Why is government in the housing business? The standard answer is because the market fails to provide adequate supply, particularly to house the nation’s poor. Thus an array of government programs from vouchers, mammoth housing construction, favorable tax policies and top-down mandates on cities and towns take up the slack caused by “market failure.”

This multifaceted approach is politically popular, given the rent-seeking demands made by various constituencies including the poor, developers, urban planners and others. Despite the billions lavished upon public- and publicly-supported privately-managed housing, every municipality today is under pressure to expand the affordable housing stock. As it does, it repeats the same errors.

The free market provides everything from automobiles, furniture, computers and appliances to toothpaste, frozen foods, landscaping and 57 varieties of ketchup, yet conventional wisdom suggests that it cannot provide housing. Therefore, it is argued, the long arm of government must find a way to meet this demand. In fact, the role of the public sector has long gone unchallenged by both the left and the right. The dismal results, the rotted urban core of public housing, blighted cities and persistent poverty, remain almost unabated. Once government has committed to public housing, nothing else can take its place. All the while, cities cannot discover what new, imaginative uses the free market might have invented for these frozen areas.

Author Howard Husock maintains that the heavy-hand of government is flawed, not because it is unable to manage the public housing project down the street nor because it cannot fully socially engineer the problem with vouchers and tax credits by moving the poor into the suburbs, for example. Husock contends that all programs – the entire hodgepodge created by the state – are flawed to the core because the permanence of public housing is not a safety net but a hammock. Few people muster the courage to say that living in public housing should be subject to time limits.

This is a serious charge that might be dismissed as the ranting of an idealistic libertarian content with perhaps letting the local government pick up the garbage and fix a pothole. But it is not. Husock, the director of the case study program at the John F. Kennedy School of Government, has command of every detail in American housing policy and knows all too well the familiar arguments for the status quo. He does not suffer any of them gladly. But the truth cannot be brushed aside and buried among the tomes of public sector rationales, repackaged as if they were old wine in a new bottle. The unintended consequences of government action are so profound and disturbing that everyone in the halls of Congress, the U.S. Office of Housing and Urban Development, the Federal Reserve Bank and state capitals should re-examine their core values.

In America’s Trillion Dollar Mistake: The Failure of American Housing Policy, Husock, with the eye of both a journalist (an award-winning one at that) and an academic, dismantles the entire progressive approach to housing. An essay titled, “We Don’t Need Subsidized Housing,” is bound to shake the intellectual foundations of any prospective bureaucrat.

In effect, Husock sets out to convince us that public housing actually harms the poor by limiting the prospects of urban renewal. He also argues that the trillion-dollar “shakedown” by community activists in the 1990s who deftly used the Community Reinvestment Act as a weapon against banks would have probably made radicals like Saul Alinsky proud. But they too fail. The advocates do little to improve working class neighborhoods since they channel money extracted from banks into programs that lend to borrowers who are in no position to pay their mortgages even if they are not required to make a down payment.

Vouchers, the ostensibly free-market tool favored by conservatives, are a solution in search of a problem. With female-headed households making up more than 80 percent of voucher holders, the problem isn’t housing; it’s out-of-wedlock births. No housing program has ever made a dent in the out-of-wedlock rate. As Husock notes, housing is affordable if there are two wage-earners in the household. Moving such clients into the working class neighborhood artificially inflates the cost of housing nearby; moving such clients into the suburbs only increases the demand for public services. Husock writes, “Section 8 housing supports the weakest section of the real-estate market – the house that can’t sell, the absentee owner who doesn’t perform well in the private sector. It subsidizes the marginal sector.”

How did we get here? Husock says that three “remarkably tenacious” myths promote the government as “houser” argument: 1) the market will not provide housing for the poor; 2) by taking the profit motive out of the equation the state can do better than small property owners in providing housing; and, 3) the moral qualities of the poor are a product of their housing environment.

History proves that the market did in fact provide a substantial amount of private housing in big cities like Chicago, New York and Boston. Up until the New Deal, some 40 percent of the population in the city of Boston lived in 65,376 units of triple-deckers. Yet these structures were vilified by housing reformers. Today the perverse incentives before builders encourage them to follow the money of high cost subsidized housing.

The dogma of “housing before profits” has been particularly disastrous. Small property owners who have the incentive to maintain their buildings can do a far more effective job if only given the chance. Yet a state-financed “affordable housing” complex in Cambridge costs $1.3 million for eight units – an astounding $162,500 per-unit price made worse by maintenance costs. Governments and their nonprofit management housing groups cannot continue to manage housing below cost any better than a private landlord. In the long term, government itself becomes the villainous landlord.

Husock thinks less of the argument that the physical evils of poor housing produce crime and social pathologies. No amount of tinkering has improved the social environment where public housing is located. Instead, tragically, those who work must live alongside those who do not. Subsidies deny the self-sacrificing, working poor the chance to put physical and social distance between themselves and the nonworking poor. Public housing, rather than independently achieved private housing, impels many to settle at the low rung of the economic ladder. Moving up would mean moving out.

No critique of the status quo succeeds without providing a glimpse of hope, and Husock finds it where few of the professional “housers” intend to look: in Habitat for Humanity or in the City of Charlotte, where time limits — not unlike welfare reform act of 1996 — are applied also to public housing. Both models place emphasis on the character of the recipients by careful screening and sweat equity. For Habitat for Humanity the results are staggeringly successful. Few of its newly minted homeowners face foreclosure. These results are missing in public programs.

America’s Trillion-Dollar Mistake unfortunately does not seriously examine the indirect subsidies to the private market that are used by the middle and upper class, namely the mortgage deduction. While there is some question as to whether the value of the deduction has held up over the years, it remains a vehicle for misallocating capital investment in the United States. Any reform of public housing that doesn’t pay heed to this problem would be unjust.

But any harm caused by the tax code is miniscule in both economic and social terms compared to the calamity of the current system. The poor and the taxpayer deserve better than they’ve been getting from Uncle Sam.

Posted on 09-Dec-2004 11:42 AM