What if one of the answers to America’s housing crisis is something that’s been staring us in the face?
Public housing — but not exactly the kind most people think of.
Even before the pandemic, the nation had too few homes available to buy or rent. Housing prices were eating up bigger chunks of people’s budgets every year — and that was all before inflation started wreaking havoc on American bank accounts. Now, with the Federal Reserve hiking interest rates to try to rein in inflation, one unfortunate but entirely predictable consequence is a reduction in home construction. With mortgage rates going up, fewer people are looking to buy, which means fewer private developers are launching projects compared to a year ago, unwilling to risk not landing a buyer. Housing experts warn that the longer this all drags on, the harder it will be to get new projects started later, worsening an already serious housing shortage.
To prevent this grim spiral, a small but growing number of analysts and lawmakers are turning their sights to an idea that has fallen mostly out of favor over the last 50 years: what if the government steps in to develop its own housing? Specifically, state and local governments.
In June the Rhode Island legislature approved $10 million in its state budget for a new pilot program to build mixed-income public housing. It’s one of several state and local governments starting to get into a game that’s historically been the federal government’s purview.
K. Joseph Shekarchi, a Democrat who serves as the state’s powerful House speaker, pushed to include this funding as one way to tackle Rhode Island’s affordable housing crisis. “I think housing authorities in Rhode Island are one of the best-kept secrets. They produce clean, affordable, low-income housing that are really well-maintained and high quality,” he told cafemadrid. “So with this $10 million, we want to see if there’s an appetite for incentivizing housing authorities to increase their housing stock.”
Governments have successfully addressed past housing shortages through publicly developed housing in places like Vienna, Finland, and Singapore, but citing these examples often leads to glazed eyes and weary skepticism that such models could ever work in the US, with our more meager welfare systems and our strong cultural attitudes toward private homeownership. America’s 958,000 units of federal public housing have also long suffered from reputation problems both real and exaggerated, with many seen as ugly, dirty, or unsafe. Few understand that many of the woes of American-style public housing have had to do with rules Congress passed nearly 100 years ago that predictably crippled its success and popularity, rules like restricting the housing to only the very poor.
“There’s just real skepticism that governments can do things well, and there’s the stigma of American public housing driven by racist and classist policy choices that have undermined public housing here in ways that European and Asian public housing programs have not,” said Alex Lee, a California state representative, who introduced a bill this year to create new publicly owned mixed-income housing.
Lee prefers the term “social housing” — to help differentiate his vision from the segregated, income-restricted, and underfunded public housing that has defined the American model. “But just because there were mistakes made doesn’t mean we’re doomed to repeat them,” he added.
Lee’s legislation commanded wide support from powerful constituencies in California, and passed through both his chamber and the state Senate’s housing committee. Though his bill is now stalled out, experts say it went farther than anyone expected on its first try, and Lee has pledged to keep pushing next year.
In Colorado, lawmakers just passed a bill creating a new state office to develop 3,500 new housing units targeted to middle-class families. And in Hawaii, lawmakers recently passed several bills that make it easier for the state to build mixed-income condos with 99-year leases, similar to how public housing works in Singapore.
But where this model may already most clearly demonstrate the government’s power to increase housing supply is in Montgomery County, Maryland — a suburb just outside Washington, DC. The local public housing authority there is on track to build nearly 9,000 new publicly owned mixed-income apartments over the coming years, by leveraging relatively small amounts of public money to create a revolving fund that can finance short-term construction costs. One of their initial projects — 268 new apartment units located near a planned bus rapid transit line — is set to be finished this year.
“What I like about what we’re doing is all we have effectively done is commandeered the private American real estate model,” said Zachary Marks, the chief real estate officer for Montgomery County’s housing authority. “We’re replacing the investor dudes from Wall Street, the big money from Dallas.”
State and local governments don’t have the best track record at quickly spinning up new affordable housing, and most public housing authorities lack staff like Marks, experienced in this kind of real estate acquisition. But the public sector can start with acknowledging they have the tools and resources that make it easier to build even in weak economic periods, plus no voracious investor to satisfy at the end of a project. Governments could even step in now to buy half-finished housing from companies that suddenly find themselves unable to make their financing math work.
While Montgomery County is a liberal area in a blue state, Marks notes there’s nothing about what they’re doing that heavily relies on government subsidies, which is typical of traditional affordable housing projects. “This kind of project is better for the taxpayer, it avoids a concentration of poverty, and it’s very capitalist in my view,” he said. “A lot of this is just convincing governments that you don’t even know how powerful you actually are.”
States can become public developers in different ways
When Meghan Kallman was first elected to the Rhode Island state Senate in 2020, she knew she wanted to focus on housing. The pandemic had intensified housing insecurity in her district, and Rhode Island ranked near the bottom nationally for building new units. And while an early 1990s law already required every Rhode Island city and town to have at least 10 percent of its housing be affordable to low and moderate-income households, only six out of 39 municipalities actually met that target in 2020.
Kallman said this all showed more aggressive state action was needed. With the backing of Reclaim RI, an activist group formed by leaders of Bernie Sanders’s 2020 presidential campaign, Kallman proposed the Create Homes Act, legislation to launch a new state agency that could build, own, and operate housing.
The idea, Kallman explained, is to have an agency that could develop plans not only for increasing housing supply but also for maintaining and repairing existing housing stock. She introduced it near the end of this year’s session, and though it didn’t pass, it picked up significant support, including Rhode Island’s Senate President Dominick Ruggerio. Kallman thinks they’re well positioned to get it over the finish line in 2023.
“What would it look like to have a system where rental units are state-administered, and it falls into the category of a public good that people can avail themselves of?” she asked. “I think that’s a really interesting proposal and something I’m really excited to support and see how it works out.”
Andrew Friedson, a Montgomery County councilmember who has been leading efforts in Maryland to address his region’s housing shortage, told cafemadrid he’s been supporting the public development idea because “there is now much broader recognition and understanding” that governments have to be more aggressive. “The status quo and even marginal improvements are not going to come anywhere close to meeting the need,” he said.
Indeed, states typically have not attempted any of this. While states since the 1980s have taken a leading role in funding and administering affordable rental housing, developing and owning mixed-income housing has not been something governments in the US have done, or even seen as their responsibility.
Mark Shelburne, a national housing policy consultant, said the public developer idea holds promise. “It’s pretty rare that someone actually has a truly new idea in this space,” he said. “Pretty much every idea out there has already been said before — and who knows, maybe at some point in history someone had this same concept and we’ve all just forgotten — but I will say this does seem like a new idea today.” Shelburne added that the concept “absolutely can be viable” if the authorizing legislation is set up properly and flexibly.
It’s not an immediate fix — “getting out of this mess will take no less than 20 years,” he wrote in an essay last August on solving the housing crisis — but it’s one of the only viable solutions he sees.
“Congress is not going to fund new public housing, we can’t even get them to fund the capital backlog,” Williams told cafemadrid, referring to the billions of dollars needed for outstanding repairs and maintenance of existing federal housing units. “So getting local and state governments to create public enterprises to do public development is what I see as the way to move this forward.”
States are rediscovering their self-interest
Why did states retreat from developing their own affordable housing, anyway? Part of the reason is that the federal government stepped up to the plate, with the Housing Acts of 1937 and 1949, and establishing the US Department of Housing and Urban Development in 1965. States and local governments were happy to let HUD take over, but when federal public housing started to lose support in Congress in the 1970s, and the Reagan and Clinton administrations slashed HUD’s budget in the ’80s and ’90s, there was no real state and local infrastructure around to fill the void.
Shekarchi, the Rhode Island House speaker, noted that housing has always been a difficult and complicated issue, and on the local level, many communities balk at any hint of affordable housing construction and associated tax increases. “Many people don’t want it because they think affordable housing means more traffic or diminishing of home values or crime or drugs or low-income people,” he said. “And I think state government is reflective of those views. We have two-year election cycles and legislators are reflective of the public.”
But despite these NIMBY attitudes, some local policymakers are beginning to recognize their own self-interest in stepping up on housing development, capitalizing on tools and public ownership that can create value and be reinvested into the community.
“Both because we don’t have to meet the private sector return requirements, and because it’s much easier to set policy on things that you own, all of that [revenue] just gets poured back into overall housing production and operation,” said Marks, of Montgomery County. “A lot of the time I’m talking to people about the short-term benefits [of our development model], but frankly the biggest benefit is that value that we’re creating very slowly over 20 years, so that the people sitting in my chair in two or three decades will have a ton of resources that can be realizable by them then, to continue the mission.”
Stanley Chang, a state senator in Hawaii who has been leading efforts in his state to promote social housing, says he spent a lot of time visiting places like Vienna and Singapore to understand regions that actually solved their housing shortages. “I’m not arguing we should copy-and-paste but I do think we should learn the lessons from these places,” Chang said.
Kallman, the Rhode Island state senator, says she doesn’t view her proposed public developer bill as a revenue generator for the state, though she acknowledges it could indeed turn out to be one. “For me this is primarily about the state stepping up,” she said. “To solve a housing problem that is affecting huge numbers of people.”