Proposal: Make direct cash payments to Section 8 recipients to allow them, in conjunction with a church or non-profit, to purchase a house and build personal equity instead of renting an apartment.
Background: Ultimately, the goal of any safety net program is economic agency, to give the recipients of the aid the ability to take control of their economic lives. Government programs can have the opposite effect, building a dependency on the government instead of self-reliance. The current Housing and Urban Development (HUD) Section 8 program is an example. The program does allow recipients to take control of where they live, however it also leaves most of the responsibility with the government. The government decides if a housing unit is adequately maintained, not the recipient. The government pays the landlord directly, instead of trusting the recipient to make the payment. And there is no incentive for the recipient to find comparable, lower priced housing – the recipient doesn’t financially benefit from being frugal.
Radical Trust: At some point, if we really are going to break the cycle of dependency, we need to trust that the recipients can achieve some degree of economic agency. We need to trust people. The only way to for someone to achieve economic self-determination is to allow them to take control of their own economic lives. We need to, as much as possible, give recipients absolute control over their financial decisions, and allow them to benefit from, or be harmed by, the economic choices they make.
Existing HUD Home Ownership Program: HUD currently allows Public Housing Agencies (PHAs) to establish home ownership programs using Section 8 funds (24 CFR part 982). The program mirrors Section 8 for rentals.
- The amount of support a recipient is eligible for is based on the normal voucher payment schedule (as an example, the Fair Market Rent for the City of St. Louis for a three-bedroom apartment is $1,224 per month, or just under $15,000 per year).
- Monthly home ownership expenses can be paid through the program, with the amount of support a person receives being based on their actual expenses, up to the set limits.
- Funds can be paid directly to recipient or to the lender.
- Program funds cannot be used for down payments or home closing costs.
- Recipients must complete a pre-assistance homeownership and housing counseling program.
- A range of eligibility rules apply.
- If the term of the mortgage is 20 years or more, a family can receive the support for up to 15 years. If the mortgage is less than 20 years, the term is capped at 10 years.
- If the family sells the home within the first ten years, much of the equity is recaptured by the PHA.
Modified Home Ownership Program: The goal of the modified equity program is to help recipients achieve economic self-determination and build personal equity. The starting point has to be actually trusting that the recipients can figure out home ownership. A secondary goal is to help strengthen local community and institutions by requiring recipients to be a member of a church or service organization and that organization to participate financially.
- Recipients still have to complete pre-assistance homeownership and housing counseling program and a broader financial literacy/management course.
- Recipient must meet existing HUD requirements.
- Recipient must have been an active participant at a church or service organization for a least a year.
- Church or service organization sponsors Recipient’s application.
- Church or service organization has to loan to Recipient approximately 5% of likely price of the house, approximately $3,000.
- Recipient secures mortgage from participating bank.
- Church or service organization has a second mortgage on the property for the amount of its loan.
- PHA commits to providing funding to recipient for five years, regardless of any change in the recipient’s financial status, as long as the recipient’s mortgage is current. In St. Louis, this would be about $15,000 per year, or $75,000 over the five years.
- PHA payment is maximum allowed by formula, paid in cash, regardless of the recipient’s actual mortgage amount or home ownership costs.
- Recipient agrees to an expedited foreclosure and eviction process in the event recipient fails to keep mortgage current.
- Church or service organization has the option of stepping in to evict Recipient before foreclosure.
- Church or service organization able to transfer ownership of house to another Church or Service organization member that has qualified for the Section 8 program, or to a member that can qualify with the lender to assume the mortgage.
- At the end of the five years, the recipient is on their own. If they have figured out how to keep their mortgage paid, they can keep their house and their equity.
- If they can’t figure it out, for whatever reason, they lose the home and their equity.
- When they have built sufficient equity and payment history, they can re-finance and pay back the loan from the church or service organization.
- If they sell the home, the recipients get to keep whatever equity they have built up over the mortgage and second mortgage; the PHA does not recapture any of the gain.
Recipients would have a five-year window to get to housing self-sufficiency. If they can figure out how to keep making the monthly mortgage payments after the support ends, then they get to keep owning their home. If they can’t figure it out after five years, they face the market like every other home owner – they lose their house and have to go back into public housing.
Repairs, not Reparations: This isn’t a blanket payment for general societal harm suffered – it’s not reparations. Instead, it’s a targeted cure to address a specific harm. Actions taken by government made it harder for poor African Americans, and arguably the poor of any color, to purchase a home. To name just one, an unintended consequence of public housing projects in the fifties and sixties was the destruction of thousands of individual single family and multi family homes. In St. Louis, more than a third of the homes destroyed to make way for the Pruitt-Igoe housing project were owned by African Americans. This removed from the housing stock homes and buildings that poor families could afford – it shrunk the supply of low-priced homes in poor neighborhoods. Owning a home, even an inexpensive home in a poor neighborhood, is a foothold into our capitalist economy – it is a way for a person to start building equity. Making it harder to buy an inexpensive home also made it harder for the poor to build equity and greater economic self-determination. To cure this harm, we need to make it easier for poor Americans to buy a home and begin building equity.
The importance of the Community: A key difference from the existing HUD home ownership program is the involvement of a church or service organization. Regular church attendance or regularly volunteering for a service organization are forms of personal commitment; they are indications of personal responsibility and a recognition of one’s obligation to the community. Setting community engagement as a threshold for program participation will filter out recipients who are less likely to be able to succeed. Making the churches or service organizations financial partners helps strengthen the community. The church or service organization, as a gatekeeper, controls access to a valuable resource that will help draw people to the organization. Requiring a financial commitment from the church makes them a partner to the recipient. Allowing the church or service organization to step in if a recipient fails helps ensure a smoother transition to a new owner occupant for the house.
An incremental, but important change: Just over two million households are currently enrolled in the Section 8 program. If 20% can meet the participation criteria, that’s only another 400,000 owner occupied homes. However even this small number can have an impact. It will increase the number of potential home buyers in poorer neighborhoods, which will increase economic activity and investment, leading to more vacant homes being fixed up for sale. In St. Louis, homes could potentially come from the City’s inventory of abandoned homes, fixed up using the mortgage money. It will give more people a sense of participation in our economy and provide more examples of success for the community. It will potentially help 400,000 families build their personal equity.
We are already spending the money: The Federal government is already paying the housing costs for Section 8 recipients. Arguably we are not receiving maximum return for our investment. We are not helping recipients gain a foothold in the economy, and we are not moving them closer to economic agency. If we are going to spend the money, we should spend it in a manner that best advances our ultimate goal, helping people become independent of government. Radical trust means just giving poor people the money to see if they can figure it out for themselves. If we take this step, then we will have made it easier for a segment of our population to succeed financially. Yes, some will fail, lose their homes and have to go back into public housing. But even those people will benefit from the experience of trying.
Being true to our beliefs: If we as a country truly do believe that every individual has the ability to decide the course of their own life, then our social programs need to reflect this belief. We won’t be able to break the cycle of dependency as long as government programs reinforce dependency. At some point the answer has to be radical trust. At some point, we have to trust that people can succeed. That if we give them a foothold on building equity, some of them will figure it out enough to actually break free of reliance on the government. We need to trust that every American can participate in, and succeed in, our capitalist economy. It won’t change our country over night, but it will be a step forward if we can give more Americans the chance for their own quarter acre and a mortgage.