Rethinking the Welfare State: The prospects for ... - e-Library

Low-income housing 73
Ensuring a demand-side market: increasing access by low-income
households
A major problem with current voucher-based housing initiatives in the United States is
the low number of low-income households actually receiving benefits. As Peterson
observes:
Low-end demand financed through a combination of vouchers and
household income growth has not kept pace with privately financed
middle-income demand resulting from economic growth. Rents in the
low-income housing market have risen at approximately the same rate as
rents in the rest of the housing market. However, as long as only 36
percent of income-eligible households receive housing assistance, and if
household incomes at the lower end of the income distribution continue to
lag behind growth in the rest of the economy, housing affordability for
unsubsidized households […] will worsen. 90
The solution to the horizontal equity problem, in Peterson’s view, consists in eliminating
the long housing queues associated with housing assistance and making eligibility
requirements less restrictive. In order for a voucher initiative to be successful in creating
a demand-side market of sufficient size to produce a commensurate response from the
supply-side, it needs to ensure more widespread participation; otherwise, vouchers will
simply bid up rents and price non-recipients out of the market. It is nevertheless
important to note that simply increasing participation without increasing the number of
units also has the potential to bid up rents. As discussed earlier, demand-side subsidies
must be accompanied by measures which encourage a supply-side response.
Stimulating the supply market
Faced with a sudden increase in the rent budget of the lowest trecile of renters, there are
two possible effects on the supply market: either the increase will be met with an increase
in suppliers through new developments; or the supply market will maintain its original
proportions, driving up rents and increasing profits. Assuming that suppliers act as
rational agents, in an unconstrained market, the latter option will be preferred, in view of
its lower opportunity cost: where there is sizeable demand (assured by the tied nature of
housing vouchers) for a fixed housing stock, it costs landlords nothing to raise rents, as
there is no risk of increased vacancy in a market where housing is scarce, which is the
case in many major metropolitan areas.
To counteract this tendency towards bidding up rents, incentives need to be
established to facilitate the entry option. Supply-side subsidy programs which target new
low-income housing construction or conversion projects and encourage partnerships
between community groups, private investors and the public sector have an important
role to play in resolving the housing crisis. In addition, land-use regulations that create
barriers to the construction of low-income rental accommodation or to the conversion of
existing housing to multiple units should be repealed. Similarly, property taxes that
discriminate in favour of single-family housing and against multiple occupancy rental
accommodation should be eliminated. In contrast, rent controls are likely to discourage