Misunderstanding poverty leads to bad housing policy

The conclusions drawn from a recent study of the Housing Voucher Choice program in Orleans Parish demonstrate that if you don’t understand why the world works as it does, not only can you not craft good policy, but also liberty becomes threatened.

The New Orleans Data Center published a report about the federal benefit more commonly known as “Section 8” housing. The program calculates a standard payment value representing what a local housing authority would define as a “moderately” priced home and offers eligible clients a chit worth that rate minus 30 percent of the family’s monthly adjusted income or gross rent minus monthly adjusted income. Landlords whose dwellings meet health and safety standards may rent to voucher holders, who can supplement the payment standards with any amount of their own money up to 40 percent of monthly adjusted income. As a result, landlords get a guaranteed income stream (for a minimum of a year at first) with a security deposit, and low-income renters get a break on housing with the money they save potentially going to better their positions in life. In New Orleans, the Housing Authority of New Orleans, for example, set the fiscal year 2015 standard payment for a two-bedroom home at $1,028.

The study in question looked at whether the vast expansion in Orleans Parish of voucher supply and usage after the hurricane disasters of 2005, when the public housing stock shrank over 90 percent, had the effect of diluting concentrations of poverty and, as race is associated with poverty, of racial segregation in housing patterns. It concluded that both had happened, but so moderately that program implementation had only had a marginal impact.

Major reasons this happened, according to the study, came from Housing and Urban Development policies that made for too rigid rent determinations and increased paperwork that might discourage clients, inadequate counseling and evaluation of program participants and outcomes, lack of offering of federal-backed tax credits by state and local governments for building low income housing that would require landlord voucher participation, and lack of laws that would force landlords to rent to program clients. They also hypothesized in the case of minority applicants that some level of racial discrimination also contributed.

But a suggestion by the researchers designed to counter another form of discrimination is hazradous. While most of these recommendations to change policies unobjectionably make sense, the passage of “source-of-income” laws, which would prohibit landlords rejecting renters solely on the basis of their plans to pay using a voucher, would place overbearing government regulation onto property owners. The federal Fair Housing Act does not prohibit this behavior, so only state or local laws can impose this requirement on all landlords. New Orleans has no such law, nor do other cities in Louisiana, and there is no similar state law.

Such a law is a noxious imposition on landlords because it misunderstands the nature of poverty. Refusing to rent solely because someone holds a voucher, who by definition is poor and often a racial minority, can be seen as prejudicial only if poverty is mistakenly believed to be solely a function of lack of assets; i.e., people are poor because they don’t have enough money, and so poverty becomes solved by redistributing money to them such as with a housing voucher. Thus, refusal rent to someone like anybody else must occur, this argument goes, because of prejudice.

In reality, poverty is not defined by a lack of money, but by a lack of character and attitudes that facilitates one in acquiring money. People who prefer saving to consumption and when they spend to do so in ways that promote future earnings ability rather than instant gratification very disproportionately eventually earn higher incomes. They are much less likely to engage in behavior that retards their future earnings ability, such as spending on things rather than saving for a home or spending on increased education, and to bring additional costs upon themselves, such as by having children out of wedlock or bad work habits that prevent them from keeping jobs.

Of course, the generalization is just that. Data show that some high earners within a few years fall into the lowest quintile in income, in some cases because they once earned well despite bad habits that caught up to them, while some in poverty who are thrifty and try their best to better their situations can’t escape it on their own because of bad fortune and/or, given that free markets reward people in proportion to their contributions to society, their abilities are so minimal. But the inconvenient truth is that poverty for most largely is a product of poor past decisions made by people, regardless of whether they understood better, and they are unlikely to escape it unless they acquire the wisdom and character (which may be encouraged by government programs) to make better ones in the future.

Thus, landlords must have the ability to choose renters on the basis of the perception of how likely the renter will be to keep up with payments and how well they will treat the property. Just because you have a voucher in hand, which connotes you come from poverty and that many in poverty are there because of their value systems, does not automatically mean you have the habits of a good renter. By imposition of source of income laws, landlords lose their chance to choose voucher holders that, after due diligence, seem to be good risks, or this forces those who don’t participate at all in the program involuntarily to take on poor tenant risks. The end result would be to escalate rents even higher to make up for the increased risk, which not only would increase costs to taxpayers, but also housing costs generally for the citizenry.

While some illegal discrimination by race or other characteristics may explain why vouchers have had minimal impact on neighborhood segregation by economic class, what the researchers fail to comprehend is that landlords with properties in better-off neighborhoods are reluctant to rent to voucher holders because these landlords realize the value sets many of these potential renters would bring carry too much risk to fulfilling the earning potential of these more-expensive assets. It’s only natural that they shy away from this, and not a definitive indicator of some kind of illegitimate bias.

Already, the Pres. Barack Obama Administration has favored ideology over this reality with recent rules changes that place a greater presumption that segregated housing patterns occur because of illegal discrimination, even when causal mechanisms to show that are absent, courtesy of a recent Supreme Court ruling. The error only would be compounded if Louisiana and/or its local government turned to source of income laws as a response that unwisely would restrict liberty and increase costs to all.