Let’s Draw Straws!

Do you like housing lotteries?

For most Harvard students, the answer is probably a fat no, and if you said yes, you’re either a freshman or you somehow got an n+1 six-man as a sophomore. But ’tis the season for housing sweepstakes, so in honor of this festive part of the semester, it’s only fitting to discuss Cambridge’s very own housing lottery: the HomeBridge program.

The program — which last month saw its eligibility requirements tightened — provides financial assistance to first-time homebuyers and has been overwhelmed with applicants in recent years.

Balancing the social good of housing with economic realities is a difficult feat, but the reality is that the HomeBridge program, like many housing assistance programs, is structured in a manner that is ineffective at lowering costs for the Cambridge community. These more narrow eligibility requirements only reflect its inability to fulfill its intended purpose of helping reduce the housing burden for first-time homeowners.

Using the spatial equilibrium model, where economic agents (like individuals and firms) are indifferent across locations, housing prices are primarily determined by the wages and amenities in an area. For instance, in a city with high wages and lots of amenities, housing will likely be expensive. If housing were cheap, people would want to move to that city, and, thus, they would bid up prices in the area.

Ultimately, people want to live in Cambridge. It has consistently been rated one of the best American cities to live in, providing its residents with a wide variety of amenities. It also has a high wage rate, as evidenced by a median household income well above the national average. These factors add up to create a high demand for new residents to move into the area. However, Cambridge’s housing supply is difficult to scale because of zoning and regulatory restrictions, causing its stock of residential units to be relatively inelastic, or fixed.

In this scenario of inelastic supply, subsidizing housing demand through mortgage assistance only serves to raise prices for those who are not being subsidized. It also creates economic distortions as everyone wants houses below market value. But the HomeBridge program only has a finite budget. The city government has thus been forced to create arbitrary standards to stop the system from being overwhelmed with financing requests.

HomeBridge’s qualification standards prove this point. The program requires an applicant to purchase a government-approved property, obtain a mortgage with monthly payments between 30 to 33 percent of their household’s gross monthly income, and meet specific household income requirements. Essentially, it seems as if HomeBridge is attempting to weed people out of applying, but, in practice, they are rewarding homebuyers arbitrarily if they happen to meet very specific conditions and standards, even if they don’t have the greatest need for subsidies.

To be fair, these standards aren’t plucked out of thin air — they are decided by a group of nine experts in housing policy who presumably know far more than I. However, like most centralized committees, they fall victim to informational issues. It is nearly impossible to determine a good one-size-fits-all policy for who is deserving of housing assistance. There are many nonquantifiable factors that are difficult to glean from arbitrary standards at the time when a mortgage is secured, such as expected future income or expected shifts in housing prices.

This structural inability to process more localized knowledge makes it extremely difficult to ensure that the people who actually need mortgage assistance can receive it. HomeBridge’s ultra-specific standards do not ensure an efficient allocation of funds to the most needy — they simply reward luck.

The reality is, if Cambridge wants to make housing here more affordable, they need to make it easier to build more residential units. Doing so will make supply more responsive to changes in demand and keep prices stable.

The city is already taking steps in the right direction. The massive zoning reform undertaken last year provided a welcome start by eliminating single-family zoning to hopefully permit the creation of larger, multi-unit developments that will make it more cost-efficient to increase housing supply. The demand-side subsidies that the HomeBridge program provides, however, seem counterproductive to this larger goal.

In short, housing lotteries are bad for everyone — whether you’re a college student or a Cambridge resident.

Henry F. Haidar ’28, an Associate Editorial Editor, is an Applied Math concentrator in Lowell House.