Berkeley Program on Housing and Urban Policy

Standard economic theory on subsidies and labor supply raises an unappetizing prospect - that housing assistance may have a negative impact on self-sufficiency. Because of the rent structure in the public housing and Housing Choice Voucher programs, participants may treat program benefits as a substitute form of income and this may dampen their ambitions to increase their own earnings.

According to a comprehensive literature review by Mark Shroder (2002), the evidence for these disincentive effects has been quite mixed. Moreover, the rigor and precision of various research efforts have been somewhat lacking. This study updates Shroder’s work by summarizing and critiquing a variety of recent additions to the literature on housing assistance and its effect upon residents’ progress toward self-sufficiency. These additions include five careful studies which have found that traditional assistance reduces employment and slows income growth. However, countervailing research continues to appear, suggesting that housing assistance, coupled with self- sufficiency programs, can have a positive effect on financial independence.

So while it may be said that the totality of the evidence in this area remains mixed, those believing that public housing and vouchers have neutral or even positive effects on work and earnings now face a more onerous burden of proof. Existing research on the work disincentives of housing assistance hypothesized in standard labor-supply theory cannot easily be ignored.

Much more encouraging are programs like Family Self Sufficiency and Jobs-Plus, which supplement housing assistance with a range of supportive services that promote self-sufficiency among recipients. If the disincentive hypothesis is in fact true, it now appears that well-designed enhancements to traditional housing assistance can counteract inherent negative employment and income effects.