The idea of a Washington consensus may sound laughable these days, but for the past two decades there has been wide agreement between liberals and conservatives that public housing is in trouble—and its salvation is in the private market. That the Obama Administration’s Rental Assistance Demonstration (RAD) program bears a striking resemblance to President George W. Bush’s Public Housing Reinvestment Initiative reflects this shared understanding. RAD is a scaled down, test-version of a much more ambitious proposal to fund all of public housing through the Section 8 funding stream. The hope is that public housing authorities will then be able to borrow money against this future revenue in order to address the current needs of their housing stock. In other words, that means bank-owned mortgages getting tangled into our public housing stock, a prospect that has many politicians and housing advocates sounding alarms.
Make no mistake: RAD promises to increase the funds available to public housing and will provide some much needed rehabilitation and repairs for the 1.2 million households served by public housing. The reason there is bipartisan agreement on the program is that public housing has undeniable problems—specifically a $30 billion backlog in repairs and renovations. This backlog is a result of the chronic underfunding of the traditional housing program, and if it is not addressed, some properties will deteriorate to the point at which in which demolition will make more sense than renovation. RAD, through its use of the better-funded Section 8 program, as well as private equity, is an attempt to avoid this result.
However, relying on private equity to fund these repairs means that banks will determine who gets money and how much they get. Risk-averse banks will provide the most credit to projects that offer the most security for their investment—specifically, developments that reside on valuable real estate and are already in good condition—and not necessarily based on the relative needs of our housing stock. Accordingly, banks will extend more credit to projects near Chicago’s Loop than to those on the far South Side, more to New York and less to Flint, Michigan.
Similarly, some developments will be able to secure greater protections in the case of foreclosure than others. As Chicago redevelops its public housing, it has been able to leverage prime downtown real estate and ample HOPE VI funds to preserve the housing for 99 years regardless of the status of the mortgage. The RAD default use agreement, meanwhile, guarantees public housing “for the term the [contract between HUD and the owner] would have run”—which is at most 20 years. Chicago, which plans to submit RAD applications for 11,000 of its units, will be able to convince banks to agree to 99-year protections. But will Flint have the same leverage?
HUD admits that the private equity stirred up by RAD will not be enough to cover the capital needs of most public housing. Thus, RAD encourages and practically requires public housing authorities (PHAs) to seek supplemental funding for their proposed conversions. This will mean the use of tax credits, which require PHAs to cede ownership and control of a property to private developers. Already, 83 (of 132) projects approved for RAD conversion are using tax credits.
RAD is well intentioned and addresses a real need, but it shouldn’t encourage PHAs to make shortsighted, irreversible decisions. For that reason, HUD should amend RAD to:
- Prohibit private ownership and the use of tax credits. PHAs should not be given a false choice between retaining ownership of their housing and having the necessary capital to make repairs.
- Subject all mortgages to a use agreement that extends for as long as legally possible. This may scare off some lenders, but Congressional funding, even in the form of Section 8, is shaky enough for us to be concerned about budget cuts leading to defaults and foreclosures.
- Make all mortgages taken out by PHAs FHA-insured. This will help close the gap between the RAD-rich and the RAD-poor by making banks more comfortable with lending to “riskier” developments.
A RAD program amended to reflect these concerns won’t make the big splash that HUD is hoping for, but it will still increase the funds available to PHAs for repairs and rehabilitation. Fiscal austerity is neither an essential nor eternal feature of American democracy, and we shouldn’t privatize our public housing stock to take advantage of short-term gains in funding. When the political will to fund public housing returns, a more modest RAD will ensure that we still have a program to support.