HUD Nominee Faces Challenges

Shaun Donovan’s selection as the Secretary-Designate for the Department of Housing and Urban Development (HUD) was met with praise from a number of advocates for affordable housing but many challenges lay ahead for the secretary-designate.

The National Association of Housing and Redevelopment Officials (NAHRO) called Donovan’s selection “an asset at HUD”. According to NAHRO Executive Director Saul N. Ramirez, Jr said Donovan “is an outstanding choice to lead HUD" and contains the “abilities and experience will allow him to bring about responsible change in a difficult time."

Sheila Crowley, President of the National Low Income Housing Coalition (NLIHC) called his selection a “brilliant choice for HUD”. She said Donovan “enjoys high regard across the spectrum of housing interests, from low income housing and homeless advocates, public officials, developers, and financiers alike.”

Zunia Zaterman, Executive Director of the Council of Large Public Housing Authorities (CLPHA) called Donovan’s selection an “excellent pick for HUD”. Michael Kelly, Executive Director of the Washington DC Housing Authority (DCHA), said Donovan “has experience in full spectrum of issues and enjoys the support of the public housing community.”

Conrad Egan, President and CEO of the National Housing Conference (NHC), said, “Without question, Shaun will restore and elevate HUD to the principal domestic agency that advances the preservation and production of affordable homes and the vital development of communities.” Donovan is a trustee of NHC.

John A. Courson, Chief Operating Officer of the Mortgage Bankers Association (MBA) said Donovan’s “work in the private, non-profit and academic sectors gives him a unique perspective on the current turmoil in the housing market and he has been widely hailed during his time as New York City’s Housing Commissioner. We look forward to working with him to solve the ongoing crisis in the U.S. housing market.”

This range of support is going to be critical as Donovan, assuming he is confirmed as HUD Secretary, takes the helm of a department which has faces a number of challenges in the near future. Here is a list of some of the principal challenges facing the new secretary:

HUD structure: President-elect Barack Obama is calling on HUD to take the lead in solving the current housing crisis. But HUD’s structure needs to be reevaluated before it can effectively address the mortgage crisis and lack of affordable rental housing. Many recipients of HUD dollars consider the department to be too rigid in its rules, lacking muscle to secure the resources grant recipients need to administer its programs and facing retirement from a number of key staff resulting in a “brain drain” of institutional experience.

The department needs to be streamlined with more decision-making authority delegated to regional offices. HUD should follow the lead of Health and Human Services (HHS) Secretary-Designate Tom Daschle has expressed a desire to restructure HHS similar to the structure of the Federal Reserve Board. The department is not structured to react quickly enough to address local needs. The current economic crisis offers the ideal opportunity to radically change the structure of the department with an emphasis on delegating authorities to the regions, reducing regulation and allowing for greater local flexibility by housing providers to respond to local needs.

Affordable Housing Finance magazine has drafted a white paper entitled, Unfinished Business: What President-Elect Obama Must Know About Housing and HUD, which includes a recommendation for the new secretary to hold a “national conversation” in the form of public hearings. The paper calls for these hearings to explore a variety of issues including the notion that homeownership should be the de facto housing policy of this country; housing and transit should be better integrated; infrastructure needs must be addressed; and housing and health care for the aged should be integrated as well. This makes sense and should form the foundation for a newly structured department.

Access to, and funding for, affordable housing: The mortgage crisis has been well publicized; however, its impact on low income renters has received very little attention. The federal government has focused so much attention on helping homeowners in distressed it has failed to offer assistance to renters. While Congress has held hearings on the matter, Fannie Mae and Freddie Mac’s contribution to the mortgage crisis eliminated money for the National Housing Trust Fund which would have created badly needed resources to build affordable housing for people with the fewest resources to pay for adequate housing. The new secretary is going to need to find a way to ensure there are resources to develop affordable housing for those most in need. This will require increased funding for HUD programs particularly for public housing, vouchers, and new construction.

Increased funding for HOPE VI could be the vehicle to jump start production of affordable housing while also revitalizing distressed communities. Low-income housing advocates are adamant in ensuring changes to the current program. They want to ensure tenants have a right to return to the new units and that the one-for-one replacement rule is reinstated. The new secretary will need to balance the desires of both entities while acknowledging the need to ensure mixed financed deals are financially viable. Greater incentives must be provided to the private sector for developing multi-family units. Without private sector involvement, there simply will not be enough resources for more affordable housing units.

Deregulation: This is an issue which causes advocates and housing administrators, particularly public housing authorities, a great deal of angst. The Public Housing Authorities Directors Association (PHADA) has been the most aggressive in seeking deregulation of small housing authorities (agencies with fewer than 500 units). The report, completed by TCG International LL which was under contract with the IBM Business Consulting Services, stated among its recommendations that the risk of problems with small housing authorities was minimal compared to the burden of monitoring these agencies.

Regional approach to housing and community development: The Housing Finance Magazine white paper endorses an approach favored by the Brookings Institute in calling for a regional approach to solving the housing problems in the country. There is hope that the White House Office of Metropolitan Policy will support funding for regional approaches to solving the housing and community development challenges in the country. It will be fascinating to watch this issue develop. Local governments and housing authorities will resist this. There are tons of questions which must be resolved before implementation of this type of initiative can be tried.

For housing and community development initiatives to be successful all interested parties must think outside of the box. This may include agreeing to policy approaches which drew opposition in the past. Given the current housing crisis, the department will be forced to produce in a more substantive way than it ever has. For the secretary-designate, this is a double-edged sword. The department will either meet the challenges it must face or it will demonstrate it is ill-equip to handle its basic responsibility. The new secretary-designate seems to have the support of President-elect Obama which seems different from past administrations.

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