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The Mediocrity of Government Subsidies to Mixed-Income Housing Projects

Robert C. Ellickson

May 2009, English

In this paper, Robert C. Ellickson compares this affordable housing approach with the voucher program. He asserts that giving portable housing vouchers to needy households is superior to encouraging private mixed-income housing projects through the use of density bonuses or impact-fee waivers. Ellickson reviews several efficiency and equity arguments. Mixed-income housing units are less efficient because the transaction costs of applying for government subsidies increase production costs. Moreover, public subsidies reduce incentives for developers to be cost-effective. Mismatches between household preferences and housing units allotted emerge when units are assigned by lottery. The lock-in effect prevents tenants from modifying their housing consumption when economic and family conditions change. Lock-ins also lead to the deterioration of the landlord–tenant relationship. In terms of fairness, vouchers are more equitable than mixed-income projects because they target the most impoverished families. Ellickson states that many suburban mixed-income housing programs make some inclusionary units available to households with moderate incomes.

Ellickson also challenges the often-cited benefit of mixed-income housing projects, that is, the promotion of neighborhood social and economic integration. He argues that low-income households might not be able to fit in with neighbors of higher social and economic status. Vouchers are more discreet and allow holders to blend into the community. More fundamentally, he states that evidence on the benefits of social and economic integration is inconclusive. Given these doubts, the expected gains from mixed-income projects do not seem to offset the potential loss of efficiency and equity.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2008 and is Chapter 16 of the book Property Rights and Land Policies.