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Does the Earned Income Tax Credit Reduce Housing Instability?

The project: Stable housing is very important as it relates to economic, physical, and emotional well-being. However, as housing affordability has declined in the past 15 years, housing has become more unstable, which impacts the housing and living arrangements of low-income families.

Housing vouchers help improve housing outcomes, but only 24% of 19 million eligible households receive that type of assistance. The Earned Income Tax Credit (EITC) could offer another avenue to improve housing outcomes for low-income households. The EITC provides a cash refund to about 26 million working low- and moderate-income households every year, and the refund amount is determined by income level and number of children. States also have EITCs that are typically a percentage of the federal EITC.

Between 1975 and 2016, the maximum federal EITC refund grew from $1,700 to $6,300, in 2016 dollars. The study aimed to determine whether more generous EITC refunds would improve the housing outcomes of low-income unmarried mothers.

The process: Using data from the Fragile Families and Child Well-being Study, Current Population Survey, and American Community Survey, the study focused on unmarried mothers because they are the primary recipients of EITC, are most likely to experience poor housing outcomes, and their children are vulnerable to the detrimental effects of housing instability.

Housing outcomes examined included homelessness, eviction, cost burden (spending 30% or more of income on housing), severe cost burden (spending 50% or more of income on housing), household crowding, and doubled-up living arrangements like living with other adults who are not part of the nuclear family or multi-generational households.    

Results: The study found a $1,000 increase in the EITC improved housing outcomes by reducing housing cost burdens and crowding, but it had no effect on eviction or homelessness. Increases in the EITC also reduced doubled-up living arrangements and multi-generational households, suggesting mothers prefer to live independently. Mothers also were more likely to be named on their lease or mortgage, which may increase housing stability.

“Implementing or expanding EITCs may be an effective way to address some pressing housing issues. By improving housing outcomes and increasing the stability in living arrangements of children, the EITC may help reduce the intergenerational consequences of housing instability,” states a peer-reviewed article on the study that was accepted to be published in the Population Association of America’s “Demography” journal.

More information: The effect of income on housing and living arrangements: evidence from the Earned Income Tax Credit

Tots or Teens: Who benefits from refundable tax credits?

Natasha Pilkauskas, U-M Ford School of Public Policy
Katherine Michelmore, U-M Ford School of Public Policy