From supply side to demand side low-income housing assistance: A cost-benefit analysis

In the late 1960s, Congress imposed restrictions on eligibility for public housing and on the amount of rent housing authorities could charge. These measures were intended to alleviate the rent burden on the poor while targeting scarce resources to the neediest. However, their unintended consequence was the concentration of the chronically poor in public housing. In an effort to address the problems presented by this concentration, and control the growing cost of the program, some housing advocates proposed the move to a voucher system which would provide each household with a voucher to use to pay for housing on the private market. Drawing on a unique data set, this dissertation examines isolation and dissimilarity indexes and develops a utility-based function to estimate benefits of a voucher program and compare this measure with an estimate of the benefits of the current system. It captures the national picture while going into enough detail to examine events at the local housing authority level. Major findings. Seventy-six percent of public housing households have incomes below the poverty threshold and the average welfare ratio is only 0.7675. The mean value of the dissimilarity index of incomes was 0.1231--meaning that 12 percent of poor households would have to move from public housing projects to achieve an even distribution of the poor within zip codes. The mean value for the isolation index was 0.2504--indicating that there is 25 percent chance that the next person that a random poor in public housing meets is also poor. Housing benefit is estimated using a Hicksian measure of consumer surplus, based on a Stone-Geary utility function. A comparison of Benefits to costs shows that under the voucher program, each dollar spent by the government provides $1.02 worth of housing benefit to a participating household, compared with \$0.39 under the current system. In conclusion, moving to a voucher system will substantially reduce the cost of housing assistance, increase efficiency, and institute needed market discipline in the administration of low- and very low-income public housing programs, provided that strict anti-discrimination laws and policies to widen program access are implemented.