The Free Market Can’t Solve America’s Housing Crisis

Declare a “Right to Housing” and ensure every person who wants a home can get one.

The period of late capitalism we currently inhabit is one of diminishing returns. Real estate is one of the only remaining profitable vehicles for investment. Accordingly, we have seen an enormous boom in real estate investment, with housing prices rapidly exceeding what many would-be homebuyers can afford. This has also had an impact on rental markets, dramatically raising rents across the board in many cities and towns. The result is that many low-income people have found themselves squeezed, paying upwards of 50% of their incomes towards rent and utilities. Many people who were already on the margins have found themselves priced out of housing altogether and are now living in cars or on the streets. This is driving a homeless epidemic with no end in sight and has transformed the streets of many US cities into spectacles of human misery.

The forces of capital, desperate as always to turn a profit, have begun investing heavily in rental housing, with private equity purchasing a huge number of multi-family apartment complexes and single-family homes across the country. The Blackstone Group and other private equity firms have concentrated their housing investments in already high-cost urbanized areas, further driving rents up. These rental properties are not just rented out at a profit (with often legally dubious practices used to remove and replace extant low-income tenants) but also securitized on financial exchanges via a mechanism like the mortgage-backed securities that caused the 2007-10 financial crisis. What we are seeing is private funds and the global rich systemically buying up housing in desirable places throughout the world in large enough numbers that housing prices in general have become unaffordable almost everywhere.

This process has been allowed to happen largely due to decades of underinvestment in affordable and market-rate housing. While the lack of affordable housing is a purely supply-side issue, the notion that the free market is in any way equipped (or has the desire) to plug this gap, particularly given the scope of this problem, remains farcical.  Despite this, an unwillingness to use mechanisms other than markets to solve the housing problem has meant that it has become fashionable to blame zoning restrictions and so-called NIMBY (Not In My Back Yard) community activist organizations for the inability of developers to address the problem.

While both historically restrictive zoning practices and misdirected activism can prevent certain developments from being built, blaming these two bugbears has frequently been used as a smokescreen by development interests to obscure the truth of the matter. Developers and moneyed investors have long since treated real estate as a capital sink, and, as such, the type of real-estate that developers are overwhelmingly interested in building rarely corresponds to affordability needs within a particular area.

Instead, new development is often geared as safe harbors for the affluent to invest their money. The types of housing needed, which can be easily determined by housing gap analysis and community housing surveys are often overlooked because they typically recommend building units that are not particularly profitable to build.  The key to addressing housing shortages in the United States is to involve the Federal Government in building and maintaining large supplies of rental housing. 

Public housing in the United States is most associated with what many continue to erroneously call “Section 8” projects and notorious large-scale public housing developments built during the 1960s and 1970s. The Section 8 low-income housing program is really two programs authorized under Section 8 of the U.S. Housing Act of 1937: the Housing Choice Voucher program and the project-based rental assistance program. The Section 8 program did not come into effect until 1974 and was relatively short-lived. It ceased to fund new Section 8 construction projects by 1983, leaving just the housing voucher program that continues to this day. Presently, most public housing that the Federal Government is involved in building is largely through various tax-credit programs, most notably the Low-Income Housing Tax Credit (LIHTC) program. This is because Section 8 became politically unpalatable during the Reagan era and following several high-profile failed and controversial projects. Tax credits, on the other hand, are largely non-controversial, and because they involve private developers who donate money across the political aisle, more likely to receive bi-partisan support.

Historically, public housing projects, such as the now-demolished Cabrini-Green Homes in Chicago and the Marcy Houses in Brooklyn, effectively became mechanisms to warehouse the urban poor, frequently spawning desperation and reinforcing cycles of poverty. While many residents of these units noted the problems of crime that these types of developments spawned, they also had mixed or even positive feelings about them, despite the overwhelming negative public perception of them. These types of superblock developments are also far removed from current practice. Planners and housing advocates have learned from past mistakes and the affordable housing industry currently tends to favor more diffuse development, with affordable and subsidized units sprinkled-in to extant market-rate developments to provide low-income individuals access to the type of informal, neighborly connections that tend to result in positive income-mobility later in life.

While many of these units are built through the tax-credit system, the issues with tax credits are several-fold. First, the credits expire after a given period (typically 10 years with the possibility for an additional 5-year extension if the unit is renovated) after which the housing units revert to market-rate, with hundreds of thousands of affordable units “lost” through tax credit expiration every year. Second, tax-credit deals are more expensive over their lifespan than just having a state or local government build housing directly. They require a syndicator to act as middleman and line up the tax credit, the financier, and the developer and then monitor the deal over the life of the tax credit to insure they remain affordable, necessitating a large non-profit sector to fulfill this role. They also involve generously subsidizing developers to build a handful of affordable units that only temporarily remain affordable. Third, qualification for tax credit housing is tied to specific income cut-offs, resulting in arbitrary qualification for who can receive tax credit housing and who cannot. They also tend to discriminate against the unbanked or those who participate in informal cash economies to try to make ends meet. This can be especially discriminatory towards the undocumented, the homeless, and other marginalized communities. Lastly, changes to the tax code and the general reduction in taxes in recent years have resulted in many developers having less need for tax credits to make real estate developments happen. Given these limitations, it is no wonder that tax credits have not proven to be a panacea, and the US national housing crisis continues to deepen.

The solution to our national housing crisis is for the Federal Government to get back into housing in a big way. Congress should declare a “Right to Housing” with the Federal Government stepping in to ensure that every person in this country who desires housing is able to receive it. This would function similarly to the public or Council Housing system that exists in the United Kingdom and elsewhere. Once basic housing is assured, this would also put downward pressure on prices for extant housing stock. After all, while many people would still desire to own their own home or move to nicer surroundings, under this system no one could be priced out of housing. The result would serve to partially de-commodify the housing market.

Housing the homeless is also beneficial for several financial reasons. While there is already a strong moral argument to be made for caring for and housing our fellow human beings, there is also growing evidence that simply housing the homeless ends up saving the public sector a lot of money. When people are given housing, even if they suffer from severe mental health or substance addiction problems, they are far less likely to end up involved with emergency medical or police services, both of which are hugely costly to the public tax system. They are, with a stable, private, and safe place to live, more likely to pull themselves out of poverty or addiction and reintegrate into society. “Housing-first” should be the guiding philosophy. A growing body of evidence demonstrates that homelessness is overwhelmingly a function of housing markets and housing prices rather than any other factor.

There is a blight in the United States of people who live on very little every day and who slide in and out of homelessness. Many are becoming increasingly downwardly mobile. Our cities have become desperate scenes where thousands of people mill about on the streets, un-housed, neglected, feared, and hated by a general population. This large homeless population also serve as a grim reminder of what might happen to many of us were our fortunes to slip. With a staggering number of Americans living paycheck-to-paycheck and without emergency savings, rising housing costs and rising prices on many consumer necessities, this national tragedy can only deepen under the current paradigm. Remedying the housing problem will not only ensure greater health and welfare outcomes for those on the fringes, but it will also give workers greater courage to organize and stand-up for their rights without the fear that loss of a job would potentially mean living on the streets. A Federal right to housing combined with meaningful funding of public housing is not just an investment in the well-being of the citizens of the United States, but an investment in their dignity.

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ALEX DELEY is an urban planning professional, writer, musician, and occasional filmmaker. He lives in the Washington DC area.


ALEX DELEY is an urban planning professional, writer, musician, and occasional filmmaker. He lives in the Washington DC area.

1 thought on “The Free Market Can’t Solve America’s Housing Crisis”

  1. Susan McEachern

    Great article. Housing is important for all of our people, however the majority of the mentally ill need well informed family members or case managers to assist in the bureaucracy of government services, as well.

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