Transportation Costs & Affordable Rent Limits
Since the 1960’s, HUD has defined rent-burdened households as those that spend more than 30% of their adjusted gross income on housing. In California, the California Department of Housing and Community Development (HCD) and Tax Credit Allocation Committee (TCAC) have adopted this same standard for setting rent limits for affordable housing developments funded by their programs. Unfortunately, this simple metric does not quantify the vast differences in cost of living in different places, driving in large part by transportation costs. The affordable housing industry as a whole needs a more useful metric to determine affordability that looks at more than just housing costs.
One such metric that has been proposed in recent years is to use housing and transportation costs to determine affordability, and to define rent-burdened households as those that spend more than 50% of their gross income on rent and transportation costs. This recognizes the fact that cheaper homes are often further away from job centers, and therefore the transportation costs for households living in them are often higher. This is a useful metric because it is almost as simple as the existing metric, and all of the necessary data is readily available.
While commuting costs are not regularly reported at the local level, the Census does ask about travel time and mode of transportation for commuting as part of the American Community Survey. While not exact, it is possible to use this data to estimate the average cost of commuting based on commute time and mode. By using data on the means of transportation to work by travel time to work (ACS Table B08134) at the zip code level, it is possible to make meaningful estimates on the average cost of traveling to work for each zip code. (Unfortunately, there is not enough useful data at the block or tract level, and county-level data doesn’t fully capture the differences in commuting costs in geographically larger counties.)
This could work very similarly to how affordable housing rents take utility allowances into account. When calculating rents, affordable housing developers have to provide a utility allowance to tenants based on the utilities the tenants pay for. This utility allowance gets deducted from their rent. For instance, in LA County, a family of three in a two-bedroom apartment restricted to 60% AMI has a rent limit of $1,702. If that family pays for electricity, gas, and water, their utility allowance would be $190 according to the LA County Development Authority. This $190 would be deducted from their affordable rent, so their rent would be $1,512.
Similarly, a transportation allowance could be provided to households that varies based on zip code. Let’s compare two zip codes to demonstrate how the transportation allowance can be calculated and how it might vary from place to place. Zip code 90012 is in the heart of Downtown LA with easy access to both jobs and transportation options. In contrast, zip code 93535 is on the east side of Lancaster, far from most jobs and completely car dependent.1
As you might imagine, significantly more people walk and take public transit in 90012 than in 93535, and the people that do drive in 90012 are in the car less than half the time of drivers from 93535. Base on the assumptions that I made regarding the cost of traveling for each mode of transportation, the average cost of commuting in 90012 is $324/mo., while the cost is $878/mo. in 93535. This is based on an average cost of driving is $0.65/mi. (the IRS driving reimbursement rate) at an average speed of 60 mph. The cost of bus and rail commuting is assumed to be $4/day (this number doesn’t make a large difference in either zip code), and the cost of walking and biking are free. These assumptions can surely be debated and changed, but they work well to illustrate the utility of having a transportation allowance.
Using this data, we can re-level rent limits so that households living in rent restricted apartments are paying the same amount of their income for rent and transportation costs, regardless of their access to transportation options or job centers. If rent limits were raised to 40% of gross income with a transportation allowance, the same family we talked about before would have a rent limit of $2,270 instead of the $1,702 today. If they lived in 90012, in Downtown LA, they would have a transportation allowance of $324 and a net rent of $1,946. If, on the other hand, they lived in Lancaster in 93535, they would have a transportation allowance of $878 and a net rent of $1,392. While families living in Downtown would be paying more for rent than they do today, families in Lancaster would be paying significantly less.
One advantage of providing a transportation allowance when determining affordable rents is that it more accurately reflects the varying cost of living caused by transportation costs. A secondary benefit is that a transportation allowance would encourage the development of affordable housing in zip codes with transportation options and in close proximity to jobs. These areas, such as zip code 90012 in our example, will provide more rental income to developers. This would allow them to support higher levels of conventional debt financing and reduce the amount of needed government subsidies compared to developments further from job centers and transportation options. It is already the explicit goal of HCD and TCAC to encourage affordable housing development near job centers and in high quality transit areas. This would simply be another tool to achieve these goals.
Increasing affordable rents to 40% of gross household income and providing a transportation allowance based on zip code would help further California’s housing (and climate) goals and would better reflect the realities of how transportation costs increase the financial burden on households in disproportionate ways depending on location.