PITFALLS OF HOUSING REDISTRIBUTION CARL F. HOROWITZt Advocates of metropolitan-wide income and racial egalitarianism have been taking some hits lately. For once, the political juggernaut to reduce income and racial differences across community lines is running into detours instead of creating them. For example, late last summer a joint Senate and House Conference Committee overseeing spending by the U.S. Department of Housing and Urban Development (HUD) shelved a $149.1 million fiscal 1995 appropriation for the Moving to Opportunity (MTO) program.' MTO, modeled on HUD's Gautreaux Demonstration program, is intended to enable low-income inner-city recipients of Section 8 vouchers and certificates to move to communities with relatively little poverty concentration.2 Anthony Downs, senior fellow with the Brookings Institution, characterized the action as "part of the hysterical reaction by conservatives against having low- income people moving into their communities. "' If that were not enough, Republicans last November won a 4 majority in the House and Senate for the first time in forty years. GOP leaders have made it clear that they intend to reduce the size and reach of the federal government by scaling back or eliminating agencies repeatedly plagued by inefficiency, waste, and corruption. Owing largely to this Congressional realignment, the Clinton Administration came close to recommending that Congress abolish HUD, an agency not unknown for its share of corruption.' In response, HUD Secretary Henry Cisneros and key aides quickly t Washington Correspondent, Investor's Business Daily. ' Instrumental in the action was Maryland Democratic Senator Barbara Mikulski, who had "strong reservations" about the program and questioned its administrative oversight. Ann Mariano, Hill Panel Halts Plan to Move Poor Families, WASH. POST, Sept. 3, 1994, at El. 2 See id. 3 Id. at E6. " Republicans did hold a majority in the Senate after the elections in 1980, 1982, and 1984. The elections of 1994 represented the first time since 1952 that the GOP gained a majority in both houses. See Dan Balz, GOPCaptures Congress: Party Controls Both Housesfor First Time Since '50s, WASH. POST, Nov. 9, 1994, at Al. 5 Even sources sympathetic to HUD's mission have harshly evaluated the agency. See, e.g., NATIONAL AcADEMY OF PUB. ADMIN., RENEWING HUD: A LONG-TEnf AGENDA FOR EFFECTIVE PERFORMANCE at ix (1994) (noting problems with political leadership, budget, and program overload). The two-year study was mandated by Congress. (1379) 1380 UNIVERSITY OF PENNSYLVANIA LAW REVIEW [Vol. 143: 1379 mapped out a reorganization plan to save their department.6 The proposal calls for consolidating sixty major HUD programs into three performance-based funds by fiscal year 1998, converting subsidies for public housing into portable rent certificates, 7 and transforming the Federal Housing Administration (FHA) into a government-owned corporation resembling a modern insurance 8 company more than a bureaucracy. Finally, the Federal Reserve last fall released a study on over 200,000 FHA loans. They found that black borrowers exhibited significantly higher default rates in both urban and suburban locations and that losses due to default were greater on loans to black borrowers.' Such results might give pause to Justice Depart- ment prosecutors, convinced that banks are denying blacks and other minorities fair access to mortgage credit and thus must be coerced into signing costly consent decrees. Predictably, panic and anger are setting in. At a speech before the National Press Club on February 14, 1995, Cisneros remarked, "today we hear voices spewing forth the flawed logic of Social Darwinism, calling for government's withdrawal from the housing arena, rejecting America's long tradition of steady, forward progress in favor of retrenchment and regression. " " The egalitarians' fear of losing political ground is what has set the context for this Law Review Symposium. Two of its more thoughtful and moderate expositors, Michael Schill and Susan Wachter, have issued what amounts to a cautious endorsement of those expressing such fears." That may be as good as libertarians can hope for at a 6 See U.S. DEP'T OF HOuS. & URBAN DE., A PLACE TO LIVE IS THE PLACE TO START: A STATEMENT OF PRINCIPLES FOR CHANGING HUD TO MEET AMERICA'S HOUSING AND COMMUNITY PRIORITIES (1995). 7 If adopted, this move might render the MTO program irrelevant because public housing tenants would have the option to use tenant assistance in the same portable manner that MTO participants do. ' The FHA has been part of HUD since the department initially went into operation in early 1966. The FHA was created in 1934 to insure lenders of home mortgages against the risk of default. 9 See JAMES A. BERKOVEC ET AL., FEDERAL RESERVE SYS., DISCRIMINATION, DEFAULT, AND LOSS IN FHA MORTGAGE LENDING (1994). For a discussion of the report, see Paul C. Roberts, Deflating the Mortgage Bias Balloons, WASH. TIMES, Feb. 16, 1995, at A18. 0 Secretary Henry G. Cisneros, U.S. Dep't of Hous. & Urban Dev., Speech at the National Press Club 3 (Feb. 14, 1995) [hereinafter Cisneros Speech] (transcript on file with author). " See Michael H. Schill & Susan M. Wachter, The Spatial Bias of FederalHousing Law andPolicy: ConcentratedPoverty in Urban America, 143 U. PA. L. REV. 1285 (1995). 1995] PITFALLS OF HOUSING REDISTRIBUTION 1381 forum where the necessity of a pursuit of social equality by the state is a foregone conclusion. If the authors fail to grasp some larger philosophical and political issues, they do offer valuable insights as to why command-and-control housing policies so often go astray. Whether through public housing development and management, subsidized private construction, mortgage insurance, or mandated community reinvestment, the federal government inadvertently has 12 reinforced ghettoization, or, as the authors term it, "spatial bias." The agglomeration of low-income persons in turn has accelerated crime rates, welfare dependency, drug abuse, and illiteracy in inner- city life. Without the presence of employed adult male role models, gangs and other unsavory demimonde have become proxy mentors for much of a whole generation of young urban blacks." While the authors overestimate the extent to which the concentration of pov- erty actually causes this to happen, at least they exhibit an under- standing that discrimination against blacks may explain a lot less about inner-city life than commonly imagined. I. UNINTENDED CONSEQUENCES In a number of housing policy areas, the authors are on strong ground, such as their analysis of the public housing program. The architects of the United States Housing Act of 1937,"4 originally a ladder of mobility for the working poor, hardly envisioned public housing projects as becoming places for large concentrations of a nonworking and often dysfunctional underclass. Schill and Wachter note that the roots of much of the problem began in the 1949 housing legislation, when Congress set income limits requiring that tenants leave a project if their income exceeded five times their rent, a requirement aggravated by the granting of first priority for admission to displacees of slum clearance programs.1 5 Over time, these policies helped trigger a financial crisis in larger housing authorities that led to the Brooke Amendment of 1969, limiting rent to twenty-five percent of tenant income (raised early in the Reagan 12 Id. at 1285. Is See DOUGLAS S. MASSEY & NANCY A. DENTON, AMERICAN APARTHEID: SEGREGATION AND THE MAKING OF THE UNDERCLASS 165-81 (1993) (discussing the culture of segregation); WILLIAMJ. WILSON, THE TRULY DISADVANTAGED: THE INNER CITY, THE UNDERCLASS, AND PUBLIC POLICY 20-62 (1987) (discussing social change and social dislocation in the inner city). "4See Schill & Wachter, supra note 11, at 1291. 15 See id. at 1292. 1382 UNIVERSITY OF PENNSYLVANIA LAW REVIEW [Vol. 143: 1379 years to thirty percent). 6 Despite the 1974 Housing and Communi- ty Development Act's call to "avoid concentrations of low-income and deprived families with serious social problems," the authors note that Congress in 1981 mandated that practically all public housing residents, especially those in new projects, be of "very low" income, and eased these quotas only a few notches in the Cranston- Gonzalez legislation of 1990.17 The authors also note that the effects of the one-for-one replacement rule requiring that a PHA create a new unit for every one demolished has been "pernicious for many inner-city communi- ties."'" Developed as Section 121 of the 1987 Housing and Community Development Act by Democrat Representatives Henry Gonzalez (Texas) and Barney Frank (Massachusetts) to "protect" the public housing stock, this provision has done little more than prevent the removal of public housing eyesores; even Secretary Cisneros, at least by implication, wants to repeal it.19 One hopes he is willing to cross swords with public housing tenant activists who are likely to sue (and too often have, successfully) to prevent the razing of decrepit projects. For a long time, the courts have played a role in eviscerating standards in public housing anyway. By ruling on behalf of plaintiffs attempting to loosen admission and residence requirements, judges have given public housing tenants insulation from expectations of reasonable behavior, and thus from eviction laws, unavailable to tenants in privately-owned dwellings. 0 The authors might have mentioned an additional, more recent, source of decay in public housing-the giving of top priority to "the homeless" and "the disabled" for residence. These groups have suc- 16See id. at 1296. 17 See id. at 1295 n.44. The Omnibus Budget Reconciliation Act of 1981 mandated that 95% of all occupants in newly-constructed units have very low incomes (less than 50% of the area median income). See Pub. L. No. 97-35, § 323, 95 Stat. 357, 404-05 (codified as amended at 42 U.S.C. § 143 7 n (1988)). The 1990 Cranston-Gonzalez National Affordable Housing Act reduced this quota to 85%.