Selling Off Public Housing: PETRA and the Neoliberal Agenda Alarm, Debate and Confusion over Obama Administration Public Housing Policy

In July 2010 the House Financial Services Committee, supported by the Obama administration and Congressional Democrats, passed an historic housing bill, which included proposals originally known as PETRA (Preservation, Enhancement and Transformation of Rental Assistance). The stated purpose of the bill is to protect public housing, guarantee tenant participation in decision-making, promote uniformity and efficiency in rental assistance programs and increase choice for low-income people. The reform bill seeks to guarantee one-to-one replacement of demolished public housing units, a promise made—and never kept—by the HOPE VI program.

Despite initial pushback by public housing tenant and progressive advocacy groups, the bill left untouched the powers of the Department of Housing and Urban Development (HUD) to authorize borrowing by local authorities to finance development. Authorities could mortgage their properties to help close the funding gap left by shortfalls in public funding. HUD Secretary Shaun Donovan has dismissed concerns by grassroots tenant and housing advocacy groups that mortgaging public housing is a risky step towards privatization.

While the debate goes on amid uncertain prospects in Congress, some local authorities are already cutting deals with banks and developers. They are also continuing to demolish and destroy low-income housing units while purportedly creating “mixed-income communities” and “ending segregation” of public housing projects from surrounding areas. They are mortgaging their properties.

Many housing advocates we usually agree with, including the National Low Income Housing Coalition and the National Housing Institute, echo these concerns but support the administration’s legislation. They say that there’s virtually no chance of getting money from Congress to renovate sorely deteriorated public housing and that the Republican alternative of outright privatization would be much worse.

In this issue we publish excerpts from the debate, almost all of which underline the danger of the administration’s approach and the law that would reinforce it. If and when the bill comes up before the full House and Senate, the fundamental question of privatization should again come to the fore.

We believe this is a watershed in neoliberal housing policy and all progressive planners need to weigh in. It is not an abstract question of doctrine. It will affect the lives of millions of low-income tenants across the nation at a time when homelessness and poverty are expanding. Its worst consequences may not be felt immediately but in the not-too-distant future, when local housing authorities can’t meet their mortgage payments and have to turn over their property to the banks. We should not listen to the compromisers in the Democratic Party who, after all, gave us HOPE VI during the Clinton administration, which resulted in the loss of 100,000 low-income apartments and took HUD a major step closer to the long-time conservative goal of privatizing public housing. We recall how that disastrous move was also pitched as necessary to save public housing.

— Tom Angotti and Marie Kennedy, Progressive Planning Editors

HUD’s Position
Having successfully worked to increase and preserve affordable housing in Chicago and New York City using a combination of public and private resources, President Obama and Secretary Donovan know we can build a better system—one that harnesses the resources of the private market without compromising the important mission of publicly supported housing.

PETRA would bring this proven strategy for preserving affordable housing to the federal government by enabling federal housing programs to leverage $7 billion in other capital in the first year—and as much as $27 billion in the years to come—giving owners of affordable housing access to the resources they need to preserve this housing into the future. Just as importantly, PETRA embodies the Obama administration’s commitment to more robust tenant protections and strong provisions that keep public housing publicly owned and affordable to the people who need it the most.

HUD Senior Housing Program Specialist Diane Yentel in a July letter to New York public housing leader Erik Crawford:

Bringing market investment to all of our rental programs will also bring
market discipline that drives fundamental reforms. Only when our programs
are truly open to private capital will we be able to attract the mix of
incomes and uses and stakeholders necessary to create sustainable, vibrant

Legislation Now?
While we are arguing over the potential loss of public housing someday in the future if one part of PETRA were to become law, public housing agencies are already demolishing and selling off public housing under current law.

— Sheila Crowley, National Low Income Housing Coalition, June 8, 2010

Give the Administration the Benefit of the Doubt?
What is interesting is how the criticism, at least publicly, has simmered. There was little fire and brimstone at the outset. In fact, the prospect of creating alternate funding streams to enhance efficiency, rehabilitation and preservation, was, and still is, appealing. A Democratic administration, with a highly regarded HUD secretary, is initially given the benefit of the doubt by many. But as housing advocates, policy analysts and tenant organizers have examined PETRA, they have found concerns that need to be aired.

— Matthew Brian Hersh, Shelterforce, Spring 2010 issue

No More Congressional Funds for Public Housing?
The problem—Congress has underfunded public housing through the years, creating a huge backlog of repairs and maintenance, and all Congress needs to do is provide more funding to remedy the situation. Instead of asking for more funding from Congress, HUD Secretary Shaun Donovan and the Obama administration want to privatize the 1.2 million public housing units in a complicated scheme to transfer ownership of our public housing units to so-called affordable housing developers that will charge above-market rate rents being subsidized by the Section 8 program, believing that the new owners would then be able to tap into the equity of the properties to get loans from the private sector for the backlog of maintenance and repairs, as other property owners do in the market of privatized housing.

— Lynda Carson, California Tenants Together, July 16, 2010

PETRA Is an Awful Proposal 
PETRA justifies every bit of the knee-jerk reaction to privatization as expensive, regressive, undemocratic and dangerous to the provision of public services.

PETRA is Expensive: Public housing today maintains and improves its own property with either a publicly employed staff under direct public supervision, or by contracting out specific maintenance work, generally on a bid basis to the lowest bidder, and, in any event, supervised directly by the public housing authority’s own professional staff. Private profits are directly controlled by the public. Financing is through public bonding, available at the lower interest rates that government is able to pay. The inadequacies of present maintenance and improvements are the result of inadequate funding, not incompetence, profit-seeking or greed. Increased tenant participation would be a big help, and is being extensively discussed and promoted by tenants’ groups and advocates.

Under PETRA, a private owner would undertake all maintenance and improvement functions in whatever way it sees fit, to whatever standard it sees fit, with only minimal public supervision and no incentive to economize. Costs must be paid out of rents; if they are excessive, rents have to be increased, and the program provides justification for such increases if they are accompanied by increases in market value, which improvements generally produce. Financing is to be secured in the private market, that is, at commercial rates, rather than the lower rates government can obtain. Either tenants are faced with increased, and likely unaffordable, rents, or subsidies are provided out of the public treasury to meet the costs. Incentives go the wrong way: private desire for higher profits drives up costs, and there is no incentive to hold down occupant rents or comparable “market rents.”

There is indeed the possibility under the proposal that HUD itself would bid on its own public housing when it is put up for sale, but it would have to operate it as Section 8 project-based housing. That means it would operate under market constraints, which would include the ongoing temptation to increase rents and cherry-pick tenants or (and the proposal gives HUD discretion in the matter) release units from low-income requirements and rent them at market prices.

PETRA Is Regressive. Public housing today has eligibility requirements that limit occupancy to those of low income. It requires rents from tenants that are limited to a percentage of their income, regardless of the actual cost of operation. Rents are held down by public subsidies. While it is a constant struggle (and often a partially losing one) to secure subsidies adequate to the task, residents are not forced to cover deficits out of their own limited incomes; the rent-to-income ratios are held to a minimum. Such subsidies as there are inure to the benefit of the low-income residents.

The whole spirit of PETRA is to yoke the drive of the private sector to make a profit on the provision of housing for poor tenants. That creates an inherent conflict of interest: the more tenants pay, the more private landlords make. Along the way, banks are well taken care of. If a landlord can arrange for the replacement of low-income tenants by higher income tenants, and thus charge a higher rent, the landlord will do so, making public housing that much less progressive. The higher costs come from the need to make profits all along the way, by the new private owners, their contractors and the banks profiting from their borrowing.

— Peter Marcuse (The author acknowledges the excellent analyses of NESRI, the National Social and Economic Rights Initiative, and the Congressional testimony of Susie Shannon.)

Message to HUD from Human Rights Advocates: Reform Public Housing, Don’t Privatize It

While we commend your agency’s response to the long-standing necessity of
streamlining rental assistance programs, we remain concerned that a central element of
PETRA will set into motion a process of public housing privatization. In particular,
project-basing our public housing invites private entities in the financial sector to play a
role that undermines public housing as a public good. This first step toward privatization
is evident in at least three ways.

            First, PETRA enables private financial institutions to acquire legal interests and
            rights in public assets.

            Second, PETRA creates a risk of foreclosure and potential transfer of scarce
            affordable housing to banks and other financial institutions by shifting the status
            of public housing from public goods to real estate commodities.

            Third, PETRA institutionalizes the profit motive, and perhaps even profiteering,
            into public goods. (Lenders do not function as charities and will expect a healthy
            return on their investments.)

Consequently, PETRA’s current configuration is fundamentally at odds with public
housing’s central premise: providing for precisely those people and communities whom
the housing market persistently excludes. This proposal is particularly imprudent in light
of the recent foreclosure crisis, which has demonstrated that markets alone will not
address the basic needs and rights of people in the United States.

….while a number of residents, community organizations and advocates have specifically opposed mortgaging public housing units, HUD representatives have explicitly stated that mortgages are non-negotiable….While mortgages are the single most controversial issue that has inspired passionate public debate and conflict, this is at the same time the single issue on which HUD has unilaterally closed negotiations.

— National Economic and Social Rights Initiative, letter to HUD Secretary Donovan, July 2010

Who Benefits?
The banks and developers make a fortune, with the taxpayers paying for it. The public loses its public housing property. The impoverished tenants lose their apartments, or have their rents go way up if they are forced into the private market. Homelessness increases. Government gets smaller. The banks and developers win. It is a Bank Bonanza! The poor and the public lose.

And a precedent is set. The government can privatize any public property: schools, libraries, national parks, federal buildings—just as has begun to happen in California, where the right-wing governor has started to auction off state property and has even suggested selling off the Supreme Court building.

— George Lakoff, Alternet, May 2010

Many thanks to Sarit Platkin for assistance in research for this column.

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