The voices of Urban Institute's researchers and staff
August 19, 2015

If Congress won’t fund improvements in housing vouchers, maybe private investors will

Just because a social program is evidence based doesn’t mean Congress will fund it. Unfortunately, that’s the world we live in—where it’s more likely that politics, not good policy, control the federal purse strings.

Take housing vouchers, a powerful policy tool for improving the lives of low-income families, especially children. Recent evidence from multiple sources shows that vouchers buy more than just housing stability: they reduce poverty, help keep families together, reduce diabetes and obesity among adults, and increase educational attainment and long-term earnings prospects for children.  

Many of these benefits are more likely to accrue if families move to better neighborhoods. Despite the potential for big return on investment that could save money in other areas of the federal budget (homeless shelters, health care, child welfare, income supports), Congress has been stingy with this program. In addition to failing to meet demand—only one in four eligible households receives a voucher—the program often does not succeed in helping families with vouchers access neighborhoods with safe streets and good schools.

In theory, families can use vouchers to rent properties in middle-class neighborhoods, but in practice, they face a range of pressures that funnel them into poor neighborhoods. Approximately 250,000 children assisted by the program are living in housing in extreme-poverty neighborhoods filled with crime and lacking in basic resources, like decent schools.

For a number of reasons, including lack of information, how the program is administered by local public housing authorities (PHAs), and lack of available housing that meets the rental caps, it often takes extra housing search assistance and counseling to help families move to neighborhoods that are middle class and better resourced. But PHAs do not receive funding from HUD to provide such “mobility services.” The end result is that the voucher program shortchanges many of the 2.2 million families it currently serves, leaving enormous social benefits on the table.

If mobility services for families with vouchers are such a good investment, what about turning to private investors to scale and improve these services? Pay for success (PFS) financing, a new tool that leverages private capital to fund upstream social programs that generate impact over time and shifts the risk of program failure away from government agencies, could overcome these barriers. Investors cover the upfront costs, and if the program is successful, then the government pays the investors back, with interest. If the program fails, the government pays nothing.

The first thing any investor will ask: what is the rate of return? In a recent paper, we zoomed in on evidence from the Moving to Opportunity demonstration and modeled mobility program costs and medical costs savings from reduced prevalence in adult diabetes and extreme obesity (only one of several outcome areas where this kind of program is shown to have an impact). We found that providing housing mobility services could not only lead to healthier adults , but could also generate significant costs savings—a range of $2.3 million to $3.8 million in the four scenarios we modeled. In 8 to 10 years, these savings could completely offset the costs of housing mobility assistance ($2.2 million) and investors could earn an annual rate of return of 1 to 11 percent.

How to structure PFS deals is still in its infancy and the transaction market is still small, but it’s expected to grow from a $250 million a year market to approximately $1 billion by 2018. Our analysis shows that potential end payers such as government agencies and health plans should consider exploring this financing tool as a way to fund these crucial mobility services in the housing voucher program.

Dan Rinzler is the manager of special projects and initiatives for the Low Income Investment Fund.

From left, Jackeline Salazar, 10, runs in front of her trailer house while her siblings Horacio, 7, Cynthia, 11, Janeth, 1 and her mother Norma Salazar, 39, stand at the door of their house in a colonia in Horizon City, Texas on Monday, July 18, 2011. Photo by Juan Carlos Llorca/AP


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