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Brookings-Wharton Papers on Urban Affairs 2007 (2007) 103-130

Housing Subsidies and Homeowners:
What Role for Government-Sponsored Enterprises?
Dwight M. Jaffee
John M. Quigley
University of California, Berkeley

Housing subsidies in the United States are provided by a patchwork of different programs and serve a variety of constituencies. The best-known programs are designed to serve low-income households directly by expanding the stock of "affordable" housing through new construction or indirectly by increasing the effective demand for housing. The most expensive housing subsidy programs provide tax relief diffusely to homeowners of all income classes. The least well-understood programs provide government guarantees that reduce the cost of housing credit in the market. This paper considers these latter programs in the broader context of U.S. housing policy.

In the first section we provide a brief review and taxonomy of federal housing programs, including direct public expenditures on housing and indirect expenditures through the tax system. We also describe federal credit and guarantee programs that reduce the cost of credit to those purchasing housing. In the second section, we summarize estimates of the economic and budgetary costs of these programs. We also compare these estimates across housing programs that serve households of various income classes. In the third section, we consider reforms to credit and guarantee programs that would improve efficiency and reduce costs to the U.S. Treasury. A final section offers a brief conclusion. [End Page 103]

Federal Housing Programs

There are a variety of taxonomies for describing the role of the federal government in housing and the public resources devoted to these activities. Low-income housing programs may be distinguished from programs benefiting middle- or upper-income households. Programs based on direct congressional expenditures may be distinguished from those based on tax expenditures, and programs that directly add units to the housing supply may be distinguished from those that have indirect effects on the quality and quantity of housing. There is no simple correspondence mapping these taxonomies onto program types. We proceed by describing programs briefly from a budgetary perspective.

Direct Federal Expenditures on Housing

The federal government spends money directly on housing through two types of programs: construction programs and voucher programs.

Construction Programs

Direct federal expenditures on housing began with the Public Housing Act of 1937, which was intended to "remedy the acute shortage" of decent housing through a federally financed construction program that sought to eliminate "substandard and other inadequate housing." For a quarter century, low-rent public housing was the only federal program providing housing assistance to the poor. Dwellings built under the program are financed by the federal government but are owned and operated by local housing authorities. An important aspect of public housing is that the rental terms specified by the federal government ensure occupancy by low-income households, currently at rents no greater than 30 percent of their income.

In the 1960s this program of government construction of dwellings reserved for occupancy by low-income households was supplemented by a variety of programs inviting the participation of limited-dividend and nonprofit corporations. These programs, which directly increased the supply of privately owned "affordable" housing, were suspended in the early 1970s. But housing capital is long-lived, and at the turn of the century more than a half million of these subsidized units were still in the housing stock.1 [End Page 104]

Section 8 of the Housing and Community Development Act of 1974 increased the participation of private for-profit entities in the provision of housing for the poor. The act provided for federal funds for the "new construction or substantial rehabilitation" of dwellings for occupancy by low-income households. The federal government entered into long-term contracts with private housing developers, guaranteeing a stream of payments of fair market rents for the dwellings. Low-income households paid 25 (now 30) percent of their income on rent, and the difference between tenant payments and the contractual rate was made up by direct federal...


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pp. 103-130
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Archived 2009
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