THE FAILED FEDERALISM OF AFFORDABLE HOUSING: WHY STATES DON'T USE HOUSING VOUCHERS.

• Author: Kazis, Noah M.

This Article uncovers a critical disjuncture in our system of providing affordable rental housing. At the federal level, the oldest, fiercest debate in low-income housing policy is between project-based and tenant-based subsidies: should the government help build new affordable housing projects or help renters afford homes on the private market? But at the state and local levels, it is as if this debate never took place.

The federal government (following most experts) employs both strategies, embracing tenant-based assistance as more cost-effective and offering tenants greater choice and mobility. But this Article shows that state and local housing voucher programs are rare, small, and limited to special populations. States and cities almost exclusively provide project-based rental assistance. They move in lockstep despite disparate market conditions and political demands: project-based spending overwhelmingly predominates in both high- and low-rent markets and in both liberal and conservative states. States have done so across decades of increased spending. This uniform subnational approach suggests an unhealthy federalism--neither efficient nor experimental.

This Article further diagnoses why states have made this unusual choice, identifying four primary culprits: (1) fiscally-constrained states use project-based models to minimize painful cuts during recessions; (2) incomplete federal housing subsidies inadvertently incentivize project-based spending; (3) the interest groups involved in financing and constructing affordable housing are relatively more powerful subnationally; and (4) rental assistance's unusual, lottery-like nature elevates the value of visible spending over cost-effectiveness.

Finally, this Article points the way toward reform, offering two paths forward. Taking a federalist perspective allows for a new understanding of federal housing statutes. Better cooperative models--expanding either the federal or state role in providing affordable housing--could accept states' limitations in providing rental assistance and exploit their strengths.

TABLE OF CONTENTS INTRODUCTION I. RENTAL ASSISTANCE: THE VIEW FROM WASHINGTON A. The Rise of Vouchers in Federal Housing Policy B. The Relative Merits of Vouchers: The State of the Research II. RENTAL ASSISTANCE: THE VIEW FROM THE STATES A. The Growing Role of States and Cities in Subsidizing Housing C. The Dominance of Project-Based Housing Strategies at the State and Local Level 1. State and Local Housing Voucher Programs 2. State and Local Project-Based Rental Assistance 3. The Use of Federal Block Grants for Tenant-Based Rental Assistance 4. Indirect State and Local Supports for a Project-Based Affordable Housing Model 5. Renewed Interest in State and Local Housing Vouchers D. Housing Vouchers as a Federalism Puzzle--And Problem III. EXPLAINING THE DIVERGENCE 259 A. State Project-Based Spending Is Driven by Legal Constraints, Not Policy Disagreement 1. States' Partisan and Ideological Coalitions 2. State Geographies 3. State Demand for Vouchers B. Project-Based Spending as an Adaptation to Fiscal Federalism C. LIHTC, Subsidy Stacking, and Federal Incentives for Project-Based Assistance D. Interest Groups and Ideology in State Politics E. Affordable Housing as Nonentitlement IV. FEDERALIST REFORMS FOR RENTAL ASSISTANCE: TWO PATHS FORWARD A. Expanding the Federal Role in Rental Assistance B. A Better Federalism for Housing: The Medicaid Model CONCLUSION INTRODUCTION

The oldest, fiercest debate in low-income housing policy is between project-based and tenant-based subsidies: should the government help build new affordable housing units or provide vouchers to help renters afford existing homes on the private market? (1) One leading observer described this fight as "the most polarizing and enduring policy controversy in the annals of government-assisted housing," concerning "the direction of True North" and "perched on the very summit of housing policy, the grandest of grand strategies." (2) The choice between tenant-based and project-based subsidies has been at the center of every debate over federal rental assistance, from the creation of public housing in the New Deal through today's negotiations over the Biden administration's signature infrastructure proposals. (3) It has been the subject of the federal government's most rigorous policy experimentation. The debate has cut across partisan and ideological lines, scrambling coalitions and creating strange bedfellows in Congress and at the Department of Housing and Urban Development (HUD). (4) And in fifty states and countless cities across the country, it is as if this debate had never taken place.

The federal government--having declared a truce in this decades-long fight--strikes a rough balance between project-based and tenant-based subsidies. But states and cities invest almost exclusively in project-based strategies. This is a remarkable departure from federal practice. Perhaps more remarkably, given the diversity of political and housing-market conditions across the country, it is a near-uniform one. Project-based spending prevails in red states and blue states; in high-rent and low-rent housing markets; in the Sun Belt, Rust Belt and on the coasts; and in rural and urban areas. Never has a state adopted vouchers as its preferred housing strategy--as both the Reagan and Clinton administrations did and as many experts on the left and right have recommended for decades. Subnational governments have consistently expanded their involvement in affordable housing since the 1980s, when the federal government nearly abandoned its own commitment to providing low-income housing. This era has seen an "ascendant role for state and local governments" in affordable housing policy. (5) Yet across this four-decade span, in every state and city, the dominance of project-based approaches has barely been contested.

This Article uncovers the surprising divergence of states and cities from the federal government's example and from policy analysts' best recommendations. Social scientists and legal scholars have long debated the policy merits of tenant-based and project-based subsidies. (6) But none have observed that, those merits notwithstanding, states' and cities' policy calculus consistently comes out differently. Existing scholarship does not take an institutional perspective. (7) This Article, in contrast, treats the provision of rental assistance as a joint enterprise, structured not only by considerations of efficiency or equity but by how responsibility is allocated across three levels of government. Relying on a range of sources, including interviews with current and former housing officials from both the state and local levels, it also diagnoses why states have made this unusual choice. (8) The state and local embrace of project-based rental assistance is not merely a pervasive policy choice arrived at independently by different governments. It is an outcome structured by law: both the particulars of federal housing programs like the Low-Income Housing Tax Credit (LIHTC) and the larger arrangements of fiscal federalism.

This outcome is perverse. While intending to empower states, the federal government instead, and inadvertently, forecloses states from pursuing an often-preferred approach to providing affordable housing. Different places have markedly different housing needs; they should have different housing strategies as well. Moreover, all of the nation's housing assistance programs need improvement--sometimes dramatically. But the states, which once helped pioneer new forms of rental assistance, no longer play an important role in improving voucher policy. Identifying and understanding states' distinct and shared affordable housing strategy makes clear: our joint federal-state-local system simply isn't working as well as it should.

Improving (and expanding) rental assistance--including state and local programs--is an urgent task. It deserves the benefits of a healthier federalism. Though the federal government spends tens of billions of dollars annually to subsidize rental housing, this sum is widely acknowledged to be insufficient: only one in five eligible households actually receives any benefit. (9) And the number of households unable to afford rent has risen dramatically in recent decades. (10) Housing is the largest expense for most families, and one in four renters spend half their income on housing. (11) Yet good, affordable housing transforms lives. Housing affordability determines what is left for basic necessities like food and transportation and a minimum of discretionary spending--as sociologist Matthew Desmond explained, "the rent eats first." (12) Housing quality and stability affect every aspect of a family's well-being, from health to education, and are the foundation for economic security. The location of housing shapes the arc of economic opportunity for children, a household's exposure to crime and to policing, and the very air they breathe. Building a better and broader rental assistance system is also an urgent racial equity issue. Around 65 percent of households already receiving HUD assistance are headed by people of color. (13) Sixty-two percent of low-income renters spending more than half their income on rent--those who most need assistance--are people of color. (14)

Given the stakes, state participation in the national endeavor of providing affordable rental housing should be as effective as possible: both in providing limited funds to tenants and, ideally, spurring improvement in the larger system of rental assistance. This Article, by identifying the constraints on state and local rental assistance, points the way toward reform. Federalism today operates primarily through statutorily created policy frameworks, not freestanding constitutional relationships. (15) Accordingly, fostering innovation, local tailoring, and state autonomy requires close attention to...