is everything still the worst

The cost of shelter

Nov. 8, 2021

Let's talk about how much money it takes in Philadelphia to keep a roof over your head. This isn't about home owners, though it easily could be; we're just looking at renters and how much or little it costs to live here. Philly is often written about as an affordable place to live. I moved here largely for that reason about (actually, almost to the day) ten years ago. Headlines still proclaim,

The Cost of Living in Philadelphia: More Affordable Than Most Big Cities. As the cost of living continues to increase in NYC, Philly becomes an attractive alternative where people can get more space for less money.

And that's true. Compared to other major cities, the raw numbers look very attractive. In a nation-wide database, Philadelphia has a "Rent Index" (a score indexed to New York City's rental costs) of 47.79, meaning, for any given apartment, you should expect to spend about half as much for a comparable place in Philly as in New York. But, obviously, NY also has a higher median income; it's actually $69,407 compared to Philly's $47,474. So unless you can bring your NY salary to Philly, you're likely to earn about 68% as much here.

Also, in very many important respects,

shut upnobody cares.

The cost of shelter in Philadelphia, for Philadelphians, is high. What the cost of an apartment or house is 87 or 3,000 miles away matters in absolutely zero ways that are important. We should stop talking about it; so we will.

How much do we have to spend?

Typically, when discussing not-dying-of-exposure, otherwise known as housing costs, the U.S. Department of Housing and Urban Development's metric of "Cost Burdened" shows up at some point in the discussion. The Pew Trusts, for instance, wrote a whole report about how many families here are cost burdened:

cost burden occurs when a household spends 30% or more of its income on housing costs, including rent, mortgage payments, utilities, insurance, and property taxes.

By this standard, about 231,000 Philadelphia households—or about 529,000 people—were cost-burdened in 2018, the last year for which data was available. In that year, 40% of the city’s households were cost-burdened.

There's also "Severely Cost Burdened", which is spending greater than 50% of your income on housing-related costs. While this metric often gets headlines, it just as often obscures an important point: 30% of $300,000 leaves a lot more money on the table to buy food than 30% of $30,000. So, while a rich person may be "cost burdened", i.e., they may spend $50,000 on rent out of an income of $150,000, that's typically not an issue because they still have $100,000 left over to buy groceries.

NB: For the following discussion, all the numbers are based on a four-person household: two parents, two children.

There are certain fixed costs to being a human being and there are additional ones for living in a society. If you work, you have to spend money on clothes, transportation, etc., and while you can save where you can, there is a lower bound to thrift that none of us can avoid. I don't know of any published studies on what this lower bound is, but we can look at what our poor communities spend on things and say, generally, if they could save, they would and therefore use this as an estimate. The Bureau of Labor Statistics breaks down costs based on deciles of income; for those making between $30,000 and $39,999 per year. We'll use BLS Table 3104. Northeastern region by income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Surveys, 2019-2020.

Diving into numbers

To get the lower bound on non-shelter costs for our family, we'll subtract the cost of housing from the total costs per year. Total costs per year, we'll figure from the BLS survey, above, using the costs for a household making between $15,000 and $30,000. While this is not the absolute lower bound of incomes in Philadelphia, it bridges the federal poverty line and is, by any estimate, quite poor in a large city such as Philly.

# top-line data & summary

# detailed tables for calculation

total_average_expenditures = 34_970
student_loan_debt = 0.15 * 393 * 12

avg_annual_expenditures_shelter_renters = 5_810
avg_annual_expeditures_non_shelter = total_average_expenditures \
                                     + student_loan_debt \
                                     - avg_annual_expenditures_shelter_renters

So we need $29,867 for all of our non-housing costs. I want to flag something here though before we look at income. BLS specifically excludes student loan debt from their calculations. Fifteen percent of all adults carry some amount of student load debt with the average payment per month being about $393. Importantly, it is not just college graduates that are saddled with this. The total amount of outstanding student loans in this country is near $1.4 trillion dollars. Not including it is bullshit. I am adding it back in as a weighted cost because I'm not playing that game.

OK. Let's look at the income side of our equation:

def calculate_federal_income_tax(income, dependents=0):
    stnd_deduction = 12_200
    fed_brackets = (
        (0, 9_875, 0.10),
        (9_876, 40_125, 0.12),
        (40_126, 85_525, 0.22),
    tax_owed = 0
    taxable_income = income - stnd_deduction

    for b in fed_brackets:
        tax_owed += min(taxable_income, b[1]) * b[2]
        taxable_income = max(taxable_income - b[1], 0)
    if dependents:
        tax_owed -= (2000*dependents)
    return round(tax_owed)

def calculate_state_income_tax(income):
    return round(income * 0.0307)

def calculate_city_wage_tax(income):
    return round(income * 0.038398)

def calculate_social_security_taxes(income):
    return round(income * 0.062)

# U.S. Census Bureau (2019). Median Household Income in the
# Past 12 Months (In 2019 Inflation-adjusted Dollars)
# American Community Survey 1-year estimates.
# Retrieved from <> 
ami = 47_474  # area median income

net_income = ami - calculate_federal_income_tax(ami, dependents=2) \
             - calculate_state_income_tax(ami) \
             - calculate_city_wage_tax(ami) \
             - calculate_social_security_taxes(ami)

# calculate_federal_income_tax(ami, dependents=2) = $35
# calculate_state_income_tax(ami) = $1,457
# calculate_city_wage_tax(ami) = $1,823
# calculate_social_security_taxes(ami) = $2,943
# net_income = $41,216

The net, take home pay for our average family is $41,216. Lastly, we can subtract our non-shelter needs-cost from our income for a total remaining income of $11,349. Divide this by twelve and we get $945 left over per month to be able to spend on rent without running a monthly deficit.

The issue with cost burdened

See here's the problem with "cost-burden" calculations when it comes to what's affordable or not. If we take the median household income for Philadelphia, spending thirty percent of our income on housing would be $12,365 per year (or $1,030 per month), which leaves us with negative $1,020 in the bank at the end of the year when accounting for fixed, household costs. That's $1,020 that's going to have to go on a high-interest credit card, scrimped on other necessities, or subsidized by public programs.

Taking our figures from the Pew Trusts, above, that means that ordinary Philadelphians go $234,742,200 in debt every year for the profit of someone else (in this particular case, a small class of landlords & bankers). And that's just the average, "cost-burdened" folks, who, again from Pew, are far more likely to be the poorest members of our community. Despicable.

Up next

Next week (hopefully), I'll dive into actual rental costs in Philly and take a look at how they match up against numbers from governmental sources like the Census and BLS. Should be fun. Wrote up a little web scraper to grab apartment listings.

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