The Atlanta Journal-Constitution
Pandemic money gone, child care an industry on brink
Many parents feel stress of shrinking options, rising costs.
Running a child care business has long been a very challenging math problem: Many providers can barely afford to operate, yet many parents cannot afford to pay more.
During the pandemic, there was temporary relief. The federal government spent $24 billion to keep the industry afloat. Many providers were given thousands of dollars a month, depending on their size, which they used to pay for expenses, the biggest of which was wages.
But that funding, which started in April 2021, expired in September. Five months later, the business is more precarious than ever.
In addition to the end of the monthly checks, providers’ costs have increased along with inflation — for food, supplies and liability and property insurance. Rising wages at food service and retail jobs have made it harder to recruit child care workers, one of the lowest-paying jobs in the country.
And families’ use of child care has changed, making it difficult for providers to maintain the requisite number of workers and collect a stable income. Some parents now use care less consistently because they work from home more often or found alternative arrangements, like having family members or nannies care for children, during the pandemic.
The result is an industry on the brink, new data shows.
In a survey released Feb. 25 by the National Association for the Education of Young Children, more than half of 3,815 child care owners or directors said they were enrolling fewer children than they were licensed for. Mostly it was because of staffing shortages — they said they could not afford to pay workers more because parents could not afford to pay more.
Half the providers said they had increased tuition. Of a broader group of more than 10,000 child care workers surveyed, 55% said they knew of at least one program in their community that had shut down since the expiration of federal funds.
Many parents are feeling the stress of rising costs and shrinking availability. On average, a recent survey by Care.com found, they spend one-quarter of their income on child care (the Department of Health and Human Services says for child care to be affordable, it should cost no more than 7% of a family’s income). A majority said tuition had increased and wait lists had grown since the funding’s expiration.
Some have tapped their savings or taken more jobs to pay for care. Others have asked family or friends to care for their children or cut back their work hours to do so.
“As these funds disappear, it’s just pushing programs that were just barely staying together over the edge of unsustainability,” said Elizabeth Ananat, an economist at Barnard College.
The Biden administration has asked Congress for $16 billion for one year of additional funding for child care, and a group of Democratic senators has supported it, though it is unlikely that it would get the Republican approval needed to pass.
In the meantime, some states, including a few led by Republicans, have invested state funds to make up for the loss of federal funds. For example, Vermont will spend $125 million a year for large expansions in eligibility for subsidies for low-income families, and Kentucky spent $50 million on grants after federal funds expired.
That is not enough, said Sondra Goldschein, executive director of the political action committee for the Campaign for a Family Friendly Economy, which is spending $40 million to back President Joe Biden and Democratic candidates who support child care. “We want child care to be thought of as permanent infrastructure and have sustained substantial investment in the sector at the federal level,” she said.
Subsidizing child care for most providers, as the government did during the pandemic, or for most families, as the Biden administration was unable to do in its social spending bill, is politically unlikely. Republicans did not support the bill’s family policies, including broadly subsidized child care and universal pre-K.
But there has been support from both parties for other ideas. One is increasing financing for the block grant that helps low-income families pay for child care. It received an additional $15 billion during the pandemic, but that expires this fall, and before that expansion, it served only 14% of eligible families. Another is giving employers tax breaks or other incentives for helping employees pay for child care.
Policies targeted at low-income families and focused on how child care benefits employers are more likely to get bipartisan agreement, said Patrick Murray, vice president for government affairs at KinderCare, a chain of 2,300 child care centers, who worked on the block grant as a policy adviser for former Sen. Lamar Alexander, R-Tenn.
This year has been the most challenging in three decades for Rebecca Davis, who runs a child care center in Arkansas from her home in the Little Rock area.
She used to care for children from 6 weeks old until they entered kindergarten, but since the pandemic, turnover has been higher. Taxes are coming due on the pandemic grant money.
Yet she can’t raise tuition: “It’s a Catch-22: I would love to be able to give my employees a stipend or an increase on their hourly wages, but I can’t because the cost of everything has went up, and parents just can’t pay.”
After expenses — payroll, utilities, mortgage payments, food and supplies — Davis’ take-home pay is often around $2 an hour.
“You do not make a living doing child care,” she said.
“Why do I do it? Because I love making a difference in a child’s life.”
Before the pandemic, Shineal Hunter, like her mother, grandmother and great-grandmother before her, worked in child care, running a center for 55 children in Philadelphia. It focused on caring for children with behavioral challenges and helping families find services like housing or food assistance.
After the pandemic, though, the business became unsustainable, with rising costs, inconsistent attendance and a staffing shortage.
With the expiration of the federal funding looming, she closed her center.
“It’s heartbreaking, that all the energy and effort that I’ve had for the last 15 years, the services provided in my community, those are gone,” she said. “I’m thinking of the children who are now going to fall between the cracks.”
She watches one child at her home, before and after school, and is working parttime as a therapist. But she would like to return to child care, and is making plans to reopen.
Mortgage rates have fallen since, and sales, especially of new homes, are beginning to thaw from the anemic pace of last year. Even so, a move toward smaller, affordable homes — in some cases smaller than a studio apartment — seems poised to outlast the mortgage spike, reshaping the housing market for years to come and changing notions of what a middle-class life looks like.
“This is the front end of what we are going to see,” said Ken Perlman, a managing principal at John Burns Research and Consulting.
The shift is a response to conditions that are found in cities across America: Neighborhoods that used to be affordable are being gentrified, while new condominiums and subdivisions mostly target the upper end of the market, endangering the supply of “starter homes” in reach of firsttime buyers. That developers are addressing this conundrum with very small homes could be viewed as yet another example of middle-class diminishment. But buyers say it has helped them get on the first rung of the housing market.
“They should help out more people that are young like us to buy houses,” said Caleb Rodriguez, a 22-year-old in San Antonio.
Rodriguez recently moved into a new community outside San Antonio called Elm Trails, which was developed by Lennar Corp., one of the country’s largest homebuilders. His house sits in a line of mini dwellings, the smallest of which is just 350 square feet.
On a recent evening after work, neighbors were walking dogs and chatting along a row of beige, gray and olive-green two-story homes of the same shape. The development has a pond where residents picnic and catch bass and catfish. The houses do not have garages, and their driveways are wide enough for one vehicle or two motorcycles — proportions that pushed the sale prices to well under $200,000.
“I wanted to own, and this was the cheapest I could get,” said Rodriguez, who moved in this month and works at a poultry processing plant in nearby Seguin, Texas. He paid $145,000 and hopes the house can be a step toward wealth building. Maybe in a few years he will move and rent it out, Rodriguez said.
Homes under 500 square feet are not taking over any time soon: They are less than 1% of the new homes built in America, according to Zonda, a housing data and consulting firm. Even Lanter, who evangelizes about his newly low heating bill and the freedom of shedding stuff, said he would have preferred something bigger, around 800 square feet, if he could find it.
While these floor plans might be an edge-case offering reserved for certain kinds of buyers — “Divorced … divorced … really divorced,” Lanter said as he pointed to the small homes around him — they are part of a clear trend. Various surveys from private consultants and organizations like the National Association of Home Builders, along with interviews with architects and developers, all show a push toward much smaller designs.
The great compression is being encouraged by state and local governments. To reduce housing costs, or at least keep them from rising so fast, governments around the country have passed hundreds of new bills that make it easier for builders to erect smaller units at greater densities.
Some cities and states, like Oregon, have essentially banned single-family zoning rules that for generations defined the suburban form.
These new rules have been rolled out gradually over years and with varying degrees of effectiveness. What has changed recently is that builders are much more willing to push smaller dwellings because they have no other way to reach a large number of buyers.
“There is a market opportunity and people are using it,” said Michael Andersen, a senior researcher at Sightline Institute, a Seattle think tank focused on housing and sustainability.
Big house on a little lot
American homes have long been larger on average than those in other developed countries. For most of the past century, the country’s appetite for size has only grown.
The Cape Cods in Levittown, New York — often considered the model post-World War II suburb — were typically about 750 square feet, roomy for a one-bedroom apartment but small for a free-standing house with two bedrooms. Today, though, the median American home size is about 2,200 square feet, up from around 1,500 in the 1960s. Lot sizes have remained more or less the same, which means the typical home is built to maximize the size of the kitchen and bedrooms even as its yard contracts.
The expansion came despite a profound shift in household composition. Over the past half-century, America has gone from a country in which the predominant homebuyer was a nuclear family with about three children to one in which singles, empty nesters and couples without children have become a much larger share of the population. Meanwhile, housing costs shot up in recent years as cities around the nation grappled with a persistent housing shortage and a surge in demand from millennial and Gen Z buyers.
This has created a mismatched market in which members of the Baby Boom generation are disproportionately living in larger homes without children, while many millennial couples with children are in smaller houses or in rental apartments, struggling to buy their first home.
Even buyers who are willing to move across state lines are finding that affordable housing markets are increasingly hard to find. In the Bend area where Lanter lives, housing costs have been pushed up by out-of-state buyers, many from California, who have flocked to the area to buy second homes or work there remotely.
The influx of money has helped raise the median home price to almost $700,000 from a little over $400,000 in 2020, according to Redfin. Driving through the downtown on a snowy afternoon recently, Deborah Flagan, a vice president at Hayden Homes, pointed left and right at storefronts that used to be boarded and are now part of a vibrant ecosystem of retailers that includes numerous high-end coffee shops, a “foot spa” and a bar where people drink craft beer and throw axes at wall-mounted targets.
Four walls, close together
Hayden builds about 2,000 homes a year throughout the Pacific Northwest. Its business model is to deliver middle-income housing that local workers can afford, Flagan said, and it does this by skipping larger cities like Portland and Seattle in favor of lower-cost exurbs like Redmond (where the company is based).
Like a lot of builders, Hayden has spent the past few years whittling back sizes on its bread-andbutter offering of one- and twostory homes between 1,400 and 2,500 square feet.
But because its buyers are so price-sensitive, it decided to go further. After rates began rising, Hayden redesigned a portion of Cinder Butte — the Redmond subdivision where Lanter lives — for homes between 400 and 880 square feet.
Most of Cinder Butte looks like any subdivision anywhere: A mix of one- and two-story homes that have faux exterior shutters and fill out their lots. The corner where Lanter lives is strikingly different, however, with a line of cinched homes that front the main road into the development and have driveways in a back alley.
The alley is where neighbors say hi and bye, Lanter said. And because nobody has much space, people often throw parties in their garages.
The smaller houses sold well, so Hayden has now expanded on the idea. It recently began a new development in Albany, Oregon, in which a third of the 176 homes are planned to be under 1,000 square feet. “Our buyers would rather live in a small home than rent,” Flagan said.