Metropolis

What Makes Rent “Affordable”?

America’s standard metric compares rents to incomes. That doesn’t tell the whole story.

Side by side images of Los Angeles and Cleveland.
Photo illustration by Slate. Photos by NAN104/iStock; PapaBear/iStock.

It’s no surprise that a California ballot measure to restore rent-control power to cities has the most support in Los Angeles. The city has the nation’s largest unsheltered homeless population and strongest anti-gentrification movement, and it’s often ranked the least affordable metro area in the United States.

And yet, if you look at the most common measure of rental affordability—the share of tenants who pay their landlords more than 30 percent of their incomes—Los Angeles is nearly indistinguishable from cities like Orlando, Florida, and New Orleans. To any Angeleno, that feels like nonsense. Is it?

The simple rent-to-income comparison melts away a lot of details, making a city like Los Angeles look more or less affordable depending on how you measure what affordability means. That’s not just an academic point: Democratic senators preparing for 2020 are scrambling to put out bills that address sky-high rents as a national issue. They’re not.

If you think Los Angeles and other high-rent cities are exceptionally hard to afford, the arguments against the 30-percent-of-income standard are numerous. It can’t tell the difference between places where rents are growing too fast and those where incomes are growing too slowly—making it hard to tell if the problem is a housing shortage or the more entrenched issue of poverty and low wages. Because the scale measures income-to-rent proportions and not absolute numbers, it blurs differences between U.S. cities, making Washington appear “more affordable” than Tampa, Florida, or Houston and Seattle and Phoenix nearly identical. Because of this, the 2017 data looks virtually identical to the 2000 data: By every measure tenants are more stressed, but the positions of cities on the affordability chart haven’t changed. California cities are only slight outliers; expensive metros are seldom more than 8 percent above the national average, while affordable ones are rarely more than 8 percent below.

Graphic: share of renters who are cost-burdened in 2017 by city.
University of Southern California

“The measurement of affordability is too similar. It’s got to be worse some places than others, but it doesn’t show up,” says Dowell Myers, an urban planning professor at the University of Southern California. Along with JungHo Park and Eduardo Mendoza, he put forth a model this month to try to more accurately assess how incomes and rents have changed since the millennium.

Researchers at the Harvard Joint Center for Housing Studies analyzed the 30 percent standard and made the opposite argument. Christopher Herbert, Alexander Hermann, and Daniel McCue wrote in a brief published last month that Los Angeles is more affordable than the standard measurement implies, because the metric scoops up a lot of young childless renters with good jobs whose high rent payments don’t actually impede their ability to cover health care, transportation, and other basic expenses.

These analyses are crucial in consideration of the Senate Democrats’ housing bills. Sen. Kamala Harris announced one in July, Sen. Cory Booker in August, and Sen. Elizabeth Warren in September. As Harris’ proposal shows, any kind of federal policy that helps tenants make rent in high-cost cities is going to constitute a big influx of cash into the most moneyed parts of the country, where gaps between rents and incomes are largest. Different cities have different problems, and a one-size-fits-all approach won’t work.

Here’s how things work in the USC paper—the one that claims the reality in Los Angeles is worse than the standard data shows. Rental housing units are divided into four equal tiers, according to their 2000 rents. When, adjusting those rents for inflation, the researchers find out which shares of current units correspond to the four original buckets. This is useful because it separates segments of the market and distinguishes rents and incomes. Then they do the same breakdown for incomes, comparing changes in rent to changes in income—with illustrative results.

What they’ve found: In the U.S. as a whole, 39 percent of renters are now paying what was in 2000 considered a top-quartile rent. The high end of the market has expanded. In California, it’s 49 percent. In L.A. County, it’s 55 percent. You can also see that below-average rents, by 2000 standards, have virtually vanished—not even 1 in 4 Angelenos has a rent that would have been then considered below the median. On income, the main difference is that 30 percent of Angelenos now work what would have been considered top-quartile jobs in 2000. So more than a quarter, but not nearly enough to offset the rent burden.

Graphic: Four quartiles of renter income versus gross rent in the United States.
University of Southern California
Graphic: Rental income versus gross rent in Los Angeles City.
University of Southern California

San Francisco-Oakland is different: What were once considered top-quartile rents now make up 50 percent of the market. But here, 34 percent of renters now make what was, in 2000, considered a top-quartile salary. By incorporating this high-end wage growth, the typical rent-to-income chart underestimates San Francisco’s housing problems: The departure of low earners to the distant exurbs (or out of California entirely) is making the city look more affordable on paper: By the 30-percent standard, San Francisco is more affordable than Houston, Indianapolis, and Albany, New York!

The enormous boom in high-rent housing in Los Angeles illustrates that the city’s rent crisis is not an issue faced only by the poor. Does that make it less of a crisis? The Harvard report argues yes. Comparing rent burdens in Los Angeles and Cleveland by income, the researchers note that low-to-moderate-income families are much more likely to have trouble paying rent in L.A. than in Cleveland, and only in Los Angeles do families making more than the median have rent burdens.

Graphic: Share of renters paying over 30 percent of income on housing, comparing Cleveland, Phoenix, and Los Angeles.
Harvard

This means Los Angeles is in some ways less of an outlier in terms of real affordability, because its high rents affect people who still have money left over for transportation, child care, health care, and other expenses. The Harvard report considers what burdens might look like if we compared rents not to a fixed 30-percent-of-income standard but to “residual income”—the maximum a household can spend on housing while still having money left over for necessities. The cost of the basics (excluding taxes) rise with household size but not really with income, except if you lease a Lexus instead of a Toyota or start shopping at Whole Foods. So the residual income metric is a sliding scale, which incorporates the fact that young techies can spent 50 percent of their income on rent and still have no trouble eating out every night.

By the residual income measure, the difference in cost burdens between L.A. and Cleveland moves from 11 percentage points (57 versus 46) to just 4 percentage points (51 versus 47). By putting an emphasis on what’s available for non-housing spending, virtually no one in the top half of all earners is burdened in Los Angeles.

But if you’re focused on solutions, discounting gentrifiers’ problems probably isn’t a good idea: When rents are eating up the incomes of teachers and car mechanics, those people choose apartments formerly available to people lower on the income scale. Furthermore, a functioning housing market should be able to provide affordable units for middle earners. No housing market, by contrast, will ever provide housing that’s affordable for the lowest-income Americans.

The USC research draws out this divide. Nationally, Cleveland has among the lowest rents among big U.S. cities. Yet in terms of rent burdens, Cleveland is in the middle on the traditional scale. It has the worst rent burdens in the Midwest, worse rent burdens than San Francisco, and the share of renters paying more than 30 percent of income to their landlords has leapt 10 percentage points since 2000. The USC analysis shows that luxury apartments are not to blame: It’s incomes, more than rents, that are changing for the worse. Rents are basically aligned in the same four quartiles they were in 2000. But more people in Cleveland are making less money. So while Angelenos and Clevelanders might experience similar levels of stress around what’s left over after the rent check goes through, the two cities have opposite problems—and require different solutions.