Are we underestimating who is poor?

Michael Green has caused a bit of a dust-up with a piece that was picked up by the Free Press, and which he followed up on at his substack newsletter. The title of the first piece was “The Valley of Death: Why $100,000 Is the New Poverty”.

The broad point of the piece was that if you add up the cost of what we consider the basic necessities of a non-poor life in 2025 America, spending less than $100,000 annually is pretty hard to do without going without some things that we would associate with poverty.

I would just toss out 4 basic categories for, say, a family of 4, with a broad estimate of what the minimum would generally cost in my city: health care ($30,000), food ($15,000), transportation ($15,000), and housing ($25,000). That’s $85,000.

There is a genre of tweets, posts, and articles, that describe an upper-middle class lifestyle with status luxuries, that claims living in Brooklyn, or something, on $300,000, or some ridiculously high number, is a struggle. And, I think Green’s posts seemed to be of that genre to its critics. And, much of the pushback has been focused on the exact dollar amounts, regional differences in expenses, the technical way we define the poverty line, and complaints about lacking an appreciation for rising standards of living.

It is true, on many dimensions, that what Americans get for that $85,000 is of a much higher quality than what Americans spending a fraction of that in previous generations received.

Health Care

The point I took from Green’s piece was that we naturally feel a communal responsibility to support families living below a minimum standard, and the cost of that standard has risen.

Health care is an important element of that. Regardless of how much better health care might be than it used to be, that category of spending is a lot larger than it used to be, and there is a reasonable and widely shared intuition that we don’t ration health care by price to leave people in our community to be consumed by cancer or left to bleed out after an accident because they can’t pay for the treatment.

There is an unavoidable tension that arises when a service we intuit as a human right claims more of the national income per capita than some citizens are able to produce and earn as laborers.

Green’s point was that when you account for public poverty subsidies, a lot of families that earn, say, $35,000, wouldn’t be much better off if they earned $80,000, because they would lose those benefits. I’ve seen some pushback on that scoffing that, obviously, someone receiving $80,000 is better off than someone receiving $35,000. That’s true if the cash just falls in their lap. But if going from $35,000 to $80,000 requires doubling your work hours, struggling for a series of promotions, or getting training and education, then it is easy to imagine how a person choosing to do what it takes to make $80,000 is worse off than they would be choosing to do what it takes to make $35,000.

Health care is a big part of the issue, because it’s just an odd intersection between technology, culture, and moral norms, that has increased the level of spending that is considered humane to a higher level relative to the productivity of a basic worker.

Child Care and Transportation

The reason I am writing about this is that much of the rest of the issue is related to housing. On several levels, this is a “housing theory of everything” problem.

Child care costs have received a lot of attention in the conversation, and that’s a tricky one because it is a cost that varies widely across a family’s life cycle and according to a family’s idiosyncratic needs. I will leave most of the details of that issue to the other commenters, but housing policy is an important aspect of that problem.

When I was young, there was a deep and broad informal cottage industry for child care. Some women watched kids in their homes. Regulations about both housing and child care businesses have taken all of that away. There are a few people I see that find carve outs for informal child care. One of my kids is active in youth theater, and the studio directors tend to be young women, some with children. And youth studios happen to be a place where you can get away with mixing children and work.

Another place where family and work can still mix is hotels. It would be hard to argue that hotels can’t be residential, so there are many hotels across the country owned and/or managed by immigrant families whose living quarters are behind the office. In most other contexts, mixing commercial and residential infrastructure has been banned.

At a deeper level, this goes beyond child care. Zoning rules are responsible for elevated transportation costs too. Pre-zoned cities frequently had streets with commercial on the ground level and residential above. This is sort of being revived in some new apartment buildings, but it used to be much more common in fee-simple housing. Practically every small town has a version of this on its Main Street.

And, as cities expanded out into the suburbs, it was common for immigrant families or other aspirational families to build small multi-unit homes that they lived in with portions that they rented out. This has largely been banned, so that existing inner suburbs can’t transition to these forms of arrangements. Child care and transportation were a big part of it, but these sort of dense neighborhoods with mixed uses brought all sorts of benefits.

Both of these pictures show how carless families would buy groceries.

Figure 1

By any reasonable statistical measure, the people on the left were poorer than a person who might be sitting at that bus stop surfing the internet on their smartphone. Are the statistics that say the right picture is better wrong or are the vibes that say it may not be better wrong?

The reason that the infrastructure on the right exists is that the voters who built the town on the right made sure that the infrastructure of the area when it was an ascendant middle class suburb would be permanently unfriendly to the sort of people in the picture on the left. It was written into the zoning plan. No multi-plexes or mixed uses. Big empty parking lots. It was all mandated. Municipal politics in the 20th century was focused on getting the other municipalities to be the place that served the needs of the sorts of families that don’t have cars. The other municipalities didn’t comply.

So, families choose to have cars, even when it is economically difficult for them. That was our choice, collectively. Or, at least, it was a phenomenon that emerged from the way in which our preferences could be expressed politically in the 20th century.

A family with 2 parents and 2 kids on the right needs more than $20,000 of annual expenses just to perform some basic functions less well than the people on the left did for free. The people on the right are richer, no doubt. Both in terms of what they have access to and in terms of the human effort required to produce the machines, accessories, and services that cost $20,000.

In many ways many families would have chosen to live more like the families on the left, if it were an option. They aren’t spending more than $20,000 because they are entitled. They are spending it because the alternative was eliminated by law.

Maybe Green’s numbers were off by $20,000 or $40,000. Maybe those cars have lots of bells and whistles and safety upgrades. But, in terms of how this is important for public policy, I don’t think “The families on the right are much richer than the families on the left. Do we even have to have this argument again.” is helping to arrive at solutions to the real problems behind Green’s observations or to build credibility for anyone on this topic.

Housing

I think one reason I feel like the criticisms about the technical details and the numbers in Green’s piece are unsatisfying is that “affordability” is a secondary point. We have eliminated the possibility for a certain practical type of lifestyle that was a key part of the development of modernity. It no longer exists outside of sections of a few cities like New York City and Chicago. The added cost of living isn’t a first order effect of entitlement. It is a second order effect - a measure of the cost of those impositions.

This is a common theme here at the EHT. It is sort of backward to say that it has become too expensive to live in Los Angeles. Los Angeles made itself illegal. Each year, some 40,000 households, give or take, have to move away from Los Angeles because the region of Los Angeles has decided that there can be no more of itself. That is the first order fact. There will be net domestic economic displacement for about 40,000 families from Los Angeles this year. If the cost of living in Los Angeles increases by another $2,000 this year, it sort of misses the point to say that rising living expenses have made it hard to get by in Los Angeles. The mandated end of growth made it hard to get by in Los Angeles, and the added $2,000 living expenses are a reflection of how much families struggled against that mandate. The $2,000 living expense was what made the 40,000th family indifferent about staying or leaving. It is a measure of the pain of displacement, not the cause of it.

The Los Angeles region has forced families to be systematically worse off (relative to a rising baseline, of course) such that at least 40,000 of them will feel worse off enough to become domestic refugees. At this point, on net, many of the families who would leave Los Angeles (or San Francisco or New York City) without much distress are long gone. The marginal leavers are those who self-selected a poverty-like life in order to keep the idiosyncratic endowments that Los Angeles provides for them for another year.

One complaint against Green has been that households of 4 or more actually tend to have much higher incomes, on average, than most people realize - higher than the level of income he highlights as the new poverty level. Then, there is a follow-up debate about that. Is the average income of 4 person households high because Americans are rich and Green is off-base, or is the average income of 4 person households high because households with lower incomes can’t afford 2 kids.

This is my household. We have 3 young adult children, all earning some individual income, and all still at home. We are currently a 5-person household with above average income. And, we are only that because the high cost of housing has kept us from being 2 or 3 or 4 households as quickly as we would have. We confirm the statistics of the critics and the vibes of Green.

As I write about frequently here, the US is about 15 million households short of the number of households we would have had based on decades-long trends in adults per house. Again, as with the causation of high costs in Los Angeles, the cost of housing is a secondary point.

Local zoning and a number of accidents of history since 2008 have lowered the stock of housing by 15 or 20 million units, and so we had to reduce vacancies and households until we fit into the homes we have. The high cost of housing is the cost required to get the 15 millionth household to wait.

The result of that is both that this 5-person household is objectively richer than the vast majority of 5-person households that have ever lived. And, also, the imposition of the housing shortage has caused our kids to change major decisions about their own lives in a significant, visible way.

So, decisions that reflect a lack of options at a minimal level of living - striking out on our own to have a private place to live with a spouse and children - reach well up into income levels that certainly reflect abundance.

That abundance means that there is plenty of space within the existing stock of homes for our kids to fit into. If our house was arranged into 2 or 3 separate private spaces, we would all still have plenty of room. If we tried to do that and the city found out, we would be stopped. If any other homeowners tried to carve private living quarters out of their abundant extra spaced, they would be legally stopped.

We are rich and we are poor. It’s all true at the same time.

Even though these problems reach up into families with average or above average incomes, the pressures fall the worst on the poorest. That is why families with $30,000 incomes require public support that pushes their living standards up toward families with $100,000 incomes.

Here, again, I think I have been a witness to this conundrum. We bought our house in a new neighborhood in suburban Phoenix at the end of 2001. By 2005, at neighborhood gatherings, we would all wonder at the fact that none of us could have afforded to move into the neighborhood at the new price levels. Today, many of us could still say that.

Homeownership insulated us from the implications of that change, so for us it could just be a curious observation. But, that is upward filtering. The neighborhood we could choose in 2001 is now too good for us. Again, both things are true. We are better off in a statistical sense, and in an objective sense, than we were in 2001. And, yet, the neighborhood we moved into in 2001 is now above our station. We are only grandfathered in.

I will have some new things coming out very soon on this topic. I think the researchers that have documented the American shift to upward filtering have not fully conveyed the sea change that upward filtering creates in economic self-identity. We are losing ground compared to our neighborhood. This is like locals complaining about gentrification, but worse. When a neighborhood gentrifies, locals might get priced out because the neighborhood is improving - new amenities, fancy restaurants and shopping, etc. Certainly, on the edge of Phoenix a lot of new amenities have come along in the 24 years since our home was built. There are lots of things we can drive to more easily than we used to. But, that isn’t why our neighborhood is more expensive. And, the neighborhood itself is exactly the same as it was 24 years ago. Nobody is coming in and infilling the neighborhood with fancy new homes. It’s the same old neighborhood, and it’s too good for us now.

Again, both things are right. We are richer than ever, and we are losing ground. I think dealing with that tension is a more productive reaction to Green’s posts than quibbling about what the standard error is on his estimate of child care costs.

But, imagine if we weren’t grandfathered in. Imagine if the generous mortgage markets of 2001 hadn’t existed, and we had remained renters. Owning this house, whether because of the low mortgage interest rates of the past 24 years, the ability to avoid rent inflation, or the chance to tactically extract home equity, has easily provided several years’ equivalent of a middle class income to us relative to if we had remained renters.

That is several years’ income we didn’t earn, but it is several years’ income we consumed. That consumption had to come from somewhere. It had to come from somebody’s productive activity, because it didn’t come from ours.

Frankly, I don’t know what we would have done. We would very much be dealing with the sorts of hard decisions that Green discusses in his posts. Simply removing that one choice from my history could very easily have led to a series of economic struggles that I would have associated with failure. We would have been in the portion of the country’s households that need to produce the goods and services that households like mine have been consuming out of our housing hedge.

The homes in my neighborhood are more expensive than most of my neighbors could have afforded if we were moving in fresh because the rental value of these homes has increased so much - or, more specifically, the rental value of the land they sit on has.

And, that is much more the case on homes that sit on land in neighborhoods where families with $30,000 to $80,000 incomes live.

Figure 2 shows the nominal monthly rent on 828 ZIP codes across the country tracked by Zillow in both January 2015 (on the x-axis) and October 2025 (on the y-axis). This isn’t just Los Angeles or New York. There are no regional controls on this regression. Unfortunately, in the American housing market, controlling for regional differences has become less important since 2008. We’re all Los Angeles now.

Rising incomes and inflation generally raise the prices of all homes a similar amount. In Figure 2, you can see that rents in all ZIP codes have increased by about 37% over that time. That would create a regression line that ran through the origin and became more steep (going from the orange line to the red line).

In addition to that, rent in ZIP codes, from bottom to top, has increased an additional $450/month. That’s the monthly expense that the 15 millionth household needed to deal with in order to delay being a household. That’s not the cost of building new homes. That’s the price of stopping 15 million households.

Figure 2

Maybe to fully see the effect in human terms, an exponential scale would be helpful. Figure 3 shows the same change with an exponential scale. The blue dots and the black regression line show rents today (on the y-axis) relative to rents in 2015 (on the x-axis). The red line is what rents would be today if all rents had simply risen by 37%. The orange line shows where rents would be with no change.

Figure 3

The difference is more than $5,000, annually. Just in the past 10 years, all families need an additional $5,000 just to upgrade from a parent’s extra bedroom - or a tent in the park, or the back seat of a sedan - to any proper home. That $5,000 buys you nothing. It is a literal measure of the minimum.

Just in this one category - housing - in just one decade, we have increased the cost of existing by $5,000.

I didn’t think this condition called for a 15th essay about the statistical choices Michael Green made, so instead I wrote this one.

So, here we are, the richest country in the history of human-kind, and also a country where kids with middle class parents, a college degree, and a bright future are delaying important steps in adult life because of economic limits, and also a country where middle class homeowners get by on the unearned gains of past financial hedges, and also a country where a shortage of housing has created mass transfers of income from the unhedged (renters) to the hedged (owners), and also a country where the households that are producing the extra goods and services those housing hedges pay for feel not so great about the economy, and also a country where many families must be worse off in order to be nudged into the decisions that moderate our consumption of our limited - and frequently outlawed - resources.

We are the richest country in the world, and the cost of existing - just existing - here is moving further and further away from zero. And, in many way, the reason for the latter is a set of political choices that has little to do with the former and can be fixed without putting those riches at risk.

Homes are capital. Complaints about how homes are commodified or financialized, or whatever, are complaints about the state of nature. To live in a home today, we have to build a structure that will stand for decades. So, to live in a home today, somebody has to put the work in today and not consume the output of that work so that the output of that work will provide a home for decades into the future. That is capital. It requires some sort of arrangement of that icky, unseemly thing we call finance.

What we need is more capitalism, and if we had more capitalism, capitalism would be building the cities that we have outlawed and razed for a century. That capitalism would have deeply, extremely progressive equalizing effect on real, lived incomes. It would reduce the floor on the cost of existing. And it would reduce the nominal need for basic public subsidies against poverty.

It would produce structures that provide real value to families that sit on land which might sell at a small premium for what it provides access to rather than a premium for nothing that systematically must cause financial distress.

A minimum income in this economy is the price required to go without rather than the price required to share in our riches.

We need a finance that funds structures and street scenes, not exclusion. And, it’s not the fault of finance that this is where we are. It isn’t the fault of entitlement that this is where we are. It is the fault of a century of impositions of mandates against building things that allow the poorest families to serve themselves.

I wish there were 14 essays about Green’s post like that. I haven’t seen one, so this is my best attempt at it. Instead of debating how much we should have to pay for the high cost of existing in an economy that has spent a century being hostile to it, we should be joining hands in the task of making existing easier again.

Am I being hyperbolic? Recently, I attended meetings about a reduced rent apartment building that would have been a quarter mile from a public high school in one direction and a quarter mile from a regional park in the other direction. It required variances in the county’s zoning code. The locals came out in force. They argued that the project was planning to have children in it. Think of the neighborhood, they said. The developer made changes. They repeatedly reassured the neighbors, “All school-aged children have been eliminated.” The project was denied anyway.

Rents in Phoenix subsequently increased enough to get that number of households to delay their life plans. Roughly, a hundred families delayed moving to Phoenix, a hundred others moved away, a hundred others didn’t form, and a handful did form in some tents in the park.

What would be the non-hyperbolic way to describe a context where this is the norm? If those few hundred families read Michael Green’s posts, is the most important counterpoint they need to hear that we live in the richest country in the history of the world? I think the richest country in the history of the world should be a source of abundance for them. It very easily could be. That apartment building doesn’t exist. We could be twice as rich as we are, and it still wouldn’t exist. And, the income required to exist, under those circumstances, would rise until it created the amount of distress required to sustain those circumstances.