Henry Cisneros assumed his position as secretary of the Department of Housing and Urban Development in early 1993 as one of President Clinton’s bright New Democrats: dapper, articulate, and ready for change. The 46-year-old former mayor of San Antonio, Texas, probably the nation’s best-known Hispanic politician, even had kind words for his populist/entrepreneurial predecessor, Jack Kemp, who had pressed for selling off the nation’s public-housing stock to its tenants.

But during the summer, Cisneros abruptly defunded Kemp’s tenant-ownership program (called Homeownership and Opportunity for People Everywhere, or HOPE) and transferred much of its remaining fiscal 1993 budget—some $300 million—into a new Urban Revitalization Demonstration program. The new program is an about-face from the privatization Kemp had intended; it simply pours more federal money into some of the nation’s most noisome and dilapidated projects. “One of my highest priorities as HUD secretary will be to reverse decades of misguided federal housing policies and deal aggressively with the dozens of severely distressed public housing developments that blight inner-city neighborhoods and harm low-income residents,” Cisneros declared on August 26.

The $300 million was actually just a drop in the bucket for the nation’s 1.4 million units of public housing, which consumed $6.2 billion in federal operating and modernization subsidies—almost one-fourth of HUD’s total $25.1 billion budget—in fiscal 1993. While housing authorities in smaller cities and even a few large cities such as New York operate their low-income properties in a creditable fashion, housing projects in most urban areas—Chicago, Philadelphia, and Washington, D.C., to name a few—are notorious financial and social sinkholes, plagued by vandals, drug dealers, drive-by shooters, featherbedding managers, and non-paying tenants. Indeed, the 21 local housing agencies that HUD classifies as “troubled” (meaning they tally 59 or lower on a 100-point scorecard) manage 18 percent of the nation’s public housing stock and consume 25 percent of HUD’s operating-subsidy budget.

Big cities and troubled housing agencies seem to go together. Vacancy rates are so high in many inner-city projects that it is clear even the poorest of the poor would rather live anywhere else. Furthermore, because of federally mandated union-level pay scales and layers of environmental and antidiscrimination regulations, it costs almost as much to build a new unit of public housing as to buy a similarly sized condominium at retail.

Public housing, especially in large urban areas, is only the most spectacular and money-consuming disaster in the litany of failure that has characterized federal housing policy since the 1930s—long before there was a HUD—when the Federal Government first decided to intervene in the nation’s housing market.

During the New Deal, Congress set up a system to produce dwellings for the poor—public housing—and a system to assist the middle class in attaining homeownership—the mortgage insurance program of the Federal Housing Administration (FRA). Both endeavors worked fairly well for a while. Then mounting costs, layers of regulation, and civil libertarian excesses ruined public housing. Meanwhile, the Federal Government began to use the FHA mortgage program to entice the private sector into the low-end housing business. In the 1960s, the government decided that a cabinet-level housing agency could help solve the economic and social problems of cities-hence the creation of HUD in 1965.

The result has been a plethora of programs and mini-programs, almost none of them successful; periodic scandals; and a financial mess. The FHA mortgage program, which was once completely self-financing and even operated at a surplus, is now a drain on the Treasury. Reports issued by HUD’s inspector general’s office in 1993 reported a net loss for the FHA of $6.8 billion during fiscal 1992. Another $11.9 billion worth of FHA-insured mortgages, mostly on low-income apartment buildings, are likely to default soon, the inspector general’s office reported. The $18.7 billion total could well generate a crisis on a par with the savings-and-loan debacle of the late 1980s. For all the money it consumes, HUD manages to serve only about 4.5 million poor households—about 29 percent of those it estimates need help with housing. And although HUD’s record at solving housing problems has been decidedly unimpressive, the department has spread itself thin, taking on a host of other social missions not directly related to housing.

The problems with HUD transcend differences of political party; there have been as many misguided programs under Kemp and his Republican predecessors as under any Democratic administration. It is time to ask whether the maintenance of a ponderous, Washington-based department employing more than 13,000 people is really the best way to serve the nation’s housing needs. Such a reexamination is especially appropriate right now, when there is no housing shortage in America, but rather a glut that has depressed real estate prices. As of 1990, there were 102 million housing units and only 93 million households in the United States, according to census figures.

HUD is a quintessential creature of the Great Society era, a time when the revitalization of inner cities via infusions of cash seemed a plausible, even cutting-edge, idea. At President Johnson’s prodding, Congress elevated, changed the name of, and added an urban-development component to the Housing and Home Finance Administration, an independent federal agency dating from 1947 that used to operate the public-housing program and supervise the FHA, which had been created in a 1934 law.

Like other ministries of the Johnson era and beyond, HUD occupies a massive headquarters building in a glass-and-cement wasteland on the far side of the Washington Mall. Ironically, the entire lifeless tract was once a residential neighborhood, obliterated in a spectacularly unsuccessful urban-renewal effort of the 1950s. The HUD building, designed by Bauhaus émigré Marcel Breuer, is particularly depressing: a ten-story double row of modular concrete boxes shaped into a curved X, like a rogue chromosome. HUD’s constituency—that is, its regular lobbying platoon—is a mixture of state and local housing officials, urban mayors, building-trades unions, and the construction, mortgage-banking, and real estate industries.

“The whole idea of the thing makes no sense at all,” says Hugh Heclo, a professor of American politics at George Mason University. “In the 1960s, there was this idea that you were actually going to solve the problems of the cities, but they stuck it all into a housing agency. That was the fundamental flaw, because it meant the housing industry was the only constituency that was supposed to take care of all the problems.”

The Decline of Public Housing

For decades, the core mission of federal housing policy was the construction of brand-new housing. Before the 1930s, the urban poor lived in crowded and dilapidated slums, and the prevailing theory was that slum housing itself was the cause of poor people’s health and social problems. The 1937 Housing Act originally required the demolition of a unit of substandard housing for every new public housing unit built. The act would also stimulate the construction industry, always an important secondary goal of federal housing policy.

Under the original 1937 scheme, the Federal Government’s sole financial responsibility was to underwrite the new projects’ land and construction. Washington subsidized bonds issued by local housing authorities, which used the proceeds to design and construct the buildings. (Later, the authorities began contracting with private builders to do this work.) Tenant rents—low because there were no construction costs to be capitalized—were to cover all operating expenses. The local housing authorities that managed the projects had broad discretion to set qualifications and rules for tenants. They tended to be firm, screening out all but the respectable working poor; recipients of public assistance were generally not welcome. In New York City, for example, grounds for refusing tenants included unwed cohabitation (though long-term common-law marriages were permissible), having a family member on the verge of release from prison, and even sloppy housekeeping. (New York still tries to screen for responsible tenants, but now must comply with a host of civil libertarian restrictions.) Failure to pay rent was grounds for immediate eviction, and it was easy to get rid of noisy and destructive tenants without worrying about lawsuits.

The golden age of public housing vanished soon after World War II. By the late 1940s, Congress had taken a far more expansive view of housing policy, seeing it as a cornerstone for the transformation of urban life. A major new federal law, the 1949 Housing Act, contained a teleology—”a decent home and a suitable living environment for every American family”—that lawmakers have restated in almost every federal housing statute since then. All that has changed over the years is the prevailing notion of what a “decent home” means—nowadays “substandard housing” even includes technically “overcrowded” dwellings in which a married couple doubles up with one spouse’s parents.

Disturbed by local housing authorities’ prejudice against welfare recipients, Congress inserted a provision in the 1949 law banning discrimination against potential tenants on assistance. The law implicitly designated—some would say stigmatized—public housing as a refuge for people with the worst social traits that welfare dependency encourages. Around the same time, massive projects such as the notorious (and since demolished) Pruitt-Igoe in St. Louis became the fashion. These bleak high-rises, typically sited in blighted neighborhoods in order to serve slum-clearance aims, exacerbated the problems of the new, more difficult tenants. Court decisions and regulations aimed at protecting their rights made it increasingly difficult to evict the worst of them, even for nonpayment of rent.

During the 1950s and 1960s, the quality of life at most big-city projects deteriorated substantially. By 1967, more than half of public-housing households were on public assistance. The poor could not afford to pay market rents, so in a series of late-1960s statutes collectively known as the Brooke Amendment, Congress set a rent cap of 25 percent of a tenant’s income. That encouraged even more welfare recipients to move to the projects, since the cap, mitigated by deductions for dependents and allowances for utility payments, could drive their rent payments down to almost nothing. Some families even paid negative rents. The working poor, on the other hand, had an incentive to leave public housing, since their rent rose with their income. By 1978, only 30 percent of public-housing households contained a family member who worked. The percentage of working-poor tenants dropped even further during the Reagan years, when Congress raised the rent ceiling to 30 percent. (Cisneros now proposes to relax the cap somewhat.) Today, only one-fourth of public-housing households contain a wage earner.

With the Brooke Amendment in place, housing authorities in cities with large welfare populations could no longer expect rent revenues to cover costs. So the newly formed HUD began distributing operating subsidies to housing agencies that could not break even, and, as the buildings aged, “modernization” funds for capital repairs. That meant that the Federal Government, whose original commitment had been merely to build public housing, became responsible for practically all of its day-to-day costs in some cities—a situation that prevails to this day. The high level of federal subvention means that local housing authorities have no incentive to operate efficiently or even, in many cases, adequately. Some of the nation’s worst housing projects in terms of crime and drugs—in Philadelphia and Washington, D.C., for example—also have the worst-maintained physical plants.

As housing projects acquired a reputation as social sump ponds worse than any pre-New Deal slum, an ideological divide arose over the wisdom of investing still more government resources in them. Republican administrations have tended to devise alternate ways to house the poor, while Democrats in both the White House and Congress typically assume that public housing, for all its faults and high vacancy rates, is an urban necessity.

Cisneros’s new Urban Revitalization Demonstration program represents the latest, and possibly most quixotic, federal effort to lift big-city housing projects out of their current status as incubators of the underclass. The program is also a graphic illustration of how expensive (and probably futile) such an effort can be. The urban revitalization plan grew out of an August 1992 report from the National Commission on Severely Distressed Public Housing, a congressionally appointed panel of housing officials and real estate executives who identified 86,000 units, or 6 percent of the nation’s public housing stock, as “severely distressed “—that is, providing “intolerable living conditions.” Instead of recommending the closing, razing, or sale of these badly deteriorated properties, the report suggested that the Federal Government spend $7.5 billion over ten years to correct the problems—on top of the $3 billion it already spends annually on public-housing modernization. Cisneros was able to find only $300 million for fiscal 1993, enough to fund a few pilot programs that may inspire future funding.

The biggest slice of the pie, some $50 million, went to Cleveland to fix up parts of two sprawling complexes in the rundown central city. Outhwaite Homes, a 1930s project with Art Deco touches, and King Kennedy Estate, a dreary collection of postwar garden apartments and high-rises, both have vacancy rates in excess of 50 percent—one criterion for receiving revitalization funds.

In order to qualify for such a grant, a housing project must also be extremely poorly managed. The Cuyahoga Metropolitan Housing Authority, which operates Cleveland’s public housing, passed on that score with flying colors. In a 1992 audit, the HUD inspector general’s office gave the Cleveland housing authority a score of only 46 out of 100, well down into the “troubled” range. (The housing authority disputed many of the inspector general’s findings.) Indeed, except for two years in the early 1980s, the Cleveland housing authority has been on HUD’s troubled list continuously since 1979. Color photographs accompanying the inspector general’s report depicted broken windows, clogged toilets, cratered walls, and cockroaches crawling under kitchen shelves. Other problems listed in the report included gas leaks, exposed wiring, missing door locks, falling plaster, and inoperable stoves, refrigerators, and sinks. Overall, public housing in Cleveland has only a 59 percent occupancy rate (6,048 out of 10,945 units), despite a 2,670-family waiting list. Anywhere from 36 percent to 76 percent of Cleveland’s tenant rental accounts had been delinquent during 1991. Despite the generally poor condition of its dwelling units, the Cuyahoga housing authority was actually overstaffed, the report noted, with one maintenance employee for every twenty occupied units. HUD guidelines recommend one maintenance worker for every forty units.

During the three years preceding the audit, the housing authority had collected $94.7 million from HUD in operating subsidies. Since 1990, it had also consumed $84 million from a HUD comprehensive-improvements program and another $34.9 million for “major rehabilitation of obsolete projects.” The additional $50 million that Cisneros’s HUD recently gave Cleveland seems a classic case of rewarding failure.

The Cleveland housing authority plans to spend the entire revitalization grant on a mere 490 units out of the 2,193 at the two specified projects; the planned expenditures work out to $102,000 per rehabilitated unit. According to HUD’s own figures, it costs less than $80,000 to build a brand-new three-bedroom public-housing apartment in Cleveland. The extra $22,000 or so per unit in revitalization funds will fund a panoply of social-service goals unrelated to housing: recreation, tutoring, job training, crime reduction, day care, counseling, child-rearing classes, business incubation, and even the construction of more comfortable quarters for housing-authority employees. The authority plans to spend part of its revitalization funds on a “youth enhancement services complex” and an “enterprise center” at Outhwaite, and a baseball diamond, basketball courts, recycling center, and new management office at King Kennedy. Those amenities, together with the rehabbed housing units, will occupy only a small corner of each of the two decrepit complexes. “Revitalizing” public housing, then, seems to mean throwing good money, and plenty of it, after bad.

The Mortgage Muddle

If federal public housing policy seems to have reached a dead end after 59 years, the department’s major program for the middle class, FHA mortgage insurance, has a reputation as a rare government program that actually works. In 1934, when Congress created the FRA, about half the residential mortgages in the country were in Depression-related default. It was difficult for young families to buy their own homes: residential mortgages were interest-only instruments with the principal falling due after only five to ten years. The typical down payment was 50 percent of the purchase price. The FHA invented the long-term, fully amortized home loan with a relatively small down payment. The buyer paid a small insurance premium to the FRA for a policy that guaranteed to the lender that the agency would pay off the loan and take over the property should the buyer default. Buyers could also finance their closing costs under the FHA system. In 1938, to stimulate the housing market further, Congress created the Federal National Mortgage Association (FNMA, or Fannie Mae) to buy up FHA-insured mortgages and sell them in securitized form to investors. Savings-rich parts of the country could thus transfer capital to poorer areas with high housing demand, correcting a market imbalance. Furthermore, Congress required, and still requires, FHA’s single-family mortgage program to be entirely self-financing through premiums.

It was a revolutionary concept, and in some ways it worked all too well. The United States now has the world’s highest homeownership rate—almost 65 percent of all occupied dwellings. Fannie Mae was so profitable that Congress spun it off into the private sector in 1968 and in 1970 chartered a rival private corporation, the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) to compete with Fannie Mae in the secondary mortgage market. But the FHA’s importance diminished as its track record at insuring long-term, low-down-payment mortgages inspired private companies to devise similar programs. The first private mortgage insurer opened its doors in 1957. Private insurers can operate more creatively than the federal agency, which needs congressional approval for premiums and financing terms. Nowadays the FHA insures only 5.6 percent of the nation’s single-family mortgages.

As the private sector has taken over most of the mortgage-insurance market, the FHA has been left with the riskiest mortgages. There has been relentless political pressure to ease the terms of FHA-insured loans in order to increase the number of homeowners even more. When the mortgage program started, the FHA required a 20 percent down payment from borrowers. Currently, it is possible to obtain an FHA-insured home loan with as little as 3 percent down plus only a fraction of the closing costs, making for an equity close to zero. Some 45 percent of the FHA’s single-family portfolio now consists of mortgages with 97 percent loan-to-value ratios—mortgages that the private sector, which typically demands at least a 5 percent down payment plus cash closing costs, deems too risky to underwrite.

As the FHA made loan terms easier, default rates rose—they are currently at 10 percent overall and 17 percent for mortgages with the highest loan-to-value ratios. By the late 1970s, the single-family mortgage program was in the black only because of large reserves accumulated during earlier decades. In 1989, the Price Waterhouse accounting firm issued a study predicting insolvency in a few years as losses begin to exceed premium revenues. HUD’s efforts to shore up the program by raising premiums and requiring borrowers to pay two-thirds of their closing costs in cash generated a rousing battle in Congress, with real estate lobbyists contending that such a policy would prevent up to a million families from buying homes. The result was compromise legislation in 1990 (diluted somewhat in 1992) that raised and restructured the FHA premium and required buyers to put up a little more cash at closing. The statutory changes promise to stabilize the single-family program, at least temporarily.

Federal mortgage insurance has also expanded far beyond its original purpose of assisting the middle class in attaining homeownership. The mortgage program’s dramatic early successes in the middle-class market and the growing costs of building and operating public housing inspired Congress to view FHA insurance as a convenient vehicle for financing the production of low-income housing in the private sector. Lawmakers have periodically launched special IRA insurance programs—for low-income buyers who do not qualify for the regular single-family program, for builders or rehabilitators of low-rent multifamily buildings—designed to encourage private industry to participate in federal housing policy. Such insurance is usually offered in conjunction with other financial breaks, such as low or nonexistent down payments, below-market interest rates, rent guarantees, or operating subsidies. These programs—the FHA’s “general” and “special-risk” insurance systems—are never self-supporting; federal tax revenues cover their often substantial losses. That makes those programs not so much mortgage-insurance systems as contingent subsidies that merely look like mortgage insurance. In 1968, Congress chartered the Government National Mortgage Association (GNMA or Ginnie Mae) as an in-house Fannie Mae for high-risk mortgages. Ginnie Mae also loses money and relies on Treasury bailouts.

Because the more competent and reputable private-sector developers don’t need government handouts and shy away from government red tape, participants in these ventures in “assisted” housing have tended to be inexperienced nonprofits (such as small urban churches) or low-end, corner-cutting private operators. They often get into the deals only for the subsidies or, before the 1986 tax reform act, for the generous tax breaks that were available for real estate investment.

Not surprisingly, the use of the FHA mortgage program to produce low-income housing has proven financially disastrous and has not contributed significantly to the nation’s housing stock. Cheap housing is typically not particularly attractive or well-sited in the first place. Owners often skimp on upkeep, and many virtually abandoned their properties after their tax breaks disappeared in 1986 and the real estate market collapsed a few years later. The current $18.7 billion (or more) debacle will likely leave HUD with a foreclosed-upon inventory of thousands of once-FHA-insured apartment complexes in poor condition. Right now, HUD cannot even sell most of the properties, because federal statutes require the department to give a 15-year subsidy stream to the buyer—money that HUD does not have. (Cisneros, to his credit, is trying to change that part of the law.)

As HUD senior analyst Irving Welfeld pointed out in a 1992 book, HUD Scandals: Howling Headlines and Silent Fiascoes, these public/private misadventures began as far back as the 1940s, when Congress set up programs to provide FHA-insured mortgages to builders of low-cost apartments for wartime defense workers and, later, for returning servicemen and their families. The effort quickly degenerated into a $110 million fiesta of graft (FRA officials handed out wristwatches and television sets to developers who chose their agency over the competing Veterans Administration) and overappraisals (developers built the projects for less than their loans and pocketed the difference).

A few years later, a second scandal erupted over a modest-repair program that turned into a fertile field for salesmen of aluminum siding (à la the movie Tin Men), patios, barbecue pits, and other accoutrements of 1950s popular culture. Many peddled their wares at inflated prices to new postwar suburbanites, who in turn signed FHA-insured installment contracts with lenders. Congress shut down the program in 1953 amid widespread complaints of shoddy and unfinished work and fraudulent sales practices.

Starting in 1961, the Kennedy and Johnson administrations launched several FHA-backed programs for low-income homebuyers and for builders of low-rent apartments. One of the best-known, Section 235, allowed poor people to move for less than $100 into new or existing housing (the latter was supposed to be rehabilitated to meet HUD standards); thereafter, HUD subsidized their mortgage payments. A kindred program, Section 236, gave apartment-house builders low-interest loans covering the entire cost of construction, accelerated tax depreciation, annual operating subsidies, and rent subsidies for tenants.

By 1972, all the Kennedy and Johnson programs were actuarially unsound. Default rates were extraordinarily high, as might be expected with easy credit. HUD’s inventory of foreclosed-upon apartment houses climbed from 4,000 in 1960 to 54,000 in 1972. Many of the complexes were unsalable at prices that would cover their FHA-insured mortgages because their owners had skimped on maintenance in order to maximize the benefit from federal subsidies.

The Section 235 single-family program was particularly calamitous. Speculators would buy dilapidated properties for a few thousand dollars, perform cosmetic repairs, and sell the superficially revamped units for many times what they had paid. Bribery of FHA inspectors was pandemic. The low-income buyers, discovering their new homes needed major repairs they could not afford, would abandon them. Neither program contributed substantially to the nation’s housing stock. The Section 235 program ended up subsidizing the purchase of 300,000 new houses, all small and of low quality, and 80,000 older houses during four years of operation—minuscule numbers because the early 1970s were boom years for private-sector housing (there were 2.3 million housing starts during 1972 alone).

In 1972, the Nixon administration suspended all the Democrat-devised programs and established a task force to develop new housing policies. Soon afterward, Congress passed the 1974 Housing and Community Development Act. Section 8, a key provision of the act, contained yet another FHA-backed new-construction program. To encourage income-mixing in low-income housing, the program allowed developers to choose how many units of every project they would set aside for low-income tenants; for each of those units, HUD guaranteed the owner a twenty-year stream of subsidies to cover the difference between the tenant’s rent and a “fair market rent” to be set by HUD. Other Section 8 programs guaranteed similar rent-subsidy streams to owners of existing housing who substantially or moderately rehabilitated their units to bring them up to HUD standards.

Section 8 contained one revolutionary feature: a program that gave local housing authorities “certificates” good for a fixed number of years’ worth of rent payments instead of providing low-income housing directly. The housing authorities passed in the certificates to poor people, who used them to shop for housing on the private market. (The Reagan administration later supplemented the certificates with more-flexible housing vouchers that allowed poor people to pay some of the rent out of their own pockets if they wished.) The new provision marked the first time that Congress “recognized the fact that much existing housing was in standard condition ... and that the housing problems of most low-income people were financial,” John C. Weicher, who later became Kemp’s policy chief, wrote in 1980.

The Nixon-era law worked imperfectly. Because of rigid HUD rules, the cost of Section 8 construction turned out to be even higher than that of standard public housing. HUD rules required builders to abide by the Davis-Bacon law mandating union-scale wages, and the department set strict construction standards. Furthermore, most developers designated all their units as low-income in order to qualify for maximum subsidies—undercutting the income-mixing aims of the program. The siting of Section 8 projects usually generated controversy: they were unwelcome in middle-class neighborhoods and prompted discrimination suits when planned for inner cities. The majority of builders took the easy way out by earmarking their projects for the elderly. (Most public housing built after 1970 is also reserved for the elderly.) Many Section 8 owners skimped on maintenance, then defaulted when times got tough in the late 1980s. As for the more stable Section 8 developments, many of their owners quickly prepaid their federally subsidized mortgages and turned the buildings into more lucrative middle-class housing, though Congress put a stop to that practice in 1990.

The Reagan White House more than halved HUD’s budget from a record $33 billion in the last year of President Carter’s term, and cut total housing subsidies down to less than $7 billion by fiscal 1989. President Reagan’s HUD secretary, Samuel Pierce, defunded large parts of Section 8—its entire new-construction and substantial-rehabilitation programs—leaving moderate rehabilitation as the only construction subsidy. That program, administered by Pierce aide Deborah Gore Dean (recently convicted of conspiracy, perjury, and accepting a bribe in connection with her activities), became a spoils system for Reagan-friendly developers and Republican contributors. Although grants were supposed to be modest, developers could piggyback them onto funds from other HUD programs and walk away with millions in subsidies. Such dubious properties as a defunct chemical plant and a camp that housed Japanese-American internees during World War II became, respectively, housing for the elderly and the poor. Rent subsidies rolled in even if no one leased any of the units. An estimated $47 million in HUD subsidies and tax breaks flowed into the mod-rehab program before Congress tightened the law in 1987.

In a related “coinsurance” program, Pierce’s HUD began allowing lenders to collect fees for processing the paperwork on some risky FHA-insured mortgages in return for bearing part of the FHA’s insurance obligation. The program faltered after poorly screened lenders approved large numbers of default-prone loans. HUD’s coinsurance losses are estimated to be $2 billion.

And in yet another effort to do more with less, Pierce’s HUD shortened the time periods of Section 8 certificates and vouchers, an accounting trick that allowed HUD to increase the number of certificates and vouchers without spending more money. Federal law requires up-front budgeting of all Section 8 subsidies. Indeed, during the Reagan years, the number of households served by federal subsidies (including public housing as well as Section 8 funds) grew from 3.3 million to more than 4.3 million, despite drastic budget cutbacks and a moratorium on new construction.

But because the Section 8 instruments were set to expire earlier, their renewal bills are falling due now. According to an August 1993 report from the General Accounting Office, about 61 percent of the 2.8 million certificates and vouchers outstanding are due to expire within five years. To renew all of them—the alternative is to cut people from the programs—HUD must increase its annual Section 8 expenditures by 141 percent, to $15.2 billion in fiscal 1998 from $6.3 billion in fiscal 1994, according to the report.

HUD’s Many Missions

As if wrestling with one unsatisfactory housing policy after another were not enough, Congress has loaded HUD with dozens of other extraneous programs and obligations. Urban development is one. During the 1950s and 1960s, the Federal Government had funded large-scale “urban renewal” projects using the slum-clearance model that marked old-style housing programs. Federally subsidized bulldozers obliterated entire neighborhoods in such cities as Washington and Los Angeles, which sold the newly vacant land at cut-rate prices to private developers. Critics complained that “renewal” created office-building wastelands that mostly benefited the real estate industry and the upper middle class. In 1974, Congress abolished urban renewal and substituted a system of more flexible “community development block grants” (CDBGs) of HUD money for more-modest locally generated projects designed to boost the supply of low- and moderate-income housing. In 1978, Congress added the “urban development action grant” (UDAG), designed to stimulate economic activity in decaying downtowns.

Although popular with urban mayors for obvious reasons, both CDBGs and UDAGs quickly acquired a reputation as pork barrels, and Congress has become increasingly chary with grant money. During the 1980s, for example, mayors spent UDAG grants to subsidize luxury hotels, shopping malls, automobile dealerships, and festival marketplaces. President Clinton’s proposed $16.2 billion “fiscal stimulus” program failed in part because it contained $2.5 billion in new block grants that—as the Wall Street Journal reported—would have funded items from a mayors’ wish list including a $2.5 million alpine slide for Caguas, Puerto Pico; a $1 million media center for Denver; and a $200,000 boathouse-restoration project for Riverside, California.

HUD has other duties as well. It polices compliance with the Fair Housing Act of 1968, a national ban on racial discrimination in real estate transactions. It also enforces federal disclosure laws governing property purchases, sets mobile-home quality standards, and oversees interstate land sales. Additional HUD programs have come and gone: urban homesteading, congregate homes for the elderly, solar-energy grants. Since 1987, HUD has been in the business of abating homelessness. It funds single-room-occupancy residences and costly, social-service-laden “transitional” facilities designed to acclimatize transients to the responsibilities of independent living.

Jack Kemp’s tenure as HUD secretary exacerbated the push to involve the department in adventurous new missions. Although a Republican, Kemp styled himself a “bleeding-heart conservative” who wanted to continue Lyndon Johnson’s war on poverty by other means. His HOPE program of selling public-housing units to their tenants had an absurd side: why would anyone, especially a cash-strapped poor person, want to own a slice of a housing project in a deteriorating neighborhood? Furthermore, HOPE’s 1987 enabling law forbade the former tenants from realizing a profit when they sold their units and required the construction of a new unit of public housing for every one sold. Kemp poured rehab funds into two highly publicized HOPE projects in Washington, D.C., and St. Louis in order to ready them for sale. The subsidies amounted to $130,000 per unit, according to one estimate. Despite the frenzy of spending and publicity, no tenant has ever actually taken title to a HOPE unit.

Kemp devised a slew of other new HUD programs with catchy, caring names: Moving to Opportunity, which subsidized emigration from inner cities to suburbs; Shelter Care Plus, which funded counseling and job training for the homeless; Safe Havens, which proposed to build lodgings for mentally ill homeless people who refused to move into shelters (Congress declined to fund that program), and enterprise zones, which finally passed Congress in 1993 as a Clinton-Cisneros initiative.

In 1990, Congress enacted the Cranston-Gonzalez National Affordable Housing Act, a 346-page mega-statute that amounted to a veritable Christmas tree of new HUD subsidies and social services: drug-elimination, early-childhood, job-counseling, and even sports programs at housing projects; “elder cottages” for impoverished old people; “supportive” housing for people with disabilities; a “sweat equity” program that allows homeless people and others to take over HUD-foreclosed properties and fix them up; and special breaks for displaced homemakers, single parents, and migrant farm workers. An even longer 1992 law added still more programs and categories of clients. And Cisneros seems determined to continue the expansion of HUD’s responsibilities. “A housing program can’t act in a vacuum,” says Terrence R. Duvernay, Cisneros’s second-in-command. “You need a good economy. You need jobs and social services. You need an environment free of crime. You have to have the ability to access housing fairly, regardless of race, color, and creed.” Perhaps so, but how can a housing agency—or any arm of government—realistically expect to guarantee these benefits?

Do We Need HUD?

Cisneros, like other Clinton administration officials, has talked of “reinventing” his department. But this appears to mean steering his X-shaped barque in familiar directions: more construction and “revitalization” of public housing and, of course, more social-service programs. Cisneros’s new ventures include proposed community crime patrols at housing projects and an entity called Youthbuild (approved but not funded by Congress in 1992) that would train high school dropouts in the construction trades. Cisneros’s FHA also plans to try one more time, after decades of failure, to set up a no-equity home-loan program for the poor. This time, insists new FHA Commissioner Nicholas Retsinas, HUD can make it work. “We’re looking at loan counseling—how to balance a budget,” says Retsinas. “We think counseling can take the place of equity.”

The only thing standing between Cisneros and the transformation of HUD into a full-fledged social-welfare agency with a housing nexus is a lack of money. Under Kemp’s grandiose leadership, HUD’s annual budget climbed to $24 billion after years of Reagan-era austerity. The fiscal 1994 budget Cisneros’s HUD prepared for Congress in April would have hiked total outlays to $28 billion (including Clinton’s failed stimulus package), but congressional committees lopped it back to Bush-era size. The best way to view Cisneros right now is as a Great Society minister without a Great Society portfolio of greenbacks. So as HUD fragments itself prismatically into program after program, each will have to make do with less: just a few thousand more new public-housing units a year instead of a few hundred thousand, a pilot job-training program instead of a full-fledged job-training program.

So the question arises: What to do about HUD? And the answer seems obvious: Get rid of it. Public housing might have served a need in simpler, more orderly times; but now—at least in many large cities—it is a shambles of crime, decay, and incompetent management, with a spongelike capacity for absorbing federal money but little to show for it. The FHA single-family mortgage program is obsolete in these days of private mortgage insurance. The other FHA-driven housing assistance programs have generated periodic scandals and billions of dollars in defaults that taxpayers must now cover. Urban development is little more than a political bonanza for mayors. The Justice Department could easily operate HUD’s enforcement programs, and we already have a social-welfare agency, the Department of Health and Human Services. There is even plenty of low-income housing being built—an estimated eighty thousand units over the past seven years—not with HUD’s help but with tax credits created in the 1986 tax reform law.

The only people who may need government housing help are those at the bottom of the economic ladder. But they don’t need the government to build a roof over them (the private sector can do that more efficiently); they need cash to help them with the rent. That argues for expanding the Section 8 certificates and vouchers and getting rid of almost all of HUD’s other programs.

Abolishing the cumbersome HUD and substituting a streamlined voucher system for today’s jerrybuilt edifice of elaborate programs is not likely to happen soon, however. HUD’s constituency of mayors and real estate interests would fight such a move to the death in Congress and the courts. So HUD is likely to lurch along indefinitely, spending more than $25 billion a year to aid just 11.6 million households, only about 5 million of which are poor. “HUD has had so many programs,” says George Mason’s Heclo. “It’s had pilot programs; it’s had demonstration programs and little programs. It’s been living hand-to-mouth since the Sixties. You wonder when it’s going to decide what to do.”


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next