Exclusive Commentary

Rental Assistance: A Drag on Work or a Platform for Economic Opportunity?

Jeffrey Lubell, Center for Housing Policy - Posted December 12, 2011


In collaboration with the John D. and Catherine T. MacArthur Foundation’s How Housing Matters Initiative, Spotlight on Poverty and Opportunity will be running a series of commentaries for the next two months exploring the relationship between housing and three topics: health, economic opportunity, and education. Please be sure to read Michael Stegman’s “An Introductory Note to learn more.

                       

This commentary is the sixth installment in the series, which is entitled “How Housing Matters to Families and Communities.”

 

Federal rental housing assistance helps more than 4.5 million households access decent-quality, affordable homes. The affordability and housing quality provided through rental assistance offer a safe and stable environment in which to raise healthy children and allow the elderly and disabled to live independent lives.

 

Notwithstanding the success of rental assistance as a housing program, some worry that it may inadvertently depress work effort, a concern highlighted by Deven Carlson in his recent commentary for Spotlight. While there is reason to be concerned about short-term effects, most studies have found that rental assistance has no long-term impact on earnings.  Indeed, with some modest enhancements, it’s quite possible that housing assistance could actually boost economic opportunity.

 

The research conducted by Carlson and his colleagues found that, among low-income households in Wisconsin, the receipt of a Section 8 housing voucher led to an initial decline in earnings of about ten percent. This earnings impact faded over time and eventually became insignificant. In contrast to their findings on earnings, the researchers found no statistically significant impact on employment rates.

 

This pattern of an initial negative impact on earnings fading away to insignificance is also evident in other research studies. For example, it shows up in a study using an experimental design to look at the receipt of housing vouchers by families receiving welfare assistance in six cities and a study of women receiving project-based rental assistance - a different form of federal rental assistance - using the Panel Study of Income Dynamics. The one major outlier is a study of housing voucher recipients in Chicago, which found that declines persisted over time.

 

In sum, the weight of the evidence suggests that rental housing assistance may have short-term effects on earnings, but these impacts generally do not persist. 

 

These results surprise both economists and practitioners, but for different reasons. Economists generally assume that government programs that have the effect of boosting available income lead to reductions in recipients’ incentives to work. Economists also point to the requirement that residents of subsidized housing pay 30 percent of their income for rent—a so-called “marginal tax” that should also reduce work incentives.

 

In contrast, practitioners focus on the stability provided by rental assistance to argue that, if anything, rental housing assistance ought to boost employment and earnings. If one is worried about where to sleep at night, it must be difficult to focus fully on getting and keeping a job. Moreover, housing vouchers have the added benefit of helping families move closer to a new work site.

 

In sum, economists predict a negative impact on work, while practitioners predict a positive impact, but the results suggest no long-term impacts.

 

What’s going on?

 

The most likely explanation is that there are attributes of housing assistance that both promote and hinder work effort and, over the long-term, these basically offset each other. The result is no persistent long-term impact.

 

If this explanation is correct, it raises the intriguing question of whether one might be able to modify rental assistance to somehow neutralize the work-hindering features, allowing the work-promoting aspects of housing assistance to dominate.

 

In other words, with some modest program enhancements, could housing assistance actually become a platform for greater economic opportunity?  While the evidence base is still accumulating, there are a number of good reasons to think so. 

 

For example, a demonstration known as Jobs Plus showed that an initiative combining financial incentives for increased earnings with linkages to services and peer reinforcement could lead to positive earnings gains among residents of public housing.

 

A larger initiative called the Family Self-Sufficiency (FSS) program has also reported positive results. Currently assisting about 55,000 households in the housing voucher and public housing programs, FSS offers participants a work incentive and asset-building tool in the form of an escrow account that grows as participants’ earnings increase and case management to help them set goals and access services to overcome barriers to work. 

 

There are two important next steps to extend the evidence base. The first, which HUD has already begun, is to launch a rigorous random assignment evaluation of FSS to verify its effectiveness. If the evaluation confirms its positive impact, FSS should be scaled up in its current form to help more households make progress toward economic security.

 

The second step is to study whether a low- or no-cost intervention could be designed that would allow HUD to incorporate FSS-type features into the very fabric of rental assistance and offer them to everyone in subsidized housing. Reid Cramer and I have developed one approach for doing so and would urge that it be tested rigorously against other alternatives to evaluate costs and benefits.

 

Housing assistance is not an employment program. But that’s no reason to ignore employment impacts.  Let’s take our knowledge base to the next step in this critical area.

 

To print a PDF version of this document, click here.


Jeffrey Lubell is executive director of the Center for Housing Policy.