Should H.U.D. Really Be Dismantled?

In a Times Op-Ed Friday, my co-author (and regular blog contributor) Sudhir Venkatesh argues that the Department of Housing and Urban Development (H.U.D.) has outlived its useful life.

The Chicago economist in me is not so sure that the alternative he proposes — a new federal agency devoted to regional planning — is going to be a great alternative, however. I told him that and he challenged me for some better ideas.

The only problem is I don’t think I have any!

Most economists would argue that the only long-term solution to poverty is figuring out a way to dramatically increase the human capital of the poor through some combination of better schools, better parenting, and convincing kids to stay in school and to work hard in school. Stable housing is no doubt an input to helping disadvantaged children achieve their potential. A number of studies have shown that kids who switch schools suffer a setback academically.

So — both for reasons of basic human decency and helping the long term prospects of the poor — affordable housing seems like a worthwhile objective.

The first obvious (but important) point about housing is that there is an active market for rental housing. So it seems like a situation where it makes sense for government involvement to come in the form of subsidies to low-income renters to allow them to participate in the rental market. That is what Section 8 vouchers do now.

A second obvious (but important) point is that housing markets are local. They might cross city boundaries, but not much more than that. So the need for federal involvement is not so clear to me.

One thing a federal agency might do is try to encourage home ownership among the poor. Perhaps there are benefits to home ownership; the huge tax subsidy for mortgage interest suggests that the government believes that to be the case. The federal government can (and does) do this through low interest loans for low-income borrowers.

Again, this is the Chicago economist in me revealing himself, but in light of recent government efforts to bail out people who made bad loans, the last thing we need right now is the government getting more involved in the mortgage business.

The federal government might also try giving subsidies for housing developments that integrate middle-income housing with low income housing. I believe there are generous programs of this kind in place now. I don’t know what the evidence is on these developments, but my guess is that mixed-income developments represent a very unstable equilibrium with a strong tendency to tip one way or the other.

What do blog readers think the federal government should or shouldn’t be doing about affordable housing?