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?


Jim McRath, Lambs Creek

I've been in the rural housing business for near 30 years and I feel that changes could be put in place that would have a greater positive impact on basic needs in this Country if HUD could clearly understand the difference between rural vs unban housing needs. In my rural environment I am continually have to deal with HUD's reactionary response to housing issues as they arise in the inner cities.

We are constantly required to change how we effectively deal with the housing needs of rural America when some "new" crises or class action lawsuit causes HUD to enact additional layers of micro-management. Having HUD deal with the mortgage foreclosure issue is liken to having the coyote deal with lack of egg production in the hen house.

the rich get richer

The people have truly benefitted from HUD are not those who inhabit the dwellings-- the editorials suggest they have not benefitted at all. I know at least person whom HUD made a millionaire.

The super rich who make their money in construction, building materials, etc. should kiss the feet of those for whom they can provide overpriced services directly or indirectly.

I believe in lots of price controls or a reinstitution of the 1950 tax schedule -- might be interesting.

Why not try an experiment? In the 19th century, the poor in the south lived right behind the rich folk (who employed them); there were factory towns with benefits for those who worked in the factories. Perhaps, we should revive some of these older models. (Mix up the super rich and the poor in the same building -- leaves lots of possibilities -- employment -- maids. nannies, -- social modeling....)

Ed

If there was no HUD, what would happen to the HUD-1 in real estate closings? Where would the mortgage & banking industry look to determine the true value of a real estate transaction without the disclosures required of the HUD-1? What agency would enforce federal regulations passed to impose transparency in the real estate market, and fairness to minorities, buyer protections, and so forth?

upchuckie_cheezits

Education and graduation without a viable job available at the end of that process is a waste of time and effort, and leads to resentment and frustration.

One solution might be a permanent dole funded from a tax on the profits made from off-shoring of decent jobs, and the obscene salaries and perks of CEOs and their enablers.

Useful solutions from economists are unlikely as long as they are insulated from real life by their academic or business positions.

I propose the formation of a secret, shadowy, non-government group, dedicated to introducing economists to a clue. In proportion to unemployment figures and a new "Ordinary People Misery Index", randomly selected economists of all stripes would be arbitrarily fired, without warning from their positions, and denied health care coverage.

Even if this did not lead to any practical solutions, it would be highly satisfying.

salim

they can convert it to social business model; it is like a company; the poor homeowner candidates will work and build their own houses and the areas that are given by government with loan given to them which they will pay with money they would be earning for the same company. Every home owner will be project manager (if their tech skills allow) for their own home to make sure that it will be built within budget and time that is allowed for them.

Moe

Housing is not like curing cancer. The solutions are obvious and simple. Build more housing units and make them affordable by either subsidizing the building cost or subsidizing the financing through cheaper loans. It just takes political will and a sense of duty. Post WWII we had plenty of both and built millions of housing units and the country benifited from the investment. We just need to keep in mind that the goal is to creat affordable housing not line the pockets of the special interest that seem to be running the country these days.

Melissa

The bottom line, is that right now, the housing crisis have shaken out a lot of the home owners that were fooled into the belief that they could afford the loans they were in. Now you have those (like myself) who are in effect drowning in the ever rising costs of electricity, gas and oil. Five years ago, my husband and I could afford everything with a bit of room to spare. Two years ago, we were divorced, and I could afford to (tightly) keep my daughter and I in the house. Now, to spite a mere 2% raise, I am struggling to stay afloat with commuting costs nearly doubled, company parking increase chewed up ½ my raise, the grocery store trips are up 25%, etc.

housing market took away the equity I could have tapped into to get me through until I could sell the house, my credit score will surely decline when I choose a mortgage payment over a credit card payment.

Those who were making it, are drowning. Eventually only the upper middle class, double salary will be "on their own" home owners, while the rest of us will be forced out of the housing market or into government loan programs.

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Kirill

To Kim (65). Why would your B&J Tax Structure suddenly rain sugar and spice and everything nice? Before anyone bothers to tell you what's wrong with it, why don't you elaborate all the positive causality that must be intrinsic in the project?

Wayne Lanier PhD

Perhaps it would help to analyze the uses to which present-day HUD money is put. Particularly the use of HUD grants for projects of social engineering.

In San Francisco, since the 1980s, HUD grants have provided a Welfare Mafia slush fund. Welfare developers quickly learned that such projects provide ready cash and high profits, with few controls and low accountability.

When challenged at a Planning Commission hearing on the issue of client follow-up to measure efficacy of the proposed program, one Sociologist/Developer disdainfully remarked: "We don't need follow-up, we are professionals...!" There was follow-up in a similar New York project, by the way, where they found no difference in recidivism between the clients served and those not served.

In the mentioned project, HUD money paid in the low millions for building purchase and renovation. The deed was held by the City for a few years, then reverted to the Sociologist/Developer's "non-profit" foundation. Apparently the foundation sold the building to an out-of-county real estate company, signed a rental agreement, and turned to the City for the rent to stay in the building. Where the sale profits went is uncertain.

A few of these Welfare Mafia folks have gone to jail, but investigation, prosecution, and conviction are difficult. A real crime has to be proven and many shady operations are not directly in violation of specific laws. The protections afforded to "non-profit" corporations also make both investigation and prosecution chancy.

The ordinary Property Developer faces public suspicion, the chance that costs will exceed the sale price, zoning laws, and tight codes and regulations. The Welfare Developer enjoys public support for "doing good", HUD and City underwriting of rising costs, is excused from zoning laws, strict enforcement of codes and regulations, and has the bludgeon of the Americans For Disabilities Act to use on objectors. It is a tidy and profitable game, well hidden in the larger "poverty war" financed by HUD.

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billinvirginia

Responding to wild bill. I think you are confusing two different programs, both of which are under Section 8. The section 8 voucher program provides vouchers that can be used anywhere. To the extent voucher-holders tend to ghettoize, that is mainly the result of insufficient housing counseling, which could be provided at an extremely tiny cost, but for the most part isn't. Then there is a separate section 8 program which provides housing assistance payments contracts. These are project-based, rather than being tenant-based. That means the subsidy is tied to a particular building, usually a building that has most of its units hooked up on the same HAP contract. That's your ghettoizing influence. As far as the program being prohibitively expensive, it isn't. Internal agency analysis suggests that rent subsidy levels could be increased slightly (to avoid the problems you're talking about) and every eligible family in the country could be offered a voucher for a total cost that was substantially less than HUD's annual budget. (Because a lot of HUD workers, people who work at public housing authorities, etc., wouldn't have to be paid under this system.) The difficulty is that everybody is wedded to their own program instead of being willing to put all their eggs in one basket.

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M

Have you read the article (in the Atlantic maybe?) on the 'problems'of mixed-income housing, and the great attempt at demolishing the ghetto?

It's a compelling read.

Kerwin

The problem with the argument that the Feds should get out of the low-income housing business because housing is a local market is that local government often does not feel incentive to provide low-income housing--just the opposite. Many local governments would prefer that low-income people go someplace else to live. They don't add much to the tax base, soak up social services, and often don't vote. If our society has a moral commitment to house those without adequate housing, then as a practical matter this needs to be a national commitment. Otherwise the funding won't be there.

Wonks Anonymous

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.

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Paul

It seems to me that the working poor and middle class take a real shot in all this in that they have to absorb the serious community corrosion section 8 and such promote (crime, blight, noise, ...). They work hard for the resources to live in a better neighborhood and then have to absorb the problems of folks who can't or won't do the same. I suspect this is sometimes a life and death issue for blue collar neighborhoods. Is it just me or is this c.s.?

wild bill

The problem w/ HUD and Section 8 is that concentrated government housing and/or Section 8 housing leads to ghettos that lead to stagnation, crime and more poverty. If we've learned one thing it's that concentrated public housing is a bad idea. The housing must be interspered at a very low level in middle income established communities, and I mean low levels, below 5% otherwise you just end up destroying established communities. Problem is nobody in an established community wants this housing, so you're going to have to over pay for the property, and it then becomes prohibitively expensive. So nothing gets done.

htb

Kim (#65): So if your company outsources all the lower skill jobs -- contracts with a cleaning service instead of hiring a janitor, calls a temp employment agency instead of hiring a receptionist, and so forth -- and only directly employs high-performing, highly page people, then they should get a fat tax break? What about a single-employee company? If I make a million dollars as a consultant, should I get a tax break because "every single employee" got exactly the same wage?

Or would you penalize me for being a small business, and allow big businesses to get lower tax rates than me?

The tiny high-tech startup that my husband works for would be thrilled with your proposal. I don't think there's even a single person employed by the company that makes less than the median household income in our area (Silicon Valley: not a cheap place). Furthermore, since you can't count unrealized stock options (because you can't put a reliable price tag on them), there's also no one whose compensation is more than four times the "lowest" paid person.

But why is it that you want to reward them again? They're simply paying what the market dictates, and saving themselves the hassle of having to manage a janitor directly.

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thw

Ok, so we need to increase the human capital of the poor and we can do so by funding housing, schools, parenting; or most likely some combination thereof. Is there any data explaining a community's marginal return on money invested in these areas? I don't know of any, but I would presume that we get a better return on money invested in education. If this hunch is correct, then let us focus on, and invest in education until that marginal return diminishes to equal that of the other initiatives.

I understand this does not directly answer the question, so how about this - shrink (not eliminate) HUD and send the money to schools.

Kim

Try this on for size, Oh Great Freaky One. Keep a housing subsidy and add back the pre-school and school programs the Bush administration cut over the past several years. If a student qualifies for both the earned income tax credit (because they are working full time) and student aid (because they are still really poor), let them get it, like they used to be able to do.

But try a new approach to corporate and personal taxes, an approach I like to call "The Old Ben and Jerry Approach" (that is, old as in before B&J quit paying their employees this way.) Put corporate taxes on a sliding scale based on the difference between the highest paid and lowest paid employees' compensation, counting wages, stock options, health benefits, retirement, bonuses, etc. The lowest tax rate goes to the companies where the highest paid person gets only ten or twenty times the lowest compensated person. Corporations that pay the lowest paid worker in fractions lower than 1/100 of the highest paid employee should pay through the nose. Picture it: the economy gets back on track, thanks to rising wages and stocks. The feds take in more money because most people are making more, except perhaps the few people who were getting outrageous compensation for running their companies into the ground and then finding tax shelters the rest of us only dream about. More funds become available for housing, education, etc. Please, Great Freaky One, show me what's wrong with the Old Ben and Jerry Tax Structure, because I sure like it.

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billinvirginia

The problem with some of the ideological comments made on this page is that they ignore the fact that poor people -- for example, families of four that make $0 to $30K a year and perhaps a little more, and live in just about any metropolitan area -- cannot currently afford private housing of any kind without some sort of subsidy (parental or governmental). Yet many of these folks have kids who -- everyone on this page will admit -- will grow up with serious and probably irreparable educational deficiencies if they do not have a stable place to live. There is, therefore, a clear, long-term national need to address this problem.

HUD has a program that addresses this problem: the Section 8 voucher program. While there is talk on this page about housing being local, the section 8 program operates in a way that automatically takes local conditions into account. Every measure of program performance that I have ever seen says that the Section 8 voucher program is extremely cost-effective, and nearly corruption-free. The difficulty with the program is that there are vastly fewer vouchers than there are people who are eligible to use the vouchers. Therefore, there are many people who should receive vouchers but don't. At the same time, HUD has a vast number of other programs -- for example, the nursing home mortgage insurance program -- whose main function is to benefit scam artists who have no business running a nursing home in the first place. My solution is simple -- abolish virtually all HUD programs except the Section 8 voucher program, but then fully fund that program. BTW, none of the problems that HUD has (and there are many) should be laid mainly at the feet of the people who work there and navigate through a forest of politically-created difficulties as best they can. The problem is the structure of the programs. Instead of being asked to do one thing very well, HUD employees are told to do many things, including many unnecessary things, in as ineffective a way as possible.

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Chris

Milton Friedman argued that it would be much more efficient to replace agencies like HUD with a all-encompassing policy of giving cash payments, through the income tax code, to families making below a certain amount. Agencies like HUD require a great deal of administration, and housing policies often disrupt the free market and can adversely affect prices of market rate housing. By simply giving poor families money, the housing market is not affected by the unintended consequences that housing projects, rent regulation and affordable housing programs always bring.