Growing Number See American Dream as Unattainable
Declining real income and housing shortage push "white picket fence" out of reach

by Heather Rubeo

The economic boom that has brought prosperity to so many in recent years failed to lift all Americans out of poverty. In fact, the Wall Street explosion of the 1990s has contributed to a widening of the income gap that separates the "haves" and "have nots." This uneven accumulation of wealth, combined with cuts to federal welfare assistance programs and a dwindling supply of low-income housing, has pushed an increasingly large number of the extremely poor into homelessness.

For more than a decade, policies designed to address this crisis have done little to confront some of the most basic causes of homelessness, namely a growing shortage of affordable housing and an erosion of real income for individuals at the bottom of the socioeconomic ladder. Despite a robust economy, requests for emergency shelter climbed 12 percent nationwide between 1998 and 1999, rising most precipitously among families.

Response to the homeless problem has focused predominantly on trying to address the temporary needs of this population, rather than on programs and services designed to prevent homelessness in the first place, or its recurrence. Instead of simply building more shelters and handing out more housing subsidies, policymakers need to combine fewer such initiatives with plans to expand income supports for America’s working poor.

 For a growing number of poor working Americans and those making the transition from welfare to employment, extreme poverty has made housing unaffordable. In 1995, more than half of poor renter families with children had some earnings from work and yet almost 50 percent spent more than half of their income on housing. Many of these families, forced to live on meager earnings from minimum-wage jobs, struggle to compete in an ever tightening housing market.

 At present, making payments on even modest apartments has forced many to pay more than the federally-defined "fair market rent" (listed as 30 percent of one’s income). In San Francisco, to rent a modest two-bedroom unit, while paying no more than 30 percent of income for rent, a person would have to earn at least $22.44/hour, or 436 percent of the minimum wage. Renting the same apartment in Westchester County, New York, under similar conditions would require earnings of at least $20.63/hour, or 401 percent of the minimum wage and in New York City, at least $17.13/hour, or 293 percent of the minimum wage.

 Not only has the demand for low-income housing increased in recent years, but the supply has steadily declined. Between 1981-1987, the number of units of multi-room housing renting for less than $300 a month decreased by 13 percent, while similar units renting for more than $500 a month increased by 86 percent. Research further indicates that while there was a surplus of 500,000 affordable (costing less than 30 percent of a person’s income) units in 1970, by 1989 there were only 2.8 million such units available nationwide to around 7.8 million renters, resulting in a shortage of approximately 5 million units.

The on-going loss of low-income and subsidized housing is due partly to urban renewal and partly to the expiration of contracts locking owners into federal programs. Many private owners, eager to charge higher market rents, are opting out of government programs altogether or are signing limited, one-year renewals that do not ensure a unit’s long-term affordability. At the end of 1999, roughly 90,000 units of affordable, low-income housing had vanished as a result of mortgage prepayments or opt outs.

 As the economy slows and the possibility for recession looms, we must take steps to expand income supports to the nation’s working poor so that they will be better able to compete for housing in this tightened market. For example, the federal government’s Earned Income Tax Credit (EITC) has helped to raise 4.7 million people out of poverty by providing low-income families with up to $3,800 in extra income, but the program needs to be restructured to provide additional incentives to families with dual wage-earners.

 In its present form, the EITC has been found to increase employment, provide greater earnings and income, and reduce poverty but these effects are seen primarily among single parent households, because the program begins to phase-out at about $12,260. Implementing a longer phase-out period would encourage more spouses to join the workforce and would extend the benefits of the EITC to more working families.

 Finally, the adoption of a refundable tax credit to be given to all working Americans would be the best way to ensure that all families can better make ends meet. Such a credit would not only help offset the soaring costs of housing, but would provide the additional disposable income to meet the vital healthcare, transportation and childcare needs, which are necessary to facilitate gainful employment.

Heather Rubeo is a research associate at the Institute for SocioEconomic Studies.