How to Make Housing Affordable for All the Working Poor

The headlines tell the story: “Half of all renters can’t afford the rent.” “Renters, get ready to take it on the chin.” “The rent crisis is about to get a lot worse.”

Shaun Donovan, Obama’s first secretary of the Department of Housing and Urban Development (HUD), warned: “We are in the midst of the worst rental affordability crisis that this country has known.”

There are two ways to solve this problem: One, raise wages, and two, provide more subsidized housing to help fill the gap between incomes and rents. In recent years, the federal government has done neither.

Since 2009, the federal minimum wage has been stuck at $7.25 an hour, despite widespread public support to raise it. However, to boost wages, the federal government has adopted another approach: The earned income tax credit (EITC), a wage supplement for the working poor. The EITC is quite popular with elected officials across the political spectrum. It has become, without much fanfare, the nation’s most effective anti-poverty program. In 2015, 27 million working American families received about $65 billion in EITC benefits. The average annual benefit was more than $2,400.

The EITC is an entitlement, available to all low-income households in which at least one person holds a job. That stands in contrast to federal housing subsidies: Federal funds to help low-income families pay the rent are disbursed via a waiting list or a lottery, not an entitlement. Only 4.8 million households—roughly one quarter of those eligible for assistance—are lucky enough to receive any housing help from HUD.

We can combine the best features of the EITC and the housing voucher program to address the housing crisis for America’s working families, by providing an EITC supplement to help cover the costs of housing.

As a nation we’ve long been using the tax code to subsidize housing, especially for the most affluent, via the mortgage interest tax deduction. Revising the EITC provides another way to use the tax code to subsidize housing—except to target it to those who need it the most, based on both their incomes and the cost of housing where they live.

A Popular Anti-Poverty Tool

The EITC has been popular with most Democrats and many Republicans since it was created in 1975. Congress has increased the EITC several times, raising benefit levels and expanding eligibility criteria.

The EITC reduces tax burdens and supplements wages, especially for families with children. It’s a refundable tax credit—workers who qualify for the EITC can get back some or all of the federal income tax that was taken out of their pay during the year, and even cash back. Workers with incomes below $39,000 to $53,300—depending on marital status and the number of dependent children—are eligible for the EITC.

Under the EITC formula for 2015, a single parent with two children who earns $25,000 would receive $4,092. A married couple with a combined income of $40,000 and two children would receive $2,095. Also, workers who have no children and have incomes below roughly $14,800 ($20,300 for a married couple) can receive a small EITC.

The EITC generates $1.50 to $2 in economic activity for every $1 that goes to working families, according to the Center for American Progress.

In 1986, Congress indexed the EITC for inflation, which it has refused to do for the minimum wage. In 2013, the EITC lifted about 6.2 million people above the poverty line, including about 3.2 million children. In addition, it reduced the severity of poverty for another 21.6 million people, including 7.8 million children, according to a report by the Center on Budget and Policy Priorities.

The EITC is a popular policy tool in both parties for several reasons. For one, it comes in through the back door (as a tax break) rather than through the front door (as a direct grant) like food stamps, Medicaid, welfare, and housing vouchers. Another reason is that it rewards people who work, so it does not carry the stigma attached by many to “welfare.”

Proposal: An EITC Housing Supplement

For all its benefits, the EITC has shortcomings that Congress should address. Most serious is that the EITC’s benefit levels are the same across the country, even though the cost of living—especially housing—varies dramatically.

By contrast, HUD’s housing choice voucher program varies the amount of subsidies to households based on local conditions by calculating fair market rents—typically rent levels at the 40th percentile for apartments with one, two, or more bedrooms—in different parts of the country. For example, according to HUD, the fair-market rent for two-bedroom apartments is $832 in Memphis, $908 in Phoenix, $1,093 in Chicago, and $1,424 in Los Angeles.

The household income needed to afford a typical two-bedroom apartment ranges from $33,280 in Memphis to $36,320 in Phoenix, to $43,720 in Chicago to $56,960 in Los Angeles.

To remedy this flaw in the EITC, Congress should revise the EITC’s benefit levels to account for differences in the cost of living, particularly housing costs. This approach would reach many more families and require much less bureaucracy than the housing voucher program. Cushing Dolbeare, founder of the National Low Income Housing Coalition, first proposed this idea in 2001, and several researchers at the University of North Carolina explored it two years later, but it gained no political traction at the time. As the housing crisis has worsened, and the EITC has gained in popularity, it is time to give the idea a second look, and make it simpler.

A formula similar to HUD’s FMRs can be used to determine the size of the EITC housing supplement in each area. Like HUD’s FMRs, the EITC housing supplement would vary from area to area depending on market conditions.

The EITC serves a much wider range of families than the housing voucher program, including more who work and more who earn over the minimum wage. As a result, if the goal is to reduce rent payments to no more than 30 percent of household income, the subsidy required for most EITC recipients would be significantly less than the typical per-household voucher subsidy.

The EITC housing supplement could be set at the difference between the local fair market rent and 30 percent of the household’s income (including the EITC benefit). In this way, the benefit would be tied to a family’s earnings as well as their housing costs. If FMR is less than 30 percent of household income, the family would not qualify. It is likely that a significant number of EITC recipient households would not qualify for the housing supplement, because 30 percent of their income would cover the FMR. But for those who face a serious income/rent squeeze, the supplement would make a significant difference.

Another plus is the simplicity of implementation. The EITC housing supplement program would require little bureaucracy. To receive the EITC, families simply fill out an income tax form.

Moreover, the EITC is an invisible subsidy. Landlords would not know whether would-be renters are receiving any EITC benefits, including the housing supplement. It could thus have the effect of reducing discrimination against low-income households with subsidies.

The table below illustrates how the program would work for retail sales clerks—as single parents with two children and as married couples with two children—in four cities where wages vary slightly but rental housing costs vary dramatically. It identifies whether any subsidy—and, if so, how much subsidy—would be needed to guarantee that no household pays more than 30 percent of its income for rent. The EITC housing supplement would thus vary based on these conditions.



To be sure, there are limitations to the EITC housing supplement. One problem with the EITC is that most families receive the credit as an annual lump sum when they get their income tax refund—a particular burden for low-income families, who typically live month-to-month and especially need the income to pay the monthly rent.

The Brookings Institution has proposed a number of other ways to provide workers with periodic payments instead of a once-a-year lump sum payment. Congress could require employers to participate in this periodic payment plan and/or the IRS could work with unions, churches, and community groups to publicize this option and get more eligible workers to use it.

Another likely concern is that the EITC only serves low-income families with at least one job-holder. Jobless families deserve decent housing. For those households, some version of the housing voucher program, as well as funds to expand the supply of affordable housing, will still be needed. Anti-poverty advocates at the Center for Budget and Policy Priorities have suggested that a renters’ tax credit would also help address this problem.

Finally, neither the proposed EITC housing supplement nor the existing voucher program does anything to regulate rents. In a handful of cities, local rent control laws put limits on rent increases, but in most parts of the country landlords are free to set rents based on market conditions. HUD sets the FMRs at the 40th or 50th percentile rent levels. Thus, the cost of the EITC housing supplement will be based on filling the gap between household incomes and a proportion of market rents, whatever they are in different parts of the country.

But for all its flaws, an EITC housing supplement holds much promise. More than six decades after the Housing Act of 1949 established as a national objective the achievement of “a decent home and a suitable living environment for every American family,” we are far from reaching that goal. In fact, federal housing policy is currently skewed toward the affluent, who receive far more in government housing subsidies than the working families and the desperately poor who need help the most. Adding a housing supplement to the popular EITC can get us closer to our national goal by helping the working poor pay the rent.

Note: This is an excerpt from an article that originally appeared in Democracy Journal.

(Photo: 6th Annual Women's Housing March, 2012; Credit: Caelie_Framption via flickr, CC BY 2.0)

Peter Dreier is professor of politics at Occidental College and has contributed to Shelterforce since the 1970s. He served for many years on the board of the National Housing Institute and was a founder of the Massachusetts Tenants Organization in the 1980s and has worked with housing activist groups since then.


  1. Oh my goodness, What will you liberals do when you run out of other peoples money to give away? The EITC is not the wunderkind you make it out to be. Its used as a piggy bank for the poor. They apply for it in January and February with their tax return and get a check back that is larger than what they paid in! What do they use it for? They use it to get caught up on all the bills they let slide because they didn’t have enough in their paycheck to make ends meet. Their credit gets whacked and it seldom gets repaired because they think they need that big government check from the Treasury. If you had your way, they would still be late on their rent, missing payments and have poor credit……….but hey, that check they get in March would be huge now wouldn’t it?

  2. Rod—once financially well off people stop dipping into the “piggy bank” known as the mortgage interest deduction (who knows what they use that money for?), which happens to be this country’s largest housing subsidy by far, and once employers stop being on corporate welfare by paying so little that their workers don’t, in your words, have “enough in their paycheck to make ends meet” and need help to hit life’s basics, then let’s have this conversation again.

    (Also, catching up on bills they let slide is a bad thing? Isn’t that the point? What would you prefer they do with it? As Peter noted, there is a push to allow it to not come in a lump sum, but in each paycheck—that would certainly be better for everyone.)

    In the meantime, if you’d like some more realistic information on how lower income people manage inconsistent cash flow (spoiler alert: they’re generally pretty good at it under very difficult circumstances), please check out the research project the U.S. Financial Diaries (

  3. Miriam, I have worked for the poor for the last 26 years. I have a very good understanding of how most LMI folks handle their money, apparently you needed a study to help figure that out. The problem I have with your thinking and that of many of your contributors is that you all seem to have the same goal of taking from the rich to give to the poor and if you do that the problems will be solved. The last 50 years since the Great Society has shown us that putting families on subsidies does not solve their problems, or create more affordable groceries or housing. One thing that every subsidy has is a point at which it begins to be reduced as people make more money. This creates a mindset in most of the LMI population that they should try not to do too much better or else they lose their benefits. This mindset is counterproductive in our country. We were founded on the ideals of hard work equals a reward and the more we work and learn, the better we do.

    I have been a Democrat for 40 years Miriam, and I must say that my party has left me. We used to ask what can we do for our country, now we ask what can my country do for me!

    I am struggling to find even one good idea that has come out on our side since JFK that does not result in damage to the poor and the working poor in our country. For all the crying about housing affordability, the real issue that we are about to pay the piper for is Student Loan Debt. Another great idea that has turned into a debacle for millions of our citizens that thought more debt would equal a better degree or they were taken advantage of by trade schools that overcharged for what they provided and talked students into just signing up for another year of loans.

    Our country’s day of reckoning is coming Miriam, and when it happens, I hope you can find a few of your friends to move into your home to help pay the bills. Affordability will seem like a dream to you then.

  4. Using tax reform is an idea that’s worthy of consideration if someone can figure out a simple formula and a system to deliver the housing benefit monthly.


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