Fact Sheet on Public Housing and New Legislation for Privatization

FACT SHEET ON PUBLIC HOUSING AND HUD’S MORTGAGE PLAN

Prepared by Los Angeles Coalition to End Hunger and Homelessness

In a nutshell, HUD’s legislation is devised to attract private banks and other private investors to provide loans which leverage against Public Housing property.  How will this work?
 
Public Housing Facts and Historical Background:
 
-Public Housing is owned and operated by the government, namely the local Public Housing Authority (PHA) through a contract with HUD.
 
– Public Housing Authorities have been lobbying for 100% disposition of Public Housing.  As a result, HUD approved requests for several cities to completely eliminate their Public Housing stock.  As a result, the City of Atlanta, GA and the City of San Diego, CA have completely eliminated their public housing stock.
 
– HUD estimates a $24 billion funding shortfall for capital improvements on Public Housing.  Although Congress did provide $4 billion in stimulus money in FY2010 for Public Housing capital improvements, this is just a small amount needed according to their estimates.
 
– Based on their powerpoint, HUD anticipates leveraging $7.5 billion in one year from private banks and other private funding under the Transforming Rental Assistance Program.
 
– Public Housing is our most stable form of affordable housing.  For large families, the disabled, the elderly and other tenants who otherwise cannot find housing in the private market (even with a Section 8 voucher), Public Housing is essential to ending or preventing homelessness.
 
– Tenants in both Public Housing and Project Based Section 8 pay 1/3 of their income toward rent and the Federal government subsidizes the rest.  The difference is that Public Housing rents are set by formula and Project Based Section 8 rents are set at market rate. Tenants also have more organizing rights and protections, including a comprehensive greivance policy under Public Housing (CFR 964) as opposed to Project Based Section 8.  This legislation weakens the greivance procedure for tenants as well as other rights and protections.   
 
HUD’s PLAN:
 
–  HUD’s plan is to allow Public Housing Authorities to convert all of their Public Housing stock to Project Based Section 8, give the PHA’s more money (2 to 3 times more in some cities) per unit, and have the PHA leverage that money against the property in the form of a mortgage from a private lender.  The money from the loan is to be used to fix up the property. Please note that the legislation is unclear on which entity will actually own the property after conversion, whether the Public Housing Authority or a Public/Private partnership or a private developer.  The law currently states that in order to convert Public Housing, ownership must change.   
 
–  The bill also provides for HUD to consolidate all 13+ assisted housing programs into one big program.  The appropriations for each program would be consolidated into one program item in the budget under Section 8, potentially making it more vulnerable to funding cuts.  Cuts from the Congressional budget would lead to cuts in subsidy payments to the PHA’s which could lead to foreclosure.
 
OTHER PROBLEMS WITH THE PLAN:
 
The problems are many with this scheme. 
 
–  It puts some control of public property in the hands of the banks or other private interests, which come in as a private funding partner.  There are no controls on banks rebundling these loans and selling them off to other banks, there are no controls on the amount of interest paid to the banks, there is no protection against PHA’s overleveraging the property (other than a review by HUD), there is no protection against foreclosure – other than the fact that the “use agreement” with an affordable convenant made between the previous owner of the development and the tenant will remain intact even after foreclosure, although it stipulates on page 11 of the draft legislation that “the Secretary may modify this requirement if the Secretary determines the converted units are not physically viable or financially sustainable, or if necessary to generate sufficient lender participation, and following such determination may require the transfer of the contract for assistance to one or more other properties.”
 – In order to attract private lenders, public housing must be seen as a commidity and the owner as an asset manager.  The units themselves, as well as the tenants, will be seen as assets.  Because of this, we are concerned that banks will put pressure on the owners to choose only the most desirable tenants financially, those with higher incomes, stable employment, good credit history, etc.  This will preclude the most vulnerable tenants from acquiring an affordable unit.

 – The leveraging of Public Housing to make capital improvements will set a dangerous precedent of taking out mortgages on other public property to pay for repairs.  One can imagine a future where public schools, libraries, our national parks, etc, are mortgaged to banks in order to make improvements. (Please note that the authority to mortgage public housing was adopted in 1998 when changes to the 1937 Housing Act were made under the Bush Administration.  This, however, only resulted in short term bonds on a couple of properties because public housing was not set at market rates and was therefore not desirable to banks.  This legislation is designed to make public housing more desirable to private lenders).

In short, this legislation appears to be a scheme for the privatization of Public Housing.  It will encourage PHA’s to take out loans in order to fix up the property, therefore guaranteeing mortgage interest income to banks from taxpayer dollars for decades to come.  It will cost the federal government more money in the long term to pay interest to fund property improvements, rather than to just pay for them outright.
– This legilsation also brings with it the myriad problems of Project Based Section 8 as detailed in the letter from the National Alliance of HUD Tenants at http://www.saveourhomes.org/kaymathew/trapositionpaper.pdf , including expiring use contracts where landlords can opt out of the affordable housing program at the end of the contract period. 
 
Solutions:
 
–  The obvious solution to fixing up Public Housing is to provide funding directly through appropriations.  It makes more sense for this to be a jobs program which would put contractors and skilled tenants to work through a direct appropriation, rather than paying interest to banks for decades and jeoporadizing our public housing stock.
 
– Congress appropriated $4 billion in stimulus funds this year for Public Housing capital improvements.  If Congress committed to an additional $4 billion for 5 more years, we would have the funding necessary to make these improvements.