It seems to be a bit far fetched or Freakonomics, but a new study by Johns Hopkins University researchers explored the effects of affordable housing on the cognitive development, physical health, and emotional wellbeing of children living in poverty. How much a family spends on housing has no impact on a child’s physical or social health, they found, but when it came to cognitive ability, it is a game changer.

It’s long been accepted – with little science to back it up – that people should spend roughly a third of their income on housing. As it turns out, that may be about how much a low-income family should spend to optimize children’s brainpower.

And when you start to think about it, if money saved on the house can be invested in the wellbeing of the child, it doesn’t seem that implausible that the found correlation hides a possible causal relation.

What this research also shows – again – is the complexity of factors influencing test scores.

Highlights from the first paper:

• We use Consumer Expenditure Survey data to examine whether housing affordability affects spending on low-income children.
• Child enrichment expenditures have an inverted U-shaped relationship with the ratio of housing costs to income.
• The concave pattern mirrors the relationship between housing affordability and children’s cognitive achievement.
• Child enrichment may be one mechanism by which housing affordability affects children’s cognitive outcomes..

From the press release:

When a family spent more than half its income on housing, its children’s reading and math scores tended to suffer, found Sandra J. Newman, a Johns Hopkins professor of policy studies, working with researcher C. Scott Holupka. Children’s test scores also took a hit when families spent less than 20 percent of income on housing.

“Families spending about 30 percent of their income on housing had children with the best cognitive outcomes,” said Newman, who is director of the university’s Center on Housing, Neighborhoods and Communities. “It’s worse when you pay too little and worse when you pay too much.”

The findings are highlighted in two new journal articles, “Housing Affordability and Investments in Children,” published in the Journal of Housing Economics, and “Housing Affordability and Child Well-being,” published in Housing Policy Debate.

More than 88 percent of renters with the lowest incomes spent more than 30 percent of their income on rent, according to the 2009 American Community Survey. The U.S. Department of Housing and Urban Development’s latest report on affordable housing states household incomes must be at least 105 percent of the area median for a family to find decent, affordable housing units.

Families in the study that spent most of their money on housing spent less on things like books, computers and educational outings needed for healthy child development, Newman and Holupka found. Families that didn’t invest enough in housing likely ended up in the sort of distressed neighborhoods and inadequate dwellings that can also take a toll on children.

“The markedly poorer performance of children in families with extremely low housing cost burdens undercuts the housing policy assumption that a lower housing cost burden is always best,” Newman said. “Rather than finding a bargain in a good neighborhood, they’re living in low-quality housing with spillover effects on their children’s development.”

Newman and Holupka found families that had obtained truly affordable housing, spending roughly 30 percent of their income on it, did indeed spend more money on enrichment for their kids.

When a family moved from spending more than half of its income on housing to the 30 percent ideal, it invested an average of $98 more on the children, the researchers found. Not a lot of money, but enough to make a difference. Even when families increased the amount spent on housing — from spending 10 percent of their income to 30 percent — they spent about $170 more on child enrichment.

“People are making trade-offs,” Holupka said, “and those trade-offs have implications for their children.”

Abstract of the first paper:

This paper uses the 2004–2009 Consumer Expenditure Surveys to examine whether housing affordability affects expenditures on children in families with income at or below 200% of the poverty line. After accounting for selection using propensity score matching, estimating effects using nonlinear GLM, and performing sensitivity tests, we find that child enrichment expenditures have an inverted U-shaped relationship with housing cost burden, our measure of housing affordability. This result is similar to the concave pattern of the association between housing cost burden and measures of children’s cognitive achievement in reading and math. Thus, child expenditures, particularly for enrichment, may be one mechanism by which housing affordability affects children’s cognitive outcomes. The inflection point for enrichment spending occurs at roughly the 30% housing cost-to-income ratio, the longstanding rule-of-thumb for defining housing affordability.

Abstract of the second paper:

We test three hypotheses about the role of housing affordability in child cognitive achievement, behavior, and health. Using longitudinal data from the Panel Study of Income Dynamics, we apply both propensity-score matching and instrumental-variable modeling as identification strategies and test the sensitivity of results to omitted variable bias. The analysis reveals an inverted-U-shaped relation between the fraction of income devoted to housing and cognitive achievement. The inflection point at approximately 30% supports the long-standing rule-of-thumb definition of affordable housing. There is no evidence of affordability effects on behavior or health.