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Disrupting Public Housing Out of Faircloth

7 min read

In 1998, when North Carolina Democrat-turned-Republican Lauch Faircloth added the amendment for which he became infamous, the Department of Housing and Urban Development and Public Housing Authorities (PHAs) were in a protracted bureaucratic standoff combining the worst features of medieval sieges and the First World War.   

The public housing inventory was the slowly dying offspring of a two-entity codependency and anachronistic closed system that doomed both HUD and PHAs to slow worsening failure. Under the mutually assured misery of the public housing of Section 9 use covenant, HUD held PHAs in thrall: it could with impunity underfund them, chastise them for failure and on occasion force bad ones into receivership – but it had lost the nerve to use them. PHAs could with impunity become stubborn, antiquated and system-manipulative – but they could not finance their properties, retain or reinvest any earned surplus they eked out. The two sides distrusted each other (with reason), complained endlessly about each other (with reason) and agreed with each other on only one thing: nobody appreciated public housing.

Yes, it was every bit as bad as I described. The early public housing industry conferences I attended were worlds unto themselves. To whatever question or comment I raised, especially about the remarkable HUD-embraced innovations that were taking place within the affordable housing universe, the ready-made responses always came back, You don’t understand. We’re different. It’s not fair.

Into this gridlock, Senator Faircloth dropped his disruption bomb: the Faircloth Amendment to the Quality Housing and Work Responsibility Act of 1998 (QHWRA, pronounced ‘qwah-rah’), which slid into law via the Fiscal Year 1999 appropriations bill, that prohibited HUD from funding any new public housing above the amount covering the number of units the PHA “owned, operated or assisted as of Oct. 1, 1999.” 

Though the public housing community fiercely resisted QHWRA, the amendment allowed a pathway to change, had anyone then had the wit to see it, already in use in two major markets: two floors up in HUD headquarters, via the Mark-to-Market Demonstration, and for a decade via United Kingdom stock transfer.

1989: United Kingdom stock transfer. After two decades of growing underfunding and stagnation, council housing (Britain’s analog to public housing) had reached a similar standoff. Arch-conservative Prime Minister Margaret Thatcher sought a radical overthrow of ossified public housing bureaucracies, whilst the progressive Labour Party defended the status quo of their underperforming urban fiefdoms, rightly suspecting a strategy to undermine local democracies. 

The 1989 ‘stock transfer’ bill allowed council housing to be transferred, lock-stock-and-use agreements, to new or existing private nonprofit regulated housing associations that made qualifying, public-protecting proposals. In property after property, residents voted for the promised greener grass, and the change itself became the revolution. A 2003 study found 870,000 homes moved from state ownership to nonprofit housing associations, over 180 new housing associations springing up and 111 authorities transferring all their private stock. The resultant new access to private lending and external regulation galvanized the sector.

Beyond the pure numbers, the UK researchers found:

  • “The transfer process has tended to have a liberating effect on housing staff.”
  • “Transfers have generally fostered staff ownership of corporate objectives.”
  • “Transfer landlords are much less likely to evict their tenants.”
  • “Substantial creativity has been displayed by transfer associations in their efforts to keep faith with business plan targets.”

2003: Public Housing Operating Cost Study. Back in America, Faircloth didn’t prevent PHAs from developing new properties, it just prevented them from developing new legacy-style public housing. PHAs could build new affordable housing (Faircloth limits didn’t apply) – if they financed it like any other nonprofit.

Yes, that would be hard: affordable housing always requires subsidy (cash or non-cash), and Faircloth offered no new money. Come on into the Low Income Housing Tax Credit world, PHAs – the water’s fine!

Most PHAs rejected this approach. Our operating costs are much higher, they said. For this, Faircloth had a reply, the study of public housing operating costs vis-à-vis affordable housing. Though the wheels of government contracting ground slowly, with deeply suspicious PHAs cross-examining every aspect of the methodology, after four long years of tedium, in 2003 the Harvard Graduate School of Design (GSD) team issued its report, complete with an extensive financial model, and found what some of us knew instantly it would find.

The report concluded, with measured but magisterial clarity:

The major argument for keeping the current funding approach, as opposed to benchmarking, is that public housing is different. The thrust of this report is that, from a purely regulatory standpoint, public housing is not that different.

But where it is, it should be changed.

The cost impact of [the 14] different regulations [applicable to PHAs only is] quite small, or about one to two percent of non-utility operating costs for most of the agencies studied. Further, GSD believes that these “additional” public housing costs are substantially offset by “unique” requirements imposed on operators of assisted housing.

Modifying public housing’s regulatory environment to make it more like other assisted housing would go a long way to eliminating an unnecessary source of distinction, one perceived to be much greater than actually found.

2007: Changing the conversation by showing how to escape. A few years later, I did my small part by taking the argument directly to the public housing trade associations, first via multiple conference panels, and then with three articles in public housing’s flagship periodical. The first of these three spirits, “The Future of Public Housing: Christmas Yet to Come,” prophesied the inventory’s physical collapse unless dramatic financial and regulatory change happened imminently. The second, “Redeveloping Public Housing: the Gordian Knot,” proposed converting operating subsidy into Section 8 with a guarantee of no subsidy cuts, and then redeveloping, just as mark-to-market and Tenant Protection Vouchers had done for the affordable inventory. The third, “The Essential Housing Authority,” envisioned a streamlined entrepreneurial PHA in a post-recapitalization future. 

I concluded, “The Ghost of Christmas Yet to Come reminds us of the price of doing nothing. Colleagues, it’s time to get a move on.”

2012: Creating a voluntary journey via RAD. In 2010, these ideas found expression in the ill-fated Administration Preservation, Enhancement and Transformation of Rental Assistance (PETRA) proposal, withdrawn after being lambasted by the public housing industry, but rebranded and revived into its 2012 successor, the Rental Assistance Demonstration (RAD) program. Though greeted with equally deep skepticism by my newfound public housing friends, RAD gained steam bit by bit and, just as in Britain’s stock transfer, the intrepid pioneers’ success soon created a preference cascade. HUD’s 2021 RAD summary trumpeted achievements like those of Thatcher’s stock transfer:

  • Over $11.7 million in construction improvements across 1,380 properties, leveraging public housing funds 13 to one;
  • Swapping operating subsidy for new Section 8 in 99 percent of the RAD conversions;
  • Ensuring residents had the option to remain or return, and over 90 percent of them doing so; and
  • Over 250 PHAs converting all their stock to RAD.

Beyond the numbers, RAD transformed not just the inventory but also the zeitgeist of PHAs themselves. Innovation and energy sweeping aside intransigence and lassitude. Today, many PHAs are on the cutting edge of urban affordable housing development.

2021: Faircloth-to-RAD. With Faircloth-to-RAD, public housing’s spiritual journey has come full circle. As the University of California Berkley’s Terner Center reported, “Faircloth-to-RAD could help to produce as many as 235,000 new deeply affordable units nationwide, significantly boosting the overall supply of affordable housing.”  While this volume of additional production will depend on Congress reopening the Faircloth funding spigot: in today’s budgetary environment, anything is possible!

What public housing has undergone over the last quarter of a century is little short of miraculous – Schumpeter’s ‘perennial gale of creative destruction.’ Without staunch conservatives Faircloth and Thatcher, perhaps none of this would have happened.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at [email protected].