Published October 2001

HUD’s housing role
has changed for better

As a young man in 1980, my first trip to college from my home in the Pacific Northwest took me through Chicago’s O’Hare Airport. It was the first time I’d been east of Spokane.

After the long flight, the final leg of my trip was a 90-mile bus or train ride south through Chicago, then east through the steel mills of Gary, Ind., and, ultimately, to my destination in South Bend, Ind.

I have never forgotten the experience of riding through the “South Side” of Chicago the first time. This end of town was made famous, sadly, by its Department of Housing and Urban Development-funded rows of high-rise multifamily housing complexes known as Cabrini Green. This was a tough neighborhood to say the least.

I can vividly remember the solemn faces and the sense of hopelessness all around. Growing up in the Seattle area, I’d never seen such things. Crime, family unrest, drugs, unemployment, etc., all packed together in row after row of 30-story apartment buildings.

By the 1990s, Cabrini Green and other communities like it became shining examples of how not to provide affordable housing in urban areas. HUD made major shifts in how it approached its role in providing housing as a result.

The federal government shifted from housing provider to housing facilitator by providing states with tax credits under a program referred to in real estate circles as Section 42.

The Section 42 program works like this: States are issued a certain number of IRS income-tax credits based on a formula that most closely ties to the population size within the states. Each state then allows housing providers or developers within their state to compete for the tax credits using a points system.

In most states, points are issued based on need for affordable housing in local areas and the proposed developer’s qualifications and ability to sustain successful operations once the housing is up and running.

Once awarded the tax credits, housing providers often use them as a tradable commodity to raise capital to build or rehab.

The “string” the federal government attaches to those who win tax credits is that they must limit rents to a percentage — usually between 50 percent to 60 percent — of the median household income of the county in which the housing is located. Under most Section 42 programs, the housing must stay within these income limits for at least 15 years.

Examples of tax-credit housing are all around us and are more integrated into the landscape than the ’60s-styled approach. The level of dignity in living experience often is a step up under Section 42 housing as a result.

With cynical attitudes about those in positions of authority too often the accepted norm, it’s unpopular to give the government credit for good moves. But the Section 42 program and the federal government’s role shift during the past 30 years deserves an “atta boy” for converting a plan that didn’t work into one that does. In this case, they got it right.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company. He can be reached at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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