A study from the Urban Institute, Housing Tax and Transfer Programs Decrease Inequality, finds that direct housing subsidies for low income families reduce income inequality, while tax deductions for homeownership increase income inequality. A household in the top 10% of the income distribution has about 9.4 times as much income as a household in the bottom 10%. This income ratio between the highest and lowest earners declines to 8.6 when housing subsidies for low income families, such as public housing and vouchers, are considered part of a household’s income. Tax deductions for homeowners have the opposite effect on inequality. When mortgage interest deduction and real estate tax deductions are considered along with direct housing subsidies, the ratio is 8.8.
The study also reported the impact of housing subsidies and tax deductions for homeowners on the Gini coefficient, which is a commonly used measure of inequality that ranges in value from 0 to 1. Zero indicates that every household has the same income (perfect equality) and 1 indicates that one household as all of the income (maximum inequality). The estimated Gini coefficient in 2012 was 0.424, without taking housing subsidies or the tax deductions into account. It declined to 0.418 when housing subsidies were added to income. The Gini coefficient rose to 0.421 when the benefits of the mortgage interest and real estate tax deductions were then included. Overall, the researchers conclude that the positive impact of direct housing subsidies outweighs the negative impact of the mortgage interest and real estate tax deductions on income inequality, and suggest that additional investment in housing subsidies for the lowest income households can have a broad impact on reducing inequality.
The study uses data from the 2013 Current Population Survey (CPS), which the federal government uses for its official measures of income, poverty, and inequality. CPS income data is then adjusted by the Transfer Income Model (TRIM) which measures the value of near-cash benefits, such as food stamps, housing subsidies, and itemized deductions.
Housing Tax and Transfer Programs Decrease Inequality is at http://www.urban.org/research/publication/housing-tax-and-transfer-programs-decrease-inequality.