Here Comes The Housing Trust Fund

HUD has published an interim rule in the Federal Register to governing the Housing Trust Fund (HTF). The HTF could generate about a half a billion dollars a year for affordable housing initiatives, so this is a big deal. The purpose “of the HTF is to provide grants to State governments to increase and preserve the supply of rental housing for extremely low- and very low-income families, including homeless families, and to increase homeownership for extremely low- and very low-income families.” (80 F.R. 5200) HUD intends to “open this interim rule for public comment to solicit comments once funding is available and the grantees gain experience administering the HTF program.” (80 F.R. 5200)

The HTF’s main focus is rental housing, which often gets short shrift in federal housing policy

States and State-designated entities are eligible grantees for HTF. Annual formula grants will be made, of which at least 80 percent must be used for rental housing; up to 10 percent for homeownership; and up to 10 percent for the grantee’s reasonable administrative and planning costs. HTF funds may be used for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of nonluxury housing with suitable amenities. (80 F.R. 5200)

Many aspects of federal housing policy are effectively redistributions of income to upper income households. The largest of these redistributions is the mortgage interest deduction.  Households earning over $100,000 per year receive more than three quarters of the benefits of that deduction while those earning less than $50,000 receive close to none of them.

So, the HTF is a double win for a rational federal housing policy because it focuses on (i) rental housing for (ii) extremely low- and very low-income households.

While not wanting to be a downer about such a victory for affordable housing, I will note that Glaeser and Gyourko have demonstrated how local land use policies can run counter to federal affordable housing policy. Might be worth it for federal housing policy makers to pay more attention to that dynamic . . ..

Housing Vouchers for Landlords

Collinson and Ganong have posted The Incidence of Housing Voucher Generosity to SSRN. The abstract of this important paper is a little technical for non-economists. It reads:

What is the incidence of housing vouchers? Housing voucher recipients in the US typically pay their landlord a fixed amount based on their income and the government pays the rest of the rent, up to a rent ceiling. We consider a policy that raises the generosity of the rent ceiling everywhere, which is equivalent to an income effect, and a policy which links generosity to local unit quality, which is equivalent to a substitution effect.

Using data on the universe of housing vouchers and quasi-experimental variation from HUD policy changes, we analyze the incidence of these policies. Raising the generosity of the rent ceiling everywhere appears to primarily benefit landlords, who receive higher rents with very little evidence of medium-run quality improvements. Setting ZIP code-level rent ceilings causes rent increases in expensive neighborhoods and decreases in low-cost neighborhoods, with little change in aggregate rents. The ZIP code policy improves neighborhood quality as much as other, far more costly, voucher interventions.

The eye-catching part is that raising “the generosity of the rent ceiling everywhere appears to primarily benefit landlords, who receive higher rents with very little evidence of medium-run quality improvements.” The paper itself fleshes this out more: “a $1 increase in the rent ceiling raises rents by 41 cents; consistent with this policy change acting like an income effect, we find very small quality increases of around 5 cents, meaning that as much as 89% of the increase in government expenditure accrues to landlords.” (20-21)

Given the inelasticity of the supply in many housing markets, this is not such a surprising result. That is, if demand increases because of an increase in income but supply does not, the producer (landlords) can capture more of that income just by raising prices. This finding should give policymakers pause as they design and implement voucher programs. The question that drives them.should be — how can they maximize the portion of the subsidy that goes to the voucher recipient?