Two re la ted questions continue to plague public decision makers charged with devising methods to subsidize new housing construction that will effect ively ra i se the housing and environmental quality of all Amer icans to some minimum level . What groups should get the subsidized housing? Where should the subsidized housing be located? In the past, United States policy makers have answered the f i r s t question by concentrat ing the bulk of our subsidies on tax advantages, capital grants that cut the costs of opening new sites for res ident ia l development, and support of the res ident ia l market . 2 All these subsidies work to provide housing for the middle and upper income famil ies that are a l ready living in housing and neighborhood environments that are above socially set minimum quality standards. Providing subsidies to this group probably maximizes the total amount of construction induced because these groups requi re re la t ive ly low per cap i t a subsidization in o rder to dr ive the marginal supply pr ice of new dwelling units down to their marginal effect ive demand. It has been frequently supposed that the resul t ing additions to the total housing stock help the poor because the units originally occupied by more affluent c i t izens f i l te r down the household income ladder. But, if this f i l ter ing is actually to ra i se the quality of housing se rv ices r e ceived by those whose present dwelling units and environments are below the contemporary standards, then the used units must drop significantly in marke t value without concomitantly sinking to undesirable quality levels through undermaintenance and quality degenerating conversions. Whether or not such a happy set of events actually takes place is a function of the change in the