Journal of Real Estate Finance and Economics, 18:1, 107±124 (1999)
# 1999 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Subsidized and Unsubsidized Housing Stocks 1935 to
1987: Crowding out and Cointegration
MICHAEL P. MURRAY
Department of Economics, Bates College, Lewiston, ME 04240
Crowding out arises in many economic contexts, from the macro concern that de®cit spending might crowd out
investment to the micro concern that increased employment of women might result in fewer jobs for men. Here I
ask whether subsidized housing crowds out unsubsidized housing in the United States, applying the econometric
tools of cointegration analysis. Such crowding out proves to require stringent restrictions on the coef®cients of the
cointegrating relationships that link housing stocks with one another and with other economic variables. These
restrictions also apply to testing for other crowding out phenomena.
I ®nd that public housing has steadily added to the total stock of housing since its inception in 1935. In contrast,
I ®nd that moderate-income, conventionally ®nanced, subsidized housing, such as the Section 235 and 236
programs that accounted for more than 1.5 million new units between 1960 and 1987, most likely adds little or
nothing to the total housing stock. These ®ndings speak against recent proposals to provide subsidies to
developers who build dwellings for moderate income Americans but offer quali®ed encouragement to those who
advocate expansion of the conventional public housing program.
Key Words: subsidized housing, housing supply, crowding out, cointegration
Between 1960 and 1980, the federal government subsidized the construction of 1.3 million
conventionally ®nanced housing units for households with moderate incomes. During that
period another 1.0 million units of government ®nanced housing were constructed for low-
income households, adding to the 800,000 subsidized low-income units built between
1935 and 1959.
In the 1980s, the federal government abruptly shifted its housing subsidy
resources toward subsidizing tenants in existing dwellings, thereby markedly reducing
subsidies for new construction.
Some advocates of housing assistance have deplored the reduction in new construction
subsidies, calling for both increased public housing construction and the introduction of
new subsidies to developers to spur the production of housing for moderate-income
households. These advocates argue that the subsidies for existing housing do little to
increase the stock of adequate housing. They claim that direct intervention by the
government in subsidizing new construction is the best way to ensure that a larger stock of
adequate housing becomes available to lower income Americans.