March 30, 1996 - From the March, 1996 issue

A Federal Perspective: HUD’s Evolving Role In Public Housing

Spurred in part by the expiration of Section 8 contracts on a total of 1.4 million assisted housing units over the next 10 years, the Department of Housing and Urban Development (HUD) faces a profound policy shift in its partnerships with the private housing industry and state and local governments. As national policy continues to evolve, with potentially significant implications for the Los Angeles region, The Planning Report presents an interview with Stephanie Smith, the General Deputy Assistant Secretary for Housing.

What do you believe the federal government's role in housing should be, and how is that role different from that proposed by Secretary Kemp in the Bush administration?

In 1994 there was a major change in the composition of Congress. Suddenly there were proposals to eliminate HUD. These proposals are in part driven by what we focus on and where we focus. We focus on communities: on people who tend to be lower income. We have always, as an agency, had to struggle to build a bipartisan constituency. This feeling is definitely heightened with the change in Congressional makeup. 

Secretary Cisneros' vision for HUD is to have the Department focus on national housing priorities that are driven by local needs and local realities. He has focused on how to make HUD relevant to and be an important part of the local community—how we can make HUD responsive to local needs and then take those needs back to Washington to figure out how to solve them. 

A second major difference is that a spirit of openness and of engagement also characterizes this agency. The tenants of housing assisted by HUD, for example, will tell you that they have more access and are more often involved in decision-making than they ever were before. They may not necessarily like everything we are proposing, but they are certainly part of the debate. 

It appears that HUD has lost the political constituencies that it had in the 50's and 60's. Support for HUD has historically included builders, realtors, lenders, labor unions, advocates for the poor, big city mayors and veterans who wanted to buy houses. What happened to fragment this constituency and to shrink its size and support? 

I would take exception to the assumption in that question, which is that all of the traditional HUD constituencies are gone. I think that they are still there and are still very active. For example, labor is still a constituent of HUD, but it is not as strong as it was in the 50's and 60's for a variety of reasons which have nothing to do with HUD. The home builders, realtors and mortgage bankers are very strong supporters. Long­time community development advocates are more tightly linked to HUD than they ever were, in part because of programs that are critical to meeting community needs. Community development organizations have figured out how to use those programs. 

Turning to FHA's programs, is there a consensus among leaders in Congress, the Administration and HUD on a role for FHA? 

Our role is to continue, as we have in the past, to focus on the needs that are underserved by the conventional market and to develop new products that meet those needs. FHA is the largest mortgage insurance company in the world. Our role is to make sure that it is well-run for the taxpayers and that it supports the efforts of the private and public sectors to expand homeownership and access to affordable rental housing. 

Michael Bodaken, in a recent article, wrote that "For 60 years Congress has recognized that meeting America's housing needs requires a federal partnership with the private housing industry and state and local governments… (But) HUD is proposing a profound shift in policy of housing built and owned by the private sector both for profit and not-for-profit. HUD's new policy is spurred by the expiration of Section 8 contracts on a total of over 1.4 million assisted housing units over the next 10 years." Has there been a profound change in the underlying policy of HUD? 

The issue Michael is discussing affects existing apartment buildings that are both HUD subsidized and FHA insured. These are buildings which the private sector built with Section 8 subsidies and with FHA mortgage insurance. As the Section 8 subsidies expire over the next few years, there is a real concern about the level at which they will be re­newed and about the availability of resources from the federal government to continue to provide that level of subsidy. 

What makes the problem even worse is that many of these apartment buildings have federally subsidized rents that far exceed market rents for similar apartments.

The Department has said, for example, in the portfolio re-engineering and other assisted housing discussions, that the Department does not have the capacity to continue to monitor federally assisted, privately held affordable housing. Does the Department intend that local agencies will take over all the responsibilities of maintaining and monitoring over one million units of federally-assisted housing? How are they expected to do that? 

No, not all the responsibilities. There is an ongoing and important role for HUD in maintaining and monitoring these units. We want to move from a world in which owners see HUD as the primary customer to having the residents be the focus of attention. We would like these apartment buildings to change over time to be more market-oriented. By being market-oriented, they will be more responsive to residents; the resident becomes the true customer, as opposed to dotting all the "i's" and "t's" for HUD and our various regulations and requirements. 

There seems to be a remarkable consensus about the need to maintain project-based rental assistance in HUD-assisted properties. Last year the Department's proposal to voucher all federally-assisted properties failed to secure legislative traction. Does the Department intend to seek similar voucher legislation in Congress this year?

The Department is proposing that the decision about the form of the subsidy be one that the local government is involved in making. And by local I mean non-federal, so decisions could be made by the state government, the housing authority, or the local housing and community development department. 

You've worked at the local level, in fact, in Los Angeles. Do you believe that there is sufficient local capacity to handle the decentralization of power that is suggested in the proposals by HUD and this Congress? 

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The obvious answer is that it depends on the locality. And that is one of the factors that needs to be taken into account in what we think the local role means. We do know that HUD has fewer staff now than it ever had, and budgeting constraints imposed by Congress mean that HUD's staffing will likely decrease further. It is clear that, in order to carry out national housing and community development objectives, we will have to rely more on local and state partners. 

Give us a sense of the magnitude of the issue raised by the expiration of the Section 8 contracts. 

Between 1996 and 2002, the Section 8 contracts will expire on almost 850,000 apartment units-both FHA insured and HUD subsidized. These are buildings in which Section 8 contracts expire. In many cases, the mortgage has a much longer term than the Section 8 contract. This is what creates the crisis. 

Our concern, and I want to emphasize this, is that we do not want owners to default, because that would have a devastating effect on these buildings and the residents of the communities in which they are located. We are working with Congress to seek proactive resolutions to this crisis.

Given the actions being taken by Congress relative to HUD's funding, what, in your opinion, is going to be the impact on the supply of and demand for affordable housing in years to come? 

In large measure, it depends upon what Congress does. We may write legislation, but we do not pass it, and we do not appropriate HUD funding. So the question for Congress is what are they prepared to do in the future to provide funds for HUD to address this problem. 

In recent legislation, Congress has provided HUD with the authority to renew Section 8 contracts that expire this year for one year terms at rents that are no greater than 120% of fair market rent. 

We have proposed that for future years, FHA be allowed to pay for the reduction of mortgages that we insure so that they can be carried at rents that are no greater than market. We also propose that tenants will be provided sufficient protection so that they can stay in their apartments and that the share of their rent that they can't pay, will be paid for by the federal government. 

Stephanie, if a non-profit housing development had an option on a piece of land, what could it now anticipate in the way of availability of Section 8 support certificates?

Let me put that in context. The vast majority of affordable housing construction is currently being done without any project-based Section 8 funding. 

Some FHAs are using a portion of their contracts on existing buildings. If I were developing a tract of land in Los Angeles, it really wouldn't even enter my mind to think about whether or not project-based Section 8 support was available now, because very little of it has been available for new construction in the past few years. 

Lastly, if you were a City Mayor’s Deputy for Housing, and were asked, "Give me your views on what we seek and expect from HUD and this Congress in the way or housing programs and funds." What advice and counsel would you give? 

I think it would be reasonable to expect that HUD would be an advocate for funding and programs that benefit communities.

Second, HUD programs should include a sufficient amount of flexibility so that the Mayor could design solutions that meet Los Angeles' needs. The Mayor should expect that there should be a recognition that what works in Los Angeles doesn't necessarily work in Detroit and vice versa. 

Third, in a world in which resources are diminishing, if I were the Mayor of Los Angeles, I would want an agency that recognizes that those resources are diminishing. I would want the agency to try to help me figure out how to make tough choices and how to focus on, and stretch resources, by eliminating unnecessary regulation, defining clear performance requirements, and making sure that HUD is organized locally and nationally to support L.A.'s efforts. 

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