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Making HUD Great (again?)

In 2017, HUD faces old and new challenges with a new White House, a new Congress and a new generation of advocates and employees.

A time of change
    When the US Department of Housing and Urban Development (HUD) turned 50 last year, it was a time of reflection for many who were “present at the creation” and revision by Congressional conservatives anxious to challenge the assumptions of the “Great Society.”  HUD was formed in the crisis atmosphere of the 1960s, when urban unrest was rampant and the public awareness of racial and economic inequality was high. Sound familiar? Fifty one years later, it feels like the US is in a similar period of racial unrest, rooted in a new awareness of economic and social inequality. Add to that, the impending changes in Washington and it’s time for housing advocates to look at HUD with fresh eyes. Short term challenges include choosing a new Secretary of HUD, fixing Multifamily Transformation, and fixing Performance Based Contract Administration. All “insider” issues, but read on!

Part 1: Short term challenges 

     1. Leadership at HUD. Elected leaders have always sought to balance among the interests of housing advocates, housing industry (owners and finance professionals), and housing policy managers (state and local officials) with the interests of the public. Who becomes HUD Secretary signals how the agency may tilt going forward. Two factors are usually considered: 
  • Political, industry or policy background? Traditionally HUD appointees either politicians like Jack Kemp or Andrew Cuomo or housing industry professionals like Alphonso Jackson or Steve Preston, or people with a background in housing policy and administration like Patricia R. Harris or Shaun Donovan. 
  • Community development vs. housing bias? Keep in mind that HUD is “Housing” and “Urban Development”. Shaun Donovan was a “housing guy” while his successor Julian Castro is clearly coming from an “urban development” background. A subplot in the “orientation” question is whether a housing oriented Secretary favors homeownership promotion vs. rental housing promotion. 
Who will influence the next President’s appointment? President Obama placed great weight on Barney Frank who, as chair of the House Financial Services Committee, was the key “authorizer” in the House of Representatives. Similarly, it is reasonable to think that candidate Trump would turn to Representative Jeb Hensarling, currently the House Financial Services chairperson, for advice on the Secretary nominee. Candidate Clinton, if elected, may well turn to her VP Tom Kaine who has a background and interest in housing advocacy. A Democratic administration will surely look to Senator Sherrod Brown, currently ranking member of the Senate Banking Committee, to have a voice in the selection of HUD Secretary. 
     2. Fix Multifamily (MF) Transformation. Many observers believe that reorganizing (shrinking) HUD multifamily division has not delivered improved services. Making MF Transformation something like effective will take strong oversight and leadership at the post of Deputy Assistant Secretary (DAS) for Multifamily Housing. Both DAS Ben Metcalf and FHA Commissioner Carole Galante left HUD shortly after the Transformation began, leaving successors to manage the process. Here again, Senator Brown may play a key role in tinkering with MF Reorganization. 
     3. Fix Performance Based Contract Administration (PBCA). Back when Al Gore undertook HUD reorganization, he promoted privatization of many HUD staff functions. PBCA was a way to “outsource” the compliance of multifamily owners and reduce HUD staffing levels. Today, after years of relentless litigation, PBCA is a mess. Current contractors working on short term, limited scope contracts and HUD wrestling with a Supreme Court decision which requires HUD to reform the way in which the private contractors are selected. HUD says that it expects to roll out a new PBCA program in 2017, right after the new Administration takes over. 

Future issues of rhino!UP in August will feature stories on mid-term and decade challenges facing HUD. You can be assured of learning more about  HUD futures by becoming a RHINO member at http://home.rhinohio.com/participate 
Have your say! What are your hopes for HUD in the next decade? 

Posted July 24, 2016

Making HUD great (again?) Part 2: Mid term challenges 
In part 1 of this series, RHINO looked at some immediate challenges that the incoming President will need to address: selecting leadership, fixing Multifamily Transformation, and fixing Project Based Contract Administration. This week, RHINO picks some less urgent, but equally important challenges that need to be addressed over the medium term of the new Secretary.

Fix the Real Estate Assessment Center (REAC) and address troubled properties. REAC is one of those Gore era reforms designed to use private inspectors to monitor the physical and financial performance of public and privately owned HUD properties. Entrepreneurs quickly gamed with physical inspection system so that, for a fee, almost any property could pass the HUD test. Adding to is the fact that HUD’s REAC office adopted a “black box” strategy for dealing with “troubled properties” that has prevented enforcement against bad owners in favor of back room “work outs.” For at least three years, Congress has called for more accountability. HUD's response was to slow walk regulations that were way too complicated to be effective when a property is at risk of collapse. This summer, Florida Senators Rubio and Nelson introduced new legislation to compel transparency and encourage tenant input into the troubled properties process. Meanwhile, Ohio advocates have taken the lead in bringing aggressive enforcement actions. If the administration doesn't want Congress to design the new system, the next President needs to act swiftly.

Continue public housing reform. Rental Assistance Demonstration (RAD) is quickly evolving as a model for public housing reform Soon after the new President takes office, HUD should have enough data to assess the initial wave of RAD conversions. Congress (and the White House) need to use this first wave data to assess, reform, and universalize the RAD process as the way in which local public housing authorities unload their obsolete housing stock. Delivering affordable housing units through “some 3,300 public housing authorities” in the US is simply too inefficient and unmanageable  Eventually merging local public housing authorities into regional and state wide units will improve efficiency, improve mobility, and reduce local government interference in what are, after all, national policies. Getting to mass consolidation is a long range goal, but making smaller steps that encourage voluntary consolidation over the next 2-8 years is critical.Things like reducing the number of hard units, rewarding collaborative efforts around affirmatively furthering fair housing, and reducing the administrative cost allowances will make it easier for PHAs to move towards consolation.  Update: Chicago becomes a Housing Development agency.

Implement Affirmatively Furthering Fair Housing (AFFH). As with all dramatic "reform" efforts, the devil is in the details. The Obama administration, with a nudge from the Supreme Court, has made sweeping changes in the way that local grantees must show they are "affirmatively furthering fair housing, but implementation and enforcement is everything. With a prompt from the Supreme Court, the Obama administration committed HUD to implementing this policy yhsy esd embedded the 1968 Fair Housing Act.Two challenges are: 
  • Can HUD carry out a long term plan without delay or a million regulations and exceptions? 
  • Will Congress succeed in blocking funding for the policy? 
The next President will need to select appointees with a commitment to AFFH (that was 1/2 of the breakdown in the Nixon era) and will need to go toe to toe with Congressional Republican who are threatening to defund HUD efforts to implement and enforce the new regulations. Another challenge will be to review and recraft the disparate impact guidance to relect the Supreme Court guidance as it evolves in the lower courts.

Continue to address healthy homes and re entry housing expectations. Under President Obama, HUD has added healthy housing elements to the HUD mission and has nudged Federal housing providers to open their doors to “returning citizens.” But HUD’s "walk softly” approach, using incentives and guidance to encourage voluntarily compliance, is weak.  But HUD’s "walk softly” approach, using incentives and guidance to encourage voluntarily compliance. is weak. This “nudge” strategy to addressing these two new housing issues raises a question: will the new administration continue to try to persuade compliance or will HUD issue more regulations at the risk Congressional obstruction and charges of impunity?
posted August 28, 2016

 
Making HUD great (again?) Part 3: More mid range challenges
     In part 1 of Making HUD great (again?) RHINO focused on three urgent needs facing the new administration on November 9, 2016. In part 2 of this series, RHINO looked at some mid-range challenges for programs already underway. You can read parts 1&2 at http://home.rhinohio.com/advocate/making-hud-great-again. This month, RHINO focuses on some mid-range challenges that may fundamentally reshape both HUD and Federal housing policy over the next decade. In part 4, RHINO will look at two long challenges that have not hit HUD’s radar…yet. Watch for part 4 on October 24, 2016
     Address affordability. All during this election season, RHINO has lamented the “more of the same” approach to housing affordability that was evident in the Clinton and Sanders campaigns. The public is far ahead of elected leaders in recognizing that this is an issue. RHINO has conjectured that candidates get their understanding of the housing agenda from the Finance, Investment, Real Estate, Developer (FIRED) industry. Challenging housing affordability means addressing the problem from both ends: increasing supply of affordable units and increasing the ability of renters to pay higher rents. 
     In the short term, increasing supply means increasing reliance on the Low Income Housing Tax Credit program which is the only Federal program which is actually creating “affordable” housing. By itself, LIHTC is not structured to reach the lowest income households, but it's a start. 
     Preserving affordable units is another strategy that HUD uses to maintain the supply of existing affordable housing. Some new solutions are needed to reduce the cost of housing development and increase the incentive to build for the middle class. 
     Right now the only other hope for affordable housing is that a glut of upper income rental units will “trickle down” to more affordable levels. Don’t hold your breath. Most likely that hard hit localities will develop local initiatives like inclusionary zoning and local housing trust funds to increase supply of affordable units. It seems like Rental Assistance Demonstration (RAD) program will be the template for future preservation programs. Owners of senior housing in the 202 PRAC program, for example, are clamoring for RAD-like programs to revitalize their old housing stock.
      Increasing renter income to match the rising rents might mean expanding the numbers of housing vouchers or, enacting some form of universal rent subsidy program as an alternative to vouchers. While skeptics believe "that will never happen” there’s an interesting convergence of Republicans and Democrats in the House and the Senate looking at new ways to address housing and poverty issues. RHINO will be writing more about this in the next installment. Non-HUD solutions will include raising household incomes by increasing the minimum wage and improving general economic conditions.
      Enhance affordability in a new housing finance system. There’s a broad consensus in the housing finance field that the collapse of Fannie Mae and Freddie Mac in the Great Recession has created an opportunity to rewrite that Federal housing finance system. HUD, which owns the Federal Housing Administration, will have a role in the system wide overhaul, but is unlikely to be in the lead. Congress and the White House will need to agree on a new framework for supporting the housing finance system. National Housing Conference (NHC) has some ideas and Bloomberg News suggests that “Everybody Has a Plan for Fannie and Freddie But Nothing Gets Done.” While HUD won’t be a direct player, HUD should have an interest in preventing a sudden shift to unwind the glut of houses in FHA and GSE inventories and promoting regulations which require a portion of Federally guaranteed mortgages to be directed to low/moderate income units. 
     Learn how to regulate outcomes instead of processes. One of the underlying themes of the current electoral campaign is that US citizens are tired and resentful of intrusive regulation in their lives. HUD is one of the worst offenders. The proliferation of “HUD rules” needs to shift from how business gets done, to what housing achieves. To it’s credit, HUD has been experimenting with Management by Objective for HUD grantees and Pay for Success (PFS) models for some specific programs. 
     Here’s the reality, HUD stinks at regulation because it’s time consuming and requires hard decisions. Instead, bad properties are given “more time” to comply with “regulations” than to produce suitable outcomes. HUD’s inability to focus on outcomes is reflected in a recently released report on the RAD program. The report calculates all the dollars spent, units created, and investment generated, but Housing Finance magazine notes “A second phase of HUD’s evaluation will focus on how successful RAD is at improving the physical and financial conditions of federally assisted properties and how tenants have been impacted….” one is reminded of the quote by John Maynard Keynes that “in the long run, we’re all dead.” With Republicans in Congress demanding more cuts in administrative costs, deregulation of programs and, ironically, more accountability, HUD needs to move away from counting the beans it shells out and start counting the lives that are changed by their efforts.
posted September 25, 2016
Making HUD great (again?): Part 4: Congress may have a say in HUD's future.

There's a new housing policy game in DC that may shape the future of HUD as much as the proposals that HUD offers. If Republicans and Democrats in Congress can form a consensus around housing issues, HUD may be transformed from outside in coming years. In this final installment of Making HUD Great (Again?), RHINO looks for clues to long term reforms that will transform HUD more than just closing some offices.

The broad outlines of a bipartisan consensus around housing are pretty clear. Democrats must be willing to give up "government regulation" in favor of "free market regulation". Republicans must be ready to pony up more budget authority to move housing assistance in the direction of an entitlement (like food stamps). This year's Housing Opportunity Through Modernization Act of 2016 streamlined many HUD regulations is an example of the emerging consensus. Longer term, three HUD programs are in the crosshairs: Public housing, Project based Rental Assistance (PBRA), and Housing Choice Vouchers (HCV). 

There are an estimated 3,000 public housing authorities (PHAs) in the US. The fact that HUD can't provide an exact number is significant. "There are approximately 1.2 million households living in public housing units, managed by some 3,300 HAs." PHAs were created in the 1930s as a 
"delivery system" for New Deal housing programs. PHAs gave Democrats a chance to create Federal housing benefits, but, in exchange, Republicans got local control through PHAs that were run by civic leaders who were appointed by local "non partisan" politicians, typically judges. 

Every generation or so following World War II, PHAs have been buffeted by the winds of change. Beginning in the 1980's PHAs became the administrators of the Section 8 voucher program. In the 1990's local governments took over housing planning duties though the Consolidated Planning Process.  In the 2000's, PHAs were encouraged to privatize their antique housing stock, first with the HOPE VI, and later through the Rental Assistance Demonstration (RAD) program. All the while, Congress was paring down the funding for administrative costs and capital improvements, putting PHAs in a squeeze. Most PHAs are drifting to extinction.

Over the next decade, HUD and Congress will need to decide they will deal with the PHA structure.  Barbara Sard and Will Fisher of the Center for Budget and Policy Priorities (CBPP) have linked PHA reform to expansion of the HCV program. In testimony beforethe Housing Financial Services Committee, Ms. Sard noted " Given HUD’s inaction, and the likely delays that will inevitably result from the upcoming change in presidential administrations, Congress could expedite this important policy improvement by requiring HUD to allow consortia of HCV programs to have a single funding contract with HUD, and to implement this policy change by notice." 
 More on PHA reform here. Congress in charge of HUD policy?

Vouchers are on the minds of other Republicans in Congress. Senator Collins noted that “Public housing and project-based Section 8 both provide rental assistance that is tied to specific properties, limiting a family to receiving assistance only at that property. The tenant based Section 8 program, on the other hand, enables a family to move at its discretion while continuing to receive rental assistance.”  Similarily Senator Rubio's bills to reform Project Based Tenant Assistance (PBTA) aims to smooth the path for "voucherization" when owners of PBTA supported properties fail to deliver quality conditions and services. 

In September, reforming PHAs to make HCVs more efficient and making it easier to convert project based assistance to HCVs is beginning to sound like a Republican platform plank. But for Republicans to expand HCVs will require Democrats to accept reduced Federal regulations. Housing Quality Standards and rent reasonableness standards could be shifted to "market regulation."

Are Dems and affordable housing advocates willing to "privatize" this public benefit? The gradual acceptance of RAD suggests the answer is "maybe." Just as bringing private capital into the public housing system was a long and incremental process from TRA to PETRA to RAD, decoupling and deregulating HCV will likely take at least a decade to implement. Until now, tweaky sorts of programs like Veterans vouchers and family reunification vouchers have been proposed as ways to incrementally expand the HCV program without making structural change in other systems. The problem with this approach is that each expansion of scope was be matched with a paring down of administrative overhead that hobbled PHA operations and increased program inefficiencies.

Swapping government regulation for market regulation puts more burden on tenants to become self advocates. The implications could include more statutory protections against retaliation, "just cause" protections for voucher holders and expanded civil representation. After years hiding behind arcane "regulations" and impenetrable phone systems and isolation from day-to-day operations, some direct action by tenants could be a welcome change. It is one of the hallmarks of Senator Rubio's legislative reforms of the multifamily housing systems. It's telling that HUD did not send a witness to recent Senate hearings on the Rubio reform proposals.                                   posted October 30, 2016