Where you live matters—and now, the government is taking a big step to help working-class families move into better neighborhoods.
Researchers in social policy-focused economics have found loads of evidence that the neighborhood you grow up in has a high correlation with your chances of economic success. Stanford's Raj Chetty, the most prominent expert in this field, has written, "the outcomes of children whose families move to a better neighborhood – as measured by the outcomes of children already living there – improve linearly in proportion to the time they spend growing up in that area."
So, if you want to improve the chances of upward mobility for working-class people, the solution is simple: help them move to better neighborhoods. The U.S. government seems to have woken up to this fact, and they're now doing something about it.
Last month, the Department of Housing and Urban Development (HUD) announced a proposal to overhaul Section 8 housing vouchers, also known as the Housing Choice Voucher Program. For decades, Section 8 rent subsidy formulas have been calculated on a metro-wide basis. So, if you lived in a bad neighborhood in Philadelphia and wanted to move to a slightly better neighborhood a few miles away, the government might give you a few hundred bucks a month toward your rent there. But if you wanted to move to a much better neighborhood in Philadelphia…well, you can't, because those same few hundred dollars won't go far enough to get you there.
The current policy made sense in an era when housing costs were less unequal within cities, and all a poor family needed was a little help to jump into a middle-class neighborhood.
But with middle-class neighborhoods increasingly disappearing as rents soar, calculating subsidies on a citywide basis means the marginal improvement for every government dollar spent on housing help has diminished. Today, Section 8 holders are more likely to use their subsidies just to stay away from an even worse neighborhood than they are to catapult themselves into a better one. It has also created a situation where property investors are incentivized to drive up rents in Section 8-heavy neighborhoods because they know renters are trapped there, but that the government will foot part of the bill (usually whatever is leftover after a tenant pays 30% of their income) up to the city's fair market rent.
So HUD has put forth a new, simple proposal for calculating subsidies: Do it by ZIP code. The goal, as HUD puts it, is to give poor and working class families "a more effective means to move into areas of higher opportunity and lower poverty areas by providing them with subsidy adequate to make such areas accessible and to thereby reduce the number of voucher families that reside in areas of high poverty concentration."
In the process, HUD hopes to eliminate predatory slumlords by reducing payments available to ZIP codes with lower rents.
Will the strategy work? If the experience of Dallas is any indication, the answer is yes. In 2007, a fair housing advocacy group sued the city's housing authority, saying the way housing vouchers were being administrated was perpetuating segregation. As part of a 2010 settlement, the city agreed to begin calculating subsidy formulas by ZIP code.
The result, according to calculations made by University of Chicago economists Rob Collinson and Peter Ganong in a recent paper: The quality of the neighborhood people moved into were 0.23 standard deviations higher than their old ones, "a substantial improvement," they write.
Here's a map they created showing what post-policy reform moves looked like. You can see a general trend of people moving out of lower-quality neighborhoods, in red, and into higher-quality ones, in blue. .
These moves produce dramatic changes in the lives of poor people, and especially poor minorities. Collinson told me that the gains from moves under the ZIP code policy were equivalent to closing one-third of the neighborhood quality gap (as measured by things like crime rates and test scores) between white people and Hispanics, and one quarter of the gap between white people and black people in Dallas.
One might think that this policy could leave poorer neighborhoods even worse off by increasing outflows of Section 8 participants. But Collinson told me that Section 8 was never meant to be used as a way to improve neighborhoods; rather, it's designed as a tool for families to improve their odds of success.
His main concern, instead, is that some markets, like New York and San Francisco, have such bad housing shortages that landlords won't even be interested in the government paying a tenant's rent because they know they can find demand for stratospheric rents. (This is already happening in the San Francisco area, where lots of apartment listings come with "no section 8" clauses.)
But for the majority of cities being considered under HUD's new program, the benefits to low-income families are likely to be substantial. The reform could kick in as soon as next year; the department started seeking comments on it this month. For the more than 2 million families who use Section 8 vouchers, it can't come soon enough.
Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.