Make Affordable Housing—Expensive

Affordable Housing and the Impact of Subsidies

According to a principle enunciated by Ronald Reagan, “If you want more of something, subsidize it.” Real-world examples of this phenomenon abound, from electric vehicles to solar panels, but broad generalizations inspire a search for exceptions. Is it true in all cases? And if not, what causes the results to differ?

Public and Private Affordable Housing

Affordable housing is a fitting subject to test the theory, as it can be divided fairly neatly into opposing categories, public and private. A privately owned apartment building financed with funds from a privately owned institution can be as affordable to tenants as a project financed with government loans, grants, and subsidies, but the former will not typically be counted as progress towards an affordable housing goal. Why not? Because it won’t be the scene of a ribbon-cutting or ground-breaking ceremony, or provide a naming opportunity for a politician, living or dead. Does the rule that you get more of something if you subsidize it apply equally to the public and private sectors?

The Bureaucratic Rule of Two

No, because of the countervailing principle known as “the Bureaucratic Rule of Two.” Formulated by the late economist Thomas Borcherding, this theory concluded empirically that “removal of an activity from the private to the public sector will double its unit costs of production.” Affordable housing provided by the public sector is, despite the label, not very affordable. As a result developers are starting, in Nancy Reagan-fashion, to just say no to public funding. In Los Angeles, where a 2016 bond issue for low-income housing raised $1.2 billion, the city of San Jose found that affordable housing units funded in part by tax credits cost an average of $939,000 per unit. The end result of this well-meaning effort? The number of people living on the streets actually grew by 60 percent. By contrast, a private fund raised by SDS Capital Group that did not use this subsidy was able to build comparable units for only $291,000 per unit.

Factors Contributing to Cost Differences

What accounts for the difference? There are several contributing factors. One is the necessary complexity that public funding adds to the cost of such projects. Some of these factors are intrinsic to government; you don’t want to hand out credits that can be used to reduce taxpayers’ liability on a dollar-for-dollar basis without legislative safeguards to prevent abuse by the rich. On the other hand, losing tax revenue is hard-wired into subsidized housing programs; in 2023, the low-income housing tax credit cost around $13.2 billion in lost revenue according to Congress’s Joint Committee on Taxation, and that figure is expected to increase by $2 billion by 2025. As the late Senator Everett Dirksen of Illinois said, a billion here, a billion there—pretty soon you’re talking real money.

The utility of low-income housing tax credits is limited to those with large tax liabilities and high disposable income, however, which means—the rich. Investors buy the credits at a discount—currently around 90 cents on the dollar—with the net funds flowing into the project. Before those monies are spent on land, labor and building materials, however, they must run through a gauntlet of service providers—“syndicators, general partners, managers, and investors,” in the words of a Tax Policy Center study—that is longer than a comparable private sector project would face. Each of these players—plus the usual crowd of lawyers, accountants, consultants and appraisers—takes a whack at the pork at it scurries by.

Public Policy Encumbrances

Then there are the public policy encumbrances that are added on to serve social goals that may be laudable in the abstract, but which can have unintended negative consequences. Take, for example, project labor agreements that mandate all building trades on a job be union shops. This requirement operates to exclude most minority-owned contractors; in New Jersey, for example, 98 percent of African-American and Hispanic construction companies are non-union. Some public sector competitive bidding laws have the perverse effect of raising construction costs by requiring separate sub-contractor bids, thus ruling out innovative construction methods such as so-called “design-build,” which allows private sector developers to have a single point of responsibility for an entire project.

The Impact on Middle-Class

Viewed in perspective, then, the benefits of affordable housing subsidies flow in a pattern that resembles a snow-boarder’s half-pipe: on one high side, dollar-for-dollar reductions in taxes paid by the rich; on the other, housing for the poor; that big dip in between means nothing for the middle class.

Potential Solutions

So what is to be done? Ask developers and they say their comparative advantage over the public sector would widen even further from streamlined permitting. How to protect the interests of tenants from private landlords who don’t maintain their properties? The amount of subsidies sloshing around in the low-income residential real estate market—expected to grow to $15.2 billion next year—would pay for a lot of housing inspectors.

Conclusion

Many years ago I was a legal tyro in a law firm that specialized in subsidized housing. A fellow associate would sometimes spend the night, burning the midnight fluorescent bulbs. When I commiserated with her and told her she should ease up for the sake of her health and well-being, she said her work was fulfilling because she was helping poor people.

I recalled for her the investor list from a recent deal I’d worked on: It included movie stars, name-brand musicians, big-time real estate investors, and other high-net-worth types. What about them? I asked. Who’s looking out for their interests?

She thought for a moment, then an expression of enlightenment slowly crept across her face: “I guess I am.”

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 11: Sustainable Cities and Communities
• SDG 17: Partnerships for the Goals

The article discusses the issue of affordable housing and its impact on poverty reduction (SDG 1). It also addresses the challenges and complexities of providing affordable housing in urban areas (SDG 11). Additionally, it highlights the need for partnerships and collaboration between the public and private sectors to address the issue effectively (SDG 17).

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 1.4: By 2030, ensure that all men and women, in particular, the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property.
• Target 11.1: By 2030, ensure access for all to adequate, safe, and affordable housing and basic services and upgrade slums.
• Target 17.17: Encourage and promote effective public, public-private, and civil society partnerships, building on the experience and resourcing strategies of partnerships.

The article emphasizes the need to ensure equal access to affordable housing for all individuals, including the poor and vulnerable (Target 1.4). It also highlights the importance of providing adequate, safe, and affordable housing in urban areas (Target 11.1). Additionally, it discusses the role of partnerships between the public and private sectors in addressing the challenges of affordable housing (Target 17.17).

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator 1.4.2: Proportion of total adult population with secure tenure rights to land, with legally recognized documentation and who perceive their rights to land as secure, by sex and by type of tenure.
• Indicator 11.1.1: Proportion of urban population living in slums, informal settlements, or inadequate housing.
• Indicator 17.17.1: Amount of United States dollars committed to public-private and civil society partnerships.

The article implies the need to measure the proportion of the population with secure tenure rights to land and their perception of land rights security (Indicator 1.4.2). It also suggests measuring the proportion of the urban population living in inadequate housing or slums (Indicator 11.1.1). Additionally, it indirectly refers to the importance of tracking the financial commitments made to public-private and civil society partnerships (Indicator 17.17.1).

SDGs, Targets, and Indicators Table

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: theamericanconservative.com

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