Last week, the House Committee on Financial Services started the hearings on a plan to create a new federal bond program to pay the rent of every low-income American. Such a program could represent a A subsidy of $ 100 billion to the demand for housing, which in tight US housing markets would drive rents even higher. An indiscriminate five-fold increase in the number of beneficiaries of Article 8 vouchers would also exclude from the housing market those families who could benefit most from the program. A better approach would direct existing bonds towards families with young children and reduce regulatory barriers that limit the construction of affordable rental housing.

Economics 101 provides a simple guide to intervening in markets where prices are too high or production is too low. When supply is plentiful, we should subsidize consumer demand since the market can stimulate production without raising prices. When supply is limited, as is the case in the most unaffordable US cities, then subsidizing demand will raise prices rather than expand access.

The UK has attempted to address its limited supply of housing with an on-demand ‘Help to Buy’ subsidy. A study found that the program “has raised house prices by more than the current expected value of the implicit interest subsidy and has had no noticeable effect on building volumes in the Greater London Authority”. In the United States, we can expect a similar result: an additional $ 100 billion in housing permits will enrich homeowners and do little to expand the social housing stock.

A 2002 article by Scott Susin in the Journal of public economics found that housing vouchers “increased the rent paid by poor unsubsidized households in the average metropolitan area by 16%” and “resulted in an increase of $ 8.2 billion in total rent paid by non-recipients low-income, while offering only a subsidy of $ 5.8 billion. to beneficiaries, resulting in a net loss of $ 2.4 billion for low-income households. More recent work by Robert Collinson and Peter Ganong shows that “the policy that makes vouchers more generous in a metropolitan area benefits landlords through higher rents, with minimal impact on the quality of the neighborhood and units”.

The supply of apartments available to voucher recipients is even more limited than the overall supply of rental accommodation. A Study of the Urban Institute found that only one in 39 apartments advertised online, in five cities, “appeared to qualify for the vouchers” – and eligibility for the vouchers did not mean they accepted the vouchers. More than three-quarters of Los Angeles owners with “potentially eligible units” refused to accept vouchers.

Given this shortage of supply, what will happen to families with young children if the program is multiplied by five? The few landlords who now take Section 8 vouchers may well prefer to have simpler, childless tenants. Universal coupons could easily make it difficult for families with more than one child to find a landlord willing to rent them out.

Housing vouchers offer the greatest advantages to families with young children. We should be targeting the good ones at them rather than crowding them out of the market. the Memo from the staff of most accommodations for last week’s hearing cites the work of my colleagues Raj Chetty, Nathaniel Hendren and Lawrence Katz on the Moving-to-Opportunity (MTO) experiment, which tested the impact of special vouchers that encouraged relocation to low-poverty neighborhoods with a randomized controlled trial. Their work found that “moving to a less poor neighborhood when you are young (before the age of 13) increases university attendance and income and reduces lone parenthood rates”, but that “moving as a teenager has consequences. slightly negative impacts, possibly due to disruptive effects ”.

Another randomized controlled trial supported by the Department of Housing and Urban Development (HUD) examined the impact of housing vouchers on homeless families, most of whom had more than one child and half of whom “had a child under 3 years in the refuge ”. Voucher recipients experienced fewer “stays in shelters and places not intended for human habitation”, less separation between parents and their children, less drug addiction, less domestic violence and better school attendance.

Well-targeted coupons are good, but a universal coupon program would be an extremely expensive way to increase the rents paid by ordinary people. An Urban Institute study cited in the House Majority Committee report “projects” that a universal voucher program “would cost about an additional $ 62 billion per year,” but notes that the actual cost “would likely be closer to $ 100. billion dollars ”because of lost revenue during the pandemic and rising rents.

Universalizing the voucher program would also increase the number of poorest Americans facing an effective marginal tax rate above 75%. From the voucher program caps rents at 30% of income, 30 cents of every additional dollar earned by a voucher recipient is lost because the grant decreases by that amount. the food stamp program Also follows a 30 percent rule that creates a similar tax, and the income tax credit income tax above a threshold. Taken together, these programs defeat the goal of getting America back to work.

Target housing vouchers to 172,000 homeless in families with children is humane and sensible. Trying to use housing vouchers to care for the other 408,000 homeless people in America poses far greater problems, especially since HUD reports that 120,000 homeless people are “seriously mentally ill” and 98,000 suffer from “chronic drug addiction”. These populations will be underserved by a paper-intensive voucher program that requires them to find willing landlords.

Well-run social programs do not subsidize demand in markets where supply is fixed, as this simply leads to higher prices. We should be looking to target the Section 8 voucher program more effectively, not universalize it. Washington is expected to issue new vouchers primarily to families with young children. Benefits should be time-limited so that, as children get older, vouchers can be reassigned to other families. The program should encourage mobility to neighborhoods that turn poor children into wealthy adults. Above all, we need to combine the voucher program with a commitment to free our metropolitan areas from regulatory shackles.

Photo by Helen H. Richardson / The Denver Post via Getty Images

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