Evaluation of the Federal Housing Choice Voucher Program under a Welfare Economics Framework

This paper evaluates the Housing Choice Voucher Program of the U.S. Department of Housing and Urban Development (HUD) and provides a report card on its performance. The program is evaluated, within a welfare economics framework, based on its success in meeting the objectives of promoting efficiency, supporting living standards, promoting equity, promoting social cohesiveness, achieving administrative competence, and being an instrument for macroeconomic stabilization. This framework is based largely on the one developed by Nicholas Barr in 1987 (Barr, 1987). The outcomes of the Housing Choice Voucher Program with respect to the following six attributes are evaluated: (i) Efficiency, or the minimization or elimination of distortions in housing, labor and other related markets; (ii) Support for living standards; (iii) Equity, incorporating both horizontal equity (an equal treatment of equals) and vertical equity (redistribution towards families with lower incomes); (iv) Social integration (v) Administrative competence; and (vi) Macroeconomic stabilization. The sources of information for this paper are from the existing literature, and include data and reports published by HUD, and other U.S. national data sets. A summary report on each of the attributes is provided at the end of the discussion of the performance of the program with respect to each attribute. A salient feature of the program is its persistent low coverage. This feature strongly influences the performance of the program on the first four attributes listed above. Any efficiency losses appear to have been minimal; the program has supported the living standards of the small fraction of the eligible population that it has served. But, even for these few households, the program has not provided better neighborhood conditions than the conditions available for unassisted eligible households. The program has been quite inequitable in providing benefits, seriously violating the principles of both horizontal and vertical equity. The ambiguity and lack of transparency with respect to the criteria for voucher-allocation has caused the program to perform poorly on the attribute of administrative competence. The federal government does not seem to have utilized the voucher program as a tool for macroeconomic stabilization, despite its great potential to prime the pump of consumer spending during a recession. The paper concludes with a modest proposal for reform.