Tag: hud

The Most Racist Urban Area in America?

Yesterday, the Department of Housing and Urban Development (HUD) approved a new fair housing rule called Affirmatively Furthering Fair Housing. This follows the Supreme Court’s recent ruling allowing HUD to use disparate impact as a criterion for determining whether a community is guilty of unfair housing practices.

 Wikimedia photo by Bernard Gagnon.

In one form of disparate impact analyses, HUD compares the racial makeup of a city or suburb with the makeup of the urban area as a whole. If the city doesn’t have enough minorities, it is presumed guilty and must take steps to attract more. Under the Affirmatively Furthering Fair Housing rule, that could mean subsidizing low-income housing or rezoning land for high-density housing.

While I have no doubt that prejudice is still a factor in housing in America, there are many other factors that influence the distribution of people across an urban area. These include religion, education, and personal tastes in food, recreation, and other activities. For example, low-income families with children will be more likely to live near a Walmart Supercenter while high-income families with no children will be more likely to live near a Whole Foods. To expect every suburb, most of whose borders are based on little more than historical accidents, to have a perfect mix of races is absurd.

Recollections on Fannie Mae’s Housing Goals

With the release of Peter Wallison’s new book, Hidden in Plain Sight, I suspect the debates over the role of Fannie Mae and Freddie Mac in the financial crisis may heat up again (I suspect Joe Nocera is working up a nasty review).  Anyone interested in the financial crisis should read this book.  It is extensively documented and well-written.  While the narrative is similar to other of Wallison’s writings, he musters far more evidence for his case here. The amount of contemporaneous material from advocates, HUD and the GSEs (Fannie and Freddie) is impressive.

I’ve generally been on the fence about the housing goals, as I have felt that GSE leverage was a far greater issue.  The book leaves me more sympathetic to Wallison’s argument.  For the best counter-argument regarding the goals, see John Weicher’s paper on the issue (unlike Nocera, Weicher includes facts and analysis). 

Uh-Oh: Bipartisan Housing Commission Announced

The words “bipartisan” and “commission” usually send a chill down my spine. I felt such a chill when I learned that the Bipartisan Policy Center (BPC) had formed a Housing Commission to “address the long-term challenges facing a struggling housing sector.” My initial reaction was confirmed when I read that it would be chaired by former government officials and politicians of the establishment type:

  • Christopher “Kit” Bond – former U.S. senator (R-MO)
  • Henry Cisneros – Housing and Urban Development (HUD) secretary under President Bill Clinton
  • Mel Martinez – former U.S. senator (R-FL) and HUD secretary under President George W. Bush
  • George Mitchell – former Senate majority leader (D-ME) and BPC co-founder

The most disturbing name is Henry Cisneros. Policies implemented by Cisneros’s HUD helped lead to the housing bubble and bust (see this section on Cisneros from a Cato essay on HUD Scandals). What’s next, Dick Cheney on a hunting safety commission?

Christopher “Kit” Bond, former appropriator and proud porker, hangs himself with his statement on the BPC’s website:

Since serving as Missouri’s Governor, and then as a United States Senator, I have worked to be an advocate for improving public housing and advancing community development. Some of my proudest achievements are helping shape housing policy and programs in homelessness, rural housing, public housing, HOPE VI, and affordable housing. None of these successes would have been possible without strong partners on the other side of the aisle.

In fact, my fellow Commission Co-Chair, and former HUD Secretary, Henry Cisneros and I, were referred to in a 1996 Wall Street Journal article as the ‘Odd Couple’ of federal housing policy – a moniker I still wear as a badge of honor. Though it was a different time in our nation’s history, Henry and I were then – as we are now – committed to coming together to address long-ignored problems with immense implications.

The federal government’s abysmal record on housing (see these Cato essays here for more) is a poster child for government failure. But not only does Bond consider his support for these programs to be among his “proudest” achievements, he actually states that collaborating with Cisneros back in the 1990s is a “badge of honor.”

I’m not sure what Mel Martinez has going for him on housing policy other than that his relatively short tenure as HUD secretary under Bush wasn’t marred by scandal like his successor’s, Alphonso Jackson. At least Martinez acknowledges that the Bush administration continued the Clinton administration’s misplaced emphasis on expanding homeownership.

As for George Mitchell, his claim to federal housing policy fame is that he authored the creation of the Low-Income Housing Tax Credit. Here’s what a Cato essay on public housing has to say about the LIHTC:

Another response to the failure of traditional public housing has been the creation of the Low Income Housing Tax Credit in 1986, which currently subsidizes construction or rehabilitation of roughly 70,000 units of low-income housing each year. This is another failed attempt to manipulate markets, and it has a variety of negative effects. For one thing, the structure of the tax credit program encourages the location of projects in particularly low-income areas, thus exacerbating the concentration of poverty in cities, just as traditional public housing did. Also, the method of allocating tax credits to the states results in many subsidies going to areas of the country where few housing affordability problems exist.

Further, the projects built under the LIHTC program have income caps for tenants, which create the same disincentive effects for personal advancement that traditional welfare programs do. Finally, the program essentially functions as a subsidy program for developers. Economists Edward Glaeser and Joseph Gyourko argue that developers effectively pocket the $4 billion or so in annual federal tax credits, while the rents in buildings constructed under the program are generally no lower than they would have been in the absence of the program.

In a nutshell: an establishment commission is planning to “reform the nation’s housing policy by crafting a package of realistic and actionable policy recommendations” for the Beltway establishment’s consideration. Hold onto your wallets, taxpayers.

Strong Cities, Strong Communities: Bad Idea

When government officials come up with what they claim to be a wonderful new idea, I often think of an old Saturday Night Live skit from 1990 poking fun at commercials for blue jeans. The skit’s scene is a group of middle-aged buddies getting ready to play basketball in their new “Bad Idea Jeans.” Each guy optimistically announces a plan to do something that is actually a “bad idea.” For example, a character says “I don’t know the guy but I’ve got two kidneys and he needs one, so I figured…” and “BAD IDEA” flashes across the screen. (The skit can be watched here.)

The White House’s new “Strong Cities, Strong Communities” initiative had that BAD IDEA screen shot flashing repeatedly in my mind as I read the press release:

Today, the Obama Administration launched Strong Cities, Strong Communities (SC2), a new and customized pilot initiative to strengthen local capacity and spark economic growth in local communities while ensuring taxpayer dollars are used wisely and efficiently. To accomplish this, federal agencies will provide experienced staff to work directly with six cities: Chester, PA; Cleveland, OH; Detroit, MI; Fresno, CA; Memphis, TN; and New Orleans, LA. These teams will work with local governments, the private sector, and other institutions to leverage federal dollars and support the work being done at the local level to encourage economic growth and community development.

Additionally, communities nationwide will be eligible to compete for comprehensive economic planning assistance through a grant competition designed to spark local innovation. By integrating government investments and partnering with local communities, SC2 channels the resources of the federal government to help empower cities as they develop and implement their vision for economic growth.

The Wall Street Journal reports that federal officials from HUD, Labor, Commerce, Transportation, and the Small Business Administration will be “deployed” to the cities. In other words, the Obama administration wants to send bureaucrats from federal agencies that are notorious for wasting other people’s money to help local bureaucrats do a more “efficient” job of spending other people’s money. That’s like asking Anthony Weiner to fix your Twitter account.

A couple of the cities chosen by the administration are ironic. Seriously, hasn’t the federal government done enough to New Orleans already? Detroit is an example of why decades of federal subsidies to urban centers in decline have been a failure. As I note in a Cato essay on HUD community development subsidies, of which Detroit has been the fifth largest recipient since 2000, federal handouts create a disincentive for local officials to pursue sound policy reforms:

Despite all the abuses, perhaps policymakers believe that Community Development Block Grants are nonetheless effective at stimulating growth. After 30 years and more than $100 billion it should be easy to demonstrate the program’s success, but it’s hard to find any examples of city rejuvenation created by the program. Instead, numerous cities, such as Detroit, which have been major CDBG recipients, have fallen further into decline. The reality is that no amount of federal money can overcome the local hurdles to growth in cities such as Detroit—including political corruption and destructive tax and regulatory policies. Indeed, just like international development aid, federal aid to the cities likely increases corruption and stalls much-needed local reforms.

Some people will view this initiative as a crass effort to shore up urban support for the president’s reelection campaign. There’s probably a good bit of truth to that criticism. But both parties have been using subsidies to state and local government to curry political support for decades. Therefore, Republicans who raise a stink over the administration’s initiative should be prepared to work for the involved programs to be abolished. Otherwise, the complaints will amount to little more than political hot air.

See this Cato essay for more on federal subsidies to state and local government.

Some Thoughts on Federal Rental Housing Assistance

Last week I participated on a panel on federal rental housing policy, organized by Harvard’s Joint Center for Housing Studies in conjunction with the release of their new report on conditions in the rental market.  In their defense, the report does attempt to avoid offering policy prescriptions.  But the report does come pretty close to suggesting that we spend more on federal rental housing assistance.  In the post-housing bubble  environment, many, myself included, have dared suggest that there’s nothing wrong with someone being a renter, and that maybe we pushed too many into homeownership.

But saying we overdid homeowneship is not the same as saying we ignored rental.  In fact the federal government has spent massive amounts on rental housing, yet according to the new Harvard report, rent burdens have gotten worse over the last 50 years not better.  While the report doesn’t take this step, I think we have to ask: if you’ve spent hundresds of billions of dollars on an issue and it then gets worse, maybe there’s something wrong with what you are doing?

Perhaps my friends on the Left (and/or in the real estate industry) don’t believe we’ve spend all that much on rental housing.  Consider these facts:  in nominal terms the sum of all money spent by HUD, which is almost exclusively rental or “community development,” has been close to a trillion dollars.  By my estimate (based upon the American Housing Survey and the Residential Finance Survey) the current value of all rental housing in the US is about $3.6 trillion.  So the federal taxpayer has paid enough to outright buy almost a third of all rental housing.

Also consider that if we took the approximately $50 billion we now annually spend on rental housing, we could pay 100% of the rent of the almost 4 million households currently paying the lowest rents.  This translates to being able to pay all the rent for every family earning about $22,000 or less.   If we choose to only pay 50% of their rent, we could serve another 2.5 million. 

My point here is not to say we should spend all this money, for I still don’t see this as the proper role of the federal government; the point is that we already spend a huge amount.  Now why might all this money not have made a huge difference in helping renters?  Maybe because most of it gets eaten up by the providers.  For instance a recent paper in Real Estate Economics estimates that only a third of the value of the Low Income Housing Tax Credit actually makes it to the renter in the form of lower rents.  The remaining two-thirds goes to benefit the developers, owners and others who live off the process.  So before we even think about spending more on federal rental assistance, how about making sure what we do spend actually goes to help the poor and not the special interests?

More HUD Community Development Duds

Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.

HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.

Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.

Recent stories in the news provide further evidence.

First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:

An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.

More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick-and-mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.

The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.

Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:

Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community-development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three-story building nestled between two skyscrapers at City National Plaza.

Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:

[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.

A HUD official called the situation “entirely healthy.”

Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:

Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.

In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.

Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.

But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.

Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this week:

  • Sen. Rand Paul bucks the trend of wimpy spending cut proposals with a more serious plan.
  • Perhaps Charlie Sheen’s agent should consider getting him a gig with HUD.
  • A Senate Democrat supports a plan that would focus on spending cuts and not tax increases.
  • Policymakers should roll back the punishing regulations and taxes that make it difficult for businesses of all races and sizes to succeed.
  • Federal energy policy, Newt Gingrich, and “rank gooberism.”