Policy

The Corrupt Politics of Low-Income Housing

State officials gleefully line their own pockets at taxpayers' expense.

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The rent is too damn high—so each year Congress appropriates billions of dollars to address the nation's collective housing needs. The programs vary from loans to tax credits to straight-up subsidies, but a common feature is that federal taxpayers pony up the dough and then a motley collection of state-level politicians, financing agencies, and housing authorities decide how it's spent. Can you guess where things go wrong?

In theory, oversight is provided by bureaucrats in Washington tracking every dollar and by local leaders increasing their re-election prospects by providing housing assistance to their constituents as effectively as possible. In practice, the feds turn a blind eye to inefficient uses of the funds while local officials gleefully engage in politically advantageous graft.

Take California Treasurer John Chiang. By virtue of his position on the three-member California Tax Credit Allocation Committee, Chiang exercises enormous influence over who gets $94.9 million each year in federal tax credits intended for developers of low-income housing.

He has used this position to great effect, steering millions to major campaign donors. These include Pacific West Communities, to whom Chiang has voted to give some $60 million in federal tax credits since 2007. The company has returned the favor with $37,000 in campaign contributions back to him. Some 82 California housing developments were funded with these tax credits in 2016.

If California-style corruption isn't your bag, perhaps you'll appreciate the sheer incompetence of the Atlanta Housing Authority (AHA), which is currently struggling to get out of an expensive subsidy deal it literally forgot it made with local developer Integral. Over the past two decades, the AHA has awarded $114 million in federally funded loans to the company, which has yet to pay them back, and which now owes about $29 million in interest to the agency.

That did not stop former AHA chief Renee Glover from unilaterally agreeing to sell Integral $137 million worth of AHA-owned land for the bargain price of $20 million. Glover resigned in 2013, and the current leadership can't recall this deal ever being made. They're now suing to stop it from happening.

In Michigan, the state's housing finance agency was given $761 million in Troubled Asset Relief Program funds to protect distressed homeowners from foreclosure during the Great Recession. Instead of using the money as intended, officials sat on it while thousands in Detroit had their homes seized for failure to pay property taxes. When the state did start spending its bailout funds, half the total went toward demolishing the homes left vacant by those tax foreclosures.

But all of this pales in comparison to the misdeeds of the Navajo Housing Authority (NHA), which is supposed to provide housing on the Navajo Indian reservation. In the past decade, the NHA has received some $803 million in federal funding while building slightly over 1,000 homes. That works out to $723,000 per home, or about 10 times the median home price in the Navajo community of Kayenta, Arizona. Much of the money was spent on structures that were either never finished or never occupied, including a women's shelter that stood completed but empty for nearly 18 years while homeless people slept outside it.

All these examples of fraud, waste, and abuse are the natural result of separating the people paying for housing programs from the communities that are supposed to benefit from them. Federal functionaries have very weak incentives to ensure the program dollars are used well. The worst they usually have to worry about is for their failure as watchdogs to become a paragraph in a local news story or the subject of a little-read Government Accountability Office report.

State officials, meanwhile, have little to gain from providing better oversight. It's not their constituents picking up the tab, after all, and any misspent funds can be made up in next year's appropriations.

The ultimate way to avoid corruption or waste in government housing programs would be to eliminate the spending entirely. Since that seems unlikely, a sensible half-measure would be shifting to a system where the taxes that fund such programs are collected at the state and local level rather than by Washington.

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  1. So for the low, low price of $37,000, I can get $60 million in tax credits? Where can I sign up?

    1. Most national companies diversify their political investments. You’ll want to invest $37k into as many politicians as you think are relevant and hope they remember you when you need to build a really big house.

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  2. Not everyone can afford a house at every time in their lives and that is simple free market.

    If you want a house, save for a down payment and shop for a good loan or pay cash. There is nothing that says every 20 year old should be able to get a ninja loan and buy their dream 5,000 sq ft house just because government wants more and more American tied to assets.

    Of course, Americans tied to assets are less likely to fight government because they have something to lose. That and the homeowner mortgage deduction is a freebee to get more people owning homes too. Homeowners spending money to make repairs and upgrades helps fuel the economy.

    Stupid social engineering.

    1. Not everyone can afford a house at every time in their lives and that is simple free market.

      Actually almost everybody who works can afford owning a house in principle; building houses has become incredibly cheap. What makes housing unaffordable is zoning, codes, regulations, and taxes.

      1. What makes housing unaffordable is zoning, codes, regulations, and taxes.

        Ain’t that the truth. Property taxes especially. I know people who inherited the family home, bought and paid for, but had to sell because they couldn’t afford to pay a grand per month to the city government for services they neither want nor need. In many places around here it’s how cities keep poor people away. They keep ratcheting up property taxes until you need a six figure income to afford to live there.

        1. Property taxes make me rant like a lunatic.

          Property taxes on the assessed value of the home… I like that even less, if that is possible.

          1. Yep. City just changed property tax assessment on our rental properties to the tune of many thousands of dollars per year for us. Of course, that shit’s going to flow right downhill to our tenants, the “little guy” government is always so interested in protecting.

            1. They’ll blame the tax collector: You.

            2. Yeah and when that shit flows downhill; some politician will declare that the landlord can choose not to pass on the increased cost. And the “little guys” will eat it right up.

        2. Oh hell yeah. Seattle is NUTS. With housing values as through the roof as they are here, AND property taxes being super high, just your tax big on a normal house here is higher than the full mortgage and tax bill in most of the rest of the country. I know of a number of people who sold their homes that either had low/no mortgages because they now could no longer even afford the taxes. It’s nuts.

          1. In WA, 40% of the property taxes go towards public education. The county assessors jack up the assessed rate, raising the amounts that go to public schools, and yet the public schools never seem to improve, no matter how much money is thrown at them. Most of the kids come out of the school system not knowing how to write a coherent sentence in English, where most other countries are on a map, or how to do basic math. But they know all about the various disorders and “special needs” they have that prevent them from working or achieving, and they all seem to know that they deserve free stuff just for being a member of one or another protected class of self-made victims. Hmm.

            1. Sounds about right to me! To the progtards around here that’s money well spent :/

    2. I saved up my money over the years until I had the 20% down and the house was affordable. Went to the bank just after the housing “crash” because I figured it was better to buy in a bust than a boom. But now the bank wanted 25% down. Because of the housing bust. Too many people just walking away from their mortgages. Fuck that.

      1. You also get stuck with a nice fee of hundreds of dollars from Fannie Mae and Freddie Mac every time you refi or buy, post-bubble. That’s “your” portion of the payoff for those stupid fucks purchasing $500 bil of bundles of worthless, shitty mortgage-backed securities.

      2. Many of the mortgage lenders made the housing crash worse by going to extremes on their lending standards. Prior to the bubble popping, the lenders were giving out no-doc, no money down loans like they were party favors. After the bubble popped; those same lenders did not want to loan money to responsible people with a good down payment.

        1. Well sure, when you’re going to bundle that loan up and sell it off to some unsuspecting investor who will protect it with a ‘credit default swap’ why should you care if the unemployed custodian won’t be able to pay back the quarter-million dollar loan? It’s not YOUR problem. So of course you’ll write a mortgage to anyone who can hold a pen. You get your fee and no liability. Where’s the downside?

          This is the fundamental problem with unrestrained capitalism. People are always looking for a way to get over on everyone else. This is why a regulatory environment is necessary for capitalism to function at all. The alternative is snake-oil salesmen selling poison to unsuspecting consumers, and hightailing it out of town before the consumers catch up with them.

          1. Unrestrained capitalism would mean that frauds would be liable for fraud and that government would not use taxpayer money to save incompetent lenders from bankruptcy.

  3. They built some low income housing here a couple of years back. I asked a local government official I know and was told that the residents don’t even have to prove they are employed or even here legally to get this. They have covered parking and views of Lake Tahoe. I don’t have either one of those things, yet, I’m footing the bill. I don’t mind people coming into the country, but WTF?

    1. There was a local boondoggle regarding so-called affordable housing. In order to comply with all the zoning, regulations and such, the units cost something in the neighborhood of nine hundred grand apiece. And then the people who live there rent-free trash the places. It’s an incredibly expensive joke.

    2. Wait… Low income housing at Tahoe? WTF?

    3. Happens all the time. IMO if progtards are going to build such places, they have NO BUSINESS building them in expensive areas. They should be truly cheap buildings in the cheapest spots in the area.

      I know people who live in a sweet old brick building right in downtown Seattle… A SUPER expensive area. Most of the people in the building are subsidized and paying anywhere from dick all nothing to MAYBE 30-40% of market rate. It’s bullshit. Those buildings in Seattle should all be in cheaper areas/suburbs like Beacon Hill or Lynnwood or some shit. Then at least it would be mildly defensible as helping the needy while being efficient about it. Beverly Hills and expensive areas should not have low income housing!

      1. The problem with building low income housing in cheaper areas is that those areas generally do not have a large tax base. Ghetto dwellers tend to make extensive use of expensive local government services. Ghetto dwellers pay little to no taxes for those government services. The progtard solution is to move the ghetto dwellers in with productive people so that the productive people can subsidize the ghetto dwellers.

        1. Yeah, but usually even within a given level of government (city for instance) there are cheap areas, and expensive areas, even if it is relative. Like the Beacon Hill neighborhood I mention above. It is a shitty part of Seattle, but it is actually in city limits. It’s still expensive as fuck compared to most parts of the country, but relatively cheap. Like probably 1/3 to 1/2 the price of straight up downtown.

          So even if they build shit there it would be much cheaper. Better yet would be keeping it IN COUNTY, but not city limits. Like Renton, which is a burb to the south, or Lynnwood to the north. Most welfare stuff isn’t paid by the city, but by the state at least, so I’m sure they could work out the details if they actually gave a fuck about spending money responsibly and for its greatest effect… Which they don’t of course. It makes sense to the proggie politicians here that if THEY want to live in a cool apartment right downtown, then surely they must help poor people to do the same!

    4. “They have covered parking and views of Lake Tahoe.”

      In SF, we’re building bay-front BRM housing, on land which the city government assures us will soon be under water, ’cause oil!

      1. Climate change, the Unobtainium of progressive political fiction!

    5. Seattle took a bunch of low-income housing pork right out of the barrel and built a tiny-house community with it.

      They built 30 tiny houses. If they’d just built apartments instead, they could have built several times that number of units, on the same land, using less energy because there’s less surface area. They plan to tear down the 30 tiny houses and eventually build an apartment complex anyway. But, y’know, because it’s other people’s money, and tiny houses are trendy–and effete Seattle do-gooders love to combine trendy with spending somebody else’s money–why not build one, totally destroy it, then build the other?

      Every time these brainless bleeding-hearts suggest building another tiny house community, and I comment on the proposal saying, “why don’t you get more bang for the buck out of building apartments instead, which are more secure, energy-efficient, and let you use less land to provide more units?” I get run out of the comment section on a rail. For daring to suggest that maybe poor people who can’t even take care of themselves let alone a freestanding house aren’t necessarily entitled to a freestanding house at my expense.

      To these morons, giving druggie wastoid losers a free apartment instead of a free house is equivalent to wanting to stick them all in a Dickensian debtor’s prison.

      1. With Seattle land values it could throw the math, but I think the thing with the tiny house projects like that is that they’re ghetto as shit, and theoretically could come out cheaper than building a proper building. This only makes it a short term solution, but perhaps not the worst one.

        In a cheaper areas where land is less you could literally just buy prefab shed type buildings, slap them on no foundation, and then whammo tiny house for bums! You could do it for a few grand per, which would be waaay less than construction costs of a real building. You can also move tiny houses elsewhere easily in the future. So there are theoretical advantages.

        Whatever the particulars there I’m sure they pissed away a ton of cash on stupidity.

  4. It’s worse than just the politicians. You also have landlords who will kick rent-payers out of their section 8 housing because they would rather have the non-rent-payers. The government guarantees the rents and guarantees repairs, and that’s better than a renter.

    Welfare doesn’t bother me so much as all the rent seeking [sic] around welfare. Direct assistance to the needy is the way to go, but it’s so flipping rare. Everyone’s concerned the poor can’t look after their own interests, so they end up setting up systems that can be gamed. Just give the welfare directly to the recipient. If they waste it then they waste it. It’s already distorting the market just with that, don’t be making it worse by indirect payments via your cronies.

    p.s. Yes, this means I don’t like vouchers either. A tuition tax credit performs the same effect without encouraging the corruption and cronies.

  5. This is a bottomless subject. I like that you’ve narrowed in on state-level corruption. It also has a large federal component.

    Google “HUD scandal”, and pick a decade. Or the Federal Housing Administration. The words you see most often are “Failure” and “corruption”. All govt sponsored housing programs have been boondoggles by design. The scale of the ripoffs have been mammoth.

    The more you look at HUD, the more jaw-dropping the scumbaggery is. My favorite was how Cuomo was put in place by Clinton to “Clean up the image” of the department; yeah, not so much. the associate of cuomo who recently got busted in the Buffalo Billion sting was his consiglieri @ HUD. They’ve basically been running the same scam for 3 decades, and they barely try to hide it.

    1. You don’t have to try to hide it if you have complete cover from above.

      1. I think there’s also the fact that the average person finds anything to do with real-estate finance confusing and boring.

        the average schmoo doesn’t really even understand the basics of how bonds/credit markets work. throw in various govt loss-protection schemes, tax-benefits, ‘buyer of last resort’ stuff…. it goes in one ear and out the other.

  6. This should be required reading every time someone says “the government needs to put more money into 1) mental health 2) health care 3) drug rehab 4) crime prevention 5} alternative energy and any other for the good of humanity cause you choose to name. It will benefit those who set themselves up to reap the rewards, never the persons intended. In that sense we are not a whole lot different from what some persons have referred to as “shitholes.”

  7. These all sound like things that local Libertarian Parties should be screaming to high heaven about. Otherwise, you aren’t going to get the traditional party politicians to complain because they, and their special interests, are on the gravy train.

  8. “In theory, oversight is provided by bureaucrats in Washington tracking every dollar and by local leaders increasing their re-election prospects by providing housing assistance to their constituents as effectively as possible.”

    Haw hard can it be?
    Hell, FDR proved in the ’30s that a government-planned economy would pull us out of a depression in only, what, 3 terms?

    1. Three terms and a world war.

  9. I think the story here of, “Where Govt + Real Estate Intersect, Corruption Happens”…

    …could/should be something a writer @ Reason could be entirely dedicated to.

    i mean, look: you’ve thrown 2 people exclusively @ things like “sex work” and “campus protests” for the last 3+ years. Maybe its time to pivot to topics that are more-substantial and actually relevant to undermining Leviathan.

    The “government housing”-boondoggle-world is gigantic. Literally everywhere you look you will find crooked deals, be they ‘tax credits’, direct-subsidy, re-zoning, mortgage-loan-mandates, and dozen other methods of doing the same thing: use taxpayer money to help developers/real-estate investors make guaranteed profits.

    People think “Wall St” is all about slimy insiders taking a vig w/o any risk – but its actually a far more accurate picture of politically connected ‘development corporations’. Its one of the biggest open secrets in America. hardly anyone pays any attention to it. Its not like there’s any shortage of threads to follow. And its bi-partisan.

    It was one of the least-discussed aspects of “The Wire”: how, “once they got to the money”, all investigation/reporting stopped. and every trail of money lead to real-estate, and every real-estate deal led to a politician.

  10. Can you guess where things go wrong?

    At the point where people get to spend other peoples’ money?

  11. All these examples of fraud, waste, and abuse are the natural result of separating the people paying for housing programs from the communities that are supposed to benefit from them.

    I think you mean to write “All these examples of fraud, waste, and abuse are the natural result of the government taking peoples’ money by force.”

  12. The ultimate way to avoid corruption or waste in government housing programs would be to eliminate the spending entirely. Since that seems unlikely, a sensible half-measure would be shifting to a system where the taxes that fund such programs are collected at the state and local level rather than by Washington.

    But since deductions of more thean $10,000 of state and local taxes on federal tax returns was eliminated, that’s now more difficult than ever to achieve, because that favors federal tax collections over state and local tax collections.

  13. Meh, nothing new: the bulk of federal programs have devolved from simple vote getting/patronage to full on money laundering schemes to suit… the masters of the New Virtual Plantation. Some of you recognize the gates as Section 8 housing. When government gets too big to succeed, it is also too big to control – as in proper oversight. Regular order was effectively abandoned in congress when Tip Oneill lurched towards using omnibus bills for so much, which effectively prevents discussion of particular agencies or programs in any meaningful debate. There’s your “great society” at work: running blind just like the politburo because there are too many levers and too many voices to listen to. It works both ways too: I can’t name one deputy under-secretary of any agency, can you? Absolutely nobody knows what the federal government does anymore on balance: we would have to seat a supercongress for one 8 year term to do nothing but oversight to get back on track, and… the odds of any congress [much less this one] putting forth the necessary constitutional repairs are nil. This is why there is an article 5 safety valve built into the constitution: for conditions such as right now.

    1. a Supercongress for 8 years doing nothing but oversight… I think you are way too generous, or naive about the effectiveness of a congress to get something done.

  14. “a sensible half-measure would be shifting to a system where the taxes that fund such programs are collected at the state and local level rather than by Washington.”

    How about returning the entire budgetary system to what the constitution originally created. States collect the taxes and pay them to the Federal government. States are far more likely to have a stronger voice in DC when it comes to being taxed to much than tax payers, vs beneficiaries.

  15. The reason we are “one nation, indivisible” is that state government agency programs are just as corrupt as federal government agency programs.

    With patronage schemes the people with their hands in the pot were directly connected with the people that would benefit.

    Yes, I just said that.

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  17. “HUD has a program called Hope VI, which is the construction of new public housing. Here is how the money works on Hope VI. We tax people who make $36,000 a year. We then take the money and use it to build housing that costs $150-250,000 (inclusive of all overhead, etc) per apartment unit, which we use to warehouse people who make $10,000 a year or less in a manner in which they are unlikely to become taxpayers. This generates a large number of jobs, profit, and private equity for a group of lawyers, accountants, developers, consultants and others who tend to make substantially in excess of $36,000, say anywhere from $75,000 to $500,000 or more a year. In the HUD programs, a surprising number of them went to Harvard, Harvard Business School, the Harvard Kennedy School, and last but most special, Harvard Law School. If not Harvard, someplace more like it than the University of Tennessee agricultural school.

    A few years back I took the pricings on the HUD defaulted mortgage portfolio to the head of Hope VI. I explained that HUD had substantial single-family inventory in those same communities. Empty single-family homes could be bought and repaired at a fraction of the price of new construction of public housing by private developers. The HUD official said, “but then how would we generate fees for our friends?” You just have to love a woman who is that honest.”

    (Catherine Anne Fits – The Myth of the Rule of Law (2002) – https://ratical.org/co-globalize/CAFmrl.html )

  18. It takes more than a half dozen anecdotes of corruption to condemn a government program the size of this one. A deeper investigation is needed.

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