posted on 13 September 2015
from the Congressional Budget Office
In 2014, the federal government provided about $50 billion in housing assistance specifically designated for low-income households. That assistance - which is made available both through spending programs and preferential tax treatment - increased by about 15 percent in real (inflation-adjusted) terms between 2000 and 2003. Since that time, such assistance has remained relatively stable at about $50 billion annually (measured in 2014 dollars), with the exception of a temporary boost, mostly in 2010 and 2011, associated with the American Recovery and Reinvestment Act of 2009 (ARRA).
Unlike some means-tested programs (such as the Supplemental Nutrition Assistance Program, or SNAP) that are intended to assist all eligible people who apply, means-tested housing assistance has not been made available to all applicants who are eligible. Currently, only about one-quarter of the eligible low-income population receives housing assistance through federal spending programs. Households that receive assistance are generally required to pay 30 percent of their income toward their housing expenses, a threshold widely described as affordable.
This CBO report discusses the ways in which the federal government provides housing assistance to low-income households, examines how that assistance has changed since 2000, and provides information about the households that receive assistance. In addition, the report assesses policy options for altering that assistance. Some options would provide substantial budgetary savings over the 2016 - 2025 period considered in CBO's analysis and others would involve substantial costs.
What Housing Assistance Does the Federal Government Provide?
Three spending programs account for the majority of the assistance provided directly to low-income households:
In addition, the federal government provided about $8 billion in 2014 for other housing programs. Most of that was in the form of grants to state and local governments.
One tax credit, the Low-Income Housing Tax Credit (LIHTC), accounts for most of the assistance provided indirectly to low-income households. It is available to developers of low-income housing and, according to an estimate by the staff of the Joint Committee on Taxation (JCT), accounted for $7 billion in tax expenditures in 2014. Tax expenditures resemble government spending programs in that they provide financial assistance to specific entities or groups of people or for designated activities.
The federal government provided much more support through the tax code, about $130 billion in 2014, for housing not targeted at low-income households - mostly through the tax deductions for mortgage interest payments and for property taxes. Although beyond the scope of this report, that and other types of assistance not focused on low-income households are described in the appendix.
How Has Federal Assistance for Low-Income Housing Changed?
In 2014, federal housing assistance for low-income households was 15 percent greater in real terms than in 2000. Most of that growth had occurred by 2003. Since then, support has consistently been about $50 billion annually (in 2014 dollars), although federal assistance was temporarily higher, mainly in 2010 and 2011, because of funds provided through ARRA. ARRA spending aside, discretionary spending on federal housing assistance declined in real terms by about 6 percent between 2011 and 2014. (Discretionary spending is decided upon annually by lawmakers in the appropriation process and constitutes about 90 percent of federal support for low-income housing.) That decline followed enactment of the Budget Control Act of 2011, which capped total nondefense discretionary spending.
Over time, the composition of federal assistance has changed as lawmakers have relied more on the private sector to provide low-income housing. Since 2000, measured in real terms, spending on the voucher program and project-based assistance has grown by about one-third, spending on public housing has declined by the same fraction, and tax expenditures for the LIHTC have increased.
Whom Do Federal Low-Income Housing Programs Assist?
The federal government's three main spending programs for low-income housing provide assistance to 4.8 million low-income households. Initial eligibility for federal housing programs is limited to households with no more than 50 percent of area median income (AMI), and roughly three-quarters of the assisted households have income of no more than 30 percent of AMI. The house-holds that receive assistance comprise 9.8 million people, or roughly 3 percent of the U.S. population.
Of those households, almost one-half are headed by people who are neither elderly (defined by the Department of Housing and Urban Development as age 62 or older) nor disabled - yet work is the largest source of income for only about half of households headed by such people.
Housing assistance, like many programs that provide support to low-income populations, provides some incentives that may support employment and others that may discourage employment. Recent studies find that the assistance reduces employment by about 5 percent and earnings (an indicator of hours worked) by about 10 percent.
Households that receive assistance are generally required to pay 30 percent of their income toward their housing expenses. In contrast, of the eligible population that does not receive housing assistance - roughly 14 million households - about six out of seven pay more than 30 percent of their income toward housing expenses. Well over half pay more than 50 percent of their income in rent.
How Could Policymakers Change Federal Low-Income Housing Assistance?
With the federal government facing ongoing fiscal challenges and families facing ongoing economic challenges, the Congress may wish to consider options to restructure programs and tax policies that provide housing assistance for low-income households. This report considers four sets of such options. Most of the options affect discretionary spending - the part of the federal budget that lawmakers control through annual appropriation acts. To achieve the budgetary effects estimated for those options, lawmakers would need to enact changes to housing laws and adjust appropriations accordingly. Two options affect tax credits: Lawmakers could achieve budgetary effects for those options solely by enacting the changes to tax law. (Estimates of budgetary effects of all options are expressed in nominal dollars and encompass the 10-year period from 2016 through 2025.)
The options that CBO considered include the following:
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