Government's Role in Low Income Housing
For most of America's history, when government accepted responsibility for providing low-income housing, it was at the local level, particularly by county government. Orphanages, poor farms and veterans homes were occasionally supported by the state, but most often they were financed, owned and operated strictly by county government. County homes (usually county farms) remained the typical methods used to provide housing for the homeless and needy until 1935. The limited government services were also provided almost exclusively to white citizens, with minorities denied access to even the most meager of facilities.
With the collapse of the banking system in 1929, the federal government was compelled to help find solutions to what quickly became a national housing crises. Most home loans of the time were financed by local investors or local banks in the form of short-term, non-amortizing loans. That forced Homebuyers to refinance their homes every few years at the prevailing interest rate. The collapse of the banking system, and the resulting loss of available capital to refinance these short term home mortgages, put millions of Americans in jeopardy of losing their homes.
The Roosevelt Administration began a number of initiatives directed at stabilizing the nation's housing stock, encouraging home construction, and promoting home ownership. The first of these programs was the Federal Home Loan Bank System which established a complex system of government support for home mortgages. Through the initiatives the federal government intervened to create a market for local lenders to sell permanent, self-amortizing home mortgage loans. The availability of the new long term mortgages greatly expanded the number of potential home owners. That started the first major shift in the U.S. from predominately rental housing, to an all time high of about 65% owner occupied which briefly existed in 1980. See homeownership today.
Congress also passed legislation intended primarily as jobs programs, to construct government owned rental housing in slum areas of major cities. The act was modified and expanded as the Housing Act of 1937 and provided for the establishment, through state law, of local Public Housing Authorities (PHAs) to build, own, and operate the housing. The first public housing in the nation built under the 1937 Housing Act was Atlanta's Techwood Housing Project, and Santa Rita Courts in Austin, Texas. Techwood is now coming down as HUD reshapes public housing to more closely emulate private neighborhoods, but Santa Rita Courts is among those still occupied as public housing today.
Federal Housing Programs: 1960s - 1980s
The next major low-income housing initiative came about through President Lyndon Johnson's Great Society Initiatives. The Housing Acts of 1965 and 1968, sought to privatize low-income housing by providing direct subsidy to developers who would build multi-family housing for low-income families. The federal government provided low-interest loans to developers and guaranteed the payment of rents to property managers.
By the early 1970s both the public and the public-private programs had become highly controversial at the local level. Critics cited examples of deterioration and lack of maintenance which were attributed to profiteering and slumlord practices. Local officials also opposed the construction of "housing projects" in their communities because of the introduction of low-income and minority families into previously stable working class neighborhoods. As a result of the criticism and concerns, President Nixon put a moratorium on the production of new public housing. However, to help counter a recession in the early 1970's Nixon authorized pumping even more federal funds into housing production.
In 1974 President Nixon introduced another approach to the provision of low-income housing: the Section 8 Rental Assistance Program, which provided low-income families with a rent certificate. This certificate would pay for a portion of the rent in any privately owned rental housing unit where the landlord was willing to accept the certificate. The family paid 30% of their income toward the rent and utilities while the federal government paid the balance up to a HUD-designated maximum level. The number of Section 8 certificates has grown incrementally larger each year and now includes rent vouchers to subsidize tenants in a slightly different manner.
President Nixon also began a process of turning authority over to local and state government for federal housing and community development through the consolidation of a number of categorical housing, urban renewal and other programs into a Community Development Block Grant. Jimmy Carter later pushed for tenant ownership of the privately owned subsidized low-income multifamily housing projects by helping tenants to purchase the property as cooperatives. However, many of the tenant cooperatives failed to make even the small portion of the mortgage payments they were responsible for and HUD was forced to foreclose. The projects were eventually sold back to private investors at HUD auctions.
In 1987, Congress and President Reagan established the Low Income Housing Tax Credit as an investor subsidy to spur production of low-income housing developments by private investors. These credits are awarded to investors by state housing agencies through a competitive process based on rules adopted by each state.
State Housing Agencies
At the time President Nixon was inventing the Section 8 program (1971) and block granting authority for community development programs (1973), local states had begun to issue tax exempt bonds for the purposes of providing below market rate loans to home buyers and apartment developers. See: Michigan Housing Development Agency.
The freewheeling issuance of these bonds, and subsequent state abuses of this program, resulted in a revenue drain. In response, the federal government passed a series of restrictions on state powers to issue tax-exempt bonds for housing finance. Restrictions included a limit on the income of borrowers under the program, a maximum house price and a limit on the amount of bonds a state could issue each year.
Present Federal Roll
As a result of changes in the Congressional majority following the 1994 election, fundamental changes have also occurred in terms of national and state responsibility for low-income housing. The deep budget cuts proposed at the federal level has resulted in a shift from subsidizing public housing projects to additional Section 8 Certificates and rent vouchers granted directly to tenants. HUD apparently believes that shift to private landlords will allow them to maintain low-income housing subsidies for the largest number of people. The Republicans in Congress also intends to shift the responsibility for the provision and maintenance of subsidized housing to the state and local level.
See our page that chronologically lists all of the Federal Housing Acts and Programs.