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Reforms could help housing programs do a better job reducing poverty.
Housing assistance for low-income Americans is premised on a simple value that most Americans share: no citizen should go without a roof over his head. But policy has done a poor job of achieving that goal. As of January 2013, more than 610,000 Americans were homeless. Many more are paying very high percentages of their income toward rent or are doubling up with other households.
Low-income housing assistance (for the non-elderly) is intended to provide struggling households with temporary support while they gain an economic foothold – a safeguard against homelessness. But demand for that assistance far outstrips supply; and unlike other means-tested programs, like food assistance, many housing applicants must get on a waiting list to receive assistance.
Those lists can be long. 70,000 applicants in the District of Columbia were waiting for one of just 8,000 public housing units in early 2013. Many had been on the list for more than a decade – so long that the city has since stopped accepting applications.
A recent white paper from the University of Virginia’s Ed Olsen provides an explanation: a large portion of housing assistance flows to the owners, builders and managers of low-income housing projects, not just to the residents who live in them. Tying those dollars directly to those in need would enable existing federal dollars to serve hundreds of thousands more people. If both sides of the political aisle are truly concerned with combating poverty, low-income housing reform offers ample opportunity.
Understanding current policy’s two broad categories helps clarify why change is so badly needed.
The first category is tenant-based voucher assistance, which provides support to roughly 2 million households, about 30 percent of the total who receive help. The voucher allows the household to select a rental unit in the private market that meets its needs. The household is required to contribute about 30 percent of its gross income toward rent; the voucher picks up the difference between that contribution and the “Fair Market Rent” of the unit, which is the Department of Housing and Urban Development’s estimate of the unit’s market rental value.
The second category is project-based assistance, in which subsidies are tied to buildings and units rather than people. Public housing projects are unsurprisingly operated by local housing authorities. Others are privately-owned, but receive subsidies in return for placing income and rent ceilings on units. Unlike with tenant-based assistance, a low-income household loses its subsidy if it decides to move out of project-based assistance and cannot find a subsidized unit elsewhere.
Project-based assistance is problematic. A large body of research has demonstrated that, for a variety of reasons, concentrating public housing recipients in one place doesn’t give them the best chance of rising out of difficult circumstances. A recent study led by Harvard economist Raj Chetty confirms this line of thought. He found that high geographic concentrations of single-parent families reduce social mobility. So too with racial and economic segregation. Public housing tends to check all three boxes.
And as Olsen notes, project-based programs are far more expensive than vouchers. Project owners don’t compete for tenants in the same way that most landlords do, and that drives costs up. Owners have a captive audience, because if a household leaves, it loses the subsidy, and waitlisted applicants are eager to fill the subsidized unit. Most low-income tenants can’t afford to make that break. On top of this, preferential tax credits for new construction and renovation of low-income projects doubly insulate owners from competition.
Olsen’s numbers suggest that 72 percent more households could be helped into equally good housing if funding for private projects were shifted into the voucher program. Gains from such a shift in public housing could be even greater.
He also offers three thoughtful reforms. First, require local housing authorities to offer residents the option of remaining in their existing unit or accepting a voucher to live elsewhere. Then allow housing authorities to rent out the vacant units at market prices and use that revenue to rehab older projects or expand its voucher program to more people in need. This helps address the captive audience and concentrated poverty problems.
Next, allow local authorities to sell any of their projects to the highest bidder with no restrictions on future use. Any remaining tenants would be offered the option of a vacant unit in another public housing complex or a voucher, and proceeds from the sale would be reinvested in project rehab or voucher expansion.
Second, for privately-owned projects: don’t renew their contracts. Instead, provide households with the option of either receiving a voucher or remaining in the unit, with HUD covering the full market rent if they choose to stay. Given the choice to shop elsewhere, many residents would choose to leave. The savings could be used to expand assistance to more citizens who need it.
Third, slowly wind down the Low Income Housing Tax Credit program. It’s not a well-targeted antipoverty mechanism. The average occupant of a tax credit project earns twice as much as a voucher recipient, despite the program’s billing as an antipoverty tool. A better solution? Translate the funds into a tax credit for first-time homebuyers with low incomes.
Reforming policy in the interest of poverty prevention means rethinking the conventional wisdom that building more income-restricted housing is the best way to support low-income Americans. Those policies have been tried, and research suggests that their record is not good. Winding down costly project-based assistance and pumping the savings into tenant-based programs could help support many more Americans who need it without spending more money. It’s an antipoverty reform worthy of consideration.
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