Poor households chose ig or hv non poor households

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Poor-households chose IG or HV → non-poor households care about slum externality, choose PH or PRS Non-poor households hold power to dictate the choice : PH or PRS Actual Housing-Subsidy programs 50’s & 60’s, PH most popular, now in disfavor, many are being demolished Breeding grounds for crime and other social problems Became a worse environment than the status quo
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Under PRS, gov pays for fraction of building’s development cost, effect is identical to model’s PRS program Low-Income Housing Tax Credit (LIHTC) program has been source of subsidies Referred to as a housing voucher program, but works differently Section 8: gov pays portion of low-income household’s rent, going directly to landlord Household receives adequate housing in return for 30% of its (low) income Prevents freedom of choice to spend on bread Main current housing-subsidy programs (PH, LIHTC and section 8) put highest priority on slum reduction Less priority on raising utility levels of low-income households Effects of housing subsidies on neighborhoods Moving To Opportunity (MTO) program relocates PH residents to subsidized dwellings in non-poor neighborhoods Effect of living in better neighborhood is not as pronounced as expected Random selection of residents Homelessness and policies to correct it Homeless person chooses zero housing consumption q=0 See figure 7.6 Maximizes utility subject to budget constraint Highest indifference curve must touch budget line at its bottom endpoint Indifference curve is STEEP and INTERSECTS HORIZONTAL AXIS Reluctance to give up ‘bread’ (addiction?) If indifference curve isn’t vertical, reducing housing price could entice homeless person to raise q above zero See figure 7.7 Clockwise rotation of budget line (result from PRS program) now q>0 Building code regulations req. Certain minimum standards for housing- decent quality housing for all SRO (single-room-occupancy) housing be provided at low rents to encourage homeless to leave streets See figure 7.8 Regulations req. housing consumption to exceed min. level q min , lower dashed part below this point is inaccessible Some low-income individuals might want to choose smallest dwelling q*, but must choose q min or be homeless Consumption point S (small amount of housing at zero cost) directly above horizontal intercept of budget line See figure 7.8 S is preferred to homelessness, better than minimum-size dwelling Charitable shelters are one remedy for homelessness, reliance on private donations constrain capacity Summary Rent-control laws limit rent that landlord can charge, but have negative effects Leads to undermaintenance of existing dwellings + reduces incentives to construct new ones Distorts allocation of households to dwellings Housing-subsidy programs make housing more affordable, effects differ Public Housing and Proportional Rent Subsidies lead to increase in housing consumption by low-income h.h Effectiveness in slum reductions favored by taxpayers of these programs Homelessness addressed by subsidies & shelters, but eliminating housing regulations that limit availability of small units can also help
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