An analysis of how the federal Earned Income Tax Credit (EITC) could alleviate severe housing cost burdens—where housing consumes at least half of household income—finds that:
- By any measure, severe housing cost burdens for low- and moderate-income households have risen in recent years. Federal investment in vouchers and affordable housing production has not risen in tandem with increased need. In contrast, assistance provided to working families through the EITC has increased considerably.
- If included as income, the EITC reduces by 18 percent the number of lower-income working households with severe housing cost burdens. Including the effects of all federal taxes in measures of housing affordability significantly reduces the incidence of burden among families with children, but increases the incidence among childless workers.
- Expanding the EITC for childless workers and larger families would eliminate severe housing costs for an additional 153,000 families. A proposal along these lines introduced in the 107th Congress would also lift 228,000 families above the poverty line.
- The authors’ proposal to expand the EITC would relieve 510,000 families of severe housing-cost burdens. Configuring EITC parameters to help renters afford typically priced units in most major metropolitan markets would assist working families with children most significantly.
Despite the economic prosperity of the late 1990s, housing became less affordable for millions of working families. Because current housing programs cannot fully close the affordability gap, policymakers should consider expanding support in the tax code for working families to help a greater number meet the high and rising costs of housing.