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SOH 2012: Chapter Two - The Economics of Homelessness
Report | January 17, 2012
Although homelessness is often ascribed to characteristics of individual homeless people, the root cause of homelessness can largely be explained by economics: people who become homeless have insufficient financial resources to obtain or maintain housing. This is especially the case for 83 percent of the homeless population who experience episodic, transitional, or temporary periods of homelessness.
An exemplification of the economic challenges that people in poverty face in obtaining housing is the level of housing cost burden. Housing is considered affordable when it accounts for 30 percent or less of monthly household income. There are nearly 40 million U.S. renter households and nearly 1 in 4 are severely housing cost burdened, meaning they spend 50 percent or more of their monthly income for housing. Households below the poverty line face the most acute cost burden and spend a considerably larger fraction of their incomes on rent.
Analysis of data from the U.S. Census Bureau’s 2010 American Community Survey (ACS) shows that 75 percent of households at or below the poverty line are severely housing cost burdened. When housing accounts for 50 percent or more of a household’s resources, any unexpected financial crisis could jeopardize housing stability and lead to an increased risk of homelessness.
While housing affordability is an issue across the nation, data show that problems of severe housing cost burden vary by state. Table 2.1, which shows states with the highest and lowest levels of housing cost burden among poor renter households, reveals that Hawaii and Nevada have rates of severe housing cost burdens of over 80 percent. The table also shows that even in the state with the lowest level of housing cost burden, Maine, nearly 60 percent of households below the poverty line are paying 50 percent or more of their incomes for housing.
Consistent with high levels of housing cost burden among people in poverty, one of the most frequently self-reported reasons for homelessness is the inability to afford housing. Another commonly self-reported reason is the lack or loss of a job. Data from the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) show that the annual rate of unemployment in 2010 was 9.6 percent, the highest annual rate since 1983. Table 2.2 shows states with the highest and lowest unemployment rates in 2010. As indicated in the table, rates vary widely between the states. Nevada’s unemployment rate – the highest in the country – was almost four times higher than the lowest rate in North Dakota.
In addition to lack or loss of employment, low earnings among those who work also affect the ability to afford housing. Analysis of the 2010 ACS shows that workers in poor households who work at least 27 weeks out of the year earn only 20 percent of the national average for all workers. At $9,413 per year, a household supported by a single worker earning the average poor worker income would need to find housing at less than $235 per month, in order for that housing to be considered affordable. Fair market rents for a one-bedroom apartment exceed this in every county in the U.S.
It is also important to note the effect that foreclosure has had on current housing trends in the country. People who lose housing due to a foreclosure are generally not at high risk of experiencing immediate homelessness. Still, anecdotal evidence suggests that some people who lose their housing due to foreclosure turn to the homeless shelter system. Most who do so are renters who lived in foreclosed rental properties, but some are identified as owners. Table 2.3 shows the states with the highest and lowest foreclosure rates and the disproportionate number of foreclosures in Nevada, Arizona, and Florida.
This is an excerpt from the chapter. To read the entire chapter, please download the chapter using the link above.