Issue #151, Fall 2007
Housing the Working Poor
What big ideas should housing activists put forward to the next president and Congress?
that a Democrat wins the White House and
For more than two decades - under Presidents Reagan,
Bush, Clinton, and now Bush - housing activists have had to settle for
crumbs. For the most part, they fought defensive battles to protect
existing federal programs within the Department of Housing and Urban
Development (HUD), such as public housing, Section 8 vouchers, HOME,
and various funding schemes for the homeless.
Housing activists hope that the next president
and Congress will increase the HUD budget - for example, by creating
a national housing trust fund. But even the most ambitious proposal
so far - presidential candidate John Edwards' call for adding a million
new housing vouchers - is still a relatively small, incremental increase
compared to the need. In contrast, all the Democratic presidential hopefuls
are advocating a significant expansion of the Earned Income Tax Credit
(EITC), the wage supplement for the working poor that has become, without
much fanfare, the nation's most effective anti-poverty program.
Last year, more than 22 million working American
families received more than $41 billion in EITC benefits. In contrast,
only 5.5 million low-income households receive any federal housing assistance
(mostly from HUD but a small number from the Department of Agriculture's
Rural Housing Service). The EITC is an entitlement. HUD programs - including
Section 8 vouchers - are a lottery, available only to a lucky few.
What lessons should housing activists learn from
these realities? Perhaps we should find a way to combine the best aspects
of HUD's largest program (Section 8 vouchers) with the popularity and
efficiency of the EITC.
This isn't a new idea, but it hasn't received much
attention since it was first proposed in 2001 by the late Cushing Dolbeare,
founder of the National Low Income Housing Coalition, and expanded upon
three years later by Michael Stegman, a University of North Carolina
professor who served as assistant secretary for policy development and
research at HUD during the Clinton administration, and two of his UNC
colleagues, Walter Davis and Robert Quercia. Their idea to use the EITC
as a way to expand federal housing subsidies for the working poor deserves
a second look.
This is the right moment to advance an aggressive
strategy to help house the working poor. The nation's political climate
is changing as greater numbers of Americans recognize the negative consequences
of deepening economic disparities and persistent poverty. Public opinion
polls show that an increasing number of Americans support policies to
lift people out of poverty and improve living conditions for the poor.
Ironically, one reason for this shift is the change in the way poor
people are viewed in the wake of welfare reform, initially adopted with
considerable controversy in 1996. Increasingly, "poverty"
in America has become identified with low-wage workers, whom Americans
seem to believe are more "deserving" than those on welfare.
Another reason is the widening class divide, especially between the
rich and everyone else - a problem that Edwards has called the "two
In 1999, George W. Bush, then the governor of Texas,
criticized GOP proposals to cut the EITC, saying that he didn't think
"we ought to balance the budget on the backs of the poor."
As president, however, Bush bowed to pressure from right-wing Republicans
to get the IRS to increase its auditing of low-income Americans who
filed for EITC benefits while simultaneously reducing its monitoring
of wealthy taxpayers.
On its own, by providing families additional income,
the EITC already helps ease the housing cost burdens of the working
poor. But even with the additional money from EITC, most working-poor
families still spend more than 30 percent of their incomes - and some
spend over half their incomes - for housing.
Why is this? One of the EITC's shortcomings is
that the benefit levels are the same across the country, even though
the cost of living - especially housing - varies dramatically in different
metropolitan areas. For example, according to HUD, the fair-market rent
for two-bedroom apartments in greater Los Angeles is $1,189, compared
with $950 in greater Baltimore, and $613 in the Jackson, Miss., area.
To address these disparities, Dolbeare, and then Stegman and his colleagues,
proposed adjusting EITC benefit levels to help working families pay
for housing. If adopted, this change would go a long way to improving
the housing conditions of the nation's low-income working families.
The EITC helps workers in low-paying jobs (earning
up to $38,348) to support themselves and their families. It reduces
tax burdens and supplements wages for low-income working families, especially
those with children. Under the EITC formula for 2006, for example, a
single parent with two or more kids who earns $20,000 would receive
$3,859. A married worker with two or more kids earning $35,000 would
The EITC is a refundable tax credit. Workers who
qualify for the EITC can get back some or all of the federal income
tax that was taken out of their pay during the year. They may also get
extra cash back from the IRS. Even workers whose earnings are too small
to owe income tax can get the EITC. The EITC was fashioned in part to
offset the regressive payroll tax burdens that low-income workers face,
as well as income taxes that they may owe.
One of the EITC's principal goals is to reward
low-wage workers by reducing the taxes that they pay on their earnings
and by supplementing their wages; another is to bring those with full-time
jobs at least up to the poverty line. The EITC does not count benefits
like cash assistance ("welfare"), Medicaid, food stamps, Social
Security Income, or subsidized housing as income when determining eligibility.
In 1986, Congress indexed the EITC for inflation, which it has refused
to do for the minimum wage.
Who gets the EITC? In 2003, 70 percent of recipients
earned less than $20,000. Recipients are concentrated in metropolitan
areas, with slightly more living in inner-ring suburbs than in cities.
The additional income to these low-wage families helps improve local
economic conditions, since the poor spend almost all of their money
for necessities. According to a Brookings Institution report, for example,
in 2000, the EITC generated more than $125 million in additional income
to low-wage families in the Baltimore area, while in metro Chicago it
brought in more than $462 million.
The EITC offers little to families without children.
In a recent report outlining a comprehensive anti-poverty agenda, the
Center for American Progress
recommends tripling benefits for childless workers. It also suggested
expanding benefits for those with three or more children. These changes
alone would reduce the number of Americans in poverty by 2 million.
Housing Conditions of the Working Poor
In 2005, the 22 million households with incomes
below $19,000 represented the poorest one-fifth of the population. Among
them, more than 6 million were headed by an adult who worked at least
27 weeks a year. Of these, 55 percent of households paid more than half
their incomes for housing, while another 25 percent paid between 30
percent and 50 percent of their incomes for housing.
The 22 million households with incomes between
$19,000 and $35,700 represented another one-fifth of the population;
more than 13 million of them earned their incomes by working at least
27 weeks a year. Among them, 15 percent paid more than half their incomes
for housing, while another 36 percent paid between 30 percent and 50
percent of their incomes for housing.
In other words, there are about 12 million "working
poor" families - owners as well as renters - who pay more than
they can reasonably afford for housing. Despite this great need, federal
housing subsidies are not an entitlement, like food stamps, public education,
or the EITC.
In 2005, only 5.5 million of the 23.5 million renter
households with incomes under 80 percent of median - 23.4 percent of
low-income families - received any housing assistance from Washington.
These include the 2 million families with Section 8 vouchers as well
as 1.1 million families living in public housing, another 1.3 million
households living in other federally subsidized housing developments,
and others living in subsidized rural housing.(See graph)
Few of the most desperately poor Americans get
any housing help. Only 3.2 million of the 9.7 million renter households
with incomes below 30 percent of median income received any form of
federal housing assistance. Only 1.2 million of the 6.3 million renter
households with incomes between 30 percent and 50 percent of median
income had any housing aid from the federal government. Among the 7.5
million renter households with incomes between 50 percent and 80 percent
of median income, only 992,000 (13 percent) got housing subsidies.
But renters aren't the only poor families facing
high housing costs. There are 26.9 million households with incomes below
80 percent of median income that own their homes. More than half of
them (52 percent) pay more than 30 percent of their incomes for housing;
27.7 percent of them pay over half their incomes for housing. There
are no federal housing subsidies for these low-income owners. Hardly
any of them are even able to take advantage of the tax breaks that affluent
homeowners take for granted. This is because their incomes are so low
that they pay little or no income taxes in the first place.
How an EITC Housing Component Would Work
A similar formula can be used to determine the
size of the EITC housing supplement in each area. The Section 8 subsidy
varies from area to area; it pays the difference between 30 percent
of a household's income and the market rent, up to the FMR maximum.
Likewise, the EITC housing supplement would vary from area to area depending
on market conditions. In the Los Angeles area, where the two-bedroom
FMR is $1,189, the annual EITC housing supplement might be $3,600 -
or $300 a month. In the Baltimore area, where the two-bedroom FMR is
$950, the annual EITC housing supplement might be $2,880 - or $240 a
month. And in Jackson, Miss., where the two-bedroom FMR is $613, the
annual EITC housing supplement might be $1,836, or $153 a month. Because
the EITC already provides workers with extra income, its housing supplement
does not have to fully fund the gap between 30 percent of household
income and FMRs.
The overall size of the EITC housing supplement
will depend on how generous Congress wants to be. It would be useful
for Congress to identify the potential cost of an EITC housing supplement
at different benefit levels.
One problem with the EITC is that most families
receive the credit as an annual lump sum when they get their income
tax refund. Low-income families obviously need their housing subsidy
on a monthly basis so they can pay the rent or the mortgage. The EITC
already has a mechanism to deal with this - the "advanced payment
option" - which allows workers to receive a portion of their anticipated
credit from their employers as part of their regular paychecks. Currently,
however, less than 1 percent of EITC recipients exercise this option.
For the EITC housing program to be successful, more workers must use
this option. Congress could, for example, require employers to participate
in the advanced payment plan and/or the IRS could work with unions,
churches, and community groups to publicize this option and get more
eligible workers to use it.
EITC Compared with Section 8
One of the most attractive features of the EITC
is that, in contrast to federal housing programs, it is an entitlement
provided to all those who qualify and apply for it. The EITC already
reaches 22 million households, compared with the Section 8 program,
which serves only 1.9 million families. Some working families who claim
the EITC also have a Section 8 voucher or live in other subsidized housing,
but they are a small fraction of all EITC recipients. (Even so, about
10 percent to 15 percent of families eligible for the EITC fail to claim
it, a problem that can be addressed through increased outreach by the
IRS, community groups, unions, and employers).
EITC includes many working families who are above
the official federal "poverty" threshold of roughly $20,000
for a family of four, but still cannot make ends meet.
The EITC is politically popular for a number of
reasons. For one thing, it rewards people who work, so it does not carry
the stigma attached to "welfare," which was viewed by many
politicians, editorial writers, and opinion-leaders as subsidies for
the so-called "undeserving" poor. In recent years, the ranks
of the working poor have swelled, in part because of the rise of low-wage
jobs and in part because welfare reform, adopted in 1996, pushed many
poor Americans, mostly single women with children, into the workforce.
The EITC is also popular because it is relatively
invisible. It is an anti-poverty program that comes in through the back
door, as a tax break, rather than through the front door as a direct
grant, like food stamps, Medicaid, and welfare. It is part of what Christopher
Howard, a political scientist at the College of William & Mary,
calls "the welfare state nobody knows" in his new book of
Politically, it has been extremely difficult for
housing advocates to get Congress to maintain, much less increase, the
budget for HUD's subsidized housing programs, despite the growing number
of Americans living in poverty and rising housing costs.
Government-subsidized housing is still stuck with
the stigma of housing of last resort, despite the fact that the United
States hasn't built high-rise public-housing developments since the
1960s. To the contrary, the low-income housing built in the past few
decades - much of it by private nonprofit CDCs - has been well-designed
and well-managed. Yet, stereotypes persist. Housing advocates need to
do a better job of changing the negative images associated with subsidized
Since the 1970s, Congress has shifted spending
away from construction of new housing toward housing vouchers, which
were seen as cheaper and more flexible. Even so Congress has been reluctant
to significantly expand the Section 8 voucher program. It has funded
only 2 million Section 8 vouchers - what some people call "housing
food stamps" - to help recipients pay the rent.
According to the Center on Budget and Policy Priorities,
for example, President Bush's budget for Fiscal Year 2008 proposes to
cut $2 billion (5 percent, adjusted for inflation) from HUD. These cuts
come on top of cuts made the previous two years. Under the president's
2008 budget, total HUD funding would fall to a level that is $4.6 billion
- or 11 percent - below the 2004 levels.
Adding a housing component to the popular EITC
is likely to be easier to sell than to dramatically increase the Section
8 program. Another advantage of the EITC approach is that recipients
can use the money for rental or ownership housing, compared with the
Section 8 voucher program, which is limited to rental housing.
One likely concern is that, unlike the Section
8 voucher program, which can only be used to help families pay rent,
there is no guarantee that families will use the extra EITC income to
pay for better housing. They could spend the money on food, transportation,
clothing, health care, or even on nonessential items. Given what we
know about how the poor spend their incomes, however, it is almost certain
that most of them will spend the additional income on basic necessities.
And because housing is more expensive than other necessities, it is
likely that most recipients will use most or all of the extra income
to improve their housing conditions. They are likely to use the money
to help pay their rent or to find improved housing (better condition,
larger space, more convenient location) with higher rents.
The EITC could also provide low-wage working families
with greater choices about where to live. It could thus help them move
to opportunity without the stigma of using Section 8 vouchers, which
often consigns them to living in Section 8 ghettoes.
Many landlords refuse to accept tenants with Section
8 vouchers. This is especially the case in tight housing markets with
low vacancy rates, where landlords can be somewhat selective. Some landlords
worry that the local housing authority won't pay them regularly or on
time. Others don't like having their apartments inspected and to meet
housing-code standards to qualify to receive Section 8 funds. And some
landlords simply don't want to rent to poor people. In contrast, working
families with additional income through the EITC have no stigma attached
to their subsidy, since it is invisible to landlords, rental agents,
A second likely concern is that, by design, the
EITC only serves low-income families who have jobs. The Section 8 voucher
program serves the working poor as well as the jobless poor, who, one
might assume, have the most desperate needs. Indeed, federal rules require
local housing agencies (who administer the Section 8 voucher program)
to ensure that 75 percent of households newly admitted to the voucher
program each year have incomes at or below 30 percent of the area median.
Since Congress passed welfare reform in 1996, a
growing proportion of the poor are now working. But research has found
that the carrot of EITC - more than the stick of welfare reform - has
been a valuable incentive for the poor to enter the workforce.
Joblessness is the result of a combination of factors.
These include the shortage of jobs in many areas; the mismatch between
skills and the needs of the job market; persistent racial discrimination
by many employers; the preference of single mothers to care for their
young children rather than work; and the frustrations of poor people
who can't find work and sometimes give up trying. Jobless families deserve
decent housing, too, and the EITC housing supplement will not provide
it. For those households, some version of the Section 8 voucher program,
as well as funds to expand the supply of affordable housing, will still
Even if well-funded, an EITC housing supplement
won't solve all the housing problems confronting America's working poor
and near-poor. It is a ""demand-side" approach that helps
working families pay for housing in the private market. It assumes such
housing is available. But there is still a shortage of housing in many
parts of the country, so we need to expand the overall supply through
programs that provide funds for new construction. In particular, we
need federal funds - and regulatory sticks and carrots - to promote
the construction of mixed-income housing in both central cities and
suburbs to avoid further isolating the poor in areas of concentrated
Seizing the Political Opportunity
Meanwhile, the American Dream - the ability to
buy a home, pay for college tuition and health insurance, take a yearly
vacation, and save for retirement - has become increasingly elusive.
A growing number of working families are in debt, while the number facing
foreclosure has spiraled. American workers face declining job security
as companies downsize, move overseas, and shift more jobs to part-time
workers. The cost of housing, food, and other necessities is rising
faster than incomes. Even two-income families have trouble making ends
Between 2000 and 2005, the number of Americans
in poverty grew from 31.5 million (11.3 percent of the population) to
36.9 million (12.6 percent). During that period, the number of Americans
without health insurance increased from 39.8 million (14.2 percent)
to 46.6 million (15.9 percent).
Under these conditions, it is not surprising that
Barbara Ehrenreich's 2001 exposé about the working poor, Nickel
and Dimed, was one of the most popular books of the past decade.
During that period, growing protests against Wal-Mart - a symbol of
big employers who offer workers low pay and inadequate benefits - indicate
that concerns about inequality and poverty are moving from the margin
to the mainstream of American politics.
A sure sign that the political climate is changing
is the fact that The New York Times Magazine devoted the June
10 issue to articles about inequality and poverty.
In his presidential campaign, former Senator John
Edwards is focusing on dramatically reducing the nation's poverty rate
and has put forward an anti-poverty agenda in speeches, position papers,
and a new book, Ending Poverty in America. Senator Barack Obama
has also released an anti-poverty plan as part of his White House bid.
There is growing political pressure to help the
working poor. In response to grass-roots campaigns by unions and community
organizations, more than 150 cities and counties have passed "living
wage" laws since 1994, most of them in the past five years. In
November 2006, voters in six states - Arizona, Colorado, Missouri, Montana,
Nevada, and Ohio - approved measures to raise state minimum-wage levels
by $1 to $1.70 an hour and index them to inflation. In Missouri, the
initiative passed in every county, winning 76 percent of the statewide
vote. In Montana, voters passed the minimum-wage boost by a 73-percent
to 27-percent margin. In addition to these six victories, the legislatures
in another 11 states - Arkansas, California, Delaware, Maine, Maryland,
Massachusetts, Michigan, North Carolina, Pennsylvania, Rhode Island,
and West Virginia - enacted increases in the minimum wage; six of those
states were exceeding the federal rate for the first time. This year,
four states - Iowa, Kentucky, New Hampshire, and New Mexico - did so.
As a result, 33 states and the District of Columbia have now passed
legislation or approved ballot initiatives raising their state minimums
above the federal minimum.
Polls show that a vast majority of Americans want
to raise the federal minimum wage, which has been stuck at $5.15 an
hour since 1997 - its lowest amount, in inflation-adjusted dollars,
in more than 50 years. Since winning a majority in Congress in 2006,
the Democrats pledged to hike the federal minimum wage. In May, President
Bush reluctantly signed a bill increasing the minimum wage to $7.25
over two years. That figure, however, is only about 40 percent of the
average wage. In July, Edwards called for gradually increasing the minimum
wage to $9.50 an hour by 2012 and indexing it to inflation. Polls also
show that support for labor unions has reached its highest level in
more than three decades. Within the labor movement, there is an increasing
emphasis on organizing, especially among workers in low-wage sectors,
such as hospital workers, janitors, security guards, nurses, and hotel
In this political climate, housing activists should join with the labor movement, community organizing groups, religious congregations, and children's advocates to seize the growing momentum for lifting the working poor out of poverty. As a part of that mission, it makes sense for housing activists to work together with anti-poverty allies to add a housing supplement to the EITC.
Peter Dreier, an NHI board member, is E.P. Clapp Distinguished
From Poverty to Prosperity: A National Strategy to Cut Poverty
in Half, Center for American Progress, April 2007.
The Earned Income Tax Credit as an Instrument of Housing Policy,
by Michael Stegman, Walter Davis, and Roberto Quercia. Housing
The Earned Income Tax Credit at Age 30: What We Know,
A Local Ladder for Low-Income Workers: Recent Trends in the
Earned Income Tax Credit, by Elizabeth Kneebone. Brookings
Rewarding Work Through the Tax Code: The Power and Potential
of the Earned Income Tax Credit in 27 Cities and Rural Areas,
by Alan Berube. Brookings Institution, January 2003.
The Housing Landscape for Americas Working Families 2005, Center
The Earned Income Tax Credit: Boosting Employment, Aiding the
The State of the Nations Housing 2007, Joint Center
for Housing Studies of Harvard University, 2007.