Two contrasting methods of subsidizing existing housing are "housing allowances," which rely on the discipline of the market to control price increases, and "Section 8 assistance," which uses institutional regulations to control them. Contrary to preprogram predictions, evidence from actual program operations shows that the market outperforms regulation. Housing allowances cause a 2 percent increase, while Section 8 assistance causes a 26 percent increase, in the price of participants' housing. The Section 8 price increases mean that a substantial portion of the federal subsidy is diverted from participants to their landlords. To prevent that diversion, the Section 8 rules could be revised as follows: structure the subsidy so tenants pay the marginal rent dollar; pay the subsidy directly to tenants so they know they pay the marginal rent dollar; and remove the rent ceiling so it can no longer act as a rent target.
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