Atticus is the CEO of PadSplit, an affordable, shared housing model that creates financial independence for workers.
If you have up to $1,500 budgeted monthly for housing, you’d think you could find a decent place to live, right?
Perhaps you can’t purchase your own home because of the needed down payment, or maybe you have to live farther out from your job, but this amount of money should be able to provide a safe and decent roof over your head. Right?
The reality is — and it’s a depressing one — some Americans pay anywhere between $500 and $1,500 per month to live in extended-stay motels. This is because those who earn less than $30,000 per year are more likely to get trapped inside of the vicious cycle that is the current American housing continuum.
For these lower-income, yet hard-working individuals and families, there are so few options available that many turn to extended-stay motels as their best semi-permanent housing option. Unfortunately, this de facto housing of last resort fills a parallel void to the payday lenders in the financial world. People end up here because they don’t have access to better options, and once they do end up here, it is challenging to build the savings needed to graduate to a better option.
Understanding The Current Housing Continuum
To understand the bevy of problems in America’s housing continuum, let’s consider the options from top to bottom.
If you’re like 65% of the country, you’ve been able to purchase a home. To do this, you’ve likely saved money for a down payment, and you had resources to find a home or secure a realtor. During the process, you also certainly had credit checks, proof of income, proof of employment and a myriad of other disclosures to close the transaction.
Then, there is the option of renting. You may choose to rent because it’s closer to a vibrant area, job center or because you’re building your savings. Whatever the rationale, when you rent, you pay for an application for each property; you also agree to disclosures such as proof of employment. Of course, you have to put down a security deposit and pay the first month’s rent in advance. If you don’t meet all of these conditions, you’ll likely be rejected. Heaven forbid you actually have a past eviction.
What if you worked a minimum wage job? Or your annual salary was less than $30,000? Let’s also say that you don’t have access to generational wealth where a parent can help with housing costs. In 2017, 12.3 million Americans fell into this category, known as the “working poor.”
Extended Stay Motels Have Become De Facto Housing For The Working Poor
Unlike rentals, where you sign a temporary lease, extended stay motels do not require proof of income, credit checks, background checks or even security deposits. They allow weekly rent payments. Effectively, there are no barriers to entry aside from money, so this could be the only option for many.
You may be asking: Why don’t apartments ease their processes to provide more supply — and fill the demand — for these households?
Apartments operate under a different set of laws that are more protective of tenant’s rights. These property managers have policies that restrict access upfront. The demand for housing is strong enough in most cities that housing providers have no problem filling their units even after they’ve screened for high credit scores, or income equal to three times the rent or no evictions. Managers restrict access because there is the risk that a tenant doesn’t pay, which prompts them to be removed through an eviction process. Thus, the working poor is excluded from these units.
Alright, you say, well why don’t we just make it really hard for managers to evict?
This has been done in many municipalities already. Housing providers have responded by increasing the requirements from applicants around credit, income, job history and previous housing references. In short, making it even harder for the working poor to access these options at all.
What About Providing More Subsidies?
Subsidies do work. Low-Income Housing Tax Credits (LIHTC) have created more than 3 million units in the last 30 years and have been successful at creating more affordable housing. But anyone with LIHTC experience can describe the inordinate amount of time and expertise required to produce this housing, and there isn’t nearly enough time or funding to produce the units we need today.
The Housing Choice Voucher Program (commonly known as Section 8) is another successful program where tenants are provided with operating subsidies paid directly to housing providers. But the waitlist for a voucher is often many years, with tens of thousands of applicants waiting in each city. To compound the issue, many of the working poor simply earn too much to even qualify.
These Problems With The Housing Continuum Are Everywhere
This isn’t just a blue state problem or a red state problem. It’s not just an urban problem or a rural problem. Housing insecurity is happening nationwide in all types of communities as individuals are pushed deeper into exurbs in search of affordable housing, but then are also pushed too far away from job centers, exacerbating issues around increased traffic and commuting costs — adding a whole other layer to the issue.
Simply put: America’s housing continuum is broken. There’s a chasm between the unsafe options that are accessible to everyone, and traditional housing that are either unattainable, underfunded or too slow. The working poor can’t afford to wait any longer for better solutions, and a real housing continuum.
In my next article, I’ll outline what that continuum should look like.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?