Convertable housing vouchers

Robert Lerman, a fellow at the Urban Institute in Washington, has an interesting proposal in the February 27 issue of the Washington Times.

Lerman notes that around 2 million low-income households are now receiving more than $20 billion per year in total rental subsidies from the federal government.  For example, a household might rent an apartment for $800 per month, and pay only $300 out of its own pocket, while the federal government picks up the remaining $500.

Lerman’s suggestion is simple.  Partly because of the depressed housing prices today, if the federal government kept up the same level of payments, it would be financially workable for these households to purchase a home with the same amount of money – or often less – that is now going to rents.  In Detroit, for example, a typical house in a lower to moderate income neighborhood now sells for around $70,000.   At current rates, paying off a 30-year mortgage would cost about $400 a month, leaving up to the remaining $400 (from the $800 now being spent on rent) to cover taxes, maintenance, and other home costs.

With much of the mortgage payment in effect guaranteed by the federal government, a small down payment might be possible.  Under this idea, many new households might be able to join the ranks of homeowners without any additional costs to the government.  And if large numbers of households pursued this course, it might also help to stabilize currently stressed housing markets and prices in many cities across the United States.

Errata: This post originally showed Daniel Rothschild as the author. It is Bob Nelson.