This paper builds on my January 2009 article in the Journal of Housing & Community Development about the political history of public housing. That article explored the idea that many of the problems that challenge our affordable housing industry today have their genesis in the political compromises that precede the passage of the U.S. Housing Act of 1937. The article also explored the conditions that are present in our nation’s early response to a housing crisis that resulted in a housing policy that apportions resources to the housing goals of the wealthy in greater measure than to the critical housing needs of the economically poor. Finally, the article looked at key themes that shine some light on how we might effectively affect significant change in American housing policy today.
It concluded with the suggestion that the key ingredients of a new policy may well include:
This article expands on these ideas, and packages them into six strategic steps for creating a map for the future of public housing:
Public housing’s early history has been characterized by a steady swing between two political schools of thought — government either in, or out, of the business of providing housing. The once-louder chorus of voices calling for a vouchering-out of public housing has been quieted by a growing understanding that public housing responds to a supply problem for markets where the current public housing demographic can’t often be served. Vouchers don’t work for everyone. Households with large families; households with special needs for supportive housing; households with credit or criminal background problems, or other legitimate needs for a benevolent landlord; households with limited resources or capacity to move, or households challenged by navigating a complicated maze of rules and regulations have not done well in the voucher program.
Where once the debate was a question of either/or — do we need a place-based housing program or do we need tenant-based solutions — we now have an understanding that we need both, and that there is an appropriate role for all sectors in housing solutions; no one sector can do it alone.
In fact, a broad coalition of national housing and community development trustees came together in 2008 to make a strong statement about the need to preserve public housing. The tide is turning in favor of a belief that the nation’s $165 billion investment in public housing is worth preserving.
With the affirmation that public housing is an asset worth preserving, the next step is to solidify the consensus so that we turn our attention to public housing preservation with the urgency that is required. As reported in the report from the Future of Public Housing summit —
The nation suffered a significant net loss of public housing units between 1995 and 2008. While it has received little public attention compared to the mortgage mess and declining home values, this hidden housing crisis is no less devastating to the millions of Americans who call public housing home and for many for whom public housing is the first rung on the ladder of economic opportunity.
— Proceedings from the Summit on the Future of Public Housing, 2008, page 2
The current successful preservation tool, HOPE VI, needs to be preserved and expanded. However, HOPE VI is not a solution for all of public housing, or even for much of it, and we need to create a rational reform program for the rest of the inventory. I propose that there are six strategic steps to hope for small and medium housing authorities who don’t have Moving to Work (MTW) status.
STEP ONE: Improve, and green, the asset
The nation’s public housing inventory consists of approximately 1,200,000 units contained in 8,000 asset management projects. Current data estimates that these units have a collective deferred maintenance backlog of $30 billion. HOPE VI has replaced most of the worst of our public housing inventory, and the probable inventory of remaining bad units that will require total replacement is only 100,000 units at this point.  The remaining units are in need of a legislative fix.
The Congress should give strong consideration to NAHRO’s proposal to create a term-limited public housing tax credit. Admittedly, now is not the time to bring new demand to a weak credit environment, but now is a good time to do the policy legwork required to roll out a new program. The concept is simple: NAHRO proposes the authorization of a public housing credit program within I.R.C. Section 42 to enable the preservation of existing public housing either through rehabilitation or replacement. The program would be authorized for an initial period of ten years in an amount sufficient to accomplish preservation of a majority of public housing units. Consideration would be given to ramping the credit up to ensure adequate utilization during the early stages of the program.
Alternately, an increase in appropriations for the Capital Fund program would be a more straightforward and rapid solution. We will soon understand the impact of the $4 billion appropriation through ARRA fiends, and we may discover that six to ten more years of doubling the appropriation would bring us a long way toward where we need to be. We also may discover that the asset doesn’t have a decade to wait.
Many housing authorities are working successfully with Energy Performance Contracts to make capital improvements to public housing. HUD should continue strong support of this vehicle and NAHRO should continue to help members learn about, and take advantage, of the financing approach.
Another option for helping housing authorities address more modest backlog needs is to place revitalized public housing on a sound financial footing by providing for a long-term funding structure that would allow them to borrow against a stabilized net operating income (NOI) to get their portfolio into a condition where capital needs are accruing forward. While this approach won’t generate sufficient capital for all of the accumulated needs, it creates the platform to move forward (see Step 2 below).
In related advocacy, NAHRO has also called for the conversion of public housing to a Section 8 project-based model in order to allow the asset greater access to redevelopment capital. As above, this approach will help the moderately distressed inventory, which is the majority of where we need to focus.
STEP TWO: Rationalize operations
Public housing policy and regulation has evolved in such a piece-meal fashion that public housing managers feel more like Jenga players than the real estate professionals that they are. We fear the moment that the hand of Congress might pull the wrong plank and the public housing asset could topple.
Many layers of regulation have evolved in public housing, all of which sit on an unstable base of assumptions. Prior to the Brooke Amendment of 1969, the base of assumption was solid: that property without mortgage debt could be supported by modest rental income derived from a broad range of incomes. The Brooke Amendment, while well-intentioned, had dire policy outcomes for the asset.
Brooke restructured income to decouple it from the cost of maintaining and preserving the asset. It didn’t take long for these meager rents to exhaust the system and an operating subsidy to be required. Soon thereafter, capital funds for modernization were necessary. Not long after, funds for resident services came in a third stream of funds. Following that, a fourth stream of funds for drug elimination and asset protection. As the asset, and residents, demand more resources, the more public housing managers see the precariousness of their operating platform.
Instead of a system that mirrors conventional real estate practice, we have an operating system that is both upside-down and Jenga-like. We have rent that is based on the family’s income, and a subsidy based on the cost to operate. Right side up, we would convert the system so that rental income is relative to the cost to operate and maintain the property, and subsidy would be relative to the family’s ability to pay the rent. This is the system that we see in the voucher program and the system that prevails in every other asset type.
Public housing needs, instead, a sustainable rent contract through which public housing will be guaranteed the funds required for three essential functions: basic operating costs; provision of services to residents; and contribution to a reserve for replacement and/or financing capital improvements through debt.
In this scenario, the rent would be comparable to market rents for similar product in the area, or determined on a budget basis taking into account the need to provide for sufficient replacement reserves to replace capital funding. The underwriting must assure that the manager has access to the excess cash generated. This provides two important operating principles: 1) it creates an incentive to manage to the bottom line and brings the power of market discipline to operations, and 2) it provides for resources to sustain the owner/portfolio/asset management function.
This approach also provides protection during years in which the appropriation to public housing is reduced. If the rent contract is reduced by 10%, then 10% of our units could be released from income requirements and be available to rent to households that can pay the rent without subsidy. This approach provides strong protection for the asset and public housing operations. It also allows tenants and tenant advocates a clear measure of the impact of reduced appropriations.
Additionally, in this approach, PHAS (the public housing assessment system) can be replaced by standard industry metrics derived from net operating income. The process of measuring FHA performance becomes simple, effective and transparent. For those properties that are funding improvements through net income, local banks can replace third party HUD inspectors to assure the protection of the asset. HUD can sub-contract its very important job of risk management and asset performance monitoring down to the local level, where it belongs.
We should also consider the intriguing idea of ACC portability. In 1997 BHP included this idea in its strategic plan with the goal of easing the density of some of our public housing neighborhoods. More recently, Conrad Egan introduced a similar idea to a NAHRO panel in March of this year. Mixed income neighborhoods have been the intuitive answer to public housing challenges for many years. In ACC portability, PHAs could reassign subsidy assistance to units they own in other properties. Making portable our public housing units is a relatively quick and easy way to achieve mixed income neighborhoods for those housing authorities that have an inventory of units that are not public housing.
STEP THREE: Open the door for new partners
Returning to the analogy of Jenga, we have created a public housing structure that can hold up for a period of time, but has never proven itself to be investment-worthy. It’s no wonder that managing public housing has been a singular and lonely business. QHWRA created provisions for some new partners to join the challenge of maintaining and preserving public housing, and HOPE VI has demonstrated the power of public/private partnership related to the asset. Much more needs to be done, however. Very few partners can, and want to, participate in public housing given its current structure. We need to open doors for partners to help with improving the asset, providing services to residents and transforming our buildings to net-zero energy consumption.
We need to be able to engage in tax credit partnerships with greater ease. Mixed financing is clunky and complicated, and the process of converting public housing is improved but still very burdensome.
As our public housing tenant characteristics change we need a meaningful way to engage and maintain new partners. There are two clear and distinct trends in my public housing that I suspect are reflected in the general population. People are living longer with greater medical challenges, and the population of people with disabilities is increasing. The short of it is that service needs are rapidly intensifying.
Public housing is an appropriate and powerful point of service delivery. For communities that are rich with services, we need to be sure we have ways to build lasting relationships with service providers. In rural and smaller communities, we need to fund ways to find partners, or respond to needs directly.
STEP FOUR: Preserve the existing demographic
Despite its position as the fourth step, the most important part of preservation thinking is to be able to assure residents and advocates that we can continue to house, or target, the existing demographic. Public housing conversion proposals are clouded by a concern that housing authorities are trying to abandon their fundamental mission. In her testimony to Congress, Atlanta Housing Authority Executive Director Renee Glover began by dispelling the myth that “PHAs are seeking ‘legislative cover’ to abandon their fundamental mission — providing affordable housing to low income families. This is not true.” New policy must preserve, and improve on, the subsidy structure that makes public housing uniquely available to households with extremely low incomes.
The proposal described in Step 2 allows housing authorities to preserve their existing customer base. Rent continues to be paid based on income, without jeopardizing the operations of the real estate. And, given the proposal that resident services become an integral element in determining a property’s operating cost basis, outcomes and quality of life for residents will be significantly improved.
We should continue to explore, however, some things that might produce better outcomes. If we could simplify the process of calculating rent, we would free up significant resources for residents, housing authorities and HUD. We have developed a tangled web of complexity and oversight in the interest of rent integrity. There is a massive investment of money and time for all of us to force, and enforce, rent integrity in a system that seems almost designed to invite applicants and residents to report inaccurate income, either by mistake or intention.
We could consider a policy in which the rent-based-on-income approach might be preserved for elderly and disabled households whose incomes are fixed; and we could more aggressively understand a variety of flat and tiered rent options for families so that their increases in income are going to future prosperity instead of to rent.
STEP FIVE: Include services as a fundamental part of operating costs
The previous steps have argued for restructured financing with services as part of the core formula for doing business, and for creating broader partner relationships at the local, state and federal levels for appropriate responses to service needs.
There is no question that the need for affordable housing is not always, or only, economic. Public housing households can bring multiple challenges to their tenancy that strain the community and the asset. Step 3 talks about a changing demographic in public housing which is, in some ways, becoming a more high-need population. Every community will need to find its appropriate balance between services the housing authority provides and those that a partner responds to. In either case, the cost of service coordination or service provision needs to part of the cost of doing business.
In addition, our efforts in helping residents to achieve economic self-sufficiency can be an important supply strategy for many communities. To the extent that residents can move into market-rate housing more quickly, the more rapidly our long waiting lists shrink.
HUD could provide strong leadership in this area by creating the kind of service partnerships at the federal level that most of us have created locally. And, as Step Six suggests, HUD could take it a step further and make its mission more clear. I believe that our industry’s primary focus and skill area is housing, and that essential services should come from strong partnerships with the Departments of Education, Labor, Justice and HHS. Coordinated funding that recognizes that public housing needs to be service enriched, and that public housing is a logical delivery system, is an important next step.
STEP SIX: Fix HUD’s mission confusion
On July 29, 2009 the House Subcommittee on Housing and Opportunity held hearings on the future of public housing, The committee invited perspectives from the academic community. Of the eight experts testifying, seven spoke about the future of public housing uniquely in terms of outcomes related to residents. The physical asset or its operating structure was never mentioned, Only one expert, former Assistant Secretary for Public and Indian Housing Orlando Cabrera, spoke about the need to preserve the real estate. This incongruity may be emblematic of mission confusion at HUD. HUD is focused on, and provides funding for, initiatives related to the asset, while the rest of America is interested in positive outcomes for people.
HUD’s PHI website captures a double bottom line, describing the ‘aim’ of public housing as follows:
The aim of the Office of Public and Indian Housing (PIH) is to ensure safe, decent, and affordable housing; create opportunities for residents’ self sufficiency and economic independence; and assure fiscal integrity by all program participants.
At the same time, I think it’s fair to assert that most PHAs receive funding for only this first part of the goal, yet have obligation and expectation for all service coordination and self-sufficiency. We rely on fund-raising, local grants and donations and creative partnership to cobble together services we find essential.
We need to bridge the incongruity between resources and expectations. As suggested above, HUD can provide leadership in modeling a service-enriched housing program and provide sustainable funds for service navigation and coordination at the local level. In my own organization we regularly revisit the question — are we a real estate provider, or are we a social services organization? I maintain that we are uniquely both. HUD should reinforce, or disavow, that opinion.
Putting it all together: Towards a more balanced housing policy
The very early vision for public housing imagined modest, affordable multi-family housing accessible to the greater public in the same way that the other great public institutions provide: schools, hospitals, transportation and libraries. This potentially powerful concept was disabled before the first federal housing legislation was inked. A coalition of private sector interests was successful in convincing the Congress to make public housing so unattractive and narrow in scope that its potential threat to private developers would be next to none. At the same time, the Congress enacted parallel legislation delivering rich resources to the goal of homeownership. This two-tiered system put public housing squarely at the bottom of the resource pile.
Given the recent lessons related to the risk of pressing too hard on a homeownership goal, the nation might be ready to consider a more balanced housing policy; one in which rental housing production and preservation could share many of the same tax and appropriation resources that the homeownership industry does.
This topic will be the third in this series.
 Proceedings from the Summit on the Future of Public Housing, 2008, page 2
 Proceedings from the Summit on the Future of Public Housing, 2008, page 2
 The Center on Budget and Policy Priority estimates; 2008.
 Testimony of Renee Glover to the House Government Reform Committee, Subcommittee on Federalism and the Census, February 2006