A new study from the Brookings Institution’s Future of the Middle Class initiative defines this all-important demographic as the three middle quintiles (or fifths) of Americans sorted by income. From here, the paper by research fellow Jenny Schuetz goes on to make a few surprising conclusions about America’s middle class and its experience in the housing market.
One conclusion isn’t what we might first assume: Even as home prices and rents across the U.S. have risen faster than incomes for much of the 21st century, most of the middle-class isn’t feeling particularly squeezed by housing costs. However, affordability is a much more urgent problem within certain subgroups that comprise the middle-class. In particular, members of the lower middle-class quintile are spending about 40 percent of their income on rent or mortgage payments, above the 30 percent threshold that most consider affordable. More middle-class families with children report crowded home conditions, in which more than two people per bedroom occupy a household. Finally, a large swath of middle-class households, according to the Brookings report, experience longer than average commute times. Across all three middle-income quintiles, around 10 percent of workers in high-cost metros say they deal with commutes in excess of one hour, ostensibly because they live in more affordable suburbs. Moreover, affordability worsens when examined along more predictable racial and other demographic lines.
“It’s not that we haven’t known this is a problem,” Schuetz said when presenting her findings at a seminar in Washington, D.C., May 8. “It’s just that the politics turn out to be a little more difficult than many realize.”
Why middle-class housing inequality is a tough fix
Cost, crowding and commutes have long been issues that middle-class households struggle with, and solutions to these and related affordability problems have long been a facet of political platforms on both sides of the ideological spectrum. So why haven’t they been addressed in any meaningful way, generations after the middle-class became the driving force behind civilian life in America?
A key issue, and the most obvious area for improvement, Schuetz said, is the numerous policies that empower homeowners politically and financially. By contrast, renters are often excluded from, or negatively impacted by, those same policies.
“Many homeowners with excess space have built up a lot of wealth, but they are resistant to allow new development that will reduce the value of their home or simply change the neighborhood,” Schuetz said.
But solving the affordability problem among the middle-class doesn’t have to come at the expense of homeowners. Schuetz pointed out that even among the cost-burdened lower middle-class, the difference between affordability and un-affordability is the equivalent of about $100 dollars per month, on average. Therefore, it would take only modest increases in income, or modest reductions in living expenses, to level the playing field. On the income side of the equation, Scheutz suggests expanding the Earned Income Tax Credit to cover workers in the lower middle-class. On the other side, the government could offer incentives for reducing energy consumption that would simultaneously lower housing costs, or create a “forced savings mechanism” for renters that mirrors the wealth-building power of home equity.
“There are wide variations in the kind of housing challenges faced by middle class families – by metro area, race, income level and family type,” Schuetz wrote. “Policies to reduce housing stress are available, but will have to be carefully designed and implemented.”