Association for Public Policy Analysis & Management

The housing affordability crisis has reached historic levels in the U.S. amid rising rents, stagnant wages, and an inadequate supply of housing. Fully half of renters devote more than a third of their income to rent; a quarter spend more than half of their income on rent. Indeed, high housing costs are a primary driver of poverty because housing expenses represent such a large share of most families’ budgets. Under the Census Bureau’s Supplemental Poverty Measure (SPM) – which measures the typical spending of low-income families on the basic needs of food, clothing, shelter and utilities – housing expenses comprise approximately half of the total poverty threshold. Yet public provision of affordable housing reaches only one in four families who are eligible. This dearth of assistance for low-income renters is inequitable, given the generous subsidies the U.S. provides to homeowners through mortgage interest and property tax deductions, which represent more than three quarters of all federal housing subsidy allocations.

In this paper, we argue for a refundable renter’s tax credit for families facing high rental housing costs relative to their income. The credit is designed to reflect geographic variation in housing costs and it delivers the largest subsidies, proportional to income, to those with the greatest housing cost burdens. The proposed credit builds on existing programs delivered through the tax code, while reaching a much broader segment of the population than existing housing assistance programs. The credit achieves a meaningful reduction in poverty while bringing overall federal housing expenditures into a more equitable equilibrium.

To assess the reach, cost, and poverty-reduction effects of the proposed renter’s tax credit, we simulate the credit using the 2014-2016 years of microdata from the Current Population Survey’s March Supplement to construct tax units and identify those eligible for the credit. To estimate the likely antipoverty effects of the proposed renter’s tax credit, we use the SPM as a framework. We estimate changes in SPM poverty status for credit recipients, and then assess the overall impact a renter’s credit would have on poverty rates for the total population, all renters, and credit beneficiaries, nationally and by state. We also explore other dimensions of economic hardship, including the poverty gap, as well as housing cost burden.

Our estimates suggest that over 20 million individuals would benefit from the proposed credit, with an average benefit of $2,300 for poor families. The proposed credit would reach one-fifth of all renters and over 70 percent of severely housing cost burdened renters. Among beneficiaries, the credit reduces the poverty rate by 12.4 percentage points and the deep poverty rate by 8.8 percentage points. For beneficiaries who remain poor it reduces the poverty gap by nearly one third, at an annual cost of $24.1 billion. Overall, the proposed refundable renter’s tax credit offers efficient targeting, broad reach, low administrative burden for beneficiaries, and low administrative costs for the government, and it would achieve a noteworthy reduction in poverty.