PPA786: Urban Policy

1. PPA786: Urban Policy Class 15: Concentrated Poverty

2. PPA786, Class 15: Concentrated Poverty • Class Outline • To what extent is poverty concentrated? • Does living in a high-poverty neighborhood persist across generations? • Concentrated poverty as a housing market phenomenon. • Gautreaux and Moving to Opportunity.

3. PPA786, Class 15: Concentrated Poverty • Definition of Concentrated Poverty • Concentrated poverty is defined as the clustering of the residential locations of people with incomes below the relevant poverty threshold. • A census tract with 20% poor residents involves a relatively high concentration of poverty; 40% poor is a very high concentration. • Virtually the only locations with higher concentrations are public housing projects, which sometimes approach 100% poor.

4. PPA786, Class 15: Concentrated Poverty • Extent of Concentrated Poverty

5. PPA786, Class 15: Concentrated Poverty

6. PPA786, Class 15: Concentrated Poverty Percent Poor: > 40.0% (IV) 20.0-39.9% (III) 13.8-19.9% (II) < 13.8% (I)

7. PPA786, Class 15: Concentrated Poverty

8. PPA786, Class 15: Concentrated Poverty Source: Joint Center for Political and Economic Studies, 2011

9. PPA786, Class 15: Concentrated Poverty • Inter-generational Persistence of Concentrated Poverty • A recent study by P. Sharkey (Am. J. of Sociology, 2008) explores changes in neighborhood income across generations. • Concentrated poverty is approximated by a location in the bottom quartile of the neighborhood income distribution (or, in one table, by location in the bottom decile).

10. PPA786, Class 15: Concentrated Poverty • Inter-generational Persistence, 2

11. PPA786, Class 15: Concentrated Poverty • Inter-generational Persistence, 3

12. PPA786, Class 15: Concentrated Poverty • Inter-generational Persistence, 4

13. PPA786, Class 15: Concentrated Poverty • Concentrated Poverty and Housing • Concentrated poverty is a housing market phenomenon. • The statement that some neighborhoods have a high concentration of poor people is a statement about SORTING. • This point is widely missed • But housing markets influence poverty through several channels.

14. PPA786, Class 15: Concentrated Poverty • Channel 1: High Rent Burdens • Remember: In 2009, 7.1 million very low income renter households had worst case housing needs, usually because they pay more than 50% of their income in rent. • For every 100 households with incomes below 30% of the area median (a rough approximation of poverty), fewer than 30 rental units are available, affordable, and adequate. • High rent burdens limit a poor household’s ability to address its other problems—and hence to work its way out of poverty.

15. PPA786, Class 15: Concentrated Poverty • What Is Behind These Numbers? • The income elasticity of demand for housing is less than one. So low-income people spend a higher percentage of their income on housing than do high-income people.  • The only way for low-income people to win the competition for housing is to bid a high price per (quality-adjusted) square foot. Because the price elasticity of demand for housing is less than one, this higher price implies a higher total spending. • The second factor may be offset to some degree by the concentration of low-income people in poorer neighborhoods, where the price per quality-adjusted square foot is lower—a point to which we will return.

16. PPA786, Class 15: Concentrated Poverty • Geographic Variation in Housing Prices • These figures understate the link between housing costs and poverty because they do not reflect the relatively high cost of housing in central cities, where most poor people live. • As discussed in the last class, this situation persists both for analytical reasons (it is hard to get agreement on the best way to measure geographic variation in prices) and for political reasons (any geographic adjustment would greatly increase poverty in cities and reduce it in rural areas and, to a lesser degree, in suburbs).

17. PPA786, Class 15: Concentrated Poverty • Channel 2: Poor-Quality Housing and Health Risks • To win the competition for housing in central areas, low-income people must bid up the price per (quality-adjusted) square foot. They can afford to do this only by accepting small, or low-quality housing units. • Poor housing quality is directly linked to two major health problems: lead-paint poisoning and asthma.

18. PPA786, Class 15: Concentrated Poverty • Lead-Paint Poisoning • Lead paint is a major health hazard. • When it flakes or turns to dust, it can be consumed by children (and even has a sweet taste). • Ingestion of lead can permanently lower intelligence and cause serious behavioral problems. • Paint containing lead was outlawed in 1978. • But pre-1978 paint still sits on the walls of many city apartments (and is in old solder used for plumbing). • This paint is expensive to remove. • About 12% of kids in poor families have elevated lead, compared to 2% of kids in high-income families.

19. PPA786, Class 15: Concentrated Poverty • Asthma • Asthma is the most common chronic disease, and the most common reason for hospitalization, among American children. • As some of you may know, however, asthma is treatable and is only serious (and only leads to hospitalization) when left untreated. • In poor neighborhoods in NYC, 228 kids per 10,000 are hospitalized annually for asthma, compared to zero kids in rich neighborhoods. • Asthma can kill. Between 1995 and 1997, 44 children died of asthma in NYC.

20. PPA786, Class 15: Concentrated Poverty • Channel 3: Lack of Access to Housing Wealth • Poor people cannot afford to buy houses. • In part this is because they do not have enough income to cover standard mortgage payments • Even more importantly, it is because they do not have enough savings to come up with the required downpayment. • These constraints are, to some degree, related to sorting. • In order to win the competition for housing, low-income people must conserve on housing size, and hence must stick to apartments.

21. PPA786, Class 15: Concentrated Poverty • Low-Income Homeownership and the Default Crisis • As discussed earlier, zero-downpayment loans and no-document loans opened the door to homeownership for many low-income households. • The recent surge in defaults shows that many of these loans were not viable, both because some households made poor decisions and (more importantly!) because many mortgage brokers, who are protected from risk, pushed then. • Hence, many low-income people who recently became homeowners will lose their homes and what little savings they had.

22. PPA786, Class 15: Concentrated Poverty • Why Does this Matter? • First, homeownership is a type of insurance. • People who own a home can borrow against it or sell it to carry them through tough times, such as a bout of unemployment, • Second, homeownership is a type of investment. • For most people, house value is the main source of wealth and it is 1/3 of non-pension wealth for all households put together. House values do not always grow, of course, but they tend to grow and housing equity also increases over time as a mortgage is paid off. • Third, homeownership is a type of training. • There is some evidence that homeowners learn management skills and even pass them on to their children. One study (Green and White, 1997) finds that all else equal (such as income) the children of homeowners are much less likely (19 percentage points) to drop out of school than are the children of renters, all else equal.

23. PPA786, Class 15: Concentrated Poverty • Channel 4: Neighborhood Effects • Living in a neighborhood where poverty is concentrated seems to harm a person’s life chances, even controlling for family income. • People growing up in poorer neighborhoods have fewer good role models, fewer good contacts for potential employment, more negative adaptations, and more victimization. • We will consider some evidence on this point later in this class.

24. PPA786, Class 15: Concentrated Poverty • Neighborhood Effects and Sorting • To win the competition for housing, poor people must accept either small, low-quality housing units (which allows them to bid more per quality-adjusted square foot) OR they must decide to live in crummy neighborhoods, where they have high bidding power relative to high-income households (OR BOTH!). • This sorting into crummy neighborhoods is what opens the door for neighborhood effects.

25. PPA786, Class 15: Concentrated Poverty • Neighborhood Effects and Public Services • The cost of public services depends on the environment: education and police services, for example, cost more to deliver to a poor population than to a rich one. • Higher cost leads to lower quality. When costs are high, a given budget does not go as far—and people substitute away from public services. • Poor education and police protection obviously have a negative impact on a person’s life chances.  

26. PPA786, Class 15: Concentrated Poverty • Channel 5: Spatial Mismatch • A final channel, which was discussed in a previous class, is called spatial mismatch. • Some versions of this channel involve racial or ethnic discrimination; others just focus on distance between the residential locations of poor households and the location of jobs. • Some evidence later.

27. PPA786, Class 15: Concentrated Poverty • A General Version of Spatial Mismatch • Cities begin with jobs concentrated in a CBD district. • Sorting then places low-income people in central neighborhoods. • These neighborhoods have poor amenities, which reinforces the original sorting. • Then jobs suburbanize (everywhere!). • Without amenity-based sorting, low-income people would sort into housing near the new suburban jobs. • But amenity-based sorting, combined with zoning, makes adjustment difficult, even in the long run. • So low-income people do not have good access to the new suburban jobs.

28. PPA786, Class 15: Concentrated Poverty • The Gautreaux Program • In 1966, applicants and tenants in Chicago public housing brought a suit against HUD and the Chicago Housing Authority for concentrating projects in largely black neighborhoods. • The suit took the name of a plaintiff: Dorothy Gautreaux. • The plaintiffs eventually won, and CHA was ordered to provide a mobility option (with federal vouchers) to public housing tenants.

29. PPA786, Class 15 Concentrated Poverty • Evaluation of the Gautreaux Program • Participants were picked on a first-come-first-served basis after calling in. • They were linked to the next available apartment, some of which were in Chicago, some in suburbs. • A comparison of recipients in city and suburban locations found significantly more favorable educational outcomes for the children in the suburban families.

30. PPA786, Class 15: Concentrated Poverty • Moving to Opportunity • These results led to a HUD-sponsored pilot program, called Moving to Opportunity, with a random-assignment design. • Treatment consists of a voucher, counseling, and a requirement to move into a low-poverty area. • MTO was implemented in 1994 in 5 areas: Baltimore, Boston, Chicago, LA, and NYC. • Following protests in Baltimore, it was never expanded to other areas, but continued in these 5.

31. PPA786, Class 15: Concentrated Poverty • Moving to Opportunity, Study Design • HUD recruited 4,600 very low-income families living in distressed public housing in 5 cities in 1994 to 1998. • Most participating families were from minority populations and headed by single mothers; approximately 75 percent received welfare. • Participants were randomly assigned to one of 3 groups: • The MTO treatment group. • A Section 8 voucher group receiving vouchers with no restrictions placed on relocation neighborhoods. • A control group living in public or project-based housing that did not receive mobility vouchers.

32. PPA786, Class 15: Concentrated Poverty • Moving to Opportunity, Outcome Measures • The study researchers calculated 2 effects: • The intention-to-treat (ITT) effect, which contrasts the average outcomes of the control group with the average outcomes of the entire sample population of families that were offered vouchers, including those that did not move. • The treatment-on-the-treated (TOT) effect, which measures the impact on those families that relocated, the “movers,” within each treatment group.

33. PPA786, Class 15: Concentrated Poverty MTO Findings (HUD)

34. PPA786, Class 15: Concentrated Poverty • MTO Findings, Continued • MTO also examined many other outcomes and found no significant gains for participating families. These outcomes covered: • Mental and physical health • Economic self-sufficiency • Risky and criminal behavior • Educational outcomes for children

35. PPA786, Class 15: Concentrated Poverty • MTO Findings, Continued • Overall, therefore, • Neighborhood and housing conditions improved for participants. • But that’s it—no sign of spillovers to job outcomes or children’s education, for example.

36. PPA786, Class 15: Concentrated Poverty • MTO and Policy • MTO results do not have a clear link to policy. • As pointed out by Galster, neighborhood effects do not justify mobility policy unless these effects are nonlinear (i.e. growing as poverty rate declines). • Otherwise, gains to movers will be offset by losses to those who stay behind. • MTO results indicate that mobility policies can alter housing market outcomes and have positive impacts. • But these impacts appear to be limited, • And overall gains to society are not yet clear.