In this chapter, Jacobs argues that increasing government housing subsidies is key to improving cities. Two conditions make subsidized housing a necessity. First, cities contain dwellers who are too poor to pay for quality shelter. Second, the demand for shelter exceeds the supply. The quantity of dwellings needed, however, does not necessarily correspond to the number of people needing subsidized housing.

Conventional planners cut private enterprise out of subsidized housing projects. Jacobs questions this practice, arguing that private enterprise can and should play a central role in providing affordable housing. Private enterprises create a wide range of housing options, the only problem being that some city dwellers cannot afford to pay for them. Government subsidies can bridge this gap.

Conventional housing projects segregate people based on their income, while turning the government into a landlord. Public housing projects ignore the nature of the housing problem, the financial needs of poor city dwellers, the needs of functioning cities, and the workings of the economic system. Moreover, they ignore what it means to have a home. In place of projects, Jacobs envisions a subsidies and supplement program administered by the government. Low-income city dwellers would live in privately-owned units, with the government paying a portion of the costs, either directly through subsidies, or indirectly in the form of rent supplements to the tenants.