Academic journal article Federal Reserve Bank of New York Economic Policy Review

Comparing the Costs of Federal Housing Assistance Programs

Academic journal article Federal Reserve Bank of New York Economic Policy Review

Comparing the Costs of Federal Housing Assistance Programs

Article excerpt


For more than sixty years, the federal government has provided assistance to improve the condition and reduce the cost of rental housing for low- and very low-income households.1 The focus of federal assistance has changed over time, as illustrated by the major policy reviews of the last four decades-the Kaiser Committee in 1968, the President's Commission on Housing in 1982, and the National Housing Task Force of 1988. The focus of these reviews shifted from increasing the physical quality of the housing stock in the Kaiser Committee, to increasing housing affordability in the President's Commission on Housing, to addressing housing availability and affordability in the National Housing Task Force.2 Production programs dominated federal housing policy until the early 1980s. Since then, the voucher program has been one of the fastest growing federal housing assistance programs.

Although there is little debate that vouchers will remain a dominant form of housing assistance, there is still considerable debate concerning the appropriate role for production programs. A major concern with production programs is their cost, particularly when compared with vouchers. Much of the housing cost literature cited in this debate is more than twenty years old and evaluates production programs that are no longer active. In this paper, we describe the housing provided by vouchers and five active federal production programs, and estimate the total costs of each program. In addition, we examine who pays the costs of each program.

Today, six active federal housing programs continue to increase the number of households assisted. These programs include the Housing Choice Voucher program (housing vouchers)-the largest source of federal funds for housing assistance-and five production programs, which currently receive federal funds to construct or substantially rehabilitate units. In this paper, we examine the characteristics of the housing provided and the total costs of providing that housing under these six active programs:3

* Housing vouchers (produced about 1.6 million households) supplement tenants' rental payments in privately owned, moderately priced apartments chosen by the tenants.

* Low-income housing tax credits (produced about 700,000 units) provide tax incentives for private equity investment and are often used in conjunction with other federal, state, and local government and private subsidies in the production of new and rehabilitated affordable housing units consistent with state-determined housing priorities.

* HOPE VI (produced about 65,000 units) provides grants-coupled with funds from other federal, state, local, and private sources-to revitalize severely distressed public housing, support community and social services, and promote mixed-income communities.4

* Section 202 (produced about 66,000 units) provides grants to develop supportive housing for the elderly and project-based rental assistance.5

* Section 811 (produced about 18,000 units) provides grants to develop supportive housing for persons with disabilities and project-based rental assistance.

* Section 515 (produced about 485,000 units) provides below-market loans to support the development of housing for families and the elderly in rural areas and project-based rental assistance through the Section 521 program.

The housing provided under the six active federal programs can be quite diverse, varying in age, type, size, and in level of services and amenities provided. We find that for units of the same size and in the same general location, the total costs of production programs are greater than the total costs of vouchers, but the difference in costs is smaller than suggested in earlier literature. In addition, these cost differences generally diminish as unit size increases.

Compared with vouchers, we estimate that the average total thirty-year costs of one-bedroom units in metropolitan areas range from 8 percent more under the Section 811 program to 19 percent more under the tax credit program. …

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