quebec`s new housing allowance for families and the elderly

QUEBEC'S NEW HOUSING ALLOWANCE FOR FAMILIES AND THE ELDERLY:
DESIGN, CONTRASTS WITH THE US HOUSING VOUCHER UNDER SECTION 8,
AND PARTICIPATION ESTIMATES
by
Marion Steele*
University of Guelph
and
Centre for Urban and Community Studies
University of Toronto
May, 2002
*I am indebted to Hubert de Nicolini of the Société d’habitation du Québec for his quick,
intelligent and clear responses to many questions, to François Des Rosiers for generously sharing
his extensive knowledge of the Quebec rental sector with me, and to Gillian Leslie for inside and
outside-the-box research assistance. The standard caveat is important here in view of the
difference in views on this issue: any errors of fact or interpretation are mine alone.
Address correspondence to: Prof. M. Steele, Department of Economics,.University of Guelph, Guelph
Canada N1G 2W1 FAX (519) 763-8497 [email protected]
I. INTRODUCTION
The Province of Quebec has in the last few decades shown itself willing to adopt income
assistance, social policy and housing policy which are daring in the North American context. This
paper is concerned with one of these, the housing allowance program termed Allocation Logement
(AL) introduced in 1997, in response to the long waiting lists for a limited number of high-cost social
housing units.
AL may be characterized as merely a merger and renovation of existing Quebec programs
except in several crucial aspects. First, for the first time, non-welfare families are eligible. This
means that the program is not sheltered from possible employment disincentive effects, as is the
housing allowance for the elderly established in B. C. Second, welfare and non-welfare families are
covered, quite seamlessly, by the same program, setting it apart from Manitoba’s which covers only
non-welfare families. Third, application for this program is low cost and easy, indeed only slightly less
easy and automatic than that for the Child Tax Benefit. This easy process exploits the fact that Quebec
administers its own income tax collection.
In this paper I discuss the design of this program by contrasting it with the US housing
allowance, the Section 8 voucher. This kind of housing allowance is the kind that CMHC has
preferred, because of its minimum quality requirement. It is far more generous housing allowance than
the AL but relatively few low income households receive it, and then typically only after a long wait.
In some fundamental respects, the US voucher is like the federally-initiated program in Canada, Rent
Supplement (RS). Both are programs in which a subsidy is paid directly to private landlords in return
for accommodating, in a quality of accommodation acceptable to a government agency, low income
households who pay an affordable rent. In the case of the voucher, however, recipients themselves
choose the unit they will occupy.
1
In this paper I will argue that the Quebec direction is the one to take, rather than the US
voucher. First I will discuss the design of the Quebec allowance and contrast its design with that of
Section 8. Then I will analyze the incentives implicit in the designs, using charts akin to those used in
the negative income tax literature. I will discuss the results of this program as compared with and
Section 8. I will conclude with some comments.
II. THE QUEBEC HOUSING ALLOWANCE CONTEXT
In the early 1980s Quebec first ventured into the housing allowances arena by establishing a
program for the elderly, called Logirente, which followed the general Canadian rent and incomeconditions formula (Steele, 1985, 2001), giving people not housing vouchers but cash, once they have
submitted evidence that they are spending a certain sum on housing. In 1990 it offered a modified
version of this to welfare families (i.e. a single or couple living with a child who is under 18 or is a
full-time student). In 1997 it amalgamated these programs, at the same time reducing the richness of
the allowance formulas, and extending the housing allowance to all families; this is the AL program.
Home owners as well as renters are eligible.1 While home owners account for only six cent of
recipients overall, their incidence is strongly negatively related to age and positively to household size
and home owners account for an is an estimated eighteen per cent of recipients having five or more
person families. Occupants of one form of social housing, non-equity co-operative housing, are also
eligible, unless they are receiving a cross-subsidy from other Co-op residents.
III. DESIGN OF THE QUEBEC HOUSING ALLOWANCE
The Quebec housing allowance is 66.7 percent of the gap between rent and affordable rent.
1
This is however, a much larger ratio than for the Section 8 voucher. After 1992 HUD permitted vouchers to be used for mortgage
paym ents, but “far below 1 per cent” are u sed in this way (Peterson, 2 000, p. 1 53).
2
The recipient may pay any rent without losing the allowance, but any amount above a set maximum is
unsubsidized. Affordable rent is set at 30 per cent of income unless this amount is less than a set
minimum rent, in which case affordable rent equals this set minimum. More formally
where Y is gross income (excluding the Canada Child Tax Benefit and the Quebec Family Allowance)2,
R is rent (plus a flat allowance for heat and electricity, and the charge for municipal services, such as
garbage pickup, if these are not included in rent). In the case of homeowners R is the sum of mortgage
interest, municipal taxes and flat amounts for heat and for electricity, so that R more properly would
be called “housing cost.”
is the maximum rent and
is the minimum rent. Both
and
vary according to the number in the household.
I call the affordability parameter (30 per cent here) the contribution rate.
! the allowance is zero when Y is greater than
It can be seen that:
; in other words, those with an
income greater than 3.33 times the maximum rent get no allowance.
! the allowance is also zero when the rent paid is low. Very low income families paying a
low rent are not assisted, even if this rent is more than 30% of income.
! when R is less than
, but
, then
, so that the recipient
2
The Canada Child Tax Benefit is $1839 annually for one child under seven in July,1998, with marginal tax-back of 12.1 percent
startin g at a n inc om e of $ 20 ,92 1; th e Be nef it is $2 ,59 3 fro m J uly , 20 01 . Th e am ou nt fo r add ition al ch ildren is so me wh at less per c hild
(ww w.ccra-adrc.g c.ca/benefits/cctb_p aym ents-e.html). The Quebec Family Allowance is $625 per child annually, plus $1300 if the family is a
single-parent family; the $1925 for a one-child single-parent family has a marginal tax-back of 23.4 per cent starting at an income of $15,000
falling to a tax back of zero at $21,000 (ww w.rrq.go uv.qc.ca/an /famille/nallfa.htm ). Note that in this paper all dollar values given for Canada
are Canadian dollars and all given for the US are in US dollars, unless indicated otherwise. The notable exceptions are the two charts and tables
where all values are in US dollars.
3
pays out of her own pocket only one-third per cent of any rent increase; the subsidy rate is two-thirds.
She faces a marginal income taxback rate of 20 per cent.
! when R is equal to or greater than
,
, so that the recipient pays 100
per cent of any rent increase and the housing allowance is simply a negative income tax dependent on
household size as well as income.
In some other provinces there is also an allowance of this general formula, but the only other
province in which it is extended to families as well as the elderly is Manitoba. In Manitoba, 90 per
cent of the gap is paid, for the lowest income recipients--so the marginal rent tax is only 10 per cent-dropping to 60 per cent for the highest income. The Manitoba contribution rate nominally varies from
25 per cent for the lowest income to 27.5 per cent for the highest, but is effectively less than this for
families, because only 94 per cent of income is counted (Steele, 1985) .
Only in Quebec is there a minimum rent constraint in the formula and only in Quebec are
welfare recipients (i.e. beneficiaries of the Quebec program currently known as “Employment
Assistance”) as well as other families eligible. The minimum rent constraint is intimately linked to the
history of the allowance program and the need to integrate it with other forms of assistance. The
allowance was originally offered to help those welfare families paying an atypically high rent and its
extension to non-welfare families reduces the work disincentives of welfare.
Two important aspects of the allowance are not indicated in the formulas. First, the housing
allowance is received by the beneficiary, not by the landlord. Furthermore, the participation of the
landlord in the application process is generally not needed. Acceptable evidence of current rent is a
lease or a notice of rent increase. Only when this is unavailable need the applicant use a form
requiring the landlord’s signature. Nowhere on this form is there any information on the income of the
applicant, which would allow the landlord to compute the amount of their allowance. Second, the
4
income of applicants is taken from computerized information on their previous year’s tax return so that
the information required from applicants is minimal. Payment is made monthly based on rent the
previous October and income in the previous year, e.g. payment in January 2002 depends on rent in
October, 2001 and income in 2000.3
IV. DESIGN OF THE SECTION 8 VOUCHER
The Section 8 Voucher resembles the Quebec housing allowance in two respects: its
contribution rate, 30%, is the same, and it employs a maximum rent constraint in a similar way.
Specifically, the payment formula is, except in rare cases,
and if housing quality standards are met.
More completely,
or if housing quality standards are not met or
at initial entry.
and if housing quality standards are met.
and if housing quality standards are met.
where GY is gross income and
is the Payment Standard (PS).4 The amount P is paid to the
landlord. The landlord receives the same amount from the PHA no matter what the rent, except in rare
cases ; the tenant pays the residual. Thus the allowance is not linked to actual rent. The voucher design
3
T he in fo rm a tio n in th is pa ra gr ap h is ta ke n f ro m em a ils fr om H u be rt d e N ic olin i, SH Q , a nd fr om th e d oc um e nts ob ta in ed fr om h im ,
all pu blish ed b y the Qu ebe c R eve nu e M inistr y (M RQ ) : D em and e d’a lloca tion -log em ent o u réé valu ation ann uelle 200 0; R ens eign em ents
gén érau x su r l’allo catio n-lo gem ent 2 00 0; A ttesta tion du L oy er. T hes e for ms are n ot av ailab le at p ost o ffice s or lik e pla ces , as is the c ase with
forms for income tax returns but are obtained by phoning a MR Q office, where income is checked before the form is sent out. See also
ww w.s hq .go uv .qc .ca/ en/ pg /ls/p galo h0 0.h tml.
4
P S is up to 11 0 p er ce nt o f F air M ar ke t R en t ( FM R ) , a t th e d is cr etio n o f th e P ub lic H ou sin g A u th or ity (P H A ) a nd m ay in so m e
circumstances be higher. FMR is ordinarily 40th perc entile of th e ren ts of stan dard qua lity ren tal un its oc cup ied b y rec ent m ov ers e xce pt tha t it
may be up to the 50 th percentile in certain areas (Lub ell, 2001).
5
thus contains a strong shopping incentive: if the tenant finds unit renting for less than the PS, she
pockets the difference.
Prior to October 1, 1999, there was also a Section 8 certificate program, with the number of
certificate holders three times the number of voucher holders; the certificates were converted to
vouchers in 1999. Under the certificate program, the payment amount was the gap between actual rent
and 30 per cent of income rather than the gap between the PS and income, for rent less than or equal to
the Fair Market Rent (FMR). The certificate was zero for rent greater than the FMR. In the case of
the certificate, the tenant paid rent of 30 percent of income, with the landlord receiving the residual
rent from the PHA.
Differences between the design of the Section 8 voucher and Quebec’s housing allowance, AL,
are illustrated in Table 1 (which also illustrates the recently eliminated certificate) and Chart 1. These
are constructed under the assumption that recipient monthly income before deductions (i.e. adjustments)
is US$1000; actual mean income for 1997 Section 8 vouchers and certificates holders was US$758 per
month and for AL recipients in 1996, about US$866.5 The maximum rent assumed here for the Section
8 certificate and voucher is approximately the FMR for Albany and Rochester, New York, for a onebedroom apartment.6 The minimum rent and maximum rents used here, US$338 and US$440
respectively,7 for AL, the Quebec housing allowance, are the actual values in AL for an elderly couple
or for a single parent with one child over the period 1997 to the present.
In Chart 1 the rent net of the allowance is related to the rent before the allowance. When the
5
U S da ta ar e ta ke n f ro m (www.huduser.org/datasets/assthsg/picqwik.html) ; Quebec data assume that the mean
child tax benefit and family allowance of recipients is US110 per month; to this is added the mean income (US$756) exclusive of these benefits,
from a sp read she et ob taine d fro m H ub ert de Nic olin i entitle d “S tatistiq ues sur L a C lientè le d’A lloca tion -Lo gem ent p ar T yp e de M éna ge” with
the file name M enage.x ls. Canad ian dollars are conv erted to US dollars assum ing a purch asing po wer rate of C an$1= US$ .85.
6
The 2001 F MR for Albany is $494 and for Roch ester is $504; the two-bedroom FM Rs are $607 and $ 612 respectively (Federal
Register/V ol. 66, N o. 1/Tu esday, Jan uary 2, 20 01/R ules and R egulations, p. 1 98.)
7
The va lues in Can adian dollars are $3 98 and $518 .
6
function lies on the 45° line, the allowance is zero. The diagram makes it immediately clear how
skinny the Quebec allowance is as compared to the Section 8 voucher. This is especially true at the
lowest before-allowance rents. For a lower income than assumed here, the contrast would be greater.
The incentive for tenants to increase consumption in the Section 8 voucher program is nil, once
she has started using a voucher, because she pays the full price of any increase. On the other hand, the
incentive for landlords to raise rents is very great because the tenant pays only the residual rent, once
minimum quality standards are met. 8 Below the maximum (i.e. PS) this residual is low–for example, at
a rent before the allowance of $400, the tenant pays only $152, or 15% of her income (Table 1, panel
B2). Even when the residual rises to 30% of income, a landlord is apt to be able to observe tenants in
the same or other buildings, in the same economic circumstances but without the voucher, being
willing to pay a much higher percentage of income. The incentive to increase rents above the maximum
(FMR) in the certificate program was nil, because the landlord would then receive no payment from the
PHA: the tenant would be forced to vacate.
The incentive for landlords to raise rents, or recipients to increase consumption, in the AL
program is never very great. Up to the minimum rent, the tenant has to fully pay any increase, i.e. the
rent-after-allowance function in Chart 1 lies along the 45° line; this is true again once maximum rent is
reached, when the allowance stays at US$68 (Table 1, panel B3). Only over the quite narrow range of
$338 to $440 is there a strong incentive, because of the two-thirds rent subsidy. The tenant pays only
one/third of the value of any increased consumption, or one-third of any pure price increase imposed by
the landlord; this is illustrated by the short 15° degree portion of the AL rent- after- allowance function
in Chart 1. But as Table 1 illustrates, realizing precisely this two-thirds incremental subsidy requires
fine-tuning; for example, if housing expenditure increases from $300 to $400 the tenant pays 59 (=100-
8
How ever, the PHA m ust certify that the rental agreement protects the rights of the tenant. The initial lease is for one year
(Peterson, 2 000).
7
41) per cent of the market value, not one-third, and for an increase from $400 to $500, she pays 73 per
cent of the market value.
V. MINIMUM RENT VERSUS MINIMUM STANDARDS9
In the AL program, households do not receive an allowance until their rent is above a set
minimum. In perfect markets this implies, where the price per unit of homogenous housing is constant,
that the allowance will go only to households consuming a minimum quantity of housing. An
advantage of this over the minimum standards requirement in Section 8 is that it eliminates the need for
a vast amount of regulation and the associated administrative cost (Colwell and Dehring, 1995). The
AL design assumes that households are able to competently assess standards; as noted just above in the
illustrative example, there is a 41 per cent subsidy for an increase in housing consumption from a unit
valued at $300, slightly below-minimum rent (assumed below minimum standards) to one distinctly
above, at $400.
An alternative rationale for the minimum rent provision is that taxpayers may not wish to
subsidize households which are paying a rent typical for others in the same or worse circumstances. In
fact, the minimum rents in AL are the mean rents of welfare recipients surveyed in 1996 or earlier, by
household size,
10
suggesting that this, and not desire for a proxy for a minimum standards requirement
was the motivating consideration.
It is worth noting that the minimum rent condition is inconsistent with the normative
affordability criterion that households should spend only 30 per cent of their income on rent, because it
implies that recipients with an income below US$1127 per month (net of Family Allowance and Child
9
In the Experimental Housing Allowance Program, one of the designs tested employed a Minimum Rent Standard (Bradbury and
Do wns, 1 981; F riedman and W einberg, 19 82) but this w as not intimately linked to the amo unt paid as it is for the AL .
10
Inform ation from H ubert de N icolini, SHQ .
8
Tax Benefit) will need to pay more than 30 per cent before they qualify for the AL. At the same time,
this design is consistent with the actual allocation patterns of very low income households. Further, the
AL is based on income lagged on average more than a year, so that the current rent burden of a
recipient might be much lower than the rent burden indicated by the application.11 Finally only those
choosing not to be a welfare recipient, among those under 65, will have zero income, and all those 65
and over (with certain exceptions such as recent immigrants) will have an income of at least US$
, the combined total of the federally funded Old Age Security and the Guaranteed Income Supplement.
VI. THE TWO-WAY RENTAL CONTRACT
In the Quebec housing allowance program, as in most rent-and-income-conditioned allowances
in Canada and elsewhere (Steele, 2001), the contract for the unit occupied by the recipient is a two-way
one. In contrast to the Section 8 Voucher program, the landlord has a contract with the tenant only,
and not with a government agency. There is no reason for the landlord to know that the tenant is
receiving the allowance, unless the landlord knows the tenant’s income. In fact in Manitoba where
families and the elderly receive a similar allowance, most recipients in a survey reported that their
landlords did not know they were recipients (Minuk and Davidson, 1981). This means that negotiations
between the landlord and tenant are uncontaminated by asymmetric information. At initial application
for a rental unit, the AL recipient is not hampered by bias against recipients in the program. She is, of
course, also not helped by the lower rent collection risk associated with a three-way contract (Benjamin
and Chinloy, 2000). However, Des Rosiers (2002) has not found any association however between AL
and rent delinquencies. At a more broad level, however, the existence of the AL program implies low
and moderate income renters (and home owners), as a class, will be characterized by lower rent
11
Of course the reverse is true also. But the AL of welfare recipients is increased between the annual application dates if their rent
increases (although non-welfare recipients must wait for the annual re-application date). Leases in Quebec predominantly end June 31 (the mass
mo ving date is a pec uliarly Quebe c pheno men on) and the AL benefit year starts in Octob er.
9
collection risk (mortgage payment risk) because of the financial assistance delivered by the program if
their income falls.
During the period of her tenancy, the AL recipient is not placed in a disadvantageous position
when the landlord is deciding on rent increases. At this stage the (limited) monopoly power of the
landlord (Arnott, 1989) is strengthened by the transactions costs of a move (which, however, is no
greater for an AL recipient than for any other tenant). This power is especially great in the case of
Section 8 recipients in tight markets. Lubell (2001) indicates that even four months of search time is
not enough for voucher holders in some markets. In tight markets, those landlords who accept Section
8 households only as a second choice (Peterson, 2000) may not accept them at all. Clearly a voucher
recipient is extremely constrained in her response, when presented with a rent increase in such a
market. Furthermore she is not protected by the requirement that recipients pay no more than 40 per
cent of income for rent (net of the voucher) because this applies only on first entry into a unit (Lubell,
2001). It is not surprising that Kennedy and Finkel (1987) found rents for a given quality of unit were
biased upwards for Section 8 recipients, especially voucher recipients and Malpezzi and Green (1996)
note suggestions of rent inflation. When Quebec first implemented its predecessor program, for the
elderly, Logirente, it required landlords to certify rents, but after observing the rent inflation associated
with this, dropped the requirement (Steele, 1985).
VII. THE PRICE SUBSIDY IN THE PERCENT OF RENT PAID AND THE MAXIMUM RENT
At first sight, the marginal price subsidy of two-thirds implied by the per-cent-of-gap parameter
in the AL constitutes a powerful incentive for increased housing consumption , or for an increase in the
price of housing service. There are several reasons why this is in fact not the case. First, this price
subsidy exists only for a quite narrow band of rents, between the minimum rent or 30 per cent of
income (whichever is greater) and the maximum rent. The maximum width of this band is Can$120
10
(Table 3). Transactions costs, and the fact that quantities of housing service in a dwelling unit are not
continuous are apt to defeat attempts to fine-tune consumption to take maximum advantage of the price
subsidy. For example the recipient in Table 1 would have to be paying precisely US$338 and receiving
no length of tenure, or other tenure conditions, discount (Friedman and Weinberg, 1982), and be able
to find alternative accommodation with a rent of precisely US$440, to achieve the maximum increment
of subsidized consumption. For the examples in the Table 1 the price subsidy is never as great as twothirds.
Second, the recipient is not assured of protection against increases in the price of housing
service. For example, if a recipient moves from a unit renting for $300 to a better unit renting for
$440, she may find a year after she arrives that the rent increases to $460. This is an important risk
because nominal minimum and maximum rents have not changed since AL was established in 1997
despite increases in nominal market rents (Table 3). Third, the price elasticity of demand for housing
among low income households is low (
and Quigley, 1981). Finally, low income households are
slow, in general, to adjust housing consumption to changes in conditions (Hanushek and Quigley,
1979). This is exacerbated here by the fact that families in this program are apt to regard the AL as
temporary. It will fall in value if their income increases and they will lose it entirely if their income
increases substantially. For example, families receiving the AL after a bout of unemployment will lose
it after becoming employed again, although, because of the administrative rules of the AL,12 most
recipients will be in the program for at least a year. The experience in Manitoba, where the allowance
amount responds quickly to income changes, was that the typical family recipient was on the program
for less than a year (Steele, 1985), a length in the program far less than for Section 8. This suggests
that family recipients of Al are apt to be in the program for not much more than a year, except for
12
The only circumstance in which a family will be in the program less than a year will be where the family enters the program
between October in t and August in (t+1) inclusive, on the basis of income in year (t-1) and rent in the month previous to its application month,
but has an incom e in year t which disqualifies it from con tinuing to receive the allow ance after Septem ber in (t+1 ).
11
welfare families in certain categories, for example single parents with preschool children. Elderly
recipients, it should be noted, unlike families, will not be subject to greatly fluctuating income and so
will be likely to be in the program for long periods of time.
An advantage of the percent of rent component in the AL formula is its implication for work
incentives. As pointed out in III, the marginal income tax-back of the AL is only 20 per cent (as
compared to 30 percent for Section 8).13 Furthermore, because of the minimum rent condition, there is
zero marginal income tax-back for families with an income below minimum rent/0.30. This is
illustrated in Tables 2 and 3. A single parent with one child would have to have a monthly income of
CAN$1327 (excluding Child Tax Benefit and Family Allowance) before 30 per cent of income was
greater than the minimum rent, i.e. before there was any tax-back at all (Table 3).
As can be seen in Table 3, the minimum rents are below median rents for recent movers in
Montreal for all family sizes, but outside Montreal they are above median rents for households of all
but one and three persons; for example the median rent for a two-bedroom dwelling is $440, but the
minimum rent for four persons is $460. Thus, outside Montreal many very low income families would
be paying a sufficiently low rent that they would not qualify for the allowance. In fact while 24 per
cent of the population live on the island of Montreal (which is only part of the Montreal CMA), 36 per
cent of participants live there (Hubert de Nicolini, SHQ).
The data on the amount that recipients actually do pay show that elderly singles (ie. those 55
and over) and families with more than four persons are the only categories of recipients with mean
housing cost higher than the maximum rent, with the difference $12 and $8 (for single-parent families)
respectively. This suggests that the considerations discussed earlier discourage recipients from taking
consumption up to the point where the two-thirds subsidy is fully used. This means that the value of
The lack of integration of Section 8 with welfare programs has attracted some concern (Newm an and
Schnare, 1989).
13
12
the maximum rent is of much less importance here than are the FMRs for Section 8 (Olsen and Crews,
1996). These data however, are indicators only of short term adjustment, and long term adjustment
should be greater-–although for most families long-term adjustment might be irrelevant because of their
short time in the program.
In Table 4 are shown market data starting from 1989, the year before the predecessor
allowance program was introduced for welfare families and including years before and after the AL
program was introduced in 1997. The CPI shows small increases immediately after 1990, when
welfare families received an allowance and annual (nominal ) increases of less than one per cent after
the AL was introduced, until 2001.
The CPI rent index is widely believed to be downward-biased and is not available for CMAs,
so we turn to data from Canada Mortgage and Housing Corporation’s Rental Survey. As can be seen
the vacancy rate was high in Montreal in the early 1990s when the deep Canadian recession in Canada
was especially deep in Quebec; in Montreal the unemployment rate climbed steeply in 1990-1991
reaching the 14 per cent range in 1992 (although in 2000 and 2001 it fell sharply to about 8 per cent).
In view of this it is not surprising that the rental vacancy rate increased after 1990-- peaking at 8.4 per
cent in 1992 in Montreal and 9.0 per cent in Trois-Rivières in 1991--despite the fact that this was the
year welfare families started to receive a housing allowance. Whatever pressure this exerted on the
housing market would have been swamped by negative effects of the recession. Similarly, it is difficult
to attribute either the recent tightening of the housing market in Montreal and in Trois-Rivières to the
AL rather than to rising general prosperity. Data for Toronto are included to provide a control (albeit
an imperfect one); its rental vacancy rate also peaked in 1992 and then fell to very low levels. Nominal
rent increases were low throughout the whole period in Montreal, except for the start of the 1990s, and
notably, for 2001. Overall, these data do not suggest that the housing allowance had a substantial
13
impact on rents and vacancy rates, although firm conclusions cannot be drawn given the imperfection of
the control.14
VII. PARTICIPATION
In the EHAP, where there were entitlement experiments, participation was found to be much
less than 100 per cent and there was much analysis of this issue (Bradbury and Downs, 1981 ). In
Section 8 participation is not an issue, because it is not an entitlement program. Estimates of
participation rates in the Quebec housing allowance are shown in Table 6. The home owner
participation rate, especially among the elderly, is low where income only is used to determine
eligibility. For both single parent and two-parent families, the rate for income-eligible home owners is
only 19 per cent. This is not surprising in view of two facts. First, few households with permanent
income below the income cut-offs would qualify for a mortgage, so that a substantial proportion of very
low income home owners would have no or very low interest payments. Second, the lack of tax
deductibility of mortgage interest in Canada provides a strong incentive for paying off mortgage
principal quickly. A home owner family falling on temporary hard times is likely to have a small
mortgage with interest payments too low to make housing cost greater than the minimum cut-off. Very
few Canadian elderly still have a mortgage so the very low estimated participation rate of incomeeligible elderly home owners is as expected.
The participation rate among rent-and-income eligible elderly households, at 51 per cent, is
somewhat lower than the estimated participation rate of the elderly in British Columbia in 1978 in their
similar housing allowance program (Steele, 1985, p. 77). One factor is likely the much lower value, in
14
No te tha t all thre e cities we re su bjec t to fo rm s of rent c on trol o ver th is pe riod –an d fo r m any yea rs ea rlier-- w ith a c han ge in
legislation likely in part responsible for the high rent increases in Toronto in 1998. The high vacancy rates in Mon treal in most years indicates
the extent to which rent control there was not binding. Under Quebec rent control, landlord and tenants are free to negotiate any rent but
tena nts m ay a pp eal th e ren t to a trib un al. T ena nts h ave ten d ays after th e sig nin g of a leas e to a pp eal to hav e the rent lo we red, but th is ha s to
be justified. In 1999-2000 there were fewer than 3600 appeals (about 0.3 per cent of rental units in the province). Currently there are reports of
prospec tive tenants offering m ore than ask ing rent. (I am ind ebted to Fran çois De s Ros iers for this information. )
14
real terms, of the Quebec benefit than the B. C. benefit. The B.C. data show that the participation rate
is relatively low among households eligible for only a small benefit, an expected result given the nonzero, although low, costs of participation. In Quebec, most of the 55 and over elderly would be 65 and
older and the latter would be eligible for only a small benefit because of size of the federal Old Age
Security and Guaranteed Income Supplement.
Families, both single-parent and two-parent have a very high estimated participation rate– at 96
and 97 per cent respectively, much higher than that for the elderly. This pattern of higher participation
rates for non-elderly than for the elderly was seen in the EHAP open enrollment Supply Experiment
(Strazheim, 1981). And enrollment rates among those living in a qualifying unit at enrollment–the
appropriate definition for comparison here–were 95 per cent Peterson (2000). These very high rates
are a remarkable achievement. One factor is the low marginal cost of participation for families,
because families must file an income tax return in order to receive the Canada Child Tax Benefit and
the Quebec Family Allowance, much richer benefits than the housing allowance. Once the tax return is
filed, very little information is needed other than evidence on rent paid, to obtain the AL.
It must be noted, however, that there are several factors biasing downward the estimated
number of eligibles and so biasing upward the estimated participation rates of families. First, rents
used are rents as of Spring, 1997, and rents required for eligibility are rents in October,1997; because
July 1 is the common move-in date and rent increase date in Quebec, this means that the number
disqualified in the estimation because of rent below the minimum rent is overstated. Second, no
account is taken in the estimation of dependent children 18 and over who are in school full-time, so that
some families with children in this class are not counted in the estimate of eligible households. Third,
only households with a single nuclear family are counted. For example, here a single-parent family is
not counted among estimated eligibles if any adult sharers are living with the family ( including a
boyfriend who is not identified as common-law spouse or cohabitant). In principle this should not cause
15
substantial underestimation because a substantial proportion of families in this circumstance would be
ineligible (because a deduction of $150 per month from rent is made for any sharer). On the other
hand, household composition may be incorrectly stated in the application form and this $150 per month
deduction not taken (see Priemus (2000)), in which case the family would receive the allowance even if
rent minus $150 is below the minimum rent. Fourth, account is not taken of subtenant situations where
the rent defined in the program is less than the rent of the dwelling unit.15 The closeness of the
estimated rates for single and for two-parent families (Table 6) suggests that these problems set out
above are not major.
VIII CONCLUDING REMARKS
The Quebec housing allowance, AL, is a program modest in its benefits but ambitious in its
scope. It aims to help all elderly and families (with children) who have a very low income and a
relatively high housing cost, at low administrative cost. As the participation estimates show, it has
indeed succeeded in helping a very high proportion of the needy. The number of very low income
households helped is about twice as many as helped by Quebec public housing (LRH) and more than
ten times the number helped through its Rent Supplement (RS) program.16 The subsidy per household
per month in 1998 was $55 for Al as compared to $313 for LRH and $246 for RS.17 Although the AL
is niggardly compared to the unit-based subsidies, it reduces the inequity of the housing assistance
system and makes an appreciable dent in the affordability problem. Further, there is no evidence of
15
For example consider the following example set out in SHQ (2000b, p. 12), a guide for social workers and counsellors: Mrs.
Carole Berger is the head of a single-parent family and has one child. She lives with her mother who charges her $435 for rent including
heating and lighting. Mrs. Berger pays for the laundry, household maintenance and meals for herself and her child. Her rent for purposes of
the program is then $435 (original in French, trans lation mine).
16
Bo th of thes e pro gram s are jointe d fu nd ed b y C M H C. Un der th e R ent S up plem ent p rog ram ; ho usin g ag enc ies co ntrac t with
private landlords for units and these are offered to those on the public housing waiting list. Like Section 8 vouchers, landlords in this system do
not have “ endless” leas es with sub sidized tenants, and there is a three-way co ntract. Und er RS there is also a program for No n-equity C o-ops.
17
SHQ , 1999, p p. 16, 21 , 22. The amo unt for RS is for private landlords on ly.
16
market effects, so there is no reason to suppose that low income households just above the income cutoff are harmed.
The success of the AL suggests that this is the kind of program that the Canadian federal
government and other provinces should consider. The AL directly targets the affordability problem,
by far the most predominant of all housing problems, in Canada.
The AL however, has limitations. It is not a desirable instrument for income mixing,
segregation because it does not have sizeable incentives for moving. It induces households to live in
housing at or above standard quality only to the extent that “minimum rent” is strongly related to
minimum quality standards. It does not help needy people under 55 who are childless. Further, it has a
political economy problem: landlords, whether those in the RS program in Canada, or those in the
Section 8 voucher program in the US are better able to lobby for increases in rent maximums (e.g. the
FMR and so the PS in Section 8) than poor people are. The result is seen in the changes over time in
AL parameters: minimum and maximum rents, and income cutoffs have remained unchanged since the
program started (in its present form) in 1997, despite substantial increases in market rents in 2001 and
small increases before that time. This has eroded the real value of the allowance. Finally, it sets a
single value to apply everywhere in the province, for minimum (and maximum) rent for households of
a given category. To some extent this “works” because rents in Montreal are much closer to those in
the rest of the province than, for example, those in Toronto are to the rest of Ontario. Nonetheless,
while setting a single value may be counted as consistent with the aims of the program, the single
minimum may ultimately limit Quebec-wide taxpayer support for the program, because Montrealers
have a higher incidence of affordability problems than in the province as a whole,.
17
REFERENCES
Arnott, Richard (1989) "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," Journal of Real Estate
Finance and Economics 2 pp.5-30
Benjamin, John D., Peter Chinloy and G. Stacy Sirmans (2000) “Housing Vouchers, Tenant Quality, and
Apartment Values,” Journal of Real Estate Finance and Economics
Bradbury, Katharine L. and Anthony Downs (1981) Do Housing Allowances Work? (Washington, D. C: The
Brookings Institution)
Colwell, Peter F. and Carolyn A. Dehring (1995) "Problems with Section 8 Rental Assistance," Illinois Real
Estate Letter Fall, 1-5
Des Rosiers, François (2002) Le Non-paiement de Loyer et la Santé du Secteur Locatif au Québec, draft report
prepared for CMHC (Quebec, Laval University).
Friedman, Joseph and Daniel H. Weinberg (1982) The Economics of Housing Vouchers (New York: Academic
Press)
Galster, George and Anne Zobel (1998) “Will Dispersed Housing Programmes Reduce Problems in the US?”
Housing Studies 13 5 605-622
Hanushek, E.A. and Quigley, J.M. (1979) "The Dynamics of the Housing Market: A Stock Adjustment Model
of Housing Consumption," Journal of Urban Economics 6(1), pp. 90-111.
Howenstine, E. Jay (1986) Housing Vouchers: An International Analysis (New Brunswick, N. J: Center for
Urban Policy Research, Rutgers)
Katx, Lawrence F., Jeffrey R. Kling and Jeffrey B. Liebman, “Moving to Opportunity in Boston: Early
Results of a Randomized Mobility Experiment,” Quarterly Journal of Economics 116 2 607-654
Kemp, Peter A. (1997) A Comparative Study of Housing Allowances United Kingdom Department of Social
Security Research Report No. 60 (London: The Stationary Office) pp. 142
Kennedy, Stephen D. and Meryl Finkel (1987) Report of the First Year Findings for the Freestanding Housing
Voucher Demonstration (Cambridge, Mass.: ABT Associates) pp. 163
Lubell, Jeffrey M. (2001) “Recent Improvements to the Section 8 Tenant-Based Program,” Cityscape 5 2 8588.
18
Malpezzi, Stephen, and Richard K. Green (1996) “What Has Happened to the Bottom of the US Housing
Markets,” Urban Studies 33 10 1807-1820
Mayo, Stephen K (1986) "Sources of Inefficiency in Subsidized Housing Programs: A Comparison of U. S.
and German Experience," Journal of Urban Economics 20 229-249
Minuk, Morley and Kathy Davidson (1981) "A Report on the Research Findings of the MHRC 1981 Shelter
Allowance Programs Review," (draft) (Winnipeg: Manitoba Housing and Renewal Corporation)
Newman, Sandra J. and Ann B. Schnare (1989) "Reassessing Shelter Assistance: The Interrelationship
between Welfare and Housing Programs," in Sara Rosenberry and Chester Hartman (eds.) Housing
Issues of the 1990s (Praeger: New York)
Olsen, Edgar O. and Kathy A. York (1984) “The Effect of Different Measures of Benefit on Estimates of the
Distributive Consequences of Government Programs” in Marilyn Moon (ed.) Economic Transfers in
the United States Studies in Income and Wealth Vol. 49 National Bureau of Economic Research
(Chicago: University of Chicago Press).
Olsen, Edgar O. and Amy D. Crews (1996) “Are Section 8 Housing Subsidies Too High”? presented to the
New Orleans meetings of the American Real Estate and Urban Economics Association, January, 1997 (
Department of Economics, University of Virginia, Charlottesville, Virginia)
Painter, Gary (2001) "Low -Income Housing Assistance: Its Impact on Labor Force and Housing Program
Participation” Journal of Housing Research 12 1 1-26.
Peterson, George (2000) “Housing Vouchers: The US Experience,” in C. Eugene Steuerle, Van Doorn Ooms,
George Peterson and Robert D. Reischauer eds., Vouchers and the Provision of Public Services
(Washington, D. C.: Brookings), 139-175.
Priemus, Hugo (2000) “Housing Vouchers: A Contribution from Abroad,” in C. Eugene Steuerle, Van Doorn
Ooms, George Peterson and Robert D. Reischauer eds., Vouchers and the Provision of Public Services
(Washington, D. C.: Brookings), 176-194.
Sard, Barbara (2001) “Housing Vouchers Should be a Major Component of Future Housing Policy for the
Lowest Income Families, Cityscape 5 2 89-110
La Société d’Habitation du Québec (SHQ) (1999) Rapport Annuel 1998 (Quebec City: Gouvernement du
Québec)
La Société d’Habitation du Québec (SHQ) (2000a) Plan Stratégique, 2000-2003 (Quebec City: Gouvernement
du Québec)
19
La Société d’Habitation du Québec (SHQ) and Ministère du Revenue (MRQ) (2000b) Guide de Calcul
Allocation-Logement: On Peut Vous Aider à Payer Votre Loyer (Quebec City: Gouvernement du
Québec)
Steele, Marion (1985) Canadian Housing Allowances: An Economic Analysis Ontario Economic Council
Research Study (Toronto: University of Toronto Press for Ontario Economic Council)
Steele, Marion (1998) “Canadian Housing Allowances Inside and Outside the Welfare System” Canadian
Public Policy--Analyse de Politiques XXIV 2 209-232.
Steele, Marion (2001) “Housing Allowances in the US under Section 8 and in Other Countries: a Canadian
Perspective,” Urban Studies 38 1 81-103.
Strazheim, Mahlon (1981) “Participation” in Bradbury and Downs (1981) 113-145
Weicher, John C. (1997) Privatizing Subsidized Housing (Washington: American Enterprise Institute) pp. 53.
Table 1. Rent after the housing allowance under Section 8 and under the Quebec allowance
A. Assumptions (all values are in US dollars)
Section 8 allowances
Certificate
Quebec allowance (AL)
Voucher
Recipient gross income
$1000
$1000
$1000
Recipient income after deductions
$ 840
$ 840
680
300
n. a.
Rent for unit just passing minimum standards
condition
300
Minimum rent
n. a.
n. a.
338
Maximum rent
500 (FMR)
500 (PS)
440
B. Effects at different rent levels (all values are in US dollars)
Rent before the allowance
$300
$400
$500
$600
Rent paid by recipient to landlord
252
252
252
$600
Rent paid by PHA to landlord
$48
$148
$348
0
0
0
0
0
$252
$252
$252
$600
Rent paid by recipient to landlord
$100
$152
$252
$352
Rent paid by PHA to landlord
$200
$248
$248
$248
0
0
0
0
$100
$152
$252
$352
$300
$400
$500
$600
0
0
0
0
1. Section 8 certificate
Housing allowance paid to tenant
Rent of recipient after allowance
2. Section 8 voucher
Housing allowance paid to tenant
Rent of recipient after allowance
3. Quebec’s Allocation-Logement
Rent paid by recipient to landlord
Rent paid by PHA to landlord
Housing allowance paid to tenant
0
$41
$68
$68
Rent of recipient after allowance
$300
$359
$432
$532
Notes: FMR refers to Fair Market Rent. PS refers to Payment Standard.. Quebec values are in US dollars with conversion based
on the assumption Can$1=US$0.85; the purchasing power rate for 2000 for GDP is Can$1=US$0.84, as estimated by the OECD
(www1.oecd.org/sts/ppp1.pdf). The deductions from gross income for the Quebec case are for the Canada Child Tax Benefit (in
Canadian dollars, $216.33 per month) and the Quebec- funded Family Allowance (in Canadian dollars, $160.42 per month).
Table 2.Income after the housing allowance under Section 8 and after the Quebec allowance
A. Assumptions
Section 8 allowances
Quebec allowance
Certificate
Voucher
US$
$500
Rent
$500
$500
Deductions to derive income for subsidy
$160
$ 160
Minimum rent
n. a.
n. a.
338
Maximum rent
500
500
440
220
B. Effects at different income levels
Income before the allowance
$700
$1000
$1300
$1600
338
248
158
68
1. Section 8 certificate or voucher
Rent paid by PHA to landlord
Benefit to tenant or rent paid to landlord
28 7.3
210.8
134.3
57.8
Change in benefit resulting from income
change
n.a.
-76.5
-76.5
-76.5
Income of recipient after allowance
987.3
1210.8
1434.3
1657.8
3. Rent and income-conditioned allowance of the Canadian type
Rent paid by PHA to landlord
0
0
0
0
Housing allowance paid to tenant
68.034
68.034
33.35
0
Benefit of housing allowance to tenant
68.034
68.034
33.35
0
Change in benefit resulting from income
change
n.a.
0
-34.68
-33.35
Income of recipient after allowance
768.034
1068.034
1333.4
1600
Notes: FMR refers to Fair Market Rent. PS refers to Payment Standard. For the Section 8 voucher the benefit to the tenant is
assumed to be 85 per cent of the rent paid to the landlord; this is greater than the estimate of Olsen and York (1984) that the
Hicksian benefit to recipients of public housing is 91 per cent of the public housing subsidy, in part to account for relocation costs
of recipients. .
Table 3
Rent Parameters in Quebec’s Allocation Logement and Rental Market Indicators
Rent parameters in
AL, 1997-2001
Rent, spring 1997a
Mean housing cost and income of recipients,
1997-1998 benefit year
Minimum
Median,
recent movers
Mean monthly housing
cost
Montreal
Quebec
ex. Mon
Elderly
Maximum
Number of
persons
Familiesb
Mean income,
1996
Elderly
Familiesb
one
$308
$428
[385]
[350]
440
10266
two
$398
$518
435
380
501
three
$$434
$554
495
440
542 (542)
10268 (12340)
four
$460
$580
495
440
577 (572)
10106 (14201)
more than
four
$486
$606
[595]
480
614 (611)
10179 (14277)
497
12559
9108
a
Dwelling units sizes are bachelor, for one person, one-bedroom for two, two bedroom for three or four and three bedroom for more
than four. Values in square parentheses are based on fewer than 100 observations.
b
Values for single parent families are given, with values for two-parent families in parentheses.
Sources
Col.1 and 2: www.shq.gouv.qc.ca/en/pg/ls/pgaloh00.html and Hubert de Nincolini, SHQ
Col. 3 and 4: weighted estimates using the 1997 Household Income, Facilities and Equipment datafile. The flat allowance used by the
SHQ in computing the AL is added to rents in cases where heat and electricity is not included in rent. Recent movers are households
moving in 1994 or later (up to the date of the survey in Spring, 1997).
Col. 5 to 8: “Statistiques sur la Clientèle d’Allocation-Logement Par Type de Ménage,” file Menage.xls, obtained from Hubert de
Nicolini, SHQ. Housing cost for renters includes flat amounts for heat and electricity when these are not included in rent and any costs
for municipal services. Housing cost for home owners includes mortgage interest and other costs (see text, above).
23
Table 4
Nominal rent and vacancy rates, Toronto, Montreal, Trois-Rivières and the Province of Quebec, 1989 to 2001
Toronto
Montreal
Trois-Rivières
Quebec Province
Rent component of
Consumer Price Index
Mean
rent
Change
%
Vac
ratea
Mean
rent
Change
%
Vac
ratea
Mean
rent
Change
%
Vac
ratea
Index
1992:100
Change
%
1989
642.
n. a.
0.3
468. .
n. a.
4.9
367.
n. a.
5.6
93.8
n. a.
1990
683
6.4
0.9
475
1.5
5.9
379.
3.3
8.1
96.4
2.8
1991
725
6.1
1.7
490
3.2
7.8
395
4.2
9.0
98.9
2.6
1992
749
3.3
2.0
499
1.8
8.4
408
3.3
7.4
101.1
2.2
1993
770
2.8
1.9
498
-0.2
8.2
411
0.7
7.0
102.5
1.4
1994
782
1.6
1.2
497
-0.2
7.5
412
0.2
7.8
103.6
1.1
1995
803
2.7
0.8
505
1.6
6.8
416
1.0
7.8
104.8
1.2
1996
817
1.7
1.2
504
-0.2
6.3
414
-0.5
8.5
105.7
0.9
1997
819
0.2
0.8
(0.8)
503
-0.2
6.6
(5.9)
414
0.0
8.8
(8.6)
106.2
0.5
1998
879
7.3
(0.8)
512
1.8
(4.7)
421
1.7
(8.5)
106.8
0.6
1999
911
3.6
(0.9)
521
1.8
(3.0)
411
-2.4
(7.9)
107.3
0.5
2000
982
7.8
(0.6)
527
1.2
(1.5)
419
1.9
(6.8)
108.0
0.7
2001
1030
4.9
(0.9)
549
4.2
(0.6)
425
1.4
(4.7)
109.2
1.1
Year
a
Vacancy rate is for units in buildings of six units or more (in parentheses for buildings of three units or more).
.
Sources: mean rent (for two-bedroom apartments in buildings with six or more apartment units) and vacancy rate data are from Canadian
Housing Statistics, various years and the CPI rent component is from Statistics Canada (CANSIM no. P105035. All data are for October.
24
Table 5
Comparative Statistics for the Quebec Housing Allowance and the Section 8 Allowance
Quebec Housing Allowance
Section 8 Housing Allowance
Familiesa
Elderly
Total
Total
1995
121,000b
59,000
179,000
1996
96,000b
59,000
155,000
1997
78,000b
60,000
138,000
1998
87,000
68,000
155,000
1999
72,,000
74,000
147,000
2000
66,000
83,000
150,000
2001
66,000
89,000
156,000
Number of recipients
1,433,000
Proportion of recipients (1998 for Quebec data (1997 income); for US proportions are for 1997 data
Elderly
44% (55 and over)
16% (62 and over)
Elderly or with disability
Families:a single parent
total
Welfare recipients
34%
38%
57%
56%
66%
32%
25%
Income
less than Can$5,000c
8%
less than US$5,000
more than Can$20,000c
19%
3%
more than US$20,000
4%
Mean monthly allowanced
US$48
US$433
Mean monthly rent net of allowanced
US$374
US$204
Mean annual incomec
US$9073
US$9100
a
With dependent child under 18 or in schooling full time, for Quebec; with child under 18 for US.
Welfare families only.
c
Quebec amount excludes Canada Child Tax Benefit and Quebec Family Allowance; converted to US$ at rate Can$1=US$.85.
d
Quebec amount converted to US$ using Can$1=US$.85.
b
Sources
Quebec data. Number of recipients: table entitled “Évolution de la clientèle Logirente, Prestation spéciale d’allocation-logement et
Allocation-logement” obtained from Hubert de Nicolini, SHQ; also see La Société d’Habitation du Quebec Rapport Annuel 1998
(Quebec: Gouvernement du Québec) and La Société d’Habitation du Quebec Plan Stratégique, 2000-2003 . Other data: spreadsheets in the
file Menage.xls obtained from Hubert de Nicolini, SHQ.
US data. Mean monthly allowance: estimate in Weicher (1997). Other data: www.huduser.org/datasets/assthsg/picqwik.html.
25
Table 6 Estimated participation rates by type of household, Quebec allowances, 1997-1998
Single-parent Two-parent
families
families
Recipients
Total
59250
Home owners (est.) 2969
Renters (est.)
56281
All families
27785
4753
23032
Elderly
87035
7722
79313
68379
1870
66509
Households with a single economic family
Total
196946
736206
Home owners
58597
565602
Renters
138349
170604
933152
624199
308953
790142
424949
365193
Estimated Income eligible
Home owners
15391
Renters
98686
40919
141542
120292
221888
82472
129845
25528
42856
Estimated Income and rent-eligible
58604
23868
Estimated participation rates (assuming eligibles are in households with a single economic family)
Home owner recipients as percentage of income-eligible home owners
19.3
18.6
1.6
Renter recipients as a percentage of income-eligible renters
57.0
53.7
30.0
Renter recipients as a percentage of income-and-rent-eligible renters
96.0
96.5
51.2
Sources
1. Number of recipients by demographic category taken from spreadsheet Menage.xls provided by Hubert de
Nicolini, SHQ and number of home-owner recipients estimated using data provided by Mr. de Nicolini.
2. Numbers of households are weighted estimates using Statistics Canada Household Income, Facilities and
Equipment (1997 Survey) datafile. Income-eligible families are defined as those with at least one-child below 18
and at or below the AL cut-off income (which varies by household size). where the household contains only one
economic family. Income-eligible elderly are defined as those with head or spouse at least 55 and at or below the
Al cut-off income,where the household contains only one economic family.
3. Rent and income-eligible families and elderly are defined as those which are income eligible and pay rent in
spring, 1997 which is greater than the maximum of ( minimum rent, 30 per cent of income).
26
27