Progressive cities love affordable housing. At least, they love something they call ‘affordable housing.’ Therein lies a series of problems.
Politicians in these cities know lots of people can’t pay rent. And that lots of people pay half their incomes just to rent a house, blocking them from buying homes or saving for retirement. Many of these politicos genuinely want to solve the problem. They turn to ‘affordable housing’ in order to do it.
And yet, finance capital dominates the politics of cities, even progressive ones. Bankers, developers, and landlords punch well above their numbers. Investors demand a return on their money. Developers and landlords demand a never ending flow of profits. In addition, mayors and city managers demand a steady, and rising, tax base.
Progressive politicians thus need to create affordable housing while also satisfying finance capital, profit, and the sustainability of local government. How can they do it?
To start, they can think about ‘affordable housing’ in a way that meshes with financial interests. And, indeed, that’s what they do.
What is Affordable Housing?
We can see how ‘affordable housing’ serves as a political football when we look at how they talk about it.
When politicos, experts, advocates, and housing orgs talk about affordable housing, they conflate two kinds of affordability. The first kind concerns the housing unit itself (i.e., its sticker price, the money that goes to the landlord or bank). The second kind concerns the tenant or the homeowner (i.e., the price that they pay out of their own pocket).
Woah there, buddy. Aren’t those the same thing? Don’t tenants and homeowners always pay the sticker price?
Well, not exactly.
Many ‘affordable housing’ policy ideas leave sticker price the same, but change who pays it. Consider the Housing Choice Voucher program in the U.S., i.e., Section 8. With this program, the tenant pays 30% of their income for rent, no matter the actual sticker price of the unit. And then the taxpayer picks up the rest of the tab.
Section 8 recipients get ‘affordable housing’ only in the second sense, not the first. The housing still isn’t affordable in terms of its actual sticker price. In effect, Section 8 and other housing voucher programs function as a taxpayer subsidy to the landlord.
And so, voucher programs don’t make housing more affordable in terms of the actual price of housing. If anything, they probably make housing less affordable in the first sense, because landlords can cash in on an inflated ‘fair market price‘ without the tenant actually noticing anything.
An Example
Let’s go through an example. Let’s suppose the ‘fair market value’ of a 3 bedroom apartment in Iowa City (my city!) is $1,500 per month. And let’s say that a family with a yearly income of $48,000 wants to rent it. Furthermore, let’s accept the standard view that 30% of income is the threshold for affordability. That is to say that the family will find find housing affordable only if it costs no more than 30% of what they make at their job(s).
Is this house affordable? No. $48,000 per year amounts to $4,000 per month. And 30% of $4,000 is $1,200. So, the housing unit costs $300 per month more than the family can afford.
Now let’s suppose the family receives a Section 8 voucher. As a matter of fact, it’s very unlikely this family would receive a voucher. Wait lists are quite long, which we’ll discuss later, and actual recipients of vouchers tend to need a subsidy much larger than $300 per month. Housing programs are often very heavily means tested and very narrowly targeted to people with extremely low (or no) income. But I digress.
How would it work for this family? In short, the landlord would still receive $1,500 per month, and so the apartment stays at a price people can’t afford. However, the family would pay only $1,200 and the taxpayers would pick up $300.
So, the landlord still gets the full sticker price of this apartment. They still get a price higher than people can actually pay. It’s just that the taxpayer sends money to the landlord in order to offset the lack of affordable housing.
Neat trick, right?
Why Do it This Way?
So, why does this happen? Why do we address ‘affordable housing’ without actually making housing affordable in the sense that most people mean it (i.e., a price people can actually pay)?
Over the course of the last few decades, the whole housing industry became a dumping ground for finance capital. Spare capital existed. Spare capital tends to go to places where it can turn itself into more capital. Housing looked like the place for that. That’s the basic story.
Landlords use housing programs in order to stabilize their incomes. Developers bilk taxpayers to bolster their profits on new units. And investors look to set regulations to inflate rents and mortgages and get a better return on their investments.
Progressive politicians play the game because it aligns with their starting assumptions and it delivers some of their policy goals. Yes, these politicians create what are, in effect, welfare systems for landlords and developers. But in return, they get housing for some of the people who need it. And progressives accept all the basic technocratic assumptions that tell them this is a good deal.
NGOs and Non-Profits
All problems aside, programs like Section 8 really do help lots and lots of people. And housing orgs and non-profits, like the Johnson County Affordable Housing Coalition where I live, think this is the best they can do, given their basic liberal starting point and ‘class collaboration’ approach to politics they all imbibe.
As orgs like JCAHC make clear, they focus on the second kind of affordability I laid out above. They want more housing that’s affordable to the tenant and the homeowner, and they don’t worry too much about whether the housing has an affordable sticker price.
They’re not outright opposed to affordable sticker prices, but it’s rarely a focus for them. The Boards of these on-profits have bankers, developers, construction industry figures, and landlords. And so, they seek to combine the short-term interests of … you guessed it, bankers, developers, and landlords, in service of the needs of (some) low income people.
All these things, of course, come at the expense of the long term interests of everyone else, including even low income people who need housing. The rest of us who aren’t bankers, developers, and landlords would come out far better with a public housing system that directly challenges capital.
The Sharp Limits of Subsidies
Let’s talk about why it’s such a problem to conflate these two kinds of affordability.
Ignoring sticker price and focusing only on affordability to the tenant or homeowner leaves us with very ineffective housing programs that use taxpayer money poorly. As a result, millions of people still lack housing, even with programs like Section 8 fully running. Why? The program wastes millions of dollars paying inflated ‘market prices’ to landlords rather than actually housing people.
What would be better? In short, mixed income public housing would be the best idea. It would also address the real issues behind sticker price inflation, namely the role of finance capital and investors in the housing market. In short, it could drive down actual sticker price and create real affordable housing.
But I wrote about that in an earlier post – the one I linked in the last paragraph. I won’t repeat that post here. What I will do is say this: conflating two kinds of affordability obscures the problem. It leads us to endorse pro-capital ‘solutions’ that fail to solve the problem.
Iowa City, Upzoning, and the Inadequacy of ‘Affordable Housing’ Programs
Let’s talk about one of those failed solutions – ‘upzoning.’
Iowa City is a progressive college town, with all that come with that. Our politicians see the limits of housing programs like Section 8, as well as subsidized building and renovating of homes (e.g., LIHTC). These politicians also recognize the limits the federal and state governments have placed on them, a topic we’ll return to later.
And so, politicians and city staff propose things like upzoning to try to lower prices by increasing housing supply and density. On paper, then, this looks like an attempt to address affordable housing in the first sense – the sense that might actually lower sticker prices.
Will it work? Well, no, it won’t. It hasn’t worked in places like Chicago. Nor will it work in Iowa City.
There’s nothing wrong with increasing housing supply and density. At scale (i.e., thousands of new units), it could even drive down prices in Iowa City. At least, it could if the city somehow mitigates the costs of home building and cut out the role of investors.
But Iowa City rezoning proposals won’t increase supply at those levels. They will even make it easier for finance capital to flood into housing. And so, Iowa City’s proposals will likely have only a small impact. And most of that impact will likely be negative, in the sense that it will probably raise mortgages and rents a bit. How so? By expanding what people and companies can do with land, thereby increasing land prices. And by giving people incentives to add on to their homes and thereby increase sale prices.
Not to mention that the rezoning will incentivize investors to buy up existing affordable housing in areas like Goosetown, tear down those homes, and build more expensive units on the same lots.
What to Do?
So, here’s the situation in which we find ourselves in Iowa City. It’s a situation many cities face.
Our best option is to create and scale up a mixed income public housing program. And, while that program is in development, we can implement blanket sticker price rules on housing in certain places, and implement rent control on certain housing units.
However, the state removes most of these tools from us. State law bans us from imposing rent control and building mixed income housing that profits from middle income people to subsidize low income people (on my reading of the law, that is). Sticker price rules are allowed, but only in certain narrow circumstances.
That leaves cities like Iowa City without their best tools to advance real affordable housing. What can cities do? What can Iowa City do?
It can experiment with co-op housing, subsidizing existing efforts at collective ownership and using its purchasing power to encourage other examples. It can create limited local voucher programs funded by new taxes. And it can expand its already established public housing program to the legal limits.
It can look for ways to get around the ‘class collaboration’ approach that, ultimately, amounts to taxpayer funds to landlords and developers, with far too little return for residents.
