Work rules lead to positive results in public housing

Public Housing Should Have Work Rules, Too

Public Housing Should Have Work Rules, Too

By Howard Husock

City Journal

May 23, 2023

Thanks to the debt-ceiling showdown, Republicans appear to have a fighting chance to add a work requirement for those receiving SNAP (food stamp) and Medicaid benefits. They should also turn their attention to another major federal program that fosters dependency and discourages work: housing assistance. Local experiments across the country suggest that requiring those in public housing or getting housing vouchers to enter the labor market has positive effects, including upward mobility.

“Public and other assisted housing” is not a minor program. Housing vouchers are the largest item in the $73 billion Housing and Urban Development budget. At $30 billion, vouchers are almost twice as large an “outlay” as cash welfare ($16 billion), which has its own work requirement (though blue states have been finding ways around it.)

Unlike Temporary Assistance to Needy Families, housing benefits come with no time limit: about 32,000 New York City public-housing residents have lived in the projects for more than 40 years. What’s more, housing-benefit rules include a strong disincentive to work or raise earnings. Public and assisted-housing residents pay 30 percent of their income in rent—which means that, as their income rises, so does their rent. No private tenant would sign a lease like that, but it’s the rule for some of the poorest Americans.

By contrast, a handful of public-housing authorities—including Chicago and Atlanta, two of the nation’s biggest—have had work requirements for more than a decade. They’ve been among a small group of local public-housing agencies (39 of nearly 3,000) included in Moving to Work, a Clinton-era initiative.

The work-requirement experiment has been closely evaluated, including by the left-leaning Urban Institute. In Chicago, which exempted the elderly and disabled from the program and focused on public-housing residents rather than housing-voucher recipients, more than half of project residents (51 percent) had “no wage income” in 2010; by 2017, that proportion had declined to 38 percent. (Job training and other “good faith efforts” also satisfied the work requirement.) Average annual incomes rose from $11,568 in 2010 to $14,205 in 2015. Housing Authority staff interviewed for the report were enthusiastic, saying that, in their experience, “People want to do better. They want to work. They want money. They want to buy their children things.” The staff also noted that residents were not just working but, over time, getting better-paying jobs.

Work rules also resulted in higher rent payments, though that could also be seen as a negative, since it would be better for residents to keep more of what they earn.

Enforcement is serious. Residents looking to continue in assisted-housing programs must show pay stubs. Officials contact those known to be “noncompliant” weekly and offer help in finding work. Residents covered by the policy are given 90 days to comply or face the possibility of eviction (though that is unlikely).

The effects, by the standards of social science research, must be viewed as stunningly positive, as summarized in the bland language of the Urban Institute report:

The share of residents working more than 25 hours a week increased after the agency began enforcing its work requirement policy. The report found no increase in evictions and a modest increase in the rate of positive move outs because of gains in income attributed to compliance with the work requirement policy. A subsequent study that examined self-reported health and wellbeing outcomes found mixed effects associated with the agency’s work requirement policy; it found that residents wanted to work, and that increases in income decreased stress.

“Positive move outs” mean leaving the projects. Upward mobility means that those stuck on waiting lists may get a place—but be subject to the work requirement. This approach and others promise to change the culture of housing assistance.

Moving to Work has expanded from 39 housing authorities to 126. They will have good examples other than Chicago’s to emulate. In Atlanta, as I’ve written, high-rises were demolished and tenants were “vouchered-out” with a work requirement; labor-force participation rose from 18 percent to 62 percent. In San Bernadino, California, a five-year time limit has yielded strong results, according to an evaluation by Loma Linda University. Even without an explicit work requirement (though the city has begun to experiment with one), the imperative to prepare for an end to assistance led to a 26 percent increase in employment and a 145 percent increase in earned income after the five-year period. Education levels rose, too. All this will be news to Representative Pete Aguilar, who represents San Bernadino; the congressman had said that the work requirement for food stamps would “take food out of the mouths of kids.”

In insisting on linking work requirements to the social safety net, Kevin McCarthy and House Republicans are on to something—namely, that work requirements work.

Housing Crisis, To quote Yogi Berra, “It’s like déjà vu all over again.”

Biden Courts Another Mortgage Crisis

May 22, 2023 | Edward Pinto and Tobias Peter

The Biden administration is making moves that could imperil the safety of the housing finance system. Recent mortgage pricing changes, which have generally decreased fees for borrowers with lower credit scores and increased fees for those with higher scores, have rightly garnered public outcry, but they are the tip of the iceberg. The administration’s other changes require just as much attention, particularly since the reigning mantra of the White House is to strengthen “racial equity and support for underserved communities”—regardless of who gets hurt or how much it costs.

Missed in the debate about loan-level pricing changes is that the Federal Housing Finance Agency already distorts the riskiness of loans it originates, and ultimately taxpayers are on the hook for those loans. Every year the FHFA shuffles up to $6 billion from higher- to lower-quality borrowers. The recent changes are another progression in a series of steps under Director Sandra Thompson that have hollowed out the risk-based pricing structure erected after the 2008 financial crisis.

Progressives claim these rules need to be altered so those who have historically had a harder time breaking into the housing market can get a shot. This approach has backfired. The last great credit expansion, done with the goal of expanding homeownership in the runup to the 2008 crisis, left some 14 million borrowers, many of them minorities, seriously behind on their mortgages as home prices crashed by more than 25%.

Rather than equipping borrowers with more financial reserves and allowing them to build equity to withstand a decline in home prices, progressives are now trying to eliminate the risk of foreclosure altogether. Remove that threat and—at least in theory—everyone can afford a mortgage. Some argue that since borrowers would no longer default, we could safely expand credit.

To this end, the Federal Housing Finance Agency announced on March 29 that it’s making payment deferral available to all borrowers with “eligible hardships,” which it conveniently doesn’t define. Neither does it state how many times a borrower could take advantage of this option. While some argue that this policy worked well during the pandemic and prevented many foreclosures, it isn’t that simple. Borrowers who received forbearance also could have benefited from expanded unemployment coverage, the Paycheck Protection Program, student-loan payment waivers, other Covid benefits and the quick recovery from the economic contraction.

But it doesn’t stop there. Progressives want to eliminate the use of credit scores in mortgage underwriting or create a government credit repository. Some already have labeled credit scores racist. While these scores are predictive of defaults, they also represent an enormous hurdle to expanding credit to underserved communities, whose members typically have lower scores and thus require risk premiums. But a mortgage finance system without the threat of foreclosure or proper underwriting standards is ultimately an entitlement program. If such a program were established, it would be here to stay—and would most likely grow.

What progressives fail to understand is that access to credit isn’t the root cause holding back Americans, particularly those of color, from owning a home. Notwithstanding numerous attempts and enormous spending by the federal government, the black homeownership rate today is barely higher than in the 1970s. Instead, the U.S. is undersupplied by millions of homes, which makes buying a home more difficult. In addition, there are far-reaching shortcomings in educational outcomes, marital status and earnings that need to be addressed. These socioeconomic factors explain most of the gap in homeownership between black and white Americans.

The administration’s recent actions to expand homeownership to underserved communities are both flawed and reminiscent of similar failed efforts, particularly those made in the runup to the 2008 financial crisis. Remember when in 1994 Fannie Mae committed to “transforming the nation’s housing finance system to make it accessible to everyone”? To quote Yogi Berra, “It’s like déjà vu all over again.”

We must oppose this administration’s misguided progressive housing policies, which extend far beyond changes to mortgage pricing, and stop them before they do lasting harm.

Mr. Pinto is director and Mr. Peter assistant director of the American Enterprise Institute’s Housing Center.