STATEMENT OF CONRAD EGAN

PRESIDENT, NATIONAL HOUSING CONFERENCE

TO THE HOUSE GOVERNMENT REFORM SUBCOMMITTEE ON

FEDERALISM AND THE CENSUS

FEBRUARY 15, 2006

Thank you, Mr. Chairman, for the opportunity to present today, principally as the former Executive Director of the Congressionally chartered Millennial Housing Commission. With your permission I would like to place the Commission’s Report into the official record of this hearing. 

In the report the Commission presented to Congress in May, 2002, there are two major recommendations to improve the Public Housing and Housing Choice Voucher Programs.

First, the Commission recommends a gradual transition from the current agency based system to a property based system, with subsidies flowing to specific properties based on the rents that they would command, after any needed renovation, in the conventional real estate market. This transformation would enable Public Housing Authorities to rehabilitate properties using funds raised in the private capital markets.

Second, the Commission recommends, principally for the Housing Choice Voucher Program, measures to match voucher holders with services that complement efforts to support employment and other opportunities. Most importantly, the Commission asserts that the Housing Choice Voucher Program is distinctly worthy of additional funding in substantial annual increments.

In the remainder of my statement let me focus on the first recommendation where the Commission specifically recommends the application of private real estate principles.

First, a comprehensive approach is recommended for severely distressed properties.  Some public housing properties are in such poor condition or are so poorly located that they do not warrant additional investment. These properties are good candidates for demolition and replacement with vouchers or hard units. The HOPE VI program must be maintained principally because the private sector is typically unable to provide the “first in” capital necessary to attract additional, significantly greater investments for these properties.

Second, much of the remaining public housing  inventory would shift, over time, to the property based financing model by converting operating and capital funding to long-term contracts linked to each public housing property. These contracts would provide reliable funding to cover operating costs, debt service on loans for capital costs, and replacement reserves.  Subsidy levels would be based on each property’s market rent. Capital improvements would be financed through loans secured by a mortgage, which could be backed by FHA mortgage insurance. No additional support should be necessary for the majority of Public Housing properties.

Property based financing is not, however, appropriate in all cases. For small properties and for those whose capital needs require rents substantially above market-based rent levels, the alternatives include using the HOPE VI Program, agency based financing and additional housing development vehicles including Low Income Housing Tax Credits and housing grant programs. Public Housing Authorities should, therefore, continue to be able to leverage some of their subsidy funds by using various agency based mechanisms.

A property based financing strategy would be appropriate for most properties and has several merits. The long-term costs of this capital improvement approach would likely be lower than the current approach. Improvements can occur quickly, before properties deteriorate further. Finally, property based financing provides another level of operational oversight from lenders and investors, thus substituting standard real estate practice for HUD oversight.

The Millennial Housing Commission’s basic recommendation in this area is that the Public Housing Authorities must be permitted and encouraged to utilize the private sector’s financial resources by converting their developments to a property based model, like the rest of the world of real estate.

Thank you, Mr. Chairman, for the opportunity to make this presentation.