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Out Of Reach

Rent increases exceed income limitations of minimum-wage workers


January 20, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

For decades, the American dream has been shaped around home ownership, the ultimate proof of economic stability. Yet, according to a recent study, the white picket fence is being replaced by rental properties–the unromantic, but realistic, American dream of the 21st century. Even worse, that result may still be unattainable for many on the U.S. mainland and in Puerto Rico.

The federal minimum wage has been $5.15 since 1997. However, rental costs have continued to rise at a disproportionate rate. A study prepared by the National Low Income Housing Coalition (NLIHC) revealed an astonishing fact–nowhere in the country can a person working full time earning minimum wage afford a two-bedroom rental home. That estimate takes into consideration the Area Median Income (AMI) and the Fair Market Rent (FMR) found in the different areas of the nation. The FMR is the amount needed to pay the gross rent of privately owned, modest, and safe rental housing.

In Puerto Rico, the FMR in 2004 for a one-bedroom rental unit was $338 and $375 for a two-bedroom; but a minimum-wage worker can only afford to pay at most $268 a month. A worker would have to put in 56 hours per week to afford a two-bedroom unit. In Puerto Rico, the housing wage, which is the amount a full-time worker would have to earn per hour to afford a two-bedroom unit at an area’s FMR, is $7.22. While that wage is the lowest in the nation, it is important to remember how low the average income in Puerto Rico is as well. The AMI on the island is $19,636. Low-income households earn as little as 30% of that, or $5,891 per year, according to the NLIHC report. If these households spend 30% of their income on housing, which is the general standard for affordable rent, they would only be able to pay $147 per month.

For people dependent on Supplemental Security Income (SSI), the news is even worse. As of December 2002, 6.8 million people on the U.S. mainland received SSI payments, and 3.9 million of these recipients were blind or otherwise disabled working-age adults. Of this total number of dependants, 45% had no other source of income. According to the study, individual SSI recipients receive $564 a month. This figure doesn’t even come close to making rental housing affordable anywhere in the country. These individuals can only afford to spend $169 a month for rent, but rental units at this price are nonexistent. Even though this income source may offer insufficient living funds, more worrisome yet is the fact that residents of Puerto Rico aren’t eligible for SSI assistance.

The national housing wage is $15.37 or $31,970 a year, which is almost three times the federal minimum wage. In 70% of the metropolitan areas in the country, the housing wage is at least twice the prevailing minimum wage. Even having several minimum-wage workers in a household, it is still an overwhelming challenge to meet the rent. Not only have housing prices increased over the years, but the buying power of money has decreased. According to the Economic Policy Institute, the effect of the last minimum wage increase eight years ago has been completely eroded by inflation–$5.15 today is the equivalent of only $4.23 in 1995, which is lower than the $4.25 minimum wage level of the time. The Bureau of Labor Statistics reinforces the suggestion that wages haven’t been keeping pace with rising housing costs. From October 2003 to October 2004, the Consumer Price Index showed an increase of 2.9% for the rental of primary residences. Hourly wages, however, were up only 2.6% over the past year. Data compiled by the Harvard University Joint Center for Housing Studies shows contract rents and gross rents, which includes the cost of utilities, have risen steadily from the mid-1990s, despite a decline in renter incomes after 2001. Despite these insufficiencies, the White House plans to drastically shrink the Department of Housing & Urban Development’s $8 billion community branch, purging dozens of economic development projects, scrapping a rural housing program, and folding antipoverty efforts into the Labor and Commerce departments.

But the problem extends beyond minimum-pay workers and rental units. A study prepared by the forecasting and consulting firm finds that in nearly 30 metro areas nationwide prices are so high that someone earning the median income can’t afford a median-priced home based on traditional lending standards. Given the present low mortgage rates, that fact is particularly alarming.

The housing affordability problem has serious repercussions both socially and economically. In the mainland U.S. as well as in some areas of Puerto Rico, it isn’t uncommon to find several families living under one roof in unsanitary conditions because of the affordability issue. In economic terms, income limitations force many people who are already full-time workers to engage in underground activities to subsidize their income.

The NLIHC calculates nearly one-third of the nation can’t pay the rent each month. This nationwide problem extends far beyond the old American dream and touches on the basic human right to affordable housing, and the social responsibility to provide it, with or without the white picket fence.

This Caribbean Business article appears courtesy of Casiano Communications.
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