Lack of Affordable Housing Contributes to California’s High Poverty Rate

Poverty is more prevalent in California than in any other state, according to recently released US Census Bureau data. Nearly one-quarter of Californians (23.4 percent) lived in poverty each year, on average, between 2011 and 2013, based on the Supplemental Poverty Measure (SPM) — a more accurate indicator of economic well-being than the traditional poverty rate. Only Nevada’s poverty rate, at 20.0 percent, comes close to California’s under the SPM, while the poverty rates of all other states fall at or below about 19 percent, reaching as low as 8.7 percent in Iowa.

California’s high housing costs help explain why the state has the highest SPM poverty rate in the nation. Unlike the traditional poverty rate, the SPM takes into account local housing costs: poverty thresholds — the incomes below which families are considered to be living in poverty — are higher where housing costs are higher, reflecting the fact that families typically spend more in these high-cost areas to keep a roof over their heads. For example, the SPM poverty threshold is $24,336 for a four-person family who rents their home in a California metropolitan area, compared with $19,985 for a comparable family in an Oklahoma metro area. SPM thresholds also vary within California: In the San Francisco metro area, a family of four who rents their home is considered to be living in poverty if their income is below $33,562, while the threshold is much lower — $23,344 — for a similar family in the Merced metro area.

Rising rents have made housing much less affordable in recent years, particularly for families whose wages and incomes haven’t kept pace with the cost of living. The housing market bust helped fuel demand for rentals as people lost their homes or were unable to buy houses due to tighter lending standards, unemployment, or lower incomes. As rental vacancies fell, rental prices spiked. Typical rents increased by more than 20 percent in the metro areas of Los Angeles, San Diego, Riverside-San Bernardino, and Fresno between 2006 and 2011, and by more than 10 percent in the Bay Area and Orange County. By 2012, typical rents were higher than they were six years earlier in nearly all of California’s metro areas.

More recently, rapid job growth in California’s major urban areas has caused rents to jump higher, outpacing average wage gains. Typical rents rose by 6 percent or more in six of California’s major metro areas between July 2013 and July 2014. San Francisco, Sacramento, and Oakland saw the greatest increases among the 25 largest rental markets in the US, with typical rents rising by more than 13 percent. In fact, six of the 10 metro areas with the nation’s least affordable rents relative to wages are in California. Los Angeles, for instance, ranks third, after Miami and New York. Workers earning the average wage in LA would have to spend just over half of their earnings to afford the typical rent on a two-bedroom apartment. In Oakland, San Francisco, the Inland Empire, San Diego, and Orange County, typical rents would eat up between 44 percent and 49 percent of the average worker’s earnings.

California’s rental housing affordability crisis is even tougher for workers earning below the average wage. A full-time worker earning San Francisco’s minimum wage of $10.74, for example, would have to spend 83 percent of her income to afford a one-bedroom apartment in the city priced at “fair market rent.” To afford a comparable apartment in LA, a full-time worker earning the state’s minimum wage of $9 per hour would have to spend 69 percent of her income on rent.

Clearly, reducing economic hardship in California will not only take boosting workers’ earnings, as we discussed here, but also increasing access to affordable housing. Watch in the coming weeks for more blog posts on how the state’s lack of affordable housing contributes to poverty.

— Alissa Anderson