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The Heresies in HUD’s Public Housing Policy

January 14, 2011 by Administrator in Winter 2011

By Peter Marcuse

“I used to joke with my colleagues about committing what I called ‘public housing heresy,’ because people would always say, ‘But, we’re public housing and we’re different.’ And I said, ‘It’s really the same.’ We’re public housing, but we’re really real estate first and foremost.

[Under PETRA,] HUD would be the asset manager and housing authorities would be the property-based managers of the portfolio. But this is really an opportunity to embed the real meaning of ‘asset management’ into the portfolio in its purest sense.”

—Sandra Henriquez, HUD Assistant Secretary for Public and Indian Housing, “An Interview,” Shelterforce, Summer 2010

Heresy? But it’s a matter of history, not heresy.   Public housing was created to be in that part of the housing system in which housing is seen specifically not as an asset, a piece of real estate to be owned and operated according to market principles. Rather, it was intended to provide housing for those in need of it and unable to pay for it on conventional market principles. It was not intended to respond to “effective demand,” that is, to the desires of those with the money able to afford to buy that which they wanted; it was specifically structured not to compete in that market. It was also not intended to be managed so as to return the greatest possible monetary reward as profit to its owner. Public housing was intended to take part of the housing supply out of the market, to have it governed not by the principles of profit and loss but by the principles of service to human welfare. Public housing units are not “real estate assets” and should not be seen as these any more than an emergency room is a health care “asset” or a police station is a security “asset” or a street is a transportation “asset” or a public school is an educational “asset.” Public housing should be managed efficiently, of course, but the goal is not to reduce to the lowest possible level the amount of public subsidy used in the provision of housing. The goal is to best provide for those whose housing needs could not otherwise be met.

Public housing is provided by government as one of the rights which “governments are instituted among men” to secure, including the “inalienable rights to Life, Liberty and the Pursuit of Happiness,” as our Declaration of Independence has it. That is the ultimate purpose of public ownership. It is not the purpose for which private owners own and manage their assets in the private market. Private ownership of assets may also have public benefits, but the ownership, management and disposition of private assets is first and foremost to secure private profit, not public benefit. Each has its place, but they are different.

That does not mean that public housing should not be efficiently provided and efficiently run. Perhaps this is what the assistant secretary of HUD means when she compares it to private real estate. But those concerns, which affect all housing, play a different, non-market role in public housing. They should be handled so as to reduce the costs of housing as much as possible, but without interfering with the fundamental purpose of that housing. For a real estate “asset,” that purpose is to produce the greatest return possible to the investment, measured in dollars. For public housing, it is to procure the greatest amount of housing, of the desired quality, and arrange for its use by those most in need of it, not those most able to pay for it.

For example, if a housing development is located on land that has increased in value because of the growth of economic activity in the area in which it is located, or because it has become more accessible to such areas, that is occasion for the owners of a well-run real estate asset to increase rents, enabling its owners to use the asset to take out greater profit by using it as collateral for loans that the higher rents can repay. The benefit of the increased value of the “asset” inures to its owners. If it is public housing, however, the benefit should be to the residents in the form of greater job opportunities, perhaps, or better public services. It is a mistake to think of government simply as any other owner of an asset called “public housing” and that government would treat its asset as any other owner would. The purpose private owners of housing seek, and properly, is profit; their bottom line is the difference between costs and revenues. That is not the case with public housing; the purpose its owner, the government of us all, seeks, is not profit but human welfare, and its bottom line has to be measured in terms of its contribution to human welfare, not the maximization of revenues or the minimization of costs or the spread between them.

Below are four other examples of the difference between public ownership and private for-profit ownership: resident participation; improving housing quality; due process in eviction procedures; and mortgage financing.

Resident participation

Resident participation in public housing is not simply a means to an end (efficient management) but is at the heart of the very purpose of public housing: creating the conditions for enhancing human dignity and human welfare. Public housing’s mantra should be the more participation the better. But for private owners and investors who want to maximize control of their property, when it comes to resident participation, the less the better. It only interferes with the “rights of ownership.”

Improving housing quality

The better the housing and the greater the satisfaction of residents, the better the goals of public housing are served. For private housing, the level of quality desired by the owner is that which will provide the greatest surplus of revenue over expense, the greatest profit margin. That makes a big difference when it comes to planning rehabilitation, or improving landscaping, or deciding the level of routine maintenance.

Due process in eviction procedures

Due process—fairness in decision-making—is a constitutional requirement of all actions of government for the protection of those it affects. In the case of public housing it is a right of its residents. For private owners it is at best a nuisance, at worst something to be bitterly fought. If a tenant is not paying rent, out! No matter the cause, no matter the impact on the individual or the family. In public housing, multiple interests may have to be balanced, e.g., neighbors, nuisances, et cetera, but not the profitability of the enterprise.

Mortgage financing

A public housing project may be put up as collateral for a private loan, but the private interest in making that loan relies on the security provided by the collateral. It only works when the lender can sell off the collateral if the “owner” fails to repay. You can’t have your cake and eat it too: either the development is collateral, in which case lenders will lend on it but want the right to take it over on default, or lenders don’t have that right, in which case it’s worthless collateral and lenders won’t make the loan. And if the deal is supposed to be “safe” for the new lender because government will stand behind the repayment of the loan, then why use the development as collateral to begin with? Why not just go on the market and issue bonds the government insures, as has been the time-honored way of financing public housing? If a government guarantee is included when a loan is made, as is now suggested, it might indeed protect residents to some extent, but it will always leave a dangerous conflict of interest around the protection of their rights—but then the whole thing only amounts to a sham concealing off the government’s books what is really, and ought to be recognized as, a government obligation.

PETRA, or the next version of it, should not pretend these differences do not exist, or that injecting private profit motivations into the ownership and management of public housing is not a compromise of fundamental principles. The hope that private sector involvement can be had without a compromise of quality in public housing is an illusion.

It is quite possible that we are in such a desperate plight, so poor and politically so incapable of distributing our resources to meet the needs of our people that we have no choice but to mortgage or sell off some of what is and should be publicly owned and that we would rather reduce the protection we provide for our fellow community members than raise our taxes a reasonable amount to pay for what needs to be done. It is a sad case if that is our situation today. If it is, we should at least be honest in recognizing what we are doing.

Peter Marcuse is a professor of urban planning emeritus in the School of Architecture, Planning and Preservation at Columbia University.

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