The Housing Crisis as a Crisis of Poverty
The U.S. is facing a severe housing affordability crisis, with a growing number of Americans unable to afford a decent place to live. However, the root cause of this crisis is not a shortage of housing supply, but rather a crisis of persistent and worsening poverty.
Despite the common narrative that the housing crisis is driven by a supply shortage, the data tells a different story. When we look at housing prices relative to average American incomes, there is little evidence of a widespread shortage. The average house price has remained relatively stable at around 5.9 times the average annual income since the 1970s, and median rents have even fallen slightly compared to incomes over this period.
The real crisis lies at the bottom of the income distribution. A growing number of Americans, particularly the poorest, simply do not have the means to afford housing. This is clearly illustrated by the sharp rise in “house poverty” and “rent poverty” rates over the past several decades.
For example, the portion of Americans whose annual income is less than 5% of the average house price – a group we can consider “house poor” – has nearly tripled since 1970. And the share of those whose income is less than 1% of the average house price – the “extremely house poor” – has swelled 13-fold.
Similarly, the rate of rent poverty, defined as the share of Americans with monthly incomes less than the median rent, has more than doubled since 1970. For the most destitute, the portion with incomes less than 20% of the median rent has increased 11-fold.
The Root Cause: Inequality and the Theft of Wealth
What has driven this collapse in incomes at the bottom of the distribution? The answer lies in the rise of inequality in the United States over the past 50 years. Starting in the 1980s, America embarked on an experiment with rampant income redistribution, systematically taking money from the poor and funneling it to the rich.
This “legalized theft” has created opulence for the elite and grinding austerity for the less fortunate. The result is a housing crisis that is not fundamentally about supply, but about the concentrated wealth and power of a small segment of society.
To illustrate the impact of this inequality, we can imagine an alternative history where the U.S. had maintained the more egalitarian income distribution of 1970. In this counterfactual scenario, the housing crisis would essentially disappear.
By returning to 1970 levels of inequality, the rate of extreme house poverty (incomes less than 1% of average house price) could be reduced sixfold, and the rate of extreme rent poverty (incomes less than 20% of median rent) could be cut by a factor of 11. The unaffordability crisis that plagues millions of Americans would be largely resolved.
Beyond Supply-Side Solutions
The traditional policy response to the housing crisis has been to focus on increasing the supply of affordable housing through subsidies and development incentives. While these efforts are well-intentioned, they ultimately treat the symptoms rather than the root cause.
Subsidizing housing is akin to handing food stamps to victims of theft – it may alleviate immediate needs, but it leaves the underlying problem of wealth extraction unaddressed. What the poor truly want is not just subsidized housing, but the restoration of the money that was taken from them in the first place.
To truly solve the housing crisis, policymakers must be willing to confront the reality of rising inequality and consider bold measures to redistribute wealth back to the lower and middle classes. This could involve raising top marginal tax rates, strengthening labor unions, and reinvigorating the social safety net – policies that were the norm in the more egalitarian America of the 1970s.
A Call to Action
The housing crisis in the United States is a stark manifestation of a deeper societal problem – the concentration of wealth and power in the hands of a few at the expense of the many. By framing the crisis as one of “shortage” rather than “theft,” we risk perpetuating the very conditions that created this emergency in the first place.
It is time to have a frank and subversive conversation about inequality, wealth redistribution, and the role of government in ensuring housing affordability for all. Only by acknowledging the true nature of this crisis can we begin to chart a path towards a more just and equitable society.
The solutions may seem radical, but they are grounded in the reality of what is possible when we return to the more egalitarian norms of the past. It is time to reject the narrative of scarcity and reclaim the vision of a “Great Society” where everyone has access to the basic necessities of life, including a decent and affordable place to call home.
Appendix: The Math Behind the Thought Experiment
To model the counterfactual scenario of 1970-level income inequality, I start with real-world data on the U.S. income distribution from the World Inequality Database. This data provides the income thresholds for various percentiles, allowing me to reconstruct the full distribution.
In the alternative timeline, I assume that this income distribution remains constant at 1970 levels, with only the average income growing in line with real-world GDP per capita. This allows me to calculate the hypothetical incomes of different percentiles and compare them to housing costs.
By tracking the portion of Americans whose incomes fall below crucial housing affordability thresholds (e.g., 5% of average house price, 20% of median rent), I can quantify the dramatic differences in housing poverty rates between the real-world trajectory of rising inequality and the counterfactual path of maintained 1970 equality.
The scale of the divergence is staggering. Had the U.S. avoided its neoliberal experiment and kept inequality at 1970 levels, the rates of extreme house poverty and extreme rent poverty could be 6-11 times lower than the dire situation we see today. This underscores the central role that rising inequality has played in fueling the housing affordability crisis.
Of course, reversing decades of wealth extraction is no small task. But by acknowledging the crisis as one of “theft, not shortage,” we open the door to more transformative solutions that get to the heart of the problem. The housing emergency may seem intractable, but the math shows it is eminently solvable – if only we have the courage to take on entrenched power and wealth.
