HUD’s ‘Wastelands’

A year-long investigation by the Washington Post into the Department of Housing & Urban Development’s HOME affordable housing program uncovered systemic waste, fraud, and abuse. The tale is yet another example of why the federal government should extricate itself from housing policy and allow the states to chart their own course.

The piece is lengthy and should be read by interested readers in its entirety, so I’ll just excerpt the Post’s findings:

  • Local housing agencies have doled out millions to troubled developers, including novice builders, fledgling nonprofits and groups accused of fraud or delivering shoddy work.
  • Checks were cut even when projects were still on the drawing boards, without land, financing or permits to move forward. In at least 55 cases, developers drew HUD money but left behind only barren lots.
  • Overall, nearly one in seven projects shows signs of significant delay. Time and again, housing agencies failed to cancel bad deals or alert HUD when projects foundered.
  • HUD has known about the problems for years but still imposes few requirements on local housing agencies and relies on a data system that makes it difficult to determine which developments are stalled.
  • Even when HUD learns of a botched deal, federal law does not give the agency the authority to demand repayment. HUD can ask local authorities to voluntarily repay, but the agency was unable to say how much money has been returned.

In a Cato essay on HUD community development programs, I cite similar examples of HOME funds being wasted. And an essay on HUD scandals shows that mismanagement and corruption in federal housing programs is hardly new. Indeed, a follow-up story from the Post that focuses on related affordable housing shenanigans in the DC area explains that housing speculators who bilked HUD in the 1980s are involved in the current troubles:

All three were convicted in a scheme in the 1980s that involved getting straw buyers to purchase properties in the District at inflated prices using fraudulent appraisals. HUD backed the loans and ultimately lost millions of dollars. The Post called it the largest real estate fraud of its kind in the city’s history; about 30 people were convicted.

The response from Congress to the Post’s expose isn’t any more surprising than the findings: it’s time for a probe! This is where members of Congress point the finger at everybody else except themselves, promise to “fix” the problems, and pay lip-service to the concerns of taxpayers.

From the statement issued by Senate Banking Committee chairman Tim Johnson (D-SD) and ranking member Richard Shelby (R-AL):

We are deeply concerned by these reports, particularly at a time when so many Americans are in need of affordable housing. Many communities across the country have successfully used HUD programs to create vital housing opportunities for their citizens. However, the Department of Housing and Urban Development, like any government agency, has a duty to safeguard taxpayer funds. The Committee takes its oversight responsibilities very seriously, and we plan to get to the bottom of this issue.

Republicans are having a difficult time naming federal programs to abolish, while Democrats would have us believe that only the federal government can take care of the “less fortunate.” For Republicans who are serious about spending cuts, HUD’s latest black eye offers an opportunity to challenge the existence of federal housing programs. For Democrats, well, perhaps one or two will start to question the sanctity of these programs.