Let’s rethink how to create new affordable housing, for which demand is growing while supply is shrinking. It’s time once again to consider building workforce housing sponsored and funded directly by the public sector.
We should take a cue from Europe, where countries such as Denmark and Austria build “social housing.” Social housing is public housing, but only in the sense that it is government-financed. European social housing is subsidized yet serves middle-class as well as low-income households, thereby avoiding many of the socioeconomic issues associated with America’s public housing.
In the United States today, a multitude of government policies and programs require or incentivize production of below-market housing units within market-rate developments. Yet such units will always represent a small percentage of new housing and will satisfy little current and future affordable housing demand.
The housing problem is acute. Recently, Washington Post columnist Petula Dvorak reported that in the District, 70,000 people are on a waiting list for one of only 8,000 units. Many people have spent decades on the list, characterized by Dvorak as “absurd.”
In his 2012 book “So Rich, So Poor: Why It’s So Hard to End Poverty in America,” author Peter Edelman writes that about 7.1 million tenants, more than half of all renters in the United States in 2009, paid more than 50 percent of their family income for housing. In the world of real estate economics, 30 percent is the generally accepted rule of thumb.
Edelman also notes that there is not a single state in the United States where a person working full time and earning minimum wage can afford to rent, at fair-market value, a two-bedroom apartment or home.
Beginning with the New Deal and for a couple of decades after World War II, America’s federal, state and municipal housing authorities built public housing projects containing subsidized units for low- and moderate-income tenants. Ultimately inhabited mostly by people living at the edge of or in poverty, projects labeled “public housing” became negatively stigmatized.
Stigmatization was attributable to poor design, often shoddy construction, inadequate property repairs and maintenance, neglected landscaping and pervasive crime. Plagued by these severe physical and socioeconomic problems, developing public housing was deemed politically and socially taboo.
In the 1970s, governments stopped developing affordable housing directly and adopted new strategies entailing financial subsidies in various forms: long-term, low-interest loans to non-profit as well as for-profit developers; loan guarantees for lenders; direct grants to local jurisdictions; tax credits for investors; and housing vouchers for tenants. The goal was to enable private sector construction of units at below-market rents.
Meanwhile, federal policy administered by the Department of Housing and Urban Development allowed local housing authorities to demolish some of the country’s most troubled public housing projects. New HUD initiatives, such as the “Hope VI” program, resulted in derelict projects being razed and replaced by better-designed, better-built affordable housing.
Nevertheless, over the past four decades, these strategies have failed to meet rapidly growing housing needs.
As subsidy contracts expired, many owners opted to convert subsidized housing to market-rate housing, enhancing their real estate’s value but reducing affordable inventory. According to the Wall Street Journal, Harvard’s Joint Center for Housing Studies has reported that “8.7 percent of low-cost rental space was upgraded to higher rents during the last decade, and the shortfall of affordable units doubled to 5.1 million since 2001.”
Since 2007, things got even worse. With the burst housing bubble, economic recession and spate of foreclosures, millions have been forced into apartments, lowering vacancy rates but pushing rents upward.
To appreciate the reality of these statistics in the Washington area real estate market, imagine that you and your significant other are fully employed and have two school-age children. You earn $12 per hour, about $24,000 per year. Your hard-working partner brings in about $16,000 per year from a minimum wage job. Your family needs a three-bedroom dwelling, although squeezing into two bedrooms might be possible.
Assume that as much as 40 percent of your $40,000 household income could be allocated for housing. Thus you would have $16,000 per year, a little more than $1,300 per month, available for renting a home or apartment, or to cover debt service, taxes, insurance and utilities for a home you might own.
You don’t need to be an economist to know that $1,300 per month no longer pays for a market-rate, adequately sized unit. As Dvorak pointed out, monthly rent for a one-bedroom apartment in the city is now more than $1,700. Citing data from the DC Fiscal Policy Institute, she further notes that “the number of rentals less than $750 per month fell from 70,600 to 34,500 over the past decade, and places that cost more than $1,500 tripled.”
A significant portion of Americans work hard to earn modest incomes. Our economy depends on the willingness and availability of these wage-earners. Yet their incomes have remained flat as living costs, and especially real estate development costs, have risen substantially. Clearly, our society has not done enough to ensure that workers will have access to decent, affordable housing.
Future metropolitan Washington real estate growth will be substantial. In every municipal and county jurisdiction, plans for redevelopment of existing properties as well as new land development envision tens of thousands of housing units, mostly at high densities, and mostly unsubsidized.
Yet low- and middle-income families will be unable to afford these new urban and suburban homes. This is why affordable housing strategies need a makeover. Let’s change our thinking and vocabulary.
Roger K. Lewis is a practicing architect and a professor emeritus of architecture at the University of Maryland. His cartoon may be seen at washingtonpost.com/realestate.