Reforming Housing Assistance

Date01 November 2019
AuthorJens Ludwig,Robert Collinson,Ingrid Gould Ellen
DOI10.1177/0002716219877801
Published date01 November 2019
Subject MatterMeans-Tested Transfer Programs
250 ANNALS, AAPSS, 686, November 2019
DOI: 10.1177/0002716219877801
Reforming
Housing
Assistance
By
ROBERT COLLINSON,
INGRID GOULD ELLEN,
and
JENS LUDWIG
877801ANN The Annals of the American AcademyReforming Housing Assistance
research-article2019
This article reviews current federal housing assistance
policies and briefly summarizes research evidence
about the efficacy of the different programs. We iden-
tify three key challenges that these programs face in
meeting their stated objectives and suggest strategies
for addressing them. The first challenge is the large
variation in market conditions across the country,
which makes it difficult to design assistance programs
that are universally appropriate. We call for adjusting
the type of assistance across markets, allowing for a
greater match between subsidies and needs. The sec-
ond set of challenges concerns subsidy generosity,
structure, and targeting. The current system provides
large subsidies to a small number of low-income
households while providing nothing to most. Assuming
limited government resources, we call for exploring
the impact of more modest or time-limited subsidies to
serve more people with more attention to targeting.
The third challenge is the relatively poor location of
housing in current assistance programs. We suggest
strategies to help more assisted families reach high-
opportunity areas.
Keywords: housing; neighborhoods; subsidies; target-
ing
Federal low-income housing policy tries to
do a lot. It tries to improve the quality of
the homes in which low-income families live, to
help low-income households reach a broader
range of neighborhoods, to reduce homeless-
ness, and to alleviate housing cost burdens. It is
asked to do this in an environment in which
housing is expensive, slow, and difficult to build
(particularly in high-cost urban areas) and
neighborhoods continue to be highly segre-
gated by income and race. Our aim here is to
identify ways that the current system falls short
Robert Collinson is the Wilson Family LEO Assistant
Professor in the Department of Economics at University
of Notre Dame.
Correspondence: jludwig@uchicago.edu
REFORMING HOUSING ASSISTANCE 251
in meeting its objectives, to present some proposals for reform, and to assess the
reform options that are most promising.
We start with an overview of current housing policy and then briefly summarize
what existing research tells us about the efficacy of different programs. We then
identify three key challenges that housing assistance programs face in meeting the
goals stated above and suggest some strategies for addressing those challenges.
First, we describe the large variation in market conditions across the country,
which makes it difficult to design housing programs and policies that are appro-
priate across all areas. We call for adjusting the type of assistance across markets,
allowing for a greater match between subsidies and needs.
Second, we highlight the fact that the existing system of housing assistance
provides sizable subsidies to a small number of low-income households but pro-
vides nothing to most of them. This is not likely to be the optimal approach if, as
seems plausible, there are diminishing marginal benefits of additional subsidy
dollars to program recipients. Absent large infusions of additional resources into
housing programs that would allow a greater number of needy households to
receive the relatively generous subsidies that are currently provided, there would
seem to be value in exploring the impact of modest, time-limited subsidies to
serve more people.
Finally, we document the relatively poor location of housing in current assis-
tance programs. Many program participants wind up in very disadvantaged
neighborhoods, which seem to have adverse impacts on a range of important
outcomes, such as physical and mental health, well-being, and children’s long-
term life chances. We suggest some strategies to help more assisted families
reach high-opportunity areas.
Overview of Current Housing Policy
Key programs
Federal low-income housing programs can be broadly divided into three
categories: (1) public housing; (2) privately owned, subsidized housing; and (3)
tenant-based vouchers.
Public housing, established by the Housing Act of 1937, was the federal gov-
ernment’s first major low-income housing program. Although the federal
Ingrid Gould Ellen is the Paulette Goddard Professor of Urban Policy and Planning at New
York University and a faculty director at the NYU Furman Center.
Jens Ludwig is the Edwin A. and Betty L. Bergman Distinguished Service Professor at the
University of Chicago, research associate of the National Bureau of Economic Research, direc-
tor of the University of Chicago Crime Lab, and codirector of the Urban Education Lab.
NOTE: We thank Robert Moffitt and James Ziliak, as well as others participating in the
authors’ conference for The ANNALS of the American Academy of Political and Social Science
on entitlement reform, for helpful insights and suggestions. All opinions and any errors are our
own.
252 THE ANNALS OF THE AMERICAN ACADEMY
government provided most of their funding, public housing developments are
owned and operated by housing authorities established by local governments,
which have control over siting, management, and tenant selection. Today, close
to three thousand local public housing agencies own and operate public housing
under the supervision of the U.S. Department of Housing and Urban Development
(HUD).
Congress initially expected that the federal government would pay for con-
struction costs, while local housing authorities would cover operating costs
through rental revenues. Over time, however, buildings aged, and both mainte-
nance and utility costs rose. In response, the federal government started to pro-
vide substantial subsidies to cover the gap between the rents tenants pay and the
costs of operating and maintaining developments (HUD 1974). The federal
government also helps to fund renovations and capital improvements through the
public housing capital fund. Both of these federal subsidy streams have long been
funded at less than the formula’s promise, and housing authorities have had to
defer needed capital repairs. HUD released a study in 2010 estimating that the
1.1 million public housing units around the country face a backlog of more than
$25 billion in unmet capital needs (Finkel etal. 2010).
The second key category of federal housing programs includes those that
subsidize the creation of privately owned, low-income housing. First emerging
in the 1960s and continuing until the mid-1980s, these programs offered upfront
mortgage subsidies or long-term rental assistance contracts to private develop-
ers who would agree to provide housing with reduced rents for a specified num-
ber of years. These programs generally aimed to house a slightly higher income
set of households than those served by public housing. The largest of these
programs was the Section 8 New Construction and Substantial Rehabilitation
program, simply referred to as “project-based Section 8.” As with the case of
public housing, the government provides ongoing rent subsidies to these devel-
opments to cover the gap between the rents tenants pay and the cost of operat-
ing developments.
Today, the largest project-based subsidy and the only major source of support
for new production of subsidized rental housing in the United States is a tax
credit administered by the Treasury Department: the Low Income Housing Tax
Credit (LIHTC). Created by the Tax Reform Act of 1986, tax credits are allocated
annually to states on a per capita basis, and states in turn award credits to devel-
opers to support the construction and rehabilitation of low-income, rental hous-
ing. Projects are eligible for tax credits if at least 20 percent of their tenants have
incomes below 50 percent of the local area median income (AMI) or at least 40
percent have incomes below 60 percent of AMI. (For reference, the annual pov-
erty level is approximately 40 percent of the average AMI [Collinson, Ellen, and
Ludwig 2016]). While LIHTC developments can be mixed income, in practice,
the vast majority contain only units affordable to households earning under 60
percent of AMI or lower, with 95 percent of units in tax credit projects qualifying
as low-income units (Collinson, Ellen, and Ludwig 2016).1 Projects must meet
these requirements for a minimum of 30 years to qualify for a 10-year stream of
tax credits.

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