Testimony Before the 
Millenial Housing Commission
July 24, 2001

Professor Michael H. Schill
New York University School of Law 
Center For Real Estate and Urban Policy

	It is a pleasure to be with you today to discuss Community Linkages.  Housing policy today is at a crossroads.  Despite increasing employment and reduced welfare caseloads, housing cost burdens remain crushing for many families in the nation.  In New York City almost one quarter of all renters have extremely high rent burdens, paying over one-half of their incomes for rent.

	My testimony today will primarily concern the ways in which housing policy can promote objectives that go beyond providing shelter. In recent years, we have made significant progress in breaking through the parochialism of housing policy and returning it to its roots.  Housing policy, as we currently think about it, can trace its parentage to the Progressive era.  At that time housing was not thought of as just bricks and mortar by housing reformers, but rather was premised on the positive impact that better housing would have on its occupants.  For example, much of the debate leading to the passage of New York City’s pathbreaking Tenement Housing Law of 1901 revolved around issues of health and morals.

	This emphasis on housing as a tool to human betterment is resurgent today.  Partly as a result of welfare reform, housing policy is increasingly looked to as part of a holistic strategy to build human capital and promote economic mobility.  Focusing on residents approaching the five-year time limits of the new TANF block grant, many housing providers have made available to residents new and innovative job training and placement services.  For example, several public housing authorities throughout the nation are participating in the Jobs-Plus Initiative which seeks to provide residents of public housing with saturated social services and job training opportunities.  Other public housing agencies are participating in the Welfare-to-Work Voucher Program, which targets housing vouchers on families attempting to make the transition from welfare to work, and the Family Self-Sufficiency program, which promotes work and asset-building through the use of escrow accounts and the coordination of social services.  

	In addition, the Center I head at NYU, the Center For Real Estate and Urban Policy, and the Rockefeller Institute at the State University of New York, have just completed a study of how community development corporations in six cities have responded to the challenges of welfare reform.  Many of these CDCs have invested in computer training facilities, job placement programs and educational initiatives.  Nevertheless, much work needs to be done.  Most CDCs approach welfare reform as an afterthought.  As the five year time limits begin to go into effect at the end of this year and as Congress begins its work on the welfare reauthorization legislation, much more thought needs to be given to how housing assistance can be linked to employment programs.
 
	One way that housing assistance can be used to promote economic mobility is programs that provide people who live in inner city neighborhoods with the means to move to areas of greater economic opportunity and neighborhood amenities.  For example, as a result of the Gautreaux litigation in Chicago, several thousand families were issued housing vouchers to live in suburban communities.  Studies by Rosenbaum and Popkin showed that children who moved to these neighborhoods had improved educational outcomes when compared to those who remained in the inner city.  In addition, mothers who moved to the suburbs were more likely to be employed and less likely to receive public assistance.

	A more recent federal initiative to promote geographic mobility is the Moving-To-Opportunity Demonstration.  Under this program, which operates in five cities-- Baltimore, Boston, Chicago, Los Angeles and New York-- families in public housing or privately-owned assisted housing who meet income eligibility requirements are randomly assigned to three groups.  One group receives a Section 8 certificate or voucher that can only be used in low poverty areas; a second group receives a geographically unrestricted Section 8 certificate or voucher; and the third receives no tenant-based rental assistance.  Early results from Boston suggest that the first two groups experienced significantly increased safety, improved health and far fewer behavior problems among boys as compared to the third group.  The suburban mover households were also far less likely to be victims of crime or experience asthma attacks.  No impact, however, was measured in the first three years with respect to employment, earnings or welfare receipt.  Additional studies have shown some impacts with respect to higher educational attainment, lower probabilities of arrest, lower rates of welfare receipt and better neighborhood quality.

	Housing policy can also help low and moderate income families build wealth and achieve stability.  In recent years, research has indicated that focusing on differences in income does not fully capture the socioeconomic disparities between racial and ethnic minorities, on the one hand,  and white families, on the other.  For example, research by Oliver and Shapiro indicates that the disparity in assets among white and black families is much wider than differences in incomes between the two groups.  This disparity in assets may explain at least a portion of the persistent inequality between black and Latino and white households.

	Home ownership is one area where the disparity among white and black families is most stark.  In 2000, 67.7% of all American households were homeowners; among nonwhite households the homeownership rate was only 48.2 %.   In recent years, the federal government has met with some success in increasing the home ownership rate among nonwhite families.  For example, HUD, in its role as the regulator of Fannie Mae and Freddie Mac, has raised the GSE goals for loans to low and moderate income households and areas.  Greater attention by HUD and the Justice Department to discrimination among mortgage originators and insurance companies has also promoted access to home ownership.  Further efforts to expand home ownership by the Federal Housing Administration (FHA) have also made home ownership a reality for many Americans.

	Like many other federal housing policies,  initiatives to expand home ownership serve multiple objectives.  Families that become home owners gain the opportunity to experience an increase in wealth as property values appreciate.  They also benefit from enhanced control over housing costs, security of tenure and the ability to utilize the tax deductions for mortgage interest and property taxes.  But the benefits of home ownership also extend to the neighborhoods in which low and moderate income families live.  Research suggests that neighborhoods with increased levels of home ownership tend to enjoy better upkeep, city services and community involvement.

	One of the major challenges we will face as the economy slows is how to preserve the benefits of this increase in homeownership.  Even before the recent economic downturn we saw the potential problems that may come from expanding homeownership too fast.  In Harlem and Brooklyn, many first time homeowners have been victimized by scams involving FHA programs and are now left with deteriorated housing and no choice but to default on their mortgages.  Mortgage defaults are also increasing in instances where no improprieties have taken place.  Certainly, the loss of a home can be a horrible experience for the families involved.  But, as we learned in the 1970s with the Section 235 Program and even today with the FHA scams, nothing can be so devastating to a block as the specter of mortgage foreclosure and disinvestment.  HUD, together with states, localities and the large secondary mortgage market agencies such as Fannie Mae and Freddie Mac, need to take steps to ensure that the households who are unprepared to become home owners do not buy houses.  They must also be prepared to step in to assist families who have gotten in over their heads to forestall default and foreclosure.  Home owner counseling, both pre- and post- purchase, is a promising way to avoid these problems.  Additional initiatives, including financial assistance for defaulting owners, may also be desirable.

	One of the major tasks of the Millenial Housing Commission is to consider existing federal housing assistance programs and propose changes or new initiatives.  Certainly, we have learned a lot over the past couple of decades about both the potential and pitfalls of housing policy.  We know from our experience with the public housing program that production programs that are targeted exclusively to the poor are likely to both harm residents and the communities in which they are located.  We also know that in most housing markets, demand-oriented subsidies such as certificates and vouchers work well.   Typically, they are less costly and provide better housing and neighborhood environments for their recipients than programs like public housing and Section 8.  They promote autonomy and choice for households as well as the deconcentration of poverty.

	So where does this leave us when it comes to considering the role of production programs in a national housing policy?  I believe that production subsidies, structured correctly, can be desirable in two different sets of circumstances.  In cities with extremely tight housing markets and barriers to entry, housing vouchers may contribute to inflation in prices.  While the best solution to this problem is to promote new construction by reducing regulatory barriers and construction costs, at least temporarily, programs to subsidize new construction may be necessary.

	Production programs can also be extremely useful in promoting community development objectives.  One of the greatest advantages of vouchers is that they are not spatially targeted.  Nevertheless, this virtue limits their utility in promoting the redevelopment of particular neighborhoods.  

	Perhaps no city in the nation or world can compare with New York in its use of production subsidies as a method to rebuild communities.  The Ten Year Plan, announced by former Mayor Koch in 1985 and now in its fourteenth year of operation is an experiment well worth paying attention to.  New York City has spent just over $5.1 billion, more than four-fifths of which was funded by the city’s own capital budget.  Through over 105 separate programs, the city’s housing agency, the Department of Housing Preservation and Development (HPD), has funded the rehabilitation or construction of over 182,000 units of housing.

	 An extraordinary array of partners were employed by the city in implementing the programs of the Ten Year Plan including local banks, intermediaries such as the Local Initiative Support Corporation (LISC), the Enterprise Foundation, the Community Preservation Corporation (CPC) and the New York City Housing Partnership, nonprofit community-based organizations and private for profit developers.

	From the beginning the programs of the Ten Year Plan were designed not just to produce housing, but to rebuild neighborhoods that had been devastated by housing abandonment and disinvestment in the 1960s and 1970s.  Based upon anecdotal evidence, it would be impossible to doubt that this massive investment in housing production did not meet with some success.  Just drive through the South Bronx, Harlem or Central Brooklyn.  Neighborhoods that were once barren wastelands are today home to bustling communities.  Crime rates are down and economic and commercial activity are up.

	Over the last year and one-half, my co-authors, Professors Ingrid Gould Ellen and Amy Ellen Schwartz of NYU’s Wagner School of Public Service, Research Fellows Drs. Scott Susin and Ioan Voicu, and I have had the privilege of studying the impact of the Ten Year Plan.  Our work proceeds from the hypothesis that if the Ten Year Plan has indeed improved neighborhoods, these improvements should have been capitalized into the value of housing.  With funding from the Fannie Mae Foundation and the assistance of HPD and the city’s Department of Finance, we have amassed a database of over 293,000 residential sales transactions that took place between 1980 and 1999.

	The results of our econometric analysis suggest rather strongly that the programs of the Ten Year Plan did play an important role in promoting the revitalization of low and moderate income neighborhoods in New York City.   In most instances, both the rental and homeownership progams of the Ten Year Plan had a statistically significant and positive impact on the price of housing in their communities.  In some instances, the size of the impact was quite substantial.  One of the intriguing issues that we will be examining in future research is whether the programs may be partially or completely self-financing through increased property tax revenues.

	Our results suggest to me that production programs have the potential to be important catalysts for community development.  Importantly, I want to underline the word “potential.”  If production programs are not coordinated carefully with other city community development initiatives it is likely that their impacts will be diminished.  Furthermore, as New York demonstrated in the Ten Year Plan, neighborhood revitalization cannot be a top-down process administered or prescribed by HUD.  Instead, it will require the creation of partnerships between local governments, the business and financial sectors, and the nonprofit and profit-motivated development communities.

	Our experience over the last half of the last century has taught us much about the role of housing policy in cities.  Housing policy has the potential to do great good; it also has the potential to do great harm.  It is the challenge and opportunity for you on the Millenial Housing Commission to put the lessons of the past to good use in structuring policies for the future.