Housing Allowances, Nonprofit Housing, and Cost-Effective Program Choice

Abstract

This paper analyses whether a housing allowance program or a nonprofit housing program is more cost effective, i.e., requires a smaller government subsidy for identical quality dwelling units and identical rents charged to tenants. In most cases, we show that the programs are equally costly for the government′s housing department. If private-sector real estate is favourably treated under income tax law, however, a housing allowance will be more cost effective for the housing department; likewise, if nonprofit housing is exempt from certain sales taxes, nonprofit housing will be the more cost-effective program. Nevertheless, after recognizing the foregone tax revenues, the two programs will again be equally costly for the government′s housing and treasury departments together. Still, a housing allowance is shown to be more cost effective if the private sector is more efficient in developing, building, or managing housing, and a nonprofit program is shown to be more cost effective if it receives donated inputs or if nonprofit enterprise is an efficient response to imperfect information.