The goal of most policies is to improve the quality of life for people, especially those in poverty. Yet quantifying improvements in quality of life is difficult. Changes in social safety net programs and tax regimes, as well as demographics and technology, make measuring improvements in well-being over time even more challenging. While some research has found that living standards have improved for low-income households in recent decades, other work has found evidence of greater hardship and worsening material well-being. Often absent from this debate is a detailed evaluation of the consumption category that low-income households typically spend nearly half their income on—housing. Our study uses detailed measures of housing quality and quantity and finds substantial improvements for low-income households between 1985 and 2021.

Housing is a necessity, the largest household expenditure, and one of the most important determinants of household well-being. Improved housing conditions can benefit the health and productivity of children, adults, and seniors, but high housing expenses are also associated with hardships, including food insufficiency and housing instability.

Housing expenditures have grown considerably in recent years as housing prices have outpaced inflation. Increases in housing prices have resulted in households allocating more of their budgets to pay for housing, but has this increased expenditure also raised living standards? Increased housing expenditures could reflect bigger or better housing relative to prior generations. Alternatively, households may be spending more while still downsizing to live in more-cramped or worse-quality homes. In that case, each generation may pay more for housing but may not experience improvements in housing, perhaps due to stagnant wages or restrictions on housing supply.

Quantifying and evaluating the consumption of housing services is difficult. Home values and rental prices differ greatly depending on basic characteristics, such as the number of bedrooms and bathrooms, square footage, lot size, and location. However, houses also vary across dozens of additional detailed characteristics, including exterior and interior building materials, appliances, flooring, foundations, electrical and plumbing characteristics, windows, and insulation, among myriad other features. These quality characteristics contribute to housing price variation yet are rarely incorporated into analyses of living standards. For example, cheaper or less durable materials may result in higher maintenance or energy costs, reducing the value of housing services. Though typically not measured or observed in survey data, these housing quality components could also have implications for the material well-being of low-income families. The presence of asbestos insulation or lead paint, for example, can have negative health consequences and greatly reduce the value of housing services.

Our study uses the American Housing Survey (AHS) to investigate trends in housing quality, quantity, and expenditures among low-income households from 1985 through 2021. The AHS tracks the same house, apartment, or other housing unit over time even as the occupants change. Importantly, the AHS provides a wide range of consistently measured housing quality characteristics along with detailed housing quantity and expenditure data. Using 35 measures of poor housing quality and 11 measures of housing quantity, we estimated the extent to which each measure influences housing prices or rents. Then we used these data to assess housing consumption trends over time.

Our research finds that housing quality for low-income households has improved substantially since 1985. The general rising tide of housing quality has lifted the quality of housing among the poorest households. The average low-income household in 2021 has housing that is equivalent to the 60th percentile in the 1985 housing quality distribution—an improvement of 25 percentiles, or about one standard deviation, from the level that the average low-income household experienced in 1985. Rates of poor-quality housing among low-income households declined from 33 percent in 1985 to 12 percent in 2021. Every one of our 35 poor-quality measures declined by 1985; the average decline was 55 percent. Examples of these measures include roof problems, leaks inside or outside the home, blown fuses, not having working appliances, and the presence of rodents. Our findings hold true whether we define low-income households as social safety net recipients or those in the bottom income quintile.

Housing quantity has also improved since 1985 for low-income households for each of the 11 measures that we can observe, though not by as much as housing quality. The average square footage per person increased by 9 percent from 1985 to 2021, while rooms per person increased by 0.29. Rates of some housing quantity features, such as having a garage, porch, deck, or fireplace, nearly doubled.

Our research finds that these quality and quantity improvements translate to a 45 percent increase in the consumption of housing services among low-income households between 1985 and 2021. Since inflation-adjusted housing expenditures for low-income households almost doubled over this time, this consumption gain was less than the rise in monthly housing expenditures. However, it does reflect a substantial increase in material well-being as measured by housing conditions for low-income households.

The opinions expressed in this article are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Minneapolis or the Federal Reserve system.

NOTE
This research brief is based on Erik Hembre, J. Michael Collins, and Samuel Wylde, “A Rising Tide Lifts All Homes? Housing Consumption Trends for Low-Income Households since the 1980s,” working paper, Federal Reserve Bank of Minneapolis, March 2024.