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Challenging
the Two Americas: New Policies to Fight Poverty
March
23-24, 2006
Howard Husock
Center on Work, Poverty and Opportunity
University of North Carolina Conference
When the discussion turns to housing policy,
we focus most often on need and what's called
affordability. So it is that our attention will
inevitably be drawn to comparisons of median rent
and median income, as well as a variety of other
data sets meant to point up the gap between the
incomes of low-wage workers and the cost of housing,
at least in some areas.
The import of such data is taken to be self-evident:
that government, and most likely the federal government,
should, indeed, must take measures to bring down
the cost of housing for those of modest means-whether
through government owned and operated housing-run
by public housing authorities-direct housing subsidies
to households, to help them pay the rent, or housing
subsidies to developers, in exchange for their
lowering the price for those of lower income.
We've done all these things, to varying degrees,
over the past 75 years.
At the same time, we never hear about the need
for such below-market rate housing being satisfied.
Indeed, it seems that even extremely large increases
in federal housing program budgets are viewed
as insufficient. Over the past decade, for instance,
federal appropriations for the Section 8 Housing
Choice Voucher program have virtually doubled-eclipsing
even the spending for cash public assistance-yet
the focus remains on the inadequacy of spending
and need unmet-for, indeed, only a minority of
those eligible, by law, for housing assistance
actually receive it.
One conclusion: we must spend more.
But another conclusion is possible, as well:
that what we are doing now is not the best approach
and that, rather than continuing those programs-at
higher levels-we should rethink our underlying
assumptions. That point of view can be complemented
by another-- that the existing programs, in addition
to being inadequate to serve the population said
to be in need, are fatally flawed by a range of
market distortions and social ill effects to which
they lead. Together, these two themes-lack of
cost-effectiveness and collateral damage-lead,
in my view, to a need to rethink whether we should,
indeed, by in the specific business of housing
subsidies, at all. I'd like to provide an overview
of what I see as the flaws of our various housing
programs for those of low-income and then propose
an alternative approach, one which I think will
better fulfill the goal of ensuring that those
who work should not be poor.
I will begin, though, with a critique of existing
housing subsidy programs. Let's start with the
Housing Choice voucher program, the fastest-growing
housing subsidy program we have, one that now
dominates the budget of the Department of Housing
and Urban Development, ballooning to more than
$17 billion a year. It's presented as a way to
use markets to serve the poor because individual
poor households seek out private property owners
willing to accept housing vouchers. Its problems,
however, are deep. First, it is out-of-synch with
the bipartisan approach to public assistance which
emerged in the welfare reform legislation signed
by President Clinton. Unlike cash public assistance
today, the housing voucher program poses powerful
disincentives to work. Because recipients pay
a flat 30 percent of income in rent, higher incomes
lead to significantly higher rents. Indeed, if
one goes from earning $10,000 to $15,000, ones
rent will increase by $1500, leading to a marginal
tax rate of 30 percent, even before income and
payroll tax effects are considered. No wonder
the program leads to long-term dependency-it makes
economic sense to forego increases in earnings
and keep the voucher. So it is that, in New York
City, for instance-home of the nation's largest
housing voucher program-the average recipient
has been in the program 8 years-and that understates
the dependency problem, because so many new households
have been added in recent years. Keep in mind,
by the way, that comparisons to cash public assistance
are not idle ones-housing subsidy programs target
virtually the same low-income single-parent population
. Although one hears much discussion of couples
who have difficulty affording a home, our low-income
housing programs-both vouchers are publicly-owned
housing developments-overwhelmingly serve single
mothers. Indeed, again in New York, the Housing
authority reports that fully 98 percent of non-elderly,
non-disabled voucher holders are single parents-and
that only one third of them are working. Indeed,
by giving priority to those earning 30 percent
of median income or less, as we do by law, we
virtually guarantee single parents will predominate-and,
arguably, encourage the formation of single-parent
households in which, we know, children are at
a disadvantage from the start. We have signaled
through the Temporary Assistance to Needy Families
that aid will be contingent on work and will come
with a time limit; our housing voucher program-now
larger than cash welfare-signals just the opposite.
Nor are those its only problems. Voucher holders
are not randomly distributed in metropolitan areas.
They tend to cluster, both in long-time low-income
areas and in inner-ring suburbs-where property
owners are lured by reliable rent payments and
may have only limited other options. For instance,
in New York City-with more than 90,000 voucher-holders-just
11 of the city's 59 community districts contain
50 percent of all voucher households. As voucher-holders
do move into areas of less concentration, however,
all is not well; in many inner ring, older suburbs
where voucher-holders have begun to move, long-time
residents hope, often desperately, to maintain
the working family character of their neighborhoods.
Emerging concentrations of vouchers have become
a political issue in the south suburbs of Chicago
and the San Fernando Valley area of Los Angeles,
where politicians are being pressured to crack
down on what residents say publicly is anti-social
behavior they associate with voucher households.
Let me read you a recent note I received from
a resident of Los Angeles county. I warn you it's
not a pretty note. " I'm a single, self-supporting
working-class women. On paper it looks like I
have a good income as a secretary . However, I
can't afford to buy a home in the area. where
I live. And I can't afford safetywise to rent
an inexpensive apartment there because I have
been and would be in a predominantly Section 8
neighborhood, where there are rampant "broken
window syndrome" crimes which, if I reported
them, would turn me into both a pariah and a target.
It's a Catch-22 for me. It's harder to save for
a down payment because I am forced by the dominance
of Section 8 housing to live in a far more expensive
apartment complex just for safety.One of our local
candidates is making Section reform a campaign
issue. His suggestion is that the property owners
who rent to Section 8 be required to reimburse
the Sheriff's Department for the law-enforcement
costs associated with the presence of a Section
8 family. And our local newspaper has published
a bit editorial demanding accountability from
the Housing Authority."
Such demands do not arise without reason. They
should not be surprising. Vouchers offer their
holders a ticket to higher-income neighborhoods
without having adopted the habits-thrift and marriage,
amongst them--which have allowed households traditionally
to ascend what I call the housing ladder, one
from lower to higher-income neighborhood. This
is the problem with the view that by "deconcentrating
poverty", we will encourage upward mobility.
In fact, we send the opposite message-by providing
reward based on need, we signal beneficiaries
that effort is not required-and, indeed, may even-if
it leads to higher income-be penalized.
So it is that Section 8 has, sadly, been a recipe
for tension between social classes and the races.
Of course, a great many voucher holders do their
best to work hard and play by the rules. My point
here: the rules do not encourage them to work
hard and the program's side effects tend to alienate
even traditional working class Democratic constituencies.
But the obvious alternative to housing vouchers-government-aided
housing construction targeted to low-income households-has
its own serious flaws. Few today defend traditional
public housing developments. But few understand
the underlying nature of their flaws-and why those
flaws are just as relevant to new forms of subsidized
construction, such as the so-called HOPE VI new
generation public housing and for-profit and non-profit-owned
housing developments whose "affordability"
is a function of financing through the low-income
housing tax credit. Quite simply, there is little
reason to be optimistic about there being high-level
long-term maintenance of any sort of housing in
which residents to do pay rents sufficient to
provide the funds needed for upkeep. That is the
problem which emerged with traditional public
housing, far more than the much more celebrated
issues of high-rise architectural design, for
instance. At its inception, public housing was
not to receive operating subsidies; instead, although
construction would be financing through public
bonds, operations would be financed, as with any
apartment complex, through rental income. But
those with choices have fled public housing, decimating
the rental income of housing authorities, who
can only collect a maximum of 30 percent of household
income in rent. There is simply no guarantee that
this same problem will not, over time, visit other
subsidized construction programs. Indeed, we have
already seen maintenance problems emerge in developments
owned by well-known non-profit organizations.
HOPE VI projects look good when the ribbons are
cut; but as the projects age, middle-income owners
are likely to find better options in the private
market, while low-income renters do not provide
adequate rents for upkeep. This has been the story
of subsidized housing dating to the 19th century,
when so-called model tenements were built in New
York and Chicago.
Yet even if subsidized construction does not
develop maintenance problems, it poses serious
problems-especially for those concerned broadly
about helping to ensure both that those who work
will not be poor and that our cities provide economic
opportunity. First, subsidized construction of
any kind is, quite simply, an extremely expensive
way to serve those in need-and serves, inevitably,
very few. At per unit costs ranging from $250
to $350,000, HOPE VI projects make this clear.
Moroever, just as housing voucher programs require
extensive, and expensive, administrative overhead
at every local housing authority and at HUD in
Washington and in the regions, so do HOPE VI and
low-income housing tax credit programs require
both expensive public operations but must provide
for private or non-profit developers fees, as
well. Indeed, housing finance economist Richard
Green of George Washington University has estimated
that more than half of every public dollar spent
for housing construction programs goes to such
purposes, rather than the residences themselves.
Even if such units were never to develop maintenance
problems, they constitute, in effect, a sort of
lottery prize for a lucky few, rather than a broad-brush
approach to making work pay.
Worse still, such construction poses problems
for urban economies. When subsidized housing is
constructed, with guarantees that it will remain
in place for long periods of time-indeed, de facto
perpetuity, when one thinks of land owned by public
housing authorities-we stand in the way of urban
real estate being put to its highest and best
use-and, in the process, generating jobs and income
for our cities. I call this the phenomenon of
the frozen city. In Boston, for instance, a new
HOPE VI project blocks expansion of the city's
medical district, whose research laboratories,
if allowed to expand, will provide jobs for a
wide range of residents. In New York, public housing
is so extensive that it constitutes the equivalent
of 156 World Trade Center sites. In Boston, fully
20 percent of all residential structures are subsidized
rentals, many with legal impediments to their
sale and use. Are many of these sites or structures
really likely to be re-used in ways that lead
to economic growth? One cannot, of course, be
sure. But it is certain that we now block creative
re-use of public and subsidized housing sites-forgoing
who knows what important opportunities that would
serve a wide range of income groups. Economists
would call this the opportunity cost of building
subsidized housing and ensuring so-called long-term
affordability.
This is the point in this talk, at which, I suppose,
I should expect to be asked to tell you what I
really think about housing subsidies. And, indeed,
I could go on further about the flaws I see in
them. But, for the purposes of this gathering,
the most serious flaw should be the limited extent
to which they help make work pay-because they
benefit a great many other than those directly
in need and because so much of their spending
is spent on overhead.
It is this realization which is spurring even
some liberal Democrats to look to other avenues
to assist those of lower-income. Implicit in their
views is the following question: why should we
tell the poor how to spend the assistance which
we give them? Why not, instead, trust them to
know what's best for their own households? We
should be clear to ourselves that we have not
a great deal to limit poverty in the United States
and that, indeed, by international standards,
we have virtually no so-called absolute poverty-privation
so severe that households cannot afford the basics
of life. But we do, inevitably, have many households
which are poor relative to others-and, to the
extent to which we believe they struggle too much
without proper reward, the question arises as
to how best we should assist them. It seems clear
that housing-specific programs are, at best, a
flawed approach. Why not, instead, simply augment
their incomes directly, with the least possible
involvement by others?
Income supplements lie at the heart of one of
the signature accomplishments of the Clinton Administration,
the expansion of the earned income tax credit,
designed to to ensure that low-wage workers would
not be poor. This approach has inspired suggestions
by some that a further, indeed significant expansion
of the EITC, could form the basis of a grand compromise
that would replace purpose-specific programs like
housing vouchers with income supplements that
would not be phased out as rapidly as the current
EITC-and would thus reach more households and
provide greater income supplements. In a brilliant
series of lectures at the University of Wisconsin-Milwaukee,
David Riemer-a former top aide to a Democratic
governor of Wisconsin and a Democratic Mayor of
Milwaukee, a former aide to Senator Edward Kennedy
and currently the head of an organization dedicated
to expanding health care access-proposes such
a grand bargain. He asked the following question
"Should government increase the number of
its categorical programs in order to better target
them on sub-groups with special needs? Or should
government decrease the number of its categorical
programs in order to provide social insurance
to large numbers of left-out groups and reduce
administrative costs?
My previous critique of housing programs fits
with Reimer's critique of categorical programs
more broadly. As he puts it, " there are
compelling reasons in many cases to consider getting
rid of the categorical barriers that fence in-and
fence out-different beneficiaries or would-be
beneficiaries of the social insurance system.
Like many other observers of the Earned Income
Tax Credit, he notes that it phases out rapidly
and risks both deterring work effort and limiting
its rewards. The EITC provides a cash income supplement
which, as it is phased in, matches each dollar
in earnings with 34 cents in income supplement,
rising to 40 cents per dollar for a family with
two or more children. It reaches a maximum of
$3800 for a family with two or more children-when
family income reaches just $12,460 per year. At
this point it is phased out sharply, at a rate
of 15.98 percent for families with one child and
21.06 percent for families with two or more children,
who must, by the way, also pay social security
payroll and Medicare taxes. By the point at which
a household with two children is earning just
$35,000 per year, the EITC has disappeared completely.
Hidden away in those figures is the powerful marriage
penalty built into the current system. As economists
David Ellwood and Jeffrey Liebman of Harvard have
written, "If a custodial parent of two children
with zero earnings-that is, relying on welfare-marries
a single man with $12,000 in earnings, the couple
will gain nearly $4,000 in child tax benefits,
all from the Earned Income Tax Credit. . .Buit
if the mother were already earning $12,000 and
she married the same man earning $12,000, child
benefits would fall by roughly $1200 and serve
as a marriage penalty. At $24,000, the child benefits
are smaller than at $12,000. "
Ellwood and Liebman, who both served in the Clinton
administration and are amongst the Democratic
Party's most creative public intellectuals, have
explored idea of reducing or even eliminating
the phase out of the earned income tax credit.
They have modeled the idea of extending the earned
income tax credit dramatically-all the way up
to incomes of $110,000-so as to ensure that we
do not undermine incentives for work and marriage.
They estimate the cost of even so dramatic a plan
as that as only $53 billion-not a huge number
in the context of the federal budget. They estimate
the cost of a more limited plans to target lower-income
households more specifically at just $27 billion,
slightly less than doubling the current EITC cost.
What they describe as a "three-step refundable
working-family tax credit integrated into the
tax code" would increase the maximum benefit
for low-income families with more than two children
to $4600". Such a plan, they write, not only
increases aid to the poorest but will "fill
in the valley" of benefits that augment the
earned income of lower-middle class families who
work their way up from poverty and find themselves
affected by very high marginal tax rates as they
earn more. Benefits would remain constant until
a family's income reached $18,000-when they would
decline much more gradually than at present. But,
note Ellwood and Liebman, "such plans will
inevitably involve additional expenditures."
It is far beyond the scope of this talk to offer
detailed proposals as to how to use the tax system
to ensure against poverty amongst those who work.
My point here is only that extremely serious people
believe this is a practical approach-and that
those serious people are also liberal Democrats.
As a political matter, however, we are unlikely
to progress in that direction if advocates of
individual categorical assistance programs continue
to insist these programs are sancrosanct and those
who believe them to be flawed lack compassion.
The makings of a new New Deal must involve trading
in some of the programs of the first New Deal
and the Great Society. As David Reimer puts it, the cost of a new, cash-based social insurance
system would "be more than offset by the
elimination of dozens of symptom-treating programs
in the area of nutrition (e.g., Food Stamps) and
housing (e.g., housing subsidies)." Again,
he is a former aide to Ted Kennedy, not a colleague
of mine at the Manhattan Institute! There would
be much to discuss about such a new approach.
Would we need to have a limited public works jobs
program if we tie income to work? Would a minimum
wage continue to make sense? Liberals and conservatives
can be expected to disagree about many such ideas.
My point here is that if those who care deeply
about ensuring that those who work will not be
poor want to reach as many households as possible,
it is well worth considering "cashing-out"
categorical aid programs in favor of increased
income assistance tied to work. Putting the $17
billion which now goes to the Housing Choice Voucher
program on the budget table would be a great first
step in such a discussion, in my own opinion-a
Nixon goes to China moment for any Democratic
presidential candidate.
Moving away from categorical programs would require
standing up to a wide variety of special interest
groups. In the matter of housing, there is an
array of for-profit and non-profit developers
who would fight such a change. Advocacy groups
which specialize in pushing for categorical budget
appropriations and legislative mandates would
likely see their missions threatened, as well.
But Housing-specific programs, in addition to
the collateral damage I've already described,
stem from the flawed assumption that housing markets
are uniquely flawed and fail to function. The
high homeownership rate of the United States and
the virtual elimination of substandard housing
conditions, as reflected by census data comparing
current conditions to those of 1940 make clear.
The government should no more be assuring that
individual households receive a certain amount
of housing than it should be worried about other
specific consumer goods. It makes far more sense
to make sure that citizens broadly are rewarded
for their work effort and have access to a reasonable
market basket of all goods and services. Let's
make sure that those who work are not poor-but
supplementing their income and letting them decide
how best to spend it.
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