Expanding Housing Assistance to the Poor and Middle Class Is Actually Easier Than You Think

We’d just have to take away subsidies to people who are rich enough not to need them.

Daniel Hertz January 6, 2016

(Sky Noir / Flickr)

We could extend hous­ing vouch­ers to every very-low-income house­hold — and expand hous­ing sup­port to the mid­dle class, too — if we were will­ing to take away just one of the big hous­ing sub­si­dies to peo­ple mak­ing over $100,000 a year.

One of the main effects of the home mortgage interest tax deduction is to encourage wealthy people to buy bigger houses. In contrast, when you give low-income people housing subsidies, they spend their extra money on things like better food, healthcare and education—which directly improve their quality of life and help bring them out of poverty.

I’ve pre­vi­ous­ly made the case that the SNAP pro­gram, or food stamps, is a pret­ty good tem­plate for think­ing about how to reform the way we do hous­ing assis­tance. SNAP is avail­able to every­one below a cer­tain income thresh­old; if you apply and you qual­i­fy, you get mon­ey to buy food.

Hous­ing is very dif­fer­ent. There are a mil­lion dif­fer­ent hous­ing assis­tance pro­grams, but all of them are quite lim­it­ed in scope: if you apply and you qual­i­fy, you are sim­ply one of many such peo­ple fight­ing over a much small­er num­ber of vouch­ers or set-aside afford­able units. In some cas­es, this makes hous­ing assis­tance more like a lot­tery game than a social ser­vice, as when near­ly 2,600 peo­ple applied for just 18 homes in San Fran­cis­co, 58,000 peo­ple applied for 105 homes in New York, or near­ly 300,000 peo­ple were placed on the wait­list for a Chica­go Hous­ing Author­i­ty unit. Nation­wide, about 20 mil­lion peo­ple qual­i­fy for hous­ing assis­tance but don’t receive it.

You'll be waiting a long time for a public housing unit at this mixed-income development in Chicago. Credit: Google Maps

You’ll be wait­ing a long time for a pub­lic hous­ing unit at this mixed-income devel­op­ment in Chica­go. Cred­it: Google Maps

But how much would food-stampi­fy­ing hous­ing pol­i­cy cost? Sure­ly an unrea­son­able, pie-in-the-sky amount, right?

Well, for­tu­nate­ly for us, the Con­gres­sion­al Bud­get Office has already done the leg­work to fig­ure it out. In a study pub­lished in Sep­tem­ber, the CBO gamed out a large num­ber of pos­si­ble direc­tions to take hous­ing pol­i­cy: big­ger, small­er, bud­get-neu­tral tweaks, trans­fers from one pro­gram to anoth­er and so on.

One of the options it ana­lyzed was expand­ing the Hous­ing Choice Vouch­er (also known as Sec­tion 8) pro­gram to every­one who qual­i­fies — which, at the moment, is any­one whose income is below 50 per­cent of AMI,” or the medi­an income in their area. (In most metro areas, that puts the upper lim­it for a fam­i­ly of four at between $25,000 and $35,000). The CBO esti­mat­ed such a pol­i­cy would cost about $41 bil­lion a year over the next ten years. A more mod­est approach, tar­get­ed to only the extreme­ly low-income — those mak­ing less than 30 per­cent of their area’s medi­an income — would cost about $29 bil­lion a year.

That’s noth­ing to sneeze at. We already spend about $18 bil­lion a year on Hous­ing Choice Vouch­ers, so all told, an every­one-who-qual­i­fies vouch­er pro­gram would cost $59 bil­lion a year over the next ten years.

But it turns out there’s anoth­er hous­ing pro­gram that’s already much big­ger than that: the home mort­gage inter­est tax deduc­tion, which cost tax­pay­ers $68 bil­lion in 2014.

What do we get for the mort­gage inter­est tax deduc­tion? Not much, accord­ing to the best research available.

The goal of the deduc­tion, osten­si­bly, is to pro­mote home­own­er­ship. Whether or not that’s a good idea in itself — and that is not a set­tled ques­tion — the fact is that the mort­gage inter­est deduc­tion isn’t actu­al­ly effec­tive at pro­mot­ing home­own­er­ship. Why not? A big rea­son is that the vast major­i­ty of its expen­di­tures go to high-income house­holds: after all, you only get it if you item­ize your deduc­tions, and you get more mon­ey for hav­ing a more expen­sive house. That means most of the mon­ey is going to peo­ple who would have plen­ty of resources to buy a home with­out the deduc­tion. Instead, the evi­dence seems to sug­gest that one of the main effects of the deduc­tion is to encour­age wealthy peo­ple to buy big­ger houses.

In con­trast, when you give low-income peo­ple hous­ing sub­si­dies, they spend their extra mon­ey on things like bet­ter food, health­care and edu­ca­tion — which direct­ly improve their qual­i­ty of life and help bring them out of poverty.

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As of 2012, 77 per­cent of the mon­ey we spent on the mort­gage inter­est deduc­tion went to house­holds mak­ing over $100,000 a year, an income that would make you rich­er than four out of five Amer­i­cans. It also hap­pens that 77 per­cent of $68 bil­lion, the total val­ue of the mort­gage inter­est tax deduc­tion, is about $52 bil­lion: in oth­er words, enough to give a hous­ing vouch­er to every sin­gle house­hold that need­ed it, with about $10 bil­lion to spare.

Such a sur­plus would even allow the fed­er­al gov­ern­ment to increase the val­ue of the mort­gage inter­est tax deduc­tion for peo­ple mak­ing under $100,000 a year — peo­ple for whom extra cash is much more like­ly to be the dif­fer­ence between buy­ing a home and not. In fact, redi­rect­ing all the mon­ey left over after giv­ing all qual­i­fy­ing house­holds vouch­ers would allow us to increase the val­ue of the mort­gage inter­est deduc­tion for peo­ple mak­ing less than $100,000 by more than 60 per­cent. (I’m far from the only per­son think­ing about reform­ing the mort­gage inter­est deduc­tion, by the way. Rep­re­sen­ta­tive Kei­th Elli­son of Min­neso­ta has sub­mit­ted a bill that would con­vert the deduc­tion into a 15 per­cent tax cred­it, avail­able to peo­ple who don’t item­ize their deduc­tions, and reduce the max­i­mum amount of home val­ue that can be deduct­ed from $1 mil­lion to $500,000. His bill would not redi­rect any mon­ey to Hous­ing Choice Vouch­ers, however.)

Mak­ing this work for the broad major­i­ty of mid­dle-class home­own­ers is also impor­tant, because the mort­gage inter­est tax deduc­tion is a very pop­u­lar pol­i­cy: as much as 90 per­cent of the elec­torate sup­ports con­tin­u­ing it. Whether or not it’s the best use of hous­ing pol­i­cy dol­lars, get­ting rid of the deduc­tion entire­ly is a nonstarter.

But why should it be impos­si­ble to give up hous­ing sub­si­dies for the rich­est fifth of the coun­try in exchange for more home­own­er­ship sup­port for the mid­dle class and a guar­an­tee of hous­ing sup­port for all very-low-income people?

Now, impor­tant­ly, this would not mean the end of our hous­ing prob­lems. In many places, hous­ing vouch­ers are only mod­er­ate­ly use­ful in com­bat­ing racial and eco­nom­ic seg­re­ga­tion, both because land­lords are able (legal­ly or ille­gal­ly) to dis­crim­i­nate against vouch­er hold­ers, and because they won’t cov­er rents in extreme­ly high-cost neigh­bor­hoods. Seg­re­ga­tion would con­tin­ue to put low-income peo­ple and peo­ple of col­or at dis­ad­van­tages in terms of access to pub­lic resources and eco­nom­ic mobility.

Chicago's WBEZ found widespread evidence of open discrimination against voucher holders—despite such discrimination being illegal in Chicago.

Chicago’s WBEZ found wide­spread evi­dence of open dis­crim­i­na­tion against vouch­er hold­ers — despite such dis­crim­i­na­tion being ille­gal in Chicago.

And in places with extreme hous­ing short­ages, prices have sur­passed what even mod­er­ate-income and mid­dle-class house­holds can afford. While vouch­er eli­gi­bil­i­ty cuts off at 50 per­cent of area medi­an income,” San Fran­cis­co recent­ly announced it was build­ing hous­ing for peo­ple at 150 per­cent of AMI, or over $150,000 a year; Bill de Blasio’s big afford­able hous­ing pro­gram in New York City con­tains a large num­ber of set-aside units for peo­ple mak­ing 120 per­cent of AMI, or about $90,000 a year there.

In these places — and sim­i­lar­ly exclu­sion­ary neigh­bor­hoods and sub­urbs across the coun­try — the need to pay for hous­ing sub­si­dies to the poor, the work­ing class, and the mid­dle and upper-mid­dle class over­whelms any real­is­tic fund­ing source. More con­struc­tion is need­ed to get prices down to a point where sub­si­dies to low­er-income peo­ple are suf­fi­cient, and mid­dle-income house­holds are able to afford hous­ing large­ly on their own.

But despite these short­com­ings, it’s hard to over­state just what a rev­o­lu­tion in hous­ing pol­i­cy enti­tle­ment vouch­ers would be. Afford­able hous­ing is a nation­al chal­lenge, but in recent years, it has large­ly been up to local gov­ern­ments to tin­ker around the edges of over­whelm­ing need — and even the most ambi­tious local gov­ern­ments sim­ply don’t have the resources to do much more than tin­ker around the edges.

San Francisco’s mas­sive Propo­si­tion A, which vot­ers approved in Novem­ber, will bond $310 mil­lion for afford­able hous­ing—its own pro­po­nents decid­ed their ini­tial goal, $500 mil­lion, would strain the abil­i­ty of the city to ser­vice the debt — which will like­ly result in less than 1,000a thou­sand net new units of afford­able hous­ing. In Chica­go, the sig­na­ture afford­able hous­ing pol­i­cy of the last few years is sup­posed to cre­ate just 1,000 units of afford­able hous­ing, even as 300,000 peo­ple are on the wait­list for a pub­lic unit. In Austin, a com­mu­ni­ty land trust was able to make nation­al news while cre­at­ing three afford­able homes, with 25 more in the pipeline.

Local efforts to to pro­vide hous­ing relief to those who need it are nec­es­sary and impor­tant. But only the fed­er­al gov­ern­ment has the resources to address the full scale of the issue. In fact, there is already at least one fed­er­al hous­ing pro­gram that could be scaled up to take a mas­sive bite out of the hous­ing prob­lem, reliev­ing one of the most ter­ri­fy­ing and dan­ger­ous con­se­quences of pover­ty. We could pay for it sim­ply by decid­ing that house­holds that make more than $100,000, peo­ple whose income is above 80 per­cent of the country’s, don’t need hous­ing sub­si­dies. What kind of gov­ern­ment turns down that deal?

This post first appeared at City Observatory.

Daniel Hertz is a senior fel­low at City Obser­va­to­ry, an urban pub­lic pol­i­cy think tank.
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