New Ideas For Strengthening Federal Rental Assistance

With housing stability increasingly important for families under economic duress, additional rental funds could help to fund local housing authorities in order to assist families in need. New thinking could result in a plan aimed to help families get back into the mainstream, as well place them on a on a path toward increased personal wealth. By Reid Cramer & Jeffrey Lubell

Tough economic times are straining what is already a maxed-out system of social services. Despite the attention being paid to beleaguered homeowners, renters are being squeezed as well. Since an increasing number of Americans simply earn too little to afford to rent a decent home, one vital element of our social net is the provision of rental housing assistance. To help these families meet their basic needs for shelter, the federal government spends more than $25 billion a year through a mix of housing vouchers and direct subsidies to help about four million households. But the demand for such assistance is increasing as job loses spread and incomes fall.

Housing stability is critically important for ensuring the well being of families experiencing economic stress. For this reason, Congress should appropriate additional rental assistance funds to allow local housing authorities to assist more families in need. At the same time, we believe the time is right to experiment with new ideas for strengthening federal rental assistance-especially ones that help families get back into the mainstream as quick as possible. One problem in particular should be addressed head-on. Existing program rules create an unintended barrier to increased earnings once families begin receiving assistance, undermining what could otherwise be a strong platform to help families make progress toward self-sufficiency.

Families receiving rental assistance currently pay 30 percent of their adjusted income to cover the costs of rent and utilities. This wisely ensures that families’ rental payments do not consume a disproportionate share of their disposable income and that families with greater needs get more help. But as assisted families’ earnings rise, their rent also increases, creating a likely disincentive for them to pursue jobs that would substantially raise their incomes. To address this “incentives” problem while also expanding the number of families benefitting from assistance, we recommend providing all assisted families with a Rental Assistance Asset Account that grows as their earnings grow.

Build a Pool of Resources

Under our proposal, families would continue to pay 30 percent of their adjusted income for rent and utilities, but if their earnings go up, a portion of their increased rent payments would be placed into a personal account. The more they earn, the more their account would grow. Over time, they would build up a pool of resources that could be strategically deployed to advance their personal goals. This could mean buying or fixing up a car, making a down payment on a home, investing in education or training, or facilitating a move away from assistance. This combination of increased earnings and increased savings—together with complementary services to help families overcome barriers to increased work effort—could help families prepare to access private-market housing, freeing up scarce resources for other qualifying families.

Modeled on the successful Family Self Sufficiency (FSS) Program—an existing HUD Program enacted in 1990—the Rental Assistance Asset Accounts would provide a means to connect the provision of housing assistance to other important social policy goals. This program has been deployed effectively by innovative housing authorities throughout the country, and can now serve as a national model for reform. In addition to helping families build assets and make progress toward economic self-sufficiency, these accounts could become a stepping-stone to sustainable homeownership by helping families build up the necessary down payment to purchase a home. And if designed and marketed effectively-with careful and rigorous experimentation to test various approaches to structuring, marketing and supporting the incentives-we believe the policy would have little or no cost to the federal government. The costs of deposits into the accounts would be offset by increased rental revenue flowing from the increased earnings that the accounts encourage. Offering these accounts to every recipient of housing assistance would represent a significant and productive reform in the delivery of housing assistance.

Better Alternative to Lowered Rents

For a number of reasons, this approach is more attractive than the alternative of lowering rents by disregarding income:

First, the account would provide a flexible source of assets for families that need help overcoming barriers to work.

Second, assets built up in the account could be used to transition away from assistance when families are ready.
Third, these accounts can operate as a forced savings mechanism.

Similar to how automatic payroll deductions to 401(k) accounts and mortgage payments that pay down principal work to help people save automatically, deposits to the rental assistance asset account would happen automatically as earnings rise.

As policymakers explore how to shore up homeowners threatened by rising mortgage defaults, falling home prices, and contracting credit, they should also consider how best to provide support to renters. The current system of federal rental assistance works well, but it could work even better if we experimented with more creative approaches for administering it. Given the mounting federal deficits, low-cost innovations that deliver assistance more effectively deserve serious consideration. It is time to get all the incentives moving in the right direction.

Reid Cramer is Research Director at the New America Foundation.

Jeffrey Lubell is Executive Director of the Center for Housing Policy.

Reid Cramer is Research Director at the New America Foundation.

Jeffrey Lubell is Executive Director of the Center for Housing Policy.

Published by the National Housing Institute