Tag: Housing

This Is What “Effective” Looks Like at HUD?

Yesterday HUD Secretary Ben Carson tweeted that “The Low-Income Housing Tax Credit [LIHTC] is one of the most effective tools we have to create affordable housing.” And Secretary Carson’s presidential advisor published an op-ed yesterday which lauded LIHTC as a prime example of “the most effective and efficient use of the government’s resources.”

That is high praise for a program known for expense, complexity, lack of oversight, and abuse. LIHTC is arguably one of the most inefficient housing subsidy programs that the federal government administers.

Chris Edwards and I detail some of LIHTC’s failings in our report published earlier this week. One of LIHTC’s problems is that it doesn’t successfully accomplish its own objectives to redistribute to low-income tenants and create new housing.

First, most of the LIHTC subsidy goes to developers, lawyers, accountants, and financiers rather than low-income tenants. A 2011 study found that low-income tenants capture one-third of the subsidy. That leaves two-thirds of the benefit for corporations, banks, accountants, and lawyers involved in the process.

Second, LIHTC displaces similar market-rate housing. A recent study estimated that “nearly 100 percent of LIHTC development is offset by a reduction in the number of newly built unsubsidized rental units.” That means LIHTC requires taxpayers fund housing that would be built on the private market.

Another problem is that LIHTC is relatively expensive even compared to other housing and other government housing programs. Michael Eriksen’s work suggests LIHTC units cost 20% more per square foot than medium-quality market-rate housing, and the Government Accountability Office (GAO) found LIHTC units cost 19-44% more than housing voucher units over their lifetime.

Not to mention, LIHTC has a history of fraud and abuse. NPR ran a documentary that outlined some of the recent cases earlier this year.

This problem is likely due to the federal government’s “minimal” oversight of the program. The IRS oversees LIHTC but has only audited 13 percent of state administrators during the program’s entire existence. As a GAO auditor put it earlier this year, the “IRS and no one else in the federal government really has an idea of what’s going on.”

This is just a sampling of LIHTC’s problems; additional issues are noted in the report. If LIHTC is HUD’s version of an “effective” and “efficient” government program then that explains a lot.

See our report for more details on the Low-Income Housing Tax Credit.

Poll: Public Distrusts Wall Street Regulators as Much as Wall Street, Say Gov’t Regulators Are Ineffective, Biased, and Selfish

The new Cato Institute 2017 Financial Regulation national survey of 2,000 U.S. adults released today finds that Americans distrust government financial regulators as much as they distrust Wall Street. Nearly half (48%) have “hardly any confidence” in either. 

Click here for full survey report

Americans have a love-hate relationship with regulators. Most believe regulators are ineffective, selfish, and biased:

  • 74% of Americans believe regulations often fail to have their intended effect.
  • 75% believe government financial regulators care more about their own jobs and ambitions than about the well-being of Americans.
  • 80% think regulators allow political biases to impact their judgment.

But most also believe regulation can serve some important functions:

  • 59% believe regulations, at least in the past, have produced positive benefits.
  • 56% say regulations can help make businesses more responsive to people’s needs.

However, Americans do not think that regulators help banks make better business decisions (74%) or better decisions about how much risk to take (68%). Instead, Americans want regulators to focus on preventing banks and financial institutions from committing fraud (65%) and ensuring banks and financial institutions fulfill their obligations to customers (56%).

Americans Are Wary of Wall Street, But Believe It Is Essential

Nearly a decade after the 2008 financial crisis, Americans remain wary of Wall Street.

  • 77% believe bankers would harm consumers if they thought they could make a lot of money doing so and get away with it.
  • 64% think Wall Street bankers “get paid huge amounts of money” for “essentially tricking people.”
  • Nearly half (49%) of Americans worry that corruption in the industry is “widespread” rather than limited to a few institutions.

At the same time, however, most Americans believe Wall Street serves an essential function in our economy.

  • 64% believe Wall Street is “essential” because it provides the money businesses need to create jobs and develop new products.
  • 59% believe Wall Street and financial institutions are important for helping develop life-saving technologies in medicine.
  • 53% believe Wall Street is important for helping develop safety equipment in cars.

Poverty, Politics, and (Crony) Profit

Earlier this week, PBS Frontline ran a documentary titled Poverty, Politics, and Profit discussing major barriers to housing America’s poor. The show centered on the Low Income Housing Tax Credit (LIHTC) program, a federal program that subsidizes low-income housing construction.

Chris Edwards described Frontline’s LIHTC investigation well here. In short, the show found LIHTC costs taxpayers 66% more, but produced 20,000 fewer housing units than 20 years ago. Frontline made the case that the program’s failure is partly due to poor oversight and attendant corruption.

For those unfamiliar with LIHTC, Frontline’s narrative about developers’ outsized profits may sound extraordinary. But PBS does well to highlight a problem that the social sciences have long provided evidence for. For example, in Rethinking Federal Housing Policy, economist Edward Glaeser suggests that LIHTC’s “prime beneficiaries are the recipients of the tax credits, not poor renters …. [there] is little doubt that … a significant portion of program benefits accrue to developers.” And on the issue of LIHTC oversight, the Government Accountability Office flatly stated in a 2015 report that “oversight of the Low-Income Housing Tax Credit (LIHTC) program has been minimal.”

There are additional issues that were not covered in the Frontline piece. For one, the private market would produce the same housing in the absence of LIHTC subsidies. Economists call this phenomenon “crowd-out” and a recent study suggests “the impact of the [LIHTC] program on the [real] number of newly developed rental housing units appears to be small” because of it. In other words, LIHTC’s advocates are disingenuous when they pretend LIHTC-subsidized housing would not exist without government subsidy.

Low Income Housing Tax Cronyism

The Low Income Housing Tax Credit (LIHTC) is a federal program that subsidizes the construction of housing for poor tenants. The $8 billion program suffers numerous failures, as discussed in this study. One problem is that the program’s subsidies may flow more to developers and financial institutions than to the needy population that is supposed to benefit.

National Public Radio investigated the LIHTC for a show aired yesterday. The joint investigation with PBS found that the program has “little federal oversight” and is producing “fewer units than it did 20 years ago, even though it’s costing taxpayers 66 percent more.” The investigation discovered that “little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program.”

Here’s how the program works:

Every year, the IRS distributes a pool of tax credits to state and local housing agencies. Those agencies pass them on to developers. The developers then sell the credits to banks and investors for cash. Often, to find investors, developers will use middlemen called syndicators. The banks and investors get to take tax deductions, while the developers now have cash to build the apartments.

With lots of groups on the federal gravy train—state and local housing bureaucracies, developers, banks, syndicators, and investors—the LIHTC program has fortified itself politically. Developers apparently take a 15 percent cut on the total value of housing projects, while syndicators earned more than $300 million in fees last year.  

Some share of LIHTC subsidies disappear in corruption and fraud. NPR profiles a Miami-area criminal enterprise led by Biscayne Housing and Carlisle Development Group, which is “one of the country’s top affordable housing developers.” The companies stole $34 million from 14 LIHTC projects. Biscayne’s former head Michael Cox admits, “It was a construction kickback scheme … The scam was to submit grossly inflated construction numbers to the state in order to get more money than the project required and then have an agreement with the contractor to get it back during construction.”

Making a Good Budget Great

President Trump’s 2018 budget takes a meat cleaver to many federal programs. In my issue areas–transportation, housing, and public lands–it would end the Federal Transit Administration’s New Starts program; end funding for Amtrak’s long-distance trains; eliminate HUD community development block grants; and reduce funding for public land acquisition.

Trump calls this the “America First” budget. What it really is is a “Federal Funding Last” budget, as Trump proposes to devolve to state and local governments and private parties a number of programs now funded by the feds. In theory, the result should be greater efficiency and less regulation. However, in most of the areas I know about, Trump could have gone further and produced even better results.

Transportation: I applaud the elimination of New Starts, the program that encourages cities to waste money on obsolete transit systems, but am disappointed that Trump would continue to fund projects with full-funding grant agreements. There are several insanely expensive projects, including the Maryland Purple Line and the Minneapolis Southwest Line, that have such agreements but haven’t started construction and should be eliminated. A number of streetcar and bus-rapid transit projects also fall into this category. If Congress is willing to live with no more full-funding grant agreements, it should allow the administration to also review and eliminate projects that haven’t yet begun construction or have made only token construction efforts.

The proposal to eliminate Amtrak long-distance trains is politically problematic. Since Amtrak’s other trains reach just 22 states, while the long-distance trains add 26 more, this proposal will look like it is favoring some states over others. As an alternative, I would have suggested that the federal government offer to cover 25 percent (or less) of the fully allocated costs (including depreciation) of each train or route, including the Northeast Corridor. If fares don’t cover the other 75 percent, then state support would be required or the trains would be cut. This is much more fair, especially because some state-supported trains actually require subsidies per passenger mile that are much larger than many of the long-distance trains.

Three other transportation proposals look good. One would transfer air traffic control to an independent, non-governmental organization, which would quickly install new equipment and increase airline capacities and safety. A second would eliminate the so-called Essential Air Service program, which subsidizes airports in smaller communities. Trump also proposes to eliminate the TIGER grant program, a relic of the 2009 stimulus bill, that has funded streetcars and other ridiculous projects.

Fair Housing or Federal Agency Running Riot?

In case you missed it, Ben Carson has been labeled as being “at odds with fair housing.” During his senate confirmation hearing last week, Carson was required to defend his position on Affirmatively Furthering Fair Housing (AFFH), the Department of Housing and Urban Development’s (HUD’s) controversial 100-page-plus contemporary interpretation of the Fair Housing Act.

It may sound appalling that anyone anywhere would be against fair housing. Still, there are sane reasons to object to the rule. Carson suggested a couple of possibilities; for example, he worries about Washington, D.C. administrators demanding that local communities “go looking for a [racial] problem” when no evidence of such a problem exists a priori.

If you don’t like intemperate federal agencies running riot, there is another process-related objection that Carson missed: AFFH may insert the federal agency into policy areas not even remotely authorized by the legislation it purportedly interprets.

The table below provides a comparison of the original Fair Housing Act language and AFFH language, so that you can decide for yourself:

Fair Housing Act of 1968 (original legislation) Affirmatively Furthering Fair Housing of 2015 (HUD’s re-interpretation)
1)    Prohibits landlords from discriminating against minority tenants. 1)    Stated objective is to “replace segregated living patterns with truly integrated and balanced living patterns [within cities].” 
2)    Uses the word “segregated” or “segregation” a total of 0 times. 2)     Uses the word “segregated” or “segregation” a total of 126 times and urges“overcoming historic [geospatial] patterns of segregation.”
3)    The original FHA law uses the word “zoning” just 1 time, wherein it instructs the HUD Secretary to refer discriminatory local zoning or land use laws to the Attorney General so that he/she can file a lawsuit. 3)    The AFFH mentions “zoning” 53 times, wherein it suggests that communities change their zoning to improve racial integration (not a bad suggestion, but a departure from the original law).
4) The original FHA law uses the word “affirmatively” 2 times. Each time, it asks executive departments and agencies to administer their programs and activities in a way that affirmatively furthers “the purposes of this subchapter,” where the subchapter focuses on prohibiting a discriminatory relationship between landlord/seller and tenant/buyer. 4) The AFFH rule uses the word “affirmatively” 423 times, wherein it redefines the term to mean “replacing segregated living patterns with truly integrated and balanced living patterns” and “transforming racially and ethnically concentrated areas.”
5) The original FHA law uses the word “concentration,” referring to the concentration of poverty or concentration of minorities in cities, 0 times. 5) The AFFH rule uses the word “concentration” 56 times and urges “reducing racial or ethnic concentrations of poverty.”

HUD believes the rule merely implements the Fair Housing Act’s intent.  You can form your own view.

Seattle Millennials Should Move to Houston

The Seattle Post-Intelligencer says it has found the best Seattle homes for Millennials. Judging by the former paper’s suggestions, Seattle Millennials should move to Houston. Houston may not have Mt. Rainier, but it has beautiful lakes, a sea coast that is just about as nice as Washington’s (though not as nice as Oregon’s), and most important, it doesn’t have urban-growth boundaries which means it has much more affordable housing.


Click any photo to go to the listing for that property.

The P-I’s first suggestion is a 720-square foot, two-bedroom, one-bath home on a 5,000-square-foot lot. On the plus side, the living room has hardwood floors. On the minus side, the asking price is $259,950–and if Seattle’s housing market is anything like Portland’s, it will go for more than that. At the asking price, the cost is $361 per square foot.

As an alternative, allow me to suggest this 720-square-foot home in Houston’s University Area, not too far from downtown. It has new paint and an updated kitchen and, like the Seattle home, it is on a 5,000-square-foot lot. Unlike the Seattle home, the cost is just $86,500, just under a third of the Seattle house. That’s just $120 per square foot–and the sellers will probably accept a little less.

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