July 21, 2016 10:57AM

HUD’s Latest Proposal Is Big on Good Intentions & Unintended Consequences

Even when government has good intentions, it manages to muddle things up.

The U.S. Housing and Urban Development Department (HUD) has been applauded for its latest revision to its largest housing assistance program, the Housing Choice Voucher program. The new-and-ostensibly-improved program will provide larger housing subsidies to individuals that decide to live in wealthier neighborhoods, and smaller subsidies to individuals who decide to live in poor neighborhoods. The adjustment has already been piloted in five locations, and would be widely expanded (although HUD demurs on how widely).

On the surface, it sounds like a clever solution to an age-old concern. HUD is worried that dense concentrations of urban poverty -- the type that often occurs in inner cities and historically occurred as a result of government housing projects -- trap generations of residents in cycles of perpetual poverty.

In fact, the housing voucher program was devised to target this precise problem by providing individuals with a ticket they could use to rent housing anywhere in the United States. But through the years, HUD realized that although the voucher program provided choices, voucher recipients weren’t making the choices that HUD wanted -- namely, moving out of low-income neighborhoods. The revised program will create the incentives required to make the choice for voucher recipients more … straightforward, shall we say… and redistribute low-income families across geographies.

Of course, the analysts at HUD aren’t the only ones worried that lack of residential mobility further entrenches low-income residents in poverty. The idea is at least as old as the fall of public housing in the 1970’s. But when it gets down to brass tacks the academic literature on the topic is less-than-satisfying, as described by the Moving to Opportunity study and the follow-up analysis by Katz, Kling, and Liebman and Clampet-Lundquist. Raj Chetty’s most recent work was hailed as proof that moving to wealthier neighborhoods has positive long-term impacts on children, but even it leaves something to be desired.  

Meanwhile, the evidence that HUD cites to support its latest proposal is essentially meaningless. Rather than grapple with the real question -- whether a change of neighborhood can lift a family out of poverty -- HUD cites early evidence that giving the poor money to move to wealthier neighborhoods helps them move to wealthier neighborhoods. Surprising no one.

But the discussion of evidence ignores one of the more fundamental concerns -- basic equity issues. First, seventy-five percent of Americans that qualify for housing assistance don’t receive it. And housing assistance is worth thousands of dollars annually to the lucky few who are selected, generally through a lottery or multi-year waitlist. Under the revised program, those that do receive assistance will be provided an even more oversized benefit (as compared with their ill-fated, voucherless peers) than they were before, assuming they decide to live in the wealthier neighborhood.

Second, individuals in the lower-middle-class that can’t obtain a housing voucher at all, but live effectively the same lives as qualifying voucher recipients, are bound by an economic reality that looks even less appealing than before. It seems likely that this type of policy is precisely what hollows out the middle class by essentially giving them nothing to fight for: if they work, they will continue to live in a humble home in a less-desirable neighborhood. And they’re still working. If they reduce their hours, they could be eligible to live in an upmarket neighborhood that would otherwise be wholly out of reach.

But it isn’t just the revised voucher program that suffers from horizontal and vertical equity issues. Housing benefits across the board suffer from these problems -- the difficulty in equitable distribution, the lower utility of housing benefits as compared with cash, and high implicit tax rates are commonplace for in-kind benefits.

So what can be done to confront the issues inherent to housing assistance and, more broadly, in-kind benefits? Edward Pinto, a scholar at AEI, suggested today that housing supply is the real obstacle to housing affordability, and we should focus our resources on improving housing supply rather than subsidizing housing demand. The premise is one that I agree with, although some of the particulars – Congress withholding funds from states that fail to comply, or providing tax credits to first-time homebuyers, strike me as alternately autocratic, or more of the same.  

Alternatively, shifting in-kind housing benefits to cash benefits would improve utility and provide for equitable distribution of resources among qualifying recipients. This strategy, combined with relaxing inane NIMBY (or “Not In My Backyard”) urban design and zoning regulations – not through federally-sponsored blackmail – could provide exactly the demand-side-supply-side solution that affordable housing policy enthusiasts have long advocated for.