In Defense of Rent Subsidies
Helping people pay rent is far more efficient than building and managing housing.
While fiscal hawks might bristle at the idea, cash is the best way to deliver housing subsidies. Helping people pay rent is far more efficient than building and managing housing. It’s more compassionate, too, and in the end, it’s a more conservative policy, reducing costly and inflationary government interference.
Imagine being a minimum-wage worker and losing your job. Rent is due in a week, and you’re $250 short. Do you want a social-service program? Do you want financial counseling? How about a spot on a waiting list for a Section 8 voucher or a brand new “affordable” apartment six months or a year from now? You might. But what you need is $250. A fast payment would solve your housing problem and perhaps prevent it from becoming a calamity, forcing you to move back home with family or worse, into your car.
And there is growing evidence that far from promoting indolence, cash payments allow people to seek opportunities that they otherwise would not. Consider a recent story from a program in Stockton:
In one case, a participant had been studying to get his real estate license for more than a year — a pathway to more consistent, higher-paying work — but could not find time to study while piecing together an income doing gig jobs.
After receiving cash payments, the participant got his license. Researchers studying the program “found that 28 percent of recipients had full-time employment when the program started in February 2019; a year later, the figure was 40 percent.”
As I’ve noted before, the most popular solution on the left—spending billions of dollars to buy land, build, and operate housing—is expensive and inefficient. The Low Income Housing Tax Credit (LIHTC) program has spawned massive bureaucracies at the federal and state level and a class of advocates, lawyers, and consultants who earn lots of money helping non-profits navigate them. Cash payments would act like Dorothy’s bucket of water in the Wizard of Oz; the wicked witch of waste would melt away.
Imagine a tax-credit program for renters that would require quarterly filing and would credit taxpayers with lower incomes for the money they pay above the normative 30-percent-of-gross-income threshold. Might our minimum-wage worker try to use the credit to upgrade to an apartment with a pool? Maybe. But is that worse than buying him an apartment unit for $1 million, the amount one expert from the Hoover Institute found non-profit LIHTC units cost in California?
Finally, cash payments have a solid libertarian advocate: Milton Friedman. Friedman supported what he called a negative income tax, a policy much like the one I suggested for rent payments. Friedman argued that overgrown bureaucracies staffed with well-intended social workers, bean counters, and social engineers were not only expensive and wasteful but invasive and harmful to people’s freedom.
Worse, those programs create perverse incentives. Many aid recipients avoid earning more money for fear of losing a benefit, like a rent-restricted unit. Cash payments honor people’s common sense and allow for the prospect of social mobility. Too often, benefit programs thwart the natural ingenuity of lower-income people.
Are there downsides to cash? Yes. Putting more money in circulation is inflationary. Another potential hazard is that cash programs wouldn’t take the place of pricey and inefficient building programs but would be ladled on top of them. For cash payments to work, they would have to be part of serious reform in federal tax policy, one that would make tax-credit benefits available to individuals instead of doling out money for building projects.
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Another danger of cash payments is the potential that they could be made just as hard to obtain as those LIHTC units and as hard to use as a Section 8 voucher. Today, programs that were intended to help people struggling to pay rent are fraught with paperwork and requirements that put the benefit out of reach. Covid-19 rent relief, for example, became a boondoggle, with some of the money still unspent and unaccounted for. Bureaucrats and nonprofits couldn’t resist the urge to add requirements for what should have been a simple cash transfer. Any cash-for-rent program should just require a paycheck stub, a rent receipt, and a bank-account number. There would be some fraud and abuse, but I doubt it would amount to more than a fraction of the authorized waste in the existing tax-credit scheme.
The moral arguments against cash are the weakest, suggesting that somehow getting something for “free” will lead to the loss of a work ethic. It is true that poverty can be a motivator, as the survival of the poor attests. But we shouldn't, out of principle, allow suffering simply to “build character.” Helping people with housing costs via subsidies might result in some abuse, but surely will not result in the erosion of people's character; massive tax-credit programs for building projects, by contrast, encourage blind money grubbing among already-wealthy organizations, non-profits, consultants, and lawyers.
Housing prices are a function of supply and demand, and demand for housing is an indicator of a healthy economy and society. The long-term answer to surging prices is to allow more housing. But when people find themselves stretched too thin, the best solution is fast cash subsidies for people in market-rate housing. Building publicly funded housing should be limited to serve people unable to work because of their age or health. Cash can subsidize work, not indolence, and allow people to save, pay down debt, and ultimately, lever themselves out of generational poverty. Conservatives should reclaim the idea of cash subsidies for housing before it gets turned into yet another expensive, inefficient, and bloated sacred cow for the left.