Cash For Housing Better Than More Building Alone

Two years after the first rounds of Covid stimulus payments were sent by the federal government, efforts are beginning to assess the effect of direct cash payments. I have long been an advocate for cash payments, especially for rent, instead of expensive and inefficient building programs. A couple of studies point at two important outcomes from the Covid cash. First, the money helped solve real problems associated with Covid and poverty. Second, the money created some subjective impacts, specifically more awareness about money and budgeting and a heightened sense of anxiety about what happens when the subsidy is gone. If we’re going to move toward a cash for rent strategy, it’s worth taking a look at these outcomes.

“How Effective Is (More) Money?” asks a study completed by a team of researchers looking at hundreds of Covid relief payments sent out to households during the pandemic. At first, their answer – “we find no evidence that they had positive impacts” – might seem disappointing. However, digging deeper into their findings, the study suggests that if the measure of success for direct cash transfers is “the ability to pay for pressing needs, pay down debt, or save for a rainy day” then “then simply providing cash to those in need almost by definition accomplishes that goal.” The study’s focus on the subjective and psychological impacts of cash indicates that more money doesn’t positively impact “how anxious or stressed a person feels.”

This subtle distinction between solving immediate problems and relieving the larger issues associated with poverty is important. However, there seems to be a bit of bias in the framing of the question and the answer. The authors seemed sort of shocked to find out that “the poorer individuals were, the more they thought about money.” This is obvious to anyone who has experienced poverty or even losing a job. When money is steadily arriving in the form of a direct deposit from a job, people tend not to think about money. When they lose that job, even if they have cash reserves, money becomes a concern.

So, the authors say that, “we expected that providing poor individuals with a positive shock to their finances through a [Unconditional Cash Transfer] would decrease the extent to which they thought about money” but they were surprised to “find the opposite: both the $500 and $2,000 groups thought about money more rather than less.” The study found that the sudden appearance of a “windfall” of cash increased people’s stress. The findings of the study concentrate on this apparent dissonance, that people with less money didn’t suddenly feel subjectively better when they got the cash because, in many cases, the money was spent quickly.

The conclusions make sense, that it is “plausible that precisely because participant income was so low, needs were also vast, and thus that the UCT amounts could have been swamped by those needs.” But does this mean the payments were a bad idea? Should cash payments for necessities like rent, even if they create some distress, be avoided? Hardly. And the study does suggest that what would relieve that distress is consistent cash payments rather than one time payments. “We believe it is possible that a larger amount of money,” the authors conclude, “(perhaps paid out over time) could have had more positive effects.”

All of this is confirmed in another study of the stimulus checks that were sent out during the height of the pandemic. A CNBC story headlined, “Pandemic-era checks rewired how these Americans see money: ‘Stimulus changed how I think about what’s possible’” highlights that, indeed, cash payments solved immediate problems and caused recipients to focus on money. But this wasn’t necessarily a bad thing. One woman featured in the story said that payments allowed her to focus on financial planning, setting up automatic payments for bills online.

“The stimulus changed how I think about what’s possible, personal spending habits and the way in which I manage my money,” she said.

Another family found that steady payments for their children helped pay for basics like diapers. One recipient, named Nestor Moto, said that he used the funds to help pay down student debt.

““I saved money,’ Moto added. ‘[The stimulus] really helped put into perspective how much money I make a month and week and how much I spend.

‘It showed me how much every dollar really matters.’”

A few things are important to note based on these initial evaluations of direct cash transfers. First, there is no doubt that poor people think about money more than those with steady and secure incomes that exceed their costs of living. Adding a one-time cash payment into their finances is not likely to alleviate the worry about money and, as the first study found, might even make that worry worse. But as the second study found, that worry might not be worry at all, but a motivator to plan and save.

Second, there also seems no doubt that one time or temporary payments don’t alleviate the underlying issues, lower wages and higher costs. When wages don’t keep up with inflation, then any additional cash just gets burned up faster. This just highlights the hazard and harms of inflation. Steady and consistent support to buy down cost burden for housing especially would ameliorate real suffering, promote and support better financial planning for families, and allow many households to begin saving and paying down debt. Each of these supports a long-term outcome of financial independence and sustainability.

Finally, cash payments make inflation worse. It is important to admit this with any effort to create cash support for housing. However, the inflationary consequences of cash are less harmful than massive spending on construction, spending that has reached all-time highs without success. Local governments must be held to account for regulation that pushes up prices, not rewarded with subsidies to build expensive housing. If done together, building more housing while offering cash for rent burdens among people with less money can end much of the real challenges families face with housing costs.