Housing costs and nasal economics

David MoonBlog

At a press conference announcing a proposed “Green New Deal for Housing,” New York Congressman Jamaal Bowman advocated for a rent to be capped at 20% of income. He described it as “plantation capitalism” for someone to pay 60% of their salary towards rent.

According to the U.S. Bureau of Labor Statistics, housing comprises 33.3% of total expenses for the average American household. Despite a massive increase in housing costs since Covid stimulus payments, that share has remained remarkably stable for decades. In 2019, that percentage was 32.8%. Twenty years ago, it was 32.1%.

Curiously, in New York City, where 44% of the rental units are subject to some form of rent control, housing comprises a much larger percentage of household expenditures (37.6%) than almost anywhere else in the country.

I tripled-checked the data, but in Tennessee, housing comprises 17% of average household expenditures.

I’m a fan of nasal economics – meaning that I always question data that don’t pass the smell test. And if housing costs have surged the reported 30% since 2020 and income has only increased 10%, how have housing costs remained a steady share of household expenditures? That doesn’t pass the smell test.

Except it is true. There are multiple causes. Your house has almost certainly increased in value (cost) since 2020, but if you are in the same home, that statistical increase in housing cost does not affect your monthly expenditures. And since 64% of Americans own their home (67% in Tennessee), there is a good chance your actual monthly outlay for housing hasn’t increased.

Of course, housing costs reset for approximately 13% of Americans who move each year, a figure that skews heavily toward renters. And while the average U.S. multi-family housing renter stays in his apartment 27 months, rents typically reset annually.

But the biggest explanation of how the average share of housing expenditures has remained constant over the past four years is troublesome. Although increases in household income haven’t kept pace with inflation – especially increases in housing costs – household spending has managed to keep pace with inflation. Since 2020, U.S. credit card debt has increased 38% and continues to increase at a faster pace than it did before the Great Recession of 2008-2009. People (in total) have accommodated increases in all costs – including housing – with credit card debt.

That’s how housing costs can increase almost 3 times as much as incomes and still constitute 33% of total expenditures. For many households, credit cards have served as the remedy for coping with inflation – a trend that is more macroeconomically troublesome than the cost of housing.

David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.