Back to Basics: Housing Cost Burden

The FWD #B01  •  644 Words

Don’t let cost burden be a burden to you. Here’s what you need to know to understand it.

What is cost burden?

There’s no shortage of data to help us understand housing affordability, but one of the most prolific stats out there has to be housing cost burden. It’s on just about every fact sheet, report, and infographic you come across—and for good reason.

Cost burden occurs when a household spends more than a reasonable amount of their income on their necessary housing expenses. Today, that is usually defined as 30 percent or more of total household income. (Although it was no more than 25 percent until 1981!)

Do you spend more than that amount of your gross pay on your home? If so, you’re cost burdened, along with 876,000 of your fellow Virginians. Spend more than 50 percent? Then you’re “severely” cost burdened.

How do we measure it?

At first glance, cost burden is a quick math problem: housing costs divided by income. Under the hood, however, it’s a little more complicated.

The Census Bureau’s American Community Survey, which gives us annual cost burden estimates for households and communities throughout the entire nation, calculates it separately for owners and renters:

  • Gross rent as a percentage of income takes gross rent (monthly contract rent plus basic utilities paid by renter) and divides it by monthly gross household income.
  • Selected monthly owner costs as a percentage of income takes certain owner costs (monthly mortgage payments, real estate taxes, insurance, utilities) and divides it by monthly gross household income.

This data is available on our Sourcebook and directly accessed via ACS tables like B25070 and B25091. HUD also uses the same methodology to calculate cost burden for households by area median income (AMI) in its CHAS data.

Why is it important?

When you have to pay too much of your income on housing, two things happen: first, you have less cash left over for other important necessities, like childcare, food and transportation; second, you’re much less resilient to potential loss of income and unexpected expenses. Getting furloughed at your job or needing to repair a blown head gasket in your car might mean you miss a rent payment that month, setting up a possible eviction filing.

So at the aggregate level, it’s important for advocates and policymakers to know how many households are paying too much for their homes. High rates of cost burden reveal a fundamental mismatch between wages and housing prices.

How do we talk about it?

Cost burden data is rarely effective at changing minds on its own. Many Americans might hear, “37% of all renters in your city are cost burdened,” and quickly retort that those people should just move to cheaper areas.

To neutralize this—and other similar backfires—cost burden should always have added context on two things:

  1. Why housing costs are rising faster than incomes for many, and
  2. Why high cost burden prevents everyone in a community from thriving.

Visit our Messaging Toolkit and Overcoming NIMBY resources for more guidance.

How else can we measure it?

Cost burden does come with some caveats. The one-size-fits-all standard has limited nuance, especially for comparing affordability across different household types and diverse markets with very different costs of living. For example, a cost burdened single person earning $100,000 is in a much better position than the cost burdened family of four down the block with a combined income of just $35,000.

Many housing researchers have smartly started to explore alternate measures of housing affordability, including the residual income approach, which takes into account the estimated costs of “everything else” beyond housing that a household must regularly spend money on.

Such alternatives may end up producing more truthful assessments of affordability, but the simplicity and ubiquity of cost burden mean that it’s probably here to stay with us for quite some time.

What programs, policies, and issues do you find most challenging to explain to policymakers? Let us know, and your suggestions may show up in a future edition of Back to Basics.

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