Why the 30% Rule Fails Renters, and All of Us
Household affordability is governed by the 30 percent rule. A household, whether a family or individual, should pay about 30 percent of income toward housing costs, the thinking goes. Pay less, and good for you. More, and your family is considered burdened.
This is the logic behind government subsidies for housing. If a family qualifies for a Section 8 housing voucher, that means the federal government helps reduce the cost of their housing so it’s no more then 30 percent of their income. If a family pays $15,000 a year in rent, with an income of $30,000, their cost of housing is 50 percent. So a Section 8 voucher reduces the out-of-pocket expense for housing.
But the logic is flawed.
“The conventional 30 percent of household income that a household can devote to housing costs before the household is said to be ‘burdened’ evolved from the United States National Housing Act of 1937,” notes a paper from the U.S. Census Bureau. The percent has shifted as low as 20 percent over the years, but in the early 80s came back to 30 percent, and stayed. The idea is that families then have 70 percent of their income to cover everything else, which hopefully will be enough.
So, to start with, we’re dealing with an 80-year-old rubric.
Secondly, the 30 percent number doesn’t take into consideration the price of everything else outside of housing. Today, many families need a car — it’s not a luxury in towns and cities with poor public transportation, or with jobs far from neighborhoods with affordable housing. Some families need childcare, or after school care. Some need to live in higher-rent areas because of schools. Preschool costs many parents the equivalent of in-state college tuition.
As one example notes, the vice president of a company may earn $8,000 a month but pay $3,000 in rent — more then 30 percent, but he makes enough to live a pretty comfortable lifestyle and cover his other household expenses. One of his employees only makes $1,500 a month and pays $400 a month in rent. Her rent puts her below 30 percent cutoff, but she struggles to make ends meet, and risks debt when a catastrophe, like a car repair, hits. But the VP would be considered burdened by his housing. The employee isn’t.
The cost of living also rises at different rates in different parts of the county. Many highly educated professionals with six-figure salaries can no longer afford to live in San Francisco or New York City, or Washington, D.C. The cost of housing has risen far more then the cost of wages or other goods. Housing listed as affordable might involve a two-hour commute to work, or have a long wait-list, because of high demand.
One expert, Michael Stone, is often cited for his suggestion to create a new way of judging affordable housing, by taking into consideration a host of issues, from the rising cost of commutes outside of a main city center, to the cost of childcare. Such an equation takes a lot more effort to process than a simple 30 percent threshold, especially on a family-by-family basis when it comes to fair distribution of affordable housing assistance. But that’s just one example of a potential way around the issue. Because no matter how housing costs are calculated now, the 30 percent rate doesn’t meet the real needs of many families.