Housing Shortfalls

Building and running a residential property costs money. Buildings must be maintained if they are to live a long, useful life, and this requires labor and materials — capital expenses. Roofs must be repaired every so often, air conditioning units must be replaced, plumbing issues must be resolved, and facades need care and attention. Buildings also have operational expenses, such as leasing-office staff, maintenance crews, and administrative costs. In the United States, there are two main programs that help meet these needs: public housing and tax credit housing.

In the United States, only low-income individuals and families qualify for public housing. Buildings owned by local Public Housing Authorities (PHAs) receive a percentage of their tenant’s income in rent each month. The revenues PHAs receive from rents are not nearly enough to maintain buildings and services, which means that the Department of Housing (HUD) must cover the rest of the costs. But Congress has not given HUD the capital budget — estimated at $100 billion or more — it needs to meet its long backlog of work. Many public housing buildings across the country have fallen into disrepair — or worse, sold off or demolished.

In the Low-Income Housing Tax Credit (LIHTC) model, residents are also selected by income level and pay low rents. As with PHAs, the rents in these buildings are inadequate to the costs of operation. To solve this problem, developers, often nonprofits, are awarded tax credits which they sell to an investor, often a bank or investment fund. The proceeds from these sales help to balance the budget of LIHTC buildings, allowing them to operate for about fifteen years. When this period elapses, the developer can apply for an extension subsidy to cover its budget for another fifteen years. After that, the building can be run at a loss, sold off on the market, or redeveloped.

The LIHTC model does allow for some unique variations that share some resemblance to social housing. A LIHTC developer can, for example, build a project that is, say, 50 percent low-income and 50 percent market rate. In this case, the rents that come in from the market-rate tenants help to cross-subsidize the lower rents paid by the poorer residents, making it easier to operate and maintain the building with the rents alone. Unfortunately, these projects are typically privately owned, giving the public no say over what happens when a building’s fifteen-year term ends. Public ownership of such properties, on the other hand, would create a long-term sustainable and, importantly, reliable vehicle for meeting people’s housing needs.

Shifting Toward Socialization

Recently, advocates have successfully shifted the housing conversation in the United States. Several state legislatures — as well as a few local governments — have proposed, and even created, new social housing–like programs in the past year.

In Maryland, for example, a recent appropriation by the Montgomery County Council to their Housing Opportunities Commission will fund the creation of a new social housing–like entity. Under the new model, the county housing agency will contribute low-cost financing to housing developers to build mixed-income housing. After four years, the public agency will take full ownership of the property by issuing bonds to replace the existing construction debt. The government will use the higher rents to subsidize the poorer tenants’ rents and to cover interest on its bonds — and combat segregation in the process.

In California, a bill in the state assembly calls for the creation of the California Social Housing Council, a body that would lay the groundwork for a state housing development corporation. Ideally, an entity of this sort would have broad financial and administrative authority to develop, build, and own mixed-income residential properties all over the state. As written, however, the bill allows nonprofit-owned apartments to qualify as social housing. Private ownership, nonprofit or not, does not further the vision of housing as a social good.

Nonprofit organizations, often community development corporations (CDCs), have traditionally driven the nuts and bolts of policy change in the affordable-housing world. CDCs are often funded by the usually modest developer fees associated with developing LIHTC properties. This is why, when faced with the proposition of social housing, these nonprofit organizations steer policy toward nonprofit ownership.

Thankfully, there are advocates in California who recognize that a state-run corporation would be far more successful as the permanent owner of properties. This insight is key to creating any meaningful changes to housing policy.

Full Public Ownership

In 2012, following the housing financial crisis, Congress created the Rental Assistance Demonstration (RAD) program under HUD. RAD allows, among other things, public housing operators to switch from Section 9 (traditional public housing) to project-based Section 8 (housing voucher) funding. Because of Congress’s refusal to fund the capital requirements of traditional public housing properties over the years, PHAs with a backlog of needs have been forced to turn properties over to RAD conversion — typically through long-term leases to private enterprise. 

Using RAD conversion for its own aims, New York City Housing Authority’s (NYCHA) “A Blueprint for Change” is the most robust of recent housing programs and proposals. NYCHA’s Blueprint ensures that property managers be state-created public corporations — public housing trusts. 

The creation of a public trust for this purpose offers the future opportunity to transition even more of New York’s housing market to social ownership. For example, the trust could be given priority purchasing rights, allowing it to acquire and rehabilitate residential buildings in redeveloping neighborhoods, preserving them as social housing. 

Criticism of NYCHA’s Blueprint is founded on opposition to RAD’s inbuilt tendency to privatize public assets, as well as some well-founded distrust of public agencies. Building alternatives to capitalism will no doubt require growing the public sector’s administrative capacity. It will also require mending years of distrust from those who have been neglected by the failures of the past.

A discussion of publicly owned housing in the United States would not be complete without a mention of the Alaska Permanent Fund’s (APF) real estate portfolio. In addition to commercial office and retail properties, the APF owns several residential properties, mostly luxury apartment buildings. This may sound odd — why should the public sector be involved in luxury property? But the strategy being deployed makes sense. The APF simply owns the property, letting a management firm do all the work. The surplus revenue — rent collections minus expenses for the management firm — goes into the APF’s account. This means that the APF is solely collecting rich people’s rent money. These rich people’s rents then become part of the dividends paid out to Alaskans each year.

If the total socialization of housing is the goal, wresting social projects from private ownership is necessary. Giving our municipalities and states the power to be the developers and owners of social housing portfolios can take many forms, but the principle of public ownership must not be abandoned. This is not to say nonprofits cannot have a part to play. In fact, social housing agencies could fund some community organizations and tenant groups. They would make fine day-to-day managers and operators of social housing and could help to foster tenant democracy. But they should not be owners. 

The scale and control we need to build our way out of the housing crisis means we must move toward removing property ownership itself from the private sector — and this applies to for-profits and nonprofits alike.