Reflections on the HUD Budget

As a former HUD Secretary, I thought I would share some quick reflections on the 2014 budget proposed by President Obama as it relates to housing.

First, some context: According to HUD’s most recent findings, nearly 8.5 million unassisted lower-income households have “worst case” housing needs, meaning these households pay more than half of their income on rent or live in severely inadequate housing, or both. “Worst case” needs have grown 19 percent since 2009 and a staggering 43 percent since 2007. For those at the bottom of the income ladder, a major factor contributing to high housing costs is the great shortage of available and affordable rental units.

In light of the tremendous need for assistance, HUD’s proposed 2014 budget request of $47.6 billion, a 9.7 percent increase over the 2012 enacted level, is understandable. As Secretary Donovan points out, more than 90 percent of this increase will be used to maintain current levels of rental and homelessness assistance that primarily help the most vulnerable households earning less than 30 percent of their area’s median income. Many of those assisted are elderly or disabled.

While additional funding is critical, it is equally important during this era of tight budgets to identify new approaches to more effectively utilize existing resources. That’s why the BPC Housing Commission has proposed a new performance-based system for delivering federal rental assistance that focuses less on process and more on achieving positive results for residents.

If implemented, this new system would evaluate a housing provider’s success in achieving outcomes like improved housing quality, enabling the elderly and persons with disabilities to lead independent lives, and greater economic self-sufficiency for assisted households capable of work. The system would devolve responsibility from the federal government to state and local decision-makers, as well as reward high-performing housing providers with substantial deregulation, providing greater freedom to innovate and depart from standard HUD practices and rules.

Under the commission’s plan, the highest-performing housing providers could be permitted to achieve economies of scale by operating on a portfolio or enterprise-level basis. Current housing policies drive affordable housing owner/operators to manage each housing development as a separate stand-alone entity with its own financing, compliance, and reserves. For those with large portfolios of properties, these requirements may needlessly raise operating and compliance costs. An enterprise-level approach, on the other hand, has the potential to increase efficiencies and allow the deployment of resources more effectively for the benefit of residents.

I was pleased to see that HUD’s proposed budget recognizes the vital importance of housing counseling. HUD estimates that its more than 2,200 approved counselors will assist 2.1 million renters and owners in making more informed decisions about their finances and housing options.

One of the commission’s key areas of interest is the aging of our nation’s population and what that may mean for housing policy. So I was also pleased to see recognition in the budget of the potential for using supportive housing as a platform for the delivery of health care and other critical services to our nation’s seniors.

The financial condition of the Federal Housing Administration continues to be a major concern, and the budget projects a $943 million shortfall in FHA reserves. This state of affairs underscores the urgency of the commission’s recommendations encouraging the introduction of far more risk-bearing private capital into the housing finance system. A system in which private risk-bearing capital is plentiful will help reduce the pressure that is sometimes placed on the FHA to act as the mortgage credit provider of last resort and allow it to perform its traditional missions more effectively and at lower cost to the taxpayer.

Perhaps the best news was a comment made by Senator Patty Murray (D-WA) at the recent Senate Appropriations Subcommittee hearing on the HUD budget. Senator Murray remarked that the commission’s recommendations “provide a very good foundation for beginning the discussion of our nation’s housing policy.” I happen to agree with the Senator, and look forward to working with her and other policymakers in fashioning new, more effective solutions to our nation’s many housing challenges.

Former Housing and Urban Development Secretary Henry Cisneros serves as a co-chair of BPC’s Housing Commission.

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