PROMISE OR PERIL? : Mixed Record Raises Doubt Over Privatized Low-Income Housing
When it comes to housing poor people, one city’s vision of progress can be another’s nightmare.
As officials in Los Angeles promote a plan to put Jordan Downs, one of the city’s more rundown public housing projects, into private hands, officials in Boston are trying to figure out how to repair damage done to a low-income housing project in the many years it has been in the hands of private owners there.
Without adequate heat or hot water, the site of a recent fire that injured two children, Geneva Avenue Apartments was described recently by a Boston Housing Court judge as “a warehouse for wretched human souls” and has been portrayed by Boston newspapers as one of the city’s worst examples of slum housing.
Almost 3,000 miles apart, the two projects illustrate the promise and perils of privatization.
Free Enterprise
An idea that came of age during the Reagan era, privatization assumes that free enterprise can do a better job than government bureaucracy, even when it comes to providing decent shelter at bargain basement prices. About half of the nation’s 4 million subsidized apartments are in private hands.
At Jordan Downs, Los Angeles officials argue that, given the right incentives, a real estate developer can make the 700 apartments safer and sounder than the city’s Housing Authority has been able to do in its 34 years of ownership. Officials concede that marketing a public housing project in a gang-infested neighborhood in Watts won’t be easy, but they say they can do it.
The privatization of low-income housing is not always a panacea, however, as life at Boston’s Geneva Avenue Apartments and some other privately run projects illustrate. For over a year, Geneva Avenue tenants have been trying to persuade the U.S. Department of Housing and Urban Development to take the complex away from its owner, a Southern California real estate investor, because of living conditions at the 60-unit building.
Boston Difficulties
The owner, Allan Bird, has acknowledged that the project is in bad shape, but he said he is making improvements. He said living conditions deteriorated during a 2 1/2-year period in which he was trying to sell the apartments to another investor. Bird contended that terms of the sale placed responsibility for upkeep in the hands of the buyer, but that HUD ultimately declined to approve the sale and now is holding him responsible for conditions.
With HUD insuring its mortgage, Geneva Avenue was supposed to offer investors enough incentives, including tax credits, to make it worth their while to run a comfortable apartment complex for poor people. The same basic package of incentives has been used to lure private investors into the low-income housing market around the country. The results have been mixed.
“The record of management of low-income projects by private owners goes from fantastic to mediocre to terrible,” said Sara Johnson, an expert with the National Housing Trust in Washington.
One recent study revealed that about 43% of HUD-insured privately owned low-income housing is in danger of mortgage default. “As a general rule, a default is a sign of financial failure that carries over to poor upkeep and maintenance,” said Larry Yates, an official of the National Low Income Housing Coalition.
When low-income housing passes into private hands, the responsibility for making sure that landlords provide decent living conditions usually falls to HUD, a chronically understaffed agency, where the best of intentions cannot always get the job done.
Foreclosure Attempt
A year ago, HUD’s staff in Boston made an attempt to foreclose on the Geneva Avenue Apartments. Instead of complying with the foreclosure request, HUD officials in Washington arranged for the owner of the apartments to get a $1-million rehabilitation loan.
The Geneva Avenue situation is not atypical of HUD’s relationship with privately owned projects that have fallen on hard times, said an official of a national organization that lobbies for low-income housing. “HUD doesn’t want to wind up owning these projects. The financial burden would be enormous if HUD took over all the distressed low-income housing currently in private hands. As a result, the agency tends to go easy on the owners,” said the official, who asked not to be named.
When investors do take care of low-income property, they are often motivated by the prospect of one day opening up their apartments to higher-income tenants. For the owners of subsidized housing, that day comes when the five to 20-year life span of HUD rent subsidies runs out.
The country’s critical shortage of low-income housing could well get worse with so many of these subsidies due to expire soon. According to Yates, 37% of HUD-insured housing units are likely to move onto the open market and out of reach of low-income tenants in the next few years.
Task for Congress
The prospect raises a difficult problem for backers of privatization: How to prevent private investors from taking housing off the low-income market without destroying much of the financial appeal of the investments. Congress is currently grappling with the issue.
“It’s a major problem, and, frankly, I don’t know what we’re going to do about it,” said Sen. Alan Cranston (D-Calif.), who chairs the Senate’s housing and urban affairs subcommittee.
For low-income tenants who are lucky enough to be in stable, well-maintained privately owned apartment complexes, life can be comfortable and secure, in part because of rules that tend to be stricter than tenants of many public housing projects are accustomed to.
“You’ve got to have careful tenant selection. You have to have the right to reject tenants who have criminal records or bad credit records. And you have to make tenants accountable for their apartments. You can’t let a family of five squeeze into a two-bedroom unit,” said a Los Angeles real estate developer who has built and operated several low-income projects.
But strict management by private owners sometimes means that tenants are treated “arbitrarily and unfairly” and denied the hearings and procedures of due process that public housing projects must provide, argues Jim Grow, a lawyer for the National Housing Law Project.
Plans in L.A.
In Los Angeles, the plan for Jordan Downs would have a developer pay $10 million to $20 million to purchase the project and spend an additional $14 million to fix it up and boost security. The developer would hope to recoup the investment through tax credits and rent subsidies.
Yvonne Brathwaite Burke, a former Los Angeles congresswoman who has been hired by the Housing Authority to help arrange the Jordan Downs sale, said the developer will be held strictly accountable for running the project and will not be allowed to charge market-rate rents anytime soon.
“The developer will have to sign a covenant making him responsible for the property. He won’t be able to syndicate it (dividing ownership among a number of investors) or hide behind a management company,” Burke said. Moreover, she said the deed would require that Jordan Downs “remain available to low-income tenants for a period of time.”
Asked how long, Burke replied, “That’s something we’re going to have to discuss.”
Considering the price and the proposed conditions, Burke admitted that Jordan Downs may prove to be a hard sell.
“It’s going to require quite a big commitment. I frankly don’t know if there’s going to be a tremendous amount of interest in the project. We’ll have to see.”
