The one new thing in Alexandria Ocasio-Cortez’s social housing bill is, well, AOC herself.
Her star power allowed her to announce the bill in a New York Times op-ed, bringing attention to the bill’s ideas, which have been kicked around for years and in some cases implemented.
On social media, fans of these housing models cheered her legislation, while real estate people rattled off reasons it wouldn’t work, if by some miracle it ever becomes law.
One housing wonk, former RealPage executive Jay Parsons, managed to take both sides.
He posted the op-ed on X and commented that he’s not against piloting such programs because “We need more affordable housing of all types” and “It’ll prove to cynics that housing is expensive to build and expensive to operate/maintain.”
I like Jay Parsons, but not his idea of spending billions of taxpayer dollars to show that housing is costly no matter who builds and runs it.
We’re in a housing crisis, and resources are limited. This is not the time for experimentation to prove a point. We need to build housing as efficiently as possible, and at scale. This is already proven to produce affordable, abundant products and services — including housing, when the government allows supply to meet demand.
Besides, do we really need to prove what happens when the government develops housing?
Public housing projects concentrated poverty in a deteriorating physical environment. The results were so bad that Congress outlawed future projects. (AOC’s bill would undo that ban.) The public housing model wasn’t the sole cause of this failure — social and economic forces made it hard for low-income, minority tenants to succeed — but it was a factor.
Public housing’s tenants turned out to be a political liability rather than a powerful constituency, and Congress did not provide enough funding for ever-increasing maintenance costs as the developments aged. Belatedly, a better system is being rolled out in New York, but the task ahead is enormous.
What about other models, where the government helps pay for the housing but doesn’t own it? Building affordable housing in San Francisco costs about $1 million per unit. Maybe AOC is okay with that — it’s not her money — but at that price, it’s not scalable.
AOC is a political dynamo and a good soul but clearly not a housing expert. She seems fixated on the notion that housing is expensive because it’s mostly built and operated for profit, and because homes appreciate in value.
Let’s start with the profit issue.
Unlike housing, most of the products and services we buy are plentiful and affordable. They are all provided by profit-seeking capitalists who compete with each other.
The capitalists who build and rent housing are just as competitive. It’s absurd to think they have been engaged in a vast conspiracy for several decades to inflate costs and profits. They are no different from the capitalists who make light bulbs, open barber shops, grow carrots or raise cattle.
AOC would have nonprofits develop and operate housing. But this would not remove profit from the equation. The contractors and subcontractors who actually build housing are for-profit companies. So are property management companies, insurance firms, energy providers, plumbers and electricians, and everyone else who services housing.
Nonprofits have to pay all of these expenses, just like for-profits do. They must hire staff, buy health insurance and rent office space. Nonprofit executives don’t get stock options but do get paid, often handsomely. The board members who award their salaries lack a strong incentive to keep them down.
AOC’s second idea, to prevent price appreciation, can succeed in doing that. But it has downsides.
She calls for affordable, resident-run co-ops, where owners cannot sell their units for much more than they paid for them. That keeps the price low for the next owner, but the sellers don’t walk away with a nest egg. Unless they save diligently, buying another house if they need to move could be a struggle, as could retirement.
But the bigger problem with price-capped projects is that residents keep monthly dues too low. They don’t want to pay for improvements, especially those that would benefit future owners more than themselves. Over time, the property deteriorates, its operating costs rise, and costly renovations are needed.
Borrowing to pay for the work is impossible because — by design — there’s little equity in the units, so banks won’t provide a big mortgage. Jacking up the dues or imposing a large special assessment are also not options, because the residents don’t have that kind of money.
That leaves two choices: Abandon the model and let owners sell their homes at market prices, or ask the government for a bail-out. In either case, the model is not sustainable. Just like public housing wasn’t.
The best idea in AOC’s plan is to build energy-efficient housing, because it will be cheaper over the long term and keep carbon emissions low.
Her other suggestions are fine as far as they go, which is not very. If profits were responsible for high housing costs, nonprofits and governments would be able to build housing for less. But they don’t.
Excessive price appreciation is a growing problem, but historically, homes have appreciated at just 3 to 4 percent annually. Everyone forgets that. Only in markets where demand surges and supply is capped do home values soar. Silicon Valley, for example. Or Park Slope, where I grew up.
At least AOC is pitching her plan as a supplement, not a replacement, for traditional housing development where the potential to make money motivates investors to build. That works in many markets and would work in all of them if the local governments let it.
AOC’s powerful voice is desperately needed in the fight to solve the supply problem. But she was silent when major housing developments in her own district faced opposition. Instead she is focusing on niche solutions that appeal to her base. It’s not enough.