This commentary was originally featured in Forbes on August 24, 2017.
The U.S. Census Bureau’s Supplemental Poverty Measure, rolled out in 2009 and updated in 2013, addresses the weaknesses of the Official Poverty Measure. Moreover, the Supplemental Poverty Measure (SPM) shows many interesting statistical connections to economic and public policy variables, unlike the Official Poverty Measure.
Looking at the five most-populous states for links between their SPM rates and economic, demographic, and policy variables may start a discussion that might lead to new and more effective approaches to reduce poverty and the factors that increase its incidence.
First, it is useful to compare the old Official Poverty rate with the newer SPM. Here, the high cost of housing has the greatest effect on the true levels of poverty in California, New York and Florida while in Texas, where housing costs are below the national average, there are fewer people in poverty under the SPM than with the old poverty gauge.
Texas Public Policy Foundation
The New Supplemental Poverty Measure Produces a More Accurate Assessment of Poverty Because it Accounts for Regional Cost-of-Living Differences
High percentages of Americans 65 and older receive Social Security payments. This acts to dampen regional variations in poverty. Using a demographic database maintained at the University of Minnesota, we can look at the same five states listed above, but only for people ages 0 to 64. And, while the most-populous states are diverse, they do have significant demographic differences, so, listing the average SPM for 2013 to 2015 for the largest racial and ethnic groups is illuminating as well.
Texas Public Policy Foundation
Among the 5 Mega States a Diverse Range of Americans See Lower Poverty Rates
The data starts to get interesting now. As with the SPM for all ages, the rank order of the large states’ by poverty remains the same when looking only at ages 0 to 64, with California showing the highest poverty and Illinois the lowest. But, of the five most-populous states, only California and Texas are minority-majority states, thus, considering poverty levels by major demographic groups provides an additional look at how the residents of these large states are doing relative to other states.
Here we see that, while Texas has the second-lowest SPM among the five mega states, it has the lowest levels of poverty among the four largest racial and ethnic groups: white, non-Hispanics; black non-Hispanics; Hispanics, and Asians . By contrast, California has the second-highest poverty rates among all groups except Asians, who are situated in the middle of pack among the five states.
A report published last year out by the Joint Center for Housing Studies of Harvard University estimated that 11 million renters spent at least half of their income on rent in 2014. The Census Bureau’s SPM accounts for rental costs in assessing poverty. There is a close connection between the cost of housing, regulatory barriers in the housing market—for instance, restrictive zoning—and poverty. This table compares the five large states’ overall SPM, ages 0 to 64 with the level of land use regulation (a higher number means more regulation) along with the Regional Price Parity (RPP) index from the U.S. Bureau of Economic Analysis (U.S.=100) and the Regional Price Parity index for rents (housing), a subcomponent of the overall index.
Texas Public Policy Foundation
Poverty, Property Rights, and the Cost-of-Living are Linked–Regulating Land Use Tends to Drive Up Rents
Visually, it’s easy to see a connection between these factors: California has high poverty, it regulates land the most, has the highest rents and has the second-highest overall cost-of-living behind New York. On the other hand, Texas has the second-lowest poverty rate, the lightest regulatory burden for land use, the least expensive rents and the lowest overall cost-of-living.
This suggests that one thing policymakers could do to ease the burden on the working poor in their states would be to dismantle the regulatory roadblocks that imped new construction.
Instead, many policymakers know they have a housing problem but instead double down on regulation and market intervention. This leads them to issue public debt to fund the construction of subsidized housing that rarely meets more than a tiny fraction of the demand. This, in turn, pushes rents even higher, restarting the whole, dismal cycle.
The lesson in the data: respecting property rights reduces rents by encouraging new construction and lower rents help the poor .
For two, new in-depth studies on poverty, see the following papers from the Texas Public Policy Foundation: “Re-examining Poverty Rates: A First Step in Reforming Anti-Poverty Programs” by the author and “Poverty Rates, Demographics, and Economic Freedom Across America: A Comparison of Nationwide Poverty Measures” by Courtney A. Collins, Ph.D.