March 28, 2008

March 28, 2008 | Commentary on Economy

Public Housing Coming to Your Neighborhood?

Public housing may be coming to your neighborhood. Sen. Hillary Clinton, D-N.Y., is leading a movement to spend billions of tax dollars to buy homes in foreclosure and convert them to public housing.

Some trade: You get rid of that weed-ridden, boarded-up, eyesore foreclosure house in your neighborhood - only to have public housing put in its place.

In the words of Sen. Clinton:

If the Fed can extend $30 billion to help Bear Stearns ... the federal government should provide at least that much emergency assistance to help families and communities address [their problems]. That's why I'm calling for the creation of a one-time emergency $30 billion fund that would go directly to cities and states to address the housing crisis.

This money could be used to purchase foreclosed or distressed properties, which cities and states could then resell to low-income families or convert into affordable rental housing.

To put her proposal into perspective: That $30 billion would dwarf the annual federal appropriations for public housing projects and Section 8 subsidized housing. A year ago Clinton was one of 28 senators (including Barack Obama) who agreed in writing that $8.5 billion per year would be enough for public housing, and that $20 billion would satisfy all supposed backlogged needs.

Obviously, the willingness to spend goes up in an election year!

Yes, there are well-run public-housing properties in America. Most, however, create angst among those living nearby, who are concerned that the occupants may include drug dealers, gang members or other miscreants. It's not fair to apply those fears to every occupant of public housing, but we've seen enough bad examples to generate the worries.

The problems outpace enforcement efforts. The U.S. Supreme Court has upheld kicking people out of public housing if someone in their household is breaking laws against illegal drugs. But the problems still fester. As reported by the National Institute of Justice (part of the U.S. Justice Department), "Public housing developments have a reputation as high crime areas, and numerous studies have proven this reputation to be well-deserved."

A recent example is the Robinwood complex in Annapolis, Md., where more than 430 residents pay an average monthly rent of $200. According to a story last week in the Baltimore Sun: "Many of the shocking crimes from the state capital's recent history have a connection to Robinwood. ... Robinwood is notorious in Annapolis, but not unique. The public-housing complexes, along with several private, low-income housing developments, have been the setting for nearly all of the city's killings in the past four years."

True-life stories like these make neighborhoods understandably worried any time public housing may be located nearby.

Yet the Senate may consider Clinton's plan soon, because related legislation is being fast-tracked for April, permitting her to offer a floor amendment. The underlying bill is by Sen. Chris Dodd, D-Conn., with a House companion bill by Rep. Barney Frank, D-Mass. The Heritage Foundation's David C. John calls their proposal a homeowner buyout disguised as a mortgage refinancing plan.

Under the Dodd-Frank bills:

  • Congress would provide $20 billion to the Federal Housing Administration, or FHA, which would use it to capitalize $300 billion (and perhaps $400 billion!) in bonds - secured by the full faith and credit of the United States (i.e., with taxpayers' money).

  • FHA would pay a cash fee to lenders who would then reduce the amount a borrower owed and refinance the mortgage at a reduced interest rate.

  • FHA would fully guarantee the loan, promising to pay in full if there were a default.

  • Another $10 billion would go to states and communities to buy and fix up foreclosed houses, then re-sell them or use them for public housing. That opens the door for a Clinton amendment trying to out-bid them with her $30 billion proposal.

Converting foreclosed properties into public housing will surely create many more problems than it would solve. And the multi-billion-dollar price tag certainly doesn't help the federal deficit - or seem fair to the huge majority of homeowners who are current on their mortgages.

Using tax dollars to pay off private debt is a terrible idea. Using it to degrade our neighborhoods makes it even worse.

Ernest Istook is a distinguished fellow in Government Relations.

About the Author

Ernest Istook Distinguished Fellow
Government Studies

First appeared in WorldNetDaily