Posted by: Josh Lehner | January 25, 2023

Oregon Households Struggling with Housing Costs

We know Oregon housing affordability is bad and is a macroeconomic risk if working-age households cannot or choose not to live here. During the pandemic affordability worsened as we had a household formation boom resulting in very low vacancy rates and rising rents. Those dynamics are now shifting and there is a bit of encouraging news in the pipeline I will get to tomorrow. But first I wanted to highlight some new affordability work I have been doing.

There are myriad ways to measure housing affordability. Each metric has pros and cons. The most commonly used measure is if a household’s housing costs are more than 30% of income or not. It’s a quick and easy measure you can pull off published Census tables. It’s simple to understand. But it lacks any nuance. What about households where they have below market rate housing costs but still do not have enough money left over to put enough food on the table or buy winter coats? That’s where a measure like residual income comes in. It looks at how much money you have after paying for housing costs. It’s a superior measure in that it gets at what we really mean by being housing cost burdened. The challenge here is this measure is not readily available, you have to dig into the microdata and create it yourself. And there aren’t really any guides or handbooks on how much money you need to everything else besides housing. And so you can turn to something like MIT’s Living Wage calculation to figure out how much a household needs to live reasonably comfortably. There are other options here like the self-sufficiency standard, or United Way’s ALICE and the like. But for now I have used the Living Wage at least as a placeholder to get at these issues.

So what does the 2021 data show for Oregon? 21 percent of renter households in the state were living in poverty. However, 44 percent of rental households spend more than 30 percent of their income on rent each month. 54 percent of renters do not have enough income left over after paying rent to afford the basics. And 63 percent of rental households have incomes below MIT’s Living Wage calculation for Oregon based on various household sizes and compositions. There are hundreds of thousands of Oregon households who struggle with high housing costs relative to their incomes.

Oregon homeowners with a mortgage are relatively better off — because most homeowners have higher incomes, hence why they can better afford to buy versus rent — but still many struggle with high housing costs. 4 percent of homeowners have incomes below the poverty line. 20 percent of homeowners spend more than 30 percent of their income on their mortgage, and/or do not have enough income left over after paying their mortgage(s). 31 percent of homeowners in the state earn incomes below MIT’s Living Wage calculation.

One key distinction that gets lost in these numbers is the relative overlap between the different measures. For instance, there are about 48,000 Oregon households (3% of the total) that spend more than 30 percent of their income on housing but also have enough residual income left over to cover other living expenses. These households are traditionally cost-burdened but not necessarily living in hardship. This group is an indication that some measures could overstate the true number of neighbors struggling. After all if, say, a doctor chooses to spend lavishly on housing, they would still be able to pay the bills and put food on the table. That said, there are 100,000 Oregon households (6% of the total) that are in the reverse situation. These households spend less than 30 percent of their income on housing but do not have enough residual income left over to cover other living expenses. So, on net, this would indicate that the rough rule of thumb of 30 percent of income understates Oregon households who struggle with high housing costs. These different subgroups are important to note, but are relatively small pieces of the overall picture.

So what does all of this mean? The story here is not new, even if this particular chart uses new, updated data. It means we know there are hundreds of thousands of Oregon households that struggle with high housing costs relative to their incomes. There is always a great need for assistance for our neighbors, family, and friends. It means we need to see an increase in overall supply of housing production to help with broad affordability. This includes new market rate housing that meets the needs of high-income households so they are not competing with low- and middle-income households for the same units, and also more targeted investments to increase the supply of Affordable and workforce housing as that is where the current needs are greatest. I think there is some progress being made, or will be made for portions of this, which I will talk a bit more about tomorrow.

Also stay tuned. I have regional versions of the chart above. I know many cities and counties have similar type calculations from work they have done, or had consultants do. I won’t presume to know all the local details and defer to individual cities work. But I think one benefit here is at least using a consistent methodology and dataset across the state. In the next week or two I will finish up the regional income trends work and include the housing costs charts as well.


Responses

  1. Josh,
    Knowing that we need housing units, the question becomes which type of housing should be built and how to expedite that type of housing. Obviously, there is not a singular solution to the housing challenges however, one scenario that I haven’t seen is incentives for the modern multi-faceted retirement homes. Would the data back-up the idea that we have an aging demographic staying in in their family homes longer because there is a lack of senior living options available? If those seniors had affordable and attractive options, they would vacate those single family homes giving the millennial generation a more affordable selection. And they would intern vacate their living spaces so others would have some choices etc. Just a thought.

    • Hi John, it’s definitely true that people are staying in place longer and given demographics that means more empty nest type. However this isn’t new. Downsizing has always been more myth than reality. Most people don’t move. But I do think the tight housing market and higher prices keeps even more people not moving or downsizing than would be the case in a better market with better affordability and more options and choices. We did some stuff on downsizing a handful of years ago. Probably should revisit that with newer data. https://oregoneconomicanalysis.com/2018/05/18/fun-friday-do-people-really-downsize/

      • I have some direct, and I think instructive experience on “downsizing.” My late parents wanted to remain in the home they’d built and raised a family in for decades. They were safe and connected with the half dozen households around them.

        It was long past when it was a challenge for them in that house on a couple acres, but they stayed. After my Dad passed away, my Mom still stayed. After a number of years, when she finally moved, it wasn’t for some “woke” notion of “downsizing.” It was because all the neighboring households had change occupants, who either had no contact with my Mom or were admirably solicitous, but not personal friends.

        And … she was able to move to one-story duplex with a small rear patio adjacent to woods where she could feed the birds and plant a few flower bulbs. It was a multi-tiered development also including independent living in a modest apartment complex where the dining room, etc. was co-located, and then “assisted” living facility, and ultimately for some residents, a “nursing” facility. There was flexible, regular bus shuttle service, etc.

        She made friends with folks who lived around her and whom she met over the several meals she had at the dining room each week.

        So … riddle me this anyone who thinks the solution for folks like my Mom is to deregulate (i.e., upzone) single-family neighborhoods like she lived in to allow so-called “Middle Housing” — do you think ordinary folks like my Mom would move to a new, market-rate fourplex built on a lot where one of her neighbors’ lower-cost, single-family home was demolished?

        This “Anti-Exclusionary Zoning” to allow denser _market-rate_ housing is nonsense and a pure scam by investors and duped, “virtue-signalers.”

        This is why we so desperately need OEA to get out solid, actionable analysis of true economic “need,” other consumer criteria (e.g., for seniors, and other household configurations), supply, cost factors, and investor strategies.

        Only then can we move from virtue-signaling, ineffective and harmful policies like HB2001 and other neoliberal, “free-market” based policies, to evidence-based, results-oriented policies, programs, and funding.

        (Note that I FAVOR zoning reform. HB 2001 is NOT “reform” it’s further corruption that favors the wealthy.)

  2. yet, our policies make it extremely difficult to site, permit, and expedite housing projects to ease the escalation in costs! Everyone talks about this, and it seems nothing changes.

  3. Yay! I have been pushing to have the “housing crisis” analysis be based on “residual income” rather than the “30% criterion.

    This is a first step.

    Now, three critical next steps … breakdown the stats by
    1. household income and household size/demographics
    2. area, particularly “urbanized” and “not urbanized.
    3. For each area, stats on housing inventory (especially rentals by bedrooms and cost)

    I don’t think the stats necessarily support the unqualified conclusion that “This includes new market rate housing that meets the needs of high-income households so they are not competing with low- and middle-income households for the same units …”

    The housing market is well understood to have low “cross-category elasticity,” and there is very weak evidence that building high-cost housing reduces the cost of housing tin the categories of affordable to most housing-cost-burdened households.

    Or, that densification in City centers by _market rate_ housing will improve, rather than worsen, the economic and equity situation for low-income households.

    But now OEA is at least on the right track.

    Thanks Josh. Keep diving deeper.


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