Should H.U.D. Really Be Dismantled?

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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  1. Andrew says:

    The problem with the tax subsidy for mortgage interest and property taxes is that it only helps middle- and upper-income taxpayers. If you buy a house for $50K somewhere in the Rust Belt, you’ll pay so little interest and tax that the standard deduction will likely exceed any possible itemized deduction.

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  2. Craig says:

    As long as Poverty continues to be defined as the lowest N percentage of the population (20% in the US), you can’t cure it. Any positive changes will merely raise the poverty line to a new level.

    In any given population we can assume that a certain amount of poverty is a result of one or more of these factors: inherited (parents were poor), environmental (region is poor), or personal (poor due to life choices). While there may be things that the government can due to eliminate or ameliorate the first two factors (inheritance, environment), the only way to eliminate the third (life choices) is through education, but even then people will continue to make ‘bad’ choices.

    Unless you’re planning to go into the Utopia/Distopia business, you’ll have to leave free will (choice) to people. Thus, there will always be poverty.

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  3. ckstevenson says:

    I think you have started out with a great way to analyze the situation.

    First lets “unpack” what the roles of the suggested new office would be, then compare it to what the existing agency does, and figure out if there are any true changes involved (gap analysis, I must have an MBA right?).

    The question should be, does HUD meet the market needs? If its mission is to do so, but its execution is failed then it is debatable if a totally new entity is what is needed.

    Another question is: would establishing a totally new federal body be efficient enough of a process to meet the needs better? I think DHS is a prime example of how even pooling existing agencies together can be a huge inefficiency.

    So do we just blow up HUD internally?

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  4. jalrin says:

    Federal involvement is essential in the housing field because only the federal government has both the resources and the will to take any sort of effective action. Asking poor areas to pay for the solutions to the problem that they do not have enough money is doomed to failure even if one ignores the corrsoive influence of the real estate lobby and its fondness for segregation on local government.

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  5. cynic says:

    Steal from the rich and give it to the poor (a la Robin Hood), maybe keep a little for yourself in the process (a la Socialism). However, history has shown us even that cannot eliminate poverty.

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  6. Rob says:

    My question is — are low-income housing even with low interest rate beneficial? Should we burden people with debt in the first place? Look at what happened with the mortgage crisis, relatively poor people with big mortgages all are foreclosing. It takes money to make money, and obviously any form of debt is not the answer.

    We are obliged to help the downtrodden with housing so they can make money and save money. Granted, there are some bad apples, but our job is not to save everyone, but HELP everyone.

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  7. Ed says:

    Lets assume that by some miracle we achieve kids working hard in school, all graduating, all developing high self esteem,then where would this influx of high human capital go to work? Maybe they could go to India and become tech support people.

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  8. the Gooch says:

    Dismantling of zoning laws would reduce the price of housing substantially.

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