Equity and efficiency in the allocation of public housing to eligible families

Abstract

Public housing has been the major approach to increasing the supply of adequate housing to low income families. The number of families who occupy public housing is only about 5 percent of those potentially eligible. Waiting lists are symptomatic of the shortage, and they would be longer still if all potentially eligible families actually applied. The short-run problem is one of allocating a very limited supply of public housing to eligible families on an equitable and efficient basis. The basis of allocation will decide which families will get public housing, and which will be left to fend for themselves, at least temporarily, in the private housing market. Current procedures place eligible families on a waiting list according to their date of application and assign them housing units as they become available. With the exception of families that have priority, waiting time becomes the basis of allocation. While waiting-time may be regarded as an equitable basis of allocation, it is not an efficient basis because it does not consider the relative preferences of families for public housing. The latter basis would house families having the strongest preferences before those having the weakest preferences because the former group would presumably suffer a greater welfare loss from exclusion then would the latter group. The hypothesis to be empirically tested is that there are differences in the relative preferences of eligible families for public housing that would be revealed if they were required to bid for housing units as they become available through vacancies or new construction. The units would be assigned in ascending order of the highest rental bids. The resulting rental schedule for occupied units would actually be established by the occupants, not the Housing Authority, and the rent paid by each would be a measure of their preference for public housing. Unsuccessful bidders would remain on the waiting list to bid again when units became available. Allocating public housing on the basis of revealed preference may satisfy efficiency, but it conflicts with equity because it does not consider waiting time or income differences among eligible f~imilies. The conflict between efficiency and equity could be resolved by a tradeoff if actual bids were weighted to reflect waiting-time and income differences; units would be assigned on the basis of weighted bids. Bidding is likely to produce a higher level of rents than now obtained from rental schedules of the Housing Authority. The average subsidy per family would decrease and more families could be subsidized.