A voucher for your thoughts

Katrina and public housing

Sep 22nd 2005 NEW YORK
From The Economist print edition

How should America house its poor?

IF KATRINA has demolished hopes for reforming Medicaid, it has at least stirred up debate about housing policy. In all, Katrina destroyed or damaged roughly 300,000 homes. According to the National Low Income Housing Coalition (NLIHC), around 70% of these were occupied by low-income households (ie, ones earning less than $40,800 in New Orleans and below $32,560 in Mississippi). Hurricane Rita is expected to cause further carnage.

The administration's immediate answer—to buy up trailer parks to house the newly homeless—looks an unsatisfactory stop-gap. Many of the parks are a long way from any potential source of employment. Horror stories are circulating about “FEMA City” in Florida, where 1,500 people displaced by Hurricane Charley in August 2004 are still living in 500 trailers. They can't afford to live in the new houses rebuilt on the sites of their old homes. So they fester in a crime-ridden ghetto.

As a longer term solution, Mr Bush has proposed his urban homesteading plan. He would distribute federal property to “homesteaders” who pledge to build their own homes. That is surely better than the huge public-housing projects for the poor of the 1960s and 1970s. But the Department of Housing and Urban Development (HUD) has identified only 4,000 potential spots for the quarter of a million displaced people. Also, roughly half the people affected by Katrina were renting their property; many are unlikely to have the wherewithal to be able to build their own place.

An alternative could be rental vouchers. After the 1994 earthquake near Los Angeles, which left 20,000 people homeless, Congress swiftly appropriated $200m to provide special vouchers for use anywhere in the state. At least 10,000 people used them to move into stable apartments, often in better neighbourhoods than those they had left. There are some 1m vacant rental units in the South. Surely it would be better to use them, not build trailer homes?

Controversial though they are in education, vouchers have been part of federal housing policy since the 1970s. Those in LA were part of the “Section 8” programme, which is actually the main form of federal housing assistance. Some 2.1m vouchers, worth around $7,000 a year each, are in circulation. Republicans like them for ideological reasons; Democrats (who in this case don't have to deal with the teachers' unions) like them because they get money to the poor.

At their best, vouchers help “deconcentrate” poverty. For instance, in the Gautreaux Programme, an experiment to combat racial discrimination in Chicago's public housing in the late 1970s, poor blacks were given vouchers to move to the white suburbs. It seemed to help them. Their children tended to do better in school and go to college, explains James Rosenbaum, a sociology professor at Northwestern University.

That does not mean that vouchers work perfectly. They can create perverse incentives: HUD's vouchers work on the basis that you should spend 30% of your income on rent, but if your rent is pegged at that proportion, there is less incentive to try to get a pay rise. They also encourage poor families to move to public shelters, because residents there are often given priority when it comes to vouchers. As for deconcentrating poverty, elite white neighbourhoods are not always welcoming to poor black families. And some working-class families—though perhaps fewer than middle-class communitarians claim—prefer to live next door to each other.

Yet the main problem with vouchers is simply that there are not enough of them. Only about one in four eligible households gets any kind of assistance, and waiting lists for vouchers can be years long. Last year, Congress rejected the administration's proposal to cut $1.6 billion from the Section 8 programme, which would have cancelled the vouchers for some 250,000 households. This year, the administration is again trying to cut the programme to save money.

Even without Katrina, America would have a shortage of affordable housing. Thanks to the fact that rents have risen much faster than incomes, nearly one in three households spends more than 30% of its income on housing, and one in eight spends more than 50%, according to Harvard's Joint Centre for Housing Studies. To make matters worse, most new housing tends to be at the more expensive end of the market.

A good deal of this can be blamed on America's property bubble; when it bursts, things should even up a bit. But housing is also one of the areas where government handouts (especially tax relief on mortgage payments) favour wealthier Americans. In 2003, $121 billion was spent on tax relief (more than $57 billion of which went to households with incomes above $148,000); by contrast, only $36 billion was spent on housing policies designed to help the poor.

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