Rents and The Poverty Trap

Rents and The Poverty Trap

What is a Poverty Trap?  Is there a solution to generational subsidized housing?  Is subsidized housing passed down from one generation to the next?  Does our society assist in perpetuating the poverty trap?

A poverty trap is "any self-reinforcing mechanism which causes poverty to persist."[1] If it persists from generation to generation, the trap begins to reinforce itself if steps are not taken to break the cycle. (Wikipedia)

Poverty traps are evident all over the world.  A modern day example is when a community has no potable water or consistent source of food.  It's easy for our minds to correlate that having to devote extensive time to finding food and water leaves limited energy for other endeavors.  It's a simple economic paradigm.

Many believe rents are higher because of subsidized housing and the costs to construct, maintain and manage housing built to market rate standards.  I disagree.  If subsidized housing were built to a lower standard the costs to construct may be lower, but all other related costs remain the same (land costs, legal fees, setting utilities).  The biggest difference is in the costs to society (and communities) with sub par housing having a much shorter term of functional use before necessary replacement.

In the United States poverty traps often include housing as part of the equation. More than one in ten rental households in America receive some form of rent subsidy.

There are three major federal rental assistance programs — the Housing Choice (“Section 8”) Voucher Program, public housing, and the Section 8 project-based rental assistance program — as well as a handful of smaller programs, such as the Section 521 rural rental assistance program administered by the Department of Agriculture. Under existing funding levels, these programs can assist approximately 4.8 million low-income families... (Center for Budget and Policy Priorities ).

Note that the number of "families".  These are direct Federal programs.  This excludes Low Income Housing Tax Credits (LIHTC), state issued bonds, programs for seniors, those with disabilities, locally funded programs and charities.  In total, tens of millions of people receive some form of rental assistance.

Does subsidized housing perpetuate a poverty trap? This is a hard question.  Being in the multifamily business we should engage in the conversation and help to shape policy and strategy.  With such a huge number of people and resources in play there is no single right answer, but many paths to assist in housing the greatest number of people for the time necessary for as many as possible to attain housing self-sufficiency.

About This Blog
Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel.

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