Wednesday, June 23, 2010

A Chicken in Every Pot

Yesterday we discussed the conference amendment which the Americans for Financial Reform is lobbying for in the final version of HR 4173--Restoring Financial Stability. This amendment would use $3 billion of TARP money to allow HUD to make bridge loans to the unemployed and to subsidize their payments for up to 24 months while they look for a job. The bill also authorizes $1 billion for purchasing foreclosed homes and transforming them into affordable housing.

Today on its website, HUD has posted what we must assume is a related initiative--the new Housing and Services for Homeless Persons Demonstration. HUD has requested $85 million for voucher assistance for this program which will engage mainstream housing, health, and human services programs to be more fully engaged to significantly impact the problem of homelessness.

HUD cites its own Annual Homelessness Assessment Report to Congress in July of 2009 which estimated that 664,000 people nationwide were homeless "either sheltered or unsheltered." Interestingly, this figure which is from January of 2008 is down about 7500 per night from the previous year. However, while the report acknowledges that the number of individuals in shelters had remained steady for about a year, the number of people in families increased 9 percent to 516,700. Many people going into the homeless system in 2008 were coming from staying with friends and family members, so they had been displaced for a while.

A report cited from January of 2010 showed an 8% increase in homelessness since June 2009, with the total number of homeless people in families increasing 10%. The total number of people accessing shelters for the first time increased by 26% between July and September 2009, which represented a 38% increase for people in families compared to 12% for individuals.

To solve this problem, HUD is asking that its FY 2011 budget include $2.055 billion dollars, which is an increase of $190 million over the 2010 budget, so that it can implement the HEARTH ACT. The provisions of the HEARTH ACT will consolidate housing programs, allow for "flexible homelessness prevention and rapid rehousing efforts," and will provide $107 million to build 9,500 new permanent supportive housing units and implement a new rural homelessness program. Additionally the budget will allocate $85 million to provide 10,000 new Housing Choice Vouchers. The program will allow HUD to collaborate with the Department of Health and Human Services and the Department of Education and will be linked with other programs such as Medicaid and substance abuse treatment to "meet the needs of chronically homeless persons."

According to the website, a portion of the vouchers will also be used to help the Department of Health and Human Services with TANF--Temporary Assistance for Needy Families.

One problem with this initiative is that it appears to lump together two very distinct populations--the chronically homeless and those who are temporarily homeless living in families. A family who is utilizing shelters for the first time is undoubtedly there due to job loss. What these families mainly need, and most likely seek, is employment. However, since job creation comes primarily from small businesses, in order to really provide meaningful help, the government would need to stop crushing small business.

The other population, the chronically homeless, is a different story. According to the website, HUD is partnering with the Department of Veterans Affairs to meet President Obama's goal of ending veteran homelessness in five years. But chronic homelessness is not solved just simply by giving a person the keys to a home or an apartment. It is a very complicated issue involving social problems, substance abuse issues, in some cases mental health issues, and changing the circumstances of a chronically homeless person involves a commitment on the part of the affected person to be willing to make changes themselves.

Certainly, no one wants to see families and children living on the streets, and I don't think any fair minded person would begrudge people who are truly in need some assistance. However, we should be mindful as a society to give people a hand up and not a hand out, as Bill Clinton so famously said when welfare reform was passed. Initiatives such as the conference amendment to allow the government to subsidize housing for up to two years may actually contribute long term to the problem of homelessness and homeless families. How? By enabling people to stay in their homes without working, the rule allows people to postpone making tough decisions that may need to be made, such as the decision to seek employment in a different field, or the decision to move from a depressed area of the country to an area with more opportunity. As human beings, we resist change and we have a strong tendency to procrastinate when faced with unpleasant alternatives, so a two year window will allow a lot of people to sit in homes they cannot afford without work hoping that "things will work out."

Also, unless this legislation clearly defines that the unemployment must be a result of involuntary termination, what is to prevent a struggling working homeowner from quitting his job to take advantage of a program that will make his mortgage payment for up to two years. What if the family is dual income and one spouse quits or is terminated? Will the government pick up the housing tab then? What about a domestic partnership which does not involve a legal marriage? If one of the partners becomes unemployed, can the government pay his or her mortgage while the other partner works and pays the other expenses?

These scenarios may appear exaggerated, but these are the types of situations that occur when the government starts handing out free money. In the early days of the financial crisis, when FHA began refinancing homes for borrowers who were at least one month behind on their house payments, homeowners who had previously made all of their payments on time missed a house payment purposely so that they could qualify. And if homeowners decide that they will be better off having their house payment made by Uncle Sam, we could see increasing levels of unemployment which ultimately could lead to a massive wave of homelessness when, at the end of the 24 months, these homeowners are not ready and working so that they can resume their obligations.

Finally, HUD is asking for massive amounts of money to help create opportunities for about 20,000 additional people when more than half a million are homeless. If nothing else, this is a highly inefficient use of resources.

The key here is jobs--making sure that jobs are available and that those who have jobs are incentivized to stay in their jobs. And government does not create jobs. So the key to job creation is business growth--particularly in the realm of small business. The government can't actually put a chicken in every pot--all they can do is stand out of the way and allow people to work so that they can buy their own chickens and their own pots.

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