Two Great Tastes, Taste Great Together: How Social Housing Closes the Gap

Can California learn from robust public housing development models around the world to fix its long-standing housing crisis? The Oakland-based advocacy group East Bay For Everyone (EB4E) has some ideas in a new paper.

Key takeaways:

  1. The volatile business cycle weakens the construction labor pipeline and inhibits the production of housing for low- and moderate-income housing. A public housing development corporation could step in to support housing construction during downturns.
  2. While the poorest Californians don’t have enough money to secure housing on the private market, middle-income households are priced out of California’s supply-constrained market while also earning too much to qualify for most housing subsidy programs. Public housing could meet their needs, as well.
  3. In the past, America’s maintained and reinforced patterns of segregation and concentrated poverty. Mixed-income rental housing and long-term leasehold ownership models can pave the way for fiscally self-sustaining public housing.

In its paper, EB4E asks a simple yet powerful question: What would it look like for “housing for all” to be a reality in California? There are several obstacles to getting there under the status quo:

  1. The state’s lowest incomes are too low for households to obtain housing on their own;
  2. the current 3.5 million estimated shortage of homes is exacerbated by market volatility; and
  3. this fuels a compounding market failure that squeezes middle-income households out of the private market, while they remain disqualified for subsidies.

The paper presents a vision for realizing Assembly Bill 387, the Social Housing Act of 2021, introduced by Asms. Lee and Wicks, to provide “mixed-income rental and limited equity homeownership housing and mixed-use developments to address the shortage of affordable homes for low and moderate-income households.”

An earlier edition of The Homework covered housing delivery models around the world, including Vienna and Singapore. EB4E covers many of the same global leaders in mixed-income public housing, with an eye for replicating those results in California.

For example, Senate Bill 1 (2020) by Hawaii State Sen. Stanley Chang, proposes a model of long-term leasehold ownership housing on public land inspired by Singapore’s Housing Development Board, which develops and sells housing units for over 80% of the population on 99-year leases. While California’s 1948 public housing initiative was defeated, and conservatives followed up with the passage of Article 34 in 1950 to require local referenda to approve “low-rent” housing with public funds, this paper argues that the University of California offers a good model for today’s housing needs.

“The University of California has developed administrative capacity to not only develop housing but do so at levels of cost per unit efficiencies comparable or better to the private sector,” the EB4E paper says. “It does so with union construction labor, institutional planning and construction management staff development, construction cost review, controlled insurance programs and discretion to select best value rather than low bid for contracts.”

So how would a “California Housing Corporation” work? Much of its power would come from providing housing for all income levels and exerting market power to discipline real estate interests across the industry. One central tenet is that a public housing agency “would focus on
reducing construction costs for housing development” by taking advantage of “bargaining power in material markets, factory-built modular building systems, low overhead, streamlined funding, land-banking, best value contracts and written down public lands” — all relying on the scale and stability of the state of California as an institutional behemoth.

Just as the University of California uses its status as a quasi-governmental entity to finance and streamline the development of student housing, the CHC would be able to translate its price-setting powers and streamlined review process to keep costs significantly lower than what could be accomplished by private builders.

Part of the pricing power of a public housing entity derives from its ability to maintain housing production during economic downturns. Rather than laying off construction workers during recessionary cycles, a public housing developer can take advantage of slack demand in the private market to both keep workers working — and negotiate on price.

As more homes are built using this model, a public housing agency becomes self-financing via a mix of subsidized rentals for low-income tenants, and long-term leasehold/ownership opportunities that generate modest returns while maintaining affordability for middle-income earners.

This is the key to longevity: “Initially, [a California Housing Corporation] may start small, but over time it would be able to draw upon its growing portfolio of assets to self-finance new projects and capital reinvestment,” the paper notes. EB4E emphasizes that this should not be an all-encompassing public housing management agency, but rather a partner with local agencies, such as such school districts and transit agencies, to develop and manage their land assets.

“This would ensure that rising land value from redevelopment and infrastructure investment remains in public hands to advance social, operational and fiscal goals.”