Geographic Price Variation, Housing Assistance, and Poverty Nov 05, 2012 By Edgar O. OlsenDirk W. EarlyPhilip N. Jefferson (ed) Geographic Price Variation, Housing Assistance, and Poverty Two important shortcomings of the official measure of poverty are its failure to account for noncash benefits (including the benefits of low-income housing programs) when calculating resources and differences in the cost-of-living across geographic areas when setting poverty thresholds. Alternative estimates of poverty rates that account for the variation in the cost-of-living across areas when setting thresholds and the value of rental housing subsidies when measuring household resources have been produced. One purpose of this chapter is to better account for these factors in poverty measurement using a much improved consumer price index for each metropolitan area and the nonmetropolitan part of each state and better estimates of the value of existing rental housing subsidies based on data from the American Housing Survey. A second purpose is to estimate the effect on poverty rates of households of various types of replacing the current system of low-income housing assistance with an equally costly entitlement housing voucher program that would offer assistance to all of the poorest families in the United States. The current system fails to offer assistance to many of the poorest households while serving many households with much higher incomes. Not surprisingly, accounting for geographic price differences leads to large increases in poverty rates in the metropolitan areas and non-metro parts of states with the highest prices and large decreases in areas with the lowest. It also eliminates the difference in poverty rates between metro and non-metro areas and between the South and other regions and increases the poverty rate of Hispanics and Asians by almost two percentage points. Accounting for housing assistance reduces the overall poverty rate by six tenth of a percentage point and the poverty rates of blacks, females, the elderly and people living in the Northeast by two to three times as much. It decreases the poverty rate of those fortunate enough to receive housing assistance by eighteen percentage points. Finally, replacing current rental housing programs with an entitlement housing voucher program costing somewhat less than the current system would lower the overall poverty rate by four tenths of a percentage point and poverty rates of all groups except for residents of non-metro areas whose poverty rate would be unaffected. This reform would increase the total number of people served by almost 60 percent. Oxford Handbook of the Economics of Poverty Oxford Handbook of the Economics of Poverty 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 Dirk W. Early Philip N. Jefferson (ed) Related Content Edgar O. Olsen Does HUD Overpay for Voucher Units, and Will SAFMRs Reduce the Overpayment? Research One argument for Small Area Fair Market Rents (SAFMRs) is that they would reduce overpayment for voucher units in low-rent neighborhoods. 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. 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.