Dr. Robert Lerman, an expert on social policy, apprenticeship, and family policy, is an Institute Fellow at Urban Institute and an economics professor at American University.
Bad terminology can create bad policy. Nowhere is this more evident than in housing.
Bad terminology can create bad policy. Nowhere is this more evident than in housing policy. The best example is the use of the term “low-income housing.” Though widely used, there is no such thing as low-income housing in the sense that a physical place is inextricably linked only to residents with low incomes. Of course, some housing is commonly rented or bought by low-income families. But just because low-income families commonly purchase certain cars and buy meals at certain restaurants, we do not call those things "low-income cars" or "low-income restaurants." Rather, it is the low price of housing, cars, and other goods that attracts low-income families.
So what, you might ask? Low price, low income, what’s the difference? Importantly, this semantic error affects the thinking and actions of policy advocates and government officials. Instead of providing low-income families with more purchasing power to obtain housing, too often policymakers attempt to subsidize and wall off certain houses and apartments for the poor and near poor. Public housing is one example. The government provides subsidies for building and maintaining specific places limited to people with low incomes. Other programs also subsidize particular homes and apartments and restrict them for use only by low-income or lower-middle-income households.
This approach is problematic. First, subsidies tied to specific "low-income" homes substantially restrict where recipients can live, and what’s available may be a poor choice for their families. Second, the cost of subsidizing construction programs is higher than the cost of boosting people’s purchasing power to rent or buy their own dwellings, even assuming the construction units last at least 30 years. For both reasons, the government’s cost is often far higher than the recipient’s benefit.
Even the much-vaunted low-income housing tax credit, endorsed strongly by the New York Times editorial board, is costly and does little to expand housing supply. The tax credit aims to encourage developers to invest in affordable housing. They sell the credits to investors, lowering the amount they need to borrow to build or fix up property. But developers generally sell their tax credits at a discount, leaving them with only about 70-75 percent of the government subsidy. To advocates of these programs, the subsidies add to the stock of “affordable” housing. But, as research has shown, the added housing financed by government is largely or completely offset by less private-financed housing.
Further, the families benefiting from the low-income housing tax credit often have incomes well above the poverty line, while many families with far lower incomes receive no subsidy. It is not even clear that significant rent savings accrue because the rents charged for reserved “low-income” housing are often well in the range of market rents.
In unusual situations, stimulating production of low-cost housing may be worthwhile because it benefits the neighborhood or gets around regulations that restrict low-priced units. But pushing for more subsidized “low-income housing” on grounds of too few affordable places can be inefficient, particularly when home prices have fallen dramatically and large numbers of existing homes are vacant. Instead, raising the purchasing power of low-income families offers a better deal for them and for the government than encouraging new construction through tax credits.
The issue is hardly academic—today, 30 percent or fewer households eligible for housing subsidies actually receive one. So any savings can be critical in extending benefits to more low-income families.
By shifting from construction incentives to rent vouchers, the government can save 20 percent or more on its current housing outlays, meaning it could offer vouchers to many more low-income families at the same costs. Moreover, as shown elsewhere, if the new vouchers emphasized homeownership instead of renting, the government’s costs would be even lower—which could mean even more available vouchers and more families covered by subsidized housing. That’s quite a benefit from thinking more clearly about the housing of low-income families!
This post originally appeared on the Urban Institute's MetroTrends blog, an Atlantic partner site.