The voices of Urban Institute's researchers and staff
October 20, 2016

Using cash transfers to expand housing choice

October 20, 2016

Throughout this month, Urban Institute scholars will offer evidence-based ideas for programs and policies public housing agencies can test through the US Department of Housing and Urban Development’s Moving to Work Demonstration.

The design of the Housing Choice Voucher program severely limits neighborhood choice for participating households. Voucher holders are limited to a submarket where landlords accept vouchers and the rent is below the rental cap.

Many landlords do not participate because of negative stigma associated with voucher holders, required housing-quality inspections, and other red tape that comes along with participating in the program. It can be especially difficult for voucher holders to find landlords who will rent to them in tight rental markets and in neighborhoods that offer opportunity—those low in crime, with high-quality schools and other amenities, such as supermarkets, parks, and access to jobs.

Research shows that living in these neighborhoods can improve life outcomes for children. However, by providing housing via a voucher and setting rules for the voucher’s use, the government is essentially limiting households to neighborhoods where landlords are willing to participate in the program, and these neighborhoods are often not the ones that will lead to better outcomes for families.

So how could we expand choice for low-income families? What if instead of a voucher, the participant received a cash transfer, or “housing allowance,” to help pay their rent?

Currently, local public housing authorities (PHAs) pay government subsidies directly to the landlord. “Cashing-out” rental assistance would mean a housing allowance would be paid by the PHA directly to the household for their housing expenses; then the household would pay it to the landlord. This would provide the household more choice about where to live by making the program invisible and reducing potential discrimination from landlords based on program status.

Savings could flow from eliminating housing-quality inspections and signing contracts with landlords. PHAs could use these funds to provide housing search assistance to the voucher holder to help them access better neighborhoods and units outside the voucher submarket, or by covering the cost of higher rents that are often required to access units in opportunity neighborhoods.

This idea of providing cash assistance for housing isn’t unprecedented. During the 1970s, the US Department of Housing and Urban Development (HUD) funded the Experimental Housing Allowance Programs, which enrolled approximately 25,000 families in 12 metropolitan areas. Households received a direct monthly housing assistance payment that was conditional on occupying housing that met minimum quality standards (i.e., space, domestic facilities, safety, and sanitations).

The program reached households with the greatest needs and increased the household’s likelihood of living in adequate housing, made housing more affordable, and improved neighborhood location for families who moved.

However, cashing-out rental assistance is controversial. Policymakers often feel the need to limit the way poor households can spend government assistance. Kansas, for example, has rules about how welfare recipients can spend their Temporary Assistance for Needy Families checks, restricting spending on movies, nail salons, and other social activities. These types of rules can make programs more complicated and are difficult to enforce.

Further, the cost and benefits of such restrictions are unclear, though evidence suggests that getting more flexible resources into the hands of low-income parents can be remarkably good for their children.

Finally, cashing-out assistance also makes it more vulnerable to the politics of annual appropriations because cash programs are easier to defund.

Ultimately, these political issues distract from the most critical public policy questions: Can cash assistance help increase neighborhood quality for voucher holders? Should the housing assistance be conditional on neighborhood locations? Do households benefit from different types of housing search assistance? How would a cashed-out program ensure that minimum housing-quality standards are met?

There are many unknowns, but the idea deserves a fair and rigorous test. HUD’s expansion of the Moving to Work Demonstration offers an opportunity to test this application of housing assistance on a small scale. 

In this Thursday, Jan. 28, 2016 photo, laundry hangs outside public housing units at Mayor Wright Homes in Honolulu. (AP Photo/Cathy Bussewitz)

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As an organization, the Urban Institute does not take positions on issues. Experts are independent and empowered to share their evidence-based views and recommendations shaped by research.