Facts about low-income housing policy

Collinson, Ellen, and Ludwig have a new and long NBER paper (pdf) devoted to that topic.  Here are a few bits:

The United States government devotes about $40 billion each year to means-tested housing programs, plus another $6 billion or so in tax expenditures on the Low Income Housing Tax Credit (LIHTC).

Yet total subsidies for home ownership may run as high as $600 billion, most of those not going to the poor.

There are over twenty different federal subsidized housing programs and most of them are no longer producing new units.

I am speaking for myself here, and not for the authors, but I cannot imagine any better case for cash transfers than to read this 75 pp. paper.

How about this?:

In 2012, housing authorities nationwide reported more than 6.5 million households on their waitlists for housing voucher or public housing.

That to my eye suggests targeting this aid is not working very well.

I found this to be an interesting comparison (I am not suggesting it is being driven by these federal housing policies):

The median renter household in 1960 was paying approximately 18 percent of his/her total family income in rent; the equivalent figure today is 29 percent.

Overall, I would like to see more economists call for the abolition of these programs and indeed some approximation of laissez-faire toward housing more generally.


The waitlist for housing vouchers or public housing may be part of a good argument for cash transfers, but isn't that also an argument for more expenditure? While building public housing is costly and time consuming (and never really a good idea either), vouchers don't require brick and mortar, so clearing the waitlist is simply a matter of funding more vouchers.

Tyler states that the paper as a whole is a case for cash transfers, not just this one line.

I think overall, the dysfunction and waste in this area show how hard it is to implement an effective anti-poverty program that combats a specific need. In some cases it is not clear that anything useful is being accomplished. In contrast, cash transfers are simple, with low overhead, and you know that assistance is definitely going to the people targeted for help.

If one accepts the premise that we should be providing aid to the poor, then the main argument against cash transfers is that they are wasteful because people won't use the money wisely. Obviously, there will be a certain level of waste for that reason. However, given how other aid programs work in practice, there is a good case that cash transfers would be less wasteful.

Right. You have to decide who you want to waste the money on. Aren't HUD developers notoriously corrupt? Idk, I would rather take my chances with the individual. They are going to find housing somewhere, so let them sort it out. Maybe help make good choices if you want to try to do good. But lining the pockets of the politically connected sucks.

And I am speaking as a fairly liberal democrat.

Hey, you can make a good living administering these government housing contracts.

Hey, you can have a good political career as mayor of Chicago giving Section 8 vouchers and a map of the inner ring suburbs to Chicago residents unlikely to vote for you.

Much of the constraint on housing is NIMBYism artificially constraining the supply. Making the demand more market-like won't help if the supply is so overregulated. It will just drive up the prices.

Not that I'm opposed to eliminating housing subsidies like the mortgage deduction. Like QE, I think these are basically a subsidy for old/rich people who already have their money invested in the system. But then, I guess they're the people who vote.

Second paragraph -- yeah, that is true, but it is also wrapped up in the idea of home ownership = American dream. You could certainly start to phase out the mortgage deduction at something < $1 million, which seems absurd. You could also get rid of the home equity loan deduction (which can actually be used to buy a Porsche) or the second home mortgage deduction.

I'm not a tax adviser or anything, but I believe there is a million dollar limit on the amount of debt eligible for the mortgage interest deduction, as well as limits on the amount of home equity debt that can be used to do something other than improve a home and still be eligible for the deduction. A million dollar house is not anything special in many markets.


While I would really rather we reduced or eliminated the home interest deduction in exchange for broad rate cuts, I'm not at all sure it's homeowners who benefit from it as it stands. I was under the impression economists generally believed the benefit accrues to builders, not owners, because of the relative elasticity of supply and demand. It just serves to drive up the price of housing. That's great if you make housing, but not if you consume it.

There is the million dollar limit, but I am saying even that is too high. You can do up to $100,000 home equity for the Porsche--not too shabby.

I'd say that even in high-rent metros, a million dollars gets you a very nice place, unless you are unwilling to live anywhere but the fanciest suburb/downtown neighborhoods. It is a valid point, though. Indexing the cap to the cost of living by MSA would make some sense, just not up to $1 million.

I have also heard that MID can be interpreted to benefit mainly builders and lenders, but as I understand it that is based on people buying more house than they otherwise would have, and I don't know that the average buyer is necessarily including the deduction into their calculation of what to spend. Actually, I just bought a house and did not factor the deduction into my decision at all. Not because we were unaware of it, but rather we did not want to take it for granted. Maybe that's just me.


The median home price in the United States is only around $200,000. Why should the subsidy cover people with houses five times more expensive than average?

Even in über high priced Hawaii, only about 12% of homes cost more than a million dollars.

By placing the cap so high, you're essentially allowing an unlimited mortgage interest deduction for earning $200K+. These people don't need housing subsidies. This increases the effective purchasing power of homebuyers and drives up prices.

At the very least, we should reduce the interest deduction limit to match the jumbo mortgage limit of $625K. Then there would be some kind of logical coherence to the policy.

I don't think it's subsidizing the people you think it's subsidizing, but yeah, remove the deduction altogether and use the additional taxes to lower marginal rates. That's a wonderful idea, and I endorse it.

"which can actually be used to buy a Porsche"
I agree with the post but this can be argued against any deduction. If you claim a deduction for your kids, you could use that money to buy a Porsche. Medical expenses? Porsche. Costs for training and maintaining your seeing eye dog? Porsche. (Assuming the dog is trained to drive).

Urso, here's the difference:

Medical expense deduction has to be linked to medical care. Child tax credits are designed to offset the cost of having kids. Seeing eye dog expenses can't just be claimed, you have to prove you have a dog.

The home equity loan deduction is a credit without stipulations. Unless I'm mistaken, there's no mandate that you prove that you spent on the money on improving your home.

If we're going to have that deduction, we should require that taxpayers submit receipts for home repair/improvements to prove that they actually spent that money on home. Otherwise it's just a socially worthless as a deduction for credit card interest.

Beat me to it -- didn't refresh!

Who said anything about home repair or improvements? Is there some stipulation that that's what the home equity loan is "supposed" to be used for? Look I'd love to continue this conversation but my dog's waiting outside in the Porsche.

Well, I think the home equity deduction is a little different, because it is a deduction for interest on money that you can literally do anything with. At least with the other types of deductions you have to actually have the kid or receive the medical treatment -- specific things we (theoretically) want to encourage. Why do we want to incentivize people to take out home equity loans without any restrictions at all on how the money is spent?

what is wrong with NIMBy and why isn't it a market response ?

lets say that all the people in a town want something; isn't passing a law a free market response ?

but, lets stipulate that NIMBY is a gov't thing that doesn't meet yr def of free market; doesn't mean it is bad
anti NIMBY means I want some other group of people to suffer (say with a noisy airport) so I can have a convienent flights

it is like "information wants to be free'
of course, information doesn't "want" anything; it is an inanimate object
what that quot means is that I, the speaker, want information, which someone else paid good money to obtain, sort, store and understand, for free, but I'm to embarrassed to say I want it for free, so I hide my intentions

Because NIMBY is one of those areas where Econ 101 meets Life/Business 101 and quant economists have to shut down.

Because the when you enact NIMBY you impose a new rule on existing owners.
If you want no low income housing in your area, you could buy the rights to build low income housing from the existing owners (or likely buy their land.)

I plan on renting out the back yard to some homeless addicts. They assure me a couple of storage sheds and an outhouse will suffice meet their needs. If you don't like it, just leave the check in my mailbox. Thanks.

" I would like to see more economists call for the abolition of these programs..."

So "economists" generally are a primary cause of these vast, wasteful and ineffective policies. Agree with the indictment.

Non sequitur.

Any wonder why real estate has become such a large part of our economy. Federal subsidies pale in comparison to the subsidies at the local level, where the costs of real estate development (for the roads, utilities, schools, etc.) are socialized and paid by everyone but the developer. In my state, in the 1970s several brave politicians proposed that developers pay "impact fees" to account for the cost of the roads, utilities, schools, etc. You'd have thought they had proposed a progressive income tax by the reaction from the real estate industry (developers, contractors, brokers, lenders, etc.).

The notion that developers pay no costs for roads and utilities is patently absurd.

Perhaps slightly less ridiculous than arguing schools are a real estate subsidy, but still absurd.

Targeting is not going well or there is just way to little money in the programs. We could reduce mortgage interest tax deductions by X percent, put some of the money into reducing low income housing waitlists and raise the income threshold for those programs at the same time. Abolishing the programs would not be politically feasible and would hurt people, same with mortgage interest deduction. Let's work on the margins and make actual progress.

Just going by the OP, it doesn't seem like the problem is that there's too little money in the programs.

Well, that is of course Tyler's view, but one could argue any amount of money in these programs is too much--or too little for that matter.

The key is that the waiting lists are as long as they are. So, if we have determined that people meeting X criteria are in need of housing assistance and we are not providing it to a very large proportion of people who meet that criteria, then you have to question whether the resources devoted to the program are sufficient.

There are any number of seemingly less worthy things the government spends > $46 billion on. We could get this money from existing tax expenditures rather than just new appropriations.

I think the mortgage interest deduction should be phased out (cut it out all at once and the value of everyone's home drops 20%), but saying we can 'just' shift money from tax expenditure instead of new appropriations is bullshit. Cutting the MID is no different in kind than an increase in the tax rate. It's just a question of where the incidence is.

If you combine the two changes in policy into a single piece of legislation, you allow the reduction in tax expenditures to pay for additional spending on low-income housing programs. I am pretty sure you could write to satisfy CBO methodology and make it budget neutral. And, sure, you could phase both policies in over time.

Is there a case in which government subsidy does not make something more expensive?


Corn subsidies were repeatedly cited during the 2011-2012 spike in worldwide food prices.



Interstate highways. (Just spent a week in France, near a place where over 4 years, one man was killed every 10 centimeters over 30 kilometers - the péage for roughly 300 kilometers was roughly $35, meaning that total travelling on the absolutely not government subsidized road cost around $70 dollars for 370 miles - or about $1 dollar every 5 miles. The German autobahn, with the added benefit of its unlimited speed stretches, is free to drive on - and French gas prices are currently higher than in Germany, as are most French taxes.)

Yeah, just look at California.

Alternative policy: cash payments financed by land value tax & repeal of existing housing programs, coupled with zoning deregulation & phase out of agriculture subsidies (which probably reduce amount of residential land available).

Though, some research does support in-kind housing benefits, especially those that pay people to move to nicer neighborhoods, capitalizing on surprisingly strong neighborhood effects.

Not sure where you live, but assuming you live in a typical suburban area, do you support removing the zoning prohibition on multifamily housing and rooming houses in your neighborhood so the houses around you can be divided into multiple units to be rented to lower income families, probably with one family owning the land and structure and paying the mortgage and taxes by renting to three other families with young kids?

I know that where I live, my neighbors fight anything that smells like multifamily development, including in-law apartments with vigor. And they are anti-tax anti-government anti-Obama libertarians live-free-or-die NH voters. The leftists live in Mass and work in NH because Mass leftists are ok with families with kids because Mass broad based taxes tax the rich in their snobby neighborhoods and pay for schools in the working class and middle class towns with multifamily houses. In NH, letting in the working class means higher property taxes to pay for all those kids.

Libertarian NH typically demands land developers pay for the primary schools needed by large housing developments, on top of building roads, water, and sewer public infrastructure at higher standards than existing NH public infrastructure - call it a lesson learned, cheap infrastructure for a housing development leads to taxpayers demanding the town fix the roads, the flooding from storms, the bad water that the developer did to keep his costs down.

This is typical free lunch economics argument - the regulation is all leftist central planning for no reason because libertarians are always correct that if you get rid of regulations that housing will be really cheap without impacting anyone else in the community in ways that adversely impact the economy. And higher taxes are always an adverse impact on the economy for free lunchers.

Tyler, do you argue for the abolition of housing programs because there are no market failures in this sector, because it extremely hard to get this programs right focusing on the poor population, or because of for other arguments I'm missing?

Middle and upper class Americans love them some welfare, just don't dare call it that.

Bit of a stretch calling 'keeping your own money' welfare.

What about a massively subsidized loans that would never exist but for government intervention? Is calling that welfare a stretch?

I would call them distortionary.

Unsubsidized jumbo loans have lower rates

In fairness, those are loans made to higher quality borrowers.

" that would never exist but for government intervention"

Only those with all cash would buy a house? Hyperbole much?

Show me another country with fixed rate 30 year mortgages, with no prepayment penalties, with 20% down, at 120 bps over the risk free rate.

Cliff, take a look at where those jumbo loans are ending up before claiming they aren't subsidized. I'll give you a hint: first word starts with an F and second word starts with an R.

Not really, if you're getting things for free that you otherwise would be helping to pay for.

"Middle and upper class Americans love them some welfare, just don’t dare call it that."

That's an ignorant comment. I don't support the current mortgage deduction, but it's not welfare. It's a reduction in the tax rate for home owners.

Suppose we had a program where poor people didn't have to pay sales tax. Welfare?

The waiting lists are not a problem for the program, once you realize the purpose of the program.

The purpose of housing programs is to provide a large pool of funds for which patronage jobs and contracts can be handed out. These programs create housing if and only if doing so causes more jobs and contracts to be handed out.

"I found this to be an interesting comparison (I am not suggesting it is being driven by these federal housing policies):

The median renter household in 1960 was paying approximately 18 percent of his/her total family income in rent; the equivalent figure today is 29 percent."

My guess would be that the median renter is richer today than he or she was in 1960 and chooses to consume more housing, in some combination of space, amenities and location.

Put another way, "the rent is too damn high," but we're paying it anyway.

Families are smaller. Sharing a house with 5 strangers doesn't usually provide the same level of comfort that sharing a house with 5 members of your family, (with efficiently shared responsibilities) so to get the same quality of housing today people have to pay for more space and amenities.

Subsidized tenants are known as Section 8 in HUD expertise. As a slumlord, I have some expertise in this area, and the bureaucracy is a mess. Often these tenants are not really poor either, but that's an aside. You can also get in practice a little more from them under the table, though that's illegal. I like to avoid the hassles that come with these tenants, all things being equal. As an honest landlord I try and avoid these people like the plague. That said, I am not going to make my structures habitable, since TANFL (There Ain't No Free Lunch). If the structures were habitable they'd not be slums and the rent would be higher. Free market at work baby.

funny from what I have read slumlords like Section 8, tenets as they come pre-screened and you know they are going to pay. Also with the wait-lists as they are the landlord has leverage over the tenet...I'm sure your post is in jest but still was interesting to hear a slumlord describe how he like section 8 tenets

I think that the tax code should be symmetrical when it comes to income and expenses. If I pay $10,000 in mortgage interest and earn $10,000 in interest from a bank CD, why should the latter increase taxable income and the former not reduce it? Also note companies can deduct interest they pay and that they pay income tax on interest income earned.

I don't understand. What do you mean by symmetrical? Can you deduct any other interest from any other type of debt? No. Can a business? Yes. Mortgage interest is a personal cost living expense. It is one of very few that are tax deductible. You cannot deduct your rent, but you are taxed your rental income. Do you think rent should be tax deductible?

No mention in here of Section 8 being one of the main drivers for the working class voting Republican in far greater numbers than one would expect?

Similarly, no mention of the unicorn ferry that was recently installed between New York and London.

Can't wait to see the methodology behind how one determines the number of "working class" voters we would "expect" to vote Republican.

Ok, this one I gotta hear... how does Section 8 increase Republican voting?

I think the idea is that people on welfare more easily move into working class neighborhoods thanks to Section 8, where they cause problems, which makes the working class resent govt welfare programs and thus making them more likely to vote Republican. Section 8 has an extremely negative connotation for most of middle and upper class America. They'd prefer elderly and disabled people be stuck paying 90% of their Social Security check on rent in the ghetto if it means keeping a poor Section 8 family out of their neighborhood.

Why are we subsidizing economic papers?

Hey now, the Mercatus Center never publishes anything directly subsidized by the government.

Well, OK, the Mercatus Center benefits from its tax status, and has a wonderful page explaining how to use the tax code to it and its donors benefit - http://mercatus.org/donate

Sadly, it is no longer as compact in its overview of available options, but the overview remains informative -

'Charitable Gift Annuities

Stable lifetime payments with tax benefits

Giving Through Your Will

Give to Mercatus without affecting cash flow during your lifetime

Charitable Remainder Annuity Trust

Make a significant gift and receive fixed income payments each year

Charitable Remainder Unitrust

Make a gift and create a flexible source of retirement income

Charitable Lead Trust

Discover the innovative way to pass appreciating assets to family members while helping Mercatus' http://mercatus.org/planned-giving (I recommend clicking on the actual links -

Yep, not a single government subsidy in sight. Tax breaks? Sure, but not a single subsidy. If one squints properly, of course. (I particularly admire this one - http://mercatus.org/charitable-gift-annuities - 'With a gift annuity, the donor is still entitled to an income-tax deduction in the year of the gift. Additionally, a portion of the annuity payment is tax-free, so the effective rate of return, including tax savings, is often higher than other market rates.' See, a donor can even beat the market when donating to a center that advocates market solutions to policy questions.)


The median renter household in 1960 was paying approximately 18 percent of his/her total family income in rent; the equivalent figure today is 29 percent.

I'd like to know if square footage has also changed over the past 55 years, and/or households-per-dwelling (ie, roommates vs. solo living).

Unless we control/correct for that, we can't tell if "housing is more expensive in real terms" (probably at least in part) or "people are more willing [or forced by zoning] to pay for private living or larger spaces" (also at least in part) - or, for that matter, if "people mostly buy in cheaper markets and rent in others" (unlikely?).

Also the amount of renters in 1960 versus the amount of renters today.

there is an information bias here
we here about really badly designed and run projects like Pruitt or cabrini; we don't here about hte many succesful ones
on this blog, seems to be a real dearth of links to info on how the program as a whole, not anecdotally, is doing

What is quirky about housing policy here in Florida is that the Homestead exemption means that home owners pay less property tax than renters.

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