How Housing Allowances Affect Housing Prices

by C. Lance Barnett, Ira S. Lowry

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Examines experimental evidence from fullscale housing allowance programs conducted in Brown County, Wisconsin, and St. Joseph County, Indiana. Contrary to predictions, the experimental evidence reveals no significant price changes attributable to the allowance program's first three years of operation in Brown County or its first two years in St. Joseph County. Those two expected substantial price effects generally assumed faster program growth, more elastic housing demand by participants, stronger earmarking effects, and less elastic supply than was encountered in the field. If the long-run effects of allowances on market prices are no greater than those observed, the issues to be addressed by policymakers are much simplified: Housing allowances can be judged in terms of who participates, how much they benefit, and the costs of the program relative to alternatives. Those not in the program would be unaffected by it, except as contributors to its costs.

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