February 23, 2017
From Franklin Roosevelt to Barack Obama, American presidents and their housing administrators have cut ribbons on subsidized housing projects and announced new housing initiatives aimed at uplifting the poor. The specific policies have changed over time, but the theory has always been that federal aid is needed because private markets fail to provide adequate housing for people with low incomes. As it turns out, such claims about market failure are erroneous and federal efforts have often resulted in harmful and counterproductive outcomes.
The federal government has funded one expensive approach to low-income housing after another since the 1930s — without seeming to notice that the new approaches were made necessary by the failures of past public policies. The public housing projects erected to replace slums soon became dilapidated and crime-ridden. The federal housing vouchers meant to end “concentrated poverty” simply moved poverty around. And another federal effort — the low income housing tax credit — appears to have aided developers more than low-income households.
Another problem is that federal housing activities have been used as a pretext for misguided interventions into local planning activities. Under Barack Obama, for example, the Department of Housing and Urban Development (HUD) pushed what it termed “affirmatively furthering fair housing” to encourage the relocation of poor households to higher-income neighborhoods. The new HUD Secretary, Ben Carson, is right that such interventions smack of “social engineering.”
President Donald Trump says that his administration will end failed programs and repeal counterproductive regulations. As such, the administration should reexamine housing programs because they create a myriad of distortions and social damage. Federal interventions undermine neighborhoods, encourage dependency, and create disincentives for long-term maintenance and improvements in housing. They also rest on the false premise that the private sector cannot provide housing for those of modest means.
Federal housing subsidies are also expensive to taxpayers. In 2016, the federal government spent $30 billion on rental subsidies for low-income households and almost $6 billion on public housing.1
The following sections discuss the origins of federal subsidies, the distortions caused by public housing and rental subsidies, and the ability of private markets to provide housing without government help.
Origins of Federal Housing Aid
For generations, activists have viewed the housing conditions of lower-income Americans with despair, and their concerns have prompted many federal interventions. The first large effort was the National Housing Act of 1937, which has been repeatedly amended over the decades. A pattern has emerged: each time a bold new approach is attempted, and then some initial perceived success is followed in subsequent decades by unintended and harmful side-effects.
This pattern began to emerge 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 rapidly, and in a little more than a decade it had became one of the worst slums in the city. It was sold, and soon after demolished. Like later public housing projects, this effort aimed at limiting or eliminating the profit motive in housing, and the result was that there was little incentive for anyone to maintain or improve the structure.
Ignoring such early failures, large federal efforts to provide low-income housing were launched in the 1930s and subsequent decades. In 1932, President Herbert Hoover oversaw the creation of the Reconstruction Finance Corporation, which made loans to companies for low-income homebuilding and slum clearance.2 In 1933, Congress created the Public Works Administration, which pursued low-income housing and slum clearance projects through loans to companies, loans and grants to local governments, and direct federal efforts.3 The Housing Act of 1937 gave a permanent boost to public housing by providing federal financial assistance to local housing agencies for constructing and maintaining housing projects.
All these attempts ignored the fact that during 1870–1930 — when there were high levels of immigration and rapid urbanization — private builders erected many thousands of units of low-cost housing that were “affordable” to those with low incomes. Reformers who bemoaned the lack of low-income housing failed to understand the vitality of neighborhoods with modest dwellings, which served as building blocks allowing residents to own their own homes and move up the “housing ladder” to better, larger homes as they became better off.
As an example, predominantly African American neighborhoods in St. Louis that were demolished to make way for the Pruitt-Igoe public housing complex were not dominated by slumlords, as conventional wisdom has it. Rather, they included notable percentages of both owner-occupied and owner-present structures; the latter were multifamily houses in which the owner’s family lived on site.4 Neighborhoods such as these provided the means for low-income households to own property that could appreciate in value. As for Pruitt-Igoe, it began to deteriorate soon after being completed in the 1950s, and it was ultimately demolished in the early 1970s.
Notwithstanding the proven ability of American builders to tailor acceptable homes to the incomes of those of modest means, the Housing Act of 1949 called for “a decent home and suitable living environment for every American family.”5 The act authorized the construction of hundreds of thousands of public housing units, and it expanded the pool of families eligible for public housing.6 By 1964, there were 582,000 units of public housing in the nation occupied by 2.1 million people.
That large federal effort occurred even before President Lyndon Johnson’s expansion of federal spending on the cities and the establishment of HUD in 1965. HUD was given a wide-ranging mission to make over poor inner city neighborhoods with housing and community development subsidies. HUD’s first secretary, Robert Weaver, had an optimistic vision of “massive housing rehabilitation efforts . . .[to] achieve our goal of adequate housing for all families.”7
However, the optimism of reformers in the 1960s was soon dashed by the growing failures of federal housing efforts. Even by the early 1960s, public housing was becoming infamous for its crime, graffiti, smashed windows, and general deterioration, and by the 1970s many projects had become social disasters.8 A landmark in government failure occurred in 1972 with the demolition of Pruitt-Igoe, which consisted of 33 11-story apartment buildings. Considered an “architectural masterpiece” when built in the early 1950s, the federally funded project was demolished after vandalism and crime rendered it uninhabitable.9 Since then, many more federal housing initiatives have been launched, but most have ended up as expensive failures.
source- husock, howard-national housing act of 1937-reconstruction finance corp-housing act of 1949-