{"id":178251,"date":"2024-10-14T15:41:31","date_gmt":"2024-10-14T21:41:31","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=178251"},"modified":"2024-10-14T15:44:27","modified_gmt":"2024-10-14T21:44:27","slug":"the-entrenched-problems-with-public-housing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/the-entrenched-problems-with-public-housing","title":{"rendered":"Public Housing As a “Solution” Only Makes Affordable Housing Worse"},"content":{"rendered":"\n

Think of public housing, and a familiar picture comes to mind: hulking, run-down brick tenement buildings, graffiti-strewn malfunctioning elevators, crime, drugs, and all the social ills that go with it. Unsurprisingly,<\/span> previous governments<\/span><\/a> sought to move away from public housing as a solution for low-income residents. However, the affordability crisis has placed housing firmly back in the spotlight, and public or social housing, as it is now <\/span>being termed<\/span>, is <\/span>once<\/span> again being touted as a solution. <\/span><\/p>\n\n\n\n

If only it were that simple.<\/span><\/p>\n\n\n\n

The Urgent Need for Affordable Housing<\/span><\/h2>\n\n\n\n

With<\/span> homelessness on the rise<\/span><\/a> and both the working and middle classes feeling the effects of elevated home prices\u2014homes are<\/span> unaffordable in 80% of U.S. counties<\/span><\/a>\u2014high interest rates and escalating rents, there’s little doubt about the need for affordable housing. Even both presidential candidates have<\/span> offered solutions<\/span><\/a>.<\/span><\/p>\n\n\n\n

“This is hitting first-time home buyers <\/span>that can’t get into<\/span> the housing market.<\/span> This<\/span> is hitting middle-class renters who are spending more than 50% of their income on rent,” Brian McCabe, Associate Professor of Sociology at Georgetown, told <\/span>Time<\/span><\/em>. “It’s not that there’s never been an affordability crisis before, but it’s now an affordability crisis that’s hitting a much broader set of Americans.”<\/span><\/p>\n\n\n\n

The Different Sides of Public Housing<\/span><\/h2>\n\n\n\n

Not all public housing consists of crime-ridden, poorly maintained tenements. It’s back in the spotlight because of innovative and attractive developments such as<\/span> The Laureate<\/span><\/a> in Montgomery County, Maryland, which has transformed notions of what the term can mean. In most settings, the Laureate would be termed a luxury apartment building with its raft of amenities and attractive, modern construction. <\/span><\/p>\n\n\n\n

Montgomery County has been an innovator in public housing initiatives. It instigated a landmark law that requires developers to set aside about 15 percent of the units in new projects for households making less than two-thirds of the area’s median income\u2014now $152,100 for a family of four. For-profit developers built the Laureate, but the controlling owner is a government agency, the<\/span> Montgomery County Housing Opportunities Commission<\/span><\/a>. H.O.C. has a 70% stake<\/span>, so<\/span> the Laureate can set aside 30% of its 268 units for affordable housing.<\/span><\/p>\n\n\n\n

It’s a far cry from the first self-contained and <\/span>largest<\/span> cooperative housing development ever built,<\/span> Co-op City in the Bronx<\/span><\/a>. Few can dispute the bold intentions and even bolder scale of the 15,000-unit development, completed in 1973 and often referred to as a “city within a city.” Democratic lawmakers Alexandria Ocasio-Cortez and Tina Smith<\/span> cited Co-op City<\/span><\/a> as an example of how public housing can work. However, that development has a history of<\/span> poor management<\/span><\/a>,<\/span> corruption<\/span><\/a>, and squalid conditions, which led to<\/span> an emergency repair bill of $500 million<\/span><\/a> in 2003. Co-op City, while laudable for its intentions, is<\/span> hardly the shining star<\/span><\/a> to encourage further investment in public housing.<\/span><\/p>\n\n\n\n

But neither is The Laureate as attractive as it is. That’s because the Laureate is geared toward the middle class and <\/span>is <\/span>located<\/span> in a wealthy county. Residents who earn around $50,000\/year can expect to pay<\/span> $1,700 for a one-bedroom apartment<\/span><\/a>, compared with a market rent of around $2,200. Other residents might expect to pay half the advertised rate depending on their income. Montgomery County was able to kick in $100 million, using its ownership position to become a benevolent investor that trades profits for lower rents.<\/span><\/p>\n\n\n\n

“The private sector <\/span>is focused<\/span> on return on investment,” Chelsea Andrews, H.O.C.’s<\/span> executive director<\/span><\/a>, told the New York Times<\/em>. “Our return is <\/span>public<\/span> good.”<\/span><\/p>\n\n\n\n

Developers Are Rejecting Government Funding<\/span><\/h2>\n\n\n\n

Unfortunately, that’s not a position that many financially stressed counties can adopt. Public housing is usually financed by the Department of Housing and Urban Development and operated by one of the nation’s roughly<\/span> 3,300<\/span><\/a> public housing<\/span> agencies<\/span><\/a>, which are locked in a<\/span> steady decline<\/span><\/a>. <\/span><\/p>\n\n\n\n

That’s partly why private developers are rejecting government money for affordable housing. Mismanagement and red tape in the public sector have a history of bloating construction expenses and other costs for developers. It’s why\u2014despite the commitment of tens of billions of dollars from Californian State and local government, some developers such as<\/span> S.D.S. Capital Group<\/span><\/a>, which recently completed a 49-unit apartment building in South Los Angeles, <\/span>has<\/span> self-financed the project. S.D.S. told the<\/span> Wall Street Journal<\/span><\/a><\/em> that it cost them $291,000 per unit to build instead of the roughly $600,000 that the city of Los Angeles has averaged for similar apartments. <\/span><\/p>\n\n\n\n

A recent report commissioned by the city of San Jose found that affordable housing projects that received tax credits cost an average of around $939,000 a unit to build there last year. The average affordable unit in the Bay Area costs $817,000 to build, according to a study by <\/span>the Bay Area Housing Finance Authority<\/span><\/a> and the affordable housing finance company, Enterprise.<\/span><\/p>\n\n\n\n

Rather than using government cash, S.D.S., an investment firm, <\/span>raised<\/span> a $190 million fund to build an estimated 2,000 units for formerly homeless people in the city with mental health and other medical needs. The speed of private, self-funded construction has proved to be a <\/span>big<\/span> savings compared to the governmental bureaucracy that hampers similar projects.<\/span><\/p>\n\n\n\n

“We believe there’s a different way than using government money, which <\/span>really<\/span> becomes slow and arduous and increases cost,” Deborah La Franchi, chief executive of S.D.S., told the Wall Street Journal<\/em>.<\/span><\/p>\n\n\n\n

“You’re cutting out millions of dollars just in soft costs,” David Grunwald, an executive at R.M.G. Housing, which is developing the S.D.S. fund’s projects, said of private financing.<\/span><\/p>\n\n\n\n

Why Section 8 Has Faltered<\/span><\/h2>\n\n\n\n

Unlike many landlords, S.D.S.’s model is unique in that it accepts government vouchers\u2014Section 8\u2014to house residents. The Los Angeles City Housing Authority says there are over <\/span>1000<\/span> unused tenant vouchers at any one time, which provides a captive market for S.D.S. buildings.<\/span> <\/span><\/p>\n\n\n\n

Activists have found that the rejection of Section 8 vouchers by brokers looking to rent apartments is a nationwide issue. A watchdog group, Housing Rights Initiative,<\/span> filed a lawsuit<\/span><\/a> in New York in 2022, citing\u2014after a sting operation\u2014the discriminatory practices of landlords and real estate agents when turning away prospective tenants who rely on subsidies to pay rent. It is illegal in New York City for<\/span> landlords to refuse to<\/span><\/a> accept applications from tenants who depend on them.<\/span><\/p>\n\n\n\n

“Housing discrimination is not an isolated incident,” Aaron Carr, the executive director of the Housing Rights Initiative, told the <\/span>New York Times<\/a><\/em>. “It is a part of an industrywide problem.”<\/span><\/p>\n\n\n\n

When Bill Clinton encouraged the movement away from public housing construction with the<\/span> Faircloth Amendment<\/span><\/a> in 1998, the hope was that private landlords in mixed-income buildings would take up the slack<\/span>. Henry<\/span> Cisneros, Bill Clinton’s H.U.D. Secretary developed a plan that consolidated grant programs and shifted the emphasis to housing vouchers over traditional public housing subsidies. <\/span><\/p>\n\n\n\n

According to a<\/span> H.U.D. report, HOPE VI<\/span><\/a>, a H.U.D. program aimed to redevelop “severely distressed” public housing projects, demolished 98,592 public housing units and replaced them with 97,389 mixed-income units between 1993 and 2010. It was widely considered a move out of a Republican playbook and received no blowback. However, gentrification and the demand for housing from non-voucher renters have pushed Section 8 tenants further into the margins of low-income housing in dicey neighborhoods. Many tenants feel that rejecting Section 8 is<\/span> a mask for racial discrimination<\/span><\/a>. Some landlords and renters conversely feel Section 8 tenants can<\/span> disrupt their buildings<\/span><\/a> and neighborhoods.<\/span><\/p>\n\n\n\n

Insurance: The Silent Killer<\/span><\/h2>\n\n\n\n

As if public\/affordable housing wasn’t facing enough issues, soaring insurance costs have made things unsustainable for developers, landlords, and management companies. <\/span>It’s not<\/span> just in areas of extreme weather but nationwide <\/span>where<\/span> costs have quadrupled along with deductibles.<\/span> <\/span><\/p>\n\n\n\n

Unlike market-rate apartment developers, multifamily projects financed by subsidies and tax credits cannot pass on those higher insurance costs to tenants since they <\/span>are limited<\/span> by government guidelines as to how much rent they can collect. As a result, developers and housing authorities have appealed to state lawmakers for assistance or have decided to abandon affordable housing completely. <\/span>According to a<\/span> National Leased Housing Association <\/span>survey<\/span><\/a>, nearly one-third of affordable housing providers reported <\/span>increases of<\/span> at least 25 percent.<\/span><\/p>\n\n\n\n

“In 2020, I would have said this is cyclical; the pendulum has always been swinging,” Denise Muha, the organization’s executive director since 1988, told the<\/span> New York Times.<\/a><\/em> “But this is <\/span>totally<\/span> different. I don’t see this <\/span>really<\/span> curing itself anytime soon.”<\/span><\/p>\n\n\n\n

Final Thoughts<\/span><\/h2>\n\n\n\n

Affordable housing in America is an oxymoron in this day and age. The red tape, bureaucracy, and social issues that come with providing it have made it a minefield for developers and investors. While public housing developers such as S.D.S. have <\/span>largely circumvented<\/span> the problem by taking matters into their own hands and bypassing the government, there is still the issue of management and upkeep. The lessons learned from Co-op City City is that despite a city’s best intentions, when the management of a project cannot run efficiently and ethically and without the finances it needs, things will deteriorate quickly. <\/span><\/p>\n\n\n\n

Public housing advocates worldwide often point to Vienna, which, with its <\/span>huge<\/span> apartment complexes known as<\/span> Gemeindebauten<\/span><\/a>, has made Austria’s capital one of the world’s most livable cities. <\/span>Why they have succeeded so spectacularly in Austria but not so in the U.S. is<\/span>, however,<\/span> a far <\/span>longer<\/span> discussion.<\/span><\/p>\n\n\n\n \n

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Think of public housing, and a familiar picture comes to mind: hulking, run-down brick tenement buildings, graffiti-strewn malfunctioning elevators, crime, drugs, and all the social ills that go with it. […]<\/p>\n","protected":false},"author":613725,"featured_media":178255,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7384],"tags":[],"class_list":["post-178251","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-politics-policy"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/178251","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613725"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=178251"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/178251\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/178255"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=178251"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=178251"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=178251"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}