Chicago's Housing Subsidy Debacle

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I haven’t followed the controversies surrounding Valerie Jarrett, a senior advisor to President Obama. However, her tenure as the CEO of a company that received federal money to run a public housing project deserves further scrutiny.

A June 2008 exposé by the Boston Globe provides a tawdry tale of how private companies—including Valerie Jarrett’s—that receive subsidies to operate public housing can do an abysmal job: 

The squat brick buildings of Grove Parc Plaza, in a dense neighborhood that Barack Obama represented for eight years as a state senator, hold 504 apartments subsidized by the federal government for people who can’t afford to live anywhere else.
 
But it’s not safe to live here.
 
About 99 of the units are vacant, many rendered uninhabitable by unfixed problems, such as collapsed roofs and fire damage. Mice scamper through the halls. Battered mailboxes hang open. Sewage backs up into kitchen sinks. In 2006, federal inspectors graded the condition of the complex an 11 on a 100-point scale - a score so bad the buildings now face demolition.
 
Grove Parc has become a symbol for some in Chicago of the broader failures of giving public subsidies to private companies to build and manage affordable housing - an approach strongly backed by Obama as the best replacement for public housing.
 
As a state senator, the presumptive Democratic presidential nominee coauthored an Illinois law creating a new pool of tax credits for developers. As a US senator, he pressed for increased federal subsidies. And as a presidential candidate, he has campaigned on a promise to create an Affordable Housing Trust Fund that could give developers an estimated $500 million a year.
 
But a Globe review found that thousands of apartments across Chicago that had been built with local, state, and federal subsidies - including several hundred in Obama’s former district - deteriorated so completely that they were no longer habitable.
 
Grove Parc and several other prominent failures were developed and managed by Obama’s close friends and political supporters. Those people profited from the subsidies even as many of Obama’s constituents suffered. Tenants lost their homes; surrounding neighborhoods were blighted. 
Some analysts who prefer smaller government believe that private-public partnerships are a preferable third way to provide government services. However, my experience with “P3s” in state government led me to conclude that they’re a poor substitute for completely removing the government from the equation.
 
When governments contract out the provision of services to private companies, a situation that is commonly (and inappropriately) labeled “privatization,” the burden remains on public officials to oversee the contract. Unfortunately, public officials often do no better a job overseeing private contractors than they do their own employees. And the results can be strikingly similar: waste, fraud, and abuse of taxpayer dollars.  
 
In the case of public and “affordable” housing, the federal government has been getting bilked by private firms for decades. For example, in the 1950s the “windfall scandals” struck HUD’s Federal Housing Administration. Due to sloppy management at the FHA, “many builders pocketed millions of dollars of unearned profit from mortgage loans that exceeded the cost of construction.” Looking back on this episode in the midst of further FHA problems in 1971, Time noted that “whenever the government writes a blank check to the housing industry, some sort of scandal is likely to result.”
 
The belief that subsidies to private companies can solve the ills of public housing is fundamentally flawed. In a Cato essay on public housing and rental subsidies, housing expert Howard Husock gets to the heart of the matter: 
President Obama has said that his administration will end programs that have failed. Let’s hope that the administration takes a fresh look at housing programs and recognizes the distortions and damage they have created. They have failed not because of poor architecture or design, nor minor management problems, but because of much more fundamental factors. Federal housing programs distort markets in ways that undermine neighborhoods, they encourage dependency, and they do not create incentives for long-term maintenance and improvements. They also rest on the false premise that the private sector cannot provide housing for those of modest means …
 
Support for housing subsidies rests upon a failure to understand the importance of the means—such as marriage, hard work, and thrift—by which families improve their prospects so they can move to a better home in a better neighborhood. Better neighborhoods are not better because of something in the water but because people have built and sustained them by their efforts, their values, and their commitments. Subsidies are based on the mistaken belief that it is necessary to award a better home to all who claim “need,” but it is the effort to achieve the better home, not the home itself, that is the real engine of social improvement.