Cato Policy Analysis No. 127 February 6, 1990

Policy Analysis

The Source Of America Housing Problem:
Look In Your Own Back Yard

by William Tucker

William Tucker is a former media fellow at the Hoover Institution and the author of The Excluded Americans: Homelessness and Housing Policies, forthcoming from Regnery Gateway.


Executive Summary

The housing problem--particularly the shortage of housing for the poor--emerged as one of the major domestic issues of the 1980s and threatens to continue well into the next decade. The signs are everywhere. Homelessness has been a major concern for nearly 10 years. Rents have been absorbing ever-increasing portions of poor people's incomes. In some cities, the rental vacancy rate has reached a dangerously low 3 percent or less.

Added to that atmosphere has been the drama of scandal. The allegation that former Republican officials were able to obtain large kickbacks by helping to steer federal housing funds to favored developers has fueled the suspicion that the whole problem starts at the top. In October 1989, when 40,000 demonstrators descended on Washington and marched to demand "housing now," carrying placards that condemned Samuel Pierce and Deborah Gore Dean, a familiar social chord was struck: People want housing, but the government won't give it to them. Corruption and venality are to blame.

When articulated clearly, that argument usually indicts the federal government's housing policies on three counts:

(1) Federal housing assistance was reduced unmercifully during the 1980s. In 1981 the Department of Housing and Urban Development had budget authorizations of $32.2 billion; by 1989 they had been slashed to a mere $6.9 billion--a reduction of 78 percent.

(2) The federal government has abandoned its 50-year- old commitment to build public housing. In 1979 Congress authorized nearly 55,000 new units of public housing. In 1984 the number of units authorized was zero, and it has averaged less than 7,400 since then. That drastic reduction in public housing construction during the Reagan years caused homelessness to increase.

(3) What little money remained in federal housing programs' budgets was misappropriated--either entrusted to embezzlers or squandered on political favoritism. Between $2 billion and $4 billion was stolen from HUD by private contractors, and HUD lent well-connected developers millions of dollars' worth of Section 8 moderate-rehabilitation program funds. Although intended for the poor, many of the rehabilitated homes ended up being occupied by members of the middle class.

Unfortunately, few of the charges made in that three-part argument are true, and the ones that are true are largely irrelevant. Authorizations of federal housing funds decreased during the 1980s, but in constant dollars, outlays increased by more than 65 percent. Nor has there been a reduction in the construction of public housing, even though Congress authorized far less during the Reagan administration; a large number of previously authorized units have been brought on line.

Finally, the alleged misappropriation of Section 8 moderate-rehabilitation program funds is certainly reprehen- sible, and the stolen money should be recovered if possible. But that scandal is little more than a side show to the housing situation. Section 8 had long been infamous for creating an account that serves as a slush fund and benefiting the middle class. It was precisely for those reasons that the Reagan administration tried to eliminate it.

What is most significant, perhaps, is that in the wake of the HUD scandals, few Americans are aware of a great accomplishment of the Reagan administration: the long-awaited introduction of a true housing voucher. Largely because of its partisanship, the press has taken little notice of that development except to condemn it once in a while. Nevertheless, the voucher program is a remarkable success and is rapidly revolutionizing housing assistance. Moreover, unlike previous programs, it is practically immune from corruption because the vouchers are awarded to tenants rather than housing providers.

Clearly the argument that the federal government is the source of the nation's housing problem is flawed. Let us consider the three-count indictment of Reagan-era federal housing policies at length.

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