Addressing the Issue of Affordable Housing: Efficiency Should Matter

5/25/21

The shortage of affordable housing is a problem afflicting many of our larger cities, and it’s an issue that’s also commanding considerable attention in the NYC mayoral race currently underway. I’ve been trying to get a better understanding about this problem and possible solutions in my effort to assess the various candidates’ positions.

I began my investigation by trying to find out how far-reaching current efforts are to subsidize housing in NYC. The NY Housing Authority (NYCHA) serves as a good start. According to their 2020 Fact Sheet, this agency is dedicated to providing accommodations for low- and moderate-income New Yorkers, with their primary initiatives falling under two programs: Public Housing and Section 8.

Public housing typically concerns government-owned property overseen by the Department of Housing and Urban Development (HUD) but administered by local public housing agencies — NYCHA in NYC. Section 8, on the other hand, is a rental subsidy program, where private landlords receive tenant rental payments augmented principally by federal subsidies. On a combined basis in NYC, those programs covered somewhat more than 250,000 families as of 2020, with beneficiaries occupying about 11.6 percent of NYC rental apartments. About 6.6 percent of all New Yorkers are served by these programs.

Demand for these programs far exceeds supply. As of March 2020, NYCHA reported that over 300,000 families were waitlisted for assistance under these two programs, presumably meeting the eligibility requirements. I’ve got to believe that the eligible population is actually substantially greater, as these figures totally ignore those who would be eligible but have not formally applied for the subsidies.

The federal department of Housing and Urban Development (HUD) defines rent burdened as paying more than 30 percent of income for housing, and at 50 percent the household would be considered severely rent burdened. The latest data I could find for NYC reflect conditions in 2017. At that time, the city estimated that 44 percent on NYC renters met the first criterion, and 25 percent met the second. If anything, given the pandemic, I’d expect those percentages are almost assuredly undercounting.

Housing affordability gets considerable attention from the mayoral contenders; and from what I can gather, to one extent or another, all of the major mayoral candidates in NYC are calling for expanding and improving the housing stock under the jurisdiction of public housing. This posture perplexes me on three counts. First, for the most part, the budget for such construction falls under federal (not city) authority. These candidates simply don’t have the authority to bring their visions to fruition without Congress’s complicity; and who can count on that? Second, those same dollars would go much further to assist a substantially larger population if the money were used to defray rental expenses. That is, instead of building public housing for one new family, that same expenditure could likely reduce the rental nut for scores of needy families. Spending money to build new public housing is simply a wrong-headed approach. And finally, it should be recognized that however much money is allocated for new construction, some portion of those new units would probably have been constructed using private funds.

My own research, albeit dated, suggests that as much as half of public housing construction would be built in the absence of those programs. In other words, to some extent a substitution process occurs whereby public housing is built at the expense of private housing. Builders build. Put another way, subsidies that incentivize new public construction may benefit builders and developers possibly to a greater extent than they benefit the purported target population of the housing-insecure.

It’s not that I think construction of public housing doesn’t have a role. It does, but it should be restricted and designed in a way that combines social services for those who require assistance that transcends the financial. The vast majority of people in public housing (or potentially hoping to go there) don’t fall into this category. For them, the financial assistance, by itself, should largely suffice. We don’t need to build new housing for them. We just need to subsidize their rent. Income grants offer the most cost-effective way to address the problem of rent burden.

Two take-aways: (1) Candidates for mayor should be more honest about just what they can accomplish and the limits of their authority, and (2) when it comes to mitigating concerns about affordable housing, policy makers should favor rental subsidy programs that directly aid those in need rather than spending on new constructions of public housing.

Kawaller holds a Ph.D. in economics from Purdue University.