Wednesday, July 9, 2014

We Don't Need Subsidized Housing (from City Journal 1997)

See article in City Journal Winter 1997

We Don’t Need Subsidized HousingHoward Husock

It’s a scene that has been repeated time and again over the past four years, but it still seems almost too perfectly symbolic to be true. Secretary of Housing and Urban Development Henry Cisneros turns up to preside over the demolition of yet another “severely distressed” public housing project. But his speech directs attention away from what is actually happening. Just before the scarred blocks of apartments tumble down in a puff of smoke—such unequivocal failures that they aren’t worth preserving—the secretary confidently paints a vision of improved design and management that will make a new generation of government-supported housing work out. Sure, we’ve flopped so far, the message goes—but give us one more chance and we’ll finally get it right.

But maybe the whole idea is wrong. Maybe our housing programs haven’t failed because of some minor management problem but because they are flawed at the core. The truth is, devoting government resources to subsidized housing for the poor—whether in the form of public housing or even housing vouchers—is not just unnecessary but also counterproductive. It not only derails what the private market can do on its own, but more significantly, it has profoundly destructive unintended consequences. For housing subsidies undermine the efforts of those poor families who work and sacrifice to advance their lot in life—and who have the right and the need to distinguish themselves, both physically and psychologically, from those who do not share their solid virtues.

Rather than confront these harsh truths, we have over the past century gone through at least five major varieties of subsidized housing, always looking for the philosophers’ stone that will turn a bad idea into one that will work. We began with philanthropic housing built by “limited dividend” corporations, whose investors were to accept a below-market return in order to serve the poor. The disappointing results of such efforts—the projects served few people and tended to decline quickly—led housing advocates to call for public, not just private, spending for housing. Government first responded to their pleas with housing projects owned and operated by public authorities. These speedily declined. “Housers” then sought other solutions, such as using cheap, federally underwritten mortgages and rents paid by Washington to subsidize private landlords.

The expense of this last approach, which had its heyday in the sixties, and the resultant wave of decline and foreclosure led to the twin approaches of our current era. In the first of these, tenants use portable, government-provided vouchers to pay any private landlord who will accept them. In the second, federal tax credits encourage deep-pocketed corporate investors looking for tax shelters to finance new or renovated rental housing owned and managed by nonprofit community groups. Both approaches have had serious problems, but this hasn’t deterred housing advocates from asserting that the way to fix the housing market is through even more such subsidies than the $12 billion that HUD already provides (out of its $25 billion annual budget) and the billions more in subsidies that state and local governments expend.

This mountain of government housing subsidies rests on three remarkably tenacious myths.

Myth No. 1: The market will not provide. The core belief of housing advocates is that the private market cannot and will not provide adequate housing within the means of the poor. The photos of immigrants squeezed into postage-stamp-sized rooms in a recent New York Times series on housing for the poor strain to make this point. But housers have been making such assertions for more than 60 years, and reality keeps contradicting them. In 1935, for example, Catherine Bauer—perhaps America’s most influential public housing crusader—claimed that the private housing market could not serve fully two-thirds of Americans and they would need public housing. The post–World War II era’s explosion of home ownership quickly gave the lie to such claims, certainly with respect to those in the lower middle class and up.

As for the poor, a look at pre-Depression history shows that housing advocates get it wrong again. From the end of the Civil War up until the New Deal and the National Housing Act of 1937—which gave public housing its first push—the private housing market generated a cornucopia of housing forms to accommodate those of modest means as they gradually improved their condition. In those years Chicago saw the construction of 211,000 low-cost two-family homes—or 21 percent of its residences. In Brooklyn 120,000 two-family structures with ground-floor stores sprang up. In Boston some 40 percent of the population of 770,000 lived in the 65,376 units of the city’s three-decker frame houses, vilified by housing reformers.

These areas of low-cost, unsubsidized housing were home to the striving poor. In Boston, as pioneer sociologists Robert Woods and Albert Kennedy describe it in their brilliant 1914 work, The Zone of Emergence, these neighborhoods teemed with clerks and skilled and
semi-skilled workmen. “Over 65 percent of the residence property of the zone is owned by those who reside on it,” wrote Woods and Kennedy, “and this is the best possible index that can be given of the end that holds the imagination and galvanizes the powers of a large proportion of the population. Doubtless the greater share of this property is encumbered with mortgage, but it is an index of striving and accomplishment.”
Even in the poorest neighborhoods, housing, if modest, was rarely abject. A 1907 report by the U.S. Immigration Commission, for instance, found that in the eastern cities, crowding in such neighborhoods was by no means overwhelming, with 134 persons for every 100 rooms. “Eighty-four in every 100 of the homes studied are in good or fair condition,” wrote the commission. True, many lived without hot water or their own bathrooms. But rents were cheap. A 1909 study by the President’s Homes Commission of Washington, D.C., found that a majority of the 1,200 families surveyed paid but 17.5 percent of their income for housing costs. Many of the poor—just like the “emerging” class that Woods and Kennedy described—lived in small homes they owned or in small buildings in which the owner lived.

To be sure, as we know above all from Jacob Riis’s powerful 1891 book, How the Other Half Lives, some families lived in hovels, even in unlit cellars. “It no longer excites even passing attention when the sanitary police count 101 adults and 91 children in a Crosby Street house,” he wrote, “[o]r when a midnight inspection in Mulberry Street unearths 150 ‘lodgers’ sleeping on filthy floors in two buildings.” Many buildings did not have their own toilets, and large numbers of people relied on public baths to get clean.

But it is essential to remember that the conditions in which these poor families lived were not permanent—a fact unacknowledged by either Riis or present-day housing advocates. After all, the generation of children for whom Riis despaired went on to accomplish America’s explosive economic growth after the turn of the century and into the twenties. By 1930 the New York settlement-house pioneer Lillian Wald would write in her memoirs of the Lower East Side that, where once Riis had deplored overcrowding, she now found herself surrounded by “empties”: the poor had climbed the economic ladder and headed to Brooklyn and the Bronx. In other words, “substandard” housing was a stage through which many passed, but in which they did not inevitably remain. The arrival of Dominicans from Washington Heights in Hudson River Valley towns and Salvadorans from Queens on Long Island is proof that this process continues.

Perversely, housing reformers invariably make matters worse by banning the conditions that shock them. Insisting unrealistically on standards beyond the financial means of the poor, they help create housing shortages, which they then seek to remedy through public subsidies. Even Jacob Riis observed in 1907 that new tenement standards threatened “to make it impossible for anyone not able to pay $75 a month to live on Manhattan Island.”
Though Riis’s colleague Lawrence Veiller, head of the influential New York–based National Housing Association from 1900 to 1920, cautioned that “housing legislation must distinguish between what is desirable and what is essential,” most housing programs since the New Deal have rejected this sensible advice. The high standards that have resulted—whether for the number of closets, the square feet of kitchen counter space, or handicapped access—have caused private owners and builders to bypass the low-income market. So stringent are the standards that, under current building codes and zoning laws, much of the distinctive lower-cost housing that shaped the architectural identity of America’s cities—such as Brooklyn’s attached brownstones with basement apartments—could not be built today.

True, even with relaxed building and housing codes, we still might not be able to build brand-new housing within the reach of those earning the minimum wage or those living on public assistance. Yet this is not an irresistible argument for government subsidies. Used housing, like used cars, gets passed along to those of more and more modest means. When new homes are built for the lower middle class, the rental housing in which they’ve been living (itself probably inherited from the middle class) historically has been passed along to those who are poorer.

In a subtle way, the very existence of subsidized housing is likely to contribute to the over-regulation that leads to constraints in housing supply—and to calls for further subsidies. When builders have plenty of work putting up high-cost subsidized apartments, they don’t agitate for a less regulated market. Why should they seek an opportunity to build lower-margin low-cost housing? The rejoinder, then, to the myth that the market will not provide is that a greater supply of housing could be—and has been—created in a less regulated market.

Myth No. 2: By taking profit-driven landlords out of the equation, state-supported housing can offer the poor higher-quality housing for the same rent. Four generations of attempts to provide subsidized housing built to higher standards than the poor could afford on their own in the private market have proved that this idea just doesn’t work. Each generation has seen the same depressing pattern: initial success followed by serious decline and ultimately by demands for additional public funds to cover ever-rising costs.
You can see the outlines of this pattern as early as 1854, when the New York Association for Improving the Condition of the Poor decided to build a “model tenement” at the corner of Elizabeth and Mott Streets. Constructed by a newly formed limited-dividend corporation, the building degenerated just 11 years later into what would be called “one of the worst slum pockets in the city.” It was sold and soon after demolished.

Like its ill-fated predecessor, later public housing also aimed to do away with profit, financing construction through the sale of public bonds and then using the project’s rental income to pay a public authority to provide maintenance. But the maintenance failures of public housing projects became legendary, to the point that a 1988 study estimated it would take at least $30 billion to remedy them. Instead of providing housing that rental income from tenants can maintain, the federal government has had to supply $4 billion in annual “operating assistance” to housing authorities for maintenance and administrative costs—and still the maintenance problems multiply.

The new public housing model that advocates favor retains the core—and fatal—dogma that the profit motive has no place in providing housing for the poor. In this model, nonprofit community groups run smaller, mixed-income apartment buildings, financed by monies raised through the Low-Income Housing Tax Credit, a program set up in 1986 to encourage corporations to support low-income housing. In New York City some 200 nonprofit groups manage 48,000 housing units. Though at this point such housing is widely viewed as successful, the New School for Social Research has found, in an examination of 34 developments in six cities, that “beyond an initial snapshot of well-being, loom major problems which, if unaddressed, will threaten the stock of affordable housing in this study.” Predictably enough, more than 60 percent of the projects already had trouble maintaining their paint and plaster, elevators, hall lighting, and roofs.

Why does non-market housing founder? First, providing the poor with better housing than they can afford also saddles them with higher maintenance costs than they can afford. A newly announced state-financed “affordable housing” complex in Cambridge, Massachusetts, will cost $1.3 million—for eight units. That’s $162,500 per apartment. Recent subsidized projects in the Bronx and central Harlem cost $150,000 and $113,000 per unit, respectively. These apartments may be built to higher standards, but their fancier kitchens, more numerous bathrooms, and larger space mean more maintenance. Not surprisingly, limited rents can’t keep up with the need for service. The New York City Housing Partnership, which arranges private construction of housing for low-income buyers, has observed that nonprofit housing management groups in general “have no magic formula that allows them to manage property at less than cost. Ultimately they will need operating subsidies to remain viable.”

Second, it is by no means true that cutting out the profit-making landlord reduces maintenance costs. On the contrary, public authorities and nonprofit management firms are bureaucracies with their own overhead expenses, and unlike private owners, they have no incentive to control costs. Nor have their employees any incentive to provide good service; and tenants, who are not full-fledged paying customers, have little leverage. Indeed, public housing authorities have demonstrated an ability rivaling any slumlord to disinvest in their properties.

Rather than being a source of ill-gotten gains, private ownership is a source of cost control. The expensive but ineffective maintenance regime of subsidized housing—with its formal bids and union contracts—replaces housing maintenance performed through a far less costly informal economy. Poor homeowners and so-called “tenement landlords” (owners of small, multi-family buildings, many owner-occupied) contribute their own “sweat equity” or hire neighborhood tradesmen, not all of whom are licensed, let alone unionized. As one study of a low-income neighborhood in Montreal observed, “Owners can maintain their buildings and keep their rents low through the cooperation of their tenants on maintenance and through their own hard work.” None of these factors comes into play in the bureaucratic environment of public or nonprofit ownership.

Far from being more cost-effective than private housing, subsidized housing is even more expensive than it first appears. Its cost includes the vast amount of property-tax revenue forgone when rental housing is held by public authorities or non-taxpaying nonprofit groups. By choosing to invest in housing, cities choose not to invest in other services, or not to leave money in the private economy to finance growth that would provide opportunity for poor and non-poor alike. Under the Rebuild New York program championed by the Koch and Dinkins administrations, the city “invested” an estimated $5 billion (much of it from its own operating budget) in housing renovation and gave up millions in property-tax revenues by deeding buildings to nonprofit organizations.
The rejoinder, then, to the myth of the public or nonprofit alternative is that gleaming new projects are bound to decay—and to have significant long-term public costs. But for housing advocates, this is really just a political problem: that of making clear to the body politic that perpetually escalating subsidies to guarantee a safe and sanitary environment for the poor are the cost of living in a moral body politic. Here we arrive at the nub of their mistaken ideology.

Myth No. 3: The moral qualities of the poor are a product of their housing “environment.” The essence of the housing advocates’ worldview, as the New York Association for Improving the Condition of the Poor put it in 1854, is that “physical evils produce moral evils.” Improved physical surroundings will lead people to become upright, ambitious, and successful. Perhaps the quintessential myth of environmental determinism is that kids who might otherwise have no place to do their homework have their own room in government-assisted housing—and therefore succeed where they would have failed.

There is much that is appealing in this view, which has a powerful hold on the liberal psyche. But the track record of public housing—which by almost any physical measure is superior to the housing in which most of its residents have previously lived—has hardly borne out the notion that better housing uplifts the poor. The response of housing reformers to drug- and gunfire-riddled projects has been not to re-examine the premise but to tinker with the model. Having long dwelled on design, they now devote equal attention to the social “environment.” Thus Secretary Cisneros has dreamed of new, low-rise, mixed-income subsidized housing that will correct the mistake of concentrating the poor in apartment towers now said to have encouraged crime. So, too, the nonprofit, “community-based” management of renovated apartment buildings is touted as a nurturing environment, in which the poorest are inspired by gainfully employed “role-model” neighbors to improve their habits and their lot.

Here is where housing advocates most radically misunderstand the nature of the unsubsidized housing market. They can’t see its crucial role in weaving a healthy social fabric and inspiring individuals to advance. By pushing to provide the poor with better housing than they could otherwise afford, housers are blind to the fact that they are interfering with a delicate system that rewards effort and achievement by giving people the chance to live in better homes in better neighborhoods. In this unsubsidized system, you earn your way to a better neighborhood. In fact, you must help to create and to maintain better neighborhoods by your own effort.

Housing subsidies—whether in the form of subsidized apartments or even vouchers that you can take to a landlord of your choice—turn this system on its head and undermine it, for housing subsidies do not reward achievement; they reward need. Those who strive and save are offered the same subsidized unit as those on public assistance; the provident and the improvident become indistinguishable. Those who work must live alongside those who do not. To believe that this is just is to believe that the poor are fundamentally undifferentiated—that they are all the same in being victims of an oppressive system. Those done the greatest injustice by such naiveté are the hardworking poor, who find to their horror that their new neighbor in a housing project is a drug dealer, or that the house next door has been rented, through a housing voucher, to an AFDC mother who does not supervise her children.

Subsidies deny the self-sacrificing, working poor the chance to put physical and social distance between themselves and the non-working or antisocial poor. The New York Times cited the case of a hardworking woman who found herself in a bad neighborhood surrounded by gang violence as evidence of the need for increased housing subsidies, but it more likely demonstrates the opposite. By subsidizing troubled families, perhaps with criminal members, so that they can live in the same neighborhoods as those who hold
modest but honest jobs, we expose the law-abiding to the disorder and violence of the undisciplined and the lawless, depriving them of the decent neighborhoods—decent in values if shabby in appearance—that their efforts should earn them. If we fail to allow the hardworking to distinguish themselves, by virtue of where they live, from those who do not share these traits, we devalue them. Even if we could somehow subsidize only the good citizens, the deserving poor, we would still do them a grave disservice, fostering the belief that they have moved to better homes in better neighborhoods by dint of largesse, not accomplishment—an entirely different psychology.

A neighborhood of good housing is not necessarily a good neighborhood. And a poor and shabby neighborhood is not necessarily a bad neighborhood. The terms on which residents have come to a place, as well as the extent to which they own property and have otherwise invested in the upkeep and safety of it, matter far more. It is worth recalling the distinctions sociologist Herbert Gans made among different types of poor neighborhoods. “In most American cities,” he wrote, “there are two major types of low-rent neighborhoods: the areas of first and second settlement for urban migrants; and the areas that attract the criminal, the mentally ill, the socially rejected, and those who have given up the attempt to cope with life. The former kind of area[,] in which immigrants try to adapt to the urban milieu . . . [,] may be called an urban village. The second kind of area, populated largely by single men, pathological families, people in hiding from themselves or society, and individuals who provide the most disreputable of illegal-but-demanded services to the rest of the community, . . . might be called an urban jungle.”
Subsidized housing does not differentiate between these groups. In fact, it seeks to address the problems of the lawless by mixing them in among the law-abiding and upwardly mobile, who are regarded almost as mere instruments for the salvation of the disorderly. Because it is based on the myth that the lawless are victims rather than victimizers, such a policy makes victims of those who would build an urban village by enmeshing them in an unsafe, disorganized neighborhood.

True, the new subsidized projects run by community groups, with the advice of such sophisticated organizations as the Local Initiatives Support Corporation and the Enterprise Foundation, do seek to screen tenants so as to keep bad actors out of mixed-income developments. But it defies imagination to think that such a process will be as effective as the screening that the market does. Indeed, in its analysis of such housing in New York, the New School found that though 6 percent of tenants were in arrears on their rent, the eviction rate was still zero.

By remaining focused on the myth that physical conditions are the single most important quality of housing, housers have misunderstood the dynamics of neighborhoods—not merely as places where people live but as communities of shared ideals. As a result, they have blindly based new policies on old mistakes. Consider, for instance, recent housing initiatives that aim to promote racial integration by placing low-income minority families in apartments in the suburbs. These policies are a recipe for racial resentment, which has in fact developed. Asking working-class whites to accept the welfare poor—who would inspire discomfort whether white or black—as neighbors is the worst way to address the race issue. The right way is to enforce housing non-discrimination laws and thus allow the diffusion of upwardly mobile minority-group members into neighborhoods where, if they at first appear to be outsiders, it is only by virtue of race, not class.

A realistic housing policy would strive for a non-subsidized world in which many different sorts of housing form a housing ladder. The lower rungs will be modest indeed—as modest as the single-room-occupancy hotels that sprang up in San Diego when that city allowed dwellings with less-than-full bathrooms and limited parking. By relaxing its code requirements, the city catalyzed construction of some 2,700 new SRO units for the working poor—day laborers, cabdrivers, fast-food employees. The SROs have formed a housing ladder all their own: lower-rent buildings may have no TV or phone, while lobby guards in the better buildings enforce more stringent guest policies.

A sensible housing policy would purge housing and building codes of unnecessary barriers to construction. The New York City Housing Partnership, for instance, would like to build new versions of old-fashioned Brooklyn row houses, but handicapped-access laws forbid basement apartments, which allow for a less expensive overall design. Requirements for cast-iron or copper pipes instead of less expensive plastic ones, or for excessive numbers of electric outlets, increase the cost of housing needlessly. Hugely expensive environmental cleanup requirements discourage developers from building low-cost (or any other kind of) housing on the many “brownfield” sites of inner cities. Policy makers should push for safe ways to “minimally rehab” older buildings, so that they’re not priced out of the reach of the unsubsidized poor. City Homes, a Baltimore developer, has tried this on a small scale, with the cooperation of local and state authorities that have held renovation requirements to a minimum. Because of its low costs, City Homes doesn’t need the federal rent subsidies on which most low-income housing complexes depend. City Homes rents only to the employed and has created blocks—inhabited by nurses, city sanitation workers, and the like—that are oases of safety and civility in the midst of bad neighborhoods.

Even with building codes that focus on basic safety issues and try not to raise prices, there will be people who can’t afford anything we think should be built. In some cases this may be the result of poverty despite effort. In others it may be the result of bad life choices and the wrong values. For those in temporary emergency situations, we should provide shelters, basic arrangements that ensure no one must live on the street. For those whose lack of housing is really a symptom of larger problems—the alcoholic, the drug addict, the teenage mother who cannot afford her own household—we can look to institutional ways, such as group homes, to deliver the combination of shelter, guidance, and treatment they need.
Remember, "Cows not Condos"

What about the subsidized housing we already have, including New York’s 180,000 units of public housing? Ideally, it would be sold off. If that is impracticable—and it would be complicated given the public financing involved, as well as the politics of the situation—it may make sense to consider a limit on the time any person can live in a subsidized unit, especially now that welfare has a time limit. Or housing authorities might charge higher rents for apartments in “better” projects, so as to create a kind of housing ladder.
In this new order, we would understand that a large, variegated supply is the way to restrain housing costs. We would understand that modest housing is a stage that people pass through—and that, by trying to stamp it out, we threaten to short-circuit the process by which they improve themselves. It is superficially attractive to give the hardworking breadwinner a leg up, a housing subsidy, to help pay the bills and raise his or her children. But in practice, because subsidies are provided on the basis of need, not effort or accomplishment, such a policy threatens not to solve our social problems but to make them permanent.
the end

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