Disclaimer

This paper reports the results of research and analysis undertaken by Census Bureau staff. It has undergone a Census Bureau review more limited in scope than that given to official Census Bureau publications. This report is released to inform interested parties of ongoing research and to encourage discussion of work in progress.

The National Academy of Science's Panel on Poverty and Family Assistance analyzed the methods, concepts, and definitions currently used to determine the official poverty level from the March Supplement of the Current Population Survey (CPS.) In addition, the Panel investigated the possible effects of implementing their recommendations for changes to the poverty concept and the measurement methods. The Panel then released their recommendations for improvements to the official measurement of poverty in three main areas: the concept of a threshold, the definition of resources, and the adjustments necessary for geographic and family size equivalence.

In the area of resources, the Panel recommended that the value of noncash benefits be added to a family's resources for the determination of the family's poverty status. Although the CPS March Supplement does release an estimate on the monetary value of the housing subsidy, the procedure used to produce those estimates has several shortcomings. For instance, the estimates are based on 1985 American Housing Survey (AHS) data, which are then updated for inflation using the Consumer Price Index (CPI.) This paper will describe a new method for valuing housing subsidies and compare it to several other methods, including the method used to create the subsidy values currently released with the CPS March Supplement.

While the Panel did not offer a definitive alternative to the current method for estimating the value of housing subsidies, they did suggest several key elements that should be present in any such method which are not presently part of the Census Bureau's procedures. One element is an adjustment for the value of housing subsidies to reflect the local price level. Despite evidence in the real estate market that housing prices vary between housing markets, the present method distinguishes only between the four Census regions, Northeast, Midwest, South and West.

These and several related issues were the subject of a paper originally presented at the Joint Statistical Meetings in 2000, "Valuing Housing Subsidies: A Revised Method for Quantifying Benefits in a New Measure of Poverty". In that paper potential solutions to these ongoing issues were proposed and the results evaluated against the current method.

The general methodology of this companion paper is to evaluate a new technique for valuing housing subsidies which addresses several of the shortcomings with the approach used in Stern 2000. The method detailed here differs from the previous one in several key ways.

• First, the set of uniquely identified Metropolitan Statistical Areas in the first stage is limited to 50, a group which should be stable over time, allowing for repeatability of the proposed procedure.
• Second, the statistical match is a predicted mean match, which eliminates several problems, including the problem of identifying which match is the best out of a set of replicates.
• Third, the statistical match is designed to find the market value of rent for households in the CPS. This rent can then be used to value the subsidy. In previous work, the value of the subsidy was put on the household record in the CPS.

The background section will briefly review the current method and a few of the alternatives analyzed in previous works by Naifeh and Eller 1997 and Stern 2000. The methods section will separately detail the hedonic housing cost method used to estimate the value of market rent for subsidized renters in the AHS and the predicted mean match used to transfer these estimates to households in the CPS. The evaluation section will explore the impact of this new procedure on the distribution of the monetary value of subsidies and on the final poverty distribution, focusing specifically on a practical, repeatable procedure which can be incorporated easily into CPS processing. The final section will address proposals for additional analysis and conclusions.