Just a quick note: as to carcinogenic effects, the article mentioned that the sierra club measured levels as high as 0.34 ppm. According the
EPA, formaldehyde is statistically linked to an increased incidence of lung and nasopharyngeal cancer, mathematically projected to have a significance of an increased chance of incidence of 1:10,000 at levels of approximately 0.667 ppm (0.8 ug/m^3). So, it potentially could be a little more serious than a headache and a nosebleed.
That said, I have to disagree with the heartless bitch and bastard club on this one. I believe that once you provide the housing, that should imply some manner of legal liability for the safety of the product. Otherwise, nothing the goverment provided would have to be particularly safe. I don't think a moral judgement concerning the lifestyle decisions / welfare state arguments are pertinent to this situation. If you allow the goverment to provide unsafe products, on some occasions, depending on whom the recepients will be, it seems you're setting a pretty dangerous precedent. They also provide your water and take away your shit, make sure you're food doesn't contain diseases, and supposedly regulate pharmaceuticals.