Solving the Housing Crisis Pragmatically

by Robert Bachelder

Mr. Bachelder, who has worked in banking, in 1987 was minister of Worcester City Missionary Society (United Church of Christ) in Worcester, Massachusetts.

This article appeared in the Christian Century, April 18, 1990, pp. 398-400, copyright by the Christian Century Foundation and used by permission. Current articles and subscription information can be found at This material was prepared for Religion Online by Ted & Winnie Brock.


Since 1981, the federal government has reduced its dollar commitment to housing by 75 per cent.

America’s Roman Catholic bishops write that the "challenge of today is to move beyond abstract disputes about whether more or less government intervention is needed, to consideration of creative ways of enabling government and private groups to work together effectively’’ (Economic Justice for All) The truth of this declaration is evident in the U.S. housing crisis. Neither the traditional liberal approach that relies on the federal government’s initiative nor the conservative approach, that looks to the marketplace, can adequately create and preserve housing for low-income people.

In Massachusetts, for example, the rental housing market is the primary source of shelter for low-income households, but it costs about $85,000 to build a modest apartment unit. Assuming reasonable operating costs, the rental price for such a unit is $1,000 per month. Assuming that about 25 percent of household income goes to rent, a family must earn about $48,000 to afford such an apartment. Families with lower incomes, who constitute a numerical majority, would require some form of subsidy.

The federal government was the main source of subsidy in the ‘60s and ‘70s, offering for-profit developers below-market interest rates and tax incentives to build and maintain affordable housing. The most successful program, Section Eight New Construction, which made investment capital and financing easy to obtain by guaranteeing rental payments, produced 150,000 units annually.

Since 1981, however, the federal government has reduced its dollar commitment to housing by 75 percent -- from $33 billion to $7 billion per year -- and has eliminated the Section Eight program altogether. The Reagan administration presumed that in a low-interest, low-inflation economy, the market itself would produce an adequate supply of housing. The administration ignored the experience of the ‘50s and ‘60s that proved the market cannot produce an adequate supply of low-income housing -- and which led to the creation of the Department of Housing and Urban Development in the first place.

The administration also ignored important current experience. As urban policy analysts John Gilderbloom and Richard Appelbaum observe, for example, Houston would seem from a conservative’s viewpoint to have been a near-perfect environment for creating affordable housing in the ‘80s. There was a high vacancy rate, little planning regulation and no rent control or zoning ordinances. Nevertheless, Houston experienced a severe housing problem with half a million people paying more for housing than they could afford, a large homeless population and long waiting lists for public housing.

There was another irony in the administration’s approach. Contributing to the housing crisis is a federal tax policy that allows for the unlimited deductibility of mortgage interest. While the administration was drastically reducing subsidies for the poor, it supported the continuation of this economically and socially dysfunctional subsidy for the upper and upper-middle classes. The provision encourages the wealthy to purchase more housing than they need or would otherwise buy if housing were treated like other assets, and thereby forces up the cost of housing in general. Furthermore, it costs the U.S. Treasury $12 billion per year on the first. and second homes of households earning more than $75,000. Moreover, as economist William Fischel argues, it encourages excessive suburban construction that in turn hastens the deterioration of city neighborhoods by accelerating the desire to abandon housing and commercial structures in the city and removing many of the people in those neighborhoods who make for economic and social stability.

The Reagan administration’s approach precipitated a crisis in both the availability and affordability of rental housing, especially in the Northeast. At the same time that the federal government was getting out of the housing business, the economy in Massachusetts and other New England states was rebounding and the high interest rates that had dampened the real estate market in the late ‘70s and early ‘80s were easing. The result was an explosion in single-family house prices that forced middle-income families, who ordinarily would have purchased houses, to crowd the rental market in direct competition with low-income families. In Worcester, Massachusetts, New England’s second-largest city, only one household in seven in 1987 had enough income to purchase a median-priced house; in 1980 the figure was one in two.

David Angel of Clark University in Worcester illustrates the severity of the situation in his recent study of the rental market in Worcester. Interviews with a representative sampling of the city’s renting population indicate that 57 percent of households have had trouble finding rental housing and that affordability is the main problem for nearly half of these. Many poor households pay in excess of 65 percent of their gross income for rent and utilities, leaving about $75 per week for food, clothing and health care. In addition, the waiting period is over two years for public housing and four years for privately subsidized housing.

To criticize the Reagan housing policy is not to recommend returning to the time when the federal government built or subsidized for-profit developers to build the socially destabilizing, high-rise apartment complexes symbolized by the infamous Robert Taylor Homes on Chicago’s South Side. These were grossly expensive programs: in the case of Section Eight New Construction, the government virtually handed for-profit developers a blank check by promising to cover costs running over the earmarked 30 percent of tenants’ income. On top of rent supplements, each privately owned apartment costs the government from $4,000 to 6,000 per year in tax benefits and interest subsidies. Operating costs nevertheless exceeded revenues so often that HUD has had to foreclose on 140,000 units. An additional 280,000 units have been handed back voluntarily to HUD by their owners. Furthermore, as government contracts expire, owners are free to convert their properties to higher-priced market rentals; unless the government can find $17 billion to purchase them, 500,000 units will be lost in the next 12 years.

Though both conservative and liberal approaches have failed, we are not necessarily at an impasse. A creative and effective way to address the housing shortage based on cooperation between governments and private groups of the kind commended by the bishops emerged from the wreckage of the Reagan years in the form of community-based development organizations and private financial intermediaries.

Some 1,700 CBDOs operate nationwide on the principle enunciated by the privately sponsored National Housing Task Force: solutions to the housing crisis are best designed and implemented at the local level. These not-for-profit organizations work in partnership with state and local governments to undertake small-scale construction and rehabilitation. In Worcester, for example, 25 long-term residents of a neighborhood were threatened with displacement when the three buildings in which they lived were sold to a notorious slumlord. When he doubled and tripled the rents, a CBDO stepped in, assembled a complex financing package from public and private sources, purchased the buildings, employed a private contractor to rehabilitate them, and established a housing cooperative in which the residents are now shareholders.

Such work has an important cumulative effect. A recent survey of 63 of these organizations found that they had constructed 125,000 units, 90 percent of which went to low-income renters. Just as important, CBDOs can ensure permanent affordability of units by using such innovative devices as land trusts and limited equity cooperatives. And since they are close to the scene, CBDOs can ensure adequate maintenance for the apartments they own and manage.

Financing for the CBDOs’ work comes not only from state and local governments, but from private financial intermediaries whose work has been characterized as a "curious blend of social investment and business discipline" and that have grown steadily in the ‘80s in numbers and sophistication. In New York, the Local Initiatives Support Corporation secures corporate and foundation investment capital for "locally created, locally executed" community development projects. Investors have included the Ford Foundation, Aetna, ARCO and Prudential. In northern California, the Low Income Housing Fund has secured investments from Apple Computer, Equitable Life and the Wells Fargo Bank. Corporations are attracted to the tax credits allocated to investors after the units are occupied by low-income residents: over 70 companies have invested over $100 million on this basis.

As the Catholic bishops say, local church groups can help by working "creatively and in partnership with other private and public groups in responding to local and regional problems." Clergy and laity frequently provide key leadership on CBDO boards. By using financial intermediaries such as revolving community loan funds, many religious orders, judicatories and local congregations can provide below-market loan capital that helps to make marginal projects viable. In Worcester, for example, a local congregation provided some of the critical gap-financing for the rehabilitation of two buildings containing 11 apartments with an interest-free, five-year loan for $15,000. The need for such strategic investment in low-income communities ought to occupy a higher place on the agenda of church financial discussions. True, mainline Protestant organizations are running for their financial lives. But if the churches are unwilling to exercise their own moral imagination, they hardly can urge such labor on other institutions. CBDOs and financial intermediaries demonstrate the vitality of an old-line Protestant tradition that emphasizes private, voluntary responses to social needs -- what President Bush refers to with the phrase "a thousand points of light."

While CBDOs are eminently serviceable lights and may, as a recent Ford Foundation newsletter says, hold the answer to the country’s housing crisis, they are not going to burn, brightly enough until the central power Station begins to generate a stronger current. The best combined effort of state and local governments, businesses, foundations, religious and other charitable institutions to support community development is no substitute for a renewed federal commitment to housing. Although Massachusetts had the most sophisticated housing programs in the country before its fiscal crisis and spent $1 billion from 1983 to 1988, it built only half the number of units that HUD constructed here in a comparable period in the ‘70s. Only the federal government has the fiscal power required to spur the development of the units needed to house all Americans decently.

What is needed in American public life at this point, then, is wider acceptance of the principle of subsidiary. As the bishops note in their pastoral letter: "Government should not replace or destroy smaller communities and individual initiative. Rather, it should help them to contribute more effectively to social well-being and supplement their activity when the demands of justice exceed their capacities."

In this regard, the National Housing Task Force recommends that increased federal spending for housing be allocated through a program of entitlements to states and localities based on need as well as through a program of matching funds based on the willingness of local governments, businesses and nonprofits to provide land and financing. One form the federal contribution should take is that of capital grants to carry forward the programs of CBDOs. Such dollar outlays would substitute for bond and mortgage revenue that drives up housing costs, and they also would serve to free nonprofit developers from the time-consuming task of assembling complicated finance packages from myriad sources. Two current legislative proposals, one from the administration and one cosponsored by Senators Alan Cranston of California and Alfonse D’Amato of New York, are conceptually and financially inadequate; but the administration’s initiative is a breakthrough nonetheless, in that it signifies a growing awareness of the need for federal attention.

The Urban Institute estimates it will cost $97 billion to construct or renovate the 36 million units necessary to house all Americans decently over the next 15 years. Although the federal government is far from assuming its portion of the broader social responsibility for affordable housing, the very depth of the housing crisis is itself a source of hope. While people with a low income are afflicted most acutely, those with a middle income also suffer, and many corporations find it hard to attract workers because of the high cost of housing. The time is ripe for an exceptionally broad political coalition to work for a new federal housing policy reflecting what the bishops call "the American pragmatic tradition of reform."