Leading experts weigh in on current policy issues and challenges

Housing and Economic Mobility

A growing body of research evidence finds that housing and neighborhoods can either block or expand people's access to opportunities for upward mobility. What changes to federal housing policies could promote economic mobility?

The Urban Institute is talking with...
Margery Turner Margery Turner
Erika C. Poethig Erika C. Poethig
Barbara Sard Barbara Sard
Carol Galante Carol Galante
Laurel Blatchford Laurel Blatchford
Noel Poyo Noel Poyo
Patrick Sharkey Patrick Sharkey
Rolf Pendall Rolf Pendall
Margery Turner
Moderated by:
Margery Turner
Senior VP for Program Planning and Management
13

I’ve found that most conversations about inequality in our country focus on income – and sometimes wealth – but don’t give much thought to housing.  But in fact, current housing patterns exacerbate inequality and block access to opportunities for upward mobility.  In particular, neighborhood segregation – along lines of race and ethnicity as well as income – constrain many lower income families – especially families of color – to communities that lack key opportunities and exclude them from communities where opportunities are much more abundant.  A growing body of evidence argues that growing up in a disinvested community, where crime and violence are commonplace and public schools are ineffective, undermines a child’s long-term life-chances, other things being equal.  In contrast, higher cost communities with safe places to play, high-performing schools, and an abundance of enrichment opportunities boost a child’s prospects for future success. 

Other aspects of housing matter to inequality as well.  When rent consumes an inordinate share of a family’s budget, food, healthcare, and educational expenditures suffer.  When families have to move unexpectedly because of eviction or foreclosure, the instability threatens their children’s health and development.  When households can’t qualify for mortgage financing, their prospects for building wealth are diminished. 

So what changes are needed to make housing more conducive to economic opportunity and mobility?

Marge, thanks for kicking off the discussion.  Personally, I think that policies that support the preservation of federally assisted properties in neigbhorhoods of opportunity ensure our federal housing investments are enabling upward mobility.  As captured in this Center for Budget and Policy Priorities (CBPP) brief,  nearly 2 million people live in approximately 1.2 million rental homes support through project based assistance.  Not all those homes are in neighborhoods of opportunity, but preserving the properties that do provide access to better schools, transit and other amenities is one of the cost-effective strategies to helping extremely low-income housenolds climb the next rung of the income ladder.  

In addition to supportive federal polcies, local communities are organizing and aligning their own resources with federal investment in order to preserve affordable rental homes.  Last year, we mapped the affordablility gap for communities across the country and places like Hennepin County, Minnesota and Suffolk County, Massachusetts topped the list of communities actively working to close this gap for extremely low-income households.  

We know from research that children living in housing their families can afford have better scores in math and reading.  Educational achievement is a critical component of upward mobility and it starts with an affordable home.  

Economic segregation, or the degree to which the poor live apart from the rich, has been rising steadily since the 1970s. This is a troubling trend, but does it matter for economic mobility? I think it does, and here’s why.

Imagine a low-income family preparing to move to one of two hypothetical cities, City A or City B. In City A, all of the rich families live in one set of neighborhoods and all of the poor families live in a different set of neighborhoods. There is perfect segregation by income. In this city, the parents must not only contend with the challenges of poverty, but they must also contend with the challenges of concentrated poverty. In the US, living in a neighborhood where poverty is concentrated means sending children to schools with fewer resources, having less access to networks of economic opportunities, worrying about the maintenance of parks, public spaces, and violence, and having access to lower-quality institutions like daycare centers and after-school programs.

In City B, on the other hand, the distribution of poor and rich residents in every neighborhood is identical to the distribution of poor and rich residents in the city as a whole. There is zero segregation by income. If the family moved to City B, the parents would still struggle with all of the challenges that come with poverty, but the family would not have to deal with the additional challenges that come with concentrated poverty. The parents could count on sending their children to decent schools with diverse student populations, they could feel more confident that their children would be safe in public spaces, and they could rely on stronger local institutions.

In the city with no segregation by income, there’s a much greater chance that the children of a low-income family could move up in the income distribution. This intuition, which is developed formally in the work of Bryan Graham, is borne out by the data. Urban areas with lower levels of economic segregation have higher levels of upward mobility.

If this intuition is right, how do we confront economic segregation? Allowing families the chance to make moves that lead them out of concentrated poverty is one primary approach, and making investments in communities that weaken the link between neighborhood poverty and the life chances of children is another common approach. But a third approach is to alter existing housing policies that create economic segregation. We could start by: 1) reforming or eliminating regressive federal tax policies, like the home mortgage interest deduction, that disproportionately subsidize affluent homeowners in affluent communities; 2) confronting exclusionary zoning practices and establishing systematic, regional planning for fair and affordable housing through HUD’s forthcoming rule for affirmatively furthering fair housing; and 3) taking active steps to preserve affordable housing, especially in growing urban areas, by funding federal and state housing trust funds and shared equity homeownership programs

In thinking about what changes in housing policy could improve disadvantaged children’s access to opportunity and thereby improve economic mobility, the federal government’s rental assistance programs are a good place to start.

Nearly 4 million children live in families that receive federal rental assistance.  That’s a lot of kids, and the potential payoff of improving their access to opportunity is significant.  Recognizing this, policymakers have adopted measures over the past several decades — such as relying more on housing vouchers than traditional housing projects — to reduce the extent to which children in assisted families grow up in harmful neighborhoods of concentrated poverty.

These efforts have made promising progress — particularly for children in black and Hispanic families — but we could do a lot better.

Our recent analysis of HUD data found that, for black families with children, having a housing voucher cuts their likelihood of living in extreme-poverty neighborhoods (where poverty rates exceed 40 percent) by nearly half; the likelihood is reduced by one-third for children in Hispanic families (see chart).  Having a voucher also doubles the chances that disadvantaged minority kids will grow up in low-poverty neighborhoods (where poverty rates are less than 10 percent).

But the voucher program could do better.  Indeed, some 250,000 children in families using housing vouchers are growing up in extreme-poverty neighborhoods that are located in nearly every state.  In a later post, I’ll offer some suggestions about how to further improve access to higher-opportunity neighborhoods for children in families using vouchers.

Pat and Barbara -- Thank you -- You've both teed up a variety of housing strategies that can enhance upward mobility.  Housing policy is too often overlooked as a critical factor in enhancing upward mobility.  Perhaps that because our local housing policies -- more often than not -- constrain mobility by restricting zoning and affordability in neighborhoods of opportunity.  That is why I am excited about the Administration's 2016 budget proposal to create local housing policy grants that would "provide grants to localities and regional coalitions of localities to increase economic growth, access to jobs and improve housing affordability by supporting new policies, programs or regulatory initiatives to create a more elastic and diverse housing supply."

 

Barbara, I hope your next post will feature some of the excellent ideas that you surfaced in your latest report on creating opportunity for children through assisted housing policy.   I am particularly excited about the opportunities to use small area fair market rents to open up more neighborhoods of opportunity to households with housing choice vouchers.  Rob Collinson and Peter Ganong have done important research on the impact of this policy in Dallas --the earliest adopter of this approach -- and found that this policy "improves neighborhood quality as much as other, far more costly, voucher interventions."

Pat introduced the issue of homeownership and the inequitable effects of the mortgage interest deduction.  I want to echo his recommendation for reforming the mortgage interest deduction and pursue the homeownership issue a little further, since owning a home has historically been the primary vehicle for wealth accumulation for US families. Disparities between minorities and whites in access to homeownership and in neighborhood house values have long contributed to the racial wealth gap.

And the recent financial crisis exacerbated those disparities.  I don’t know if you’ve seen this chilling sequence of maps from Urban’s housing finance researchers showing how the housing boom and bust disproportionately hit minority homeowners and the neighborhoods in which they live.  They argue for policies to open up the “credit box” so that more African Americans and Latinos can qualify for mortgages as the market recovers.

This is a great conversation to be having, particularly at this time.  The pressures on rental affordability have never been greater and evidence is growing that a stable, healthy and affordable home is foundational to the upward mobility of families, and has a particular impact on children.

As we look at what federal housing policy levers we have, the Rental Assistance Demonstration Program (RAD) stands out as a huge opportunity to ensure quality and stable living environments are secured particularly in markets such as San Francisco, where every neighborhood is under extreme economic pressure.  The portfolio approach taken by Mayor Edwin Lee, with the support of HUD, is one that deserves our full attention as a model for the future.

But clearly, we must do more. As we look at new tools and approaches at the federal level, one area that is conceptually promising is more shallow and short-term assistance to families experiencing an economic shock or set back such as short-term loss of income or large unexpected expenses.  Researching how to structure and scale emergency loan programs or rental payment insurance would be a worthwhile endeavor.

Last, I think all can agree that we need a “Both/And” strategy that ameliorates discrimination and maximizes real choices for families to move to lower poverty communities while at the same time recognizing that there is not going to be a mass exodus from higher poverty neighborhoods.  And further, as a result of broader economic growth, changes in attitudes about urban living, and the demands of new climate change policies), many once high poverty neighborhoods are becoming places people of all incomes want to live.  The challenge then is ensuring investment in these communities that supports the economic success of current lower income residents.  Local policies will clearly have a major influence here, but federal policies such as those discussed earlier along with HUD’s Choice Neighborhoods  and other investment strategies will make an important contribution.

 

As promised, here are a few of our recommendations for federal policy changes in the Housing Choice Voucher (HCV) program. 

  • Reducing barriers: Families using vouchers often know little about housing options in high-opportunity neighborhoods.  Landlords with units in high-poverty neighborhoods often dominate the lists of willing landlords that HUD requires agencies to give families.  HUD should, at a minimum, require agencies to provide lists that include units in a broad range of neighborhoods.  HUD has the opportunity to make this important change in the final rule on “portability” it expects to issue this summer.

    Another major barrier is the use of metropolitan-wide rent data to set voucher subsidy limits, which typically results in subsidies that are too low for families to use vouchers to live in safe neighborhoods with strong schools.  HUD has developed a promising alternative based on market rents in individual zip code areas.  As Erika said, initial results suggest that Small Area Fair Market Rents enable more families to rent units in better neighborhoods — without raising program costs.  HUD should promptly scale up the use of SAFMRs, particularly in areas where voucher holders are disproportionately concentrated.

  • Provide incentives to housing agencies: HUD’s tool for assessing agency performance does little to encourage agencies to expand housing options in high-opportunity neighborhoods.  An improved policy would award agencies substantial points for helping families to live in lower-poverty neighborhoods.  As Pat notes, a strong fair housing rule would give housing agencies additional incentives to reduce barriers and help more families using vouchers live in better areas.

As Erika kindly notes, our recent report includes additional federal and state policy changes to improve the effectiveness of federal rental assistance for kids, including those Carol highlights.

Just a final note to say that I couldn't agree more with Barbara's recommendations (we need some contrarians in the group!). Housing vouchers can have a profound impact on families' lives but they are limited in their capacity as a policy tool to reduce neighborhood inequality. There are two major reasons why this is the case. First, families making residential moves in the private market tend to reproduce patterns of inequality because of structural constraints in the supply of housing and because of more subtle constraints arising from knowledge, familiarity with, and perceptions of potential residential options. Second, neighborhood inequality is resilient. Even when families make residential moves that lead them into more economically or racially diverse communities, the changes they experience often are undermined by subsequent change occurring around them. I make this same argument, in a more refined way and with some data, here.  The implication is that we need an active, conscious effort to reform housing voucher programs in ways that bring families into a broader set of communities and provide the supports that allow families to thrive in their new neighborhoods.

There is increasing evidence that demonstrate that a family's stability in housing and residing in a place with access to employment, education and health care resources are important for economic mobility.  

The affordability of housing is a crucially important factor in maintaining stability.  We should also acknowledge the connection between financing and ownership structures and the stability of housing.  For homeownership, this speaks to buyer preparation and responsible mortgage products.  For rental housing, mission-driven, community-oriented owners and investors can be the difference  between maximizing return by displacing tenants rather than accepting a reasonable return and promoting stability.

Access to employment, education and health care resources can be achieved by supporting resident mobility, or by bringing those resources to existing low-access, low-opportunity neighborhoods.  There is a challenging balance to be  struck between resourcing mobility options and investing in low-opportunity neighborhoods.  We unquestionably need both. 

Investing effectively in low-opportunity neighborhoods inevitably mobilizes market forces.  We have learned a great deal about how to leverage market forces to improve neighborhoods but we need to do a much better job anticipating  and mitigating the pressures that those market forces have on low-income people.  Unchecked by forward thinking local policy and intentional investment in affordability, appreciating real estate values can lead not only to the forced displacement of individual households, but the displacement or elimination of a neighborhood's cultural identity.  As real esate markets heat up, this will be a growing and increasingly national challenge for low-income communities that have been left more vulnerable than ever after the recession.  More research is needed on the role of the federal mortgage interest deducation as a driver of price appreciation in residential real estate and whether this may play a role in gentrification. 

What a great conversation!  I agree that these many housing tools – at both the federal as well as the state and local level – can be important contributors to economic mobility. Greater funding and more informed and targeted deployment of these tools will improve their effectiveness as well. In fact, the team at Enterprise has advocated to preserve and enhance these crucial community development tools for many years.

 

I want to add an additional dimension to the conversation. In addition to these programs, we should also look at funding streams that are deployed in other contexts and can contribute to – or inhibit – economic mobility. One interesting example is disaster recovery funding for communities, a significant amount of which is administered through HUD via the Community Development Block Grant’s Disaster Recovery program, also known as CDBG-DR. The CDBG-DR appropriations in recent years have dwarfed the regular CDBG program: consider the Superstorm Sandy relief bill, which provided $16B in funding to HUD in January 2013 as part of a larger package of funding for Sandy-affected communities that totaled over $60B. This need for resources is only likely to rise as climate change impacts our communities over time. For more information, see this report by the Center for American Progress.

 

This money is being used by communities for everything from public housing rehab to multi-family housing mitigation, to support for families living in rental units, to assistance to single family homeowners as they rebuild their homes. Thanks to the work of the Hurricane Sandy Task Force, HUD, and the many other federal leaders who have worked together over the last 2+ years to ensure that the funding is being deployed effectively, these CDBG-DR funds are incorporating lessons learned from prior disasters, especially about how to best serve low income communities.

 

Disasters often expose the underlying, long-term challenges facing communities: think about the Lower Ninth Ward following Hurricane Katrina in 2005. Economic mobility is chief among these challenges, and the enormous federal resources that are deployed in communities post-disaster can provide an opportunity to address these longer-term problems as part of a healthy recovery process. However, there is not much awareness outside the federal family – or even among the “traditional” housing program leaders – about how powerful a tool this can be to achieve these goals. Moving forward, we need to marry this debate about how to best ensure economic mobility for our communities, including what works and what doesn’t, to these other resources going into our communities.

I'd like to offer an additional perspective. Millennials are creating substantial pressure on rental housing supply, increasing rents and further reducing rental affordability. Paying more of their income for rent means they have less to save and may be forced into unfortunate choices about where and how to live. Older millennials who may be credit-worthy still can't get mortgages, blocking their access to the economic stability and mobility that can come from homeownership and further crowding the rental market. 

 

Federal housing policy that addresses these fundamentals of housing supply and demand through support for homeownership and rental housing finance therefore would directly and indirectly support economic stability and mobility. Balancing the demand for rental with new supply would also slow rent increases, which are quickly depleting the limited budget for tenant-based housing assistance.  

Comments are now closed. Thanks, all, for participating in this informative discussion! I hope you'll continue the dialogue on Twitter and on our blog.