Number of Low-Income Workers Rises in Response to Economy, Housing Bubble
As we have seen with the latest news about rising foreclosures and the federal government takeover of formerly private mortgage companies Fannie Mae and Freddie Mac, holders or backers of nearly one half of U.S. mortgage loans in existence, trends in the U.S. economy can directly affect individuals, as a few rotting apples will quickly spoil an entire bushel of fruit.
It's no secret that as bank after bank falters because of its holdings of bad subprime mortgage loans, that it quickly affects how much credit is available to all consumers. Likewise, home prices that were artificially inflated as the housing market grew into a bubble over the past five years are now falling, and no homeowner is immune to its affects on their livelihood.
A new study paints a similar picture based on assessments of how those in the lowest class of society are faring.
USA Today reports that the Brookings Institution, a research and policy institute, has released a study showing that the number of low-income workers-often casually referred to as "the working poor"-has risen across the United States, dramatically in some areas. Overall, the numbers of low-income workers rose in 34 of 58 metropolitan areas around the country.
The Brookings study focused on the period 1999 to 2005 (before the current economic downturn, but during the housing bubble) and counted the number of those who applied for the Earned Income Tax Credit (EITC), a tax credit given to low-income working individuals and families. Of course, this measure may not be accurate, some caution; there may be just a greater awareness of using the tax credit on income tax returns, for example.
However, the study coordinators found the number of low-income workers living in poor neighborhoods rose by 40% across the 6-year period of the study, suggesting that declines in poverty seen in the 1990s were in fact reversing.
Researchers at Brookings found that metro areas of Detroit, Allentown, Pennsylvania and Augusta, Georgia saw the highest rises in low-income workers, while areas of Los Angeles, Phoenix and Fresno had the biggest decreases of individuals in the same category.
However, looking at these extremes, the correlation with the housing bubble is uncanny. The Southwest saw the biggest construction booms and price increases during the housing bubble, which would follow the phenomenon of fewer people using the EITC, as the economy boomed around them during that period.
Detroit saw housing bubble action as well, but in the city proper, the rising housing prices seems to have concentrated low-income workers to a greater extent in certain neighborhoods where they could escape much of the escalation in housing costs and rent.
But now, the areas that enjoyed prosperity are seeing the reverse happen, as that economic success was artificially built on a bubble that was bound to pop. Dropping home prices, foreclosures, mortgage defaults and bankruptcies are the trend now.
The Midwest and Northeast are now seeing less of a toll taken from the movement of housing prices back to their pre-bubble trends, while the Southwest and West is seeing foreclosures jump and housing starts fall flat.
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