Moving to Opportunity: How Housing Policy Can Disrupt the Persistence of Poverty

New evidence suggests that reducing intergenerational poverty and generating positive taxpayer returns are possible through housing policy. Raj Chetty, Nathaniel Hendren, and Lawrence F. Katz evaluate the causal effects of improving neighborhood conditions for low-income families on their future economic outcomes.

In this study, “The Effects Of Exposure To Better Neighborhoods On Children: New Evidence From The Moving To Opportunity Experiment,” the authors find robust evidence that young children (ages four to 12) whose families move to lower-poverty neighborhoods are more likely to attend college, less likely to become single parents, and have substantially higher incomes.

These positive impacts are durable and persist through to the next generation. The grandchildren of families that moved are more likely to be raised in lower-poverty neighborhoods by two parents who are each more likely to have attended college and have a higher levels of household income. Moreover, the initial public investment is likely to yield net gains by significantly increasing the children’s future earnings, while reducing government expenditures.

The study examines data from an initiative called Moving to Opportunity (MTO). Previously, Chetty and Hendren had studied more than five million families that moved across communities and found that neighborhoods have causal exposure effects on children’s outcomes. Past studies had also consistently shown that MTO had no significant impact on earnings and employment of adults and older youth (ages 13 to 18). Yet the question remained, what about the young children? This question is now possible to answer because younger MTO children are finally old enough to enter the labor market.

Between 1994 and 1998, the US Department of Housing and Urban Development (HUD) offered randomly selected families living in high-poverty public housing units in Baltimore, Boston, Chicago, Los Angeles, and New York City a voucher to move to neighborhoods with a poverty rate below 10 percent. Another group of residents was offered a standard housing voucher, and a third control group retained access to the same public housing units.

The vast majority of MTO participants were single mothers of African-American or Hispanic descent, of whom more than half had never been married, and only about one third of whom had completed high school. 75 percent of residents listed moving away from gangs and drugs as one of the top reasons they applied for the voucher.

In New York City, many MTO participants had been living in the Martin Luther King Jr. Towers in Harlem before the voucher program, before moving 10 miles north to the neighborhood of Wakefield, near Westchester County. On average, children whose families accepted the MTO voucher moved to neighborhoods with poverty rates that were 22 percentage points lower than in their previous neighborhoods. The study shows that the key determinant of future outcomes is the duration of time spent by children in low-poverty neighborhoods. Every year of childhood experienced in a low-poverty neighborhood increases college attendance and earnings in adulthood.

Children (ages four to 12) were significantly more likely to attend college, and better colleges. A decade later, average adult income for these children had increased by 31 percent relative to those in public housing units, and expected lifetime earnings increased by about $302,000. With the increase in lifetime earnings, the typical family who benefitted from the MTO program is estimated to have paid $22,000 more than nonparticipants in federal income tax, enough to offset the cost of the voucher program.

Also, women earned substantially higher average adult incomes than men after moving to lower-poverty neighborhoods, a stark reversal of the gender wage gap that generally favors men.

Other effects were also present: more quality housing, a safer community, improved schools, and reduced racial segregation. These benefits are positive across race and gender for children younger than 13. For older adolescents, there was no statistically significant impact.

Chetty et al. conclude that what matters for future economic success is the amount of childhood exposure to better neighborhoods.

What remains to be explored is whether the impact would be even larger for young children under age four. Nonetheless, the study demonstrates that housing vouchers and assistance in moving to lower-poverty neighborhoods can have significant benefits for families and taxpayers.

These findings suggest that prudent housing policy would target vouchers to families with young children to disrupt the persistence of poverty and create opportunity for generations.

Article Source: Raj Chetty, Nathaniel Hendren, Lawrence Katz, “The Effects Of Exposure To Better Neighborhoods On Children: New Evidence From The Moving To Opportunity Experiment,” National Bureau of Economic Research, 2015.

Featured Photo: cc/(Chris Hamby)