In a Times Op-Ed Friday, my co-author (and regular blog contributor) Sudhir Venkatesh argues that the Department of Housing and Urban Development (H.U.D.) has outlived its useful life.
The Chicago economist in me is not so sure that the alternative he proposes — a new federal agency devoted to regional planning — is going to be a great alternative, however. I told him that and he challenged me for some better ideas.
The only problem is I don’t think I have any!
Most economists would argue that the only long-term solution to poverty is figuring out a way to dramatically increase the human capital of the poor through some combination of better schools, better parenting, and convincing kids to stay in school and to work hard in school. Stable housing is no doubt an input to helping disadvantaged children achieve their potential. A number of studies have shown that kids who switch schools suffer a setback academically.
So — both for reasons of basic human decency and helping the long term prospects of the poor — affordable housing seems like a worthwhile objective.
The first obvious (but important) point about housing is that there is an active market for rental housing. So it seems like a situation where it makes sense for government involvement to come in the form of subsidies to low-income renters to allow them to participate in the rental market. That is what Section 8 vouchers do now.
A second obvious (but important) point is that housing markets are local. They might cross city boundaries, but not much more than that. So the need for federal involvement is not so clear to me.
One thing a federal agency might do is try to encourage home ownership among the poor. Perhaps there are benefits to home ownership; the huge tax subsidy for mortgage interest suggests that the government believes that to be the case. The federal government can (and does) do this through low interest loans for low-income borrowers.
Again, this is the Chicago economist in me revealing himself, but in light of recent government efforts to bail out people who made bad loans, the last thing we need right now is the government getting more involved in the mortgage business.
The federal government might also try giving subsidies for housing developments that integrate middle-income housing with low income housing. I believe there are generous programs of this kind in place now. I don’t know what the evidence is on these developments, but my guess is that mixed-income developments represent a very unstable equilibrium with a strong tendency to tip one way or the other.
What do blog readers think the federal government should or shouldn’t be doing about affordable housing?
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Funny this should appear, as my father, Isaac, responded directly to Venkatesh’s piece in a post, “Reformers Come and Go, But HUD Abides.” You might want to point it out in a more visible space.
I’m not fond of federal solutions to most problems. Nevertheless, if we’re going to have a government department named “Housing and Urban Development,” it makes little sense to have separate HUD, Energy, and Transportation departments. The link between the three is too strong to be so uncoordinated. Disband all three and start over.
The Atlantic had a story about how Section 8 housing vouchers in Memphis, TN led to criminal activity expanding throughout the area as poor people moved out from the former housing projects in the downtown area. The Sacramento Bee had a similiar story about how the mandatory low income housing units in a newly developed area have become the jumping off point for crime in the area including several armed robbery break ins.
The problem with HUD is that it fails in trying to integrate low-income tenants into the market. In reality, most landlords who have other options for tenants – and we’re talking about urban areas where good housing can be difficult to find, so they do – don’t accept section 8. And why should they? They’re not required to do so, and the system is so onerous that courts have held that any mandatory enrollment is illegal. The local Housing Authorities are so poorly run that a well-meaning landlord is unlikely to be patient enough to navigate them. So, Section 8 tenants wind up living in what is essentially privatized public housing, where every tenant is Section 8 and crime is rampant. Meanwhile, our tax dollars go right into the pockets of slumlords.
I think we need to give up on this idea that we can use the market in integration and build more public housing. Then, load those housing facilities with cops, social workers, job training, etc. to try to break the cycle of poverty.
Section 8 vouchers (now called Housing Choice vouchers) don’t provide the degree of mobility and empowerment that they should. The vouchers can’t be used everywhere.
First, there are (probably sensible) restrictions that they can only be to pay rents are below median for an area. Theoretically, this means that they can be used to pay an ‘average’ rent and provide decent housing. However, there’s a lag in the calculations, so this year’s allowable rent is based on last year’s data. In inflationary times, voucher holders will be driven downward in their choice of apartment.
Second, there’s no requirement that landlords accept vouchers. Participation in the program is strictly voluntary, yet comes with compliance costs. Since, landlords can discriminate regarding the source of funds and it is efficient to have more than one or two voucher holders in any given complex, and therefore, voucher holders are driven in their choices to the relatively few places that accept them. HUD tries to enforce quality with standards, but with the paucity of apartments that accept vouchers, quality will tend to suffer.
Lastly, the tax credit financing that promotes the creation of housing for low income folks, also comes with restrictions on the incomes of who can liver in the housing. It is in effect, housing for voucher holders.
Federal law discourages concentration of poverty and public housing authorities are supposed to push for diversity in where vouchers are accepted and used, but HUD policies are structured in a way that combats that preference.
If there was just one thing that the FEDs could do to help empower the poor (and all we’re talking about is creating opportunities), it would be to outlaw discrimination based on source of funds, so that vouchers could be used universally.
The federal government should increase the tax credit available under the new market tax credit program to 49% (up from 39%), allow the credit to be used over five years (down from seven years), triple the amount of tax credits awarded annually to approximately $9 billion (do the math) while simultaneously requiring that a firm 20% of any residential development component be reserved for low-income families. The definition of low-income families should preclude high net worth individuals with low-income or deferred income from qualifying.
Housing is probably less important than education. Our experience with assimilation in the early 20th century showed the impact of a strong public school system that served all classes and was able to maintain a strong culture of achievement for new immigrants. Also helpful were various adult educational programs, settlement houses etc.
But here is the problem for all of you Chicago economists. Our current public education system is grossly underfunded, given the opportunities that educated and intelligent people have elsewhere. This underfunding leads to low morale and selects for low performing staff. No culture of achievement can be built on this basis.
All of the “choice” and “merit pay” schemes that you can think of will have no impact on this problem. You want a restaurant hamburger but you are only willing to pay, on average, the price of a White Castle burger. It just does not work.
As for housing, section 8 is not all that great. Landlords do not have to take section 8 and, rightly or wrongly, landlords who want good tenants avoid it. Better a cash supplement to income.
Interesting discussion – there clearly aren’t any easy answers. But I, for one, agree that the federal government has no business being involved in this, that it makes more sense as a state/local issue.