National Housing Law Project Housing Law Bulletin

“The Housing Disaster That’s Not Being Fixed”: A Critique

For 60 years, Congress has recognized that meeting America's housing needs requires a federal partnership with the private housing industry and state and local governments. Today we are engaged in a debate over the future of that partnership, the people it serves, and the millions of units of housing it has produced.

The authors of "The Housing Disaster That's Not Being Fixed"³ propose a profound shift in policy on housing built and owned by the private sector, both for-profit and nonprofit. Built during the past two decades with federal mortgage insurance and project-based Section 8 rental assistance, this housing has served millions of low-income people and has had broad bipartisan support during both Republican and Democratic administrations.

The authors' proposal is spurred by the expiration of Section 8 contracts on more than 1.4 million assisted housing units over the next 10 years.⁴ The authors urge Congress to act now to avoid the ticking time bomb represented by the ever increasing share of HUD's shrinking budget devoted to the renewal of over 8,000 privately owned, Section 8 properties that house, in the main, very poor families and the elderly. One need not agree with this "Independence Day" scenario to agree that something should be done — and sooner rather than later. Regrettably, the authors' remedy — marking rents to market (either up or down as the case may be) and "vouchering out" the housing stock — is penny and housing unwise. The possibility that HUD would abandon the preservation of this mixed-income, federally assisted, multifamily housing that serves primarily families and seniors — and incur a greater expense to the taxpayer in doing so — leaves affordable housing preservationists shaking their heads.

The authors' proposal for FHA-insured and Section 8-assisted housing is to eliminate project-based rental assistance as contracts expire, convert the projects to market-rate rents, pay mortgage claims triggered by the elimination of subsidies, and provide residents with Section 8 certificates administered by local public housing authorities. The plan reverses a long-standing policy of maintaining a supply of well located and maintained housing for current and future low-income renters. The proposed policy, called "Mark to Market," is the antithesis of the preservation of existing affordable housing, an explicit goal adopted by the Congress decades ago.

All parties in this debate agree that reform of HUD programs is necessary, that maintaining the status quo is unacceptable from a fiscal and housing quality perspective. But is an approach that could eliminate the nation's insured and subsidized affordable housing supply the best solution? Is it the best solution from a cost perspective as well as from the perspective of renters, owners, neighborhoods, local governments and the national interest in having an affordable housing supply and delivery system? Also, are there policy distinctions to be made based on the characteristics of the federally insured housing stock, including age, condition, who lives there, type of financing, and other subsidies? We believe there are and that HUD's goals for reducing costs and providing more flexible housing opportunities can be achieved without throwing the baby out with the bath water.

The authors fail to point out that the more than 800,000 federally insured and assisted housing units throughout our nation are physically, socially and geographically diverse. And, like any portfolio of this magnitude, a menu of appropriate approaches is necessary both to preserve the housing and assist the seniors and families who call it their home. The authors' analysis suffers from five fundamental flaws:

• Vouchers don't expand or preserve the supply of affordable housing.

  While vouchers are an indispensable tool to any housing delivery system, they fail to increase the supply of available affordable housing. The nation's market supply of affordable housing does not currently meet the demand. If the 800,000 affordable, federally assisted rental units are allowed to convert to market-rate rents, the nation's supply will be even less adequate. In contrast to the Section 8 expiring contract dilemma, the nation's affordable housing crisis is not "impending" but a very present reality. According to a recent study commissioned by the National Low Income Housing Coalition titled "Out of Reach: Can America Pay the Rent?" the lack of affordable housing has become much more elusive for low-income families. More low-income Americans pay a higher fraction of their monthly income toward rent than ever before in our nation's history. This statistic will only worsen as public assistance levels are slashed and low-wage jobs continue to fail to meet the subsistence needs of poor families.

• In many cases, vouchers are more expensive than preserving affordable rental housing stock.

  The chief disadvantage of a voucher/certificate program is cost. In approximately 60 percent of Section 8-assisted apartments, current contract rents are less expensive than local fair market rents. In those cases, the current contract rents, on an annualized budget basis, are less expensive than the cost of a voucher. There is no budgetary or policy rationale for "marking up to market" older assisted housing. Substituting vouchers would be a waste of precious budget resources in an increasingly stingy budget climate. Additional costs of marking to market the older assisted stock have been noted by the General Accounting Office, which observes that "excluding the older assisted properties from [Mark to Market] would cost $4 billion less over 25 years (on a net present value basis) than including them."

• Conversion of all housing assistance to vouchers is a smokescreen for reducing housing assistance.

  The authors chide tenants for not jumping for joy when offered a voucher. But tenants are wise to the fact that Congress has already demanded that housing authorities delay reissuance of Section 8 vouchers and certificates upon turnover of the certificates. Today, the waiting lists for vouchers are two to three years long in cities of all sizes and entirely closed in others. In urging Congress to increase the supply of vouchers for tenants who currently occupy federally insured properties, it is the authors who are naive. In acting on HUD's Mark to Market proposal last year, the House Appropriations Committee jettisoned HUD's request and voted for no additional Section 8 certificates, thus denying certificates for previously unassisted households that would become rent burdened due to Mark-to-Market rent hikes. Instead, the Committee gave the Secretary "discretion" to voucher out assisted housing at HUD's proposed lower voucher levels. This type of Mark to Market "Lite" (less housing, reduced voucher assistance) is by far the most likely legislative outcome in the current budget climate.

• The nationwide "failure rate" for vouchers is 20 percent.

  Another disadvantage is that voucher holders do not find available housing in all markets for all tenants. The authors acknowledge an "80% success rate." Well, that means that at least one family or senior in five has trouble "succeeding" with a voucher. In many urban markets, it is even more difficult for residents to locate and secure three- or four-bedroom apartments with vouchers. Displaced seniors will have great difficulty accessing units with meals and support systems. Due to budget constraints, HUD has reduced the voucher level which will, in turn, make it harder for families to find landlords willing to accept vouchers. Finally, vouchers appear not to work as well for other families facing discriminatory barriers, such as minorities and handicapped individuals.

• Residents often prefer the stability and continuity of community made possible by preservation of existing, affordable rental housing.

  The authors fail to acknowledge that many resident-endorsed and other nonprofit organizations want to purchase this housing and keep it available and affordable for decades to come. Much of this housing is well located and well maintained. Residents have decided to stay in this housing, not leave. They want to rehabilitate their units and improve their homes. Vouchers won't support the financing necessary to help them and their neighborhoods. Where residents and nonprofits want to use property-based assistance and federal housing insurance to stabilize their housing and communities, and where the cost is the same or less than vouchers, why not provide them that choice?

The National Housing Trust and the National Housing Law Project compliment the authors for wrestling with the policy and financial challenges of HUD-assisted housing. However, the solution may not be so stark as they suggest. The authors paint a picture of heroic HUD economists defending the taxpayers against the depredations of wily stakeholders (including tenants) and a somnolent Congress. But the reality is that it is HUD that is refusing to acknowledge the complexity of this issue and the need to preserve affordable housing. The Senate has in fact proposed a more rational approach that re-underwrites current mortgages, reduces future Section 8 outlays, attempts to preserve the housing and avoid displacement of tenants. While far from perfect, it is better than total deregulation. The authors' Mark-to-Market proposal should be unbundled and each element should be evaluated for cost-effectiveness, administrative feasibility, and its impact on the future of this housing stock vis a vis the Senate proposal. As presently framed, neither the authors' nor the Administration's approach are a cost-effective means to preserve affordable housing or maintain the nation's rental assistance to needy families and seniors, and would not serve the interests of current or future residents or their communities.

Where Do We Go from Here?

Now is the time for rational approaches to this difficult dilemma. We support the following:

• Renew project-based Section 8 contracts but lower contract rents to market or below to save on discretionary federal outlays going forward;
• Restructure the mortgages to minimize defaults;
• Provide long-term affordability;
• Weed out unsatisfactory owners;
• Strongly encourage the current owners of these properties to transfer their properties to community-based, nonprofit owners who will maintain them as affordable over the long haul and provide essential services to families and seniors; and
• Give tenants greater influence over the decisions that affect their lives.

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For more information about Mark to Market, check out the Assisted Housing Folder on HandsNet or call the National Housing Trust at (202) 333-8931 or the National Housing Law Project at (510) 251-9400.

1. Michael Bodaken is the President of the National Housing Trust, a national nonprofit organization dedicated to the preservation of existing affordable housing. The Trust provides technical assistance to nonprofits, residents, and state and local housing entities throughout the United States.
2. Jim Grow is a Staff Attorney for the National Housing Law Project, whose mission is to preserve and expand decent and affordable housing for very low-income families.
3. James R. Barth and Robert E. Litan, "The Housing Disaster That's Not Being Fixed," Brookings Policy Brief, No. 1 (July 1996), prepared under the auspices of the Brookings Institution, 1775 Massachusetts Avenue, N.W., Washington, DC 20036, Tel. (202) 797-6000; Fax (202) 797-6004.
4. There are approximately 1.4 million assisted housing units in HUD's inventory. The word "assisted" means that the rents are subsidized. Of these, approximately 850,000 are both HUD-assisted and HUD-insured. This "assisted and insured" inventory is the topic of the authors' proposal. An additional 1.5 million vouchers and certificates are also provided by the federal government to needy households. These vouchers and certificates are subject to yearly renewals.