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Report

Public Housing and Rental Subsidies

Downsizing the Federal Government

June 24, 2025

Since the 1930s, the federal government has subsidized local housing projects aimed at uplifting the poor. The specific policies have evolved, but the theory has been that federal aid is needed because the states cannot solve their own housing problems and private markets fail to invest in affordable housing.

Federal housing efforts are led by the Department of Housing and Urban Development (HUD), which spent $8 billion in 2024 on public housing and $47 billion on housing voucher programs.1 The funding flows from HUD to the state and local agencies that own the public housing and operate the voucher programs.

This spending is misguided for many reasons. For one thing, the idea that markets cannot provide housing for modest-income households is mistaken. The states have put many tax and regulatory barriers in the way of private investment in low-cost housing. Repealing these barriers would substantially boost the supply of affordable housing, including multifamily housing.

Another problem is that federal housing programs produce harmful side effects. Public housing projects have become known for dilapidation and crime, while federal housing vouchers have encouraged dependency and discouraged property maintenance and upgrades. Also, the involvement of multiple levels of government in housing programs encourages wasteful spending and bureaucracy.

President Trump’s administration has proposed substantial cuts to federal spending on public housing and housing vouchers. Congress should consider these reforms and aim to phase out federal subsidies over time. Meanwhile, state and local governments should reform zoning, building, and permitting regulations to encourage private housing investment for low-income households.

Howard Husock is a senior fellow at the American Enterprise Institute and author of the forthcoming book The Projects: A New History of Public Housing (New York University Press, September 2025).

Origins of Federal Housing Aid

For generations, activists have lamented the housing conditions of lower-income Americans, and their concerns have prompted many government interventions. Each new intervention seems to create some progress in the near term, but that is usually followed by harmful side effects and failures in subsequent years.

Major federal housing aid began in the 1930s. In 1932, President Herbert Hoover oversaw the creation of the Reconstruction Finance Corporation, which made loans to companies for low-income home building and slum clearance.2 In 1933, Congress created the Public Works Administration, which funded low-income housing and slum clearance projects through loans to companies, loans and grants to local governments, and direct federal efforts.3 The Wagner-Steagall Housing Act of 1937 provided aid to local housing agencies for constructing and maintaining housing projects.4

These federal interventions occurred even though from 1870 to 1930—when there were high levels of immigration and rapid urbanization—private builders in American cities invested massively in housing that was affordable to those with modest incomes. Advocates at the time bemoaned the inadequacy of low-income housing but ignored the vitality of many city neighborhoods that had modest dwellings. These neighborhoods served as building blocks for residents to own their own homes and move up the “housing ladder” to better, larger homes as their earnings rose.

As an example, predominantly African American neighborhoods in St. Louis that were demolished to make way for the infamous Pruitt-Igoe public housing complex in the 1950s were not dominated by slumlords, as conventional wisdom had it.5 Rather, they included substantial owner-occupied and owner-present structures; the latter were multifamily houses in which the owner’s family lived on-site. Such neighborhoods provided the means for low-income households to own property that could appreciate in value. As for Pruitt-Igoe—a massive and ugly complex of 33 11-story buildings—it began to deteriorate soon after being completed and was ultimately demolished.

The federal government deepened its intervention in housing after World War II, despite the proven ability of markets to supply homes for people of modest means. The Housing Act of 1949 authorized the construction of hundreds of thousands of public housing units, and it expanded the pool of families eligible for the housing.6 Moreover, both the 1949 act and the Housing Act of 1937 encouraged racial segregation.7

All these federal housing interventions occurred even before the creation of HUD in 1965. The new department was given a wide-ranging mission to use housing and community-development subsidies to remake poor inner-city neighborhoods. HUD’s first secretary, Robert Weaver, had an optimistic vision of “massive housing rehabilitation efforts . . . [to] achieve our goal of adequate housing for all families.”8

However, the optimism of reformers in the 1960s was soon dashed by the growing failures of federal housing interventions. By the late 1960s and early 1970s, public housing was becoming infamous for crime, graffiti, smashed windows, and general deterioration.9 Pruitt-Igoe was a landmark in government failure. Considered an architectural masterpiece by urban planners when it was built in the 1950s, the federally funded project was demolished in 1972 after vandalism and crime rendered it uninhabitable.10 Since then, many more federal housing initiatives have been launched, but most have ended up as expensive failures.

Public Housing Failures

The Housing Act of 1937 encouraged the construction of public housing projects with the creation of a federal housing authority to purchase local construction bonds. Local authorities were to build and manage the projects; rents and local funding were to provide the financial support for them.

However, the exodus of working-class families from public housing, along with a rent cap imposed by Congress in 1969, made local housing authorities dependent on federal operating and repair subsidies doled out by HUD. The turning point was legislation that limited rents to 25 percent of tenant income (later 30 percent), which had the unintended consequence of sharply cutting the revenues of housing authorities—and thus maintenance spending.

While the 20th-century failure of public housing is now widely recognized, the federal government continues to subsidize it today. Federal grants to the states for public housing capital and operating costs were $8 billion in 2024.11 Almost one million households currently live in federally financed public housing.12

Originally, public housing was meant to serve lower-middle-class working families. But as the US economy boomed after World War II, those families found private homes in the growing suburbs and by the 1960s had abandoned public housing. Left behind were poor, nonworking families, almost all of them headed by single women. Public housing became a key component of the vast welfare network that gave young women their own income and apartment if they gave birth to illegitimate kids. When the fatherless children of those women grew up and went astray, many projects became consumed by social problems such as crime, failing public schools, and poorly educated children.

Public housing projects often radiated dysfunction and social problems outward, damaging local businesses and hurting property values. They harmed cities by inhibiting run-down areas from attracting higher-income homeowners and new business investment. Safety fears related to housing projects drive away upwardly mobile people, who are the ones who could help poor neighborhoods prosper.

Local governments often allow their public housing projects to become stagnant and dilapidated fixtures in neighborhoods. Since public housing cannot be bought and sold on the market, it disrupts the healthy recycling of property that helps cities grow and spawn new opportunities. Unlike privately owned buildings, public housing becomes property fixed in a particular use, even as surrounding cities and metropolitan areas change.

The failures of public housing have become so obvious that many projects across the nation have been demolished in recent decades. Most of the demolished projects fell into disrepair and were overtaken by crime and disorder. For example, Chicago’s Robert Taylor Homes, consisting of 28 apartment buildings of 16 floors each, were completed in 1962 and demolished by 2007. And Chicago’s infamous Cabrini–Green complex, once home to 15,000 people in high-rise buildings, has also been mainly demolished. A study published by the Federal Reserve on Chicago’s public housing concluded that “the closures and demolitions of high-rise public housing in Chicago are associated with net reductions in violent crime.”13

To replace some of this housing, the federal government has funded various types of low-rise projects for mixed-income groups of tenants. Such projects are predicated on the theory that if higher-income families live in the same complexes as poor families, the successful tenants will set a good example for the less successful ones. Perhaps so, but there is little evidence of this. It might be just as likely that the children of dysfunctional families would set bad examples for the children of the more successful families.

There is a false belief that the right kind of public housing can cure the ills of distressed households. The truth is that the struggle to improve one’s lot and move to a better neighborhood is what encourages the habits of thrift, education, and marriage that lead, in the long run, to social and economic success.

Another problem with public housing is that it has been plagued by waste and inefficiency to the detriment of tenants and taxpayers—not surprising, as local administrators are spending “free” money from Washington and federal oversight is often lacking. The New York City Housing Authority (NYCHA), for example, has been notoriously scandal-prone. In 2024, prosecutors charged 70 current and former NYCHA employees with bribery and extortion.14 For years, dozens of employees have been taking cash bribes of $500 to $2,000 in return for awarding maintenance contracts to favored vendors.

CNN noted last year that NYCHA has been “plagued for decades by lead paint hazards, rat infestations, inadequate heating, and broken elevators.”15 In 2018, the Manhattan US Attorney found that “for years NYCHA managers had deliberately lied to federal housing officials, falsely certifying they’d properly inspected and remediated lead paint in their aging properties,” when in fact more than 50 percent of units contained lead paint.16

The public housing agency in Washington, DC, has also been poorly managed. In 2022, HUD issued a scathing report on the agency that found inadequate financial management, property management, and compliance with rules, as well as “failure to provide decent, safe, and sanitary housing opportunities for residents in violation of program requirements.”17

Public housing has been managed so poorly that HUD has seized federal control over about 20 local housing authorities over the years.18 For example, after years of “deteriorating physical conditions, financial mismanagement and a lack of effective leadership,” the federal government took over the public housing authority in St. Louis in 1985; the city wasn’t allowed to retake control until 2017, more than three decades later.19 HUD itself has been a mismanaged agency and cannot be relied on to fix failing housing authorities.20

Rental Subsidies

Though dilapidated public housing projects are the most infamous symbol of federal housing policy, more funding today goes toward rental subsidies for low-income families in private buildings. Section 8 of the Housing and Community Development Act of 1974 authorized federal rent subsidies for privately owned apartments.

Section 8 funding can be either tenant-based or project-based. In 2024, HUD spent $31 billion on tenant-based rental subsidies, also called the Housing Choice Voucher Program. The money flows to 2,100 local housing authorities and then to 2.3 million tenants.21 About $3 billion of the federal funds supports administrative costs.

In addition, HUD spent $17 billion in 2024 on project-based rental assistance.22 This money flows to private owners of more than 17,000 multifamily housing projects, which include about 1.3 million households.

In creating Section 8 subsidies, Congress mistakenly believed that private housing markets could not provide the poor with adequate housing, even though markets had been steadily improving housing standards for families at all income levels for many decades.

Unfortunately, rental aid has caused many of the same problems as public housing, including long-term government dependency and the concentration of poverty. Although traditional federal welfare was reformed in 1996 to encourage work and self-sufficiency, Section 8 housing remains an open-ended benefit that recipients can remain on permanently. The problem is compounded by the fact that the value of rental aid is quite large. For example, the value of an NYCHA voucher for a two-bedroom apartment in 2025 was a hefty $3,027.23

Although anyone earning less than 80 percent of the median income initially qualifies for rental aid, priority goes to the poorest applicants. By law, 75 percent of vouchers must go to households earning 30 percent or less of the median family income for an area. Local housing authorities can go even further in targeting the poorest applicants, and many do. The result is that vouchers are heavily tilted toward very low–income single-parent households.

Today, many Section 8 recipients receive a variety of federal benefits that are not time-limited, including housing benefits, food stamps, and Medicaid. These and other programs encourage the formation and persistence of government-dependent households. Because Section 8 rent is pegged at 30 percent of income, any increase in a recipient’s wages above that amount leads to a steep rent increase, and thus Section 8 creates a strong disincentive for individuals to expand their market earnings and seek personal advancement.

By contrast, unsubsidized housing markets are supportive of a healthy social fabric because they inspire and enable individuals to advance. Private markets reward effort and achievement by giving people the chance to live in better homes in better neighborhoods. As people work hard and gain job experience, they can earn their way to larger homes in nicer neighborhoods. There is no hurdle to improvement, as there is with income-targeted government benefits.

Public housing projects created pockets of crime and poverty, while Section 8 vouchers were supposed to geographically spread out poor families more widely. But that has not happened, and Section 8 tenants have become concentrated in particular buildings and neighborhoods. Some landlords become experts at the complex regulations of Section 8 and skillfully work the system to their advantage. With Section 8 tenants, landlords do not have to worry about nonpayment, because the government deposits its share of the rent—the lion’s share—directly into the property owner’s bank account.

Section 8 aid tends to overpay many landlords—that is, the government-paid rent is more than the market rent would be. The reason is that the program allows voucher holders to pay up to the average rent in their entire metropolitan area, and landlords in lower-income neighborhoods, where rents are below average, simply charge voucher holders exactly that average rent.

Both housing vouchers and public housing contribute to the creation of “frozen cities.” Subsidized tenants remain stuck in public housing projects and Section 8 buildings for years, even decades. In addition, the actual buildings that subsidized tenants inhabit remain tied to one specific use, which prevents the neighborhood from enjoying the natural upgrading over time that other neighborhoods experience. Neighborhoods with subsidized housing often do not experience renewal, and they offer fewer opportunities for individuals to improve their lives and their surroundings.

Some policymakers may think that Section 8 vouchers are “free market,” but they create no real private market, and, like other low-income programs, they help form and perpetuate a social and economic underclass. While recent Republican administrations have tried to reduce funding of Section 8 and make vouchers less open-ended, Democrats have blocked reforms and promoted expansion.

Private Markets and Low-Cost Housing

For eight decades, supporters of subsidized housing have acted on the belief that private markets cannot provide adequate housing for lower-income families. New Deal administrator Harold Ickes frequently made such statements in support of housing subsidies.24 Ickes claimed that “slums cannot be eradicated except on the basis of a government subsidy.”25 In 1935, prominent architect Albert Mayer claimed in a New York Times op-ed that 50 percent of the population could not afford to rent in private dwellings.26

The post–World War II era’s explosion of homeownership quickly gave the lie to those pronouncements, as private markets produced millions of new homes in the suburbs. Unfortunately, all sorts of federal housing subsidies had already been put into place and were difficult to repeal—even with the inferior performance of the subsidies and the excellent performance of the private sector in providing new housing during that era.

Before federal subsidy programs, and before the widespread use of restrictive housing regulations and zoning rules, private markets produced large amounts of housing for lower-income Americans. From 1890 to 1930, vast numbers of new housing units for the working class were built in American cities. In Philadelphia during that period, some 299,000 brick row homes were built—many of them so solid that they are still in use.27 Data from that period show that a significant percentage of residents of poor neighborhoods did not live in overcrowded tenements, but instead in small homes that they owned or in homes where the owners lived and rented out space.28

From the end of the Civil War until the New Deal, private markets generated a cornucopia of housing types to accommodate those of modest means. In those years, Chicago saw the construction of 211,000 low-cost two-family homes—or 21 percent of its residences. In Brooklyn, 120,000 two-family structures with ground-floor stores sprang up. And in Boston, about 40 percent of the population of 770,000 lived in the 65,376 units of the city’s triple-decker frame houses. These areas of low-cost, unsubsidized housing were home to the striving poor.

Even in the poorest neighborhoods, housing was rarely abject. A 1907 report by the US Immigration Commission, for instance, found that in the Eastern cities, crowding in such neighborhoods was by no means overwhelming. “Eighty-four of every 100 of the homes studied are in good or fair condition,” wrote the commission.29 True, many lived without hot water or their own bathrooms, but this was a time in America that was far less wealthy than today.

Rental costs at that time were not unduly burdensome. A 1909 study by the President’s Homes Commission of Washington, DC, found that a majority of the 1,200 families surveyed spent less than 18 percent of their income on housing costs.30 Many of the poor lived in small homes they owned or in small buildings in which the owner also lived.

We know from Jacob Riis’s 1890 book, How the Other Half Lives, that some families lived in quite meager conditions. But the circumstances in which these poor families lived were not permanent—a fact unacknowledged by either Riis or today’s housing advocates. After all, the generation of children for whom Riis despaired went on to accomplish America’s explosive economic growth after the turn of the century and into the 1920s. By 1930, the New York settlement-house pioneer Lillian Wald would write in her memoirs of the Lower East Side that where Riis had once deplored overcrowding, she now found herself surrounded by “empties” because most of the poor had climbed the economic ladder and headed to Brooklyn and the Bronx. In other words, “substandard” housing was a stage through which many families passed but in which they did not inevitably remain.

Perversely, subsidized housing advocates usually make matters worse when they try to ban the conditions that offend them. By insisting on extensive housing regulatory standards that drive up housing prices beyond the means of the poor, they help create housing shortages. Since the New Deal, a flood of mandates—whether for the number of closets, the square footage of kitchen-counter space, or handicapped access—have caused private owners and builders to bypass the low-income market. Under current building codes and zoning laws, much of the distinctive lower-cost housing that shaped the architectural identity of America’s cities—such as Brooklyn’s attached brownstones with basement apartments—could not be built today.

With reformed building and housing codes, markets may not be able to build brand-new housing within the reach of all families with low incomes. But housing structures last for decades, which facilitates the continual passing along of gradually older homes to those of more modest means. When new homes are built for the middle class, their homes are passed along to the lower middle class. When lower-middle-class families move to better accommodations, they pass their homes and apartments along to those who are poorer, and so it goes.

A major social benefit of private and unsubsidized rental and housing markets is the promotion of responsible behavior. Tenants and potential homeowners must establish a good credit history, save money for security deposits or down payments, produce good references from employers, and pay the rent or mortgage on time. Renters must maintain their apartments decently and keep an eye on their children to avoid eviction. By contrast, public housing, housing vouchers, and other types of housing subsidies undermine or eliminate these benefits of market-based housing.

Support for housing subsidies rests upon a failure to understand the importance of the means—such as marriage, hard work, and thrift—by which families improve their prospects so that they can move to a better home in a better neighborhood. Better neighborhoods are not better because of something in the water, but because people have built and sustained them by their efforts, their values, and their commitments. Subsidies are based on the mistaken belief that it is necessary to award a better home to all who claim “need,” but it is the effort to achieve the better home, not the home itself, that is the real engine of social improvement.

Reducing Barriers to Private Housing Investment

The federal government has subsidized housing for low-income families for decades and with generally poor results. A better solution to expanding housing affordability is in the hands of state and local governments—deregulation and tax reduction.

For decades, the states have undermined affordable housing and multifamily housing investment with excessive regulations.31 They should reassess zoning rules, land-use regulations, and permitting requirements that raise costs and slow construction, particularly for multifamily housing. Reforms should include liberalizing rules for allowable density, minimum lot sizes, height restrictions, accessory dwelling units, parking requirements, environmental reviews, and bureaucratic delays in permitting.

Many studies have found that excessive regulations boost housing costs. A 2022 study by the Federal Reserve Bank of Boston, for example, found that local density restrictions “play a key role in limiting the multifamily housing supply. Relaxing density restrictions, either alone or in combination with relaxing maximum-height restrictions and allowing multifamily housing, is the most fruitful policy reform for increasing supply and reducing multifamily rents.”32

A 2022 study by housing trade associations examined regulations on apartment building construction.33 It found that high costs stem from frequent changes to building codes, affordability mandates, land set-asides, government delays, labor regulations, complex zoning approvals, unique development mandates, and developer fees. Overall, these barriers raise project costs by 41 percent on average. The report concludes that “regulatory mandates discourage developers from building in the very marketplaces that have the greatest need for more housing.”34

Another cost factor in multifamily housing is property taxation. Property tax rates on apartment buildings are much higher than on owner-occupied homes. In a survey of 50 US cities, the Lincoln Institute of Land Policy found that effective tax rates on apartment buildings are 44 percent higher, on average, than on owner-occupied homes.35 Those high tax rates should be cut to boost investment.

In sum, reducing state and local taxes and regulations can increase the affordable housing supply. The federal role in housing should be limited, but there are reforms that Congress should pursue. One reform would be for the federal government to transfer some of its massive land holdings to the states, which could then sell parcels for housing development.

Another federal policy option is to reform depreciation rules for multifamily construction. Currently, apartment buildings have a lengthy 27.5-year write-off period, which raises effective tax rates on investment. Depreciation reforms could boost apartment building construction by about two million units within a decade.36

Conclusion

Congress should phase out federal subsidies for public housing and housing vouchers. State and local governments are entirely capable of tackling the demand for affordable housing by encouraging market-based investment. The states should reform zoning, building, and permitting regulations to encourage private investment in housing for low-income tenants.


Notes

1. Office of Management and Budget, Analytical Perspectives, Budget of the US Government, Fiscal Year 2025 (Government Publishing Office, 2024), Table 26-1.

2. Bryant Putney, “Low Cost Housing in the United States,” CQ Researcher, January 24, 1935.

3. Buel W. Patch, “Federal Home Loans and Housing,” CQ Researcher, November 20, 1933.

4. “FDR and Housing Legislation: 75th Anniversary of the Wagner-Steagall Housing Act of 1937,” Franklin D. Roosevelt Presidential Library and Museum, National Archives.

5. Howard Husock, “The Myths of The Pruitt-Igoe Myth,” City Journal, February 17, 2012.

6. “Public Housing in War on Poverty,” CQ Researcher, July 22, 1964.

7. Howard Husock, “How Government Fostered Housing Segregation,” review of The Color of Law, by Richard Rothstein, Barron’s, September 30, 2017, Manhattan Institute.

8. Quoted in Howard Husock, “The Inherent Flaws of HUD,” Cato Institute Policy Analysis no. 292, December 22, 1997, p. 5.

9. “Public Housing in War on Poverty,” CQ Researcher, July 22, 1964.

10. “Low Income Housing,” CQ Researcher, May 8, 1987.

11. Office of Management and Budget, Analytical Perspectives, Budget of the US Government, Fiscal Year 2025 (Government Publishing Office, 2024), Table 26-1.

12. “HUD’s Public Housing Program,” Department of Housing and Urban Development.

13. Daniel A. Hartley, “Public Housing, Concentrated Poverty, and Crime,” Economic Commentary, Federal Reserve Bank of Cleveland, October 6, 2014.

14. “70 Current and Former NYCHA Employees Charged with Bribery and Extortion Offenses,” press release, United States Attorney’s Office, Southern District of New York, February 6, 2024.

15. Artemis Moshtaghian and Ray Sanchez, “70 Current and Former Employees at Nation’s Largest Public Housing Authority Charged in Historic Federal Bribery Bust,” CNN, February 6, 2024.

16. Greg B. Smith, “Five Years Later, Still ‘a Long Way to Go’ on NYCHA Agreement with Feds,” The City, February 2, 2024.

17. “District of Columbia Housing Authority (DC001) Assessment,” Department of Housing and Urban Development, September 30, 2022.

18. Vanessa Brown Calder, “America Can Do Better than Public Housing,” Cato at Liberty (blog), Cato Institute, December 19, 2024. And see Molly Parker, “HUD Took Over a Town’s Housing Authority 22 Years Ago. Now the Authority’s Broke and Residents Are Being Pushed Out,” Route Fifty, December 17, 2018.

19. Brian Sullivan, “HUD Returns East St. Louis Housing Authority to Local Control,” press release, Department of Housing and Urban Development, September 21, 2017.

20. Molly Parker, “HUD Took Over a Town’s Housing Authority 22 Years Ago. Now the Authority’s Broke and Residents Are Being Pushed Out,” Route Fifty, December 17, 2018.

21. Office of Management and Budget, Appendix, Budget of the US Government, Fiscal Year 2025 (Government Publishing Office, 2024), p. 529.

22. Office of Management and Budget, Appendix, Budget of the US Government, Fiscal Year 2025 (Government Publishing Office, 2024), p. 547.

23. “Voucher Payment Standards and Utility Standards,” New York City Housing Authority.

24. Buel W. Patch, “Federal Home Loans and Housing,” CQ Researcher, November 20, 1933.

25. Bryant Putney, “Low Cost Housing in the United States,” CQ Researcher, January 24, 1935.

26. Bryant Putney, “Low Cost Housing in the United States,” CQ Researcher, January 24, 1935.

27. Howard Husock, “Repairing the Ladder: Toward a New Housing Policy Paradigm,” Reason Foundation Policy Study no. 207, July 1996.

28. Howard Husock, “Repairing the Ladder: Toward a New Housing Policy Paradigm,” Reason Foundation Policy Study no. 207, July 1996.

29. Quoted in Howard Husock, “We Don’t Need Subsidized Housing,” City Journal, Winter 1997.

30. Howard Husock, “We Don’t Need Subsidized Housing,” City Journal, Winter 1997.

31. For an introduction to these issues, see Bryan Caplan and Ady Branzei, Build, Baby, Build: The Science and Ethics of Housing Regulation (Cato Institute, 2024).

32. Aradhya Sood and Nicholas Chiumenti, “Local Zoning Laws and the Supply of Multifamily Housing in Greater Boston,” New England Public Policy Center Research Report 22-1, Federal Reserve Bank of Boston, October 2022, p. 3.

33. Paul Emrath and Caitlin Sugrue Walter, “Regulation: 40.6 Percent of the Cost of Multifamily Development,” National Association of Home Builders and National Multifamily Housing Council, June 8, 2022.

34. Paul Emrath and Caitlin Sugrue Walter, “Regulation: 40.6 Percent of the Cost of Multifamily Development,” National Association of Home Builders and National Multifamily Housing Council, June 8, 2022, p. 4.

3550-State Property Tax Comparison Study (Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence, July 2024), p. 4.

36. Erica York et al., “Estimating Neutral Cost Recovery’s Impact on Affordable Housing,” Tax Foundation, August 7, 2020.