Table of Contents

1 Theory of Housing Market and Social Housing

3

1.1 Meaning of Housing Market 3

1.1.1 Actors of the Housing Market and Their Interactions 5

1.1.2 Processes of Housing Market 6

1.1.3 Market Behaviour 7

1.2 Social Housing 9

1.2.1 Defining Social Housing 9

1.2.2 Supply Side of the Social Housing Market 12

1.2.3 Demand Side of the Social Housing Market 14

1.3 Role of Social Housing in Europe and the United States 15

2 Development of Social Housing in the United States 18

2.1 Summary of the Historical Development 18

2.1.1 Period Before World War I 18

2.1.2 Interwar Period 22

2.1.3 Post World War II 27

2.1.4 Reagan Period 31

2.1.5 Current Situation 32

2.2 The Current Social Housing System of the United States 33

2.2.1 Institutions 33

2.2.2 Non-Profit Organizations 37

2.2.3 Housing Eligibility and Accessibility 41

2.3 Demographics of Social Housing Residents in the USA 44

2.3.1 Migration and Diversity 44

2.3.2 Current Situation of Social Rent Household 47

2.3.3 Householder Characteristics 48

2.3.4 Household Characteristics 52

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3 Case Study New York City 62

3.1 Current Structure of the City 62

3.1.1 Variation of Economical Data 63

3.1.2 Variation of Demographical Data 65

3.2 Situation of Social Housing in New York City 84

3.2.1 The New York City Housing Authority 84

3.2.2 The New York Department of Housing Preservation and Development 86

3.3 Demographics of Social Housing Residents in New York City 88

3.3.1 Ethnic Origin 91

3.3.2 Household Composition 92

3.3.3 Distribution of Age 94

3.3.4 Socio-Economic Status 95

3.4 Second Generation in New York City 97

3.4.1 Demographic Overview of the Second Generation 98

3.4.2 Geographic Characteristics of the Second Generation in New York 100

3.5 Housing Accessibility and Affordability in New York City 101

3.6 Future Challenges of Social Housing in New York City 105

3.6.1 Crisis of New York City Housing Authority 106

3.6.2 Financial Crisis of the United States 108

4 Critical Evaluation of the Social Housing System of the United
States and its Residents

109

4.1 Social Housing in the United States 109

4.2 Demographical Characteristics: Social Housing Only for Marginalized

Population? 110

4.3 Future Prospects 111

Bibliography 113
List of Abbreviations 118
Table of Figures 119

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1 Theory of Housing Market and Social Housing

Housing is one of the basic needs of human beings and the fundament of a

free development of the individual, irrespective of a possible migration

background. Even the European Union recently recognized the importance

of an adequate fulfillment of this need and decided for the first time to

integrate social housing into EU cohesion policy (CLIP, 2007, p. 3).

Although housing can be understood as some sort of basic commodity, it is

also characteristic that the property `habitation′ differs from other economic

commodities. Jenkis (2004, pp. 52) pointed out that habitation can be

classified into the economic commodity `tenement′ and the social

commodity `use of the tenement′. According to that it is important to

understand in a first step the functionality of housing in general. Only then

a comprehensive understanding of social housing is possible. Chapter 2

shapes the theoretical basis of the housing market and after that elaborates

a deeper introduction into the characteristics of social housing renters.

1.1 Meaning of Housing Market

A very superficial observation shows that housing markets basically connect

buyers and sellers of housing, whereby "[...] buyers offer demand and

sellers offer supply [...]" (Oxley, 2004, p. 16). The U.S. Department of

Housing and Urban Development (HUD) states that the housing market

differs from the market for other necessities such as food or clothing. The

main difference is "[...] that supply does not respond to demand quickly"

(www.huduser.org) and the complexity of housing markets can be found in

the strong connectivity to economic conditions.

Abele and Winckler (1976, p. 3) went one step further and emphasized that

the concept of housing market includes two different core themes, in

particular the change of domicile and the building activity. Both categories

are very complex and amount to a "[...] multi-dimensional social field of

interaction [...]" (Abele and Winckler, 1976, p. 3) which is influenced by

different actors, information patterns, decision-making processes, activities,

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institutional conditions and so on. Over the course of their study they

describe the housing market as a place where information pass on and

where interactions and communication take place. The housing market is

generally characterized by processes which concentrate on the objective

`habitation′ (Abele and Winckler, 1976, p. 66).

This explanation of the housing market coincide with Mayer′s (1998, p. 42)

more recent definition which describes the housing market as an economical

place where processes of exchange regarding the commodity `habitation′

take place. Mayer (1998, p. 42) also pointed out that there is no one single

housing market. The market is to a rather degree divided into several

submarkets which are connected on the supply and demand side.

Very generally spoken, similar to economic markets the housing market is

also divided into a supply and demand side. According to Oxley (2004, p.

16), housing demand depends on preferences and financial resources and

can be divided into an individual demand which represents a single person

and an aggregated demand which summarize a set of individual demands.

On the other hand, housing supply has to be differentiated between "[...]

supply from the existing stock and supply from house-building [...]" which

includes new construction as well as additional housing because of

conversion of existing properties (Oxley, 2004, pp. 22). Both, supply and

demand depend on a variety of external factors which influence the housing

market behaviour. This will be observed more detailed in Section 1.1.3.

For the sake of completeness it is important to underline that a housing

market is no market in terms of a traditional economical theory. Because

every market needs some sort of standardization, it would be necessary to

build homogenous submarkets for housing relevant criteria like price, size,

location or facilities. However, the concerned parties of the housing market

are able to switch between the submarkets as often as they like. A housing

demander is able to interact for instance first on the submarket of two-room

apartments in city-location for 500 EUR rent per month and change then to

the submarket of two-room apartment in suburban region for 400 EUR rent

per month. The more homogenous and precise the submarkets are, the

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easier it is to change between the submarkets. According to Abele and

Winckler (1976, p. 3) the standardization by using submarkets gets lost

with the increasing possibilities of changing between the submarkets. This

basic problem shows already the complexity of housing markets and the

challenge to include all important parameters.

1.1.1 Actors of the Housing Market and Their Interactions

The involved parties of housing market can be found both on the supply and

on the demand side. In the course of this, actors can act on two different

levels: a direct and an indirect involvement into the market conditions

(Abele and Winckler, 1976, p. 7 and 67). Directly involved participants on

the housing market are homeowners ­ private-owned or governmental-

owned ­, tenants, subtenants or superintendents. Indirectly involved actors

are real estate developers, architects, brokerage firms or letting agencies

(Abele and Winckler, 1976, p. 7).

The interactions between the actors are embedded into an institutional

general framework that is principally set by the lawmaker. In this context it

is important to make a difference between constitutional lawmakers and

ordinary lawmakers. The variable levels of legislation, such as federal,

provincial and municipal government, have to be considered, too. In

addition, the administration completes the general framework (Abele and

Winckler, 1976, p. 6).

The lawmaker takes a special position in the setting of housing market′s

actors and influences the housing market with a wide range of

governmental interventions. Blaas (1991, pp. 23) differentiated between

governmental interventions on the supply and the demand side. On the

supply side the lawmaker acts either as a housing provider or as a

supporter of non-profit-making and public housing. As a result the

lawmaker enlarges the housing supply and influences the housing prices of

the whole housing market. On the demand side the lawmaker influences the

housing market by supporting the purchasing power of the housing

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demander. A possibility is to benefit saving behavior by payment of bonuses

or tax concessions (Blaas, 1991, pp. 23)

It is also necessary to observe the frequency of interaction between the

various actors to project the interactions in a time scale. Due to the large

amount of actors and their activities a complex variety occurs. This

complexity can be simplified by a segmentation of the actors regarding the

behavior on the housing market. The typical sequence of decision-making

and the typical resting time of housing market′s participants finally lead to

the assumption that the housing market is a process characterized by

diverse intensities of activity (Abele and Winckler, 1976, p. 9).

1.1.2 Processes of Housing Market

Housing markets are not only influenced by the interactions between the

market actors, but also by processes which can be described by the help of

three theories: filtering theory, trickle theory and socio-spatial theory

(Jenkis, 2004, pp. 346).

The filtering theory states that the use of a tenement increases the quality

by renovation or improvement of infrastructure, such as the expansion of

public transport systems for instance. This kind of improvement is called

`filtering up′ (Jenkis, 2004, pp. 346). The quality of habitation can also

decrease by usual usage and is called `filtering down′ (Jenkis, 2004, pp.

346).

The trickle theory connects the new construction of tenements with

household income. It is assumed that newly constructed habitation always

implies a higher quality standard. If the household income increases the

households will move into these more luxurious habitations. Their former

tenement will become available and occupied by moving up households with

a lower income. According to the theory, a chain of removals is developing

with low quality tenements at its end. As a consequence, these habitations

can be demolished and substituted by new higher quality tenements.

Theoretically, there is a filtering up process possible, if the demand for new

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building of the middle and high income households is encouraged enough

(Jenkis, 2004, pp. 349).

The third market process that is pointed out by Jenkis (2004, pp. 351) is

the theory of socio-spatial processes. This theory is based on the arbitrage

pricing theory and describes a tenement as a bundle of services within its

social and technical environment. As a consequence, tenements located in

regions with high-income households create more proceeds than tenements

located within low-income households. The borderlines are characterized by

agio or disagio, depending on the particular location (Jenkis, 2004, pp.

351).

1.1.3 Market Behaviour

As already mentioned, housing markets can be influenced by actors, their

interactions and several processes. Explaining the behaviour of the housing

market seems impossible. At the time this thesis was written current

studies regarding the rent housing market were not available. So I will try

to give an insight into the market behavior in general with the help of a real

estate study made by Robert Shiller.

Shiller (2005, p. 11) observed the ups and downs of the stock and real

estate market in a historical context. Although he focused on the stock

market, he also tried to describe the market behaviour of the real estate

market. He pointed out that the driving forces of market fluctuation and

bubbles are "[...] events outside the markets, such as politics, technology

and demography [...]". However, real estate booms are predominately "[...]

mysterious and hard to understand [...]". With this, the market behavior of

real estate is similar to the stock market. If market booms or crashes

happen "[...] there are always popular explanations for them [...]", but not

always correct ones.

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Figure 1: U.S. Home Prices, Building Costs, Population, and Interest Rates, 1890-2004

(Source: SHILLER, p.13)

As one can see in Figure 1 the market for home prices of the United States

is very volatile with numerous of increase and decrease phases over the

years. It is remarkable that home prices are increasing dramatically since

1997. Shiller (2005, p. 13) explains that a 52 percent increase between

1997 and 2004 for the United States has taken place. The reason for this

development cannot be population growth alone, which was quite steady

over the years. Building costs were not the reason for increased home

prices either, because construction costs varied in the last years and have

been even higher in the 1980ies. Obviously, the factors building costs,

population and interest rates aren′t able to explain the "[...] `rocket-taking-

off′ effect starting after 1997 [...]" (SHILLER, 2005, p. 14). At the end the

author concludes his study with the argument that `irrational exuberance′, a

term invented by Alan Greenspan in 1996, includes psychological and

cultural factors and shows a large complexity. Although irrational

exuberance in a whole is quite unobservable, it is the driving force for the

ups and downs of the real estate market (SHILLER, 2005, p. 173).

To conclude, it is important to point out again that the housing market itself

and its behaviour are very complex and communicate with current economic

conditions. Even if there is no clear `cause-and-effect relationship′ between

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housing market and economic conditions, the situation in one of these parts

influences the other part, and vice versa. For this reason the housing

market reflects obviously the situation of the economy in general and

should not be observed isolated.

1.2 Social Housing

Social Housing can be found in most of the Western European countries, as

well as in industrialized countries, like the United States, Canada or

Australia. They have in common that each of their housing systems have a

diverse "[...] character, reflecting local historical circumstances [...]"

(Malpass et al., nr, p. 1), so social housing is a complex topic with diverse

characteristics.

According to Cowan and McDermont (2006, p. 2) the term `social housing′

evolved quite recently and, in the case of Great Britain, came up in the

1990ies. The new creation should describe the state′s intervention in

housing provision and was used by professionals and academics without any

discussion. The authors pointed out that we all "[...] instinctively think we

know what it is [...]" (Cowan and McDermont, 2006, p.2). But in reality the

opposite is true. Therefore Chapter 2.2 gives a brief overview about

meaning and concept of social housing.

1.2.1 Defining Social Housing

One can find various efforts of characterizing social housing. First of all, a

differentiation between social and public housing is necessary to understand

specialized literature correctly. Social housing is sometimes also called

subsidized housing and means supported accommodation for low-income

households by the government. Subsidizing instruments are generally direct

housing subsidies, non-profit housing, public housing, rent supplements and

some forms of co-operative and private sector housing. In contrast, public

housing means real property owned and managed by government and is

characterized by specific eligibility requirements (www.answers.com). As

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John Mollenkopf cut it right to the chase of the matter during our

discussion, public housing means real property owned by the government to

provide affordable and decent housing for low and middle income

households, whereby social housing is `everything else′.

But social housing is about much more than these characterizations. Ball

and Harloe (1988, p. 13) for instance, described social housing as a strong

form of liberal-interventionism, "[...] where the state overrides the interests

of specific private agents by imposing strict controls, such as rent controls,

or takes one aspect of provision out of the market altogether [...]".

In a more current publication, Harloe (1993, p. 3) argued that the term

`social housing′ can be used equally as a short-term for `social rented

housing′. Although `social housing′ has a variety of meanings, Harloe

pointed out that it consists of three major characteristics. "First, it is

provided by landlords at a price which is not primarily determined by

considerations of profit. Second, it is administratively allocated according to

some conception of `need′. Third, government control over social rented

housing is extensive and has become more so over time [...]." (Harloe and

Ball, 1988, pp. 42).

Harloe′s first criterion, that social housing is non-profit-making, is supported

by other researchers. Cowan and McDermont (2006, pp. 4) citied Peter

Malpass who explained the principles of social housing as "[...] decisions [...]

[which] are determined on the basis of some judgment of need rather than

profit; that rents are set on a non-profit basis, and the distribution of

dwellings to individual households is on the basis of need rather than ability

to pay and first come first served [...]". Interestingly, this kind of definition

excludes ownership, although Cowan and McDermont (2006, p. 5)

emphasized that "[...] both the private rented sector and ownership play an

important role in social housing policy."

The concept of `need′ that is mentioned by Harloe as a second criterion of

social housing, is the most commonly considered characteristic among

experts and researchers (Cowan and McDermont, 2006, p. 3). "Need has

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