One way to respond to rising costs is to attempt to improve efficiency through better management. Our study is not relevant here; it doesn't provide any insight into what scope there may be for better management of local housing authorities. Nothing in our study should be used to argue against any step which will lower costs through greater efficiency. Any gains that can be made on this score benefit everyone and reduce the need to provide other remedies for the cost squeeze. A second way to respond to an inflationary cost increase is by raising prices. In the case of local housing authorities the "price" is the rents charged to the tenants. Now, rents have gone up in public housing, as Chart 1 illustrates; but they have gone up rather slowly. And one reason there is great reluctance to raise them more rapidly is, of course, that tenants of public housing are a very low-income group and that average income in public housing has increased very slowly in the last few years. The last of the charts compares incomes of public housing tenants and overall income of the United States families. Both the low level and the low rate of increase for public housing tenants due partly to the fact that economically successful families tend to leave public housing— apparent in the chart. Our study suggested that using general rent increases to try to fill all of the gap between receipts and costs would involve a substantial and growing burden on the tenants. Steps to attract a higher income group of tenants would, of course, increase rent-paying ability. Possibly such steps would improve conditions in public housing projects in other ways. At the same time, however, such steps would result in the exclusion of low-income families for whom there was no longer a place in public housing. Moreover, the resultant financial relief would take place only over a period of years as tenant turnover had time to occur, while the cost squeeze is a pressing problem currently. A third response to rising costs-one which private businesses find necessary if other responses are insufficient-is cutting back on the output of services. In public housing, the analogous move would be reducing the level of maintenance, boarding units up, or curtailing services in other ways. There is no need to elaborate the point that in public housing this response would cause great hardship among many low-income families. A strong public interest in maintaining the flow of services is thus one respect in which puble housing differs from many privately-produced goods. Reluctance to increase the price charged to public housing tenants, discussed a minute ago, is another. It is these special considerations which underlie the case for changing the federal support formula in response to inflationary cost increases. My own view-and this of course goes beyond the strict limits of the studyis that the case for increasing the level of federal payments is a strong one and is consistent with widely-accepted social goals. It is made stronger by the fact that there is no inherent reason why the federal subsidy should be tied to capital costs. The appeal of tying the subsidy to capital costs is that it is a convenient formula. For many years, moreover, the results were satisfactory from a financial point of view. Now that the results are no longer satisfactory, there is no reason to remain attached to capital costs as the basis for setting the level of federal support. The final point I'd like to make is that the current financial problems of public housing point to the need for continuing to think about and experiment with other approaches to improving housing conditions for low-income families. The analysis above has focused on the narrow question of how best to provide for operating the existing stock of public housing from month to month. It is within this framework that the case for increasing the level of federal support has been made. The more we increase the level of federal support, it seems to me, the more important it is to explore other ways of using tax dollars to improve housing conditions. PUBLIC HOUSING OPERATIONS CHART 1: OPERATING COSTS AND RECEIPTS IN PUBLIC HOUSING, 1965-68 (AVERAGE OF 23 CITIES) 120 MAINTENANCE 110 100 + 90. + 1966 TOTAL I UTILITIES A. COSTS AND RECEIPTS PER UNIT PER MONTH B. INDEXES OF OPERATING COSTS PER UNIT PER MONTH, |