From Robert Collinson and Peter Ganong:
What is the incidence of housing vouchers? In a frictionless, price-taking equilibrium, increased generosity of a narrowly-targeted subsidy causes in- creases in unit quality. However, search frictions may limit quality improve- ments and subsidies may accrue to landlords through price discrimination.
Analyzing a 2005 formula change for Housing Choice Vouchers, we estimate that a $1 increase in the county-wide price ceiling raised same-address voucher rents by 13-20 cents. For tenants who moved, quality improvements were minimal. Second, we find that a Dallas pilot which replaced a metro-wide price ceiling with ZIP-code-specific ceilings improved tenants’ chosen neighborhood quality by 0.2 standard deviations.
We examine the incidence of a narrowly-targeted voucher program, relaxing the textbook assumption that suppliers are price-takers, and allowing for con- sumer search frictions. Our assumptions provide a realistic description of housing vouchers in the U.S. Using quasi-experimental variation, we find that rental prices are responsive to price ceiling changes, while quality is less responsive. In particular, we find evidence of price discrimination, because prices respond even for tenants who stayed at the same address. There may be welfare gains to reducing price ceilings and using the savings to pay for more vouchers.
A new HUD demonstration in Dallas which linked price ceilings to neigh- borhood quality shows dramatic first year results. After this intervention, voucher recipients in Dallas chose neighborhoods with substantially lower vi- olent crime rates and lower poverty rates, and the net cost of the intervention was zero. While more years of follow-up data are needed, the initial results are promising.
Our emphasis on price discrimination may be useful for studying other voucher-like programs, including college financial aid, the Earned Income Tax Credit, federal nutrition programs, and child care vouchers. We estimate that more than half of existing transfers to the nonelderly are characterized by tag- ging and private provision. Policymakers’ interest in vouchers is growing; the Affordable Care Act will provide an estimated 20 million people with subsi- dized vouchers, and several recent proposals have discussed turning Medicare into a voucher. As vouchers become increasingly prevalent, future research should try to estimate the extent of price discrimination and the impact of voucher generosity on quality for other voucher programs.