How to Fix Housing Assistance With the Funds We Already Have
We are doing a lousy job providing housing assistance to the millions of Americans that need and qualify for it, failing to reach three in four eligible households. But with disciplined accounting and a hard look at ineffective programs long past their prime, we can essentially bring that number to 100 percent without spending an extra dime.
Section 8 Housing Choice Vouchers (HCV), are the best solution currently available to low-income households. HCVs allow low-income renters to move to a home and neighborhood of their choice, with Uncle Sam subsidizing the difference in what they can afford to pay and what their landlord is asking, up to a certain amount, in the form of a portable voucher. Vouchers address the growing body of research showing the best way to help low-income families is enabling them to escape concentrated poverty.
Other forms of assistance, notably public housing, tether families to the handful of typically low-opportunity, concentrated-poverty neighborhoods where those projects are located. And Low Income Housing Tax Credits (LIHTC), designed to subsidize construction of more low-income units, don’t reach those in greatest need and generally pay developers to build housing that’s not meaningfully cheaper than what they would have built anyway.
But while fully funding HCVs is our best strategy for large-scale assistance, vouchers are admittedly imperfect. Landlords’ bias against low-income renters in possession of vouchers often means holders begin their search for a home at a disadvantage. Source-of-income discrimination protection is badly needed here, particularly if voucher-holders are to actually succeed in moving to high-opportunity neighborhoods.
Additionally, HCVs in many markets fail to break up concentrated poverty, largely because their subsidies are capped at levels that only afford rents in the poorest areas of town. Tweaks, like HUD’s small area fair market rent program, could help solve this problem. Finally, HCVs are bogged down by simple bureaucratic red tape. In tight markets with a glut of applicants and few available apartments, landlords have minimal incentive to choose a voucher-holder as their tenant if monthly payments are delayed several days while vouchers process or during mandated inspections.
But two facts remain: while they can be made better, HCVs are effective. And federal spending on HCVs themselves is dwarfed by subsidies for homeowners’ housing debt. Most of that comes through tax deductions on mortgage interest payments and local property taxes. But these deductions do little to create new homeowners, and don’t help renters at all. Instead, programs like the Mortgage Interest Deduction mostly benefit those with the highest incomes, primarily incentivizing larger homes with larger debts.
The Congressional Budget Office estimates gradually covering the entire eligible population earning under half of the area median income with HCVs would cost $410 billion over the next decade. Given current political realities, expecting that kind of additional spending is fanciful. But the good news is we don’t need to find new sources of funding to pay for this — there is money already within the current budget and tax code to fund expansion. Over a 10 year span, repealing LIHTC and federal deductions for local property taxes (a net gain of $152 billion), replacing MID slowly over 5 years with a non-refundable 15 percent credit and $500,000 cap (+$213 billion), and eliminating funding for public housing (+$70 billion) would pay for full expansion of HCVs and leave a $15 billion surplus left over. Currently, 88 percent of public housing households earn below 50 percent of the median income and would instead receive a voucher. This plan isn’t so much a transfer of funds from one income group to another — instead, it replaces a handful of ineffective programs with one effective one.
All of this is meaningless, of course, unless municipalities allow builders to create new rental supply in the first place in order to meet increased demand from low-income households boosted by newfound gains in housing spending power thanks to better access to HCVs. And so many of the current rental affordability problems experienced in almost every market nationwide can be traced back to high demand and low supply to begin with. Removing regulatory obstacles to development better positions the private sector to efficiently meet that demand than programs like LIHTC or public housing ever could.
I know this path isn’t easy. Reversing decades of status quo and challenging firmly entrenched special interests rarely is. But if we’re serious about helping millions of American families use housing as a tool to help them move up, instead of an anchor holding them down — and I think we owe it to all of them to be as serious as we can — then these tough decisions need to be made. And there’s no time like the present with a changing of the guard in Washington DC and a fresh set of eyes.
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