Monday, June 12, 2017

Kevin D. Williamson Of The National Review On Why It Doesn't Make Sense To Compare The Minimum Wage To The Median Rent

How to Think about Low-Income Housing.
"Today’s entry in the great national stupidity sweepstakes comes from Tracy Jan, who is relaying the findings of the latest report from the National Low-Income Housing Association. The report’s basic claim takes a familiar form that falls somewhere between intellectual sloppiness and intellectual dishonesty: People earning the minimum wage cannot afford the average one-bedroom apartment without spending more than 30 percent of their incomes . . . pretty much anywhere in the country.

There are some variations on the theme: Sometimes, the rent considered is for a two-bedroom apartment, and sometimes the income considered is the federal poverty line or some figure related to it. All of these so-called studies — they are not really “studies” in the true sense of the word — suffer from the same error: comparing a low wage to an average rent. The NLIHA paper Jan relies on is methodologically slightly better than most entries in this genre, but only slightly. The usual technique is to consider minimum wage vs. median rent, as in this much-cited report from Zillow: “Zillow analyzed median rents and the income necessary to afford them in 15,099 cities and towns nationwide.

In the least expensive city — Beecher, Michigan — a single renter would need to earn $10.64 per hour to afford the city’s median rent of $532 per month without exceeding the 30 percent limit, significantly above both the federal minimum wage and the Michigan state minimum wage of $8.15 per hour.” The median rent is the rent at the 50th percentile, i.e. the price point at which half of all rents are lower and half are higher. If you consider the median rent, then you just saw off the cheaper half of the market in its entirety. You know where low-wage people go looking for rental properties? In the half of the market that is below the median, most often."

"The NLIHA paper makes almost the same error, but instead of the median rent in various communities it uses a “fair market rent” calculated by the Department of Housing and Urban Development. That number, according to the report, “is typically the 40th percentile of rents that a family can be expected to pay” when that family is moving today, “not what all current renters are paying on average.” That is significant because, according to HUD’s own reporting, families moving to a new rental property with a relatively short timeline for securing new housing typically pay slightly higher rents than do families that haven’t moved in a while, typically about 6 percent more. So the 40th percentile of rents for families paying a 6 percent premium — that won’t be the dead median, but it will be in the neighborhood."

"Low-income people who can’t afford to live anywhere mostly manage to live somewhere. One of the remarkable things about people who don’t have very much money is that they have so much money — which is to say, individuals and families with relatively low wages may not have tons of economic power as individuals, but as a market they are enormously powerful. America’s largest private employer, Walmart, represents a truly enormous accumulation of capital organized to address the problem of providing low-cost goods to people who want or need them. Walmart doesn’t keep its prices low because it loves low-income people, but because low-income people spend a great deal of money, and if Walmart doesn’t give them what they want at the price they want, somebody else will.

How this works in the real world is obvious to everybody who doesn’t write for the Washington Post: The median cost of a new car in the United States is about $34,000, which is well out of reach for most minimum-wage earners. You know how minimum-wage earners get around that problem? They buy cars that cost a heck of a lot less than the median — or they buy used cars, share cars, take the bus, etc. Minimum-wage workers solve the problem of relatively high rents by choosing accommodations that are well under the 50th or 40th percentile — or by having roommates, living with their families, etc. The relationship between the minimum wage and the median or near-median rent is an entirely artificial problem cooked up by organizations that want more federal spending on low-income housing (NLIHA) or by politicians arguing for a higher minimum wage."

"Multi-family construction hit a six-year low in May. And the construction that is going on is not, for the most part, meant for the lower-wage end of the rental market. From NLIHA: “Household income has not kept up with the rising cost of rental housing. From the housing crisis of 2007 to 2015, the median gross rent for a rental home in the U.S. increased by 6 percent, after adjusting for overall inflation, while the median income for renter households rose by just 1 percent.” Why aren’t we building more housing for low-income people? It’s not because there’s no money to be made selling goods and services to low-income consumers: I doubt the French Laundry does as much business in a year as McDonald’s does in an hour, and Honda makes a lot more money selling economy cars to regular folks than Lamborghini does selling exotic cars to guys with yachts.

Walmart makes a heck of a lot more money than Hermes or Louis Vuitton. Somebody out there would love to be the Walmart of low-income housing. What’s stopping them? It isn’t, strictly speaking, an economic of technological problem: Mobile homes (which start around $30,000 new), trendy “tiny houses,” and low-income housing developments abroad all show that we can build decent housing at prices within the reach of those with more modest incomes. But construction is moving toward the higher end of the market. The basic problem is that politicians won’t let developers build housing for poor people. They don’t put it that way, but that’s what they do. Restrictive zoning and development rules in places such as New York City and San Francisco artificially restrict the supply of housing, often for purely aesthetic reasons."

"The old housing “covenants” were racial; the new ones are economic, with nice rich liberals in Pacific Heights basically saying: “We like things just how they are, thanks, so why don’t you poors beat feet on down to Stockton or wherever it is we warehouse you, right after you’re done cutting my grass?” The only way to make housing more plentiful is to make housing more plentiful. What that implies, especially in the case of our big cities, is denser development. But our big-city governments — which are almost exclusively under Democratic control — will not allow that. New York City’s population density is less than half that of comparable European cities (and much less than many comparable Asian cities) and, in spite of its reputation as a city of skyscrapers, fewer than 2 percent of its residences are in buildings 20 stories or taller, much lower than the figure for comparable cities globally. In New York, the progressives aren’t working to allow denser development and, hence, cheaper housing: They’re doing the opposite, proposing to cap the number of tall buildings in the city."

"Houston, way down in right-wing Texas, is the most diverse city in the United States. Everybody knows what Houston has what people want — jobs — but part of the attraction is something that Houston doesn’t have: zoning laws — not very much, anyway. That makes housing in Houston relatively cheap, which makes the area attractive to all sorts of people, including young people, immigrants, and others earning relatively low wages."

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