Income inequality is one way to measure the economic disparities between the rich and the poor. That gap tends to be more stark within America’s urban areas, compared with the nation as a whole. It also continues to grow in both cities and metros across the country, a new analysis by Brookings Institution finds.
The authors, Alan Berube and Natalie Holmes, summarize the report’s findings:
Inequality is indeed high and rising in most places, with the Great Recession and subsequent lackluster recovery exacerbating already-significant gaps between rich and poor households. Yet the magnitude of inequality, its sources, and its trajectory vary markedly across the national landscape.
Berube and Holmes measured this gap in the same way they have in previous reports: by calculating the “95/20” ratio, which divides the income of a household that makes just enough to qualify it in the top 5 percent by one that makes just less than 80 percent.
The 95/20 ratio has risen since 2007
In the country, overall, this ratio increased from 8.5 to 9.3 between 2007 and 2014. In other words, a household at the 95th income percentile made 9.3 times that of one at the 20th. But 57 of the 100 largest metro areas in the country also saw their 95/20 ratio grow significantly in this time period. The Bridgeport metro, for example, saw a 5.7-point change in this ratio between 2007 and 2014—the highest in the country.
Here’s how the authors explain the rise in metro-level inequality:
Most metro areas experienced increases because top incomes were stable or declined modestly over this period, while incomes near the bottom dropped substantially. Indeed, double-digit slides in 20th percentile incomes were quite common across large metro areas. High-income households earned significantly less in 2014 than in 2007 in 33 of the 100 largest metro areas, but the same was true for low-income households in fully 81 of those metro areas.
Here’s a Brookings’ map showing the 58 metros with statistically significant changes in income inequality from 2007 and 2014:
Cities tend to exhibit similar trends in inequality as the metros they’re in. The report finds that 29 out of the 36 cities where the gap between haves and have-nots increased were located in metros that also saw their 95/20 ratio grow. Mid-sized cities (like New Haven, New Orleans, Boise, and Cincinnati) saw the highest increases because the income for their low-earning households fell by more than a staggering 25 percent. Only in Denver and El Paso did earnings of the bottom 20th percentile grow between 2007 and 2014.
The relationship between inequality and affordable housing
Using census housing data, the authors calculated the annual rent for housing that’s valued at the 20th percentile of the cost distribution in each city, then compared it to the annual income of the bottom 20th percentile of households there. In Washington, D.C., for example, the annual rent for such a rental unit was $10,286 (or $857 a month), and the annual income for the low-earning households was $21,230. So, the annual rent of a relatively affordable D.C. apartment is still 48 percent of the annual income of a household that would potentially benefit from cheap housing.
For cities with higher inequality ratios (such as Washington, D.C.), this percentage was generally higher—meaning that low-income households find it harder to afford a place to live in these areas. In New Orleans and Miami, where the 95/20 ratios are a very high 10.8 and 10.2, respectively, the lowest earners pay up to 70 percent of their income in annual rent.
Here’s Brooking’s graph showing the relationship between inequality and rent:
It’s important to note that in some cities—Cincinnati, for instance—the rent burdening percentage is high even though housing there is not as expensive as elsewhere, because of extremely low incomes of the bottom 20th percentile of households. In D.C., of course, while the incomes of the lower bands may be higher than in other cities, so are the housing costs.
San Francisco, on the other hand, is notorious for its lack of affordable housing, but it doesn’t have the highest rent burdening percentage (although it’s still pretty high, at 54 percent), even though its 95/20 ratio is among the higher ones, at 14.5. This rent-burdening percentage isn’t as high as might be expected because the income of the lowest earners, at $26,400, is much higher than it is in other cities with high inequality.
Here’s how the authors sums up the case of San Francisco, via the report:
That housing appears more affordable to the poor in these cities does not, however, confirm that they necessarily have sufficient affordable housing. There may be many lower-income households who would like to live in those cities, perhaps to be closer to jobs, transit, or other key services and amenities, but simply do not earn enough to afford rents there.