Those getting help shouldn’t be punished when they start earning more.
The proposal by Housing and Urban Development secretary Ben Carson to increase the tenant share of rent for public and subsidized housing has quickly drawn fire. Under the department’s draft legislation, most able-bodied tenants would pay 35 percent of their gross income, while under current law they pay 30 percent of their income after some downward adjustments have been made. The plan would also adjust the current $50 minimum rent — set for those whose incomes, are so low that they would not pay even that much under the formula — to $150. The idea faces rough sledding in Congress for raising rents for the poorest Americans.
But the name of the proposed legislation — the Making Affordable Housing Work Act — is apt. Aging public-housing projects across the country face overwhelming repair needs. The capital-maintenance needs of New York City’s public-housing system alone have been estimated as high as $24 billion.
And a simple change could attract tenant support while still allowing public housing to get the revenue infusion it needs: Let subsidized tenants sign leases that, although they raise the rent, promise to fix rent at the new rate no matter how much a tenant’s income increases. Each housing authority could decide for itself the length of the lease period and how dramatically rents might change after that point for those whose incomes rose; authorities should also be freed to charge higher rents for apartments with more bedrooms (something the current income formula does not allow). This public-housing grand bargain would end one of the worst aspects of the current system: penalizing poor tenants by increasing their rent whenever their income increases.
The Carson proposal, it’s important to understand, is only the latest chapter in a problem that dates to the late 1960s. At that point it became clear that the original theory of public housing, as set in the National Housing Act of 1937, was not going to work. It had been thought that, once the housing was built thanks to government financing, it would be self-sustaining. As a HUD history puts it: “Public housing was originally . . . financed through bond initiatives and operated by setting rents to cover costs.” In other words, public housing, like its private counterpart, was meant to cover maintenance costs through revenue from rents.
By the late ’60s, however, working-class households, for whom the projects were originally meant, had abandoned them — and their low-income successors rebelled at paying the higher rents that maintenance needs called for. Crucially, a nine-month 1969 rent strike in St. Louis public housing — which included the infamous Pruitt-Igoe high-rise — prompted a key policy change: The so-called Brooke amendment, sponsored by liberal senator Edward Brooke of Massachusetts, set subsidized rents at just 25 percent of income. Over time, that percentage increased to the present-day 30 percent — but the principle remained the same. Subsidized tenants, whether in public housing or in housing-voucher (Section 8) apartments, had rents set in a way distinct from any in the private market, as a percentage of one’s income.
The effect, unsurprisingly, was to starve public housing of the rent revenue it had always relied on. Pruitt-Igoe tenants had their rents limited — but just a few years later, their apartment complexes had so deteriorated that they were torn down in a visually compelling implosion. That’s the scenario that Carson is hoping to forestall today. But the Brooke amendment doesn’t just starve public housing of revenue; it inflicts profound and continuing collateral damage by punishing tenants for earning more.
What economists like to call a “notch”— a sort of income cliff at which benefits are cut — is a problem in many welfare programs. Those covered by Medicaid through Obamacare may think twice about increasing their earnings to the point that they would have to buy their own coverage. The earned-income tax credit, which supplements the wages of the working poor, is not a flat subsidy; instead, it gradually phases out as households earn more. Indeed, if two low-wage-earning individuals choose to marry, the combined household would likely lose all EITC benefits they’d received when single.
Public and subsidized housing has an extreme version of this “notch effect.” For every extra dollar earned, tenants must pay 30 cents more in rent. Carson’s HUD has tipped its hat to the problem by proposing that tenants be required to report income only once every three years, instead of annually. But that will only postpone the pain. No private-market tenant, given a choice, would sign a lease like that. Why would we want to impose it on tenants with the lowest incomes — who might otherwise move up the economic ladder and even choose to leave subsidized housing, making room for the thousands on long waiting lists?
It’s a policy that sounds compassionate — by limiting rents to what tenants can afford to pay — but works to keep tenants in poverty. Even worse, tenants have an incentive to work off the books or engage in criminal activity, neither of which, of course, would lead to a rent increase.
“Secretary Carson, whose inspiring life story is an up-from-poverty saga itself, has admirably emphasized the goal of ending dependence on government benefits.”
We should not be surprised that, rather than moving up and out, public and subsidized tenants take advantage of their open-ended, non-time-limited deal, to stay put. Nationally, public and subsidized tenants have lived in their units for nearly nine years on average; in New York City, the nation’s largest public-housing system with 176,000 units, that figure is almost 20.
Under the bargain outlined above, a similar thing might happen if some tenants chose to stay in public housing notwithstanding increased income. But that would have the beneficial side effect of changing the culture of public housing, from that of a de facto poorhouse to something more akin to a typical apartment complex.
Changes to housing programs will, to be sure, have to be phased in — at least to mute concern about low-income households now paying $50 minimum rent facing eviction. But income is often not the best measure of a household’s well-being, especially because it does not reflect the value of benefits such as food stamps. Economists such as James Sullivan and Bruce Meyer of Notre Dame distinguish between “income poverty” and “consumption poverty”; some households of low income are actually not poor when judged by how much they spend. In other words, we should not rush to assume the Carson proposals will impose hardship on the poorest — and we can be very sure that housing authorities are in decay and that imposing a tax on new earnings is the wrong message to send.
Secretary Carson, whose inspiring life story is an up-from-poverty saga itself, has admirably emphasized the goal of ending dependence on government benefits. By ending the work disincentive in our current housing policy, he’d give a new push toward that goal. He should amend his new proposal to do just that.
This piece originally appeared on National Review Online
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Howard Husock is Vice President for research and publications at the Manhattan Institute.
This piece originally appeared in National Review Online