Why income discrimination laws hurt poor renters

More cities and states have become concerned with landlords discriminating against people using government housing vouchers. Today 23 states and more than 100 local governments have “source of income,” or SOI, discrimination laws on their books, which typically allow renters to sue landlords who refuse to accept some types of payments, most especially vouchers. This year, for example, Kansas City, Missouri, passed its own SOI ordinance that bans discrimination against tenants based on the source of their rental income.

The desire to protect poor renters is understandable, but there is little reason to believe that SOI laws help them. The research on the benefits of SOI laws is spotty, and the costs they add to landlords renting to the low-income market are substantial. If politicians want to help low-income renters, they should reduce the burdens in the voucher program rather than force more landlords to shoulder them.

Vouchers were introduced in the 1960s as a substitute for traditional public housing programs, whose problems, including spiraling costs and poor government management, were already well known. Soon after, starting with Massachusetts in 1971, states and cities began banning discrimination against voucher holders. These governments treated discrimination against voucher holders as similar to discrimination against people in other categories, such as race or sex.

After decades, little is known about the effectiveness of these laws, except that they have not been a panacea. A 2019 survey from the U.S. Department of Housing and Urban Development found “research is mixed on the effectiveness of SOI laws.” Some studies show that SOI laws help voucher holders move to better neighborhoods, but as one noted, the “effects are modest.” This study found less than a 1 percentage-point decrease in neighborhood poverty rates, and this was limited to the group of existing voucher holders who moved.

Some studies claim that SOI laws increase the ability of local housing authorities to use all of the vouchers allotted to them by the federal government that would be lost due to a family’s inability to find housing. The problem with this argument is that almost all housing authorities already use all of their vouchers. If one family cannot use a voucher, another on their long waiting lists almost certainly will. For instance, in 2017, the voucher program nationwide used 99.9% of the funded vouchers, meaning just about every voucher issued by the federal government was used.

Almost no SOI studies look at the costs of the laws, but they are substantial. Although lawsuits based on income discrimination are less common than other types of housing laws, they are becoming a bigger issue. New York City itself files dozens of cases a year, which can sometimes cost landlords tens of thousands of dollars. Washington, D.C., won a $10 million settlement against some real estate firms and individuals based on voucher discrimination. In March HUD created a website that aims to help people avail themselves of SOI laws and sue their landlords.

Some might defend the costs of voucher discrimination enforcement as necessary, but that argument ignores how SOI laws help push landlords out of the low-income housing market altogether. Landlords are a broad class in America and most do not have a lot of excess funds. About 7% of all tax filers are landlords according to one estimate. Many are barely getting by. In 2018 about half of landlords reported negative income after deducting costs. Large numbers of minorities and women, especially in the inner city where voucher use is high, are landlords.

The bigger problem with SOI laws is that they treat the refusal of landlords to accept vouchers as the result of “prejudice,” similar to the unjustified exclusion of minorities or women. Yet voucher programs have real costs that require landlords to go above and beyond typical rental agreements. For instance, the government calls for annual inspections that can be slow and arbitrary. A HUD-funded series of interviews with landlords found that “administrative inefficiencies related to inspection are one of the primary drivers of nonparticipation” in the voucher program. HUD has noted many legitimate concerns that landlords have with vouchers, from the nature of the lease to difficulty learning about new tenants.

SOI laws force landlords to absorb extra costs and thus discourage some from entering the low-income rental market in the first place. Evidence shows that housing regulations decrease the provision of housing, and SOI laws add to those regulations.

Instead of forcing more landlords to accept vouchers, the costs of which the government itself acknowledges, the voucher system should be reformed. Allowing higher rental payments in better-off communities (and lower payments in poorer ones) can help voucher holders escape poverty. Reducing inspection and other burdens can encourage more uptake by landlords.

Rather than forcing landlords to endure more bureaucratic costs, the government can reduce the costs and burden they bear. Instead of SOI mandates, governments should make landlords partners in the voucher program and thus help encourage, instead of discourage, more housing for low-income renters.

Judge Glock is the director of research at the Manhattan Institute. He is the author of the book, The Dead Pledge: The Origins of the Mortgage Market and Federal Bailouts, 1913-1939.