Lane Kenworthy, The Good Society
July 2019

About a third of Americans are renters. Homeownership is the main asset for most middle-class Americans; renters miss out on this key source of wealth accumulation. But renting gives people more flexibility to move, whether to a new neighborhood or across the country. In practice, many renters don’t have a choice in the matter; they rent because they can’t afford to buy a home. What challenges do they face?

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• Livable cities
• Housing assistance for the least well-off
• Summary

LIVABLE CITIES

In the United States and a handful of other countries, the age of industrialization, roughly from 1850 to 1940, was also an era of urbanization, featuring a steady stream of movement from rural areas to cities. Cities were where the jobs were. But then cities began losing ground to suburbs. As we see in figure 1, between 1940 and 2000 Americans leaving rural areas went mostly went to the suburbs, and some city residents started to do the same.

This shift to suburbia had a number of causes. Businesses, and hence jobs, were attracted to the suburbs by cheaper land, lower taxes, and often less-expensive labor. Homeownership became much more accessible with the advent of the government-backed 30-year mortgage loan in the 1930s, and homes were cheaper in the suburbs. More Americans could afford a car, making it possible to navigate suburban distances between home, work, school, shopping, and other destinations. Highways were massively expanded in the 1950s. Schools and safety were an additional lure: crime rates in cities began to rise in the 1960s, and suburban schools were newer and sometimes better-funded.

Some knowledgable observers expected the movement away from cities to continue inexorably. In the 1970s, 1980s, and 1990s many American cities were crowded, noisy, messy, and dangerous. Public spaces were in ill-repair. City governments’ budgets were near the breaking point. And advances in telecommunications and computing, particularly personal computers and the internet, increasingly made it possible for analytical professional workers to work from anywhere.¹

But then, to the surprise of many, cities began to rebound. Professional-analytical jobs have increased in number and become more attractive in pay, autonomy, and status, and while many such jobs can be performed remotely, companies nevertheless find it desirable to locate them where people concentrate, because face-to-face interaction seems to boost productivity and innovation. The quality of life in large cities has improved significantly. In the 1970s, 1980s, and 1990s, crime was a big deterrent, but since the early 1990s it has declined sharply in many cities, as figure 2 shows. Cities have newer, better restaurants, bars, clubs, and coffee shops, and in greater variety and quantity. Some city governments have cleaned up public spaces — parks, libraries, museums, bike lanes, walking trails — and added more of them. They’ve increased access to public transportation, and they’ve added biking and walking options. And ride sharing services have boosted accessibility.

Cities have societal benefits. They concentrate talent; they facilitate interaction and idea-sharing; and they encourage risk-taking, because it’s easier to find another job if your current one doesn’t pan out. As a result, cities are more economically productive than suburbs and rural areas. Cities tend to have high poverty rates, but that’s mainly because lots of poor people come to cities in search of higher wages and incomes, not because cities cause poverty. Cities also are better for the environment than suburbs and rural areas. They require fewer cars per person; their residential and commercial units are smaller; and taller buildings offer economies of scale in heating and cooling.²

From 2000 to 2010, population grew faster in cities than in the suburbs (figure 1) — but only a little faster. If cities are so great, why haven’t more Americans moved to them?

This puzzle is even more glaring if we focus on the most productive, highly-concentrated cities, such as New York, Boston, and San Francisco. These cities have experienced virtually no population increase in recent decades. Instead, much of the recent population growth in America’s cities has occurred in southern and southwestern cities — Phoenix, Las Vegas, Houston, Dallas, Atlanta, Charlotte — which tend to be more spread out. This owes partly to weather, but weather isn’t a deterrent for places like San Francisco and San Diego.

The problem is that some of our most productive, attractive cities have gotten very expensive.³ A key reason is the cost of housing. Figure 3 shows the median rent (for a two-bedroom apartment) in the 20 largest American cities. Rental costs in San Francisco, Boston, New York (especially Manhattan), Los Angeles, San Diego, Seattle, and Washington DC are two to three times that of Houston, Dallas, Phoenix, Atlanta, and Tampa.

Figure 4 offers additional insight. It shows rental costs relative to median income in large cities in the United States and some other rich democratic nations. The three US cities are at the high end.

Is this really a problem? Can’t renters just move to sunbelt cities? Yes, they can, but most of the population growth in sunbelt cities — Dallas, Houston, Phoenix, Las Vegas, and others — has been out instead of up, because there are no physical or legal restraints on sprawl. This limits the productivity and environmental benefits of these cities. And long commutes by car are expensive and frustrating.

Figure 5 helps us understand why we should aim to do better. On the horizontal axis is the share of a city’s employment that is located in the city center. On the vertical axis is the total employment in the city. What we want is high employment numbers in cities where employment is concentrated in the center. In other words, we want cities to be located in the upper-right corner of the graph. What we actually have in that corner is just New York.

Why is housing so expensive in the most productive and attractive American cities? Zoning regulations and historic preservation designations make it difficult to build higher in and around the city center. As a result, the supply of housing is far less than the demand, which drives up the price.⁴

Originally, these regulations aimed to protect health — to avoid overcrowding or to keep manufacturing plants away from residential housing. Current homeowners and renters like the regulations because they protect the view and ambience. They keep the feel of a city at what Jane Jacobs called “human scale.”⁵ Perhaps the best exemplar is the core residential and tourist section of Paris, which consists almost entirely of five-story buildings, as we see in figure 6. Another advantage of the regulations for existing homeowners and landlords is that by restricting the supply of housing, they push up property values.

The key to a solution, according to some experts, is to relax the building regulations and historical preservation rules that are stifling the construction of additional rental units in big cities.⁶

Local government is the ideal source of action. Minneapolis recently became the country’s first major city to eliminate single-family zoning throughout the city.⁷ Where city councils and mayors are reluctant to act, state governments may have to step in. California’s did so in 2017 with passage of SB35, which stipulates that if local ordinances or decisions needlessly prevent or delay construction of new affordable housing, the state will overrule the local authority.

HOUSING ASSISTANCE FOR THE LEAST WELL-OFF

Income among the bottom fifth of American households averages just $22,000 a year, so lower-income Americans need assistance with housing costs not only in large cities, but virtually everywhere.⁸ A widely embraced rule of thumb is that a household shouldn’t spend more than 30% of its income on housing. About one in five American renters spend 50% or more.⁹

The federal government currently allocates around $50 billion a year to low-income housing assistance.¹⁰ This assistance comes through a variety of programs. Since the 1930s the government has built public housing units, which are offered to low-income tenants at below-market rents. Though there has been little new public housing construction in recent decades, about one million such units remain across the country. Since the 1960s it has subsidized private construction of low-cost rental units and subsidized the rent that low-income tenants pay. Since 1986 it has provided a tax credit (the Low Income Housing Tax Credit, or LIHTC) to developers for construction or rehabilitation of rental housing in which at least 20% of tenants have incomes below half of the area’s median income. And since 1974 the federal government has given “Section 8” housing vouchers to some low-income households who rent on the private market. Renters pay 30% of their income toward rent, and the voucher pays the difference between this amount and the rent amount (up to an allowable maximum).

These programs serve about five million households. Eligibility criteria have varied across the programs and over time within them. Roughly speaking, households with an income below 50% or sometimes 80% of the area median income tend to be eligible.

On average, these programs have enhanced access to housing, reduced over-crowding, improved housing quality, and increased residential mobility for their low-income recipients.¹¹ There are run-down, violence-plagued public housing projects, such as Cabrini Green in Chicago, but these have been the exception, not the rule. Housing vouchers tend to boost housing quality more, and at lower cost, than public housing.¹²

But due to underfunding, only one in four eligible households receives assistance from any of these programs.¹³ We could expand housing assistance, via provision of a voucher, to the 15 million or so low-income Americans who are eligible for such assistance but don’t currently receive it. Doing so would cost about $75 billion a year.¹⁴ The federal government spends (forgoes) about $80 billion each year on the mortgage interest tax deduction. The aim of this program is to boost home ownership, but many other affluent nations have homeownership rates comparable to ours or higher without a tax incentive. Moreover, most of the mortgage interest deduction goes to households in the top fifth of incomes; few in the middle or below benefit from it.¹⁵ We could pay for the expansion of low-income housing assistance by ending this program. The additional cost to taxpayers would therefore be $0.

Low-income Americans need help not only with rent affordability but also with housing stability. Because their incomes are low and often fluctuate from month to month, they tend to come up short on the rent now and then. This leaves them vulnerable to eviction. Matthew Desmond studied eviction data for Milwaukee’s poorest African American neighborhoods in 2008 and 2009 and found that one in seventeen women were evicted each year.¹⁶

“Eviction’s fallout,” Desmond finds, “is severe. Losing a home sends families to shelters, abandoned houses, and the street. It invites depression and illness, compels families to move into degrading housing in dangerous neighborhoods, uproots communities, and harms children.” The reasons are several. First, eviction causes people to end up in worse homes and neighborhoods than would otherwise be the case. When you’re evicted, you often have to grab whatever you can get almost immediately. “Poor families were often compelled to accept substandard housing in the harried aftermath of eviction. Milwaukee renters whose previous move was involuntary were almost 25 percent more likely to experience long-term housing problems than other low-income renters.” Second, eviction increases instability, stress, and anxiety in the lives of parents and their children. How do you avoid missing a lot of work? How do you keep your possessions? How do you ensure the kids are in public school? How do you avoid missing mail? “An eviction not only consumed renters’ time, causing them to miss work, it also weighed heavily on their minds, often triggering mistakes on the job. It overwhelmed workers with stress, leading them to act unprofessionally, and commonly resulted in their relocating farther away from their worksite, increasing their likelihood of being late or missing days.” Third, having an eviction on your legal record can make it harder to succeed down the road by reducing the chance of getting a student loan, a mortgage loan, government housing assistance, or even another apartment rental, and creating the possibility of automatic deductions from future paychecks. Fourth, eviction can worsen neighborhoods by increasing turnover and consequently weakening institutions and public spaces.¹⁷

One way to help is to ensure that any tenant being evicted by her landlord has publicly funded legal counsel. We do this for defendants in criminal cases. It could be made automatic in housing court too.¹⁸

SUMMARY

Cities are attractive for a variety of reasons: they are where many jobs are located, particularly analytical professional positions; they provide lots of eating and entertainment choices; and unlike a generation ago, they are relatively safe and clean. Cities also are economically productive: they concentrate lots of economic activity in a small space, and by bringing people together they generate multiplier effects. And cities are environmentally friendly: they use far fewer cars and less heat and electricity per person than do suburbs and rural areas.

Many ordinary Americans would like to live in a large city but can’t afford to. Rent prices in some large cities — New York, Boston, Washington DC, San Francisco, San Jose, Los Angeles, San Diego, among others — exceed what many poor, working-class, and even middle-class Americans can pay. The chief cause is an inadequate supply of housing, and the key obstacle appears to be restrictions on new building stemming from zoning laws and historical preservation designations.

Low-income Americans need assistance with housing costs no matter where they live. Federal government housing vouchers, which allow recipients to choose where they live while ensuring rent payments are only 30% of their income, have proven an effective way to help. But three-quarters of Americans who are eligible for such assistance don’t currently get it, because of inadequate funding. By doing away with the mortgage interest tax deduction, which goes predominantly to high-income households, we could provide this assistance at no additional cost to taxpayers. We also could ensure that tenants threatened with eviction have publicly funded legal representation.