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Publication Date

January 2004

Author(s)

Michael A. Stegman, Roberto G. Quercia, Walter R. Davis

The positive effects of the EITC are often overlooked because housing policy calculates affordability on a before-tax basis. This article examines the EITC’s effect on housing cost burdens and analyzes and contrasts three proposals to increase its effectiveness as a housing tool.

The federal Earned Income Tax Credit (EITC), which was designed to aid low-income working families and individuals, plays a role beyond that of income support. At a time when the availability of affordable housing is declining, the EITC also provides significant relief to households burdened by severe housing costs. This article examines the EITC’s effect on housing cost burdens and analyzes and contrasts three proposals to increase its effectiveness as a housing tool.

Because housing policy calculates affordability on a before-tax basis, the positive effects of the EITC are often overlooked. If included in income, the current EITC, assuming full participation, reduces critical housing needs for working households by 18 percent. All three proposals analyzed would reduce the number of households with severe housing costs by considerably more, with our measure relieving these cost burdens the most. Finally, using the EITC as a housing tool specifically incorporates a work incentive into the assistance.

 


Topics(s): Affordable Homeownership, Housing Policy, Mortgage Finance