Faculty & Research Does HUD Overpay for Voucher Units, and Will SAFMRs Reduce the Overpayment? Nov 01, 2019 By Edgar O. Olsen Does HUD Overpay for Voucher Units, and Will SAFMRs Reduce the Overpayment? One argument for Small Area Fair Market Rents (SAFMRs) is that they would reduce overpayment for voucher units in low-rent neighborhoods. This leads to the belief that the benefits of SAFMRs can be funded largely by reductions in landlord profits rather than by losses to voucher recipients who remain in low-rent areas. The usual theoretical argument that has led many to believe that voucher units are overpriced focuses on one implication of one feature of the Housing Choice Voucher program. This article provides a more comprehensive theoretical analysis that leads to the conclusion that the worst voucher units and those in the worst neighborhoods will usually rent for more than the mean market rent of identical units, and the best units in the best neighborhoods will rent for less than this amount. The debate over this matter has ignored the bulk of the available evidence. This article summarizes and assesses the data, methods, and results of the major studies. The evidence is consistent with the general pattern predicted by the comprehensive theoretical analysis but also with an alternative explanation that challenges its interpretation of overpayments and underpayments for voucher units. The mix of units with estimated overpayments and underpayments varies across studies, but the weight of the evidence is that the aggregate differences are modest. Finally, the evidence available indicates that SAFMRs will decrease the rents paid for voucher units with any specified set of characteristics in the worst neighborhoods and will increase the rents of such units in the best neighborhoods. Link to Paper Areas of focus Economics Edgar O. Olsen Ed Olsen is a professor emeritus of economics at the University of Virginia, where he has served as chairman of the economics department and was heavily involved in the creation and development of the Frank Batten School of Leadership and Public Policy. Olsen's teaching and research has focused on public policy issues, especially concerning the welfare system. Within this broad area, his research specialty is low-income housing policy. Read full bio Related Content Edgar O. Olsen Racial Rent Differences in U.S. Housing Markets Research This paper exploits an unusually rich data set to estimate racial differences in the rents paid for identical housing in the same neighborhood in U.S. housing markets and how they vary with neighborhood racial composition. It overcomes the shortcomings of the data used in previous studies. Results suggest that households led by blacks pay more for identical housing in identical neighborhoods than their white counterparts and that this rent gap increases with the fraction of the neighborhood white. Alleviating Poverty through Housing Policy Reform Research The purpose of this paper is to describe proposals for reform of low-income housing assistance that will alleviate poverty without increasing public spending. Low-income housing assistance is fertile ground for such reforms.
Edgar O. Olsen Ed Olsen is a professor emeritus of economics at the University of Virginia, where he has served as chairman of the economics department and was heavily involved in the creation and development of the Frank Batten School of Leadership and Public Policy. Olsen's teaching and research has focused on public policy issues, especially concerning the welfare system. Within this broad area, his research specialty is low-income housing policy. Read full bio
Racial Rent Differences in U.S. Housing Markets Research This paper exploits an unusually rich data set to estimate racial differences in the rents paid for identical housing in the same neighborhood in U.S. housing markets and how they vary with neighborhood racial composition. It overcomes the shortcomings of the data used in previous studies. Results suggest that households led by blacks pay more for identical housing in identical neighborhoods than their white counterparts and that this rent gap increases with the fraction of the neighborhood white.
Alleviating Poverty through Housing Policy Reform Research The purpose of this paper is to describe proposals for reform of low-income housing assistance that will alleviate poverty without increasing public spending. Low-income housing assistance is fertile ground for such reforms.