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Article Excerpt
I. INTRODUCTION
In 1960, my father bought the first home he ever owned. He was forty years old, with one child away at college and two still in high school. As a career military man, my father picked up his family every two or three years and moved lock, stock, and barrel to a totally new location. Until he first bought a house, our family had lived in rented houses, sometimes on military bases. He bought his first house in Manchester, New Hampshire, because there was no housing available on base, and very little rental housing was available in town. Buying the house was not part of a long-term strategy; we simply needed a place to live, and this house was what he found. (1)
My father bought his second house under similar circumstances. (2) He had been transferred to Langley Air Force Base in Hampton, Virginia, and he moved into temporary housing for thirty days. Again, he was looking for housing, and did not care whether he ended up with a rental or a purchase. He bought the house he now lives in for $32,950 in 1972. My father put down 5% and obtained an FHA mortgage at 7% for thirty years. (3) The four bedroom, two and a half bath home is in a nice neighborhood, and he has taken good care of it. It is now worth over $150,000. Even today, my father has trouble thinking of himself as owning an asset that is worth over $100,000, because that sounds like "an awful lot of money" to him. (4)
As it is for most Americans, (5) my father's house is his major asset. Unlike many Americans, however, my father is not buried under a mountain of debt. (6) Not only has he managed to pay off the mortgage on his house, but he has resisted the many offers that he gets to take out home equity loans, and he pays off the one credit card that he uses every month. My father is not wealthy, although he shares a lot of values in common with the true millionaires described in Stanley and Danko's The Millionaire Next Door. (7) Although all of his income is from his military pension and social security, he has a level of economic security that is surprisingly rare in this rich country.
This story about my father provides some important lessons about economic security, and suggests that homeownership plays an important role in achieving economic security for American families. Homeownership has played an important role for many middle-class people in achieving economic security, (8) and I argue in this article that it can do the same for people in poverty.
Since 1937, when the first federal legislation was enacted to provide housing for low income people, (9) there has been an acknowledged crisis in affordable housing. (10) The number of people in need of housing and unable to afford it through the private market system has continued to outstrip the number of housing units available to this population. (11) The federal government has enacted a range of programs, generally implemented through state or local housing agencies, to address the crisis. (12) In this article, I survey the affordable housing programs and closely examine a few of the most important ones, considering how successful each program has been in achieving its objectives, and in that process, assessing what role each program plays in our national housing policy. (13)
The government housing programs are aimed at people who have incomes that are significantly less than the median income in the area where they live. (14) Although my father is not poor, (15) and he was not a beneficiary of the affordable housing programs for poor and low income people discussed in this article, (16) in the final analysis, as I consider what we need to do to address the crisis in affordable housing in this country, I nonetheless return to this story of my father. (17) I believe that his story is relevant to the discussion of the housing crisis, because we will solve the problem only when we are able to collectively learn the important lessons about economic security that my father has learned, and only when we commit ourselves to making those lessons available to low income people. (18) The concepts of poverty and economic security are more psychological than they are financial. (19) In this and subsequent articles on the topic of wealth and poverty, I will examine the characteristics that led my father to have a sense of economic security, and the characteristics that lead others with similar levels of income and resources to economic despair. (20) This article examines the government programs which have been designed to provide housing to low income people. (21) The main focus of the article is a comparison between the programs designed to provide rental housing and programs designed to promote homeownership.
I am primarily concerned with determining which of the existing programs do the best job of promoting economic security among the population they are designed to benefit. Therefore, I measure the success of a housing program by whether it promotes economic security. Nonetheless, in the course of this discussion, I will consider other definitions of success and how the programs measure up against them. Part II presents a framework for a discussion of affordable housing policy issues. (22) In this section, I outline the complex environment of affordable housing development, and the multiple interests that need to be involved in developing any coherent policy.
Part III gives a short history of public housing policies from 1937 to the end of the twentieth century. (23) Part IV discusses the major rental housing programs. (24) The public housing program discussed in Part III is briefly assessed here, (25) as are the HOPE VI, (26) Section 8, (27) Welfare Reform, (28) and Low Income Housing Tax Credits (29) programs. This section contains a discussion of the relationship between affordable housing and welfare reform, because the public policy of encouraging the poor to become self-sufficient, both in financial and housing terms, has been a driving force in the development of affordable housing policy. (30)
Part V describes programs designed to promote homeownership for low income families. (31) These include Mixed-Financed Development programs, (32) HOPE VI, (33) Non-profit and Community-based Developments, (34) and Low Income Homeownership initiatives. (35)
In Part VI, I draw conclusions based on this comparative analysis and make a recommendation for the direction affordable housing policy should take. (36) I conclude that what we do not have, and what we need, is a National Affordable Housing Policy, with a clearly defined mission, accountable to multiple interests and taking into account a variety of measures of success. (37) To fulfill its mission the responsible entities will need the resources, expertise, and power to get the job done.
Finally, the Appendix of Affordable Housing Statutes is a quick reference guide to the major statutes in this area. (38)
II. THE AFFORDABLE HOUSING ENVIRONMENT
A. The Scope of the Crisis.
The United States has been in the midst of an affordable housing crisis for many years. (39) What exactly is meant by the "affordable housing crisis" depends on who is discussing the question, and the specific context of the discussion. (40) In this section, I provide an overview of the crisis from a variety of perspectives.
Affordable housing refers to housing intended for "low income" or "very low income" people. (41) In the year 2000, the average annual income of the households in the bottom 20% of U.S. households was $10,500. (42) The 1990s were a period of unprecedented growth in the United States economy; (43) the lowest 20% of households, however, saw almost no gains in income since 1975. (44)
The problem of housing affordability can be seen by looking at the high percentage of low income households who pay a disproportionate share of their incomes (more than 30% by some measures; more than 50% by others) for housing. (45) Of the 20 million lowest income households, over 24% pay between 30% and 50% of their incomes for housing and/or live in inadequate housing. (46) Most of the 7.2 million of the lowest income households pay more than half of their incomes for housing. (47)
It is a serious problem that the quality of housing available to low income people is generally substandard. (48) Reports of the deplorable housing conditions suffered by the urban poor date back to the late nineteenth century. (49) In 1992, the National Commission on Severely Distressed Public Housing found that approximately 6%, or 86,000 units of public housing, were severely distressed. (50) A complaint frequently made about public housing units is that they are not well maintained by the local public housing authorities, and that they are crime-ridden, unhealthy environments. (51) As a result, many of the people for whom the housing was intended refuse to live there, and thousands of public housing units stand vacant and uninhabitable. (52) Fourteen percent of the housing occupied by lower income families is structurally inadequate or overcrowded. (53) The existence of these conditions of distress in combination with inadequate housing illustrates the complexity of the problem. Housing alone will not solve the problem. Any effective solution must address the other concerns as well.
Another way to view the crisis is to note the disparity between the supply of low cost housing units and the number of low income households. (54) Only 9.1 million units rent for less than $4,800 per year, (55) or nearly half the income of the average household in the lowest income group. (56) Yet, there are over 10.3 million lowest-income renter households, and only 4.7 million of them are able to secure those low rent units. (57) There is also a significant disparity between the number of new affordable units produced each year and the increasing number of households in the low income category. (58) Waiting lists for public housing or for vouchers for subsidized housing are extremely long. (59) Unfortunately, the number of housing units available for low income people has been seriously eroded by demolition and tough admissions and evictions policies. (60)
At the same time that we face this shortage of affordable housing, we also face a concentration of poverty in our inner cities and in our low income housing developments, which has brought with it increased crime, drug activity, unemployment, poor education and a variety of social ills. (61) Some view the homogeneous nature of projects populated exclusively by low income people as a problem. (62) To others it is part of the natural process of upward mobility, where people with the resources to do so leave the inner cities for the suburbs. (63)
An extreme measure of the crisis in affordable housing can be seen by looking at the problem of homelessness. (64) The level of social services needed to address the housing problems of the homeless puts this group in a special needs category which is beyond the scope of this article, but which urgently needs to be addressed. (65)
Patterns of racially segregated housing add another dimension to the affordable housing crisis. (66) Despite the enactment of laws that prohibit racial discrimination in housing, (67) residential racial segregation remains a fact of life in most parts of the United States. (68) In some views racism is one of the causes of the affordable housing crisis, or at the very least has contributed significantly to it. (69) Government-supported policies that promote residential racial segregation have been well documented. (70) The lasting patterns of residential segregation in this country have impacts on property values, the quality of education, and the social fabric of our communities. (71) Thus, an appropriate question to ask is whether good affordable housing policy can or should aim to diminish the amount or effects of racial segregation. (72)
Another perspective on the affordable housing crisis is the role of the developers or builders, who find it less profitable to develop low income housing than market-rate housing because of the limited rents or purchase prices available from this population. (73) Driven purely by market forces, developers would build housing only to the extent that they can make a profit on it. (74) When the costs of development are greater than the revenue that can be generated by a property, there is no profit, and market forces would result in no affordable housing being built. (75) To counteract the effect of pure market forces, government programs provide subsidies in various forms. Examples are Section 8 rent subsidies, (76) Low Income Housing Tax Credits, (77) and down payment assistance for low income home owners. (78)
The affordable housing crisis is affecting state governments that have been contending with severe revenue shortfalls since the year 2001. (79) The social safety net of welfare, child care, job development, and Medicaid programs, as well as housing assistance is threatened by a lack of resources in states' budgets. (80) Housing policy and welfare policy are very closely related. (81) Affordable housing is a major issue for people who have very low incomes. (82) The same people who cannot afford to pay for housing at market rates are likely to need assistance for other basic necessities. (83) Since the Great Depression of the 1930s we have had in place some form of public assistance which sought to provide basic necessities of life, including shelter, to very low income people. (84) Since 1996, legal policies toward welfare have changed such that there is no longer an entitlement to receive monetary benefits. (85) This raises the question of whether there remains a safety net for basic shelter, and how the elimination of an entitlement to public benefits affects the policies articulated in our early housing legislation. (86)
Finally, it is worth examining the merits of developing affordable rental housing vs. affordable housing for homeownership. (87) Forty-eight percent of the lowest income families own their own homes. (88) Both renters and owners in the lowest household income group have serious affordability problems, (89) and many homeowners, particularly elderly homeowners who are burdened with increased health care costs, are paying over 50% of their incomes for housing and are vulnerable to losing the equity they have in their homes. (90) There is evidence that a dual financial market is developing, meaning that lower income home buyers do not have access to banks and other conventional financial services and products as do home buyers in the upper brackets. (91) Loans are being offered to the lower income buyers by mortgage companies at higher rates, significantly adding to the cost of housing for the lower income families. (92) One way to improve housing affordability would be to facilitate access to mainstream financial services and homeownership for the lower income group.
Yet, it is possible that the promotion of homeownership for low income people is creating a problem for renters and increasing the affordability gap. (93) Have we created a dichotomy between renters and homeowners that has unintended negative consequences? How do we address issues such as concentrations of poverty and the creation of a permanent underclass of low income people? How do we find ways for low income people to move out of poverty and into economic security?
The discussion in the sections that follow will attempt to weave together these various perspectives on the affordable housing crisis.
B. The Interest Groups
A full examination of the affordable housing crisis requires a close look at the interests of 1) the community of low income people who are the current and prospective occupants of affordable housing; (94) 2) neighbors and others whose property values, level of municipal services, and sense of community may be affected by the addition of affordable housing to a neighborhood; (95) 3) the federal, (96) state, and local public housing agencies; (97) 4) other public service agencies; (98) 5) the nonprofit and for-profit developers and sponsors, (99) 6) real estate business interests including builders, mortgage lenders, and other investors; (100) and 7) planners and environmentalists concerned with design issues and effects on the environment. (101) This article will touch upon the roles that these groups play in the process; however, there is a need for in-depth study of affordable housing examining the interactions among these interests.
III. PUBLIC HOUSING
A. A Brief History
The task of understanding the mass of statutes governing affordable housing programs in the United States is monumental. (102) The table in the Appendix to this Article presents the barest outline of several important Acts of Congress relating to housing for low income people. (103)
Beginning in the 1930s, in response to the dramatic increase in homelessness arising out of the Great Depression, (104) Congress enacted the first of many public housing programs. (105) The 1937 Housing Act provided for federal funding of local public housing agencies to develop, construct, and manage housing for low income people. (106) This legislation had the dual purposes of providing public housing for low income persons (107) and slum clearance. (108) These somewhat contradictory purposes resulted in a strange political coalition between social workers, who were most interested in housing poor people, and the private developers who were anxious to demolish blighted buildings and re-build housing for working people. This initial effort at forging a national housing policy was only partly successful because of opposition from private real estate interests and lack of funding for the public housing effort. (109)
Conflicts between those favoring public housing and those who wanted slum clearance persisted in the years after World War 11, (110) delaying the enactment of new housing legislation. After becoming a major issue in the 1948 presidential campaign, (111) and after a very colorful Congressional fight, (112) the next major affordable housing legislation was enacted in 1949. (113) It contained lofty goals promising "a decent home and suitable living environment for every American family." (114)
Title I of the 1949 Act, which provided for urban redevelopment through slum clearance and new public housing construction, (115) met with mixed success during the 1950s. (116) Statutes enacted during those years (117) shifted away from a simple slum clearance approach to more comprehensive programs which involved rehabilitation of existing structures, (118) enforcement of building codes, (119) relocation of displaced residents, (120) and citizen participation in the urban renewal process. (121) During the 1950s and 1960s, public housing was a controversial program which received sporadic support from Congress and the Executive branch. (122) The 1949 Act authorized the construction of 810,000 new public housing units over the first six years, but it took over twenty years to achieve that goal. (123)
The 1960s were growth years for public housing. (124) President Johnson made the development of affordable housing a key aspect of his administration's program, (125) and in 1965, he created the Department of Housing and Urban Development ("HUD") as a cabinet level agency. (126)
The 1960s also saw an increased emphasis on urban renewal. (127) In 1961, Congress authorized $2 billion in capital grants for urban renewal projects, and authorized another $5 billion by 1968. (128) These urban renewal projects were not solely for affordable housing development. (129) The projects included office buildings, parking lots, stadiums, and other efforts to revitalize urban areas. (130) The urban renewal program was criticized, because areas other than slums were redeveloped, and some of the people displaced were not able to return to housing on the sites. (131)
Instead of focusing on either urban renewal or the construction of public housing units as had the 1949 Housing Act, later housing legislation developed new approaches that incorporated market incentives in the effort to create affordable housing. (132) The 1961 Housing Act contained the Section 221(d)(3) program, which permitted the Federal Housing Administration ("FHA") to insure mortgages at below-market rates for affordable rental housing. (133) In the Housing Act of 1968, the Section 235 and Section 236 programs provided for direct interest rate subsidies to private developers of housing for low income home buyers and renters, respectively. (134) Although these programs were publicly funded, the fact that the support went to businesses enabled them to be seen as private market solutions and quieted the criticisms of excessive government interference that the real estate and building industries had voiced regarding earlier public housing programs. (135) By the 1970s the Section 235 and 236 programs had produced more housing units than had been produced under the public housing programs). (136) The 1960s also saw the enactment of the Fair Housing Act of 1968, (137) which prohibited racial and ethnic discrimination in the sale and rental of public housing. (138)
The Housing and Community Development Act of 1974 created the Section 8 program, (139) probably the most successful rental housing program for low income people. (140) It provided subsidies for owners to construct and rehabilitate housing (project based) and vouchers that tenants could use in the rental units of their choice (certificate based). (141) The Section 8 program is discussed in detail below. (142)
Significant public housing was built in the late 1960s and 1970s. (143) Approximately 1,115,300 public housing units had been built or planned by 1970, (144) but construction halted in 1973 when President Nixon declared a moratorium on federal housing programs. (145) Always controversial, public housing was criticized for competing with private industry, (146) for creating concentrations of poverty by excluding working class and upwardly mobile families, (147) for perpetuating slums and blight with its poor design and inadequate maintenance, (148) for fostering dependency among the poor, (149) and for segregating tenants by race. (150)
There is ambivalence in our public policy on the question of which members of the population should be served by public housing. (151) Should public housing be reserved--largely or exclusively--for the lowest income people, or should it also be available to persons of higher income, the so-called "working poor"? Congress has answered this question in several different ways over the years. (152) The 1937 Housing Act stated its intent that public housing was to be provided for the lowest income people, who could not afford housing in the private market, and whose income was a maximum of five times their rent. (153) Nevertheless, there was an expectation that the costs of public housing would be covered by the rents. (154) In the 1949 Housing Act, Congress recommitted to housing the lowest income people). (155) The rent ceilings have gone up and down, (156) and funding levels for housing have fluctuated. (157) Since 1974, however, Congress has moved away from the goal of housing the lowest income people toward a goal of creating mixed-income projects and lessening the concentration of poor people in public housing. (158)
B. Summing Up the Problem and Looking Toward Solutions
The sad state of public housing in the United States was highlighted in 1989 when Congress created the National Commission on Severely Distressed Public Housing to identify the worst public housing in the country and to recommend a national action plan to address the problem. (159) The Commission's 1992 report found that approximately 6%, or 86,000 units of public housing, were severely distressed, and that traditional approaches to revitalizing that housing were not working. (160) During the early to middle years of the 1990s, the number of public housing units steadily decreased despite the increase in the low income population. (161)
Today we rely on a combination of government-operated public housing and privately-owned and operated subsidized housing as the most important source of housing for low income people. Public housing continues to be criticized for its deteriorated condition, for creating concentrations of poverty in the inner cities and for its accompanying poor quality of education, lack of access to jobs, increased crime, and a greater need for public services. (162) Possible solutions to these problems include improving the maintenance and operation of public housing projects, demolishing and rehabilitating inadequate units, and reducing the scale of housing projects by building lower-density developments and by developing mixed-income housing projects, where the housing would be occupied partly by low income households and partly by households with higher incomes. (163)
In 1986, Congress enacted the Low Income Housing Tax Credit ("LIHTC"), (164) which was intended to stimulate private investment in low income housing by awarding tax credits that reduce the cost of qualified housing developments. (165) The LIHTC, a private alternative to publicly owned and operated low income housing, was one of several solutions offered to address the failures of public housing. (166)
In addition to efforts to improve the supply and quality of rental housing available to low income people, there has been an increased reliance on programs that support homeownership by low income people. (167) Section IV below describes and assesses the major rental housing programs; (168) Section V discusses mixed-finance and homeownership programs. (169)
IV. RENTAL HOUSING PROGRAMS
A. Can Public Housing Succeed?
Our affordable housing policy has become a mix of publicly and privately owned and managed housing. (170) The programs have met with varying degrees of success. (171) To address the issue of concentration of poverty and to encourage working people to live in public housing units, the Housing and Community Development Act of 1974 (172) relaxed the income eligibility requirements for tenants of public housing. (173) That Act also created the Section 8 voucher program, (174) which is described more fully in the next section. (175)
Public housing is rental housing that is owned and managed by a governmental subdivision or quasi-public authority. (176) There are approximately 1.3 million households living in public housing, (177) making public housing one of our most important affordable housing programs. Yet, as discussed above, our efforts in this area have met with limited success. (178)
In the 1980s, government turned away from public housing by decreasing funding for new public housing units and for the Department of Housing and Urban Development. (179) Traditional public housing is no longer being built. (180) Our approach to transform and improve public housing is to tear down projects that are considered obsolete or deteriorated, and in some instances, to replace them with a smaller number of privately owned, publicly subsidized units. (181) The policy of not building new public housing units stems from a decision that traditional public housing leads to dense concentrations of poverty, high crime rates, and substandard living conditions. (182) Current approaches to the problem include demolishing housing and relocating people to privately owned housing, (183) requiring or encouraging the people living in public housing to go to work (or otherwise become self-sufficient), (184) encouraging more working people to move into public housing, (185) and blaming public housing residents for their plight. (186)
This approach to public housing policy fails to address the needs of the poorest people and those most in need of housing assistance. By demolishing high-rise developments and densely concentrated housing, we may be removing sources of blight and dilapidated housing; however, this approach overlooks those who are displaced by the demolition but who do not qualify for housing vouchers, or who are unable to find suitable alternative housing on the private market. (187)
A successful public housing program would provide temporary shelter or transitional housing for people who have recently become homeless. It would provide permanent shelter for the chronically homeless. (188) It would target people in the lowest income groups, determine the number of units of housing that need to be produced, and within a short time identify and produce the requisite number of units in each market through both public and private funding sources. A successful program would have in place a system to monitor and respond to the needs of its low income population. (189) It would also provide excellent maintenance and property management services supported by adequate resources to maintain the property in livable condition. (190)
In addition to addressing the housing needs of its people, a successful public housing program will also provide the social and economic services needed by its population. (191) The need for affordable housing is greatest among the lowest income people. That population brings with it a wide range of social problems. (192) The major issue that our public housing...
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