Amenities, Affordability, and Housing Vouchers

Abstract

An unprecedented surge in U.S. rental demand in the decade since the housing crisis has raised the specter of a rental affordability crisis, the brunt of which is borne by the most vulnerable segment of low-income households who live in high-wage large metro areas. Against this background, we examine how the “30 percent rule” — the standard rule of thumb that households anywhere should not spend more than 30 percent of their income on housing expenditures — leads to inefficiencies in the context of federal low-income housing policy. Specifically, we quantify how the federal practice of indexing the generosity of individual rent subsidies in the Housing Choice Voucher (HCV) program regardless of local quality-of-life conditions implicitly incentivizes recipients to live in high-amenity areas. Our estimates imply that a good third of housing subsidies corresponds to the value of amenity consumption by HCV households. Our results also suggest that the level of indexation of housing subsidies under the current HCV program is comparatively high, given the strong evidence for non-homothetic household preferences and only weak complementarity between income and amenities. Yet, because the objectives of federal housing policy might privilege social mobility over locational and housing consumption efficiency, our analysis permits the quantification of a novel scenario for housing policy reform that adjusts current housing subsidies by the amenity expenditures of low-income households, permitting national HCV program coverage to increase.