Pitfalls of housing redistribution.

• Author: Horowitz, Carl F.
• Position: Symposium - Shaping American Communities: Segregation, Housing & the Urban Poor

Advocates of metropolitan-wide income and racial egalitarianism have been taking some hits lately. For once, the political juggernaut to reduce income and racial differences across community lines is running into detours instead of creating them.

For example, late last summer a joint Senate and House Conference Committee overseeing spending by the U.S. Department of Housing and Urban Development (HUD) shelved a $149.1 million fiscal 1995 appropriation for the Moving to Opportunity (MTO) program.(1) MTO, modeled on HUD's Gautreaux Demonstration program, is intended to enable low-income inner-city recipients of Section 8 vouchers and certificates to move to communities with relatively little poverty concentration.(2) Anthony Downs, senior fellow with the Brookings Institution, characterized the action as "part of the hysterical reaction by conservatives against having low-income people moving into their communities."(3)

If that were not enough, Republicans last November won a majority in the House and Senate for the first time in forty years.(4) GOP leaders have made it clear that they intend to reduce the size and reach of the federal government by scaling back or eliminating agencies repeatedly plagued by inefficiency, waste, and corruption. Owing largely to this Congressional realignment, the Clinton Administration came close to recommending that Congress abolish HUD, an agency not unknown for its share of corruption.(5) In response, HUD Secretary Henry Cisneros and key aides quickly mapped out a reorganization plan to save their department.(6) The proposal calls for consolidating sixty major HUD programs into three performance-based funds by fiscal year 1998, converting subsidies for public housing into portable rent certificates,(7) and transforming the Federal Housing Administration (FHA) into a government-owned corporation resembling a modern insurance company more than a bureaucracy.(8)

Finally, the Federal Reserve last fall released a study on over 200,000 FHA loans. They found that black borrowers exhibited significantly higher default rates in both urban and suburban locations and that losses due to default were greater on loans to black borrowers.(9) Such results might give pause to Justice Department prosecutors, convinced that banks are denying blacks and other minorities fair access to mortgage credit and thus must be coerced into signing costly consent decrees.

Predictably, panic and anger are setting in. At a speech before the National Press Club on February 14, 1995, Cisneros remarked, "today we hear voices spewing forth the flawed logic of Social Darwinism, calling for government's withdrawal from the housing arena, rejecting America's long tradition of steady, forward progress in favor of retrenchment and regression."(10) The egalitarians' fear of losing political ground is what has set the context for this Law Review Symposium. Two of its more thoughtful and moderate expositors, Michael Schill and Susan Wachter, have issued what amounts to a cautious endorsement of those expressing such fears.(11) That may be as good as libertarians can hope for at a forum where the necessity of a pursuit of social equality by the state is a foregone conclusion. If the authors fail to grasp some larger philosophical and political issues, they do offer valuable insights as to why command-and-control housing policies so often go astray. Whether through public housing development and management, subsidized private construction, mortgage insurance, or mandated community reinvestment, the federal government inadvertently has reinforced ghettoization, or, as the authors term it, "spatial bias."(12) The agglomeration of low-income persons in turn has accelerated crime rates, welfare dependency, drug abuse, and illiteracy in innercity life. Without the presence of employed adult male role models, gangs and other unsavory demimonde have become proxy mentors for much of a whole generation of young urban blacks.(13) While the authors overestimate the extent to which the concentration of poverty actually causes this to happen, at least they exhibit an understanding that discrimination against blacks may explain a lot less about inner-city life than commonly imagined.

1. UNINTENDED CONSEQUENCES

   In a number of housing policy areas, the authors are on strong ground, such as their analysis of the public housing program. The architects of the United States Housing Act of 1937,(14) originally a ladder of mobility for the working poor, hardly envisioned public housing projects as becoming places for large concentrations of a nonworking and often dysfunctional underclass. Schill and Wachter note that the roots of much of the problem began in the 1949 housing legislation, when Congress set income limits requiring that tenants leave a project if their income exceeded five times their rent, a requirement aggravated by the granting of first priority for admission to displacees of slum clearance programs.(15) Over time, these policies helped trigger a financial crisis in larger housing authorities that led to the Brooke Amendment of 1969, limiting rent to twenty-five percent of tenant income (raised early in the Reagan years to thirty percent).(16) Despite the 1974 Housing and Community Development Act's call to "avoid concentrations of low-income and deprived families with serious social problems," the authors note that Congress in 1981 mandated that practically all public housing residents, especially those in new projects, be of "very low" income, and eased these quotas only a few notches in the Cranston-Gonzalez legislation of 1990.(17)

   The authors also note that the effects of the one-for-one replacement rule requiring that a PHA create a new unit for every one demolished has been "pernicious for many inner-city communities."(18) Developed as Section 121 of the 1987 Housing and Community Development Act by Democrat Representatives Henry Gonzalez (Texas) and Barney Frank (Massachusetts) to "protect" the public housing stock, this provision has done little more than prevent the removal of public housing eyesores; even Secretary Cisneros, at least by implication, wants to repeal it.(19) One hopes he is willing to cross swords with public housing tenant activists who are likely to sue (and too often have, successfully) to prevent the razing of decrepit projects. For a long time, the courts have played a role in eviscerating standards in public housing anyway. By ruling on behalf of plaintiffs attempting to loosen admission and residence requirements, judges have given public housing tenants insulation from expectations of reasonable behavior, and thus from eviction laws, unavailable to tenants in privately-owned dwellings.(20)

   The authors might have mentioned an additional, more recent, source of decay in public housing--the giving of top priority to "the homeless" and "the disabled" for residence. These groups have succeeded in crowding out admission slots ordinarily reserved for more responsible persons. The behavior of residents in these two categories has contributed to the breakdown in many projects. For dysfunctional welfare families, a homeless shelter often is a waiting room to the front of the line for public housing.(21) A 1992 General Accounting Office report revealed the quagmire that resulted from late-1980s HUD regulations giving the nonelderly disabled entry into projects intended for the elderly.(22) While public housing, which by its nature lacks market incentives, cannot be made to "work" in a manner analogous to that of the market, at least it has offered a reasonably stable living environment where elementary notions of reciprocity between landlord and tenant are in force. Absent even that, there is nowhere for a project to go but down.

   The authors do a credible job in analyzing Federal Housing Administration mortgage insurance programs, although they overstate the role of the FHA in promoting racial segregation. To be sure, the agency initially had recommended racially-restrictive covenants, but it dropped the practice in 1950.(23) Although for decades the FHA did focus the bulk of its attention on suburban communities, this had less to do with a whites-only policy than with the reality that whites had the incomes to move to suburbs and the space that suburbs offered (that is, the filtering process).(24) If the FHA has contributed toward isolation of the poor, it has done so most of all in attempting to compensate for racial bias, whether deliberate or not. The Section 235 program, created in 1968 as a way to cast aside basic mortgage underwriting standards for largely black, low-income, first-time buyers, was a disaster by reason of its very abandonment of standards.(25) The FHA's involvement in risky multifamily properties loans, moreover, has resulted in a massive pileup of privately-built apartment projects in assignment or foreclosure.(26)

   The most pleasant surprise of Schill and Wachter's article is the finding that the Community Reinvestment Act (CRA) may be doing a disservice to its intended beneficiaries.(27) The CRA, enacted in 1977 as part of a campaign by a network of community activists bent on scapegoating the financial community for urban decline, was meant, after all, to discourage disinvestment. Depository institutions, we were told (and have been told since with unceasing regularity), were singling out homeowners and would-be homeowners in low-income neighborhoods for excessive denials of loan applications, often because the borrower...