The president's man
Shaun Donovan is the man charged with picking up the pieces after the US sub-prime mortgage crash. Lydia Stockdale meets the secretary of state for housing to find out if he has been successful.
The familiar face of president Barack Obama, photographed against a patriotic backdrop of stars and stripes, looks down at me from a large framed portrait. At his side hangs a picture of the man I’m in Washington DC to meet: Shaun Donovan, United States secretary of state for housing and urban development.
Scanned and security-checked, I’ve made it into the vast lobby of his department’s building, a short walk from the White House and Capitol Hill. As I sit and wait, there’s a moment to ponder the interview that lies ahead.
As one of 16 heads of department in president Obama’s cabinet - and 13th in the presidential line of succession - secretary Donovan is one of the most influential people in the US government. This year he is in charge of a $38.3 billion (£23.9 billion) budget - 14 times the amount UK communities secretary Eric Pickles has under his command.
Appointed by president Obama shortly after the Democrats stormed to victory in the last US election nearly four years ago in November 2008, secretary Donovan took control of the nation’s housing when it was in the midst of arguably the worst crisis it had ever experienced.
Too much borrowing along with flawed financial modelling had caused the US housing bubble to burst in 2007. By September 2008 the average value of homes had fallen by 20 per cent on their mid-2006 peak.
While the proportion of homeowners in the UK in negative equity - meaning they owe lenders more than their homes are worth - stood at 3.8 per cent at the end of last year, according to ratings agency Standard & Poor’s, analysts in the US believe that approaching a quarter of US mortgages are ‘underwater’ in this way.
So secretary Donovan’s attention has, understandably, been focused on homeownership - and some argue that without his efforts in this area, the housing crisis would have reached greater depths. So what has he done? And how has he helped the country’s 41 million renting households, including the 4.5 million who receive support from his department?
In the run-up to the US election next month has this government made enough progress to convince all voters it can protect their homes?
These are some of the questions that run though my head as I’m led along the maze of corridors that leads to the secretary’s inner sanctum.
A set of doors opens to reveal secretary Donovan himself. The 46-year-old Harvard graduate and former commissioner of the New York City Department of Housing Preservation and Development is standing ready to greet me. He’s so welcoming that at first it’s a little disarming. He’s also surprisingly knowledgeable about housing in the UK and even paid our very own Mr Pickles a visit on his last trip across the pond.
Looking around his huge office it’s apparent that secretary Donovan is an urbane individual. His desk and shelves at the far end of the room are crowded with a mixture of heavy-looking books, the many and varied awards and trophies gathered throughout his career, and photos of his two sons.
On his walls are paintings by the celebrated abstract expressionist painter Mark Rothko. ‘We get to borrow them from the National Gallery,’ he explains. ‘I saw there were five Rothkos that had been squirreled away. It was like, wow.’
This place looks very different from the Republicans’ days, he smiles. ‘It was completely faux-colonial. There were big curtains and everything.’ Next month’s election is not, however, likely to be decided on taste.
As we take a seat he seems enthusiastic about the prospect of spending the next hour discussing the ins and outs of his policies. ‘I’m a lifelong housing wonk,’ he laughs. So we begin with the question all politicians, wherever they are in the world, like most: what has been his biggest achievement so far? ‘Ending the housing crisis - this very small thing,’ secretary Donovan answers, still smiling.
‘I’m not going to declare victory and say we’re there, we still have a way to go, but we’ve not only stabilised the market - we’re seeing a real recovery happening,’ he explains.
The most recent Standard & Poor’s Case-Shiller home price index showed house prices rose in 20 of America’s largest cities by an average of 1.6 per cent in July - it’s a small increase, but it represents a significant turnaround.
‘When the president walked into the Oval office there had been two-and-a-half years of sustained decline,’ states secretary Donovan. ‘It’s hard for many people to remember how desperate it was.’
Most important has been the work his department has been doing with the banks to help homeowners who are in negative equity, explains the secretary. ‘We’ve started to rebuild equity in people’s homes substantially. About 700,000 homeowners have come back “above water”,’ he says.
His department has helped millions of homeowners through various initiatives. For example, more than 1 million have managed to stay in their homes through its home affordable modification programme, enabling them to reduce their monthly payments so they take no more than 31 per cent of the household’s gross income. It is also working with around 1.5 million households to refinance their mortgages through its home affordable refinance programme.
‘We’ve actually been able to contain and reverse the tide of families losing their homes,’ says the secretary. ‘The number of people falling into foreclosure is down by about half what it was.’
By helping people to get their mortgages in order, his department has increased the economic competitiveness of the US and improved people’s labour mobility, he states. ‘People can refinance even if they’re underwater and move to where a job is.’
HUD’s efforts to help struggling homeowners should go down well with voters. ‘There’s not a person in the world that housing isn’t a central issue to,’ he adds.
Yet despite the evidence showing that secretary Donovan’s department’s interventions in the housing market are working, there are still many who argue that it should have been allowed to fail. He explains that this can make it tough to get further legislation through Congress (the US parliament).
‘[Republican leader Mitt] Romney has said government should get out of the way and just let the housing market hit bottom, not intervene - the market will fix itself,’ he states. ‘No offence, but look what’s happening in Europe right now - letting the market hit bottom is not working.’
Around 3,300 housing authorities received fuding from HUD to look after the nation’s 1.2 million public housing units and the 3.3 million section 8 vouchers, which give low-income housholds financial assistance when renting from private landlords. But the funding they have been given to do this has been cut by $230 million (£144 million) over the past two years taking it down to $1.35 billion (£800 million). This is because the amount HUD has been allocated by Congress has been slashed in recent years. In 2009 it was granted $53.7 billion (£33.6 billion) to run all of its programmes. This year the amount it had to play with was $38.3 billion (£23.9 billion).
When asking US housing professionals for their views on secretary Donovan one point on which everyone agrees is that he is, in the words of Saul Ramirez, chief executive of the National Association for Housing and Redevelopment Officials, ‘a big thinker with big vision’.
This hasn’t impressed everyone, however. Although all government departments with non-defence discretionary budgets have taken a hit, some housing professionals argue that secretary Donovan is not the right person to make the case for investment in their sector. ‘He’s a policy guy, not a politician,’ sums up one housing authority leader. ‘We need a courageous voice,’ says another.
It’s hard to imagine the warm and sophisticated secretary being much of a scrapper, but he insists he is fighting in Congress for investment public housing. And Douglas Rice, a senior policy analyst at the Center on Budget and Policy Priorities, believes the secretary has improved the image of his department. ‘HUD historically has a very poor reputation for competence and he’s made a strong effort to change that. He is widely respected,’ he says.
Secretary Donovan admits, though, that he wishes ‘we’d made more progress in some areas’. A recent study carried out by his department has shown that a $26 billion investment is needed to keep public housing in a safe and decent condition. Getting the necessary funding will be tough, ‘particularly as those on the right that would say “get rid of these programmes”’.
‘Even if we were to get everything we wanted from Congress, we’re not going to get $26 billion this year or for the next few years,’ says secretary Donovan. ‘So the other thing that we’re doing that’s absolutely critical is saying we’ve got to be more creative about ways to go find more capital.’
For the past 50 years, housing policy in the US has moved away from public housing that is government-built, owned, operated and financed, to a system where new affordable housing is financed by the public sector, explains the secretary. ‘I don’t just mean for-profit companies - we have a huge infrastructure network of non-profit developers now, as you’ve started to see [in the UK] as well.’
Secretary Donovan’s focus is now on ‘looking to find access to new kinds of private capital that can create more integrated neighbourhoods of opportunity for families’.
Gerard Joab, executive director of one such non-profit organisation, the St Ambrose Housing Aid Center in Baltimore, believes the secretary’s strategy is right. ‘This administration understands that a community thrives by having a variety of incomes, a variety of housing types within an area,’ he says. ‘He has been very responsive to the needs on the ground.’
Whether Mr Donovan will be able to continue working on making his vision a reality depends on the outcome of the election next month. In just four weeks’ time his office could once again be being measured for curtains.
If president Obama wins a second term though, secretary Donovan hopes he’ll remain in place. ‘I can’t imagine anything else I’d rather do than work for this president in this job,’ he says. ‘If the president will have me, I’m committed to staying and [seeing things] through.’
Secretary Shaun Donovan on UK housing
For one year when he was eight, Shaun Donovan, United States secretary of state for housing and urban development, lived in London.
His father is British, and he has ‘very close family ties and friends there’. On a recent visit to the UK, he dropped in on the communities secretary Eric Pickles. He spent around an hour with him, just ‘talking about what we’re doing’.
‘Part of the reason why I met the minister is that in England you guys have also seen that when you limit public housing to only government subsidies, what you end up with is 100 per cent of the apartments [in an area that] are extremely low income. They look different and they become isolated from their neighbourhoods,’ he says.
‘We’ve really tried to reach out to understand more what is happening around the world in terms of housing policies, and also to share our knowledge and experiences,’ explains the secretary.
‘President Obama shifted the views of the world so much about the US,’ he states. ‘The US is re-engaging as a partner, not as a, you know, “We’ve got everything to teach you and nothing to learn” kind of approach, which was what was there before.’
‘There are some things where the rest of the world is well ahead of us,’ he says, pointing to the UK’s progress on sustainable housing as an example.
In terms of what the UK can learn from the US, raising private capital for investment in housing is most significant, he says.
A spokesperson for the Communities and Local Government department confirms that ‘Mr Pickles was delighted to welcome secretary Donovan to Eland House. They had a productive meeting and got on very well’.