Friday, May 7, 2010

a subsidy based on another subsidy

HUD is responsible for delegating federal funds to states and their public housing authorities (PHAs) to implement a variety of affordable housing programs. The most widely utilized affordable housing program is actually the Housing Choice Voucher (HCV) Program, also known as Section 8, which provides individuals and families with a housing subsidy that can be used in the private market to make housing more affordable. The PHA’s responsibilities include determining the fair market rent (FMR) of units in the service area as well as determining the voucher holder’s monthly income, including earned income and all forms of public assistance. The housing subsidy amount covers the difference between the FMR of the unit they are looking to move into and 30% of their monthly income.

HUD’s 2010 HCV budget is approximately $18 billion, with 90% of the budget used for housing assistance payments (HAPs) . This money is not equally distributed amongst all of its agencies, but allocated based on the amount of vouchers from the previous year and the actual cost of the previous year’s vouchers, adjusted for inflation . Budget constraints can prevent the renewal of existing vouchers so PHAs never know exactly how many housing vouchers they will be able to provide every year. On average, the Minneapolis Public Housing Authority is able to provide 5,000 vouchers and the St. Paul Public Housing Authority provides 4,000 vouchers with the yearly budget from HUD.

The National Low Income Housing Coalition’s 2010 Out of Reach report provides comparative information about subsidized housing. The FMR for a two-bedroom apartment in the Twin Cities is $899; for a two person-one child household with one person working full-time at minimum wage, the most the household can afford to pay for housing, without spending greater than 30% of income, is $377. In order to afford the two-bedroom apartment at $899, the working family member must work 95 hours a week, over twice the normal 40 hour work week. If the household were on the HCV program through their local PHA, the HAP would be $522 per month.

If the same household did not have any earned income and only received monthly Supplemental Security Income (SSI) payments of $674, they would have a rent affordability of $202, with a HAP of $697. The PHA pays $175 more per month in HAPs for households with no earned income and receiving SSI than households that had one person employed at minimum wage full-time. Based on the assumption that the entire Twin Cities HCV budget is $5 million dollars, PHAs can only provide housing assistance to 7,173 families who have no earned income and are solely dependent on SSI versus 9,578 families who work full-time at minimum wage. PHAs can help 1.34% more households, given households have one person employed full-time at minimum wage.

The dependency on aid decreases the PHA’s ability to effectively serve more families with the limited budget they are given. This not only affects the local government’s housing budget, but also the overall welfare budget as families that fall into this category are receiving two types of public assistance, increasing total local government expenditures. The only way to reduce housing and welfare expenditures is for recipients to obtain employment, therefore, earning income and decreasing the amount of public assistance they receive because they are becoming more self-sufficient.

While I believe that the HCV program is an effective program because it increases affordable housing opportunities for more households, the dependency on public aid significantly decreases its effectiveness in assisting more households. The income/rent disparity assumes a wage problem; people are not getting paid enough to afford adequate housing and there are not enough jobs out in the market. The recession is not providing enough employment opportunities, but even in good economic times, it is important to note that housing affordability is still a problem for those making minimum wage. The solution to decreasing government expenditures for housing subsidies may be to develop policies that support lower-income households so that they become more self-sufficient and less reliant on public aid. This, in turn, would help to increase the effectiveness of the HCV program.

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