History materializes to be probably extreme in the implemented programs that involve costly and lumpy investments bearing long useful life and particularly where political consensus is difficult to realize. The significance of history as well as the reliance conduit of a policy is more outward in the federal housing policy. In the fiscal 1980, Weicher saw that housing programs could merely be comprehended from the historical viewpoint (3).
After nearly a quarter century, Weicher served in both policy and administrative positions in variably three different national administrations. This made Weicher to be more convinced about the historical accident imperativeness in understanding the contemporary policies (Weicher 4).
Therefore, this paper deliberately ignores the path dependence by focusing on the housing policies that could be created if a nation starts its housing programs from a scratch. Much concentration is geared towards government rental housing subsidies.
The federal rental housing subsidy policy
Basically, the direct federal housing expenditures instigated after the passing of the 1937 Public Housing Act. This Act was envisioned to solve the dire decent housing shortages via the federally funded constructions programs. These programs sought to eliminate both the inadequate and substandard housing. As a result, the infrastructural investments assumed in big cities served as the best economic fiscal policy.
In an economy that had unemployment rate of about 17%, jobs were created through the housing program to absorb the unemployed workforce. This program offered shelter for those who were deemed temporarily unwaged during the period of great depression. Most public housings were meant for households to occupy in the short run before they were able to go into the economic mainstream (Quigley and Steven 130).
Low rental public housing became the merely justified federal housing program which provided the underprivileged with housing assistance. The state government financed any dwelling that was constructed under the program dubbed as public housing program. Such dwellings were however managed and possessed by the residential housing authorities.
It is worth noting that the rental public housing terms that the centralized government stated in response to the funding ensured the tenancy by low-income families. These households paid rents that did not exceed 30% of their total family incomes (Painter 265).
The reserved government construction dwellings programs were to be occupied by low income families and they were mostly supplemented by various programs which invited the involvement of nonprofit and limited dividend corporations. The economic impact brought by the latter housing programs was the direct increment in affordable housing supply but not necessarily the boost on the state owned housing.
Housing developers were expected not to charge low-income tenants over a quarter or a fifth of their total earnings in rent. The cooperative and nonprofit builders in 1968 offered most developers the under marketplace interest loans, selected households rental supplements as well as rental assistance.
With the increase in interest rates, the capital subsidy programs that were intended for the low interest rate atmosphere typically attested unworkable. However, according to Quigley and Steven housing capital endured and at the turn of the current century, over a half a million housing units was still being subsidized through these packages in housing stocks (137).
The Community and Housing Development Act of 1974 significantly increased the partaking by the private for profit sectors to provide housing for the poor. Federal funds were provided through this Act to facilitate substantial rehabilitation and construction of new dwellings to be occupied by the low income families.
There were long term contracts entered between the private housing developers and the federal government where the latter entity guaranteed payment streams on the basis of FMR (fair markets rents) for each dwelling. Only 25% of the total incomes were to be paid by the low-income families for rental houses (Fischer 156). The difference amid the contractual FMR and tenant payments was settled by state to the property owners.
While thinking about the sets of the modern housing policies, it should be noted that up to 30 years ago, low income rental housing assistance appeared to be indissolubly knotted to investments in the novel residential constructions. The certificate and voucher programs significantly abridged the DHUD roles in building occupancy housing for the low income earners.
It was also clear that such programs condensed the new dwellings building expenditures. Yet, certain forces augmented the indirect subsidies intended to expedite the new housing construction in order to be occupied at minimal rent (Weicher 4).
The influence of the state government in issuing tax exempt debts purposely geared towards financing infrastructural private investments was limited by the 1986 Tax Reform Act. The law restricted the issuance of state bonds for multi-household housing construction.
This Act similarly instituted the LIHTC to tender direct subsidies which assisted in the acquisition and constructions of substantially rehabilitated or new rental housing programs to be occupied by the low income families (Kling et al., 88). LIHTC program allows the government to issue state-run tax credits which could be drawn on by property owners in offsetting other income taxes. They could be sold to the external savvy investors to raise the primary project development funds.
The comprehensive tax credits amount that LIHTC program authorizes annually increases several folds since it was incepted. For example, in the fiscal 2002 it was $1.75 per head bearing automatic annual inflation adjustment starting from 2003. The centralized tax credit authority happens to be transferred to every government based on the per capita and this is subsequently distributed to the qualified projects developers.
The tax credit amounts which might be allocated to a particular project take into consideration the credit rates, the proportional units reserved for the low income families and the development costs (Painter 267). Furthermore, the supply side rent programs got additional financial support from Home investment partnership.
The funding was granted to the local authority to assist in the renovation and construction of low income rental housing. This meant that the government was provided with great economic flexibility as regards to the choice of housing programs. HOME partnerships had opted to allocate nearly half of the total grant proceeds purposely for the funding of rental housing since 1992.
But, such allocations have been reduced systematically over time to nearly 40% as at the fiscal 2002. For example, just 1% of the total grant proceeds have been utilized for the residential based rental assistance. In the financial year 2004, the annual HOME program funding totaled to $ 1.4 billion (Kling et al., 84).
Basically, the guarantee costs, direct expenditures as well as the tax liabilities materialize to be forms of public subsidies. Therefore, they constitute part of federal treasury liabilities. Nonetheless, just the direct expenditures are apparent in the yearly federal government adopted budget. This implies that the government outlays are duly reported in any fiscal year’s budgets and to the budget authority.
Statistics indicate that the low income rental aid administered in the three previous decades by the HUD instigating from 1976, clearly show that the state expenditures intended to provide low income rental houses have continuously over quadrupled in dollars (Quigley and Raphael 135). The low income residential housing including vouchers, public housing and project based assistance incessantly rose to $31.5 billion in 2007 from $7.9 billion reported in the fiscal 1976.
Regardless of such a large expenditure increment on the low income residential housing program, the net budget authority that the congress issued substantially declined roughly by 40%. The reported 2007 figure was $24.7 billion which declined from $62.3 billion reported in 1976.
The reduction reflects the steady move in the low income rental housing assistance to the tenant oriented housing from the project oriented. Both the preexisting and long term commitments incessantly provided the bulging number of low earning households with shelter.
The demand and supply side programs
There has been a remarkable decline in renter subsidies growth in the recent past. In reality, rental housing subsidies since 2000 have merely risen in real terms by about 1% or less than $ 2.6 billion. The state government comparable tax expenditure information for the rental housing indicate that LIHTC program immensely grew to $4.0 billion in the financial year 2006 from the 1991 reported figure of $1.2 billion.
The multi-household bond programs that the states adopted are smaller and are deteriorating to a half a billion dollars from nearly a billion dollars over this similar period. This might in part reflect the recurrent decline in the interest rates that have reduced spreads hence making the bonds to be less attractive to various savvy investors.
The effects of providing subsidized rental housing
The provision of subsidized rental housing to the public serves the initial rationale of curbing the acute decent housing shortages alongside the recurrent rate of unemployment. The program to offer subsidized rental housing assists in combining a pool of economic idle resources with the deficient effective housing demand which cropped up during the calamitous recession. The governmental launched and sponsored programs augmented housing production since the American economy experienced the post war boom.
This made the 1949 comprehensive Housing Act to lay much emphasis on the goal of offering suitable living environment, decent homes along with sanitary, decent and safe housing for each American. The upgraded housing conditions appear to be the rationale for providing housing subsidy policy whose progress could be measured via noting the degree of eradicating inadequate housing.
Empirically, almost 2.81 billion renter households survived in the relentlessly inadequate housing in 1975. This represented approximately 11% of the total occupant households. According to Quigley and Raphael, in the fiscal 2001 which is the last fiscal period in which comparable statistical data were presented, the number of insufficiently housed families based on this standards dropped by 60% (132).
In fact, the portion of tenants who lived in strictly derisory housing was reported to be below 3.5% of the total population. Amongst the residences considered reasonably priced to the unfortunate households who earned below 30% of the domestic Area Median income, the rigorously inadequate housing fraction was roughly 5.3% as at the fiscal 1999 (BMHC 93).
Houses deemed inexpensive to low income families earning amid 50% and 80% of the domestic median income had 2.9% of their fraction categorized as strictly insufficient. Thus, physically insufficient housing certainly proved to be a major concern for most households particularly the underprivileged tenants. Nonetheless, only 5% of the very unfortunate households paying below 30% of their total incomes on rental fees live in the harshly derisory housing conditions.
Recently, it has been widely alleged that external housing effects and debauched neighborhood largely ensued. This emanates in neighborhoods where much concentration is geared towards poverty eradication and where rental housing subsidy dilapidated hence causing social problems.
Fischer strongly proposed that social disorders, unemployment and economic crimes materialized due to elevated inadequate housing facilities, poor living conditions and bad neighborhoods (160). Such a confident consensus was disrupted through three key developments which tend to justify that there was no neighborhood effects resulting from rental housing subsidy.
In any of the stipulated cases, neither the quality nor the numbers offer a precisely resound rationale for offering public rental housing subsidies in the current century. The moving to opportunity (MTO) experimental results underlines the pros for the demand side rental housing subsidies that indeed assist the detached habitations.
The MTO experiment is well recognized by advocates, interest groups, scholars and politicians. For instance, the worst housing needs case reported to the Congress by the HUD emphasized that high rental cost burden seems to be the main reason behind the emergence of the vilest rental housing demands (Newman and Joseph 25). In HUD report to the Senate, different demographic household groups pay more than a half of their total earnings on rental charges.
This signifies that the worst case of the rental housing needs evidently evolves into alternative approach to poverty description. Conversely, matters have been made worse by cities policies which significantly damage the surrounding neighborhood. Outward social and dysfunction problems have radiated and they seem to hurt property values and damage local businesses. The surrounding cities have similarly been inhibited from attracting new business investments and higher income home owners.
City policies that ensure public housing permanence has made the situation even made worse. It is difficult to sell or buy public housing within the market. This has considerably interrupted the vigorous property recycling which initially assisted dynamic cities and states to spawn opportunities both for the poor and the rich while enhancing the growth chances.
Instead, affordability undoubtedly emanates to be the most enthralling justification for the implemented policies that subsidize rental housing. Rental housings have high costs which are relative to the low income households’ abilities to pay in order to be housed. This signifies that very few financial and economic resources are left for these households to use in expensing for other necessities namely medicine, clothing, education and food.
Given that housing assumes a larger percentage of the total household expenditure shares within the market centered economies, petite rental burden fluctuations that both the poor and middle class households face might have significant effects in their respective levels of welfare (BMHC 94).
In various dimensions, improved outcomes just arise only if the rental housing programs offer augmented unrestricted resources to the beneficiaries via reducing the rental burdens. Housing affordability is therefore a reasonable rationale for the provision of rental housing subsidy policies by the government. This proposes that any rental housing program meant for the low income households should be taken as fragment of the United States welfare system just like food stamps, income earned tax credits and income transfers are thought to be constituents of such a system.
Regardless of the of the ensuing rental housing subsidy benefits, there have been egregious disappointments associated with the currently evolving subsidized rental housing program. For instance, there are reported cases of horizontal inequity given to identically situated households. Furthermore, qualifying households under the contemporary programs acquire rental housing subsidies via certain arbitrary procedures.
Households in fact apply for the subsidized rental housing support through the accredited residential housing authorities. Notwithstanding the antagonistic prevalent presuppositions, almost every local housing authority has a very long waiting list. This might even on average be eleven months in the United States metropolitan regions. According to Painter report, it appears that the famously known biggest public housing authorities have waiting lists that average nearly three years (249).
In some subsidized rental housing authorities, in the offing lists remain closed. This denotes the deemed qualified households might be forced to wait for years prior to getting the deserved rental housing assistance. Besides, others might have to wait for years before they receive authorization to be part of the waiting list.
Autonomous rental housing authorities seem to have personal systems intended to rank the eligible households. Despite the fact that most housing authorities have adopted certain workable techniques to grant priorities, the selection from the waiting lists as well as into the waiting list possess various attributes of captivating the sweepstakes (Fischer 156).
When comparing the rental housing eligibility process to the undertaken procedures used to obtain medical assistance or food stamps, it appears that households might be considered eligible based on the family size, income alongside demographics like disability. All qualified households should therefore be considered eligible for assistance.
Contrasted with entitlement model, the welfare assistance commonly conferred to the sweepstakes model appertains to rental housing. Housing expenses as noted above signifies a large income segment of low income families. Nevertheless, an outstanding larger segment of those held eligible obtain absolutely nothing. This is because the distribution of subsidized rental housing is capricious.
Under the contemporary rental housing subsidy policies, over 70% of the total household families who live beneath the poverty line are not in any way being served. In fact, Jaffee and John assert that above 40% of those households being duly assisted are high above the poverty line (29).
This seems very indefensible. Another clear illustration was in the fiscal 2003. During this period, a report showed that 32.8% of tenants who earned below 30% of the domestic median income of about $18,500 for a total of four family members received subsidized rental housing assistance. However, 19.3% of occupants who earn between 31% and 50% based on the residential median income of up to $32,000 were given subsidized rental housing assistance (Fischer 154).
Amongst the least income households, 9.12 million tenants who have income below 30%, over six million do not get subsidized rental housing support. Ironically, amongst the unserved six million tenants, nearly five million remit over a half of their total earnings on the rental charges. The construction of subsidized housing entails incurring greater costs.
Therefore if the intent is provide low cost rental houses to low income families, any motive to deviate from such a motive materialize to be an economic bad. This is because there is no feasible budget that seeks to cover tenants below the low proceeds cutoffs that would make expenditure provisions requisite to offer novel built rental housing to the assisted families.
Taking the subsidized rental housing as a constituent of the current welfare system persists to be very dissimilar from the conceptualization of such subsidies as a component of the infrastructural investment programs which existed about 70 years ago. Ensuring equal distribution of houses and at the same time fairly treating entitled households in such a national welfare program appears to be very unpredictable.
This is more apparent in a policy that uses rental subsidy to finance the construction of the inventively designed houses that are to be chartered below the market value rent particularly at any plausible national budget. Despite the benefits, housing program dubbed housing vouchers brought about problems such as enduring government concentration on poverty eradication which in turn led to states dependency. The welfare payments are no longer meant to encourage self-sufficiency and work.
Bipartisan Millennial Housing Commission (BMHC). Meeting Our Nation’s Housing Challenges. Washington, DC: USGPO, 2002.
Fischer, Will. “Labour Supply Effects of Federal Rental Subsidies”. Journal of Housing Economics 9(2000):150-174.
Jaffee, Dwight and John Quigley. “Housing Subsidies and Homeowners: What Role for Government-Sponsored Enterprises?” Brookings-Wharton Papers on Urban Affairs 6.1(2006).
Kling, Jeffrey, Jeffrey Liebman and Lawrence Katz. “Experimental Analysis of Neighborhood Effects”. Econometrica 75.1(2007):83-120.
Newman, Sandra and Joseph Harkness. “The Long-Term Effects of Public Housing on Self Sufficiency”. Journal of Policy Analysis and Management 2.1(2002):21-44.
Painter, Gary. “Does Variation in Public Housing Waiting Lists Induce Intra-Urban Mobility?” Journal of Housing Economics 6(1997):248-276.
Quigley, John and Steven Raphael. “Is Housing Unaffordable? Why isn’t it More Affordable?” Journal of Economics Perspectives 18.1(2004):129-152.
Weicher, John. Housing: Federal Policy and Programs. Washington, DC: American Institute, 1980.