Charts Illustrations 1. Public Housing Operating Costs and Rents, 1965 through 1968... 2. Costs and Rents per Unit per Month in Public Housing, 23 Cities 3. Relation of Public Housing Costs to Monthly Earnings of City Employees. . 4. Relation of Public Housing Costs to Size of Housing Authority 5. Relation of Public Housing Costs to Number of Minors per Unit .. Tables 1. The Sample of 23 Cities . 2. The Rise in Operating Costs in Sample Cities 5. Rents and Incomes in Public Housing, 1965-68 8. Explanation of Total Costs: Alternative Age Variables 10. Explanation of the Main Components of Total Costs..... 44 11. Total Costs: Regression Results for Pooled Observations, 4-year Averages, and Deviations from 4-year Averages. 46 12. Total Costs: Results with and without New York 13. Explanation of the 1965-68 Rise in Public Housing Operating Costs, 23 Cities .. 14. Explanation of Dwelling Rent per Unit per Month 15. Dwelling Rents-4-Year Averages and Deviations from Average ... 47 ..50 5565 57 Part One Public Housing Operations in 23 Cities Chapter 1 Nature of the Crisis This report deals with current trends in operating costs and receipts in public housing in the United States, based on detailed statistical analysis of the experience of 23 large local housing authorities from 1965 through 1968. It seeks to establish the relative importance of such factors as general price and wage inflation, tenant characteristics, building age, and number of units in accelerating operating costs. It analyzes public housing rental receipts in the same 23 cities in an attempt to establish an aggregate picture of the func tioning of the present public housing rent system. Finally, it considers current and possible future trends in the factors influencing costs and rents. The findings of the report are useful in a number of ways. They are of immediate use in understanding the causes of operating deficits in many public housing authorities and in judging probable future trends in deficits. They shed light on the economic effects of some of the various options for combating deficits, including rent increases or higher federal payments. They could be used as a tool for comparing the financial experience of an individual housing authority with what might be expected in the light of its location, age, size, and tenants, though this possible use is not explored in the report. To the degree that they provide information about the cost 12 Operating Costs in Public Housing of operating low-income housing generally, they should be a valuable part of any economic comparison of public housing with other means of assisting low-income families. The scope of the report has definite limits, however, which it is important to recognize at the outset. Since it is strictly an economic analysis, it does not attempt to measure tenant attitudes or consider problems of organization and decision-making in public housing. Nor does it deal with the level and mix of services which housing authorities provide or might provide. Finally, like all statistical analyses its findings are subject to a margin of uncertainty and may have to be modified as knowledge about the operation of housing grows. Part I of the report describes the study's central findings and some of their major implications. The technical section, Part II, describes in detail the statistical analysis of 23 large local housing authorities. CENTRAL FINDINGS The central finding is that price and wage inflation is the major cause of increased operating costs in public housing. These costs were found to have a parallel relationship to general levels of prices and municipal wage rates. Among the 23 cities, those with relatively low prices and municipal wage rates tended to have low operating costs, those with high prices and wages, high operating costs. The rise in prices and wages in the different cities during 1965-68 is sufficient to account for most of the rise in operating costs over this period. The rate of increase of prices and wages has been accelerating; so, likewise, has the rate of increase of public housing operating costs. About four-fifths of the rise in costs from 1965 to 1968 experienced by the 23 local authorities appears to be directly attributable to inflation. Other important cost factors were evident in particular cities and projects, although these apparently made considerably smaller contributions to the overall cost increases. Aging of the public housing stock, for instance, accounted for about one-tenth of the 1965-68 rise in operating costs in the cities studied. Tenant charac Nature of the Crisis 13 teristics, particularly the number of minors per dwelling unit and the percent of units with no wage earner present, are significantly related to costs but have had little aggregate effect because the characteristics of tenants have changed little on an overall basis in recent years. Finally, there appears to be a tendency for large authorities, those managing more units, to have higher unit costs than small ones. On the rent side, the central finding is that the present complex system of dwelling charges works out so that rents per unit are strongly influenced by costs per unit. However, rent increases have been running consistently 25 percent behind cost increases. In other words, rents have tended to rise by about 75 cents for each dollar increase in operating cost. The influence of tenant median incomes on rents is surprisingly small. Perhaps this is because cost increases and associated pressures to revise rent schedules have been of overriding importance during the last few years. Or, perhaps it is because of the many departures from a simple rent-to-income relation, such as the use of flat charges per room by some local authorities. Whatever the reason, rents per unit vary much more closely with costs per unit than with median incomes of tenants. SOME IMPLICATIONS The findings lead to the conclusion that the gap between costs and rents almost certainly will continue to emerge and grow for many local housing authorities in the near future, certainly so long as prices and wages continue to rise. Chart 1 shows the trends in costs and rents during the 1965-68 period covered by the study. Prices and wages have been rising more rapidly since 1968 than during that period. Rent increases can be expected to offset only a part of the rising costs, at least as the system has worked out in the past. Growing deficits seem by far the most likely short-run outcome. |