Econ multiple-choice questions
Lisa1314
AffordableHousingPolicy7.pptxAffordable Housing Policy QUIZ 1: (Sept 27)
Department of Housing and Urban Development (HUD) defines an "affordable dwelling" as one that a household can obtain for 30 percent or less of its income. But this varies from city to city.
This Vox article provides an overview of Housing need in the US:
https://www.vox.com/2014/4/10/18076868/affordable-housing-explained?__c=1
And Review Questions for Quiz 1 are here
Affordable Housing Policy-- Three Policies: (QUIZ 1 will cover)
1. Rent Control? Public Choice
—Politicians Favorite/supply incentives?
2. Tax Subsidy for the Housing Suppliers?
--Low Income Housing Tax Credit Program (LIHTC) Effect on Affordable Units Supplied (Front Line Documentary)?
3. Subsidize the Demand-side: Section 8 Housing -Vouchers (Big Ideas/Re-occuring Theme) CMTO
Housing Policy (Federal & State of California)
California Proposition 21– California Rent Control Ballot Measure
The Rental Affordability Act will remove current state law restrictions, giving cities and counties the power to implement and expand rent control policies that limit how much rents can increase each year. It would allow local communities to:
https://ballotpedia.org/California_Proposition_21,_Local_Rent_Control_Initiative_(2020)#Background
Housing Policy (Federal & State of California)
California Proposition 15-- Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative (2020)
--the proposal to assess property taxes on commercial and industrial properties at market value, while continuing to assess taxes on residential properties based on the purchase price, is known as split roll. Exempts small business and agriculture.
Use a Supply and Demand diagram to analyze the impact of an effective rent control law. Using the efficiency properties of the market equilibrium as a baseline, examine the effect of rent control on consumer and producer welfare. Would rent control result in a great quantity of affordable being made available? Does rent control increase consumer welfare (i.e., consumer surplus) in the short run?
Figure 4.9 The Economic Effect of a Rent Ceiling in REVEL Chapter 4
Without rent control, the equilibrium rent is $2,500 per month.
At that price, 2,000,000 apartments would be rented.
If the government imposes a rent ceiling of $1,500, the quantity of apartments supplied falls to 1,900,000, and the quantity of apartments demanded increases to 2,100,000, resulting in a shortage of 200,000 apartments.
California Housing Price Index
External Link to: Kahn Academy Video on Rent Control Dead Weight Cost
Political Economy
Gruber Ch. 1 Definition: Political Economy is the theory of how the political process produces decisions that affect individuals and the economy overall (individual economic agents are producers, consumers, business owners and workers).
Political Economy answers the question: why do governments do what they do?
Three types of questions in Public Economics from Gruber, Chapter 1
Positive analysis: What are the observed effects of government programs and interventions (what is?)
Normative analysis: What should the government do if we can choose an optimal (socially efficient) policy intervention (what should be?)
Public Choice/Political Economy analysis: Develops theories to explain why the government behaves the way it does and identify optimal policy given political economy concerns
--Criticism of normative analysis: fails to take political constraints into account
Four Questions of Public Finance:
■ When should the government intervene in the economy?
■ How might the government intervene?
■ What is the effect of those interventions on economic outcomes?
■ Why do governments choose to intervene in the way that they do?
(from Gruber Chapter 1)
Note the important difference between this question and the second (How should governments intervene?). The second question is a normative question, one concerned with how things should be done. This is a positive question, one concerned with why things are the way they are (like the third question it involves positive economics).
What is the outcome of rent control?
New research examining how rent control affects tenants and housing markets offers insight into how rent control affects markets. While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.
Brookings Institute, October 2018
2. Low Income Housing Tax Credit (LIHTC) Program ( $10 billion/yr.)
FrontLine Documentary details the inflated costs associated with this supply-side program which subsidizes the construction or renovation of housing supplied for low income households. The subsidy (government payments) go to the suppliers of low-income housing.
Largest federal program to supporting the private provisioning (new construction and renovation) of rental housing for the poor.
Does little to deter further housing segregation PBS series Frontline — found that with little federal oversight, LIHTC has produced fewer units than it did 20 years ago, even though it's costing taxpayers 66 percent more in tax credits.
In 1997, the program produced more than 70,000 housing units. But in 2014, fewer than 59,000 units were built, according to data provided by the National Council of State Housing Agencies.
3. Housing Choice Voucher Program Section 8 $ 20 billion (goes to 1 in 4 eligible households)
The Voucher can be spent on any housing and the low-income household pays 30 percent of their income, while the voucher goes to the landlord who receives the fair market value rent for the unit. So the government pays whatever portion of the rent that the low-income family cannot afford for the housing unit of their choice (to a landlord who agrees to take the Section 8 voucher).
Some 54 percent of families receiving additional basic services as part of a more targeted Creating Moves To Opportunity (CMTO) voucher program promoting high-opportunity neighborhoods, chose to move to opportunity neighborhoods compared to approximately 14 percent of families who received standard services from the public housing authorities.
Politics of Affordable Housing
https://www.politico.com/news/2020/07/29/trump-housing-policy-low-income-suburbs-386414
Both issue weblinks cited above are not on the quiz, but they do underscore the relevance of the issue today.
REVEL Chapter 5: Externalities and Private Market Failures
An Externality is a cost or benefit not taken into consideration when deciding what quantity of a good or service should be produced or consumed.
Benefits of the Move to Opportunity Experimental (MTO) Voucher Program
