The rent is too darned high: Auckland edition

Matt Yglesias, author of "The Rent is Too Damned High", points to work damning America's blue states. The map shows that it takes far more hours of work at the state minimum wage to afford a two bedroom apartment in California, Maryland, DC, New Jersey, New York and the like as compared to North Dakota, Montana, and Oklahoma. While the minimum wage is higher in the blue states, land-use restrictions keep housing pretty expensive.

Now there are some potential problems in the measure. They set an affordability line at 30% of income assuming a single earner household, but they don't seem to have accounted for the raft of other benefits that those low-income workers receive, most notably via EITC. So when they say that it would take a wage of $27.15 per hour to be able to afford a two-bedroom apartment in DC, that's just the number you get when you take the HUD Fair Market Rent measure, divide it by 0.3 to get the monthly wage necessary to afford that rent, then turn that into an hourly wage rate. Add in a second earner and the household wage of $27/hour is much easier to achieve. And EITC tops up wages at the lower end of the distribution, especially for those with kids.

But it's nevertheless fun to see where New Zealand's main cities might rank in this kind of comparison. There are 380 2-bedroom apartments for rent in the whole Auckland region on TradeMe. Sorted by rent, the 190th apartment is going to be about the median rent. $520 per week. You'd need to earn $1733 per week to "afford it", or $43 per hour. There are 1137 2-bedroom properties of any kind (apartments, houses, townhouses...); the 568th listing is $400 per week. You'd need to earn $1333 per week to "afford it", or $33 per hour. [Updated to get the proper median property and to provide a stable link]

Maybe the median price isn't a good indicator. Let's take the median overall price as the maximum in our search and get the 25th percentile. The median 2-bedroom property in the "under $400" set is $350: $29 per hour. Maybe that's too nice a place too. The median price on the first page of the low-to-high price-sorted search is $260: $21.67 per hour. On a 40-hour week at minimum wage, you'd be paying half your income in rent to afford it.

If the HUD FMR approximates the median market price for a 2-bedroom place, then Auckland ranks above the most expensive US state. If it approximates the market price for property at the 25th percentile, then Auckland ranks below Hawaii, but above everybody else. If it approximates the market price for the median rental property on the first page of a rental search sorted low-to-high, then Auckland is 9th: cheaper than Connecticut, but more expensive than Alaska.

The same process for Christchurch gives a median price of $365 per week and a 25th percentile price of $300 per week.

If you run the country as a whole, you get 3388 listings for 2-bedroom properties. The median, number 1694, is $340 per week. 25th percentile: $260 per week.

I'm not arguing we should set policy so that a single earner on the minimum wage can get a two-bedroom apartment on 30% of his salary. But that we fare poorly on a "number of minimum-wage hours necessary to rent a two-bedroom apartment" measure against the US, when the minimum wage here is much higher as a fraction of median the median wage than it is in the States, does suggest something about NZ land use policy.

Information mismatch

Matt Yglesias points to a small bit of low-hanging fruit: solving the information problem that keeps smart low-income kids from low academic social capital suburbs and rural areas out of great universities and colleges.

Smart lower income kids that live near the home catchments of decent universities are targeted for scholarships by those schools: a substitute for the social capital that would otherwise provide them with a university-admissions strategy. As for the rest...

Low-income students are very different. Fully 53 percent of them apply to zero schools whose median SAT or ACT scores are similar to their own. Many of these smart, poor kids apply only to a single unselective school. Only a very small percentage of these kids—8 percent of them, the authors estimate—act the same as high-achievement kids from prosperous families by applying to selective schools, including some reaches and safeties.

Hoxby and Avery label the 53 percent “income-typical” and the 8 percent “achievement-typical.” They find that that small minority of students who exhibit achievement-typical application behavior do just as well as higher-income students at actually enrolling in and graduating from college. When poor kids apply to good schools, in other words, they’re just as likely to get in as more affluent ones are. The selective colleges deliver enough financial aid to make it possible for achievement-typical kids to attend, and they’re able to do the work and graduate.

But income-typical and achievement-typical students seem to come from very different places. Statistically speaking, the achievement-typical are more likely to live in core municipalities than suburbs or rural areas. They’re more likely to come from larger metro areas than smaller ones. Income-typical students’ schools are smaller and are less likely to feature any teachers who’ve attended selective colleges or have other students who attended such colleges recently.

The mismatch, in other words, is double-sided. Selective schools looking to recruit low-income students with strong test scores are looking at a few hot spots with unusually high densities of such kids and ignoring the long tail of smart kids in smaller cities, in rural areas, and outside magnet programs.

I was a bit surprised about this; I'd always assumed that American kids scoring in the top percentiles of the SAT were given an information pack telling them what they should be doing. They didn't do it in Canada, but we also didn't have an SAT that would allow universities to compare applicants across schools or that would let smart kids from small rural schools know how they'd rate in a broader sample.*

If colleges start to realize how many high-achieving low-income students they’re missing, they might send their recruiting staff further afield. What’s more, written communications can easily target students regardless of location. The key is that written outreach needs to be specially tailored to the circumstances of low-income students whose personal networks don’t include graduates of selective schools. That means emphasizing the real cost of attendance rather than headline tuition, and the fact that there are gradations of school quality beyond Harvard vs. Other. And success could build on itself. If selective schools did a better job of reaching out to lower-income students, they’d build more diverse alumni networks.

State governments (or Washington, D.C.) could also play a role, committing to targeting top-performing students in low-income districts. Either way, compared with the other dilemmas involved in improving the education system, tackling undermatching seems relatively straightforward. The main barrier is that most people have no idea how widespread it is. Each year, 10,000 or 20,000 of America’s brightest high-school graduates don’t go to a great college not because they can’t afford one but because they don’t realize they should apply. [emphasis added]

Indeed. With a centralised, standard exam like the SAT or ACT, how hard would it be to send a basic information package out to kids likely to be in this situation?

* If you graduate top of eighteen in a small rural school, you have no way of knowing whether you're in the top 6%, the top 1%, or the top 0.1% if there's no SAT. If nobody in a thirty-mile radius has any experience of anything beyond the big local university, and nobody really knows of anybody who's gone elsewhere, and the careers' counselor is useless, and most people who don't go into farming go for their teaching degree....