Tag Archives: housing cost burden

The 30 percent itch

What’s up with 30 percent? Why is 30 percent the standard benchmark for the share of income that an average household can afford to spend on housing? That figure has been around for decades. Where did the number come from, and is it still appropriate?

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An article in Fortune raises these questions and implies that, well, maybe the threshold should be higher in the 21st century. After all, the 30 percent benchmark dates from the Depression and the long-ago debut of public housing.

Well, it’s always worth questioning shibboleths. The hazard in this case is that raising the benchmark would fall hardest on the people who are already the most squeezed and potentially provide an excuse for cutting their public benefits even further.

Back in 1937, 30 percent was set as the share of income that public housing residents were expected to spend for rent. Today, that’s the share that Section 8 recipients are expected to spend. It’s the share of income that a renter spends for an apartment that’s deemed “affordable.” Apartments that cost more are “unaffordable,” and renters living in unaffordable apartments — that is, people who pay more than 30 percent of income on rent and utilities — are considered “cost burdened.” (In Vermont, that’s 52.5 percent of all renters. Those who pay more than 50 percent are “severely cost burdened – that’s 26 percent of Vermont’s renters, and 12 million of the nation’s households.)

Undeniably, household spending patterns change over time. A study by the Bureau of Labor Statistics of 100 years of consumer spending found that, on average, the percentage of income spent on housing has gone up: From 23 percent in 1900 to27 percent in 1950 to 33 percent in 2002-03. (That’s right, Vermont’s cost-burdened percentage of about 50 percent is close to the national average.) Meanwhile, the share spent on food went down — from 42 percent in 1900 to 13 percent in 2002-03.

The Fortune article argues that we should all expect to be spending a larger share of our income on housing today than back in the Depression. On the other hand, a threshold of roughly 30 percent still means something to mortgage lenders, so maybe it’s not as obsolete as it might look. What’s more, a 2006 Census Bureau study that looked at the history of the 30 percent housing benchmark concluded that it was still appropriate, especially for families of lower incomes.

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The fact is that a family with an income $200,000 or more can more easily afford to spend a higher percentage on housing and have plenty left for other necessities. For a family like  that, a housing “burden” is considerably more bearable.