by Dr. Patrick Jones
What a difference a pandemic makes! In 2019, the estimated number of households in the Walla Walla metro area (Columbia and Walla Walla Counties) that were cost-burdened was 1,950. Or, 12.5% of all households. Fast forward to 2023: the estimated number had nearly doubled to 3,619. Or, 23% of all households. In fact, as Trends indicator 5.1.6, Owner-occupied households paying 30% of more of their income on shelter costs, shows, 2021 was even more challenging. In that first, full year of the pandemic, the number of cost-burdened, home-owning households was 4,000, or 24% of all owner-occupied households.
The 30% standard the sets a threshold of whether a household is cost-burdened goes back decades (to the National Housing Act of 1937). The Act established a “reasonable” rent for low-income renting households at 20% of income. Later, that threshold was upped to 25% in 1969, then to 30% in the early 1980s. The U.S. Housing and Urban Development Department (HUD) has applied the same threshold to homeowners.
Shelter costs is a broader notion than simply mortgage costs. In particular, it takes into account utilities and taxes.
Note that this measure is an average. As such, it doesn’t highlight households or families who have children. A recent Harvard University study examined the traditional HUD standard versus an approach it called “residual”. Essentially, the latter approach looked at what was left over for a household or family to spend on housing after the typical costs of life were factored in. For families with children, this was importantly, childcare and educational costs. The study’s finding: once these are factored in, the amount of household budget allocatable to housing shrinks. As such, then, these are households are undercounted by the HUD measure.
United Way has adopted a standard known as ALICE, or asset-limited, income-constrained & employed. It, too, considers all costs, including childcare and actual housing costs. The result, in the first instance, is the income needed for a family of a certain size to be able cover these costs. It then calculates the share of the households in a given location whose incomes are below that income threshold. In this sense, ALICE doesn’t give an alternative to the HUD rule, but to the Census-set poverty thresholds. In nearly all cases, shares of the ALICE population are much higher than those based on Census rules.
How are we then to regard this measure? “In the end, the fact that the 30-percent standard provides a reasonably accurate measure of the share of households for whom housing costs are creating a financial hardship, coupled with the simplicity of its calculation and its ready availability over time and for broad geographic areas, supports its continued use as the go-to benchmark for assessing the overall extent of housing affordability problems," according to the Harvard study.
The report goes on to acknowledge, however, problems of adequacy of the standard related to income level, largely for renters. But the conclusion could also apply to homeowners: The analysis presented here finds that for the lowest-income households, this share may well need to be less than 30 percent to avoid financial hardship given the large share of income needed to pay for other necessities.
In a community with high poverty rates, then, a lower threshold might be considered, say the population spending 25% or more of their income on shelter costs. Fortunately, the source data from Census, accessible via the “More Info” table, give us estimates. In the case of the Walla Walla metro area for 2023, these numbers fold in another 815 households. Assuming that the number of shelter cost-burdened homeowners starts at the 25% threshold consequently bumps up the share of cost-burdened homeowning households to 30%.
For now, the 30% standard is still widely used. But for Walla Walla, as more residents fall under the official poverty threshold, one might prefer the 25% standard. As Trends indicator 1.6.1 reveals, the estimates of metro area residents living below poverty thresholds is now at its highest in a decade.