Category: ACE Research

Nixon’s 1973 moratorium on the production of public housing marked the beginnings of a new consensus in U.S. housing policy: insufficient incomes and rising costs—e.g., affordability—constituted the major problem, rather than a physical shortage of units. This conviction, though not unchallenged at the time, led the federal government to fully commit to a demand-side approach with the Housing and Community Development Act of 1974. 

What has come to be known as Section 8 vouchers found its roots gradually, through a patchwork of policy initiatives and experiments. Ultimately, Section 8 has taken over as the dominant mode of federally subsidized housing, with over two-thirds of the Section 8 growth deriving from transfers from public housing. Vouchers operate by providing recipients with a subsidy to close the gap between 30% of their income and the cost of renting a unit on the private market. The options for rental have been constrained by various algorithms over the course of the program, but there are generally three conditions: 

1. Voucher holders must find an apartment on the lower-end of the price-spectrum as calculated by the Fair Market Rent (FMR) of the surrounding area;
2. The rental unit must comply with standards for physical adequacy;
3. The owner of the unit must agree to participate in the program, incentivized by the federal subsidy which ensures reliable payment. 

Vouchers were initially championed by conservatives under President Nixon and struck progressives as a retreat from the era of strong federal influence in the housing market. Section 8 enjoyed support from the housing market lobby in Washington DC—most notably the National Association of Real Estate Boards, or the NAREB—because it generated an influx of reliable renters who could afford moderate pricing. On the other hand, most affordable housing advocates at that time supported public housing because they did not trust the private market. Over time Section 8 gained widespread support, particularly from social welfare-minded constituencies which hoped it could operate as a tool for economic and racial integration. 

The court-ordered Gautreaux program, located in Chicago in the 1990s, provides a good case study of how and whether vouchers can work to deconcentrate poverty. The Gautreaux program created a lottery to select a set of Black households, which were given Vouchers accompanied by individualized counseling on the available affordable units and the benefits of living in affluent neighborhoods. 75% of the participants were relocated to suburbs, while the rest settled in primarily White urban neighborhoods. The results were dramatic, especially with regards to the suburban/urban divide. 27% of the children relocated to suburban areas ended up attending a four-year college, compared to only 4% of city children. While it is debatable whether it is a good thing for urban Black families to move away from neighborhoods where they have strong community and cultural ties, the Gautreaux program illustrates how suburban living improves various measures of well-being. It is important to note, however, that many scholars have questioned how generalizable these results are, given that the program is likely self-selected for more enterprising families. 

Inspired by Gautreaux, the federal government launched Move to Opportunity, or MTO, in 1993. Unlike Gautreaux which took an explicitly race-based affirmative action approach, MTO focused on income. It was implemented in five metropolitan areas: Baltimore, Boston, Chicago, Los Angeles, and New York City. The results were far less encouraging. Many participants remained in the city, often opting to attend the same school in the same high-poverty neighborhood. While the families expressed higher satisfaction with their home and were exposed to less violence, there was little if any improvement in education or economic flourishing. 

While many journalists note that the main divergence between Gautreaux and MTO was the requirement in Gautreaux that participants relocate in suburbs, there is understandable reluctance from many urban residents to do so. Following the implementation of MTO, White, working-class suburban residents organized in fierce opposition, expressing race-tinged fear that public housing residents would enter their neighborhood.

Despite resistance to Section 8-driven economic and racial integration, many advocates continue to extol vouchers for their ability to move program participants to areas of higher opportunity. Pragmatic progressive critics, however, note that Section 8 is insufficient to solve the problem of low-income housing. Section 8 has failed to break out of its original form, which was crafted under the fiscally conservative leadership regimes of Reagan, Bush, and Clinton. Unlike other federal programs such as Medicaid and SNAP, Section 8 funding is capped at a set amount. Currently, only one in four eligible parties receive vouchers, and every locality harbors lengthy waiting lists. 
In recent years, concerns over landlords’ amenability to vouchers have joined concerns over underfunding. From 2010 to 2016, over 10,000 landlords have backed out of the Section 8 program, and have fought successive laws to outlaw this practice under the rationale of unfettered choice. In a 2018 study conducted by the Urban Institute, two-thirds of landlords in five major cities said they would refuse to accept vouchers. While Section 8 vouchers are widely considered an effective tool, both historically and for the future, their success depends on other aspects of housing policy to provide affordable units.

The Civil Rights movement of the 1960s cast light on the various sites of racism and discrimination imposed on Black Americans. Housing was no exception. The Fair Housing Act of 1968 was a turning point in the battle to ensure equal provision of housing benefits for all. From a legal standpoint, The Fair Housing Act prohibited housing discrimination in sales and rentals, outlawed Blockbusting, and enlisted the newly-created Department of Housing and Urban Development, or HUD, in the task of enforcing these rules. The United States’ sprawling Federalist system of local, state-level, and federal government—along with poor design—meant that the Fair Housing Act had relatively weak enforcement mechanisms, but it played an important role in elevating housing to a level of moral and legal concern, which opened the door for more federal intervention in the future.

The Fair Housing Act bloomed out of the Committee to Rebuild America’s Slums which was established by President Lyndon B. Johnson in 1967 and aimed to eliminate substandard housing. It set a high production goal—the production or rehabilitation of 26 million over the next ten years—but fell into conflict over whether the housing would be provided through public or private means. The compromise that followed created Section 235 of the National Housing Act, which enabled HUD to pay private lenders of the FHA-insured loans the difference between 20% of the home buyer’s monthly income and the monthly mortgage payment. 

The Fair Housing Act also lowered underwriting standards to combat redlining. This policy led to some improvements in African American’s ability to attain mortgages outside of the inner city, but this left further concentrated poverty in its wake. In addition, Section 236 enlisted the facilities of the private market in constructing low-income rental housing, mostly of the multi-family variety. HUD lowered the interest rates for the involved private companies to 1% on construction loans, and in exchange, the owner of the buildings agreed only to rent to households with incomes at or below 80% of the area median income and to subject the rent charged to HUD approval. 

The Fair Housing Act also created legal standards to combat exclusionary housing policies. Most notably, in the court-ordered Gautreaux program (1981-1996) in Chicago, federal judges determined that the location of public housing projects constituted intentional segregation. In more than ten other cities across the country, including Los Angeles, Philadelphia, Memphis, Minneapolis and Omaha, lawsuits levied by the local NAACP organizations resulted in changes to single-family zoning ordinances. None, though, were as successful or prominent as the Gautreaux program. 
The legacy of the 1968 Fair Housing Act lies mostly in policies that it spawned, and in the broadened effort to address racial discrimination in housing. Politicians have repeatedly affirmed and strengthened the law, such as President Obama’s 2015 Affirmatively Furthering Fair Housing rule, which commits to “meaningful actions to overcome historic patterns of segregation, promote fair housing choice, and foster inclusive communities that are free from discrimination.” However, federal judicial regimes have thus far refrained from using the law to consistently address local segregation.

The US public housing program originated in 1937, as one of the last pieces of legislation included in the New Deal. Like the HOLC and the FHA, public housing was initially aimed at solving the problem of widespread homelessness and housing insecurity created by the Great Depression. Public housing had the additional virtue of allowing for large-scale construction in a single place, and was therefore wielded as a tool for infrastructure growth and jobs creation. For this reason, many of the initial public housing developments were located near, and in service of, major construction projects. Public housing projects were managed and run by local housing authorities but funded entirely through federal capital grants. Rent collections from tenants were expected to cover operating expenses and future maintenance. 

From the outset, political compromise and concessions created challenges for public housing. Rigorous lobbying from real estate interests and their conservative constituencies—mostly Southern Democrats—led to the agreement that public housing must be markedly inferior to private developments, both aesthetically and functionally. To ensure that these public developments would not compete in the private market, the federal government set low ceilings on construction costs. Additionally, public housing projects were blatantly segregated based on race; developments preserved for White people were located closer to job sites and were given more funding to attract skilled workers. The Public Housing Authorities (PHAs) in White developments enforced strict standards for residents, ensuring that they maintained orderly living spaces and stayed out of trouble with the law. For White people, the early years of public housing, though not luxurious, were a far cry from the current perception of derelict high-rises, ridden with crime. 

Following the end of World War II, and the gains in White, middle-class homeownership generated by the G.I. bill, Congress commenced a period of accelerated public housing construction—set into action by the Housing Act of 1949. As generous mortgages and federal subsidies built the suburbs, low-income Americans faced a shortage of affordable housing in urban areas. To address this problem, the 1949 Act authorized the construction of 810,000 public housing units over the next six years. It was during this time that many of the high-rise developments—such as the infamous Pruit-Igoe in St. Louis—were built. These buildings are famously deficient: devoid of decoration or amenity; set back from the streetscape; shoddy construction and dull architecture. Many current advocates argue, however, that the widespread publicization of public housing failures presented an inaccurate and grossly exaggerated account. They further argue that many developed units were smaller—mostly row houses and smaller apartments—and that the image of unsightly high-rises contributes to a stigma against public housing. 

Stigmas aside, public housing has never been socially desirable. With the growth of FHA-insured mortgages, those who could afford to move did so (except for Black Americans), often to suburban developments. This meant that public housing residents gradually became poorer and less White. The median income of tenants fell consistently in the decades after public housing’s conception. The promulgation of upper income limits and the eviction of middle-class tenants meant that by 1970, most tenants earned less than 20% of the national median. Public housing gradually became synonymous with lower-class, harboring pockets of concentrated poverty. In addition, a Circuit Court of Appeals had ruled in 1935 that the federal government does not have the power to acquire local property through eminent domain. A lack of federal control afforded localities ample room to keep public housing out of desirable areas—whether that be by opting-out of funding for construction altogether, choosing construction sites near environmental hazards, or strategically locating sites in accordance with racial segregation.

In 1973, President Nixon issued a moratorium on the construction of new public housing, calling it “monstrous, depressing places–rundown, overcrowded, crime-ridden”. Nixon effectively declared public housing a policy failure, prompting Congress to refuse to provide sufficient funding for upkeep and modernization.

This top-down declaration quickly morphed into consensus. In 1993, the federal government launched the HOPE VI to demolish and redevelop more than 150,000 public housing units. HOPE VI rode a wave of changes to the policing system known as the “broken windows theory” which argues that higher quality living environments, in which amenities are durable and repairs are made promptly (repairing broken windows, for example) reduce crime and engender socially-positive behaviors. In this vein, HOPE VI sought to replace distressed public housing with mixed-income developments with more aesthetically minded features designed to blend in with surrounding developments. Additionally, HOPE VI buildings had shallower subsidies and stricter tenant eligibility that took into consideration poor credit histories, the existence of a criminal record, and other applicant characteristics. HOPE VI marked the end of highly-concentrated public developments. 
There are a few enduring themes to keep in mind when considering the history of the public housing program. The first is the question of concentrated poverty and its externalities. Even though the central aim of the public housing program has always been to serve low-income and housing-insecure Americans, it has long been understood that homogeneously low-income developments are harmful to the interest of residents. Concentrated poverty gives rise to more violence, poorly maintained facilities, and other negative forces that are endemic to poverty. The tension for policymakers is therefore between prioritizing the neediest citizens and improving life-outcomes for those served. A second and related tension has to do with a leniency in tenant behavior. While leniency—poor behavior and late payments—strikes many as the morally charitable stance, it can also give rise to harsher conditions. Public housing has operated, in effect, as a safety net for low-income Americans, and thus has had to tolerate many of the adverse behaviors that come with living in entrenched poverty. If unruly residents were given the boot, as would be needed to maintain an orderly environment, where would they go?

Why Compare the United States with the United Kingdom?

The United Kingdom is currently experiencing many of the same housing challenges as the United States, such as similar trends in homeownership among generations currently coming of age, unaffordable rents, and a lack of available housing supply. The government of the United Kingdom is actively working on building policies to address the same issues that the United States government is also concerned about.

Additionally, the United Kingdom has a similar political system when compared to the United States. The United Kingdom is also a democracy that elects its leaders, though it is a parliamentary democracy rather than a democratic republic like the U.S. This means that whichever party elects the most candidates get to choose the leader and will make the policies. In the United States, our system elects the leader separately, so the common situation of Congress and the President disagreeing and having to compromise on policy does not happen in the UK. It is easier to get policy passed and enacted in the United Kingdom and thus there is little motivation for elected officials to compromise on the design of policy and programs, whereas U.S. housing policy is often a product of political compromise. The United Kingdom has a developed post-industrial economy like the United States. While it has more social welfare policies to assist citizens who experience poverty, it still has an expansive, powerful private market.. 

The UK also executes its housing policy in a similar way as the United States in that they are mainly administered at the local level. Local governments have a strong influence on housing policy in both countries. British cities also have strict zoning regulations like most American cities, and these uncompromising laws can limit the amount of housing that can be built.

Housing History and Policies in the United Kingdom

Like the United States, the United Kingdom experienced a housing boom after World War II, though for different reasons. The United States government provided low interest and guaranteed mortgage loans for returning soldiers that made homeownership accessible for the first time for millions of Americans. The United Kingdom instead focused on rebuilding the housing that had been destroyed during the war. Given the rise in popularity of socialist policies in post-war Britain, such as establishing a national healthcare system and the nationalization of important industries, the post-war government ultimately built over four million publicly owned housing units. These housing units had reduced rent rates for residents and, in the decades following the war, were referred to as “social housing” or “council housing.” The UK built a diverse range of housing types, while the United States focused on high rise building for social housing. At its peak in the 1970s, 33% of United Kingdom citizens lived in social housing.

When Margaret Thatcher assumed the role of prime minister in 1979, her more ideologically conservative government began privatizing many of the post-war government-controlled industries. Her government implemented a policy referred to as “right-to-buy” for Britain’s social housing. If a household rented a social housing unit for two years, they would then be able to purchase the unit at a steep discount. While it provided an easy transition to homeownership on affordable terms for low income households, the government has not been replacing the social housing at the same rate that units are being purchased. This policy has remained in place since its implementation by the Thatcher government and while it has helped raise the homeownership rate in the United Kingdom, it has also limited the amount of social housing units available for rent for today’s low-income households.

Modern housing policy in the United Kingdom has focused on increasing demand for housing rather than policies that increase the supply of housing. In 2013, the UK government under David Cameron created homeownership loan programs that offered favorable mortgage terms. While the goal of this policy was to encourage private developers to build more housing and increase the overall homeownership rate, there ultimately was no increase in home construction but an increase in the price of housing as more households were demanding housing as homeownership became more attainable through these programs. The current government, led by Boris Johnson, has targeted the strict zoning regulations in the UK as a reason for the declining homeownership rate and the increasingly unaffordable price of housing. His government has loosened government regulations on local planning and zoning, but the effects have yet to be seen. 

What can the United States learn from Housing Policy in the United Kingdom?

The United Kingdom has historically had a larger government presence in the housing markets through the construction of abundant social housing following World War II. While many social housing units are now privately owned, 17% of British households live in social housing today. Comparatively, less than 1% of Americans live in public housing today. Even with this amount of regulated rent units, there is still a thriving private market for housing. The United Kingdom currently has a 70% homeownership rate, higher than the United States’ rate of 65%. The current state of housing in the United Kingdom suggests that a developed country can have a significant amount of government owned and regulated housing units for low-income households while still having a large amount of private real estate. 

Additionally, the United States could consider the policies of diversifying the types of public housing available, loosening zoning restrictions to allow for the construction of more housing, and implementing a version of a “right-to-buy” policy for public housing residents. Americans considering changes in national housing policy should also consider whether the government influencing the supply of housing or the government influencing the demand for housing will be more successful. While supply-based housing policies, such as the UK’s social housing program, are historically more effective, they are usually more costly than policies that affect the demand for housing. United States housing policy has focused on influencing the demand for housing, with millions of families being able to purchase homes with favorable mortgage loans from the US government and with Section 8 vouchers but could consider beginning to favor supply-based housing policies, such as increasing the amount of public housing units available or increasing the funds available for private developers of affordable housing. 

The HOLC and the FHA

The core pieces of legislation that make up current American housing policy began in the New Deal era. The wreckage wrought by the Great Depression led to widespread poverty and foreclosures. The moment was right for major steps to alleviate suffering. President Franklin Delano Roosevelt entered office on a tide of Democratic power, spawned by widespread agreement that the Hoover administration was to blame for the regulatory mistakes which caused the Depression. In 1933, the Home Owners Loan Corporation (HOLC) was established to bail out defaulting home buyers by trading government bonds for delinquent mortgages. 

The HOLC was accompanied by a set of federal agencies which were created to stimulate the housing market, the foremost of which was the Federal Housing Administration (FHA). Created in 1934, the FHA provides mortgage insurance for loans that adhere to an established set of requirements, effectively protecting against default, encouraging longer terms, larger sums of money, lower interest rates, and stricter construction standards. The FHA joined and was bolstered by the mortgage interest deduction, or the MID, which came into being in 1913, not to spur homeownership but as part of a general policy allowing businesses to deduct interest payments from loans. 

With the introduction of “mass tax” in the mid-1930s, the MID began to make an enormous impact. Joined by the HOLC and the FHA, it allowed homeowners to deduct vast amounts of money from their taxed income—money that they were pouring into expensive new mortgages. Without federal insurance, it would make little financial sense for banks to offer loans on such a scale because of the high costs of developing and maintaining housing. Additionally, the MID allowed homeowners to accumulate vast amounts of equity on their homes over the 25 years or so that they committed to pay off their mortgage. Moreover, homeowners could refinance their mortgage to extract equity to finance further purchases, thus operating as a forced savings mechanism that accelerated wealth at unprecedented rates. 

When speaking of “generational wealth” in this country, the MID is the key mechanism at work. However, the benefits of the three-pronged support provided by the MID, the FHA, and the HOLC were not enjoyed by everyone. Numerous historians have documented the myriad ways in which a combination of FHA policy (which has come to be known as “redlining”) and localized racism excluded Black Americans from good mortgages in up and coming neighborhoods. Under the ostensibly profit-driven justification that Black Americans were uniformly at “higher risk of default,” the FHA maintained mortgage underwriting standards that described “the infiltration of inharmonious racial or nationality groups” as a central factor in creating unstable neighborhoods.

The MID is currently by far the largest government subsidy directed at homeowners. It is also highly popular and enjoys support from a wide constituency, particularly business class elites and people who hold political sway. This is not surprising, as the subsidy applies only to homeowners who itemize their deductions, which is primarily middle- and high-income households; thus, rich families accrue the majority of the subsidy. Many advocates for the MID argue that it encourages homeownership, which has been shown to have numerous positive “spillover effects” through its creation of stable neighborhoods of consistent socioeconomic status. 

G.I. Bill

As the MID and FHA programs began to gain traction with the American public, a second major policy initiative developed in Congress. The G.I. Bill of 1948 welcomed World War II veterans home from war with a sweetened version of the mortgage subsidy offered to other Americans. There was widespread consensus among policymakers that veterans returning home should receive political priority. The American Legion, a conservative and patriotic organization, introduced a set of proposals to Congress which included medical care, unemployment insurance, four-year college education, furlough pay, and home, and farm mortgages.

Once passed, the G.I. Bill enabled lengthy mortgages with even smaller interest rates and no down payments. The program ultimately fell under the jurisdiction of the Veterans Administration (VA), which, with veterans’ interests in mind, instituted broad safety nets for default and foreclosure. Each year from 1950 to 1960, an average of 200,000 first time homebuyers were financed through the GI bill, which exceeded the number financed by the booming FHA program. The GI bill helped to create a stable and well-housed middle class, primarily located in suburbs and in urban neighborhoods composed of predominantly single-family homes. The policies were also friendly to banks and developers who were able to proceed with reckless abandon—buoyed by the sturdy backing of the federal policies. Absent a racial lens, the GI bill registers as a resounding note of success. However, recent attention has been given to racially discriminatory policies in the bill. Black Americans returning home from Europe were systematically denied entrance into the mortgage program—a move which is often contextualized as a necessary compromise with stingy Southern Democrats in Congress. While operating to improve the quality of life for many Americans, the GI Bill further expanded the gap between White and Black Americans by denying Black Americans a valuable wealth building tool.