Low-Income Housing Will Make a Comeback -- As a Political Issue

Here's a prediction: Now that the pre-convention summer doldrums of political campaign coverage has descended to a discussion of presumptive Democratic nominee Barack Obama's patriotism, it won't be long before he's defending his record as a fellow traveler of slumlords.

Can you say Tony Rezko? This long article in last Friday's Boston Globe certainly could, along with Valerie Jarrett (major campaign adviser), Allison Davis (former law partner and major fundraiser) and a host of other close Obama associates connected to the low-income housing development industry in Chicago. The upshot: some of these public-private partnerships, developed under official U.S. housing policy that channeled tax credits to subsidize private-sector and non-profit housing for low- and moderate-income renters over the past 20 years, have fallen into disrepair. Some of the developers and managers have walked away from the projects, leaving rat-infested, deteriorating buildings in their wake.

Is this a failure of the public-private partnership model, as suggested by Slate's Kausfiles? I'm curious what Kaus would offer people who can't afford market rents. Would he like to see a return to the massive public housing projects that drew his and better writers like Alex Kotlowitz' justifiable condemnation in the 1980s?

With the foreclosure crisis sending thousands, perhaps millions, of struggling families back into the rental market, the nation could use a decent discussion about what it takes to provide adequate housing for those whose incomes cannot support rents high enough to pay for reconstruction, heat, electricity, maintenance, and profit for developer/landlord. There are many developers in Chicago who used the low-income housing tax credits and section 8 voucher program to build and maintain solid housing for people who otherwise would be living in slums. Alas, in a political season, those positive examples aren't discussed, nor why they may have succeeded.

Instead, we get a story about the failures (which are real) tied to a political candidate who politically supported that industry. Given the way the campaign is going, no doubt Obama will soon be apologizing for that, too.

But if public policy doesn't empower public-private partnerships to build and rehab low-income housing (and no one would seriously suggest a return to building public housing), then what? Here's an idea. How about capping the home mortgage interest deduction at $500,000 per household. Any new tax payments collected can be earmarked into a fund (thus be revenue neutral for the federal government) to pay for rent subsidies for people earning less than $75,000 a year whose rents exceed 30 percent of income. Perhaps then landlords (the responsible ones, at least) will be able to charge high enough rents to maintain their buildings in low- and moderate-income neighborhoods.

As my father was always fond of saying, the problem with poor people is that they don't have enough money. Whenever I see a run down rental building, the first question I ask is, "what's the rent?" Too bad the Globe reporter or Mickey Kaus never asked that question.

In Praise of Homeownership

In the wake of the sub-prime mortgage meltdown, it has become fashionable to remind people that homeownership isn't for everyone. Last Friday, I listened to a report on NPR from Wheaton, MD, which is only a few miles up the road from my home, where a hard-working Hispanic woman was being thrown out of her house bought for just under $400,000 near the top of the bubble. The details were both depressing and anger-inducing: the unscrupulous mortgage lender had qualified this single mom for a teaser-rate loan by including the money she would earn from renting out her basement to itinerant laborers.

But what really got to me about the story was the few comments from her teenage son. He worked hard around the house, planting flowers, and keeping the exterior in good repair. Like his mom, he also wanted a part of the American dream.

I see it every time I drive through Wheaton (to get to my daughter's high school, the golf course, or the local shopping mall). The tiny bungalows that are owned are easy to spot. So are the rentals because paint is peeling and their lawns unmowed. Pride of ownership matters, especially in the older, inner-ring suburbs that make up the bulk of housing for America's lower middle-class.

It also caused me to think back to my own first experience in home ownership. It was the mid-1970s, I was working as a printer at the afternoon newspaper in Cincinnati, had one child with another on the way. My wife and I were both trying to finish college while working and raising a family. With the help of a government-financed mortgage and the home mortgage deduction (without which the interest rate made me unqualified for the loan), we took a run-down inner-city home that had been converted into a three-flat in the 1950s and restored it to its original purpose.

We were part of the first wave of gentrification in America's cities. And whatever one thinks about the displacement that accompanied that phenomenon, returning young families were a boon for cities. The phenomenon would not have been possible without federal programs that support home ownership.

Every time I return to Cincinnati to visit my son (I was last there in May to receive a Distinguished Alumni Award from the University of Cincinnati), I make a point to drive through the old neighborhood. It's still well-painted, with its tiny postage-stamp front laws well-kept. And best of all, there were still a clutch of small kids, black and white, playing on its streets.

Home ownership is not an "obsession," as Paul Krugman describes it in his column today in the New York Times. It is the bedrock on which community stability is built in America. Homeownership makes neighbors come together to maintain local schools, local streets, improve the local business district and highlight incidents of crime to make sure things aren't getting out of control.

Has it exacerbated sprawl by subsidizing new home construction far from cities? Absolutely. But there are better tools to deal with that issue. Zoning restrictions, agricultural land protection, and removing road-building subsidies directly tackle that problem. Removing home ownership subsidies is a blunt instrument for dealing with sprawl.

It is frequently argued that the home mortgage deduction is unfair. The higher the cost of one's house and mortgage and the higher one's tax bracket, the larger the subsidy. Again, if equity is the goal, then these problems can be fixed by either capping the value or indexing its level based on income, not removing it entirely.

As I drive around my neighborhood, which is near two mass transit stops and is in an older inner ring suburb outside Washington, I see dozens of townhomes being built on land that had been deemed unsuitable for building when the first wave of home-building swept through this area in the two decades after World War II. This is the classic in-fill housing, precisely the kind of construction that will be needed in the next several decades as America, and the rest of the world, deals with the global warming crisis.

Congress should crack down on unscrupulous lenders, of course. It should rebuild systems for protecting novice homeowners when they enter the home mortgage market for the first time. They could even tinker with the home mortgage deduction to make it more fair.

But home ownership is still the best way for young families to build personal and community equity in our society. The recent excesses of the market shouldn't blind us to that enduring reality.

Katrina Housing Fiasco

I'm glad somebody finally wrote the story of the Bush administration's failure to deal effectively with post-Katrina housing for the half million displaced persons. Instead of giving housing vouchers for the 300,000 vacant apartments in Texas (his home state!), FEMA and the Red Cross are spending billions of dollars to put people up in hotels.

I was personally offended by this approach when I first heard about it about a week after the hurricane. The Red Cross was pulling in millions and my wife and I were about to donate. But when I heard that much of the money would go to put people up in hotels, I wondered: And at what rates? What were the hotel chains contributing in exchange for guaranteed full occupancy? We decided to donate in other ways.

The irony in all this is that when it comes to housing, liberals are the main support for voucher programs to house low income people. But over the years, while the Republicans have occasionally given housing voucher programs like Section 8 lip service, they usually are the first programs on the chopping block. Why? Effective housing voucher programs are also effective income and race integration programs, and many landlords in suburban areas would rather see their apartments stay empty that rent to people who are not the same class or race as those already living there.

Clinton poverty plan: Let them eat tax breaks

Clinton's New Markets Initiative is just another attempt to rebuild the inner city through tax incentives for business, and it won't work.
(This article first appeared on Salon.com)
By Merrill Goozner - - - - - - - - - -
July 06, 1999 | S ummer isn't a fun time to visit East St. Louis, Ill., but then again, neither is fall, winter or spring. So President Clinton deserves credit for braving the Midwest's daunting heat and humidity on Tuesday to call attention to the plight of one of America's most degraded urban landscapes, where a spiritually as well as financially bankrupt city administration auctioned off its City Hall a few years back to pay bills.

Tuesday's visit is part of a four-day trip designed to call attention to the administration's New Markets Initiative, its fledgling effort to jump-start economic development efforts in areas of the country that have been bypassed by the now 8-year-old economic expansion. The president began his tour in Appalachia, and later in the week he will visit a rundown section of Phoenix and finish his tour in the Watts neighborhood of Los Angeles.

Clinton's trip is designed to make a political and social point: Nationwide unemployment may be down to 4.3 percent, but in the rubble-strewn lots of America's older inner cities, and even in the downtrodden parts of its fast-growing Sunbelt ones, too many neighborhoods continue to suffer from substandard housing, high unemployment and the growing concentration of the nation's dwindling but hardest-to-employ welfare population.

The president has dragged along high-powered executives like Richard Huber of Aetna Insurance and former budget chief Franklin Raines, now at Fannie Mae, to highlight the central motif of the tour: that the most impoverished areas of America's cities should really be seen as emerging markets, a kind of Indonesia within our own borders. With a few well-chosen tax breaks and government help programs (they've even dubbed one the American Private Investment Corp., modeled on the Overseas Private Investment Corp.), townhouses, warehouses and shopping malls will soon be blooming on urban plots that now contain only the graffiti-scarred walls of abandoned factories.

It's an enticing vision, and there is no shortage of recent anecdotes to back up its proponents' claims. New townhouses are sprouting in downtown Chicago, and there's a flowering of small businesses and single-family homes in the South Bronx. And then there's the comeback of downtowns across America as entertainment destinations for bored suburbanites looking for something beyond the thrill of another day at the mall.

Those signs of urban life have led many politicians and inner-city advocates to embrace the ideas of Harvard Business School professor Michael Porter, whose Initiative for a Competitive Inner City has tried to get the nation to think of poor neighborhoods as big, untapped markets, rather than as cesspools of dysfunction best served by social service agencies. Porter's ideas, combined with the signs of urban revival evident around the country, have convinced Clinton that the best hope for inner-city renewal lies with the private sector.
That would be nice, but it isn't true.

First of all, the nation's celebrated urban turnaround is uneven at best. True, Sunbelt sprawl cities -- those with expanding borders or vast tracts of undeveloped land on their peripheries -- are posting large population gains. But between 1990 and 1998, geographically constricted Philadelphia saw its population decline by 9.4 percent; Baltimore lost 12.3 percent of its people; Detroit had a 5.6 percent population decline; and Milwaukee watched 7.9 percent of its people depart.

New York, Chicago and Los Angeles bucked the trend, with small population increases near the decade's end after a downturn earlier in the '90s. But the nation's three largest cities have been the entry points for hundreds of thousands of new immigrants. Without that influx, these cities, too, would have posted population declines.

And in both Sunbelt and Rust Belt cities, many blighted urban neighborhoods have refused to revive. Even healthy cities have seen their populations polarize, with a wealthy elite on top, pockets of concentrated poverty on the bottom and almost no middle or working class.

What will the New Markets Initiative do about that? Sadly, very little. The new program will give a 25-percent income-tax credit to businesses that invest in cities. It will also provide more technical assistance to would-be inner city entrepreneurs, and offer matching equity capital for start-up businesses.

But this is providing more of the same tax incentives that have failed to reverse decline over the past three decades. Given the failure of enterprise zone tax breaks, outright tax abatements and tax-increment financing to make much difference, there's no reason to believe these new goodies will be the "incentives" that finally convince major corporations to relocate in the inner city.

To be fair, the New Markets Initiative should be viewed as part of a package with the administration's "Smart Growth" plan to curb suburban sprawl, introduced in January. In recent years, an intriguing coalition of environmentalists, traffic-weary suburban politicians and inner-city advocates have joined to discourage sprawl by creating incentives for businesses to locate in or near the inner city, instead of in the outer suburbs.

Unfortunately, the Clinton administration's anti-sprawl program, rolled out in various budget proposals over the past several months, doesn't pose a serious challenge to the sprawl lobby, and it certainly doesn't offer a realistic program to reverse decades of urban decline. The centerpiece is a $10 billion bond program to help local communities save open land from the relentless tracks of developer bulldozers, plus $50 million for "smart growth" planning. It also offers more shopworn tax breaks for attracting business to the city, although these have not been successful in the past because the same incentives -- and then some -- have always been available in the suburbs.

Like most of the smart growth initiatives around the country, the Clinton plan is doomed to fail because it doesn't reckon with the powerful development interests that have a stake in sprawl -- most notably the home builders and road construction lobbies, which dominate every state capital and are already mobilizing to oppose smart growth plans.

Where there are powerful and long-standing anti-sprawl forces, like Portland, Ore., there's hope for turning back sprawl and directing investment to the inner city. But in states like Maryland, where Democratic Gov. Parris Glendening sought to salve suburban voters frustrated by sprawl with a smart growth law, the movement will accomplish little. Maryland's law allows developer-beholden county executives, for instance, to designate almost any area for "smart" development -- but government-funded greenbelt creation in the suburbs isn't going to create jobs downtown.

What's the alternative? David Rusk -- the former mayor of Albuquerque, N.M., who is now a traveling salesman for metropolitan solutions to urban problems -- thinks Clinton and Vice President Al Gore will have to be much more courageous about discouraging growth in the suburbs, steering it to cities and helping the inner-city poor move out into other neighborhoods.

To Rusk, one of the biggest barriers to urban revival is the fact that families with children are continuing to flee cities, leaving only the nation's hard-core impoverished families living there. "Even where there is gentrification and housing is getting built in cities, it's not for people who are putting kids in the schools," said Rusk, whose new book is called "Inside Game, Outside Game: Winning Strategies for Saving Urban America." "It's for empty nesters and singles."

Rusk says federal, state and regional authorities have to be more aggressive about channeling investment back into the city and inner-ring suburbs. At the same time, he adds, officials must develop incentives to help the urban poor move out from the inner city. That will not only spread the social-service burden more equitably, but bring the last frontier of the nation's jobless pool nearer employers who are increasingly desperate for people who want to work.

But there's little evidence Clinton and Gore are serious about such an agenda.
For one thing, suburban sprawl and urban disinvestment are supported by massive government subsidies at the federal, state and local level. If they wanted to curb sprawl and foster urban development, they would cut off EPA subsidies for sewer plants in far-off suburban housing developments. Then they'd go after Pennsylvania Republican Bud Shuster's Transportation and Infrastructure Committee in Congress, which doles out endless pots of federal gas-tax money to build highways whose sole purpose is to open up land for development.

They might even move to impose federal taxes on the massive state subsidies for suburban development, especially those that go to lure factories and office towers away from urban sites. Alabama just gave Honda Motor Co. hundreds of millions in subsidies for a new assembly plant, just as it did Mercedes-Benz a few years ago. Both plants are in rural areas, far from the inner-city poor. A decade ago, Illinois showered Sears Roebuck & Co. with $60 million in state and local tax breaks to build a suburban campus far from its easily accessible downtown tower. Every state has similar examples that dwarf the new subsidies now being offered to cities.

The administration cites its "brownfields" initiative -- which helps cities clean up environmentally hazardous abandoned industrial sites and offers incentives for new development there -- as a crucial piece of its urban strategy. But again, "incentives" aren't enough to encourage businesses to take the plunge, especially when they have readily available "greenfield" sites in the suburbs. In this era of budget surpluses, why not offer cities a $10 billion grant program to clean up the scars of deindustrialization, so they will have what the suburbs and ex-urbs have in abundance: vacant, clean land?

Finally, Clinton and Gore are even less ready to take on the issue of dispersing the urban poor -- which is a critical step in breaking up concentrated urban poverty and economically reintegrating the city. Rusk and others argue that the middle class will never return to cities in sizable numbers until urban schools are at least as good as suburban schools, and that won't happen as long as city schools remain disproportionately filled with children of poverty. Studies have shown that dispersing poor kids helps them educationally, too.

But white suburbanites -- actually, NIMBYs of every race -- oppose proposals to build low-income housing in the suburbs. Many minority political leaders aren't much friendlier to the idea, since they don't want to see their constituencies dispersed. So as Clinton travels around the country this week, don't expect to see him visiting the well-to-do suburbs to encourage them to accept their fair share of poor kids into their school systems.

Seven years into a presidential term notably lacking in bold initiatives to deal with America's enduring poverty pockets, it's fair to ask: Why now? It's easy to interpret the New Markets Initiative as a pre-election-year gambit designed to appeal to what remains of a core, if shrinking, Democratic Party constituency. Al Gore has to come up with something for inner-city inhabitants, who still represent major voting blocs in big states with key primaries like California, New York, Illinois and Ohio.

But the administration's commitment to linking urban poverty to suburban sprawl, and fighting both with more tax incentives, is destined to fail. "What's fueling anti-sprawl sentiment is that life out in paradise is feeling less convenient and more harried," says David Rusk. "Linking that to urban problems isn't going to be a winning argument for anyone in the 2000 election."

salon.com
- - - - - - - - - - - -

About the writer
Merrill Goozner is chief economics correspondent in the Chicago Tribune's Washington bureau.