Two Cheers for HUD


President Trump’s Department of Housing and Urban Development (HUD) issued a rule this past week grandly titled “Preserving Community and Neighborhood Choice.” That rule undid an Obama administration rule on the same topic, called “Affirmatively Furthering Fair Housing” (AFFH). In July 2015, the Obama administration adopted an aggressive position that allowed HUD to monitor state, county, and local governments that received HUD grants to see that they had undertaken exhaustive efforts to remediate a wide range of racial disparities in housing markets, thereby raising the costs that arise from accepting government grants. Under HUD’s recently revised regulations, HUD Secretary Ben Carson scaled back the regulations so they concentrated not on the overall condition of local housing markets, but on the risks that individual acts of discrimination pose to individual applicants.

At no point in that order did HUD single out suburban housing for special treatment. Nonetheless, with scant regard to the content of the revised rule, President Trump posted a celebratory tweet: “I am happy to inform all of the people living their Suburban Lifestyle Dream that you will no longer be bothered or financially hurt by having low income housing built in your neighborhood.” This ill-advised outburst prompted a cascade of criticism that portrayed the new HUD regulation as a backhanded effort to undo President Obama’s much-needed protections against racial bias. As one critic alleged, whereas Carson carefully cloaked these major substantive reforms in a procedural guise that stressed paperwork reduction, the new rule in reality was intended to “reduce the pressure on local governments to provide space and opportunity for Black families in affluent white neighborhoods.”

But the new HUD rule scores well on two key points. First, it is more consistent with the basic objectives of the Fair Housing Act of 1968 (FHA), which aimed to prevent pernicious forms of discrimination in the housing market. Second, it avoids the highly interventionist mission creep of the Obama-era AFFH rule, which insisted that the purpose of HUD was “to create strong, sustainable, inclusive communities and quality affordable housing for all.”

The Obama rule also required massive recordkeeping and reporting, all using a complex HUD “Assessment Tool” to achieve the overly idealistic end of removing racial disparities to the extent possible in housing markets. Any recipient of a HUD grant was required to engage in extensive reviews of their local communities—including in matters relating to education, transportation, and the environment—in order, as the Obama rule stated, “to take significant actions to overcome historic patterns of segregation, achieve truly balanced and integrated living patterns, promote fair housing choice, and foster inclusive communities that are free from discrimination.” The ultimate aim was to use state power to promote housing for racial minorities in middle and upper-middle-class communities. However, as some commenters noted, “the proposed rule, if implemented without change, would have the unintentional effect of shifting resources away from low-income communities of color,” by concentrating excessively on the integration of predominantly white communities.

Carson’s HUD took a very different view of the FHA—one more in keeping with the statute’s stated objectives. The Act makes no mention of “sustainable, inclusive communities” or “quality affordable housing.” Instead, the new rule links the scope of HUD power with Section 804(a) of the FHA, which makes it illegal “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” In other words, Carson narrowed the scope of the rule to the enforcement of the stated statutory purposes.

That basic provision of the FHA was then back-stopped by other measures prohibiting recalcitrant owners from manipulating “the terms, conditions, or privilege of sale or rental” so as to covertly exclude minority applicants, an outcome flatly forbidden by the statute. Likewise, the skewing of advertisements or other publications to steer minorities away from white neighborhoods was also prohibited. It was in this context that Section 808(d) cautioned all federal agencies and administrators to conduct their supervisory authority “in a manner affirmatively to further the purposes of this subchapter,” which refers to the important but limited statutory objectives set out above.

HUD’s final rule is careful to note that limited objective in its initial summary, explaining that the term “affirmatively” means only that the government has to take steps to root out cases of discrimination under Section 804 rather than to restructure all housing markets. As such, the statutory provision “was merely part of a general commitment to use the funds in good faith and accompanied similar certifications not to violate various civil rights statutes.” The new rule then cautions against using AFFH certification “to force states and localities to change zoning and other land use laws,” a significant about-face from the 2015 Obama rule.

The Obama-era AFFH rules were not invented out of whole cloth—the tension between affordable housing objectives and zoning laws emerged at least as early as New Jersey’s celebrated 1975 decision of Southern Burlington County NAACP v. Township of Mount Laurel. The NAACP explicitly did not base its case on any objection to racial discrimination. Instead, it challenged a zoning system designed to exclude low- and middle-income families from the community. The township did not want more housing so it instituted a zoning ordinance that was designed to both preserve the open and spacious character of the community and ensure that existing residents, mostly white, would not face property tax hikes intended to fund schools as new families, both white and black, moved into the community. It was no accident that the ordinance sharply capped the number of new apartment units with more than one bedroom in order to reduce the number of school-age children in the community.

In Mount Laurel, the New Jersey Supreme Court tried to have it all. On the one hand, it supported the seminal 1926 United States Supreme Court decision of Village of Euclid v. Ambler Realty, which held that local governments have virtually unreviewable discretion to impose whatever zoning scheme they like, including those schemes that have a disparate racial impact or dramatically reduce the value of regulated parcels. On the other hand, to bypass this case, Mount Laurel also reasoned that municipalities could not be allowed to thwart the “general public interest” in open and equal access to housing. The New Jersey Supreme Court required the township to develop a plan to meet its “fair share of the present and prospective regional need” for appropriate housing, meaning it had to construct more affordable housing.

Little did the New Jersey Supreme Court know of the incredible four-decades-long land-use saga that its 1975 decision inaugurated. Adding the words “prospective” and “regional” were an open invitation for a rearguard action that has now lasted over 40 years. How long in advance does “prospective” contemplate? What is the proper scope of “region”? And how are subsequent burdens to be allocated among all the townships in a region? New Jersey quickly learned just how difficult it is to use either judicial decrees or administrative actions to force local communities to accept new, unwanted housing.

Sadly, a version of the Mount Laurel situation replayed itself in a protracted struggle involving 45 separate townships of Westchester County. There, an AFFH obligation was found in the terms of a grant from the Clinton administration that HUD gave to Westchester from 2000 to 2006, so the county had to meet targets of racial integration that were attached as conditions to the grant.  Under Bush II, HUD chose not to sue for breach of the consent decree. The action therefore was brought on its own initiative by the private Anti-Discrimination Center as a qui tam claimant, permitting the Center to sue Westchester County under the 1863 False Claims Act in exchange for a portion of HUD’s recovery, if successful. The result was yet another marathon proceeding. In 2013, the Court of Appeals for the Second Circuit held in United States ex rel. Anti-Discrimination Center of Metro New York v. Westchester County that the County was in breach of a consent decree based on an exhaustive 2007 District Court decision.

This case goes far beyond the typical false claims action, which generally exposes the submission of false invoices or false or fraudulent claims for payment to the government. It is hard to explain why HUD did not conduct its own audit, and it is even harder to imagine any process more laborious and divisive than this one. Given these lengthy and convoluted federal and state disputes, it makes sense to ask whether the AFFH rule truly represented the best option to advance claims of racial injustice.

The only way to avoid these legal conflicts is to rethink the basic zoning codes that give municipalities so much power to exclude multi-family housing. If developers were free to put up multifamily buildings close to public transportation, affordable housing could be introduced by market mechanisms without having to endure the nonstop administrative and litigation nightmares that undercut the vitality of housing markets for everyone concerned. Of course, that would require undoing the disastrous decision in Euclid, which endowed municipalities with that massive oversight authority. And moreover, that approach still supplies no direct response to the local fear that current residents will have to pay higher property taxes to support the education of newcomers.

It is too late in the day to hold that education is a private, and not a public, function, even though that approach would undercut much of the impulse for exclusionary zoning. Therefore, a better (if second-best) solution is to weaken the connection between local taxes and educational support by moving more educational funding to the state or federal level, as often happens today. No one can pretend that putting these charges on general revenues is a foolproof solution. But that proposal looks a lot more palatable than the deadly status quo ante that combines tough zoning laws with tough housing mandates for underserved residents.

While the new HUD regulations are a modest start in the right direction, what is really needed is a complete overhaul of our current housing policy, which rests on the unhappy juxtaposition of exclusive zoning laws and inclusive fair housing laws.

© 2020 by the Board of Trustees of Leland Stanford Junior University.

Published in Economics, Law
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  1. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    Great background on this.  Hard to fully understand how far the reach of well-intentioned policy or legislation can extend, over the course of decades.  This is a good example of how far wrong and off-track it can go, with billions spent and outcomes all over the map.

    I have a hard time buying the idea that we can’t enforce access laws (meaning people aren’t being discriminated against for any reason, race, income, etc) without having pro-active mandates that put a “thou shalt” into federal regulations, with resulting chaos.

    Supply tends to fill the demand, meaning varieties of available housing will be available if there’s a market for it.  You don’t need a president or a congress or a HUD policy wonk to cough something up in an afternoon PowerPoint, wave a federal law and say “make it so”, as if that’s going to change/fix/improve a thing.

    Keep the teeth in the discrimination law and smack ’em hard when it happens.  For whatever percentage of the population that are jerks in this area, it’ll contain them, but everyone else suffers for the actions of a few.  That can never be good policy.

    • #1
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