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PA 874: Session 13 – Housing Policy #2

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

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  1. PA 874: Session 13 – Housing Policy #2 Policy and Regulation R. Green and S. Malpezzi A Primer on U.S. Housing Markets and Policy

  2. 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

  3. 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

  4. Figure 3.2 R. Green and S. Malpezzi A Primer on U.S. Housing Markets and Policy

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. Figure 3.5 R. Green and S. Malpezzi A Primer on U.S. Housing Markets and Policy

  14. Figure 3.6 R. Green and S. Malpezzi A Primer on U.S. Housing Markets and Policy

  15. 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

  16. 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

  17. 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

  18. 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

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