Why Public Housing Fails to Solve the Affordable Housing Crisis

When people think of public housing, a familiar image often comes to mind: large, deteriorating brick buildings, malfunctioning elevators marked by graffiti, and neighborhoods plagued by crime and drug-related issues. Given this negative perception, previous governments have distanced themselves from public housing as a solution for low-income residents. However, with the current housing affordability crisis, public or social housing is once again being proposed as a potential remedy.

The Growing Demand for Affordable Housing

With homelessness increasing and housing costs skyrocketing—homes are now out of reach in 80% of U.S. counties—there is an undeniable need for affordable housing. High interest rates and soaring rent prices are affecting not only low-income individuals but also the middle class. Both presidential candidates have recognized the severity of this issue and have proposed solutions.

“This is affecting first-time home buyers who can’t enter the housing market, as well as middle-class renters who are spending over half of their income on rent,” said Brian McCabe, Associate Professor of Sociology at Georgetown University, in an interview with Time magazine. “The affordability crisis isn’t new, but it’s now impacting a much larger group of Americans.”

The Varied Faces of Public Housing

Not all public housing is synonymous with crime-ridden, poorly maintained buildings. The concept is gaining renewed attention due to innovative developments like The Laureate in Montgomery County, Maryland, which challenges traditional notions of public housing. The Laureate, with its modern design and numerous amenities, could easily be mistaken for a luxury apartment building in many places.

Montgomery County has been at the forefront of public housing initiatives, implementing a groundbreaking law requiring developers to allocate 15% of units in new projects to households earning less than two-thirds of the area’s median income, which is now $152,100 for a family of four. Although The Laureate was built by private developers, the Montgomery County Housing Opportunities Commission (H.O.C.) holds a 70% stake, allowing it to reserve 30% of the building’s 268 units for affordable housing.

This stands in stark contrast to Co-op City in the Bronx, which remains the largest cooperative housing development ever built. Despite its admirable intentions, Co-op City has been plagued by mismanagement, corruption, and subpar living conditions. At its peak, the development required a $500 million emergency repair bill in 2003, demonstrating that public housing projects can face significant challenges even when designed with the best of intentions.

While The Laureate may seem like a more successful model, it has its own limitations. The development primarily serves middle-class residents in a wealthy county. Tenants earning around $50,000 per year can rent a one-bedroom apartment for $1,700, while the market rate is $2,200. In some cases, residents can pay even less depending on their income. Montgomery County’s unique position as both investor and benevolent landlord allows it to offer lower rents by sacrificing profit margins.

“The private sector is driven by return on investment,” Chelsea Andrews, executive director of H.O.C., told The New York Times. “Our return is focused on public good.”

Why Developers Are Rejecting Government Funding

Unfortunately, most financially strapped counties cannot afford to adopt this model. Public housing in the U.S. is typically financed by the Department of Housing and Urban Development (HUD) and operated by one of the approximately 3,300 public housing agencies in the country. However, many of these agencies are in steady decline.

This is one reason why private developers are turning away from government funding for affordable housing projects. Bureaucratic inefficiencies and mismanagement have historically driven up construction costs and slowed down projects. For instance, S.D.S. Capital Group, a private developer in Los Angeles, completed a 49-unit apartment building at a cost of $291,000 per unit—far lower than the city’s average of $600,000 for similar developments. By self-financing the project, S.D.S. was able to avoid the delays and inflated expenses that typically come with government funding.

In San Jose, affordable housing projects receiving tax credits cost an average of $939,000 per unit to build, according to a report. Similar projects in the Bay Area average $817,000 per unit. S.D.S. Capital, however, raised $190 million privately to build approximately 2,000 units for individuals with mental health and other medical needs, sidestepping the slow-moving government process.

“We believe there’s a better way than relying on government funding, which tends to be slow, cumbersome, and expensive,” Deborah La Franchi, CEO of S.D.S., told The Wall Street Journal.

The Struggles of Section 8

S.D.S. Capital stands out for accepting Section 8 vouchers, which many landlords refuse. The Los Angeles City Housing Authority reports that over 1,000 tenant vouchers go unused at any given time, providing a unique opportunity for S.D.S. properties.

Unfortunately, housing discrimination against Section 8 tenants is widespread. A watchdog group, Housing Rights Initiative, filed a lawsuit in New York after exposing discriminatory practices by landlords who rejected tenants reliant on rental subsidies. It is illegal for landlords in New York City to reject tenants solely because they use Section 8 vouchers, yet the practice persists.

Soaring Insurance Costs: Another Barrier

As if the challenges of public and affordable housing weren’t enough, skyrocketing insurance costs have created additional difficulties for developers. Multifamily housing projects, often financed through subsidies, are unable to pass these costs on to tenants due to rent caps set by government regulations. This has led to many developers abandoning affordable housing projects altogether, as rising insurance premiums make them financially unsustainable.

“In the past, I would have said this is just part of the economic cycle,” said Denise Muha, executive director of the National Leased Housing Association. “But this time it feels different. I don’t see a solution on the horizon.”

Final Thoughts

The term “affordable housing” is becoming increasingly ironic in today’s America. The bureaucratic hurdles, social challenges, and financial burdens involved in building and maintaining public housing make it a treacherous landscape for developers. While private initiatives like those from S.D.S. Capital have provided some relief, the broader challenges remain unresolved. Without proper management, public housing projects can quickly fall into disrepair, as demonstrated by Co-op City. The question remains whether the U.S. can learn from successful public housing models abroad, such as Vienna’s renowned Gemeindebauten, and adapt these lessons to its own housing landscape.