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Yesterday, I reported that D.C. is a more affordable place for millennials to live than cities like Baltimore and Charlotte and Philadelphia. This finding, courtesy of the D.C. Office of Revenue Analysis, naturally comes as something of a surprise, since those cities have considerably lower housing costs than D.C. It all comes down to how you measure affordability. Looking just at median rents, D.C. is far more expensive than these cities—in the case of Charlotte, more than twice as expensive. But factoring in income, D.C. becomes more affordable, since the median person between the ages of 18 and 34 has more disposable income after paying for housing.
There’s no hard-and-fast definition of “affordable housing,” but there is a national standard that comes pretty close. According to that rule of thumb, if a person pays less than 30 percent of his or her income toward housing, it’s considered affordable. If he or she pays more than that, it’s unaffordable.
In the Washington Post, Emily Badger points out one problem with this formula: It doesn’t account for transportation costs. If your rent is just $500 a month but you’re spending close to $10,000 a year on car payments and gas to get to the office from the suburbs, you’re not really better off than someone who pays $1,200 a month in rent but can walk to work. Badger approvingly cites a different affordability threshold from the Center for Neighborhood Technology. CNT’s affordability cap is 45 percent, and it includes both housing and transportation.
The map above shows which D.C. neighborhoods meet this threshold for households with the region’s median income. Light colors indicate that most households are under the 45 percent cap; dark colors mean most households are above it. In the District, the housing-plus-transportation measure hews closely to a simply housing measure, since housing costs tend to be a lot higher than transportation costs. Neighborhoods with expensive housing are largely unaffordable, while cheaper neighborhoods are more affordable, although there are a couple of spots with poor transit connections that are a bit less affordable than you might otherwise expect.
But zoom out to the regional level, and the formula changes:
Even though housing in the District is, by and large, more expensive than housing in the suburbs, many suburbs are less affordable than the District, particularly the outer ones, because it’s a lot more expensive to get around and commute to work.
This measure is certainly more complete than the simple 30 percent threshold. But it, too, suffers from a fatal flaw, one that colors how we think about affordable housing.
On my post yesterday, a commenter wrote:
The logic breaks down here Aaron, proving that the title of this story is incorrect. Row #3 is the critical row of data, as it pertains directly to the definition of affordability from the regulations — what percentage of one’s income is one paying for renting a 1-bedroom unit (burden). DC residents are paying 14% more than what is legally considered affordable in the District. So no, DC is not more affordable than Baltimore or Philly and is in fact on average unaffordable.
The commenter was referring to millennials’ “rent burden.” In D.C., according to the Office of Revenue Analysis, the median millennial household spends 44 percent of its earnings on rent—a higher figure than in Baltimore or Charlotte, and above the 30 percent limit. The commenter is completely correct in pointing out that by our standard measure, that means the District’s typical millennial can’t afford his or her rental housing.
But that’s just because our standard measure is problematic. Think of it this way. Let’s take two hypothetical people, Bernardo and Bernadette. Bernardo makes $2 million a year and spends half of it, or $1 million, on housing. Bernadette makes $20,000 a year and spends just a quarter of it, or $5,000, on housing. According to the golden rule of affordability, Bernardo’s housing is unaffordable, and Bernadette’s is affordable. But of course that’s ridiculous: Bernardo has $1 million left over to spend on other things, while Bernadette has just $15,000. Bernardo will have no trouble getting by in the District with that disposable income, while Bernadette will struggle mightily, particularly if she has kids. (For simplicity’s sake, I’m not factoring in taxes here; even though they’ll take a bigger chunk out of Bernardo’s paycheck, he’ll still be just fine.)
This is not just an abstract problem of how to calibrate studies of affordability. It has major real-life implications. Housing subsidies, through programs like rapid rehousing and Section 8, are often tied to the 30 percent threshold: A household pays 30 percent of its income toward rent, and the government covers the rest. Even if 30 percent is a reasonable affordability measure for the average family, it be crippling for someone like Bernadette, who has children to feed and clothe and little cash to spare.
There’s another problem with the 30 percent threshold: Most D.C. households don’t meet it. (Nor do residents of the seven other cities the Office of Revenue Analysis studied—all had rent burdens above 30 percent.) According to a recent study, 51 percent of D.C. renters pay more than 30 percent of their income in rent. For some households, that’s fine: A single person with a high income and no car or kids to worry about can pay half his income in rent without a problem. For others, it’s not: A mother of three kids can hardly afford to put most of her meager salary toward rent. The trouble is that things tend to skew the other way. Among very low-income households, 84 percent pay more than 30 percent of their income in rent, while just 4 percent of high earners do. That’s problematic for a host of reasons, but it doesn’t change the fact that the 30 percent limit has simply become unrealistic for the majority of households in a high-cost city like D.C.
The Office of Revenue Analysis attempted a different approach, one that defines affordability by disposable income rather than an arbitrary percentage. It’s arguably a more important measure: How much money you can spend on non-housing needs is a more accurate determinant of your quality of life than what percentage of your income goes toward housing. And so it’s a welcome change of pace, amid all the reports of D.C.’s shrinking supply of affordable housing, to receive a small piece of good news on this front, even if just for one slice of the District’s population.
Maps from CNT