What is the affordability crisis about?
Is it just a new slogan for long-standing economic discontent? Is it a mirage that Americans are living better than ever but are in shock at high prices? Or is there something missing from the usual economic data?
The latest New York Times/Siena University poll doesn’t definitively answer these questions, but it does offer some important clues. Above all, it suggests that “affordability” is about the rising price of entry to a middle-class life: buying a home; paying for child care, college, and health care; Saving for retirement and so on.
These are familiar problems in American politics, but under the overarching label of affordability they amount to a completely different problem. The difficulty of buying a ticket to the middle class has created a sense that the economy isn’t working, even if the economy isn’t that bad by common measures like growth or unemployment. In fact, it may not even make sense to think of affordability as a problem of “economics” or even “inflation” in the traditional sense. And it helps explain why young people struggling to live middle-class lives are so much more dissatisfied with the economy than older voters.
By a margin of two to one, voters say a middle-class life is out of reach for most Americans. Whether voters are realistic or not, their expectations are not being met: a majority say they cannot afford the life they think they should be able to afford. With numbers like these, it’s easy to see why affordability will be a big issue in the midterm campaign and perhaps beyond. (You can read the full story of the survey here.)
When we asked voters what they were most worried about, they typically didn’t mention the cost of goods that have skyrocketed during the pandemic, such as gas, cars and groceries. Instead, they mentioned big expenses like housing, retirement and health care.
Overall, 51 percent of voters cited one of the middle class’s most important basic needs, from housing to raising children, compared to just 23 percent who cited their monthly bills or other expenses such as groceries, utilities, gas or cars. Another 10 percent said something else – including holidays, Formula 1 tickets, taxes and legal representation – while a relatively wealthy and older 16 percent of voters said they were not worried about being able to afford anything.
Voters were also much more likely to say that the cost of these expensive basic necessities “has become so high that they have become unaffordable” than they were to say the same about other things like food, utilities and transportation.
The importance of these high-priced items helps explain much about the issue of affordability, including the disconnect between macroeconomic numbers and public opinion.
Typically, the strength of an economy is measured by economic growth or the number of jobs. But while concerns about housing or health care costs are undoubtedly economic in nature – and although housing and health care are large sectors of the economy – this is not a problem for “the economy” as it is usually defined. They are so different that one could develop solutions that help the economy or even inflation without sacrificing affordability. In fact, the cost of these middle-class essentials has been rising for decades, even during periods of low inflation.
What makes these items so different? One factor is that there is relatively inelastic supply and demand: people still need medical care or a home even in a recession; It takes a long time to train a new doctor or build a house. This is partly a consequence of the fact that tighter monetary policy to curb inflation, for example, does not do much to slow the rise in the cost of insurance or medicine. Higher interest rates can actually make it more expensive to take out a student loan or home mortgage — something that is not measured by the Consumer Price Index.
The importance of expensive necessities also helps explain the extraordinary dissatisfaction among younger adults. On every question, they give far more pessimistic assessments of the economy and affordability than older age groups. In recent years they have turned decisively to Donald J. Trump, not least because they were angry about rising prices, and already seem to have swung back, even though they have to pay as much for eggs, gas and cars as everyone else.
What sets young people apart is that they are the ones trying to buy a ticket to middle-class life. The higher costs of housing or starting a family could make a young person’s most important life goals seem unattainable. This has less impact on older people who have already paid for many of these costs, have Medicare and benefit from higher property values when they own a home.
Overall, a majority of voters under 45 say the cost of raising a family has become “so high that it has become unaffordable.” Only 24 percent of respondents ages 18 to 29 said they could afford the life they “should be able to afford,” compared to 63 percent of voters ages 65 and older. Likewise, only 27 percent of young respondents said they had achieved a middle-class lifestyle, compared to 66 percent of older voters.
Standard economic data doesn’t necessarily measure this specific challenge for young adults. While economic data suggests that Americans’ incomes have kept pace with overall higher costs over the past few decades, they have not kept pace with the costs of housing, child care, health care and education. These costs are disproportionately borne by young families, but the consumer price index represents the average consumption behavior of the entire adult population – and fewer than half of households have a child under 18. Real average income may not have increased to the same extent, or perhaps not at all, for a household trying to start or raise a family.
Housing is the problem that concerns young people the most. In an open-ended survey, about half of them said they were most worried about housing finances, more than all other issues combined, including retirement, health care, education, bills, cars and food. Only 36 percent of young people said the home they would like was “within reach” (or they already owned it), compared to 76 percent of those over 65.
Despite their dissatisfaction, young people did not report feeling significantly worse financially than older voters: 64 percent of young people said their financial situation was secure, compared to 74 percent of those over 65. This suggests that their main problem is not increasing exposure to monthly staples like groceries or gasoline, which would impact all age groups in fairly similar ways.
Instead, younger people are frustrated because they are increasingly prevented from realizing ambitions that older people long ago harbored.