Off the Charts Blog | Center on Budget and Policy Priorities

The artificial distinction between tax expenditures (credits, deductions, and other tax breaks) and spending programs “make[s] it harder to gauge the impact of the federal budget on such crucial activities as housing,” a recent New York Times story explains, noting that the mortgage interest deduction — which mostly helps high-income people — costs far more than spending programs to help low- or moderate-income people afford housing.  The story continues:

“If someone said, ‘Let’s have a voucher program on the spending side, giving high-income families vouchers to subsidize their mortgages,’ ” said Glenn Hubbard, the dean of Columbia Business School and a prominent Republican economist, referring to the home mortgage interest deduction, “I don’t think that would get through Congress.”

That’s why we’ve called for rebalancing federal housing policy by creating a renters’ tax credit to help low-income families afford housing.

Policymakers have focused for decades on policies to increase homeownership, and most federal housing dollars benefit families with relatively little need for assistance.  More than half of federal dollars for housing benefit households with incomes above $100,000 (see chart).

Meanwhile, the nation’s lowest-income renters are far likelier to struggle to pay for housing — and their affordability problems are growing.

A renters’ credit, administered by states and capped at $5 billion a year, could:

• Assist about 1.2 million of the lowest-income renter households;

• Reduce each household’s rent by an average of $400; and

• Lift 250,000 families out of poverty and lift four of five of the poorest families it assists out of deep poverty (defined as having income below half of the federal poverty guidelines).

It’s the right time to consider such a credit, as policymakers consider restructuring tax expenditures as part of tax reform.  Proposed changes to the mortgage interest deduction (such as converting it to a credit) could make homeownership-related tax expenditures more efficient and raise added revenues to reduce the deficit.  And, by directing a modest share of the savings from these or other tax reforms to the renters’ credit, policymakers could make the nation’s housing dollars fairer and more effective.

Housing vouchers can give families access to better opportunities.  Using a voucher to move out of an extreme-poverty neighborhood sharply reduces deaths from disease or accidents among girls. And where housing policies have allowed low-income children to attend high-performing, economically integrated schools over the long term, the students scored significantly higher on math and reading tests than comparable children who attended higher-poverty schools.  These types of positive results have helped the voucher program generate broad bipartisan support.

But evidence shows that a core feature of the Section 8 Housing Choice Voucher Program —  families’ ability to choose where to live — often hasn’t had the hoped-for results.  Families with vouchers live in only slightly less poor neighborhoods than similar tenants without housing assistance, although neighborhood outcomes are somewhat better for black voucher households and significantly better than for the public housing and project-based Section 8 programs.  Moreover, a recent analysis shows that a smaller share of voucher households with children live near schools ranked in the top 50 percent than poor households generally.

As I explained last week on the National Housing Institute’s Shelterforce blog, it’s critical to give those helping Housing Choice Voucher families the tools they need to help these families move to more opportunity-rich neighborhoods — especially as policymakers consider cuts to housing programs as part of the current budget debate.

A new toolkit from the Poverty & Race Research Action Council and the Urban Institute (to which I contributed) is a starting point for public housing agencies, state and local governments, and non-profits that are working with these families.

The guide shows how to:

• Set goals in light of local markets and priorities;
• Identify opportunity-rich neighborhoods;
• Reach out to landlords effectively;
• Recruit and assist target families;
• Use existing discretion under the Department of Housing and Urban Development (HUD) policies — or get waivers of HUD rules — to expand families’ search time, set adequate subsidy levels, and provide security deposits; and
• Fund a local or regional program.

The toolkit is a good start, but HUD can do more to help the voucher program achieve its full potential.  Modifications of some of HUD’s policies — such as the “portability” and “consortia” rules that affect families seeking to use their vouchers in other cities or counties and the measures used to assess agency performance — could make it easier for agencies and families to succeed, and would encourage agencies to adopt policies to achieve better results.

At a time of tight federal budgets and growing need for housing assistance, policymakers are looking to make federal rental assistance programs more efficient without hurting low-income families.  Our new report discusses proposals before Congress to do just that, by streamlining administration of the federally funded public housing and housing voucher programs.

Nearly 4,000 public housing agencies (PHAs) around the country operate the two programs, which together help more than 3 million low-income families afford housing.  Many of these PHAs are small:  three-fourths of them administer a total of just 13 percent of all public housing units and vouchers.

This imbalance creates oversight burdens and costs for both the federal government and PHAs that are disproportionate to the number of families that these PHAs serve.

Plus, the large number of PHAs in some states and metro areas — 40 small agencies plus 20 larger ones in the Boston metro area alone, for example — can make it harder for families in need of housing assistance to apply for it because they would have to apply in multiple locations to have a better chance of receiving assistance.  The balkanization of rental assistance administration also makes it harder for families to use vouchers to move to a nearby community that has better schools or more jobs because that community might be in a different PHA’s jurisdiction.

A recent bill by Senators Mike Johanns (R-NE) and Jon Tester (D-MT) would try to address the problem mostly by eliminating various federal rules and safeguards for small PHAs and making them less accountable to the federal government and local communities.

That’s the wrong approach.  For one thing, it would create two different sets of rules based on agency size, which would complicate federal oversight and could increase complexity for some low-income families and private owners renting to voucher holders.  It could cause other problems as well, such as by allowing small PHAs to require families to pay a much larger share of their income for rent than they can afford.

Other housing reform legislation before Congress — in particular, the bipartisan Affordable Housing and Self-Sufficiency Improvement Act of 2012 (AHSSIA) — would streamline and improve the public housing and voucher programs for all PHAs, not just small ones, and without posing the risks that the Johanns-Tester bill does.  (Two promising proposals in the Johanns-Tester bill would directly address the problem of too many small PHAs and should, with some changes, be part of any final legislation.)  Our report gives the specifics.

Research shows that housing assistance not only dramatically reduces homelessness but can also help low-income families live healthier, more productive lives — yet only one in four eligible families receives it, due to limited funding.  Policymakers thus should place a high priority on program reforms that — like AHSSIA — stretch federal dollars further while protecting low-income families.  Tackling the outdated proliferation of small local agencies should be part of the reform agenda.

Washington Post columnist Petula Dvorak recently told the story of a homeless mother in the District of Columbia, unemployed due to serious health problems, who used subway trains and buses as overnight shelter for herself and her 2-year-old because they had nowhere else safe to stay.  D.C.’s waiting list for housing assistance is 20 years long and local shelters had no openings.

Across the country, there is simply not enough housing assistance to meet the need.  It’s time federal housing spending gave higher priority to ensuring that families don’t end up on the street.

A recent National Poverty Center study finds that the number of families with children living on less than $2 per person per day has more than doubled since 1996.  Yet only one in five desperately poor families receives housing assistance due to limited funding. And, for those fortunate enough to have a roof over their head, more than 2.7 million families with children without rental assistance pay more than half of their income on housing or have other severe housing needs.  That’s up 51 percent since 2001 (see chart) and part of a long-term trend of declining affordability.

Federal housing policy has largely ignored the unmet needs of lower-income renters and homeless families with children, focusing instead primarily on supporting homeownership — often among families who could afford a home even without help.  In fact, more than half of federal spending on housing (including tax breaks like the mortgage interest deduction) benefits households with incomes above $100,000.

A tax credit for very low-income renters would be an important step toward rebalancing federal housing policy.  If capped at an annual cost of $5 billion, it could enable about 1.2 million of the lowest-income households to afford housing.

Congress should also continue reforming existing rental assistance programs to make them more efficient and effective for the more than 4 million low-income families they help.

With waiting times for housing assistance continuing to grow around the country, changes to our nation’s housing policy are long overdue.  As Ms. Dvorak states, these children “won’t even be kids anymore by the time their parents get housing.”

That is simply too long to wait.

The first installment of this blog series explained why it’s the right time to establish a federal renters’ tax credit.  Today, we look at the affordability problems that low-income renters encounter.

Over the past several decades, the nation’s housing policy has focused predominantly on increasing homeownership — particularly for people who typically could afford to buy a home without subsidies.  Meanwhile, low-income renters have increasingly struggled to afford housing.

More than 7 million low-income families without rental assistance pay more than half their income for housing, the threshold for being considered “severely cost burdened.”  That number is up 42 percent since 2001 and is part of a long-term trend of worsening renter affordability (see chart).

Moreover, renters are far more likely than homeowners to struggle with severe housing cost burdens, even at the same income levels.  Renters are more than twice as likely as owners to pay more than half their income for housing, according to Harvard University’s Joint Center for Housing Studies.  While the rates of severely cost-burdened households among both renters and owners grew during the last decade, affordability worsened for a larger share of renters than owners.  Among the poorest fifth of households — those with incomes below about $20,000 — a larger share of renters than owners are severely cost burdened.

At the same time that rents are rising, renter incomes are not.  If these trends persist, current affordability problems for renters will continue or worsen.

When housing costs are too high, families lack sufficient income to meet other basic needs and are more likely to experience homelessness and housing instability — problems that harm children’s long-term health and development.  The effect on low-income renters can be severe and enduring, as we’ll discuss in a subsequent post.

Supply shortages in some housing markets exacerbate the pressure on rents, making it important to address supply imbalances through policy tools such as reform of land-use regulations and subsidies for housing development.  But the underlying problem is that many low-income renters cannot afford housing that meets current safety and acceptability standards.  The most direct way to address this problem is through subsidies — such as the renters’ tax credit that we propose in our new paper — that help reduce the gap between market rents and the rent that low-income families can afford.

Tomorrow, we’ll take a closer look at how existing supports for low-income renters fall short.