Article by Moon Landrieu and Jane Lang McGrew
"Economic problems have no sharp edges," wrote economist Kenneth E. Boulding in 1945. "They shade off imperceptibly into politics, sociology, and ethics. Indeed, it is hardly an exaggeration to say that the ultimate answer to every economic problem lies in some other field." Urban economic problems exemplify this view. Consequently, in dealing with the economic issues of our cities, a variety of disciplines and interests converge; they likewise compel the convergence of resources.
It is probably the interaction of political forces which has financially empowered the cities to address such multifaceted urban economic problems as a declining job market in central cities, the declining per capita income and increasing dependency of city residents, the loss of industry, and the shortage of housing. Driven jointly by the spectre of bankruptcy and a belief in the dynamic potential of urban centers, local, state, and federal officials have joined with the private sector in a variety of industrial, commercial, and neighborhood undertakings to preserve and to revitalize the cities. In 1933, Franklin Roosevelt called this kind of public-private collaboration a "partnership in planning and a partnership to see that the plans are carried out." Today, the exigencies of the economy generally, and the economies of the cities more particularly, have led to a resurrection of that concept. As a result, the predominant mode for financing urban housing, as well as urban commercial and industrial development, is the public-private partnership.
Together, the public-private collaborators are struggling to cope with inflation in the cost of land, materials, and labor, as well as oscillating interest rates. In the past year these factors have underscored the traditional economic vulnerability of the housing industry. Their impact has been especially strong on multifamily construction in urban areas, and has been compounded by the anticipation of increases in future operating and maintenance expenses (particularly energy related expenses), the fear of local rent control, and the uncertainty about the tax treatment of investments.
These economic constraints on housing production are aggravated by demographic pressures on the existing stock. Low-income families increasingly predominate in urban populations. The housing shortage which faces these families has been exacerbated by displacement resulting from gentrification and the decay and abandonment of existing stock. Economically, owners of multifamily properties are often finding that they cannot generate enough income from rents to maintain a building at an acceptable level. Once all the tax benefits, such as depreciation and interest deductions, have been exhausted, some owners have concluded that they have less to lose by abandoning than by upgrading buildings to meet local code standards. The result is a national "scrappage" in central cities of 565,000, or 8.6% of, multifamily housing units between 1973 and 1979. For example, Chicago, Baltimore, Buffalo, and Cleveland each lost more than five percent of their total housing stock in recent years, taking into account new construction. While this loss reflects a decrease in the number of substandard units, it also reveals the extent of the unmet housing needs of these cities, particularly when these figures are juxtaposed with corresponding income and population data. Under these conditions, the national goal of "a decent home and a suitable living environment for every American family" remains elusive.
Commercial and industrial development in cities has suffered no less than housing development. In 1972, 36.6% of the value of retail sales was attributable to transactions in the 250 largest central cities; by 1977, that figure had declined to 33.8%. Central cities also lost 12.5% of their manufacturing employment between 1970 and 1977, while manufacturing employment increased 3.4% for the nation as a whole during the same period. Examined from another viewpoint, 29.8% of manufacturing employment was located in central cities in 1970; by 1977, that figure had declined to 25.2%.
The relationship between homes and jobs, coupled with energy considerations, makes it essential for commercial and housing development to proceed in tandem. The combination of unemployment, deteriorated neighborhoods, and substandard housing together with other causes and manifestations of poverty underscores the need to address urban development in a comprehensive manner, a need which has been perceived since mid-century. Programs administered by the Department of Housing and Urban Development are geared to meet this need. Moreover, they provide the vehicles for the public and private sectors to mutually support and finance the ongoing development and revitalization process. The focus of this article is upon those HUD-sponsored vehicles which are catalysts for urban revitalization, namely, the predominant housing subsidy program—Section 8—and the Community Development (CD) program, including block grants, action grants, and loan guarantees.
About the Author
Moon Landrieu. B.B.A. 1952, Loyola University; J.D. 1954, Loyola University; Member of the Louisiana Bar; Mr. Landrieu served as Secretary, Department of Housing and Urban Development, under President Jimmy Carter; and as Mayor of the City of New Orleans from 1970 to 1978.
Jane Lang McGrew. B.A. 1967, Swarthmore College; J.D. 1970, University of Pennsylvania; Member of the Washington, D.C. Bar; Ms. McGrew served as General Counsel, Department of Housing and Urban Development, under Secretary Landrieu.
The authors wish to state that the views herein expressed do not necessarily represent those of the Department of Housing and Urban Development.
Citation
55 Tul. L. Rev. 637 (1981)