Public Housing Projects Don’t Have To Be Hives Of Crime & Vandalism
How To Build Public Housing That People Will Want To Live In
By David Grace (Amazon Page — David Grace Website)
The Problem With Traditional Public Housing Projects
We have a lot of people who can’t afford to rent whatever housing is available.
In the past, cities have tried to fix this problem by constructing huge buildings to house low-income people, the “projects.” In many ways those schemes have been a disaster — many of the tenants didn’t take care of the units; there was vandalism; the properties were plagued by crime and drugs.
Just Providing Cheap Rent For Poor People Ignores Human Nature
Like so many other government schemes, public housing projects have failed because politicians have never figured out that any system that deals with human beings has to work with human nature and not contrary to it. What do we know about how humans work?
A majority of people
- (1) are profit driven
- (2) pursue their own self-interest.
- (3) avoid performing unpleasant activities unless there is a strong motive for them to do so.
- (4) do not highly value things they get for free.
People Need An Economic Motive To Do The Right Thing
If you want people to do the “right thing” you have to give them an economic motive to do the right thing. If you want to stop people from doing the “wrong thing” you have to give them a motive not to do the wrong thing.
People will mostly self-regulate if you give them clear, simple and quick rewards and clear, simple and quick punishments. We get into trouble when the is no punishment that discourages disfavored conduct, or even worse, when disfavored conduct is rewarded.
Conduct that is beneficial to the individual is often toxic to the group in which that individual lives, in this case toxic to the other tenants in the building. For example, the tenant who sells drugs out of his apartment is rewarded while the lives of the other tenants are damaged.
Conduct that is beneficial to the group (the other tenants) is often costly to the individual, e.g. the tenant who isn’t allowed to sublet his apartment to six other people loses that rent money while the quality of life of the other tenants in the building is improved.
Allowing conduct that is beneficial to the individual and toxic to the group within which the individual lives is the fundamental reason why anarchistic systems work so badly.
Anarchist systems reward individuals for engaging in conduct that is toxic to their neighbors and provide no rewards to individuals for engaging in conduct that is beneficial to their neighbors.
The unopposed feedback effect in an anarchistic society drives the individual to engage in more and more profitable, toxic conduct in the pursuit of their self interest and less and less beneficial conduct to their neighbors until the society is poisoned to the extent that it dies or explodes.
- If you want the group, in this case the tenants, to take care of their units, you need to give them an economic incentive to do so.
- If you want to discourage vandalism and petty crime, you have to give the residents an economic motive to do so.
- If you want to keep criminals out of a housing project, you have to give the tenants an economic motive to rat them out and keep them out, and you have to give the administrators an expedited process to expel bad tenants and criminals.
How do you do those things?
The Tenants’ Rent Earns Them Equity In Their Apartments
You create a system that allows the tenants to earn virtual equity in their units. If their apartment is a source of wealth, then the tenants will have a strong economic motive to
- (1) keep things in good repair,
- (2) not do anything that will get themselves evicted and
- (3) report bad tenants to management.
You give tenants virtual equity in their units by making them virtual buyers of their apartments.
A Simple Example
Let me explain this process in a simple example and then show how you can scale that up to an entire housing project.
Suppose I’m an altruist and I’m worried about the people who can’t afford a place to live. I have a lot that’s big enough to hold a small additional living unit and I spend $80,000 to construct one.
Instead of renting it, I agree to sell that living unit to some struggling couple at cost, $80,000. They have no money so I agree to self-finance the purchase at 2% interest, amortized over 15 years. But, as an incentive to me to make this very generous offer, the new tenants agree that when they want to move out that they will sell the house back to me for the same $80,000 that they paid for it, less whatever portion of the $80,000 loan is still outstanding.
They live in the little house for five years and they pay their share of taxes and insurance and they also pay $515/month which is the payment on an $80,000 loan at 2% interest amortized over fifteen years.
At the end of the five years they decide to move out. The loan balance has been reduced to $55,950. I buy the little house back from them at the original $80,000 value less the $55,950 loan balance so I write them a check for $24,050.
They’ve made loan payments of $30,900 and $200/month taxes, insurance, maintenance and repairs payments. I’m giving them $24,050 so it’s cost them $6,850 in interest and $12,000 in out-of-pocket costs divided by 60 months or a net cost of only about $314/month to live in my property. That’s a pretty good deal for them. And they’ve got $24,000 cash in their pocket.
On the other hand, I now have a property that’s increased about $10,000 in value plus $6,850 in interest payments, so I’ve made some money too.
Scale The Example Up To A 1000 Unit Public Housing Project
Now let’s scale this up. The City builds a 1,000 unit housing project. When construction is complete the City divides the total cost of the project by the total residential square footage and then multiplies the square footage of a one-bedroom unit by that per-square-foot cost so that the cost to build that one-bedroom unit turns out to be $80,000.
The City now does the same thing that I did. It theoretically “loans” the new residents, Mr. & Ms. Johnson, $80,000 at 2% interest over 15 years. The Johnsons pay the same $515/month rent plus their share of the cost of insurance, maintenance, administration and repairs calculated on a square foot basis; let’s say that’s another $200/month for a total rent of $715/month.
After five years the Johnsons will have paid down the $80,000 cost to $55,950.
When they leave after five years the City will pay the Johnsons $80,000 minus $55,950 balance or $24,050 less any costs of cleaning and repair to the unit after they moved out. By paying the rent for five years and keeping the unit in good repair the Johnsons would walk away with about $24,000 in their pocket.
The Equity Is Virtual
Of course, no deeds would actually change hands. The City and the Johnsons would just sign a contract under which it is agreed that when they move out the City will pay the Johnsons an amount calculated as if they had bought the property and as if they were paying a mortgage.
So, in actuality, the tenant moves in, pays rent calculated on the actual construction cost of their unit, and gets a refund of most of their rent payments, less cleaning and repairs, when they move out.
If the tenant damages the property, the repairs come out of their pocket. If they are bad tenants and get evicted within the first year, then there will be no payout. If they get evicted after the first year, they will pay all the eviction costs out of their equity and they will lose the chance of earning a bigger payment by staying longer.
The potential for a substantial payment provides the tenant with an incentive to keep the property in good repair and a very strong motive to avoid doing anything that will get them evicted. If the tenants know that the longer they stay, the bigger the check the City will write them when they eventually leave, they will be strongly motivated not to make any trouble or break any of the rules.
When The Old Tenant Leaves & A New Tenant Moves In
When the original tenant moves out, the original cost of $80,000 will be increased by inflation to determine the rent due from the next tenant. For example, if the Johnsons moved out after five years and inflation over that period was 12% then the phantom purchase price to the new tenants, the Smiths, would be $80,000 X 112% = $89,600 and the Smiths would pay $577/month plus insurance, maintenance, repairs and administration costs.
If the Johnsons lived there for 20 years, then the entire “purchase price” would have been paid off at the end of the 15th year and after that they would only have to pay their share of the costs. When they moved out after twenty years they would get an $80,000 check from the City.
Deterring Bad Tenants
Now, suppose that the Johnsons are terrible tenants. They make a lot of noise. They illegally sublet the bedroom to six people. They sell drugs out of their kitchen. As a consequence they get kicked after six or eight months.
Now they don’t get any money. They don’t have a cheap place to live. They have lost their sweet deal and the chance at getting that equity check.
Also, the Johnsons’ neighbors want to stay there long enough to get their cash. The neighbors have a strong motive to report the Johnsons’ bad behavior to management. It is now very clear to all the tenants that good residents who get to stay make thousands of dollars. Bad residents who get kicked out lose thousands of dollars.
Deterring Damage To The Building
The more damage that is done to the building, the higher the maintenance costs that are passed on to everyone. It becomes clear to all the residents that it is in their financial interest to keep repair costs down because that keeps the rent down. If maintenance costs get so high that some tenants cannot afford to stay then they can’t build up their equity and their payday goes away.
How To Pick The Tenants
Tenants might be chosen by category, e.g. city employees get first choice so you fill the building with teachers, bureaucrats, fire fighters, cops, etc. Or, you give priority to disabled people or veterans or people on welfare or homeless people. Within each category you would use a lottery system to pick the final “winner” of a unit.
You would need clear rules: a strict limit on the number of occupants. No subleasing. No occupants who are not family members without management’s approval. No criminal activity. No violence or harassment of other tenants. Etc.
Summary Evictions
You would need a special eviction procedure that is outside the courts. Management would appoint three people and the tenants would elect two people to sit on the Eviction Board. If someone did something against the rules that was fixable, they would get a written notice to fix the problem within five days or end up in front of the Eviction Board.
If it was a non-fixable violation, e.g. selling drugs out of the unit, or fixable and they didn’t fix the problem, or if they had a second violation within six months then they would be evicted immediately upon the majority vote of the Eviction Board. No courts. No lawyers.
Market Pressure On Other Landlords
If the City constructed a few thousand such units it might sufficiently increase the other landlords’ vacancy factor to cause them to reduce their rents.
Massive, traditional, low-income housing projects will quickly degenerate into places that no family would want to live. But they can work, they can remain decent places to live, if the tenants are given a financial incentive that is sufficient to motivate them to keep it a decent place to live.
— David Grace (Amazon Page — David Grace Website)
