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?

diana barbara

I am a poor single mother who was lucky enough to buy a home a year before Katrina struck the Mississippi Gulf Coast. It happened to be a Hud home and I walked in with fifteen thousand dollars in equity. To say that a poor person as myself does not deserve the opportunities that the middle class and upper class are afforded is absurb to me. I know the feeling of accomplishment that came to me knowing that my two daughters and I could drive up to our very own home.Still to this day when I arrive home from work I turn to my daughter and say "We are so lucky" I could have sold it for triple the amount that I purchased it in the aftermath of Katrina because of the lack of housing but I knew how important retaining my house was. I could have lost it after the storm because my business was in shambles for nearly a year, but I sent my daughters away to be taken care of because I knew if I had to live without lights, water etc. that was what I was going to do to hold on to my damaged home. It was mine and it still is and I can't imagine not being given the opportunity to own a home and am grateful and will be every day of my life. Just because someone is poor doesn't mean they don't have dreams and goals. I am a single mother by choice this is true, but the choice of staying with my childrens father would have been much more detrimental to society because I would have been raising children who thought it was ok to be mistreated. So yes although being poor I do believe is a matter of choice sometimes the other choices aren't as appealing. I want to thank all of you who pay taxes for giving me the opportunity to change my life situation and let you know that with me your money was not wasted.



Dan M.

At the risk of confusing causality, isnt it evident that section 8 vouchers cause poor people to cluster, with all the obvious issues that brings. Why doesnt the government get out of the business of subsidizing housing of any type, mortgage interest deduction included. Wouldnt this give the poor incentives to move where they have more opportunities?


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.

Steve D

I don't think that just having cheap housing is ever going to revitalize (or vitalize in the first place) our urban areas. We need honest work, and lots of it. The federal government should subsidize retail space, not just housing. If currently unemployed people were able to open a small grocery store, this would bring legal economic activity to our cities. (Not to mention the public health benefits of buying real produce instead of Wonder Bread at a 7-11.) The federal government needs to encourage business ownership, not house ownership.

C Kam

Fascinating discussion, but all of you (including Venkatesh and Levitt) completely overlook the UD (Urban Development) side of HUD. HOPE VI is a housing program, intended to provide improved affordable housing, NOT bring about community revitalization. Having worked in the community development field in the public, private and nonprofit sectors since before CDBG (Community Development Block Grant) Year 1 (1974), I have concluded that the root of urban decay is the loss of a community's economic reason for existing, e.g, Detroit. The lesson from the disappointments of programs like Urban Renewal, Model Cities, and CDBG is that redevelopment activities cannot ignore market forces, either micro or macro. In today's global economy, successful local urban regeneration (as the Brits call it) must be in sync with state and national efforts.


Cost of housing is but one of the costs. There's also food, transport, heating. A way to help the working poor is to ensure that we can influence the invisible hand of a free market to help them.

There's a market failure when the needs of the working poor isn't being met. Perhaps there isn't sufficient critical mass? For this, we have to look to how the poor in developing countries cope.

I believe the poor cope by living together, either in slums or in public housing. Through living together, it creates a market for goods and services that meet their particular needs. For instance, informal home-based day care for working mums run by microbusinesses in the area. Rules are relaxed, making it easier for people to set up trading businesses.

Public housing in Asia for the working poor is usually in high rises, and has shops on the ground floor, with easy access to buses and markets. This is crucial. I've seen poor people in Australia who are forced to shell out money to buy their own cars because, in general, public transport doesn't meet their needs, and most people own their own personal transport, and therefore no market exists for 100%-privately funded public buses.



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.


I would like to answer your question with a question. For how long has the government been addressing these questions, and have any programs already in place had the intended effect? What are the large-scale and long term factors that have created the situation that the Government seems to have deemed intolerable? In other words, is making housing affordable treating the symptoms and not the disease? I don't think any reasonable policy can be devised if these questions are not considered.


I have worked in the multi-housing industry for 25 years,including section 8,as i see section 8,the majority of the recipients are black,uneducated,of very low i.q.,dont want to work,would rather deal drugs,steal,murder people,vandalize,etc.what employer in their right mind would hire one of the losers,when they show up for an interview,in gang drag with no resume,pants half way to their knees,barely able to speak understandable english?,I am a personnel manager,the attitude that they portray is one of entitlement,no matter how ignorant they are,build them an island far away,and send them there,away from civilized people,and for gods sake,no more children,let the liberals teach them how to build housing,grow food,learn how to speak,read and write,i am sure they would gladly do this for free,then maybe they get back in to society.

Anne W.

When I was young, I wanted to own a home more than just about anything else. But for most of my life, I was in an odd situation when it came to housing. I lived in a city where rental housing in reasonably safe neighborhoods was very expensive. As a single woman, I felt it necessary to pay up. Rents and home prices leapt up every year, but my income didn't.

I might have saved money by having roommates, but a few tries convinced me that they were likely to be unbearable. Loud, dirty, thieving, financially unreliable, and given to hiding illegal drugs in the freezer--that was my experience with roommate hell.

I was taxed to high heaven to support the mortgage interest deduction for people who were wealthier than I, as well as for various government home ownership programs for people who were poorer.

I tried to move to an area where rental and home prices were more reasonable, but could not get a job.

I gave up. I saved and invested for my retirement instead of putting my money into a house. I never would have considered borrowing money I couldn't repay.

Now my savings and investments are being threatened by government actions to protect those who did. The same folks who picked my right pocket when I was young are dipping into the left one now that I'm old.

By the way, I had a post-graduate degree in a professional field--ironically enough, architecture.



I think the economist would reason like this. We have an assortment of programs for the poor.... (Section 8, health care subsidies, food stamps, supplemental income, fuel assistance, day care assistance...) Each of these comes with a different set of costly things to administer--rules, case worker and voluminous application. Then they mix together, so that in MN for example, a single mom just above the poverty line gets to keep about 20 cents for every extra dollar she works.

From the point of the person in poverty, the issue is (mostly) all the same--I don't have enough money to pay for food, housing, health care, day care, heating. The only reason not to provide a single income supplement (which numerous studies have shown to be more efficient and yield better secondary outcomes)is because we don't trust poor people to make the right choices. If that's what we're going to base our policies on, we should say so.

Every program begets an industry whose primary objective becomes satisfying itself. Most of our current housing programs are very wasteful, and provide the wrong set of incentives--in part because we're trying to solve housing, not poverty. As others have noted, mortgage interest tax deductions have not spawned further home ownership; research has shown it just encourages (for the relatively well to do) to buy bigger homes. Most low income housing is built using the Low Income Housing Tax Credit, which is an unbelievably inefficient way to finance housing. We also impose all sorts of middle class standards and bureaucratic rigamarole so that the subsidy of a single apartment can cost upwards $150,000. We can't afford to do things this way--not if we really want to get the job done.

What should the federal government do? Income redistribution. 1. Recognize that if we're going to have a free market economy where some on Wall Street can receive billion dollar bonuses in a year, and others work to support their families on minimum wage, that theses families at the bottom will need income support. Period. 2. Get rid of all the various expensive programs and requirements and turn them into a single support that provides incentives to work and is based on tax returns (if you can fill out a half a dozen 30 page forms certainly you can fill out one income tax return). People can then provide for their own basic needs. We can stop substituting the federal (and state and local) government's judgment about how to satisfy people's housing needs and let the market do what it does best.

State and locals can then spend their time enforcing anti-discrimination and code enforcement laws (which they don't do very well now) to make sure that the market in fact works. That's their job.

If everybody did their job(individuals--work); federal gov't (income redistribution); market (build and finance housing); state and locals (enforcement), we'd be fine--or at least a lot better off for a lot less money than we are now.

Ooh--I've been waiting four years to say this--thanks for the opportunity Steve!



Well, easy money to be loaned out however the market chose didn't work out too well. Some sort of oversight to ensure that mortgages are actually survivable/sustainable seems needed. Is it as simple as eliminating the 2ndary mortgage market so that loan originators must live with their customers for the length of the loan? As for affordability, There must be some kind of voucher that could be jammed in there at some level, or a loan guarantee, student-loan style.


Responding to Karl -

you have a number of great thoughts on the issue, but:

"Alternatively, a federal agency could create a rigorous certification process for landlords who rent to subsidized tenants. This solution has the potential to raise the quality of housing available to the poor."

The housing standards are a delicate dance for a voluntary program. I'm thinking of Salute v. Stratford Greens, a case out of the court of appeals for the 2nd district that held that requirements of participating in Section 8 are sufficiently onerous that no landlord should have to participate. My understanding is that the programs are so poorly administered that a process that looks relatively uncomplicated on paper is actually extremely burdensome. Raising the standards might result in less quality housing available for low income tenants because the landlords will simply opt out of participation.


bill reeves

Take a look at, they issue a report analyzing the cost of housing for all major english speaking cities. They also classify those markets as either restricting the supply of land for development or not restricting the supply of land. All of the restrictionists (e.g. Chicago, NYC, LA) have expensive housing, the non restrictionists (Atlanta, DFW, Houston, cheap). Interestingly enough, when you exclude Washington DC (the national tapeworm and not representative of a wealth creating city), six of the top ten metro areas have very restrictive real estate markets, very high house prices and very little population growth. The other three (listed above) enable lots of land for development and see 20plus percent population growth per decade with cheap houses. In the recent 'real estate bubble', the six slow growers had huge price bubbles, the 3 high growers had little or no excess home appreciation. All of these communities have the blessing of HUD, Fannie, Freddie and Nationwide, but only three of them have housing that is affordable for lower income residents.

So you're the economists, what's the independent variable here?


Roy Lowenstein

I have been working in affordable housing for more than 30 years with a variety of housing programs (federal, state & local), as non-profit developer, consultant and financial intermediary. Although HUD has clearly become a much less effective agengy than it once was, many of you are blaming HUD for things it can't control, such as:

1. People with money will do everything they can to avoid living near poor people. This is even more true in the Midwest where I live than in New York. Ghettoization of our cities happens with or without HUD, although large project-based section 8 developments may intensify this.

2. There was a brief period from the late 1960's to early 1980's when the feds put quite a bit of money into affordable housing, but now it is a tiny percentage of our GDP. Most poor people have to fend entirely for themselves. There is not nearly enough money in the system to attack the problem of substandard or unaffordable housing, or even to maintain adequately what income-targeted housing we have put into place. This makes it much easier to point a finger and say "Look how this has failed." The same could be said about public education in low-income communities and other public services for the poor. Which is not to say that the programs we have designed are perfect and the problem would have been entirely solved if adequately funded. I can say, though, that having worked with HUD project-based housing for the elderly & disabled, HOME (block grants for states and cities), homeless programs, and the low-income housing tax credit, there is a reason for the diversity of approaches--different target populations to serve, different kinds of developers, different income ranges of the low-income users, different types of community control. Those of us who do this work could do a hell of a lot of good (measured any way you like) if there were several times the resources we now have. Some days I think the majority of our politicians--although maybe not the majority of citizens--likes it the way it is--let 'em suffer.


the Gooch

I don't buy it that the urban poor are stuck with no jobs that pay enough to live on. Maybe it's because I grew up in the rural Midwest that I have no sympathy. I've seen hundreds of illegal immigrants come from Mexico and settle in the Midwest and make a life for themselves and eventually their families through manual labor and working at 'undesirable' places like meat packing plants. It would be much easier for the urban poor to do the same thing--they don't have to gets all sorts of fake documentation, cross international borders illegally, pay coyotes to get to the Midwest... But it seems like the poor American is not willing to make a sacrifice or put in work within shouting distance of the immigrant.

Call me cold hearted, but if their lives are so terrible in the inner city, they should do what people have done to escape bad situations throughout human history--leave and work for a better life elsewhere.



"The federal government might also try giving subsidies for housing developments that integrate middle-income housing with low income housing"

the I.R.S. has what are called Low Income Housing Tax Credits, that are used to develop low to moderate income multi-family housing developments.


Housing may be local, but Sudhir's point is that the definition of local has changed to include much larger areas than in the past. While a housing market may not encompass a mega-region, like the one from Boston to D.C., each major city in that region has a huge metropolitan area (particularly New York) where housing policy could be better coordinated, particularly in metro areas that cross state lines and fall under many different jurisdictions. The new Regional Planning Agency can simply work as a force to coordinate smaller planning entities that work not only on housing, but transportation, environmental, and economic issues. Portland, OR and its environs have something like this. You also have MPOs (metropolitan planning organizations) in some states. But these need more power, something that comes with the help of the federal government. The Regional Planning Department could be less centralized and more flexible than HUD and encourage better coordination between states. With better transportation and more uniform housing policies, perhaps there is less incentive to move to the IT part of town, so there is less demand and housing prices would be more equalized throughout a region.


Ari Indik

Politicians are falling over themselves to bail out the mortgage lenders and borrowers in an effort to prop up housing prices. Obviously "affordable housing" isn't all that important.

Why don't they just let housing get affordable the old fashioned way? By building a lot of it and watching prices fall?

We spend a bunch of tax money keeping prices up, and then more tax money bringing prices down. This makes no sense.



HUD's regulatory programs are a tiny part of HUD and could be spun off to Treasury or some other regulatory agency. The recent housing bill does that for HUD's regulatory authority over GSE's. The costly part of HUD are the public housing, mortgage insurance and housing subsidy programs. Those are the ones that could be replaced by fully-funded section 8 vouchers.