Fixing Federal Affordable Housing Programs

The federal government has 160 different housing programs run by at least six separate departments and more than a dozen independent agencies, observes a report released this week by the Senate Budget Committee. These programs often overlap and there is no effort to test how successful any of them are in accomplishing their objectives. The 160 programs were actually identified in a 2012 GAO report (and listed here by agency).

Click image to download this report.

In a Budget Committee hearing on September 16, University of Virginia economist Edgar Olsen testified that “most current recipients” of federal low-income housing assistance “are served by programs whose cost is enormously excessive for the housing provided.” He recommended phasing out the least-cost-effective ones while retaining the ones that were working the best.

Not all of the 160 programs offer low-income assistance. Many are aimed at helping the middle-class buy homes. These are of questionable value themselves as there are many other countries in the world that don’t have similar programs yet have higher homeownership rates than the United States.

Most of the focus of the hearing and the Budget Committee report, however, was on the low-income assistance programs. In addition to Olsen and someone from the GAO, the only other witness at the hearing was Diane Yentel, president of the National Low-Income Housing Coalition. Her testimony spewed out a lot of statistics about the number of people who had inadequate housing or who were spending more than half their incomes on housing.

What she didn’t say was that the members of her coalition include the groups who are overseeing the housing projects whose costs to taxpayers are enormously excessive. Nor did she note that most of the housing produced by many of those excessively costly projects is rented out by her members at rates that are unaffordable to truly low-income people. In short, her group is part of the problem, not part of the solution.

Olsen seems to agree. Housing voucher programs, which allow recipients to choose their own housing, are “by far the most cost-effective” way of helping low-income people. “Building new housing for these households and charging the same rent as they would pay under the voucher program is much more expensive.”
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Nor do we need to build more housing for the homeless, says Olsen. “In the entire country, there are only about 600,000 homeless people on a single night and more than 3 million vacant units available for rent.”

Olsen was critical of the low-income housing tax credit (LIHTC) program, which he described as being complicated and costly. This is the program that Yentel’s members depend upon the most for their housing projects. As Olsen notes, LIHTCs cannot be used to pay for all of the cost of new housing projects, so developers (such as Yentel’s members) using them also rely on at least 18 other federal funds as well as state and local funds. This allows developers to build housing projects at no cost to themselves and then reap the profits of renting them out, with only a handful being rented at rates that are affordable to people living below the poverty line.

Why do we have such an inefficient, complicated system? The Budget Committee report answers this by noting that the nation has introduced a variety of housing programs over the last century or so. Every few years, someone gets an idea for a new-and-improved program and Congress enacts it into law without repealing the old ones.

In 1937 and 1949, for example, Congress created programs for federal funding of public housing. Many of these housing projects turned out to be disasters and have been torn down. Low-income housing tax credits were conceived in 1986 as a way for private developers, who were supposed to be more efficient than the federal government, to build housing instead of the government. But the federal public housing program wasn’t abolished and Congress failed to design LIHTCs with incentives to keep it efficient. As a result, it is just as wasteful as public housing.

While federal housing assistance to low-income families goes back to 1937, I can’t help but observe that many parts of the nation are now in a sort of housing death spiral: government regulations have made housing expensive, so government subsidies are used to build affordable housing, and many of the local subsidies come from taxes on new or existing housing, which makes it even more expensive. The groups represented by Yentel’s National Low-Income Housing Coalition benefit from this downward spiral and have no incentive to try to fix it.

The Budget Committee report is focused on consolidating housing programs in one agency. However, there is no guarantee that this would make the programs any more cost-effective. Congress needs to redesign the best programs to insure that their incentives make them as cost-effective as possible and abolish the rest.