-bedroom rental home at FMR in 22 out of more than 3,000 counties nationwide. These 22 counties are all located in states with a minimum wage higher than the federal minimum.
According to Out of Reach 2018, the national gap between the average renter’s wage and the housing wage is $5.22 per hour. The top five states with the largest shortfall between the average renter’s wage and the two-bedroom rental housing wage are Hawaii ($19.98), Maryland ($11.53), California (11.18), New Jersey (9.96) and Vermont (9.55).
The report’s findings reveal that the struggle to find affordable housing is most acute for the 11.2 million extremely low-income (ELI) renters—those households who earn less than 30 percent of the area median income. On average, an ELI household of four can only afford to spend up to $660 per month on housing, which would only cover about half of the rent for an average FMR two-bedroom ($1,149). This inability to afford housing extends to workers earning more than the minimum wage as well, as NLIHC estimates that the average hourly wage for all renters is $16.88, which is $5.22 below the two-bedroom housing wage and $1.02 below the one-bedroom housing wage.
According to NLIHC, low wages and growing wage inequality continue to be major contributors to the gap between what people earn and the cost of their housing. While wages have improved over the last year for the lowest-earning workers, they remain too low for many workers to afford modest rental homes at the FMR. Furthermore, the demand for affordable housing continues to outpace supply. NLIHC estimates that there is a national shortage of 7.2 million rental homes affordable and available to the lowest-income renters.
The report explains that new rental construction over the past decade has been largely geared toward the high end of the rental market, due to increasingly high development costs. Without public subsidy, the private market fails to provide sufficient housing affordable to the lowest income households. Currently, three out of four low income households in need of housing assistance do not receive federal assistance because there is such high demand.
Out of Reach 2018 also reinforces the importance of strengthening federal housing programs that are essential to assisting low-income renters. The 2018 omnibus spending package, which was passed in March 2019, included a 12.5 percent increase in annual Low Income Housing Tax Credit (Housing Credit) allocations for the next four years, and boosted HUD’s budget by 10 percent. While a step in the right direction, more must be done to address the ongoing demand for affordable homes, including mitigating the loss of affordable housing production and preservation, an unintended consequence from reducing the corporate tax rate in last year’s Tax Cuts and Jobs Act.
Enterprise will continue to advocate for the remaining provisions in the Affordable Housing Credit Improvement Act (S. 548/H.R. 1661) to further expand and strengthen the Housing Credit, and we will work with our partners to ensure that proven affordable housing and community development programs receive the necessary resources to serve low-income households and communities. See the ACTION Campaign’s Advocacy Toolkit for resources to advocate for the Affordable Housing Credit Improvement Act, and visit the Enterprise blog for information on FY 2019 appropriations.
Furthermore, we will continue to explore the use of promising, innovative strategies for expanding the supply of affordable homes. These strategies include: the utilization of publicly owned parcels for creating affordable homes; the preservation and creation of small and medium multifamily housing, which provides 54 percent of the nation’s rental housing stock; the use of federal transportation funds for accomplishing equitable transit oriented development, and the adoption of local strategies for expanding the supply of affordable homes and addressing cost challenges.