Building Better Housing Vouchers Without Breaking the Bank

The U.S. Department of Housing and Urban Development’s (HUD) Housing Choice Voucher Program (Section 8) is designed to help low-income families, as well as the elderly and disabled, cover the cost of “decent, safe, and sanitary housing.” Participants pay a fraction of their net household income for rent, with a subsidy covering the difference up to a pre-defined ceiling for each metro area. An important goal of the program is to help families move to better neighborhoods, taking into account the negative impact of concentrated poverty, crime and low-quality schools on children’s opportunities for economic mobility. However, because rent ceilings are set at or below an entire metro area’s median rent, more shares of units are available within low-quality neighborhoods, so families typically remain in these neighborhoods even after receiving a voucher. Various increases to the rent ceiling have been proposed to address the issue, but raising the ceilings often leads landlords to increase the prices they charge for rent accordingly — a practice known as price discrimination. As such, simply pouring more money into the program may not help families as intended.

Using results from previous rent-ceiling adjustments, Robert Collinson and Peter Ganong estimated the impacts of two types of policy changes intended to help voucher holders access better housing: a uniform increase in rent ceilings across all neighborhoods and a “tilted” adjustment with ceilings assigned by zip code.

To evaluate uniform changes to rent ceilings across an entire metro area, the researchers used HUD data from before and after broad rent-ceiling adjustments in 2001 and 2005, and they found that every $1 increase in the rent ceiling led to a nearly $0.50 increase in rent, with little or no corresponding increase in unit or neighborhood quality. The researchers posited that landlords’ reactions to the new ceiling caused rents to rise when vouchers were uniformly more generous, leading to higher government spending with little benefit to low-income families.

To evaluate tilted rent-ceiling adjustments, Collinson and Ganong studied the effects of a Dallas, Texas, policy that set rent ceilings by zip code, lowering ceilings in low-quality neighborhoods and raising ceilings in high-quality neighborhoods. In this case, although increases in rent ceilings still led to higher rents, the policy also allowed voucher holders to move to significantly better neighborhoods. To assess neighborhood quality, the researchers constructed an index including zip code-level data about violent crime, poverty, unemployment, fourth-grade test scores, and number of children living with single mothers. Using this neighborhood quality index, they found that voucher holders moved to neighborhoods with significantly less poverty and violent crime when the rent ceiling in those neighborhoods was increased. The effects were particularly striking because national data had demonstrated that families did not often move to better neighborhoods after receiving their first housing voucher. As such, the impact of tilting the rent ceiling for subsidized families was even greater than the impact of giving a previously unsubsidized family a voucher for the first time. More remarkably, because of savings due to lower ceilings in lower-quality neighborhoods, the policy was budget neutral.

Reducing children’s exposure to crime and poverty has immense impact on their potential as adults. As such, it is imperative that subsidized housing policies help families not only pay for minimally adequate housing but also relocate to neighborhoods of higher quality. Those who want to see such improvements might argue for increased government spending on housing vouchers. However, uncritically raising programmatic costs through uniform rent-ceiling hikes will not achieve this goal, as such across-the-board adjustments are more likely to benefit landlords than tenants. In contrast, adjustments to the way rent ceilings are assigned can better support families at no additional expense. In Collinson and Ganong’s words, the policy of tilted rent ceilings “caused voucher families to move to notably safer and less impoverished neighborhoods at zero net cost to the government.” Policymakers must think carefully about the varying ways that government subsidies can impact the housing market and ensure that increased spending actually leads to improved performance and better family outcomes.

Article source: Collinson, Robert, and Peter Ganong. “How Do Changes in Housing Voucher Design Affect Rent and Neighborhood Quality?” American Economic Journal: Economic Policy, 10(2). (2018): 62-89.

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