Two Incomes = Family Income

Thanks to Jen for referring me to Elizabeth Warren’s response to the sunny days article in the Times about home affordability. Warren writes:

The central problem is that most of the NYT discussion of housing affordability is theoretical, not real.  So, for example, the article talks about the purchase price of a new home relative to household income.  The problem is that a fully-employed male today makes (in inflation-adjusted dollars) about $800 less than his counterpart thirty years ago.  But the difference in median income for families has shot up dramatically in the intervening years because the typical married couple now sends two people into the workforce.  In other words, it now takes two earners to pay a mortgage rather than one.  A generation ago, a typical wage-earner could buy a typical house; today, it takes two incomes to buy an average home in fully 75 percent of America’s cities.  And that means housing is just as affordable as it used to be?

She also points out that the Times compared today’s numbers with the early 1980s, which was a low point in the real estate market. It would have been better to compare today’s figures with the early 1970s.

As much as we should cheer the growing opportunities of women in the workforce, we should also recognize that business has also cheered this development. They have been able to hold the costs down on salaries as Americans adjusted to the two income family.

One income should support one family.

The Times article suggests that that there is less pressure on families in the heartland than in the Northeast and CA. I assume that they are adjusting for the differing salaries across the country. I would like to see Warren respond that claim.

8 thoughts on “Two Incomes = Family Income

  1. I followed up on Jen’s link as well. I was curious about Warren’s numbers, so I did a search and found this symposium address.
    Frankly, I don’t think that -$800 really holds up. To derive it, Warren adds a number of expenses to the budget of the modern two-income family and ignores that they actually buy something. One of those expenses is preschool. The other is a second car.
    In my experience, expensive housing tends to be in places with good public transportation, so to posit both is not necessarily accurate. The last time my wife and I had two cars (except for a brief period when we had a offcast subcompact from an elderly relative) was over five years ago when we lived in rural New York.
    We sure needed two cars then. One was a pickup truck and the other an all-wheel drive Subaru. But in rural New York, housing is cheap!
    So among other things I question about Warren’s analysis I question that.

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  2. Housing is considerably cheaper in the Columbus area than in DC. We are currently renting a nice house, which is bigger than our house in Montgomery Co, MD, in nice area of the Columbus burbs. If we were moving here permanently, we could probably buy this house for about 50% of what our MoCo house would fetch. The rental differential isn’t as stark (our rent is about 30% less) Nevertheless, I don’t think salaries here are 50% less for comparable employment.

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  3. Mrs. Coulter. Whenever we visit my in-laws in Cleveland, we’re just shocked at the housing prices on their block. Bargains.
    Thanks for the link, Henry. I really do like that woman. She gets families — the costs of childcare, two cars, etc… She actually includes after school childcare in her calculations, which nobody else remembers. She also don’t get into blaming families for buying into neighborhoods with good schools, even though it means that families have to stretch to afford that.
    At the end of that speech, Warren gives a list of reforms. Surprisingly, she leaves out education reform. the local property tax is a huge factor in making housing prices sky high in certain neighborhoods. Equalize schools and housing prices should regulate. Families wouldn’t be under such pressure to buy homoes out of their range. Of course, that’s easier said than done, but I thought I should throw that out there.

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  4. A side effect of the skyrocketing housing prices in California may be the emergence of “de facto” retirement communities in some more expensive areas.
    I did a project for school a couple of quarters ago, and needed to get Census 2000 data for a couple of Bay Area neighborhoods. In faffing around the various tables and neighborhoods on the census website, I discovered that certain neighborhoods in North Berkeley/Berkeley Hills and Marin had an average age of nearly 50.
    Related to this, a newspaper – the East Bay Express? I wish I could remember – did a brief article on a Berkeley Hills phenomenon: three-generation families consisting of grandparents, a grown daughter (less often, son) son-in-law (not always) and grandchildren. The grown kids worked in respectable middle-class but not high-powered jobs (teaching, social work, nonprofits) and afforded the Berkeley Hills by living with their parents, and would eventually inherit the house.
    I see two emerging phenomena here as a result of insanely high home prices: one, many older, upscale areas turning into de facto retirement communities with maybe a few younger empty-nesters or boomerang kids here and there. What this will mean for the neighborhoods I can’t really say, but it does mean less diversity.
    Second, the emergence of what is almost a hereditary landed class, with a few kids being lucky enough to inherit the “family manor” aka the nice Berkeley Hills craftsman. I wonder if these properties are going to be passed down in the family just like aristocratic mansions and become ancestral seats?

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  5. I recently moved from the Berkeley/North Oakland hills, so I have to respond to Laura’s comment. In my neighborhood of Montclair, there were certainly some older people who had lived in the neighborhood for 30 years or so, but what census data doesn’t reflect is the emerging trend of those houses being taken over by families. On our street, about a quarter of the families were retirement age, the rest were in their thirties with children. My street was comprised of small bungalows from the 40s when the area used to be summer homes from San Francisco, plus a mix of brand new 2500 sq foot homes that replaced those that burned down in the fire. We recently had our house appraised for $800,000, and it is a 3 br 2 1/2 1600 sq foot home built in 1940, with the original kitchen and a view of the bay. We bought it for slightly less than half that in 2001.
    Compare that with what you get in a comparable neighborhood in New York City, and you’ll quickly find it’s a bargain in California, regardless of what the papers say.
    In my experience, there were plenty of families who could afford the Hills, and to think they would become aristocratic mansions or ancestral seats seems unrealistic, the houses are just not that nice. What will happen is they will gentrify even more, and the elderly will get pushed out as they move to retirement communities or pass away, and those that replace them will be yuppies who can afford the neighborhood, or those fortunate enough to have had the foresight to buy before the real estate boom began.

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  6. Years ago when the kids arrived and my husband and I were trying to decide whether to stay in the city of Chicago I ran some numbers. Stay in the city vs. live in the burbs? And what I found was that it was cheaper to stay in the city, but only if you got your kids into the right school. If you moved to the burbs your overall mortgage payment might be lower (or, in many cases, an equivalent payment but getting you more space), but your taxes were much, much higher and you needed two cars to handle the commutes. Because we got our kids into an affordable parochial school, we could remain at one income and stay in the city.
    I am interested in whether that reasonable mortgage payment discussed in the NYT piece calculates in just interest & principal, or also taxes and insurance? Homeowners’ insurance, also, has gone thru the roof in the past few years.

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  7. People act as if housing prices were set by the seller, based on how much the house is worth. But they are set by the buyers, the two income families who can afford to outbid the one-income families. No one forced them to buy that house for that much.
    Two income families also doubled the amount of traffic and gas consumption, and lowered income levels through more competition for jobs.

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  8. You’ve got backing on the ‘one income should support a family’ theme – it was a constant theme from John Paul II. But, even by Warren’s count, the fully employed male is making only $800 less than 30 years ago; that’s not enough to knock you out of the running for living on one income. We think we need more: the house that a family of seven lived in, with bunk beds for the boys in one room and a trundle for the girls in the other, and long yelling lines for the bathroom in the morning (and holding it in to pee in the boys’ room at school) is now being expanded to make enough room for a family of four, with 2 1/2 baths and a study for mom… you get the picture.

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