The Federal Reserve defines people as “fully banked” if they have a bank account and have not used alternative financial services in the past 12 months. Such services include money orders, check cashing services, payday loans or payday advances, pawn shop loans, auto title loans, or tax refund advances. Per the Fed’s recent recent Report on the Economic Well-Being of U.S. Households in 2020, 81% adults in the US were fully banked in 2020. Most unbanked adults (84%) had income below $25,000.

Most US adults (64%) in a 2020 Fed survey reported they could withstand a $400 financial emergency by drawing on cash, savings, or a credit card they’d paid off at the next statement. Most of the others said they would use a credit card and then carry a balance, either to preserve cash or because they had difficulty paying for the expense. Twelve percent said they would not be able to pay the expense by any means, the same share as in 2019.

What does this have to do with social housing? Social housing is typically reserved for people belonging to a hardship category such as low-income, old age, disability, or poor health. US social housing - formerly known as public housing - is mostly reserved for low-income families. However, income may not be the best measure of hardship, so I’m trying to gauge the need for social housing in the US without relying on household income as the main consideration.

Most households don’t rely on income alone to meet expenses. For example, per the 2019 Bureau of Labor Statistics Consumer Expenditures Report, average annual expenditures for the lowest and second lowest income groups were $25,856 and $34,499, respectively. But the average before-tax income for these groups was $6,268 and $17,823.  What’s going on here? The BLS explains: 

“Data users may notice that average annual expenditures presented in the income tables sometimes exceed income before taxes for the lower income groups. Consumer units whose members experience a spell of unemployment may draw on their savings to maintain their expenditures. Self-employed consumers may experience business losses that result in low or even negative incomes, but are able to maintain their expenditures by borrowing or relying on savings. Students may get by on loans while they are in school, and retirees may rely on drawing down savings and investments.”

A good number of low-income households also own their own homes - about 47% of the bottom income quintile in 2020. As a rule, I would not consider these households good candidates for social housing. What I’m looking for is the number of low-income Americans who have trouble meeting their rent over a period of time.  Housing wonks might say low-income households that spend more than 30% of their income on housing would be good candidates for social housing. But paying more than 30% of one’s income on housing does not necessarily mean one is suffering financial hardship. That 30% threshold is outdated, having come from the early 1960s when Americans spent almost a quarter of their monthly expenditures on food. Today we spend half as much on food, so shouldn’t we be able to spend a bit more on housing? Besides, as already noted, income alone is a poor indicator of financial resources.

Of course, not all low-income households having rent trouble are good candidates for social housing. Some are just going through a rough patch or are young adults living on the wild side. Some are students with excellent job prospects once they finish school. Others simply wouldn’t be interested or have decent options if things really get bleak, like move back in with the folks for a year or two. The individuals most likely to benefit from social housing are those with few options, who have serious barriers to decent-paying work, such as disability, or are single parents with limited earning capacity. But social housing isn’t the only solution for these individuals. There are plenty of other safety net programs that might be a better fit for them, from food stamps to tax credits to housing vouchers. (And if I had my way, an Adult Student Basic Income. But that's another story). Social housing is an expensive and risky investment that should only be considered as a last resort for the chronically cost-burdened. 

So how many new social housing units should be built in the US? It’s hard to say. In 2020, there were about 12 million renters in the lowest income quintile. Based on the Federal Reserve’s research summarized at the beginning of this post, about a third of them - roughly 4 million - would not be able to access $400 for an unexpected emergency. Most of these individuals could benefit from some sort of government help. Housing vouchers would be a good option for those living in areas with plenty of available housing stock. Social housing makes more sense in cities with chronic housing shortages and limited land on which to build new housing, such as several cities in the San Francisco Bay Area.

I would say no more than one million units. Probably much less.

Next: Problems associated with social housing. Later: How to avoid the pitfalls of social housing.

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Note: This post is not addressing the housing needs of the homeless. For more on that, go here.