The Guru Is In

The reunification of affordable housing

By David A. Smith
March 29, 2019 5 min read

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In 1975, the year I got into this business, American residential rental housing was split into three utterly separate domains:

• Conventional rental meant privately owned for-profit, unregulated, with no government subsidy.
• Affordable rental meant privately owned for-profit, so publicly regulated as to be cocooned inside a complicated restrictions/subsidy structure. Properties were both financially coddled and managerially hamstrung to where it was impossible to thrive, and all but impossible to fail fatally.
• Public housing rental meant locally owned by government, distantly and badly regulated from Washington, for the poorest of the poor, with no capital stack and an annually under-filled begging bowl for subsistence-level subsidy.

Though the three worlds coexisted in every market, they might as well have been galaxies apart. Each was blind to the other two. Each had its own self-contained ecosystem, with its own properties, populations, participants, expertise and knowledge sets, ethics, beliefs and myths. People who stumbled into one world, like me, could go a decade-and-a-half untouched by the other two worlds, stereotyping those whom we basically never met, ignorantly feeling ourselves superior.

None of us realized then how much harm mental sequestration was doing us, our industry and our communities.

In 1989, the year the Berlin Wall came down, my world of affordable housing discovered the conventional world. With the enactment of preservation (ELIHPA and then LIHPRHA), premised as it was on matching a hypothetical conventional market value for our properties, we were impelled to explore. What we found made our regulated world look stodgy and operationally flabby. Market discipline, both hypothetical and real, was a bracing corrective that didn’t mean sacrificing mission; it meant achieving mission better and cheaper.

Over the ensuing decade, market principles seeped into our consciousness, practice and programs, as Congress and HUD rolled out the Mark-to-Market (M2M) demonstration (1995), then the permanent program (1998), and followed that up with Mark-Up-to-Market (MUM) and renewed affordability (2000), and the earliest Year 15 LIHTC preservations (2003).

In all this innovation, public housing was largely left behind. Its properties were regarded as a sunk cost: physically, financially, socially and politically.

• Physically. The inventory, 40 to 70 years old, could never make substantial renovations and became progressively more obsolete, unhealthy, and unsafe.
• Economically. The housing was entailed, as Jane Austen would have called the Section 9 covenant, unable to make a profit, nor to tap financing, and thus condemned to operational poverty.
• Socially. Socioeconomic and political forces (the Second Great Migration, white flight to the suburbs, and the 1969 Brooke Amendment) caused public housing to compress into homes for the poorest of the poor, ‘the housing of last resort,’ the place you lived when you could live nowhere else.
• Politically. With no new production, public housing lacked political sizzle and as such became the convenient budget-balancing-plug-in number with a three-decade conspiracy of mutually silent benign neglect of chronic bipartisan federal underfunding.

For public housing, periodic policy initiatives (HOPE VI, 1992, and QHWRA, 1998) proved nothing more than desperate stabs to try something.

By 2006, the system was on its last legs: roughly 1.3 million legacy public housing apartments remained, owned and operated by 3,100 individual housing authorities, most of them using antiquated accounting/IT systems and management practices, while they tried to patch and paint an inventory that was slowly, literally, falling apart. That year I published in National Association of Housing and Redevelopment Officials’ (NAHRO) Journal of Housing and Community Development, a three-part vision for public housing that proposed a five-part dramatic reconfiguration of the public housing system:

1. Protection of the revenue and subsidy streams;
2. The ability to borrow long-term;
3. Radical reduction in regulation, liberating housing authorities to innovate;
4. Political endorsement of the vision of public housing reborn; and
5. Continuity of public housing authority management through the massive transition.

In 2013, those principles were taken up in HUD’s zero-cost pilot, the Rental Assistance Demonstration (RAD). Affordable housing and public housing people were suddenly aware of each other.

Like most meetings between sundered tribes, the initial contacts were hesitant, cautious, suspicious and awkward. Nevertheless, fueled by the power of barter—you need this, I need that, let’s trade—RAD took off:

• Within 12 months, RAD’s pipeline had blown through the 60,000 apartment pilot cap, so HUD and Congress tripled it, to 185,000;
• Two years after that, the cap was raised to 225,000; and
• A year later, the cap rose to its current level, 455,000 apartments.

As I write this, over three quarters of that cap—350,000 apartments, a little over one-third of the entire national public housing inventory—has RAD reservations, and HUD estimates that the new ceiling will need to be raised again in 12 months.

The cultural shift has been even more profound: like Germans on both sides of the fallen Wall, affordable housing and public housing people found much more unites us than ever divided us.

With RAD, so much long-overdue good has come from so little new resources—with much more to come—simply by reunifying the worlds of affordable housing.