This is a guest post by Elisabeth Corey. Elisabeth is seeking her Master’s of Social Work from Virginia Commonwealth University. She received her Bachelor’s Degree of Commerce with a concentration in Finance from the University of Virginia. Elisabeth has sixteen years of work experience in Finance and Information Technology with three major Richmond corporations. She lives with her four-year-old twins in Bon Air, Virginia.
The media and political analysts are constantly informing the public about the economic benefits of increasing household income by lowering taxes and creating jobs. However, the lack of attention given to housing costs may be the real reason for a slow or non-existent recovery. Because of the ongoing housing crisis, we may think that housing is now cheap and affordable for everyone. However, the average housing cost burden has been on the rise in the past five years. Unfortunately, the increases in these expenses are affecting renters and lower income homeowners disproportionately.
According to the US Census Bureau, the housing cost burden is a measurement of housing expenses compared with the income for each household. The expenses include rent and basic utilities for renters. For homeowners, this cost burden includes the mortgage, insurance, taxes and basic utilities. The United States government uses this indicator to determine the financial health of the nation’s households. It considers a healthy housing expenditure to be 30% of the household income.
Although an increased supply of units and the resulting vacancies are causing rental prices to sag for higher-priced units, the supply and price of lower-priced units has not changed significantly. According to the Joint Center of Housing Studies of Harvard University, the limited supply of lower-priced units has resulted from a dramatic decrease in investor demand for federal low income housing tax credits. The lack of investment has led to an inadequate volume of new construction. In addition, older affordable units are being demolished or rezoned for new uses. When a lower supply of affordable housing is combined with job loss and wage stagnation, the result is a significant increase in lower-income households with severe housing cost burden of 50% or more in the past 10 years.
In 2009, over a million Virginia households were cost burdened by housing. To be exact, 1,033,284 Virginia households were paying more than 30% of their household income towards housing costs in 2009. This is not a onetime phenomenon. If we analyze the housing cost burden over three years, from 2007-2009, we still had over a million (1,004,050) Virginia households paying more than 30% of income for housing costs. The greatest impact is felt by lower-income families with children, who attempt to minimize travel costs and improve school quality by taking on a higher housing cost burden. Many families are left with less than $600 to meet all other expenditures.
Virginia can reverse these debilitating trends. Programs that facilitate the renovation and construction of affordable housing should be given priority in the state budget to ensure a faster local economic recovery. Programs that assist families through housing counseling must be funded to ensure that foreclosures are prevented when possible. If these current homeowners become renters, their housing cost burden will most likely increase, because housing cost burdens trend higher for renters. Virginia should invest in the Housing Trust Fund program to subsidize lower-income families with their housing expenditures, ensuring that the housing cost burden is reduced for these individuals. Housing programs that reduce the housing cost burden will make Virginia the leader in the nation’s economic recovery process. As the economy improves and other states follow with similar programs, everyone will benefit.