Author John Wilhoit, Jr.

Rents and the Poverty Trap

by John Wilhoit Jr. on

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 the number of “families” – 4.8 million families…  The Federal programs mentioned exclude 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. 

If you enjoyed this article, get email updates (they're free)!

{ 5 comments… read them below or add one }

James Monroe Holland Jr.(teddy) May 27, 2013 at 11:01 am

Section 3 implementation and enforcement is the only way to go in these assisted housing programs ….and I have not made this statement before.

James Monroe Holland Jr.(teddy) May 27, 2013 at 10:48 am

My organization is build on this very issue….how do one get the poverty pimps.. that are recipients of federal assisted housing and community development fund to play by the rules ?

President Lyndon B.Johnson ,stated in a speech at Howard University in 1965 prior to the formation of the Kerner Commission on Civil disorder:”You do not take a person who..for years,has been hobbled by chains and liberate him,bring him up to the starting line of…..and than say, you are free to compete with all others, and still justly believe that you have been completely fair.”

A little history if character and time allow..Racisam,poverty,substandard housing,and,high unemployment combined with lack of access to good schools and health care…sound familiar?This was the order of the day that formed its basis of escalating civil disorder aand violence doing the 60’s.

Relizing the nations security was threated, President Johnson established an advisory commission on civil disorder.In 1967 after the investigation, the commission presented its finding….concluding that urban violence showed profound frustration of inner city blacks and that racism was deeply embedded in Americas society.

The Kerner report (named after the then governor Otto Kerner of Illinois)warned that America was moving towards two white ….separate and unequal.The commission marshaled evidence on an array of problems that fell with particular severity on African Americans..including not only overt in your face discrimation,but,also chronic poverty and the above mention.Responding to the findings and after the dealth of Dr.Martin Luther King,the Housing and Community Development Acy of 1968 (Section 3) was pasted.

Since the passage of the civil rights law, which replicate president Franklin Roosvelt’s 1938 public housing “Great Society” program,HUD has ignored its implementation responsibilities under section 3,and failed to develop effective monitoring and enforcement systems.HUD was not alone;public housing authorities,city and state governments, and advocates for the poor and uneducated,also overlooked the law. Its amended regulations in 1969,74,and1980,congress again ameneded section 3 in 1992,following the civil altercation between Rodney King and LA police generated renewed public attention to the some persistent problems that were addressed by the Kerner commission in the sixties.As in 1968,jobs and contracting opportunities on federal funded housing projects were still going to white, largely suburban contractors And construction workers..which reflect the old south and its three-tiered society,with blacks and”hard-put” whites both dominated by white elites who manipulated racial tensions inorder to sucure and retain power.Inner-city residents did not participate in these economic opportunities,that were right in their backyards….Part 1.

Curt Smith May 7, 2013 at 9:36 am

This country does not like to think about systems, rather just specific actions. What keeps a single mother or the disabled trapped? How about low cost child care so she can go out and get a job? Cheap and efficient mass transit in most cities? Required financial management training… I see a lot of poor financial decisions keeping folks stuck renting instead of owning yet we refuse to look at the bigger picture and working on the systemic solution.

John Wiloit April 24, 2013 at 11:22 am

And that’s the question! How do we make a path for people to exit “the trap”?? I wish I could offer a profound remedy…

Chaim Israel April 24, 2013 at 10:23 am

The question you raise is a very valid one, however, this issue applies to ALL government programs intended to assist the under earning families.
These programs were originally meant to be a short-term support assisting families in getting back on firm financial footing. Over the years they became permanent, without any path out of, or inducement to leave, the assistance program.
Leaving them permanently trapped.

Leave a Comment

Previous post:

Next post: