California needs more ‘social housing’ to solve crisis

By Steven Hill, San Jose Mercury News and East Bay Times, January 26, 2020

San Jose and Oakland are classic examples of a supply/demand market failure that SB 50 will not solve.

The affordable housing crisis continues to humble California policymakers. Sen. Scott Wiener’s bill, SB 50, is the latest attempt, but it fails to recognize that a major reason for this crisis is not simply a lack of overall housing supply. It’s a lack of the right kind of housing — affordable housing for the middle class.

San Jose and Oakland are classic examples of a supply/demand market failure that SB 50 will not solve. For every housing unit constructed, it is quickly snapped up by a highly paid tech or professional worker. With an inexhaustible flood of higher-income new arrivals, the for-profit housing market has failed to build sufficient housing for people with a range of incomes. Indeed, both San Jose and Oakland are on track to exceed their longer-term goals for “market rate” housing, but that’s not affordable for most individuals and families.

So how can we produce enough affordable housing for all Californians?

In Vienna, Austria, a city of 2 million people, a whole new strategy has been utilized based on the concept of “social housing.” Social housing recognizes that overreliance on the for-profit housing sector often produces perverse results in an overheated housing market like California’s.

In Vienna, there is plenty of what in the U.S. is typically called “government housing” — the city owns outright about 25% of the housing stock. But this isn’t “nanny state” housing, because it’s rented affordably to both middle-income and lower-income residents.

But the more innovative housing sector is owned and managed by private — but nonprofit — housing developers. The city indirectly oversees another 25% of the housing stock by building on public land and retaining control over development. A private nonprofit developer is provided a low-interest loan and extended repayment periods (50 years), which reduce land and construction costs. Sometimes the developer is a housing co-operative, labor union or other NGO. Residents pay 25% of income for rent.

Overall, nearly half of the housing stock in Vienna is this public/private mix of “social housing.” Crucially, that high proportion creates a large parallel market that slows down the free market forces that escalate rents and speculation in the for-profit sector.

Many EU cities control housing markets with a mix of social housing policies. In Berlin, which is as large as Los Angeles, the government recently declared a five-year freeze on rent increases. Then it stopped the sale of 700 apartments to a mega-landlord and purchased the apartments for affordable housing. Mayor Michael Müller says, “It continues to be our intention to buy up apartments wherever we can, so that Berlin can regain control of its property market.”

Germany and Austria are not “socialist” countries. They and other EU states combined have more Fortune 500 companies than the U.S.. But their brand of “social capitalism” tries to foster a more broadly shared prosperity, while “Silicon Valley capitalism” champions the for-profit market.

Compared to European efforts, California’s affordable housing strategy looks timid and ineffective. San Jose permitted only 61% of planned affordable housing units in 2018 and has permitted just 13% of its state-mandated set-asides (which are already too low) targeted for 2022.

Oakland is worse. Of the 10,000 homes permitted, just 7% are for low-income homes, far less than the 28% pledged by Mayor Libby Schaaf.

Housing, like health care, should be a human right. Over the years, not nearly enough of the public’s tax dollars has been targeted at securing this most basic need — housing for residents with a range of incomes.

Going forward, all new housing should be the right type: “social housing” built by nonprofit developers with a hand from government to ensure real affordability, gradually attaining Vienna’s 50% level.

Steven Hill (www.Steven-Hill.com) is a Silicon Valley-based journalist and author of “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers” and “Europe’s Promise: Why the European Way Is the Best Hope in An Insecure Age”.