Sticky inflation has made the cost of living a pressure point for many Americans, especially low-income workers. The already squeezed US housing market is seeing a shortage of low-cost units, and economist and policy consultant Kathryn Anne Edwards joins Wealth! to discuss the crisis.
“What we know is that the number of affordable units is falling in the US, and that wages at the bottom are simply not growing to keep up with the housing market,” Edwards explains. She notes that alongside high prices and trailing wages, there is an overall shortage of units.
However, building more units won’t totally solve the housing market’s issues: “The inflation crisis that we have right now has lent a lot of lens and spotlight on housing prices, because they seem to be keeping inflation from falling at the level that we’d want. But the income side gets so much less attention. The minimum wage right now is $7.25 an hour. If you work every hour of the year, you can afford $377 a month in rent. There is no amount of housing supply that is going to create a $377 a month apartment in almost every single metro area in the US, including most rural areas.”
To combat this issue, she explains that the supply side of the market must invest in diverse housing options, from single-family homes to multi-family homes, to cater to all income levels. On the income side, she poses a larger, unanswered question.
“Why [do] we have… our labor market [structured] to produce so many working poor people?” She adds, “Nobody pays people as little as we tend to pay people in the US. So yes, there’s lots of ways to unlock the housing market through more supply and more movement. But how do we generate better incomes at the bottom? Housing just offers us a lens to think about how our economy produces income.”
Edwards pushes back on the widely-held notion that an interest rate cut from the Federal Reserve will fix the housing crisis. While it may help ease pressures, she explains:
“Most US households cannot declare victory over the amount of money they are spending, either on their rent or on their mortgage, even after CPI (Consumer Price Index) moves enough for us to feel like we’ve won over inflation. So I think it’s critical to bring up this idea of affordability for Americans and just this fundamental disconnect between how much people earn and how much housing costs that will not go away even when we get a good CPI print… This is the time to think creatively, and it’s time for policymakers to act.”
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