Department of Housing and Urban Development

Proposed Spending Cuts

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Chris Edwards and Tad DeHaven

May 2010

Federal housing and urban programs have an eight-decade legacy of scandals, economic distortions, and social damage. Housing and urban infrastructure are properly the responsibilities of local governments and the private sector, and there is no need for federal involvement. The Department of Housing and Urban Development has created more problems than it has solved, and it should be closed down.

Federal urban renewal and public housing projects of the mid-20th century paved over neighborhoods and herded inner-city residents into high-rise concrete boxes. These projects quickly fell into disrepair and were overcome by crime and disorder. It was a spectacular government failure, but federal taxpayers are still spending about $9 billion a year on public housing subsidies. Those subsidies should be ended, and remaining public housing projects should be privatized or bulldozed.

Federal rental assistance programs should also be ended. Project-based and tenant-based rental subsidies cost taxpayers about $27 billion annually. Like public housing, rental subsidies encourage dependency on the government, discourage self-improvement, and stifle renewal in city neighborhoods. Rental assistance programs and public housing both rest on the myth that private markets can't provide adequate housing for lower-income Americans.

Community development subsidies should be ended to save taxpayers about $13 billion annually. With today's huge budget deficits, it makes no sense for the federal government to fund purely local projects such as parking lots and museums. Besides, only local policymakers can properly judge the merits of local projects when they balance a project's benefits with the local tax costs.

Housing finance programs designed to subsidize homeownership have created serious economic distortions that played a major part in the recent financial meltdown and recession. These programs encourage people who can't afford homes to nonetheless buy homes and get too far into debt. Housing finance markets would work more efficiently without federal subsidies. HUD's activities in this area should be phased-out to save taxpayers about $12 billion annually.

The table shows that federal taxpayers would save $63 billion annually by closing down HUD, or about $530 for every household in the nation. Also, the low income housing tax credit should be ended as an unneeded subsidy to developers worth about $5 billion per year. As HUD programs are cut, policymakers should also eliminate building, zoning, and other regulatory barriers that stand in the way of markets providing low-cost dwellings for moderate-income families.

 

Department of Housing and Urban Development
Proposed Spending Cuts
Program
 
Spending in 2010
 
 
($ million)
Rental Assistance   $27,164
Community Development   $13,092
Housing Finance   $11,879
Public Housing   $8,808
Native American/Hawaiian programs   $893
Other   $682
Total proposed cuts   $62,518
Total department outlays   $62,518
Source: Estimated fiscal year outlays from the Budget of the U.S. Government, FY2011.