Prometheus 6

Princeton University's Woodrow Wilson School of Public Affairs produced a study called Moving to Opportunity And Tranquility (pdf research brief | working paper)

Does living in economically disadvantaged neighborhoods directly and adversely affect people’s employment and health outcomes? And if so, what is the best way for the U.S. government to intervene to try and mitigate these outcomes with public housing assistance: through providing subsidized public housing units, or through housing vouchers, monthly rent supplements for private or public apartments for very low to low income households, using federal assistance?

These questions and the implications for public policy are addressed in a new working paper, “Moving to Opportunity and Tranquility: Neighborhood Effects on Adult Economic Self-Sufficiency and Health from a Randomized Housing Voucher Experiment,” by Jeffrey R. Kling, Assistant Professor of Economics and Public Affairs at Princeton’s Woodrow Wilson School, with co-authors Lawrence F. Katz of Harvard University and the National Bureau of Economic Research (NBER); Jeffrey B. Liebman, of Harvard University and NBER; and Lisa Sanbonmatsu, of NBER. The paper studies adult economic and health outcomes in the Moving to Opportunity (MTO) demonstration, a randomized housing mobility experiment in which families living in high-poverty U.S. public housing projects in five cities were given vouchers to help them move to private housing units in lower-poverty neighborhoods. The study authors’ analysis addresses questions about both the effects of neighborhoods on individual outcomes, and the impacts of alternative forms of government housing assistance.

Now this strikes me as research done to prove the obvious, something that has to be done way to frequently for my taste.

Some evidence suggests that the construction of new public housing in the 1950s may have improved health by enabling people to move out of substandard and overcrowded housing conditions. During the past quarter century, however, a number of high-poverty, urban public-housing projects have become centers of violent crime and drug use. Meanwhile, non-experimental research has found strong associations between living in disadvantaged neighborhoods and adverse outcomes in the areas of both employment and health. Whether these associations reflect a causal relationship between living in disadvantaged neighborhoods and outcomes remains uncertain.

I don't think there's a causal connection, like grief is inevitable if you live in a low income neighborhood. It's more like breaking a camel's back with logs instead of straw, just a large additional weight that makes the total burden more than some can bear. Growing up without developmental resources, living without a humane support network, is always going to be a burden.

And it is a burden that didn't have to be. The neighborhoods under discussion are either public warehousing created around the time mainstream folks were getting cheap mortagages or by a public policy of devaluing the neighborhoods via red-lining (actually, two aspects of the same policy).

Kling and his co-authors’ research also bears on whether it is better for the government to provide housing assistance in the form of government operated public housing projects or through vouchers that subsidize rents in the private market. The United States spends about $32 billion per year on housing assistance - more than on food stamps or cash welfare. Public housing projects provide subsidized units for 2.5 million households, and Section 8 vouchers help another 1.5 million households rent private units.

Section 8 in particular is a disappointment. All that money could have gone to mortgage subsidies, like in San Francisco's cooperative experiment. It would have been cheaper, created a class of folks with an interest in permanence and development, and (maybe just as important) it would have had a definitive end.

Importantly, housing assistance is rationed, so that only a minority of eligible families receives assistance and long wait lists for both public housing and vouchers exist in many communities. While the costs of providing a housing project unit and a voucher are similar, and require the same contribution of the household toward rent, there could be large distortions from providing public housing units instead of vouchers.

To receive project-based assistance, a household must accept a specific bundle of housing and neighborhood attributes. In contrast, a voucher user can select from a variety of apartments on the private market – offering many more choices within the same budget constraint. In particular, public housing projects for poor families with children in large U.S. metropolitan areas tend to be located in areas with highly concentrated poverty, while vouchers offer the possibility of living in mixed-income neighborhoods. If neighborhood attributes affect individual outcomes, then switching from project-based assistance to vouchers could improve the well-being of those receiving assistance.

The social repercussions of subsidizing ownership on the one hand and rentals on the other are huge.

Remarks by Chairman Alan Greenspan
At the Ninth Annual Economic Development Summit, The Greenlining Institute, Oakland, California
January 10, 2002
Economic Development and Financial Literacy

It's a pleasure to participate in your annual summit on economic development. Given the nature of the conference, I would like to focus on a matter of mutual interest--improvements in asset accumulation in traditionally underserved markets of our household and business sectors and the importance of access to the financing and information tools that promote and sustain this progress.

In our economy, the three principal means for household asset accumulation are through home ownership, small business ownership, and savings. As important as these are for the individual, they also represent distinct and important benefits to the broader economy and, therefore, play prominent roles in the operation of our financial markets and the priorities of our public policy.

The choice to buy a home is a decision to plant a family's roots in a community with all the implicit incentives to make that community thrive. Where home ownership flourishes, it is no surprise to find increased neighborhood stability, more civic-minded residents, better school systems, and reduced crime rates.

Just as important is the effect of home ownership on a household's ability to accumulate assets. For most households, home ownership represents a significant financial milestone and is an important vehicle for ongoing savings. The Federal Reserve's 1998 triennial Survey of Consumer Finances indicates that home ownership represented 44 percent of gross assets for families earning $50,000 or less annually. Further, investment in residential property has been generally more stable than other types of investment, and it is perceived to be largely permanent.

With these important benefits, an increased rate of home ownership has been chosen by our society as a national priority, with many public- and private-sector resources devoted to achieving this goal.

And because Black people were excluded from the wealth building process, we are at risk in ways the mainstream is not:

Fed Chairman Alan Greenspan and many influential economists say that, while household debt remains high by historical standards, consumers will be able to manage the burden in part because rising home values allowed millions of Americans to refinance and roll high-rate credit card debt into low-rate fixed mortgages.
.
Meanwhile, the value of home equity, securities, savings and other assets held by American households rose significantly faster than their debt in the first quarter, according to a new Fed report.
.
That supports the idea that the financial health of Americans is improving and that households increasingly have the means to pay off their debt.

This research is only begins to touch on the adverse impact of these policy decisions, but it still assumes subsidizing rentals rather than ownership is a reasonable plan. That is its flaw.