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[44]Ideas

The Great Affordability Crisis Breaking America

In one of the best decades the American economy has ever recorded,
families were bled dry.

6:00 AM ET

[45]Annie Lowrey
Staff writer at The Atlantic

An illustration of a spiking chart with people. Arsh Raziuddin / The
Atlantic

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In the 2010s, the national unemployment rate dropped from a high of
[46]9.9 percent to its current rate of just 3.5 percent. The economy
expanded each and every year. Wages picked up for high-income workers
as soon as the Great Recession [47]ended, and picked up for
lower-income workers in the [48]second half of the decade. Americans’
confidence in [49]the economy hit its highest point since 2000, right
before the dot-com bubble burst. The headline economic numbers looked
good, if not great.

But beyond the headline economic numbers, a multifarious and strangely
invisible economic crisis metastasized: Let’s call it the Great
Affordability Crisis. This crisis involved not just what families
earned but the other half of the ledger, too—how they spent their
earnings. In one of the best decades the American economy has ever
recorded, families were bled dry by landlords, hospital administrators,
university bursars, and child-care centers. For millions, a roaring
economy felt precarious or downright terrible.

[50]Annie Lowrey: Cancel billionaires

Viewing the economy through a cost-of-living paradigm helps explain
[51]why roughly two in five American adults would struggle to come up
with $400 in an emergency so many years after the Great Recession
ended. It helps [52]explain why one in five adults is unable to pay the
current month’s bills in full. It demonstrates why a surprise
furnace-repair bill, parking ticket, court fee, or medical expense
remains ruinous for so many American families, despite all the wealth
this country has generated. Fully one in three households is classified
as “[53]financially fragile.”

Along with the rise of inequality, the slowdown in productivity growth,
and the shrinking of the middle class, the spiraling cost of living has
become a central facet of American economic life. It is a crisis
amenable to policy solutions at the state, local, and federal
levels—with all of the 2020 candidates, President Donald Trump
included, teasing or pushing sweeping solutions for the problem. But
absent those solutions, it looks certain to get worse for the
foreseeable future—leaving households fragile, exacerbating the
country’s inequality, slowing down growth, smothering productivity, and
putting families’ dreams of security out of reach.

The price of housing represents the most acute part of this crisis. In
metro areas such as the Bay Area, Seattle, and Boston, severe supply
shortages have led to soaring prices—millions of low- and middle-income
families are no longer able to purchase centrally located homes. The
median asking price for a single-family home in San Francisco [54]has
reached $1.6 million; even with today’s low interest rates, that would
require a monthly mortgage payment of roughly $6,000, assuming that a
family puts down the standard 20 percent. In Manhattan, [55]listings
for sale now ask an average of nearly $1,800 per square foot.

The housing cost crises in the Bay Area and New York might be the
country’s most obscene. But the problem is national, driven by a
combination of stagnant wages, restrictive building codes, and
underinvestment in construction, among other trends. Home prices are
rising [56]faster than wages in roughly 80 percent of American metro
regions. In 2018, housing affordability declined in every one of the
160-some urban areas [57]analyzed by the National Association of
Realtors, save for Decatur, Illinois. Rising prices and housing
shortages are squeezing families in [58]Reno, [59]Minneapolis, and
[60]Phoenix.

The problem now even extends to rural areas, where income growth
[61]has lagged in the post-recession period. A recent report by the Pew
Charitable Trusts [62]found “sizable” increases in the number of
households spending half or more of their income on housing in rural
counties across the country. The housing crisis is hitting Bertie
County, Virginia, and Irion County, Texas, too.

One central effect of the housing-cost crisis has been to turn the
United States into a country of renters. The homeownership rate has
fallen from a peak of nearly 70 percent in the mid-aughts to under 65
[63]percent today; the numbers are more acute for Millennials, whose
homeownership rate is 8 percentage points lower than that of their
parents at [64]the same age. Unable to buy, roughly 3.5 million younger
families have [65]kept renting—delaying the Millennial and Gen X
cohorts’ wealth accumulation, thus consigning them to worse net-worth
trajectories for the rest of their lives. And renting, for many
families, is not affordable, either: Nearly half of renters are facing
uncomfortable [66]monthly bills, and the cost of renting has risen
faster than renters’ incomes for a full 20[67] years now.

The cost-of-living crisis extends beyond housing. Health-care costs are
exorbitant, too: Americans pay roughly [68]twice as much for insurance
and medical services as do citizens of other wealthy countries, but
they don’t have better outcomes. In the post-recession period,
premiums, deductibles, and out-of-pocket costs in general [69]just kept
rising, eating away at families’ budgets, casting millions into debt,
and consigning millions more to bankruptcy.

The “[70]cost burden” of health coverage climbed through the 2010s;
just from 2010 to 2016, family private-insurance premiums jumped 28
percent to $17,710, while median household incomes rose less than 20
percent. That meant less take-home pay for workers. Deductibles—what a
family has to fork over before insurance kicks in—also soared. From
2010 to 2016, the share of employees in health plans with a deductible
jumped from 78 percent to 85 percent. And the average annual deductible
went from less than $2,000 to more than $3,000.

The country’s insurance premiums and out-of-pocket health-cost burdens
are just very, very high—including for people with publicly subsidized
or public coverage. The average person on Medicare spends $5,460 on
health care beyond what [71]they pay for insurance every year. The
average person [72]with Medicaid forks over nearly half that. No wonder
two in three bankruptcies are related to medical issues, and nearly 140
million American adults report “medical financial hardship” each and
[73]every year.

Next up is student-loan debt, a trillion-dollar stone placed on young
adults’ backs. Or, to be more accurate, the $1.4 trillion stone, up
[74]6 percent year over year and 116 percent in a decade; student-loan
debt is now a bigger burden for households than car loans or
credit-card debt. Half of students now take on loans of one kind or
another to try for a higher-ed degree, and outstanding debts typically
total $20,000 to $25,000, requiring [75]monthly payments of $200 to
$300—though of course many students owe much more. Now nearly 50
million adults are stuck working off their educational [76]debt loads,
including [77]one in three adults in their 20s, erasing the college
wealth premium for younger Americans and eroding the college earnings
premium.

[78]Daniel Markovits: How life became an endless, terrible competition

Finally, child care. Spending on daycare, nannies, and other
direct-care services for kids has increased by 2,000 percent in the
past [79]four decades, and families now commonly spend [80]$15,000 to
$26,000 a year to have someone watch their kid. Such care is grossly
unaffordable for low-income parents in metro areas across the country,
causing many people to drop out of the labor force. But one in four
American mothers returns to work [81]within two weeks of giving birth,
so heavy are the other cost burdens of living in this country. The
whole system is [82]broken.

The federal government has set as a benchmark that low-income families
should not spend more than 7 percent of their income on child care. But
child care is generally the single biggest line item on young families’
budgets, bigger even than rent or mortgage payments: Putting a kid in
daycare costs 18 percent of annual income in California; home-based
options equal 14 percent of family income in Nebraska; having an infant
in professional care in the District of Columbia [83]costs more than
most poor families earn.

It all adds up, and it all subtracts from families’ well-being. The
price tags for tuition and fees at colleges and universities have risen
twice as fast as wages, if not more, in [84]recent years. Rental costs
are outpacing wage gains by a percentage point or more [85]a year.
Health-care costs have grown twice as fast as [86]workers’ wages. And
child-care costs [87]have exploded. These cost pressures are
particularly acute on young Americans who have seen worse employment
prospects and smaller raises than their older counterparts.

The effects are wide-ranging. High costs are preventing workers from
moving to high-productivity cities, thus smothering the country’s
economic vibrancy and putting a drag on its GDP; economists [88]have
estimated that GDP would be as much as 10 percent bigger if more
workers could afford to live in places like San Jose and Boston. High
costs are forcing families to delay getting married and to have fewer
children, and putting the dream of owning a home out of reach.

[89]Read: The secret shame of middle-class Americans

What is perhaps most frustrating is that the Great Affordability Crisis
is amenable to policy solutions—ones most other rich countries adopted
decades ago. In other developed economies, child care, early education,
and higher education are public goods, and do not require
high-interest-rate debts or endless scrambling by exhausted young
parents to procure. Other wealthy countries have public-health systems
that cover everybody at far lower cost, whether through socialized or
private models. And numerous proposals would transform residential
construction in this country, [90]including one that just failed in
California’s legislature.

But the Great Affordability Crisis hides in plain sight, obvious to
households but unmentioned in the country’s headline economic numbers.
It persists even as President Donald Trump rightly praises the
country’s growth, low unemployment rate, and rising household incomes.
And though there are many nationwide policies that could end the
crisis, they all seem unlikely to pass through the country’s broken
Congress; the brightest glimmer of hope lies in housing and health-care
policy by individual states. But it is still a dim glimmer. This crisis
looks sure to stay with us for the coming decade, whatever recessions
or expansions it may hold.

We want to hear what you think about this article. [91]Submit a letter
to the editor or write to [email protected].

[92]Annie Lowrey is a staff writer at The Atlantic, where she covers
economic policy.

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