Housing is one of the largest expenses in most household budgets, which means that changes in housing costs can have a significant impact on whether or not a household is able to make ends meet. This is particularly important in places where housing supply has not kept up with demand.
Recent research from Zachary Parolin at the University of Oxford attempts to answer this question by looking at housing costs and poverty across the United States. The results suggest that in some of the country’s most expensive states, a substantial share of poverty can be attributed to housing costs. In Hawaii, California, Washington, D.C., New Jersey, Massachusetts, Colorado, Maryland, Connecticut, New York, and New Hampshire, between 16% and 34% of poverty is attributable to above-average housing costs.
How do we measure poverty?
Technically, housing costs should not impact poverty rates at all. This is because the Official Poverty Measure
only compares a household's pre-tax income to a poverty threshold that was originally based on the cost of a minimum food budget. The threshold varies based on household size and composition, but it does not adjust for differences in the cost of living across geographic areas.
This creates some obvious limitations. A household earning $30,000 in a relatively inexpensive rural area does not face the same financial constraints as a household earning $30,000 in San Francisco or New York City.
The Supplemental Poverty Measure attempts to address some of these by accounting for taxes and government benefits such as SNAP, as well as certain necessary expenses. It also importantly accounts for geographic differences in housing costs.
In practice, the Supplemental Poverty Measure tells us more about how a household’s income compares to their local cost of living, while the Official Poverty Measure tells us about how incomes vary across the country.
Housing and poverty
Housing is included as part of the Supplemental Poverty Measure because it is an essential expense. Households often can’t simply stop paying for housing if the price goes up or if their financial situation changes.
Parolin's analysis asks what would happen if rents were 20% lower while everything else remained the same. In the states included in the analysis, that hypothetical reduction in rents would reduce overall poverty rates by roughly 18% (DC and New Hampshire) to 26% (Hawaii) and child poverty by 21% (New Hampshire) to 38% (Colorado).
The study also mentions how the increase in housing costs over recent decades has also eaten into some of the gains from programs designed to reduce poverty. In the states included in the analysis, rising housing costs offset more than half of the increase in SNAP benefits between 1989 and 2023. In New Jersey, rising rents effectively consumed 84% of the increase in SNAP benefits.
How can housing policy impact supply?
With housing policy, there are a huge number of rules and regulations that make it difficult for state and local governments to simply build new supply. Things like zoning rules and building codes can make it difficult or expensive to add housing.
There is some evidence that changing these policies can have meaningful effects. Austin and Minneapolis, for example, have both seen inflation-adjusted rents fall by roughly 20% following housing reforms and increased construction.
These effects result from the fact that the housing market in a city is extremely interconnected. New housing does not just house the people who move into it, it also frees up the homes those people leave behind. Those homes can then be occupied by other households. As this process continues, adding new housing can create a chain of moves throughout the market, increasing the availability of housing at a range of price points.
Of course, this doesn't mean that building a luxury apartment automatically makes housing affordable for a low-income household. The effects depend on how much housing is built, where it is built, and how responsive the market is to additional supply. In general though, housing supply affects the entire market, not just the people who move into newly constructed buildings.
What does this mean for policymakers?
A lot of anti-poverty policy focuses on increasing people's incomes. We give households cash or benefits through programs such as SNAP, the Earned Income Tax Credit, or the Child Tax Credit, or we increase wages through minimum wage laws. If we look at poverty through the lens of the Supplemental Poverty Measure, then we see that lowering costs is an equally effective way to reduce poverty. Housing is particularly important because it is difficult for households to adjust their consumption when prices increase.
If policymakers make it easier to build housing in places where demand is high, the resulting increase in supply can reduce rents. Lower rents effectively increase the purchasing power of households..
If the price of housing is substantially higher because we have not built enough homes, then some households will be pushed into poverty simply because it costs too much to live where they live. One benefit of trying to tackle this problem via housing policy is that some options like zoning reform don’t require significant resources to enable.
That doesn't mean that every housing regulation should be eliminated or that building more homes will solve poverty on its own. It does suggest, however, that policymakers interested in reducing poverty should pay attention not only to how much money households have, but also to how much it costs them to live.
