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August 25, 2004

Housable Income

Earlier this month (ages ago, in blog time), Charles Hill brought up the issue of "affordable housing." I've held on to the URL for so long because housing is a major issue in Rhode Island. As every informed citizen of the state knows, we are heading for an affordable housing crisis ("!"). As valid as the applicable numbers and conclusions may be, Charles's first commenter, the Proprietor, raises one of those unspoken angles that issues tend to have under their skirts:

The main thing to realize is that this has *nothing* to do with providing affordable housing. It is a way to bust zoning in exclusive communities so there is a more fertile field for developers to build housing.

Although I shudder to suggest it, in response to the New Jersian commenter, it may be that Rhode Island's system is a bit more corrupt. According to various conversations that I've had, affordable housing rules have been leveraged in attempts to bust the zoning rules even in some of the poorer, most "affordable" towns in the state. It has become a pervasive part of the culture, here, that people must grab all that they can, and that the government is an appropriate method through which to do so... on the sly and with altruistic-sounding rhetoric for cover.

Whatever the political struggles for finding the land, however, it's undeniable that Rhode Island has a problem. And Charles may point the way toward a solution:

At my income level, I couldn't possibly hope to live in a place like Lincolnshire. In a society with some measure of rationality, I would be urged to do one of the following: either improve that income, or go live somewhere I can afford. The town can't legally keep me out — probably wouldn't dream of keeping me out — but there's no justification for forcing a property owner in that town to sell to me, or to rent to me, at a price far below what he wants and can get.

There are two words in the phrase "affordable housing," and thus two sides of the equation. If, for example, Rhode Island could match the average annual wages of its neighbors, Connecticut and Massachusetts (PDF), the affordable housing crisis would disappear overnight. Prices that are exorbitant to the poor are reasonable to the less poor.

This represents a complex subject matter, to be sure. Holding population and available housing steady while everybody's income rose, for example, would surely cause housing costs to rise accordingly. Furthermore, any solution aimed at raising income levels would require a degree of subtlety and a long view often lacking in our government. One typically short-sighted solution is to increase the minimum wage, and Rhode Island's top-five minimum wage (31% greater than the federal minimum wage that most states follow) hasn't managed to increase our average income even above the country's mean line.

It probably isn't a stretch to suggest that the minimum wage is one factor among many keeping businesses out of our state and constraining the types of jobs that are created. Another Providence Journal piece about affordable housing reports:

Of the 20 occupations projected to add the most jobs between 2000 and 2010, only four -- registered nurses, computer support specialists, secondary school teachers and elementary school teachers -- pay enough for a median wage earner to afford a two-bedroom apartment at the state average rent.

A quick look at the list of the fifty fastest-growing occupations in the state reveals that almost all of them are location-specific. In other words, they increase only inasmuch as there is enough money in Rhode Island to make it worth doing more business here. In such cases, a region is the source of revenue, but not necessarily the destination, and with the exception of tourism and higher education, the money in Rhode Island increasingly tends either to circulate within the limited local market or to flow out of state. Emblematically, the two fastest-growing occupations are registered nurses and retail salespeople.

The latter — retail — tells a particularly worrying story when it is considered that the list of declining industries is almost entirely made up of varying forms of manufacturing. Companies are willing to sell in Rhode Island, but not to build here. Returning to the minimum wage, it's one thing to pay 2,481 retail clerks $6.75 an hour when the only other option is to let the state's retail market go untapped. It's another thing to place any other point of the company's operational chain in a state that demands low-level positions to pay $1.6 more per hour than in most states across the nation. Hiring 2,481 workers at that level in Rhode Island (assuming 40-hours and paid vacations) would cost the company an additional $8,256,768 per year.

As I said, this problem has only complex solutions, but it poses questions that people in all states must ask themselves. What are our priorities? Where do we have to compromise our desire to give everybody everything so that we don't make it impossible for more than a minority to get anything? Rhode Island, for one, can no longer afford its distrust of the free market and disbelief in the power and importance of individual responsibility. It certainly can no longer afford to let the recipients of public funds insulate themselves from financial realities as everybody else experiences them.

Here's where the various issues begin to come together. In Rhode Island:

  • The average annual private-sector wage in 2002 was $33,240, or $2,770 per month.
  • An "affordable" monthly housing payment from that amount (one-third) is $914.
  • The average rent for a two-bedroom apartment in 2003 was $989.
  • The median monthly homeowner housing cost in 2000 was $1,205.
  • The fastest-growing industry is Elementary and Secondary Schools, with 5,122 new jobs by 2010.
  • The average Rhode Island teacher made $7,108 more than the average teacher for the nation as a whole during the 2002–2003 school year.
  • 5,122 times $7,108 is $36,407,176.
  • Not to mention benefits.
  • $36,407,176 is the amount of extra money that companies would have to pay each year for 10,940 minimum-wage workers in Rhode Island, as opposed to somewhere else.
  • In another state with the national minimum wage of $5.15, those companies will pay 10,940 employees a total of $117,189,280 per year.
  • Minimum wage workers often represent second or third incomes for a given household.
  • Companies don't just hire people at minimum wage.
  • Rhode Island consumers are probably buying the products that those companies make.
Posted by Justin Katz at August 25, 2004 4:46 PM
Government
Comments

Excellent article about the housing "crisis" and related issues...Keep up the good work.

Posted by: TCC3 at August 25, 2004 7:21 PM

There is no housing crisis. There most definitely is NOT an affordable housing crisis. There IS a government crisis. IT's funny that the usual answer to most and specifically this crisis is MORE government intervention. Funny that the worse the problem, the more government gets involved. And that is exactly the problem.

Companies don't move here, because, to be honest, this state sucks. The govenrment is intrusive, corrupt and there are high taxes. Why WOULD anyone come here?

The more people decided they didn't need government to do everything for them and the quicker they got rid of the huge government that exists... the better this state will be

Posted by: Paul at August 27, 2004 10:36 PM