A benefit-cost analysis of Section 23 Leased Public Housing

This dissertation estimates the benefits and costs of the Section 23 Leased Public Housing Program. The benefit measure used is the equivalent variation in income. Cost is full resource cost to taxpayers. An intertemporal Stone-Geary utility function is used to predict benefit to participants. We assume that there is no change in the price of housing relative to other goods, the real interest rate is constant, the consumer knows from the beginning of the planning horizon all relevant variables that will influence his choices in the future, and that the subsidy will be received for one year. An estimate of lifetime income is generated with schooling, experience, race, and sex of the household head along with the number of adults and the real wage growth rate as explanatory variables. Annual income is predicted for all the years in the planning horizon and discounted into initial wealth using the real interest rate. Maximizing utility subject to the usual linear budget constraint yields demand equations that can be used to obtain estimates of the utility function parameters. Using a sample of unsubsidized households, the housing demand equation is estimated and estimates of the utility function parameters are obtained. These estimates are used for the subsidized households to predict utility in the absence of any subsidy. Then utility in the presence of the subsidy is predicted. An estimate of the quantity of subsidized housing consumed is obtained by dividing the market rent by the housing price index. Market rent is obtained by using total housing expenditure by both the tenant and the Local Housing Authority. The minimum change in income required to move from utility in the absence of the subsidy to utility in the presence of the subsidy is benefit. Many functional forms of the utility function are estimated and benefit is predicted using each to see if the choice of functional form is important in predicting benefit. Then one of these is selected for more detailed analysis. Tenant benefit and taxpayer cost are analyzed in detail. Other program outcomes are also reported.