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The objectives of federal housing policy are twofold: to provide a safety net for the poor and to promote positive externalities for communities. Current government programs fail to achieve either of these goals. The most comprehensive way to reach these policy objectives is to design a federal rental insurance program.
Unlike residents of early public housing, today’s poor suffer not from structural deficiencies but from disadvantages of location. The importance of the location of housing is that it provides (or hinders) access to three major facets of life: health, jobs and education. Also, the natural lags of the public support process delay help when households need it most. This creates extra strain on landlords, thereby inducing higher rent and more onerous screening of applicants. A federal rental insurance program will ameliorate these pressures.
With the final $100 million in its budget, the federal government should empower HUD to design a rental insurance program to work in the following general way: tenants would choose to participate in the program and pay a small premium. The support would kick in to cover rent for a period determined on the basis of circumstance and need.
The program would begin in several selected metropolitan areas throughout the country, where HUD could establish local offices to work in their communities. The program would employ project and analysis staff to note desired change as warranted. In addition, a national campaign would be launched to create public awareness.
The determination of federal subsidies should be dependent on how advantageous a location is. This takes into consideration the total costs borne by the tenant and third party or government provider. For example, we must consider the health effects of living in polluted areas; full costs of commuting and transportation access to work; and educational opportunities. A rental insurance program would reward more advantageous locations by offering greater subsidies; inversely, the decrease or withdrawal of subsidies would function as a deterrent for poor housing location.
With a HUD policy that effectively corrected or avoided the rate of occurrence of negative externalities to tenants, landlords would stop internalizing the costs of poor housing location. Rental insurance would shift the risk (and cost) of detrimental location away from HUD-assisted tenants. This would benefit all sides of the equation, counteracting the current, inherent imbalances in the federal housing subsidy program. Also, the opt-in design of the program would allay negative externalities like work and sharing disincentives for participants.
Federal rental insurance would mitigate the unfairness of denying other housing assistance to some households. It would avoid the game of hot potato played between landlords, which adds significant inefficiencies and costs to the process of finding subsidized housing. These costs, currently borne by the tenant, would be reduced. Important externalities, specifically the health, jobs and education outcomes of tenants, would also receive vital boosts.
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