An Urban Institute Paper: The Development of a Prototype Equation for Public Housing Operating Expenses

In recent years, Local Housing Authorities (LHA's) have encountered severe financial problems in the operation of public housing projects. The original design of the public housing program essentially called for the federal government to pay only the costs of acquiring sites and constructing buildings. Maintenance costs were to be covered by rents paid by the tenants. However, inflation and other factors have caused operating expenses to rise faster than the tenants' rent-paying ability. The growing gap between Authority operating expenses and rental income has been the subject of considerable concern to the federal government and, of course, to the Housing Authorities themselves.

To illustrate the intensity of the problem--if an LHA's total operating expenses and rental income per Dwelling unit per month (PUM) were initially balanced at $60, expenses after 8 years would exceed income by about $20 PUM if expenses rose an average of 6 percent a year and rental income rose only 3 percent a year. If the LHA had 5000 units, its annual deficit would be about $1,200,000. Two years later the annual deficit would be about 37 percent higher, rising on an accelerating curve.