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PA 874: Session 13 – Housing Policy #2 Policy and Regulation Overview Basics Direct Subsidies Indirect Subsidies (Taxes) Housing Finance Regulations Efficiencies (Or Inefficiencies) Basics Federal Outlays – See Fig. 3.2 Assisted Units – See Fig. 3.3 Historical Trends in Support

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pa 874 session 13 housing policy 2

PA 874: Session 13 – Housing Policy #2

Policy and Regulation

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

overview
Overview
  • Basics
  • Direct Subsidies
  • Indirect Subsidies (Taxes)
  • Housing Finance
  • Regulations
  • Efficiencies (Or Inefficiencies)

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

basics
Basics
  • Federal Outlays – See Fig. 3.2
  • Assisted Units – See Fig. 3.3
  • Historical Trends in Support
  • Direct Vs. Indirect Subsidy

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

slide4

Figure 3.2

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

cumulative number of federally assisted housing units 1955 1994
Cumulative Number of Federally Assisted Housing Units, 1955-1994

Source: Listokin (1990); 1994 estimate based on CBO data.

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

direct subsidies
Direct Subsidies
  • Public Housing – Declining Construction and Use
  • Rental – Supply Side Programs
    • Through Local Public Housing Authority (PHA)
    • Subsidized Rent First – Above Operating cost, then to 30% of Income
    • Section 202 – Handicapped and Elderly
    • Section 236 – Subsidized Developers - Interest

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

direct subsidies cont
Direct Subsidies (Cont.)
  • Section 8:
    • First 1974, Nixon – New Construction and Rehabilitation of Existing Stock
    • 50% of Median Income to Qualify
    • Subsidize Rent up to 75% of Fair Market Rent (FMR) – Subsidy=Difference 30% Tenant Income and FMR.
    • No Additional Money by Tenant
    • Use With Section 202 = Handicapped and Elderly

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

direct subsidies cont8
Direct Subsidies (Cont.)
  • Existing Section 8
    • Similar but not restricted to new or rehabs
    • Part Supply, Part Demand
    • Through PHAs – Eligible, Inspections, Contract
    • Problems:
      • No Incentive to Charge Less than 75%, or Better
      • Tenants Rights Tough – Hard to Evict
      • “Take One, Take All” - Becomes “Section 8 Housing!”

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

rental supply side
Rental Supply Side
  • Vouchers
    • To Tenant
    • Tenants May Add Money
    • Still “Take One, Take All”
    • Restrictive Contracts and Tenants Rights
    • But Clearly More Efficient in Production and Consumption

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

direct subsidies owner occupied
Direct Subsidies – Owner Occupied
  • Section 235 – 1968-1973
    • Complex, but Basically Below Market Interest Loans to Developers and Occupants
    • Developers Amounts Tied to Costs
    • No Equity Required for Occupants
    • Incentives to: Over Price; Default (rates of 40%)
    • UGLY PROGRAM

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

indirect tax subsidies
Indirect – Tax Subsidies
  • Rental Income Property – To Developer
    • Keys:
      • Depreciation
      • Passive Loss Limits
  • Owner Occupied – To Homeowner
    • Keys:
      • Mortgage Interest
      • Taxes Paid
      • Home Equity

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

housing finance highlights
Housing Finance: Highlights
  • System from 1930s to 1981
    • It’s a Wonderful Life
    • Role of “Thrifts”
    • Collapse
    • 1981 Legislation
    • Mortgage Rates - Fig. 3.6
  • Current System (Fig 3.5)
    • Agencies (Fannie Mae; Freddie Mac)
    • Banks

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

slide13

Figure 3.5

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

slide14

Figure 3.6

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

regulations
Regulations
  • Rent Controlled: Heavily Studied For What?
  • Land Use: Not Studied, More Important
    • Exclusionary
    • Inclusionary
    • Residential/Commercial
    • Historical

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

efficiencies or inefficiencies
Efficiencies (Or Inefficiencies)
  • Production
  • Consumer
  • Administrative
  • Economics of Consumer Efficiency (Fig 3.7)
    • Demand Curve (As “Bits” of Housing Added)
    • Idea of Consumer Surplus
    • Effect of Subsidy
    • Trading Off Subsidy for Lost Consumer Surplus

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

consumer s surplus i price control with too little housing
Consumer’s Surplus I: Price Control with “Too Little” Housing

Price

per

Unit

of

Housing

Services

a

b

c

Pm

Pc

Demand

Qc

Qm

Q*

Quantity of Housing Services

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy

consumer s surplus ii price control with too much housing
Consumer’s Surplus II: Price Control with “Too Much” Housing

Price

per

Unit

of

Housing

Services

Demand

a

b

c

d

Pm

e

f

g

h

Pc

i

j

k

l

m

Qm

Q*

Qc

Quantity of Housing Services

R. Green and S. Malpezzi

A Primer on U.S. Housing Markets and Policy