Housing Voucher and Tax Credit Programs

How should the United States government address the issue of housing inequality?

Researchers have found housing inequality is a major contributor to overall income inequality in the United States, as the two statistics have followed very similar patterns over recent decades (Albouy, Zabek, 2016). Each measure steadily declined after the Great Depression before reaching their lowest point in the 1960s, then both started increasing and have never really slowed down to this day. For this reason, it is important to analyze how housing inequality has grown over time and how it can be reduced in the future. Housing is a key basic need for the overall population, specifically in the United States, and is also a significant financial asset as it accounts for over 60% of the wealth held by the middle class and 40% of the United States’ capital stock (Albouy, Zabek, 2016). As the chart below depicts, in recent years rent prices have greatly increased while renters’ incomes have not kept pace - in fact, renters’ incomes have actually decreased when accounting for inflation. This results in an increased inability for people to afford much of the housing available to them. Although the federal government has recognized low-income families’ need for aid when their housing costs are burdensome, the government’s existing plans are not always being executed well or targeting the right people. Because of this, people who are devoting a large share of their income towards housing are not receiving the assistance that they need, and there is a growing inequality between them and those who do not pay a large proportion of their income to housing.


A major factor in this housing inequality is the difficulties that renters face, as opposed to homeowners. The average renter spends about 31.2% of their household income on housing costs, while homeowners spend just 16.4% of their income on housing on average. The definition of housing-cost burdened in the United States is paying more than 30% of your income towards your home, meaning that the average renter is burdened by their housing costs. This includes the more than half of low-income renters who devote a majority of their income towards housing costs. And income is strongly linked to homeownership: only 45% of households that earn less than $50,000 per year own their homes, compared to 80% of those above $50,000 (Montgomery, 2018). People who have very low salaries or wages are already struggling to meet basic needs, and yet housing is accounting for a very large proportion of their income, reducing the amount they have for other necessities such as food, clothing, etc.

Furthermore, inequalities in housing appear to be affected not only by income, but also by race. The disparity in homeownership and home value across races can be partially attributed to the practice of redlining, which began in the 1930s. When the Federal Housing Administration (FHA) was determining what neighborhoods were safe to insure mortgages in, they outlined predominantly African-American neighborhoods in red, which indicated that the areas were not safe enough for the FHA to insure. So afterward, the FHA prohibited black people from purchasing houses in the suburbs even when they were perfectly able to afford them. And because they considered minority residents risky, the FHA gave 98% of their $120 billion in loans to white families between 1938 and 1962 (Solomon, 2019). As suburban, predominantly white, developments increased in value over time, African-Americans missed out on the equity and wealth associated with owning the homes that the residents were getting. By the time the United States passed the Fair Housing Act in 1968 permitting African-Americans to buy houses in any neighborhood, most of those who would have been able to purchase homes in wealthy areas no longer could, as the prices had significantly risen in the meantime, leaving their wealth behind (Rothstein, 2017).


There are several consequences of redlining that can still be seen today. 74% of the areas outlined in red back in the 1930s are still low or moderate income. Furthermore, there are large racial disparities in homeownership that persist across socioeconomic categories. For example, 79% of college-educated white people in the US own their homes compared to 61% of college-educated black people and 62% of Hispanics, while 74% of whites with only a high school degree own their homes compared to 44% and 50% respectively. There is a gap of at least 10% between whites and blacks and whites and Hispanics for all income quintiles, while the difference is at least 20% for both when looking at single people or married couples. This demonstrates how no matter what demographic category you look at, there is a consistent pattern of whites owning their homes much more often than minorities. Thus, since renters struggle to pay for housing more frequently than homeowners, minorities are dealing with the consequences of housing inequality more often than whites are. And this is manifested in the mean net housing wealth (home value minus debt owed) for each race: for whites this is $215,800, while for blacks it is $94,400 (Solomon, 2019).

In response to the growing housing affordability crisis, the federal government has created assistance programs to aid families in need. But currently, these systems are not working very well. Only one-third of poor renters in the United States received benefits from federal housing programs in 2015 (Desmond, 2015) for several reasons. Firstly, existing basic safety net programs do not fully account for geographical differences between families: for example, for a family receiving benefits from the Child Tax Credit and Earned Income Tax Credit, both of which are aimed at essentially the same types of people as housing subsidies are, the money allowed to them is not significantly influenced by the cost of living in their area. Secondly, federal spending specifically for buying or renting homes tends to be either available mostly for higher-income families as opposed to those who need it most or logistically difficult to access. The housing available through the Low Income Housing Tax Credit is not always accessible for low-income people and thus those with higher incomes are much more likely to be able to afford the housing provided. Additionally, only one-fourth of eligible families reap the benefits of the Housing Choice Voucher program, the other major existing rental subsidy plan, usually because of logistical issues. These issues include waitlists that can be many years, even decades, long, and landlords and tenants’ reluctance to utilize the system (Kimberlin et al, 2018). The result of these factors is that the government overspends on housing costs for those with higher incomes: $41.4 billion for households with incomes between $100,000 and $200,000 per year compared to $15.2 billion for those with incomes below $10,000, despite the fact that there are 60 times as many households in the latter category. Furthermore, less than 30% of overall federal spending was devoted to renters while they make up 60% of the people paying over half of their income for housing (Fischer, Sard, 2017). Thirdly, there are several administrative difficulties associated with the existing housing subsidies. In summary, the federal programs in place are not truly fixing any of the problems described above, and allow the people who are struggling the most with housing costs to struggle even more, widening the gap between low-income, generally renting, families and high-income, generally home-owning, families.


A possible solution that could address the issues of income and racial disparities in housing is for the government to provide housing vouchers to low-income families that would subsidize their moves to higher income neighborhoods. Research such as the Moving To Opportunity (MTO) experiment has demonstrated the potential for this government subsidization of housing to improve low-income children’s futures as well as make housing more affordable for the families living there. In the MTO experiment, which was conducted in five major U.S. cities, families in very disadvantaged neighborhoods were given vouchers to specifically move to a low-poverty area (with a poverty rate of less than 10%). For their children under age 13 when the move occurred, there was a statistically significant difference in mean earnings at ages 24 or older and college attendance compared to families who did not move. Namely, their children had greater numbers for both measures (Chetty, 2019). Furthermore, both measures for these children were also significantly higher than for the ones whose parents had no restrictions on the vouchers they received, meaning the parents could move to any neighborhood they wished. However, children older than 13 whose families received either type of voucher had lower mean earnings later in life and lower college attendance, possibly because the negative effects caused by a sudden change in neighborhood, friends, and school outweighed the positive ones (Chetty, 2019). Thus, researchers concluded that government subsidization of housing for low-income families can have long-lasting positive effects, but generally only for young children that move. These vouchers should also be designed to encourage disadvantaged families to move to higher opportunity neighborhoods, instead of remaining in a similar area. And if the government is aiding low-income people in paying for their homes, this will simultaneously help address the issue of housing inequality by lessening the burden of rent costs for many Americans.
Another way to stem the rising housing inequality could be to create a new tax credit for those who are significantly burdened by their rents. An idea for what this policy should look like is given by Kimberlin, Laura Tach, and Christopher Wimer, who are an Affiliate at the Center on Poverty and Inequality at Stanford, an Assistant Professor of Policy Analysis at Cornell, and a Research Scientist at Columbia, respectively. They suggest a tax credit that would be available for those whose housing costs are more than 40% of their income, and that would give these families enough money to take their housing-cost burden down to exactly 40%. According to the authors’ calculations, the plan would provide only $2,100 on average, yet would bring 2.6 million people out of poverty and reduce the poverty rate among recipients from 76.9% to 64.5% (Kimberlin et al, 2018). Since there is a vast amount of money being given to homeowners and people with higher incomes, who tend to not be in desperate need of financial aid, these funds can be redirected from existing programs to this new one. If a policy such as this one was enacted, it would be easier for financially challenged families to access housing subsidies given that the middlemen (landlords, etc.) would be eliminated from the process. Additionally, low-income families would be the majority of those benefiting from this program, but they would not be the only ones. Some high-income families struggle to afford homes in areas where all housing is expensive, such as the San Francisco Bay Area or Boston.
In summary, since housing cost affordability is currently a rising issue in the United States, it is important to recognize its effects and attempt to address the problems associated with it. As housing inequality is a major contributor to overall income inequality, methods of reducing it would likely have far-reaching benefits for society. Combining a new tax credit such as the one mentioned above with an investment in the expansion of affordable housing would significantly assist many American families across the country.

Works Cited

Albouy, David, and Mike Zabek. "Housing Inequality." NBER, Jan. 2016, doi:10.3386/w21916. Accessed 5 Jan. 2020.

Chetty, Raj. "Moving to Opportunity vs. Place-Based Approaches." 14 May 2019, Harvard University, Boston. Lecture.

Desmond, Matthew. "Unaffordable America: Poverty, housing, and eviction." University of Wisconsin-Madison Institute for Research on Poverty, Mar. 2015, www.irp.wisc.edu/publications/fastfocus/pdfs/FF22-2015.pdf. Accessed 8 Apr. 2020.

Fischer, Will, and Barbara Sard. Chart Book: Federal Housing Spending Is Poorly Matched to Need. 8 Mar. 2017. Center on Budget and Policy Priorities, www.cbpp.org/research/chart-book-federal-housing-spending-is-poorly-matched-to-need. Accessed 5 Jan. 2020.

Florida, Richard. "Is Housing Inequality the Main Driver of Economic Inequality?" CityLab, 13 Apr. 2018, www.citylab.com/equity/2018/04/is-housing-inequality-the-main-driver-of-economic-inequality/557984/. Accessed 5 Jan. 2020.

Kimberlin, Sara, et al. "Anti-poverty Policy Innovations for the United States: Renter's tax credit." The Russell Sage Foundation Journal of the Social Sciences, vol. 4, nos. 2 & 3, Feb. 2018, pp. 20-22, www.irp.wisc.edu/publications/focus/pdfs/foc333c.pdf. Accessed 5 Jan. 2020.

Montgomery, David. "Who Owns a Home in America, in 12 Charts." CityLab, 8 Aug. 2018, www.citylab.com/life/2018/08/who-rents-their-home-heres-what-the-data-says/566933/. Accessed 7 Apr. 2020.

Rothstein, Richard. "A 'Forgotten History' Of How The U.S. Government Segregated America." NPR, 3 May 2017, www.npr.org/2017/05/03/526655831/a-forgotten-history-of-how-the-u-s-government-segregated-america. Accessed 8 Apr. 2020.

Solomon, Danyelle, et al. Systemic Inequality: Displacement, Exclusion, and Segregation. 7 Aug. 2019. Center for American Progress, www.americanprogress.org/issues/race/reports/2019/08/07/472617/systemic-inequality-displacement-exclusion-segregation/. Accessed 7 Apr. 2020.

Verkhivker, Alex. "Housing Is The Real Culprit For America's Inequality." Forbes, 4 June 2018, www.forbes.com/sites/alexverkhivker/2018/06/04/housing-is-the-real-culprit-for-americas-inequality/#57d782c239b9. Accessed 5 Jan. 2020.


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