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Department of Housing and Urban Development

Recommendations and Actions

HUD01: Reinvent Public Housing

Background

When the federal public housing program began in the 1930s, it was hailed as an enlightened response to squalid living conditions of the waves of European immigrants crowded into unsafe, privately built tenements in cities across the country. The program represented a partnership between federal, state and local governments, with the federal government providing construction and (later) operating subsidies, as well as comprehensive and detailed regulations concerning how tenants were to be selected and projects operated. States assisted the federal government in enforcing compliance with federal regulations, and local public housing authorities (PHAs) operated the housing projects.

By the 1970s, public housing had come to symbolize all that was wrong with the traditional approach to social problems. Inflexible, universal standards set in Washington combined with local political and social realities frequently led to construction of large, high- rise projects in the worst sections of urban centers. The size and architecture of these projects--often dictated by well-motivated federal regulations--added to the stigma of living in the projects.

Even now, rigid federal management rules limit the ability of managers to apply common sense; for example, prohibiting in some instances provision of air conditioning even when it is most needed. Finally, inflexible rent rules based on income give residents who achieve working-class income status strong incentive to move out of public housing. As a result, many housing projects are inhabited by an overwhelming majority of single-parent families on public assistance.

The statutory mandate that no public housing unit can be demolished unless replaced, one-for-one, with other public housing makes it very difficult to get rid of inefficient units. Site and neighborhood requirements, design requirements, and rules enforcing a concentration of the very poor make it difficult to construct replacement public housing as required by the one-for-one rule. While the benefits of income mixing are generally recognized, local officials are virtually prohibited from achieving that objective in most public housing because of the way the program is presently structured.

Problem PHAs suffer from politicized staffing and other locally created inefficiencies, along with federal limitations. Although these problem PHAs are very limited in number, their difficulties are seemingly intractable and detrimental to all efforts in low-income housing. HUD needs to take strong remedial action.

During the 1980s, innovative state and local governments, frustrated by virtual abandonment of the federal government's commitment to affordable housing for the poor, began to experiment on their own with new models of developing, designing, financing, managing, and owning low-income housing. These models included use of public- private partnerships to develop housing, use of community-based nonprofit organizations to manage and/or own housing, and direct low- income family ownership of housing. Successful efforts tailored housing to the unique characteristics of the community in which it was built and minimized use of strict, centrally developed regulations. Flexibility was essential to the programs' success. Transfer of decisionmaking to the lowest possible level was key.

HUD did begin to respond to the need for rethinking its management of public housing resources with a new program called HOPE (which aimed to sell public housing to tenants interested in and capable of buying their apartments). However, the public housing program still suffers from excessive regulation and centralization. For example, HUD field staff spend substantial amounts of time annually reviewing and approving detailed budgets from local PHAs even though those reviews have no impact on federal funding decisions.

Actions

1. HUD should establish demonstration projects that dramatically devolve control of public housing to local PHAs with histories of sound management, and provide the required ongoing operating subsidies subject only to the local PHA meeting a series of performance targets.

The devolution, which is an extreme form of delegation, would start on a demonstration basis with volunteer PHAs to create procedures and standards for measuring performance. Individual demonstrations will vary, but all federal rules will be open for waiver so long as HUD can successfully measure performance in providing long-term affordable housing to those federally targeted as being most in need.

HUD will require legislative authority for the Secretary to waive statutory requirements for the purpose of carrying out specific, well-monitored demonstrations. All such waivers, and the results of demonstrations, should be reported to Congress.

In these demonstrations of significant devolution of operating authority, PHAs will be free to develop unique, flexible approaches of their own. For example, funds could be provided to tenants as portable subsidies for use in public housing or in privately owned units. Funds could also be used in cooperation with a local nonprofit or other entity to create or purchase new housing using non- traditional management techniques.

2. HUD should work closely with local PHAs, their national organizations, public housing tenant representatives, and state and local government officials to eliminate unnecessary HUD requirements and procedures.

The requirement for annual budget review is a good example. HUD should seek to identify those rules and regulations that could be eliminated and those that could be more effectively administered at a level of government closer to the customer. As part of this effort, HUD will replace its detailed procurement and operating manuals and design and site-selection requirements, instead using performance measures and annual ranking of local PHAs to encourage better service and greater accountability. HUD will also work with Congress to develop an alternative to the current rent rules, which create strong disincentives for working families to remain in public housing.

3. HUD should be authorized to target new construction and modernization funds to both HUD and locally developed demonstration models that seek to provide choices to public housing tenants, including the option to use their housing subsidies to move to units outside of public housing.

Some of the new funds would go to demonstrations that HUD develops. The rest would be awarded to local PHAs and governments on a competitive basis, funding a wide array of models that seek to achieve a better income mix and to empower public housing tenants with portable assistance, thus applying a market discipline on project managers. Similar demonstrations should be established using funds already allocated for new construction and modernization. Demonstrations should also occur in some existing public housing not receiving modernization funds.

Legislation would be needed to authorize HUD to waive appropriate statutory restrictions to implement the demonstrations with maximum flexibility.

4. HUD should make a hard-hitting, targeted effort to resolve the severe difficulties of those few public housing agencies identified as problem PHAs.

Use of an outside team of experts from the public housing industry for a new look should result in wide-ranging recommendations. Recommendations may include putting services now handled by the PHA out for bid by private companies, non-profit organizations, or neighboring PHAs. HUD should use all of its leverage with these agencies to incorporate the recommendations into a specific memorandum of agreement enforceable by HUD.

5. HUD should be permitted to authorize sale of public housing units with flexible requirements for replacement housing.

The criteria for this authorization would be limited to times when sale prices are high (relative to the benefits currently received by existing tenants), so that sales proceeds could guarantee long-term replacement housing in greater numbers and with improved tenant options. The key would be that the replacement arrangement would provide a superior guarantee of a long-term housing resource as opposed to that which would be available from the project to be sold. A combination of mixed-income development and endowed portable subsidies may be an option in some cases. For example, the sale price might be sufficiently high to permit establishing an investment fund, the interest of which could permanently fund portable subsidy assistance. This approach would replace, where appropriate, the relatively rigid current rule of one-for-one replacement of public housing with new public housing as a prerequisite to sale or demolition of public housing.

Implications

Elimination of excessive and unnecessary regulations and transfer of operating authority to localities should reduce the cost of administering the public housing program at the federal level and apply a greater percentage of subsidy dollars at the local level. Intelligent deregulation will also enable HUD to use its limited staff resources to generate more effective low-income housing policy and better protect our substantial subsidized low-income housing stock.

It is envisioned that demonstrations of devolution of program authority would be experimental in nature and require regulatory and statutory waiver authority which would likely exceed that resulting from the general streamlining of public housing regulations and handbooks outlined in Action 2.

Directing new construction and modernization appropriations to federally and locally initiated demonstrations should begin to transform public housing from its image as the provider of high-rise, deteriorating projects. Its new image will be as the facilitator of innovative, mixed-income, community-managed or tenant-owned affordable housing, tailored to the local environment.

Unlike conventional public housing, mixed-income, market-oriented developments, implemented as part of the recommended demonstrations, will not raise the same negative stereotype--that public housing harms neighborhoods. The greater acceptability of demonstration public housing developments, combined with waivers of restrictive rules governing placement and construction of new public housing, will facilitate use of the existing backlog of unused new construction funds. Facilitating new construction of public housing should result in tearing down some of the worst old projects, whose demolition has been blocked by a lack of replacement public housing and the rigid rule of one-for-one replacement of public housing units.

If these changes are implemented, public housing tenants will receive better housing for the same rent and at the same level of public subsidy. Local communities will benefit from the improved environment, in that crime in public housing is likely to decrease and tenants will have a much better chance of living productive lives. The newly constructed public housing will also become a neighborhood benefit rather than a symbol of deterioration and crime. State and local governments will benefit by being better able to target the federal housing assistance they receive to local needs. HUD will benefit by using its existing resources to better serve its customers, construct new affordable housing that is truly a long term asset, and free up staff.

Fiscal Impact

At a minimum, these recommended changes would substantially reduce the waste of housing assistance and staff time spent on the construction, rehabilitation, and operation of housing that does not work and on regulations that do not achieve any meaningful objectives. While it is not possible to quantify specific dollar savings at this point, it is reasonable to assume that the reduction in unnecessary and often counter-productive regulations will actually cut the cost of maintaining public housing while providing a higher level of housing services to the tenants. New construction, designed to meet community needs and standards, should be less expensive per unit to construct and require lower maintenance costs compared to the centrally dictated, often undesirable projects constructed previously.

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