On West 42nd Street, near New York's theater district, is a modern apartment complex called Manhattan Plaza. Like a lot of luxury buildings, it has parquet floors, individually controlled heating and air conditioning, and, on the outer units, balconies.
For relatively small fees, residents can sign up for a tennis club ($20 a year plus hourly court fees) and a year-round swimming pool ($172.50 a year). There is also indoor parking for $68.90 a month, cut-rate by Manhattan standards.
But this isn't luxury housing for th e rich. It's federally subsidized housing for the poor. And it is rapidly becoming a symbol of the excesses that critics say are endemic in the government's most expensive -- and perhaps its most ambitious -- housing subsidy program.
The program, run by the Department of Housing and Urban Developemnt, is known as Section 8. It was set up with a simple goal: to get builders to build housing for the poor, something they have largely stopped doing.
To achieve this, the program offers a variety of subsidies. In addition to the conventional tax benefits, which the builder may syndicate to raise extra cash, the government calculates what rent level would provide a proper rate of return. This, of course is far too high for poor tenants, so they pay 15 to 25 percent of their income and the government pays the rest. This arrangement virtually guarantees the owner a full house.
In a sense the program is succeeding. Since its inception in 1974, it has generated construction of more than 250,000 new or substantially rehabilitated units, in addition to putting about 700,000 existing apartments under subsidy contracts.
"Right now, 90 percent of new rental housing is built with this or related program aid," said HUD Deputy Assistant Secretary Anthony Freedman.
But the cost is high.
Already, Section 8 accounts for a third of the $6 billion the government spends on housing subsidies. By the end of September, the program will have 1.1 million subsidized units occupied -- compared to 2.2 million for all other programs -- and the figure will rise rapidly when authorized but still unused units are put on line.
The future, or "run out," cost of Section 8 units already authorized or included in this year's authorization bill, even if no more are ever added, will be at least $130 billion over the years because units stay under contract in the program, for 15 years or more.
"I am convinced that [Section 8's] long-range costs could seriously threaten the very financial integrity of the U.S. government," warned Sen. J. James Exon (D-Neb.) in Senate debate a few weeks ago.
The potential demand is enormous. Under the law, any family with less than 80 percent of the median income for its area may receive Section 8 assistance. By this stanard, 40 percent of the families in the nation are theoretically eligible.
Manhattan Plaza in some respects is not a typical Section 8 project. Initially planned as a middle-income development but then picked up by HUD for Section 8 when it encountered some difficulties, it has far more luxury than normally goes into a Section 8 new building. And it has special arrangement to house theater people in New York's West Side and some nonsubsidized tenants, like Tennessee Williams, Theresa Wright and Jane Alexander.
But the economics aren't much different from many other Section 8s. It has substantial rents, $798 for a two-bedroom apartment, and tenants living there with incomes of up to about $17,000 a year who get government subsidies of up to $5,000 a year toward their rent bills. According to a highly critical General Accounting Office report, which labeled it one of the "Taj Mahals" of the Section 8 program, in 1978 the average Manhattan Plaza tenant was paying $2,088 rent out of the pocket and getting $5,090 government subsidy.
HUD Assistant Secretary Lawrence B. Simons and Freedman, as well as the National Low-Income Housing Coalition and many other housing groups, warmly defend the program.
The basic reason for the high costs of Section 8, Simons has said repeatedly, is not poor management, high eligibility levels or an occasional project of more-than-expected amenities like Manhattan Plaza.
Rather, he says, it is the high cost of building new housing.
Because interest rates, construction and land costs have jumped so enormously in recent years, it is extremely expensive to build new rental housing except for the rich, Freedman said in an interview.
So, as older units go out of use, the supply is shrinking.
Section 8, by providing a fair market return to a developer who agrees to put up a new building and then rent the units to low-income people under the rent subsidy, stimulates construction of relatively low-rent units.
Cushing Dolbeare, president of the National Low-Income Housing Coalition, said, "The supply of rental housing is actually contracting. According to the 1977 annual housing survey [Census Bureau], six million low-income households in the U.S.pay at least half their income for rent -- when it is generally accepted that a family should spend no more than 25 percent.
"Decent housing costs money for low-income people or anyone else. If we want to fulfill the congressional commitment to see that every American has the opportunity to live in decent housing, it's going to cost money," particularly when you are stimulating construction of new rental housing with the subsidy payment.
Moreover, Dolbeare said, Congressional Budget Office figures show that the U.S. government loses $20 billion a year in taxes through the home-owner interest deduction, which goes largely to middle and upper income people.
"If we can afford that, we can afford $6 billion for the poor. That $20 billion is far less needed by the people who get it than the $6 billion in housing aid is needed by the poor."
Freedman said he does not doubt that developers have made a lot of money off Section 8 housing, but not much housing would be put up if a person could make as much investing his money in 100-percent-safe Treasury bills as in putting it into risky, hassle-filled projects -- a view echoed by George Genung of the National Association of Home Builders and John Kregsfeld of Management Partnership Inc. here.
"Excess profits are few and far between," said Kregsfeld. He said a builder -- at his own cost -- could buy land, pay taxes on it, draw up architectural plans, pay lawyers to get zoning and water and sewer permits, run in wiring, etc. -- and then lose it all if he failed to get a Section 8 rental contract on the project. He might have four losing projects with high leases before he got one that looked like a winner. So the profits even out.
Freedman said Manhattan Plaza, which HUD maintains is not typical because it was planned as a private project and was picked up by HUD when it ran into trouble, is much lusher in amenities than virtually any other Section 8 project. Still, he said, in most places a modest pool for low-income kids, a community room for th elderly and air-conditioning in stiflingly hot Southern cities are acceptable amenities.
The primary reason the program costs so much is the size of its subsidies, which are calculated this way:
HUD sets a fair market rent, based on existing construction costs and rental rates, for different areas of the country.
In some areas, it's pretty high for newly constructed or substantially rehabilitated apartments, one source of sharp public criticism: For example, in San Francisco, a very high-cost area, a four-bedroom Section 8 apartment in a newly constructed high-rise elevator building could rent for $1,035 a month; a three bedroom, $978.
In Montgomery County, one Section 8 new project, Country Club Gardens, will bring about $472 a month for a two-bedroom walkup. The maximum fair market rent here is $649 for a new, four-bedroom semidetached new house. (HUD sometimes allows higher rents for special reasons.)
These figures are total monthly rent; the governemnt subsidy usually covers three quarters or so of the rent, often more.
The program also provides a subsidy for the tenant who goes out and finds himself a place to live in an existing building. For such housing, built in the pre-inflation days at lower cost, the fair market rent is less. In the Washington area, it would be $435 maximum for a four-bedroom apartment.
The costs of these apartments, especially new ones, seem rather steep to most people. But HUD officials say they merely reflect today's tight housing market and high construction costs.
For a family of four, the new eligibility cutoff in the Washington metropolitan area, just set, is $21,600 a year.In New York, it's $17,050. In San Francisco, $18,700. (By contrast, the poverty line today for a family of four is $7,410.)
These figures, however, are misleading. Although occasionally people close to the cutoff do get into Section 8 housing as in Manhattan Plaza, most residents are poor.
Nationally, the average 1980 family income of Section 8 residents is only $5,266 -- less than one-third the national median family -- according to HUD estimates. About 93 percent of Section 8 tenants are at less than half the median.
In the D.C. area, the Coucil of Governments found a handful of families with incomes of about $15,000 (elderly couples) getting Section 8 aid (Woodland Hills Arlington; Hunters Woods, Fairfax); most were much lower.
Under Section 8 rules, mandated by Congress, a low-income tenant pays only 15 percent to 25 percent of his income for an apartment. The government pays the rest. That is why, GOA says, that subsidy payments as high as $5,000 to $6,000 per family are commonplace in newly constructed Section 8 units. High rent and poor tenants add up to big subsidies.
Nationally, however, the average is less: HUD estimates that the actual rent paid by tenants in all occupied Section 8 new and substantially rehabilitated housing that was built by private developers is now about $1,210, to which the government adds an average subsidy of $3,245 a year. By contrast "existing housing" subsidies are much cheaper: only about $1,720 per year, on average.
Since the average welfare family in the Aid to Families with Dependent Children program only receives cash income for all purposes of about $3,500 a year, many people consider the Section 8 subsidies for new housing disproportionate.
There is substantial disagreement over what to do about costs. Sen. William L. Armstrong (R-Colo.), arguing that the income cutoff is absurdly high at 80 percent of median income, pushed an amendment to cut it to 65 percent through the Senate last month.
The National Low-Income Housing Coalition supported this idea: Almost all Section 8 recipients are well below either 65 percent or 80 percent, but the 80 percent theoretical eligibility figure infuriates persons making no more than that but not subsidized.
Some people believe that you could get "more bang for a buck" from a different form of construction subsidy. Sen. William Proxmire, (D-Wisc.), and Rep. Thomas L. Ashley (D-Ohio) both proposed channeling more of the low-income people into the cheaper "existing housing" under Section 8, and using the savings to subsidize construction of apartments for middle-income people.
They could pay fairly high rents so their individual subsidies would be small, and they could move out of their current apartments and create a larger pool of "existing housing" for the poor. For the same total outlay, more new apartments would be available and more people helped. But the National Low-Income Housing Coaliltion does not believe the idea will work and helped kill the Senate version. The House version is still awaiting floor action.