The Heritage Foundation

Executive Memorandum #164 on Housing

June 5, 1987

June 5, 1987 | Executive Memorandum on Housing

How a Housing Bill Can Undermine Low-Income Homeownership


(Archived document, may contain errors)

6/5/87 164

HOW A HOUSING BILL CAN UNDERMINE LOW-INCOME HOMEOWNERSHIP

T he House of Representatives soon will be considerir@g H.R. 4, a housing reauthorization bill regarding the transfer of public housing managemen t functions and ownership from the government to tenant management corporations--generally known as. TMCs. The bill, sponsored by Democrats Henry Gonzalez of Texas and Fernand St. Germain of Rhode Island, contains som e welcome measures to increase tenant control of gublic housing projects. It sto .ps far short, however, of helpin oor Americans who want to ecome homeowners by acquiring a stake in-public housing. Viuch better for low-income Americans would have been last year's bill, sponsored by Republican s Jack Kem of New g York and Richard Armey of Texas, which passed the House with overwhelnii@ ipartisan support. Its urban homesteading provisions would have extended the opportunity of homeownership to public housing residents and repudiated failed federa l housing policy. Impeding the Poor. Py contrast, this year's Gonzalez-St. Germain bill impedes the ability of the poor to gain ownership of their residences. For one thing, the bill imposes collective bargaining restrictions on all tenant management contr a cts. For another, it restricts the tenant's freedom to purchase and sell his or her unit in a public housing project. These burdensome regulations will reduce sharply the incentive for residents to purchase public housing and improve their living standard s . For these reasons H.R. 4 is opposed by many organizations that have been working to help the poor, such as the National Association of Neighborhoods, the National Urban Coalition, the Council for a Black Economic Agenda and the tenant management corpora t ions at Kenilworth-Parkside in Washington, D.C., and Cochran Gardens in St. Louis, Missouri. A comparison of H.R. 4 and the Kemp-Armey Proposals highlights the different incentives created by the bills. The issues are: 1) The right to buy. H.R. 4 says tha t the Public Housing Authorities (PHAs), the federal agents responsible for public housing, must certify the sale before tenants it may" be provided with the o?portunity to purchase units. Kem Armey does not require PHA a:pproval and says t 'at 11blic hous ing residents "shall" @e provided with homeownership opportunities. Given t9le record of the federal bureaucracy, the "may" in H.R. 4 will

probably tam out to be "never." Without the Kemp-Armey right-to-buy guarantee, PHAs probably would seek to preserve their contracts with the federal government, which they could lose if public housing tenants owned their own units. The PHAs thus could be expected to block or veto housing sales as they did in the 1970s. 2) Conditions of purchase. Kemp-Armey stipulates t hat the purchase price of housing da--y Re-no more than 25 percent of market value of the property involved, and provides loans through PHAs at no higher than 70yercent of market interest rates. The price discount and low-interest mortg4ge would give low- income Americans a real chance to become homeowners. H.R. 4 offers no discounted price or mortgages; its prices would be set by the Secretary of Housing and Urban Development (HUD) in consultation with others.

3) Conditions of resale. H.R. 4 prohibits the resale of property to anyone but the tenant management cor .poration, PHAs, or a lower-income family residing in or eligible to reside in lower-income housin . HUD would set the resale price, equal to the tenant's equity, plus improvements anyan allowance for inflation. By contrast, Kemp-Armey would not restrict resale price, terms, or potential buyers. Its only serious restriction would be measures to prevent quick resale by speculators. By @llowing owners eventually to make a profit on the sale of their u nit, the Kemp-Armey bill gives owners the incentive to work for neighborhood'stability and asset appreciation from home improvements. 4) The Morrison Provision. Representative Bruce Morrison, a Connecticut Democrat, added a provision to H.R. 4 that requir e s the payment of the "prevailing wage" for contracting out" services. The general effect would be to require TMCs to pay union rates for on-site maintenance and other development services. 11is would undermine the ability of the tenant management corporat i ons to keg operating costs low and to employ low-income inner-city residents for pro ect maintenance and'modernization. Inflated budgets would mean fewer jobs for pu@lic housing residents. Over the past two decades, the demolition of deteriorating public h ousing projects has ighl@ghted the failure of federal housing policy. At the same time, however, dozens, of iousing units have been rescued from the wrecking ball by transferring management Vnctions and homeownership from government to project residents. P oor Americans, when given the freedom and opportunity to manage or own their dwellings, have proved that they could do so. Tlds has helped break the seemingly permanent cycles of crime and dependency. Low-i@icome renters can be transformed into homeowners . This will not happen from H.R. 4 as now written. T"he bill merely provides lip-service to low-income homeownership while stifling the incentives needed to unleash the full potential of tenant control.

Peter T. Butterfield Research Assistant

F or further information:

"Up From Public Housing," Editorial, The Wall Street Journ June 1, 1987.

"Privatizing Public Housing to Help the Poor," in Stephen Moore and Stuart M. Butler, eds., Privatization: A Strategy for Taming the Federal Budget (Washington, D.C.: The Heritage Foundation, 1987).

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