Tuesday, June 19, 2018

Is Rental Housing Unaffordable in Wyoming?

There is more of the egalitarian welfare state on the way to Wyoming. A story by KGAB on unaffordable housing is a red flag for an effort by a nationwide coalition to expand economic redistribution. We the taxpayers are expected to shovel more money into the egalitarian welfare state in general, and into redistribution of housing in particular. 

Before we get to the specifics of this report, let us once again raise the one question that no proponent of more government spending has yet been able to answer:

When is government big enough?

I answered this question in my book The Rise of Big Government: How Egalitarianism Conquered America. Plain and simple, government will stop growing when the welfare state has eradicated all economic differences between individual citizens. 

To an American, this sounds ridiculous, and that is precisely what it is. Nevertheless, our welfare state is built on egalitarian principles, which - as I explain in my book - means one thing, and one thing only: everyone should have the same income and the same standard of living. 

We do not see much of this egalitarian campaign in our daily lives, or even in the often-minute grinds of a legislative session. Nevertheless, every time appropriations grow for a spending program, or a legislature prioritizes tax increases over spending cuts, it advances the idea that government growth is inherently good. Since about half of a state budget, and two thirds of the federal government's spending, is dedicated to advancing egalitarian spending programs, a policy that grows government over time is also a policy that advances egalitarianism.

Hardly surprising, the desire to eradicate economic differences is more pronounced in political rhetoric than in practical policy. Several different organizations and campaigns are trying to push the Democrat party, and American politics in general, farther to the left. This means, for example, ramping up the campaign for more and bigger entitlement programs, courtesy of the federal government. 

Which brings us back to the KGAB story:
According to a new study, the average renter in Wyoming now needs to make $16.46 per hour to afford a two-bedroom house. The National Low Income Housing Coalition compared each state and concluded the average hourly wage that workers need to rent a two-bedroom home at market value without spending over 1/3 of their income. Ranked from the most expensive to the least expensive, Wyoming was 31st nationwide.
The report from the National Low Income Housing Coalition cited by KGAB is an annual product where the Housing Coalition calculates the cost of rental housing by state. With an impressive attention to detail, the report wants to tell us how much a person would have to make in order to be able to afford the rent on a two-bedroom house in every one of America's 50 states, even by county.

When referred to in a quick news story, the Housing Coalition's report seems to make a compelling point about the need for more government spending on economic redistribution. After all, it says that, here in Wyoming, you need 2.3 full-time jobs at minimum wage to rent a two-bedroom house. How unfair is that?

It is not unfair, but the fairness concept is something we will have to discuss another day. For now, there is a major methodological problem with their report, one that basically nullifies their conclusions on the unaffordability of rental housing. 

Before we get to that problem, let us note that this report is not some isolated product popping up randomly at some obscure think tank. The Housing Coalition is part of a broad network advocating so-called affordable housing. They have a long list of state partners, such as Housing Colorado, Housing Action Illinois and Homeless and Housing Coalition of Kentucky. They also have a partnership with about 40 national organizations, all advancing egalitarian policy goals. 

In other words, their report on "unaffordable" housing is a campaign piece, written and marketed in an effort to grow the welfare state. If it achieves its goals in terms of policy reform, it will make even more people depend even more deeply on taxpayers in their daily lives. 

Even though the Housing Coalition does not yet have any partners in Wyoming, it is only a matter of time before they do. Part of the idea behind a report like this is to provide material for advocacy campaigns, especially in states where they do not yet have a strong presence. In other words, expect to hear a lot more about "unaffordable housing" here in Wyoming in the coming year.

Now for the methodological flaw in their report. Like every quantitative analysis, theirs is confined by a set of given variables that form the framework of their study. This is standard methodology and should be simple enough; however, there is a basic rule of logic runs through all analytical work: never assume what you want to prove. 

The Housing Coalition's report violates this basic rule of logic, and they do it twice. 

Before we get to those violations, we need to note another, less serious mistake that they make, probably without even noticing it. At the heart of the Housing Coalition report is the concept of "affordability". To define it, the report uses three variables: a person's income, a standard amount of rent, and a specific relation between the two. Personal income is defined as the minimum wage. To make its general point about unaffordable housing, the report explains (p.1):
A full-time worker earning the federal minimum wage of $7.25 needs to work approximately 122 hours per week for all 52 weeks of the year, or approximately three full-time jobs, to afford a two-bedroom rental home at the national average fair market rent. The same worker needs to work 99 hours per week for all 52 weeks of the year, or approximately two and a half full-time jobs, to afford a one bedroom home at the national average fair market rent. 
They then adjust the minimum wage by state to get disaggregate numbers. 

There are two problems with using the minimum wage here. First, few people work for minimum wage, especially in a state like Wyoming where jobs paying $7.25 per hour are so few they are not statistically identifiable. A far better approach is the market-set wage for low-skill jobs.

Secondly, the report solidly gives the impression that a person working a minimum-wage job does not have access to any other incomes. However, as Michael Tanner, senior fellow at the Cato Institute, explained in his 2013 study Work vs. Welfare, here in Wyoming a person who knows his or her way around available welfare programs can earn as much as $15.68 per hour on welfare. Adjusted for inflation over the past five years, this means well over twice the minimum wage.

Even if an individual working a minimum-wage job does not qualify for all welfare that goes into Tanner's calculations, he or she will qualify for some programs and therefore have non-work based income to add on to the pay from work. By not taking this into account, the Housing Coalition distorts the reality they are trying to reform.

In fact, the report does not even mention welfare programs.

Now for the first of their violations of basic logic, or the "don't assume your conclusions" rule. The other variable needed to give "affordability" quantitative meaning is, of course, rent. Here, the report uses the "fair market rent", or FMR, formula defined by the U.S. Department of Housing and Urban Development. Again, there is no methodological problem here; the problem is that there is an underlying axiom built into this formula, one that ideologically taints their report. Explains HUD:
FMRs must be both high enough to permit a selection of units and neighborhoods and low enough to serve as many low-income families as possible. The level at which FMRs are set is expressed as a percentile point within the rent distribution of standard-quality rental housing units. The current definition used is the 40th percentile rent, the dollar amount below which 40 percent of the standard-quality rental housing units are rented.
Since the FMR is used in the provision of housing assistance for low income families, its very definition is redistributive in nature. The purpose behind this variable is to maximize economic redistribution in the housing market. 

In other words, when someone uses the FMR formula for the very purpose of explaining that we need more affordable housing, they have already guaranteed that outcome by using a formula the very definition of which is aimed at maximizing the supply of affordable housing. 

This is the same logical somersault as if I wanted to prove that all swans are black, and started out by defining a swan as a "black bird". 

The second violation of basic logic comes to play in the third component of their "affordability" definition. This component is the ratio between minimum-wage earnings and FMR-based housing costs. The idea here is that nobody should have to spend more than 30 percent of their income on housing. If someone has to pay more than 30 percent, he is defined as "cost burdened".

This ratio is completely random. Why not 20 percent, or 40? However, the real problem here is that this ratio is another example of how the Housing Coalition builds its conclusion into its premises. The 30-percent ratio has a similar history to our definition of poverty:  it is a relative concept created to make people eligible for economically redistributive, tax-paid entitlements. Instead of defining an absolute, minimum standard of living, below which a person would be "poor" on the housing market, the 30-percent definition means that people can experience significant increases in income and yet qualify as "cost burdened" simply because I chose to increase my spending on rent by a proportionate amount.

The entitlement programs providing housing assistance are not quite as automatic as this point make them sound, but that is also a side note. What matters here is how the premises that guide the Housing Coalition's report put its analysis on autopilot straight to its conclusion. If you are going to suggest that rental markets around the country are out of reach for millions of Americans, it is not a good idea to rely on assumptions - axioms, premises - that preclude any other conclusions already from the start. 

I welcome the Housing Coalition's solid quantitative work, and I would like to recognize their effort for being more solid on that front than most work published by libertarian and conservative think tanks. At the same time, their credibility is eroded by the lack of logical integrity in their study. I understand why this weakness is built into their report - social scientists today are not well trained in this higher level of analytical work - but it is very important for people who discuss the conclusions in their report to be aware of how they reached those conclusions. 

This is particularly important in a state like Wyoming, where the Housing Coalition is likely looking to make inroads. When they do, we must be ready to explain where their work comes from and how they came up with their numbers. Legislation based on weak analytical work inevitably ends up harming the very people it is supposed to help. 

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