Want to Fix the Housing Crisis? Build More Public Housing.
The market can’t effective provide affordable housing
Cities across the world are facing unprecedented crises of housing affordability as rents and house prices soar despite the wages of most workers being stagnant or growing very little. The response of many North American governments has been to provide incentives for private developers to build more “affordable” housing — a misleading term that sounds good, but usually refers to rents less than the average private market rate, which is not at all affordable in most cities.
In contrast, rents for public housing are often based on the income of the occupant to ensure they don’t pay more than 30 percent of their income on housing. Public housing is the only true affordable housing, but it’s often ignored by North American policymakers, and that’s causing serious problems in the housing market.
There are a lot of factors contributing to housing affordability crises, and they differ for every city, but it’s impossible to ignore the negative effect of government disinvestment from and privatization of public housing, especially when looking at the housing of the poorest and most vulnerable people in our societies. If we really want to ensure low-income people have affordable housing and try to stabilize housing costs, governments must reinvest in public housing.
The disinvestment from public housing
In the United States, there are approximately 1.1 million units of public housing, which represents a loss of 250,000 units since the mid-1990s, but the decline of U.S. public housing is a decades-long phenomenon that has had a significantly negative impact on the most disadvantaged Americans as waitlists record tens of thousands of names, people wait for decades to get a unit, and the maintenance backlog has grown to $26 billion.
The problems for public housing began back in 1973 when President Richard Nixon placed a moratorium on the construction of new public housing and the Section 8 voucher program was introduced to subsidize the rents of people in private rental units. The presidency of Ronald Reagan saw funding for public housing further reduced as the top marginal income tax rate was cut from 50 percent to 38 percent in 1986. To help pay for it, an important subsidy for apartment construction was abolished, significantly reducing apartment construction, and the Mortgage Interest Deduction was increased to incentivize single-family homeownership, providing bigger savings to those who could buy larger houses.
In the early 1990s, there was an effort to put money back into public housing with disastrous consequences. The HOPE VI program subsidized the redevelopment of public housing projects into mixed-income communities through public-private partnerships, but it didn’t involve residents. As a result, tenants were displaced, few were able to return to their neighborhoods, and many were “lost” along the way and stopped receiving subsidized housing.
President Bill Clinton signed the Faircloth Limit, which capped public housing at 1999 levels, and HOPE VI was followed up with the Rental Assistance Demonstration program by the Obama administration, which further privatized public housing with the agreement that they would be rehabilitated. All these programs have diminished the public housing stock, and incentives for affordable housing construction have not had a significant impact: rental housing construction only returned to late-1980s levels in 2015, despite the population being 25 percent smaller at that time, yet 40 percent of new units are priced at $1,500 per month or above.
And this isn’t just an American phenomenon. In Canada, the Liberal government of Jean Chrétien cut funding for public housing in 1993 and passed the responsibility down to the provinces. Between 1990 and 2011, the number of public housing units dropped from 640,778 to 607,038, representing a decline from 6.5 percent to 4.6 percent of the total housing stock. The effect of this decision on Canada’s largest city illustrates the social consequences.
When Chrétien passed the responsibility to provincial governments in 1993, the Ontario Progressive Conservatives passed it down to the municipal level. As a result, the number of public housing units being built in Toronto declined from an average of 3,900 per year from 1965 to 1995 to none across the whole province in 1997. The city has come up with some funding in the decades since so that about 500 units are built annually, but given that Toronto is neck-and-neck with Vancouver as most expensive city in Canada with a homelessness crisis that claims more than 100 lives every year, it needs much more.
In the United Kingdom, the circumstances are different, but the story is similar. Margaret Thatcher’s Conservative Party slashed funding for council housing in the 1980s and implemented Right to Buy, a program to allow tenants to buy their home. It was a move to create a nation of home owners, since people who owned a home were more likely to vote Conservative. However, the program has had perverse effects: in London, 42 percent of homes sold off under Right to Buy are now rented privately and local councils pay £22 million ($29 million) every year renting them back to house low-income people.
Thatcher and the Conservatives promised that once councils stopped building housing, the private market would increase construction to meet demand, but the data shows that wasn’t what happened. Private developers are focused on maximizing profit, and building affordable housing and socially rented units is not a profitable business. Instead, most new construction targets the high-end luxury market for pricey condos, causing land prices and rents to soar while severely limiting the places where average people can afford to live.
In their book “Rethinking the Economics of Land and Housing,” Josh Ryan-Collins, Toby Lloyd, and Laurie Macfarlane explained that when councils built housing, they provided construction contracts which ensured companies had work during the slow periods. But when they stopped, a lot of smaller construction companies went under because they no longer had that security. As the graph illustrates, private developers have not increased construction to make up for the decline in new housing from local authorities, which means that for the past several decades, the country hasn’t been building enough housing, fueling the current housing affordability crisis.
While this data is for the United Kingdom, it shouldn’t be surprising if a similar trend is at play in other countries: the private market doesn’t make up for public housing that isn’t built, and it doesn’t start building affordable units just because the government stops. Governments have an important role in housing provision, and for too long they’ve neglected it. That needs to stop.
Time for a public housing revival
Inclusionary zoning initiatives and incentives for affordable housing are adding some affordable units to the housing stock, but it’s not nearly enough given that most people living in cities are struggling to afford rising rents. Housing needs to be seen as a public good and a right of all residents, not as a financial investment that will reap returns in the future.
Public housing is clearly suffering from decades of disinvestment, but there are cities which should inspire their peers.
In Paris, the government built 100,000 public housing units over the past 18 years — about 5,500 units per year — and more than 20 percent of residents now live in social housing with secure rents. Over the past ten years, private rents have risen more than 30 percent, but social rents have gone up by a maximum of 2 percent. The government intends to hit a further goal of housing 30 percent of residents in public housing by 2030, extending that security to even more residents.
But an even more radical approach is being taken in Berlin, which began to experience rising rents later than other Western capitals. In response, the mayor promised to buy back 50,000 units of previously privatized public housing, but the city is due to hold a referendum on even more radical proposals. If passed, the law would ban landlords with more than 3,000 rental units and force the renationalization of approximately 200,000 housing units. The government is also considering a law to allow it to implement a rent freeze of up to five years if deemed necessary.
As anger about soaring rents grows, governments must start reinvesting in public housing — not just to maintain what already exists, but to build far more units. Paris and Berlin show that it’s possible for governments to recommit to public housing as a way to protect their residents from the greed of private developers, and as the percentage of renters in the United States, Canada, the United Kingdom, and other countries increases, there will likely be an even larger constituency for radical housing policies.
Public housing often has a bad reputation as being dilapidated and dangerous, but that’s not inherent to socially provisioned housing. Fantastic public housing has been built around the world, creating strong working-class communities and providing opportunities for residents. In Vienna, more than 60 percent of people live in public housing, and it’s designed to bring together people from a range of income brackets to live together in harmony. There’s no reason other cities can’t do the same.
The ceding of housing to private developers has been an unprecedented failure that has placed a severe burden on the most disadvantaged people in society. Government officials need to wake up to that fact and accept that incentivizing private affordable housing will never produce the quantities that are necessary. The only way to ensure everyone can have a quality, affordable place to live is to begin a mass program of public housing construction. The experiment with leaving housing to the market has failed; it’s time to return to what works and take profit out of the equation.
