Last week, the House Committee on Financial Services began hearings on a plan to create a new federal voucher program aimed at paying the rent of every lower-income American. Such a program could represent an extra $100 billion subsidy to housing demand, which, in America’s constrained housing markets, would further increase rents. An indiscriminate, fivefold increase in the number of Section 8 voucher recipients would also squeeze the families that could benefit most from the program out of the housing market. A better approach would direct the current vouchers toward families with young children and reduce the regulatory barriers that limit the construction of affordable rental housing.
Economics 101 provides a simple guide for intervening in markets where prices are too high or output is too low. When supply is plentiful, we should subsidize consumer demand since the market can boost production without increasing prices. When supply is limited—as it is in America’s most unaffordable cities—then subsidizing demand will increase prices rather than expanding access.
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