Federal housing programs enacted in the name of the poor have harmed, not helped, their ability to climb the economic ladder. It’s time to try something else.
NRPLUS MEMBER ARTICLE
he Democratic convention may have emphasized Joe Biden’s character and life story, but it’s well worth scrutinizing the details of his policy proposals, too. Take a close look at his proposed $645 billion housing plan — “The Biden Plan for Investing in Our Communities Through Housing” — and you’ll find warmed-over ideas that have failed before and would harm the poor and minority households they’re ostensibly aimed at helping. The plan’s fundamental flaw is the assumption that the private housing market fails the poor, when in truth government-subsidized housing bears the primary blame for harming the poor.
The Biden–Harris plan is premised on the idea that millions of households pay more than 30 percent of their income for housing, and that the 30 percent benchmark should be a ceiling on costs. This superficially unobjectionable idea has been a HUD goal for years, but has actually had pernicious effects. When low income serves to qualify households for subsidized housing, that provides an incentive for, say, the formation of single-parent households — which dominate public-housing and housing-voucher programs and have no reason to seek a second income, whether by marriage or just taking in a roommate. Higher income actually disqualifies households from getting into subsidized housing, leading to higher rents for non-subsidized units.
The 30 percent ceiling must be considered one of the causes of the high rate of single parenthood in the African-American community, which is disproportionately represented in all subsidized housing. Blacks comprise 42 percent of all public and subsidized households, only 4 percent of which include two parents and children, and 75 percent of which are female-headed. Biden would vastly expand the number of such households on housing assistance by providing a housing voucher to any household paying more than 30 percent of its income toward rent.
What’s more, Biden would expand the reach of the Community Reinvestment Act (CRA), which has put pressure on regulated banks to make loans to lower-income zip codes and minority households, so that it covered so-called non-bank lending. Such expansion takes for granted the view that the CRA is necessary in the first place. But in a highly competitive financial-services sector, one must ask why profitable borrowers, no matter where they are located, would fail to find capital. The risk of the CRA has always been that it exerts pressure on lenders to make risky loans to satisfy regulators, and the major concern should not be banks’ bottom lines but the harm this inflicts on minority neighborhoods. The worst thing that can happen to any homeowner is to see a rash of foreclosures and vacancies on the block, and the CRA, whose loans’ success rate has never been seriously scrutinized, may well raise that risk.
A related problem arises from Biden’s proposed provision of “down payment assistance” to low-income households. There’s no doubt that coming up with a 10 or 20 percent down payment can be a challenge. At the same time, meeting that challenge has long been considered a good indicator of whether a household will be able to afford its mortgage payments over time. Indeed, the reduction or elimination of down payments prior to the 2008 financial crisis played a role in the crisis’s disproportionate effect on minority households. It does no one any favors to be helped with the down payment on a house whose mortgage he won’t be able to afford. Like CRA-induced loans, the Biden down-payment-assistance proposal would endanger the long-term stability of vulnerable communities.
“Redlining” — the term for historic bank-lending discrimination in African-American neighborhoods — comes up a lot as a justification for housing policies such as the ones Biden proposes. But it was the Federal Housing Administration that originally gave rise to the phenomenon, by refusing in the immediate post-war era to insure mortgage loans made to blacks if their houses were located in white neighborhoods. And in truth, the CRA and other programs that target specific households in specific zip codes for help constitute their own kind of government-directed redlining. For instance, an infamous late-1960s program in Boston, led by the so-called Boston Bank Urban Renewal Group, literally drew a red line around specific neighborhoods and offered federally insured low-down-payment loans to African Americans within them. The result was widespread foreclosure and abandonment. Those neighborhoods still remain among the city’s most economically depressed more than half a century later.
Biden is not wrong to point out the large gap between the assets owned by African-American households and white households. Nor is he wrong that home ownership has been the time-tested way for households to accumulate assets. But the core liberal ideas of public and subsidized housing have long been the enemy of asset-building. No resident of public housing owns anything, because public housing lures residents into staying put with low rents. The policies of the Roosevelt and Truman administrations to clear black neighborhoods and replace them with public housing — in Detroit, Cleveland, St. Louis, Chicago, and elsewhere — were all undertaken for the same stated reason now cited by Biden: to provide housing that is “affordable, stable, safe and healthy.” And they all proved disastrous.
There’s more to be worried about in the Biden plan. Legal restrictions on evictions may seem benevolent, but property owners in poor neighborhoods know that kicking out bad actors is important to maintaining a safe building. Suburbs should relax single-family, large-lot zoning, but pressuring them through HUD to build low-income rental housing just metastasizes the problems described above. In general, there’s no obvious reason to redistribute income through housing assistance or other government mandates. A better approach would expand such programs as the Earned Income Tax Credit to provide income support, letting poor households themselves decide how to direct the money they earn.
Federal housing programs enacted in the name of the poor have harmed, not helped, their ability to climb the economic ladder. Biden has adopted a laundry list of ideas from the regulation advocates who are often the true beneficiaries of federal programs. But such programs have failed for decades. It’s time to dial them back, not double down on them.