Housing Affordability Beyond Brick and Mortar: The Overlooked Impact of Utility Costs

In ongoing discussions of the housing affordability crisis, the cost of rent or mortgage payments is often the focus of attention. Utility expenses are frequently left out of the housing affordability equation. However, utility costs, (e.g., gas, water, electricity, and the internet), are a critical aspect of housing affordability for renters and homeowners that needs to be addressed. 

Attention to utility costs in the context of affordable housing is critical because these costs disproportionately have a negative impact on low-income and minority renters and homeowners. 

Internet as an Essential Utility

Internet costs are often overlooked as a necessary household expense, but it is crucial to recognize these costs are an essential utility in today’s interconnected world. Internet access has become indispensable for the myriad of information, education, employment, economic opportunities, services, and resources increasingly available only online. 

Neglecting internet bills in housing affordability estimates fails to provide an accurate picture of low-income households’ financial burden, leading to underestimating the actual cost of housing for these families. One policy initiative that underscores the importance and necessity of the internet as well as the recognition that the costs associated with having home internet access are prohibitive for some households is demonstrated by the federal government’s Affordable Connectivity Program (ACP). This program is designed to ensure that low-income households are provided broadband internet services at a discounted price; the program currently services 19 million low-income households. 

The Burden of Rising Utility Costs 

Utility costs significantly strain household budgets, posing an additional challenge in securing and sustaining affordable housing. Annually, the average American household spends approximately $5,151.96, or nearly 10% of their annual household income on utilities. For low-income individuals and families, these costs represent an even larger portion of their annual household income, thereby, leaving little room for other essential goods and services. This financial strain directly affects housing affordability, forcing many low-income households to make difficult choices to make ends meet. 

A 2020 report published by the American Council for an Energy-Efficient Economy (ACEEE) noted that low-income households spend about 8% of their household income on energy utility costs, compared to the approximately 2% spent by non-low-income households. In other words, low-income households are spending approximately 4 times more of their total household income on utility costs than non-low-income households. 

While utility rates are the same for everyone, with approximately, a third of U.S. households reporting financial constraints due to their energy costs utility expenses represent a disproportionate burden on low-income households, especially minority households. This disproportionate impact is a significant barrier to securing affordable housing. 

Rising utility costs further threaten the prospects of achieving affordable housing for all low-income households. In the U.S., the average price of electricity jumped nearly 11% from 2021 to 2022. This upward trend is likely to continue throughout 2023 and worsen because of climate change. Solutions for reducing the burden of utility costs often revolve around financially inaccessible options such as investing in energy-efficient products (e.g., appliances, solar panels) or upgrading and/or retrofitting to energy-efficient cooling and air condition systems. And because minority households are more likely than others to live in aging and low-quality housing structures, an inability to implement these “solutions” ensures their energy costs will not be reduced anytime soon. 

Water bills are no exception to the surge in utility costs nor is their inequitable impact on low-income homeowners and renters. A recent report by The National Association of Clean Water Agencies (NACWA) revealed that the average annual cost of water service for American families has increased at twice the rate of inflation in the last two decades. Nearly one in ten U.S. households has water and sewer expenses exceeding almost 5% of their annual household income. While surging water bills affect all Americans, water affordability places an even greater economic burden on low-income households, who pay nearly 7% of their annual household income just on water and sewer services. 

What are some of the strategies that low-income households employ to manage utility costs? To avoid high utility costs, one action taken, which is both unsafe and potentially very uncomfortable, is lowering or entirely forgoing temperature adjustment levels in their homes. Another unsustainable and risky strategy is to pay utility costs but limit paying for other essential household needs such as food or medical care.

The exclusion of utility costs from the housing affordability equation skews the perception of the true financial burden faced by all but especially low-income and minority households. As a result, for many, housing affordability becomes increasingly overwhelming, thereby limiting opportunities for financial stability and upward mobility. 

The Weight of Utility Costs on Housing Affordability Among Low-Income Latinos 

Amid the broader context of the challenges posed by utility costs and housing affordability, a quick look at some experiences of low-income Latinos dramatically highlights what low-income households face. 

Because nearly 50% of Latino workers nationwide earned $15 or less per hour and Latino households are more likely to be housing cost burdened (spending at least 30% or more of income on housing costs) compared to Whites, examining some of the impact that utility costs have on their lives has the potential to yield insights on how to best structure policy solutions for mitigating the disproportionate negative impact that utility costs have on all low-income households. 

According to a Household Energy Insecurity Survey conducted by the Energy Justice Lab at Indiana University, nearly 40% of Latino respondents could not pay an energy bill between November 2021 and January 2022 and more than 18% had their energy service disconnected. In comparison, almost 24% of White respondents reported an inability to pay an energy bill, and 10% had a disruption in service.

Policy Directions 

Housing affordability is a multifaceted issue that demands a nuanced approach and set of solutions. It is imperative to include the cost of utilities when creating policies to mitigate and address the burdens low-income families face as they work to secure stable affordable housing. 

The following policy directions incorporate vital considerations and priorities within the housing policy arena.   

1. Include Internet as a Utility Cost.

2. Expand the Understanding of Housing Affordability
   Policymakers and activists need to broaden their perspectives on housing affordability. It should go beyond focusing on the mortgage or rental prices, taxes, and insurance. Incorporating utility costs, including internet service, is essential for a more comprehensive set of actions aimed at expanding access to affordable housing, especially to low-income and minority households.

3. Mandate Disclosure of Utility Bills, including internet costs, as part of the information provided when selling or renting a property. This will facilitate all parties to have a more comprehensive understanding of the total costs associated with housing.  

By recognizing the weight of utility expenses, we can pave the way for more informed decision-making and efforts designed to increase access to stable and affordable housing.