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.