At HUD, Diaz opinion marked shift in public housing development

By the time Nelson Diaz was appointed general counsel for the Department of Housing and Urban Development in the early 1990s, the federal government was about ready to give up on public housing altogether.

Lawsuits alleging racial discrimination and failure to maintain basic living conditions had been filed against public housing authorities across the country. Crime and drug activity had spiked in some high-rise projects throughout the previous two decades. Drab and crumbling concrete towers in Philadelphia, Chicago, and St. Louis had become symbols of concentrated, permanent poverty—of everything the government was doing wrong in its efforts to house the poor.

Early in his tenure as the top lawyer at HUD, Diaz, who is now 68 and campaigning to be the next mayor of Philadelphia, issued a memo that laid the legal groundwork for a major shift in the way public-housing projects are built and financed.

At the time, the federal government was rolling out the HOPE VI program—the acronym stands for Housing Opportunities for People Everywhere—which was aimed at replacing large-scale housing projects with lower-density, mixed-income communities. Picture Martin Luther King, Jr. Plaza in South Philadelphia’s Hawthorne neighborhood. Originally four high-rise towers with nearly 600 units, the project has been replaced with fewer than 250 modern row homes owned and rented by low-income residents.

In legal terms, the opinion was simple. Nothing in the Housing Act of 1937, Diaz wrote, prohibited public housing projects from being owned by private developers, so long as the public units themselves were in compliance with the rest of the Act’s rules and regulations. But in effect, the opinion helped inaugurate a new model for affordable-housing development that mixed public and private funding sources with federal low-income housing tax credits.

“I think it was a breakthrough opinion,” said Rod Solomon, a lawyer in Washington, D.C., who previously worked for housing authorities in Boston and Atlanta, and who served as deputy assistant secretary for policy during the 1990s and early 2000s.

The opinion, Solomon said, allowed public housing authorities to address “severely distressed” public housing projects despite shrinking congressional appropriations to those authorities. (The HOPE VI program was created after a report was issued by the National Commission on Severely Distressed Public Housing in 1992. That Commission was chaired by Congressman Bill Green, former Philadelphia mayor and father of current School Reform Commissioner Bill Green.)

“That was very important, because housing authorities had been, and continue to be, severely underfunded, especially on the capital [new construction and rehabilitation] side …” Solomon said. “And what this did was enable housing authorities to take advantage of low-income housing tax credits, principally to attract private investment to public housing.”

Diaz said that his boss, HUD Secretary Henry Cisneros, a Clinton appointee and former mayor of San Antonio, was hoping to find ways for local public housing authorities to be more “entrepreneurial.” Cisneros’s goals, and those of the HOPE VI program, involved upgrading public housing so that it looked like market-rate housing, deconcentrating the poor, and establishing new housing projects close to transportation amenities and schools.

Diaz, who had previously served as a judge on the Court of Common Pleas in Philadelphia, said federal officials were accustomed only to thinking about what they were explicitly authorized to do within the confines of congressionally appropriated funding. Without realizing it at the time, he said, he approached the question differently.

“What prevents the housing authorities from being more entrepreneurial?” he asked.

His answer, after some research: nothing.

The legal opinion allowed public housing authorities to demolish high-rise projects and work with private developers to replace them with a mix of low-income and market-rate units. Residents who didn’t return to the lower-density developments would receive rental subsidies through the Section 8 voucher program that could be used on the private housing market.

In the same era, HUD began funding community development corporations, a newish breed of nonprofit groups that were working to revitalize poor urban neighborhoods. HUD was making simultaneous efforts to improve housing projects and the areas surrounding them while also giving residents a way to get out of those areas, through the Section 8 vouchers. The theory, as summarized by Diaz in a previous interview with PlanPhilly, was that poor residents would get some benefit from interacting daily with wealthier ones.

“But if you saw professionals in and around your area—‘Oh, I could be a doctor, I could be a mentor, I could be a developer,’” Diaz said. “So that sort of highlights the prospects and the opportunities in the community. And it worked.”

Others are less sure how well it’s worked. In Atlanta, the public housing authority has completely eliminated traditional housing projects and replaced former high-rises with rental vouchers and mixed-income neighborhoods. But poverty and racial segregation have not been eliminated, or even seriously diminished, as a result.

“There’s no doubt that the redevelopment of high-rise towers into more mixed-income, low-density housing had major impacts on surrounding neighborhoods and resulted in increased investment in those communities,” said Rick Sauer, director of the Philadelphia Association of CDCs.

Sauer noted that Hawthorne has been transformed since the Martin Luther King, Jr. Plaza was reimagined. The redevelopment of that project has attracted a lot of new investment to the surrounding area, Sauer said, but not all the former residents of the towers have been able to come back to the neighborhood and enjoy those improvements.

“In my view,” said MIT professor Larry Vale, author of “Purging the Poorest: Public Housing and the Design Politics of Twice-Cleared Communities,” “these decisions dramatically shifted HOPE VI towards a more developer-friendly mode that changed the financial landscape of housing redevelopment, bringing new flexibility, but also making it more likely that fewer redevelopment efforts would replace all lost public housing units on a one-for-one basis, and more likely that fewer extremely-low-income households would be served in the mixed-income communities that would soon proliferate.

In recent years, HOPE VI has been largely replaced by the Rental Assistance Demonstration program, which provides funding for public-housing rehab projects and Section 8 rental vouchers. It’s also been supplemented by the Choice Neighborhoods program, which focuses on community development and social services in addition to public housing. Last year, HUD gave the city $30 million through Choice Neighborhoods to replace the Norris Apartments in North Philadelphia with mixed-income housing and to redevelop the surrounding area.

Rod Solomon, the former assistant secretary at HUD, said that whether you think that the shift to mixed-finance housing has been good or bad from an ideological standpoint, private money has played a crucial role in supplying affordable housing as federal funds have dwindled over the decades.

“The math doesn’t work without some substantial income source for low-income housing other than public housing appropriations,” Solomon said.

For his part, Diaz said he didn’t initially foresee the impact his opinion was going to have.

“I didn’t think that it was such a big deal,” said Diaz, who grew up in public housing in New York. “… I was thinking like a judge—‘Let’s let someone stop us,’—and nobody stopped us.”