HUD scandal reveals crisis of U.S. housing

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Instead of spending $300 billion on the war budget, La crash public works program should be implemented to (1) put people to work, and (2) provide decent housing for every American citizen Housing should be a right-not a privilege. Rent should not exceed 10 percent of renter's income.

SOCIALIST ACTION AUGUST 1989 3 At a time when desperate homeless men and women are seeking shelter in old cars and packing cases, the Department of Housing and Urban Development (HUD) has opened its doors to profiteers and sleaze artists who have looted the agency in an orgy of fraud and larceny.

"We have influence peddling, ... we have theft, we have fraud, we have embezzlement, we have malfeasance, we have mismanagement," declared Rep. Tom Santo of California, who is heading a Congressional investigating committee.

"You name it, HUD has it." Millions of dollars have been diverted from the needy to the greedy.

Dismayed citizens are asking how a government department charged with housing the poor became the agency that has virtually destroyed public housing. And why are HUD programs being terminated when the country faces the greatest shortage of affordable homes in its history?

The answer is to be found in the 50-year history of public housing in America. Before 1937 there was no federally sponsored housing. Personal home needs were supposed to be met in the spirit of the pioneer who felled the trees and built a log cabin. Public housing was considered "socialistic."

The Depression changed a lot of attitudes. The unemployed were living in "Hoovervilles" of cardboard shacks, thousands of building-trades workers were idle, and the lumber and construction industries were prostrate. As part of the New Deal, the Housing Act of 1937 put federal money into slum clearance projects.

There was a mix of motives behind these projects: to put the unemployed to work, to bring profits to the building industry, and lastly, to get the homeless out of their cardboard shacks.

With this order of priorities, slum buildings that were home to thousands of the poorest were torn down. But they were replaced by privately owned apartments the displaced tenants could not afford. Blacks who were often victims of this kind of urban renewal called it "Black removal."

"Great Society"

With President Lyndon Johnson's "Great Society" in 1965 public housing was built in many cities. But the program was administered in such a way that private enterprise reaped maximum profit, and public projects turned into worse slums than the buildings they replaced.

Speculators sold the government waste land at inflated prices. Contractors put up the buildings as cheaply and profitably as possible. Repair and maintenance problems plagued many of the buildings from the day they were opened.

But this was not the federal government's problem. Operation of the buildings was turned over to the cities where Local Housing Authorities (LHA) were set up. Washington gave the cities no money for maintenance. That was supposed to come out of rental income. But poor tenants could afford only low rent.

Small scattered housing projects would be cheaper to maintain, but no one wanted public housing in their neighborhood. So the poor were concentrated in multi-story ghettos of poverty down by the railroad tracks. Here all the elements that lead to decline and collapse went into motion.

First the Housing Authorities kept raising rents to generate income for maintenance. Some tenants were soon paying as much as 75 percent of their income. In 1969 enraged tenants in St. Louis went on a six-month rent strike. As a result Congress placed a ceiling on rents at 20 percent of the tenant's income. (Later raised to 30 percent.)

This further starved Housing Authorities of money for repairs, and maintenance virtually ceased at some larger projects. Then an inexorable process of decay and collapse set in. Tenants, who could, moved out; vandals moved in and reduced the building to an empty shell. Housing authorities were helpless to stop the rot. In St. Louis they dramatically brought a conclusion to this kind of housing program by dynamiting the largest housing project to a pile of rubble.

Other cities have had the same experience. In San Francisco hundreds of units stand vacant because the Housing Authority does not have the money to rehabilitate them. Meanwhile the homeless grow ever more desperate.

After the fiasco of dynamited housing projects, the government got out of the business of building them. Henceforth HUD would only make loans and grants to private industry to build projects for profit. Some provision was made for non-profit groups to participate. Government support was offered in various forms in over 28 programs authorized by Congress.

In one plan, apartment builders were lent money at 3 percent interest if they rented one-fifth of their apartments to low-income tenants at subsidized rents. The rents would go up to market rate when the mortgages were paid off. In another program HUD lent money to low-income home buyers. In a third program HUD guaranteed mortgages for developers who put up housing for seniors. Congress voted as much as $26 billion for funding.

When Reagan took office, he saw HUD as an example of unwarranted government interference in private enterprise—a prime target for budget cutters. He cut the $26 billion budget down to $4 billion, and its staff from 16,000 to 11,000.

To head this much diminished department, Reagan chose a federal judge who knew nothing about housing. Samuel R. Pierce's lack of qualification suited Reagan perfectly. He did not want a strong advocate of subsidized housing heading that department.

Reagan found one use for HUD. He found it to be a great place for housing deserving Republicans in bureaucratic comfort. "The arus Joseph Ryan/Socialist Action White House used HUD as a dumping ground for the dregs," said a HUD official. "We just had a lot of slimy people...."

These "slimy people" and their friends outside found there were great opportunities for profit in many of the 28 HUD programs. The trouble was HUD now had only $4 billion to spend. This meant keen competition to get a project approved.

Foreclosure scams

"Consultants" like former Interior Secretary James Watt, who knew nothing about housing, collected $300,000 for a few phone calls to the right people. But how could a project generate enough profit to justify such a fee?

One way was through plain larceny. Reagan fired HUD appraisers and gave the job to the banks that made the loans. The banks would appraise land and buildings at two or three times their true worth. Then HUD would guarantee loans on these inflated values. By manipulating these projects skillfully the developers could become millionaires.

Now the financially overburdened projects are going into default, and HUD has to pay the tab. The whole scandal has not yet completely unraveled, but it is estimated that HUD may lose up to $2 billion.

An even more brazen scam is foreclosure swindle. Again an important HUD task was farmed out to private enterprise. Real estate agencies were hired to rehabilitate and resell houses that were in default on HUD loans. Some of them resold the houses but failed to turn the money over to HUD. No one asked for it, they said. One agent said she gave $5 million of HUD money to charity.

Watt justified his $300,000 fee by saying he was helping house poor people. But few people found happy homes in the projects that enriched Watt and his friends. In one case developers wanted to transform an old warehouse down by some railroad tracks into a home for the elderly. One project in Florida, built as low-income housing with HUD help, charged tenants $2100 a month for a twobedroom apartment.

In Los Angeles, funds were denied for projects in the poverty-stricken Compton area, but were granted for "slum rehabilitation" in Beverly Hills. The number of subsidized apartments is falling as many developers pay off their mortgages and convert to market-rate apartments. Elderly tenants then find their rents go up from $200 to $600 or $700 a month.

Jack Kemp, the new Secretary is now cleaning out HUD. But what will be left when he is through? Low-cost housing has never been a priority for either the Democrats or Republicans. How else could so much corruption have gone on for so long with no one noticing? The ruling class now sees an opportunity to get the government out of housing entirely.

Jack Kemp says he wants to preserve HUD, but he is closing programs down one by one. Even when running at its best, HUD never made more than a small dent in the housing shortage. A weak, emaciated agency, headed by a secretary who does not believe in public housing, will never solve the horrendous housing crisis facing America.

Instead of spending $300 billion on the military war budget, a crash public-works program should be implemented to (1) put people to work, and (2) provide decent housing for every American citizen. Housing should be a right—not a privilege. The cost of rent should not exceed 10 percent of a renter's income.

The fight for housing programs has to be organized by working people, the poor, and the homeless themselves. Millions are personally concerned with this crisis, from the homeless on the street, to the working poor who are paying as much as 70 percent of their income, to young middle-class people who can never afford to buy a home of their own.

Here is a coalition of millions of people. Only they have the power to enforce a rational solution to one of the most serious problems facing America. Meanwhile we will continue to be confronted with the scandal of HUD and the scandal of the homeless sleeping on our city streets.

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By KATHLEEN O'NAN

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HUD HOUSING AND DEFERMENT

I'M SORRY, SIR, BUT OUR FUNDS MUST BE EVENLY DIVIDED AMONG THE POOR. IF YOU WANT MORE, YOU HAVE TO BE A DEVELOPER OR A FORMER MEMBER OF THE REAGAN CABINET...