A Parallel Option: Social Housing (Part 3)
This is Part 3 in a multi-part series on social housing. Read Part 1 here.
(Source: Flickr.)
Social housing is having a moment: Amid record-high rents and housing market dysfunction, prominent politicians are talking about the concept and advancing legislation, and many Americans are encountering it for the first time. Today I’ll resume and conclude this three-part primer series on social housing. This final part will examine where social housing fits into the broader world of housing policy reforms. And, if we do start building a lot more of it, what questions to ask to ensure that effort is effective and positively contributes to strong, resilient places.
In Part 1, we discussed how social housing is understood in the places around the world that do it well: as a universalist public program open to all, akin to (for example) community colleges, not as a last resort for the most desperately poor.
In Part 2, we explored the financing model proposed by nearly all present-day social housing advocates in the U.S. That model is cross-subsidization, in which residents are of a wide range of incomes, and the wealthier ones subsidize the rents of the poorest, allowing the social housing agency to be far more financially self-sufficient than the public housing authorities of decades past.
I promised at the start of this series that I would not try to convince you of a simple pro–con take on social housing. Rather, my goal is to convey that, much like market housing, social housing is a big umbrella, not one thing that must be done in one way. And so, we should be able to have a nuanced conversation about what it might look like. In many ways, the “social” is the least interesting part.
Social housing is one strategy that can complement other strategies to address a profoundly broken housing system. It’s not a silver bullet. And it won’t work if it’s the only thing we do. Practical social housing proposals are not an attempt to replace market-rate housing, but rather to build a parallel alternative.
(Source: Flickr.)
Myth-Busting: “Free Market” Housing Has Been Tried and Found Wanting
Raise your hand if you’ve heard something like this: “The free market has failed to meet the housing needs of non-affluent Americans. Only social housing can solve the housing crisis.”
To those people I ask, “What free market?”
Let’s get this much straight: there is nothing even remotely resembling a free market in housing. The state, through land-use policy, infrastructure decisions, tax, monetary and other macro policy, almost completely shapes the context in which "markets" operate to determine what homes get built, where they get built, and what they cost. What would the market produce if we eliminated existing barriers to building homes, particularly at the low end (simpler, smaller, cheaper), and if we also eliminated powerful policy inducements to land speculation? It'd be very different from what the market produces now.
As far as barriers go, it’s well documented that a range of public policies drive housing development costs up dramatically. A few of the worst offenders:
Building code requirements that preclude cheaper and better ways of designing buildings.
Design requirements that do the same.
Uncertainty and delay in the development approval process, which increase risk and tie up capital.
These policies not only result in more expensive and less housing built by the private sector, they also make our communities weaker and less resilient places in a lot of ways. For example, they limit who gets to develop housing—shutting out incremental developers who can’t bear the risk and added costs, and skewing things in favor of bigger, corporate developers who throw their weight around and are hyper-attentive to their bottom line.
A common argument for social housing is that it "gets land out of the speculative market," removing it from the control of those whose interest is to see its value go up and up and up (to the detriment of tenants and future buyers). This isn’t false, but in most places, there are dozens of things you could also do to make the market less speculative and make it serve a broader range of needs.
One of those things is to allow the next increment of development universally, so that every neighborhood is capable of adding housing and absorbing pent-up demand. This would reduce the premium paid for developable lots—and the windfalls earned by speculators who buy at the right time and sit on them—in the existing system, where new development is largely confined to a small handful of locations. Not to mention, the monopoly rents commanded by landlords who own the existing housing in a place where it’s illegal to add more.
Another is to remove the ways in which the tax code favors real-estate speculators by giving such investments preferential treatment. These include the federal mortgage interest deduction and the capital gains exemption on home sale proceeds for homeowners.
Yet another option is land value taxation. Taxing land itself (as distinct from the stuff built on it) at a much higher rate would greatly reduce the gains from speculation and the inflation of land prices.
All of these things would reduce the passive income that goes to rentiers: those who own scarce land in desirable locations and profit not because of any work they’ve done, but simply because of their ownership of it. This will moderate housing costs and increase the incentive to build housing where and for whom it’s needed.
(Source: Unsplash.)
Both/And, Not Either/Or
What’s more, if we work toward the above reforms, social housing itself becomes easier to build, finance, and sustain for those who are also interested in that as a goal, because a public-sector developer faces many of the same costs and political barriers as a private-sector one.
And you get to stretch your subsidy dollar further. When the market serves 95% of people adequately, social housing can serve 5%. (Notably, by also housing plenty of people outside that 5%, voluntarily, and using their rents to cross-subsidize.) When you have a situation where more like 40% of the population can’t really afford market rents, the task of finding the subsidy to accommodate that tsunami of need becomes almost impossible, and as a result, fights over whom housing is “for” become far uglier and more zero-sum. (See: California in the present day.)
At present, the overwhelming majority of Americans are living in market-rate homes: built at one point for profit without a direct public subsidy, and bought or rented for money in a private transaction. Most new housing built in the next decade, under any realistic scenario, will also be market housing. Social housing is not something we do instead of market housing. It’s a parallel system we can choose to build, while continuing to be concerned with how responsive the private housing market itself is.
Why Even Bother With Social Housing?
So why talk about social housing at all? Why not just advocate for abundant market-rate housing production, enough to keep prices modest, and enough to create the kind of competitive rental market that keeps landlords accountable to their tenants for maintenance and apartment quality?
There are plenty of Strong Towns readers, I suspect, who would adopt that party line. For what it’s worth, you don’t have to agree with the below arguments, but here are the most commonly cited ones:
Serve people the market won't serve. Even outside of the most expensive cities, there are those who simply cannot afford to pay break-even rents in their area. Social housing can include apartments or homes operated at a loss, funded from a source other than their occupants’ rent.
Get housing built fast. New market-rate housing is rarely affordable to lower-income people on day one. Some of it eventually becomes affordable—i.e., it “filters” down. But filtering is a decades-slow solution. To someone who can’t afford to stay in their community today, “If we build enough, there’ll be plenty of affordable options 30 years from now” is just a pathetically inadequate answer.
Integrate segregated communities. Social housing can allow lower-income people to live in otherwise out-of-reach neighborhoods where they can access things like top schools and abundant jobs. Social housing can even provide for a broad range of incomes within a single complex, something that rarely happens on the private market.
Promote stability for vulnerable people and communities. Social housing allows people to live in homes managed by an entity that they know won’t displace them to jack up the rent, or sell out to a developer or investor.
Stabilize cycles in the construction industry. A less commonly made but interesting argument is that social housing construction can be anti-cyclical. The idea is that it's possible to deliberately build more social housing during economic downturns, when acquiring the land for it is cheap. If we had done this in, say, 2010, it just might have kept a bunch of tradespeople—carpenters, plumbers, electricians, and so forth—employed during a period when the private sector was building literally nothing. Instead, many of these people left the construction industry, one key reason we now struggle to ramp up housing production to meet demand.
(On the other hand, the idea of building anti-cyclically is straightforward in theory but hard politically. Imagine the politics of having proposed building a bunch of subsidized homes in 2010, when the prevailing understanding of the recent market collapse was that we had overbuilt housing. It never would have happened.)
(Source: Unsplash.)
What Social Housing Can Take From a Strong Towns Approach
I do think social housing can work, and be part of an answer to housing needs—and maybe a big part. Strong Towns principles apply to what that ought to look like, just as they apply to private development and to everything about our built environment. Principles such as:
Rely on small, incremental investments (little bets) instead of large, transformative projects.
Emphasize resiliency of result over efficiency of execution.
Design systems to adapt to feedback.
Draw inspiration from bottom-up action (“chaotic but smart”) and not top-down systems (“orderly but dumb”).
Seek to conduct as much of life as possible at a personal scale.
Be obsessive about accounting for revenues, expenses, assets and long term liabilities (“do the math”).
Do the math and seek resilience. Ultimately, to do this at scale, like under the California proposal, means to create a new public-sector developer, and the basic economics facing that entity aren’t going to look a whole lot different from those which face a private-sector developer.
The bottom line: You need that developer to operate in the black—not hugely profitably, but in the black, not consistently turning huge losses. In this case, you’re limited in how deep the affordability you can provide and to how many people.
Or you subsidize. Heavily. And you’re limited by politics. And your program will live or die by the sustainability of that subsidy stream. The federal government is not a reliable partner in delivering a subsidy that’s politically durable over the course of decades. But local governments can’t print money and can’t deficit spend.
Are these challenges worth overcoming? Quite arguably so. But they are all easier to overcome in a scenario where the housing market is meeting demand for most people. Which, again, means invoking “social housing” doesn’t mean we get to ignore supply-demand imbalances or the challenge of reducing construction costs.
Housing is complicated. Let us simplify things for you.
We’ve gathered our top content and case studies on housing over at the Strong Towns Action Lab.
Avoid the pitfalls of top-down institutions with single points of failure. That’s another lesson from the Strong Towns mindset. Social housing doesn’t have to be (and shouldn’t be) just one thing.
Social housing will work best if it grows from an eclectic mix of bottom-up experiments and opportunistic solutions. A local or state housing agency doesn’t have to strictly do new construction: It can bring existing buildings under its umbrella, by buying them outright or through some sort of funding agreement.
This can include various forms of “social” ownership that aren’t just a single government entity, such as resident-run co-ops and community land trusts. It could include models borrowed from overseas, such as Germany’s baugruppen, a form of housing co-op that is designed and developed by the residents themselves (with some public financing and tax advantages). Even where a single agency owns a lot of housing units, decisions about governance, maintenance, etc. should be made at the lowest (i.e. closest to the actual residents) level that is feasible.
A successful social housing portfolio ought to consist of many separate buildings on scattered sites. Some can be larger than others, of course, but one of the great failings of public housing in American cities has been the tendency of large campus-style projects to become pockets of dysfunction, physically disconnected from their surrounding neighborhoods. Just as private-sector development ought to integrate with the fabric of what is around it, so should public-sector (or public-supported) development, even at the cost of sacrificing some of the scale economies of doing a big megablock development. This is in keeping with the Strong Towns approach of elevating resilience of result over efficiency of execution.
A public entity is still needed to coordinate the subsidy stream that makes social housing “social,” and that entity probably needs to be a minimum size to be viable and self-sustaining. (For example, cross-subsidy across a portfolio of many apartment buildings, some in wealthy areas and some in poor areas, is much easier to accomplish than cross-subsidy within one apartment building.) But none of this implies that the answer is creating the public-sector analogue to Del Webb or Lennar or Greystar.
Social Housing Built by Many Hands
The core Strong Towns vision for housing is a market where the bar to entry to provide housing (that is, to be a developer) is low, where the feedback loops between housing supply and demand are quick and responsive, and where the benefits from sitting on land and speculating are restrained. Within that context, the private market can serve a broader range of housing needs (though not everyone’s) than it does now, as it has in the past. Also within that context, various types of social housing can be built and integrated successfully.
And if you’re someone who thinks public-sector entities should own and operate half or more of the housing stock, as in, say, Vienna, rather than a tiny fraction, that is compatible with this vision, too. The key is to understand that many of the determinants of success—in terms of what land use looks like and how it’s regulated—are actually the same.
But that vision doesn’t describe or dictate one silver-bullet program. And if you’re looking for one, you might be waiting a long, long time.
