The General Accounting Office said last week that a government mortgage interest subsidy program for builders of moderate-income rental property, suspended during the Nixon administration, now appears comparatively successful and should be revived.
In a report released last week, GAO called the Section 236 rental subsidy program, suspended five years ago, "the foremost example of government assistance for privately developed and financed rental housing."
Section 236 of the 1968 National Housing Act resulted in construction of roughly half a million units, or more subsidized apartment buildings than had been built during the 40-year history of federal housing programs. Through the combination of mortgage interest subsides and a 40-year mortgage term, this program was aimed at taping the resources of the private market, including non-profit organizations, to build and operate housing at modest rent. The last of the projects authorized under the program are not being completed.
President Nixon's first housing secretary, George Romney, suspended the 236 program on the grounds that it was too costly, that it did too much for the middle income family at the expense of the very poor, and that it had too high a mortgage failure rate.
With the advantage of hindsight, the GAO has found that Section 236 wasn't such a bad deal after all, compared with public housing and a rental assistance program called Section 8 that is currently in use.
The study asserts that persons of moderate means are entitled to the same tax subsidies as the poor and the rich, and it concludes that Section 236 is the best way of increasing the shrinking stock of moderately priced rentals.
GAO asked the current Secretary of Housing and Urban Development, Patricia Harris, to revive Section 236. It also urges Congress to provide additional funding and amend present housing laws to require that a portion of new housing assistance go to subsidize moderate-income households.
HUD is not keen on reviving the Section 236 program unless major changes are made - in particular, an increased subsidy.Moreover it disputes many of the assumptions GAO made in its evaluation of the program.
Basically HUD believes it would be unfair to take away money from the poor to aid the middle class. The Section 236 program could not be run in the future without a more flexible subsidy because of rapidly rising operator costs, such as utilities, the agency maintains.
Harris also criticized GAO for basing its recommendation only on cost benefit analysis while ignoring other criteria, such the impact on other housing prices and the extent to which the program subsidized segregated housing. There was also disagreement on some of the economic assumptions made by GAO.
As evaluated by GAO, Section 236 had an acceptable rate of failures when compared to other government housing programs. While a 30 per cent failure rate - involving takeover of the project by HUD or foreclosure - was predicted over the life of the subsidy program, the rate as of December, 1976, was 13.6 per cent, a failure rate HUD says has since risen to 16 per cent.
Other revelations of the GAO study:
While it was thought that public housing assistance was more expensive than aid provided under the Section 8 or 236 programs, the reverse seems to be true. The annual subsidy cost over a 20-year period for a family of four with an income of $4,250 is $2,068 in public housing, $2,149 in Section 8 and $2,181 in Section 236 housing built by a profit-making developer. But under a non-profit group, building with Section 236 money, the subsidy rose to $2,503.
Well-intended as church and philanthropic organizations are, Section 236 housing costs more when they sponsor it because of their higher mortgage failure rate, GAO found.
From an economic viewpoint, it is more expensive to rehabilities housing under Section 236 subsidies than to build from the ground up. A rehabilitation for the family described above costs $2,346 a year, while new construction costs $2,818. This is due to a higher mortgage failure rate for rehabilitated work, caused in turn by the fact that the developer's tax savings for depreciation are exhausted after just five years.