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As More Low-Income Renters Struggle, Federal Subsidies Favor Well-Off Homeowners

June 23, 2016 at 3:00 PM

The number of Americans struggling to afford their rent has risen sharply in recent years, with low-income renters bearing the biggest cost burdens, a new report from Harvard’s Joint Center for Housing Studies finds.  But most federal housing spending goes to higher-income homeowners with little need for help, as our updated chart book explains.

The federal government spent $190 billion in 2015 to help Americans buy or rent homes.  Most of that targets homeowners, mainly through tax subsidies like the home mortgage interest deduction that disproportionately benefit higher-income households.  Overall, about 60 percent of federal housing spending for which we have data assists households with incomes above $100,000, nearly all of whom could afford a home without subsidies.

By contrast, 68 percent of families with what the Department of Housing and Urban Development terms “severe housing cost burdens” — those who pay more than half of their income for housing — have incomes below $20,000.  Yet only 22 percent of federal housing spending assists families in that income range. 

This imbalance means, for example, that households with incomes above $200,000 received an average of $6,406 in housing subsidies in 2014, four times more than the average household below $20,000.

The mismatch between housing spending and needs has severe consequences for low-income families, especially children.  Three-fourths of low-income families eligible for federal rental assistance don’t receive it due to funding limitations

Research shows that low-income families with children without rental assistance are more likely to experience homelessness, frequent moves, and overcrowding than similar families with assistance.   Some 1.4 million school-age children were homeless or living doubled-up with another family in the 2013-2014 school year, the Education Department estimates.  Children in low-income families without rental assistance are also more likely to be placed in foster care (which often results from parents’ inability to afford suitable housing) or forced to switch schools.  And their families are more likely to suffer from alcohol dependence, psychological distress, and domestic violence victimization.  

Policymakers should address this imbalance by expanding rental assistance to reach many more families in need, as the Bipartisan Policy Center and Children’s Defense Fund have proposed.  Most immediately, they should fund more Housing Choice Vouchers when they finalize appropriations legislation for 2017.

In addition, any major tax reform should replace the mortgage interest deduction with a less-expensive, better-targeted credit that would trim subsidies for higher-income families while expanding them for middle- and low-income homeowners.  Some of the savings from this reform or other tax changes could fund a new renters’ tax credit to help address the large unmet need for housing assistance among the lowest-income renters.


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