Why America Needs More Social Housing

Why America Needs More Social Housing

Subsidizing market prices to make housing affordable is a losing strategy. There’s a better way—on display for a century in Vienna.

April 16, 2018

This article appears in the Spring 2018 issue of The American Prospect magazine. Subscribe here

The quest to provide what has come to be called “affordable housing” in America is hobbled by one fundamental reality. Too much housing is in the market sector and too little is in a social sector permanently protected from rising prices. The result is that supply and demand relentlessly bids up market prices. Government is required to provide deeper and deeper subsidies to keep rents within the bounds of incomes, so fewer and fewer people get any kind of help. This is true whether the form of public subsidy is tax breaks, direct subsidies, vouchers, or deals with developers to set aside some percent of units as affordable. In most cities, the median rent far exceeds what median incomes can afford. In cities with hot housing markets, homeownership is even further beyond reach for those who do not already own homes, exacerbating competition for scarce apartments.

The idea of having a permanent sector of social housing, protected in perpetuity from market pressures, has a bad reputation in the United States, in part because of misleading stereotypes about public housing. But other forms of social housing are being depleted as well, including middle-income projects built with tax breaks, such as Stuyvesant Town and Peter Cooper Village in Manhattan, which were sold to the highest bidder and converted to market housing; and government-subsidized buildings from the 1960s through the 1980s, built under federal housing programs but allowed to be converted to market-rate apartments once their original mortgages were paid off or the 20-year subsidy contract expired.

Government policymakers have made almost no provision to protect the stunted social sector that exists, much less add to it. There are some exceptions to this dismal pattern, such as land trusts that preserve a social housing sector in perpetuity, in cities like Burlington, Vermont. But for the most part, the place to look for models is abroad. And no place does it better than Vienna.

 

AMERICAN VISITORS TO Vienna are typically struck by the absence of homeless people on the streets. And if they ventured around the city, they’d discover that there are no neighborhoods comparable to the distressed ghettos in America’s cities, where high concentrations of poor people live in areas characterized by high levels of crime, inadequate public services, and a paucity of grocery stores, banks, and other retail outlets.

(Wendel Fisher/Wikimedia Commons)

Peter Cooper Village and Stuyvesant Town in Manhattan, which was sold and converted to market housing

Since the 1920s, Vienna has made large investments in social housing owned or financed by the government. But unlike public housing in the United States, Vienna’s social housing serves the middle class as well as the poor, and has thus avoided the stigma of being either vertical ghettos or housing of last resort. Every country in Western Europe has some version of social housing, but Vienna’s is by far the largest and most successful. It is typically ranked as one of the world’s most livable cities.

In comparison, the United States has a tiny proportion of government-subsidized or government-owned housing. About 60 percent of Vienna’s 1.8 million people live in government-subsidized apartment buildings. In Philadelphia, with 1.6 million residents, at most 9 percent of residents live in low-rent subsidized homes, and one-third of those families rely on housing vouchers to rent private apartments. In most American cities, the proportion of subsidized housing is even lower. Nationwide, direct government subsidies cover less than 4 percent of America’s housing stock in contrast to 15 percent to 40 percent in Western Europe.

The consequences are evident in every American city and many suburbs—an increasing number of households paying more than half their incomes just to put a roof over their heads; young families who can’t afford the American dream of homeownership; an ongoing wave of owners facing eviction and foreclosure; and a growing epidemic of homelessness, including among many people with jobs and children.

At the start of the 20th century, Vienna was overwhelmed with immigrants from different corners of the Habsburg Empire seeking work in the burgeoning factories. The city’s working class lived in extremely overcrowded, unsafe, dreary privately owned buildings and paid exorbitant rents that exacerbated their misery. Few apartments had indoor toilets, running water, decent ventilation, or sunlight. In many units, more than ten people—often several families and assorted strangers leasing beds—crowded into tiny flats consisting of a single room and a kitchen. Not surprisingly, tuberculosis was widespread.

In 1910, a radical protest movement of “settlers” emerged to demand that the municipal and national governments address the housing crisis, but the conservative Christian Social government responded with indifference and violent repression. After World War I, the settlers began squatting in vacant buildings. In 1919, the workers movement elected the left-wing Social Democratic Workers’ Party to govern Austria’s capital city. For a few years, the Social Democrats provided the settlers’ self-help movement with building materials, land, and loans to allow workers’ groups to construct nonprofit housing cooperatives that incorporated theaters and concert halls, recreation facilities, adult education centers, and other amenities.

Constitutional reforms in 1922 made Vienna its own state, allowing it to adopt local taxes—including a housing tax on luxury apartments—to carry out its ambitious reform agenda. Until the fascists took power in 1934, Vienna’s Social Democrats introduced a wave of reforms—including progressive taxes, universal public education, and government-sponsored health care—that garnered the loyalty of its working-class supporters. Despite severe economic hard times, the Social Democrats also built tens of thousands of government-owned apartment units for the city’s lowest-income and out-of-work residents, charging them less than 4 percent of their incomes for rent. “Red Vienna” became known throughout Europe as a laboratory for innovative municipal socialism.

The city government made it easier to construct workers’ housing projects by purchasing land, removing it from the speculative market. Private landowners who kept their property vacant were subject to high taxes, giving the city more leverage to acquire the land. By 1931, the municipality owned almost one-third of Vienna’s land. The city commissioned some of Europe’s most well-known architects to design these projects, including Richard Neutra, who later gained fame in America as an innovator in progressive housing design.

By 1934, the city had financed and owned 61,175 apartments in 348 projects, housing one-tenth of Vienna’s inhabitants. Although modest in size, the apartments were roomier than what families were used to, with toilets and running water, a kitchen, a living room, and natural light. Residents looked out their windows at gardens and playgrounds. The developments included kindergartens, nurseries, mothers’ advice centers, courtyards, health clinics, libraries, sports facilities, post offices, cooperative stores, bathhouses, cafes, pharmacies, meeting rooms, and gardens (where residents could grow their own food). All this was intended to promote better living conditions and foster a sense of working-class solidarity initially imagined by the self-help settlers movement. Many of them contained works of art—statues, mosaics, fountains, and sculptures—and were named for prominent artistic, political, and intellectual figures. The communal facilities—including child-care centers and laundries—were also intended to encourage the “liberation of housewives.”

Of course, the Red Vienna program was devised not only to provide housing and promote socialist consciousness but also to create jobs in construction and in enterprises that manufactured the windows, doors, sinks, and other building materials.

The fascist takeover of Austria in 1934 ended Red Vienna’s social reforms. After free elections resumed in 1945, however, Vienna’s citizens sought a resurgence of the Social Democratic policies. The demand for housing was dire. During World War II, 87,000 apartments—one-fifth of the city’s housing—were destroyed.

(Press Association via AP Images)

St. Stephen's Cathedral in Vienna, Austria

Between 1947 and 1969, the city built about 100,000 apartments, using a wider variety of design types than during the earlier Red Vienna period, including duplexes, terraced houses, and garden apartment complexes that incorporated kindergartens, schools, multipurpose meeting rooms, health centers, and shops. By the late 1960s, Vienna had solved its most urgent housing problems, including overcrowding and affordability, but the city continued to expand the inventory of social housing. The apartments were spacious, but the communal schools, meeting rooms, health centers, and even swimming pools were still a key component of the program. During the 1960s and 1970s, Vienna’s social housing building spree added about 10,000 apartments a year, although many were built without convenient access to public transit, resulting in a significant increase in traffic congestion.

Over the next two decades, Vienna’s version of urban renewal meant rehabilitating—instead of razing—the city’s oldest apartment buildings. More than 170,000 units—an average of 10,000 a year—were upgraded with central heating, bathrooms, insulation, larger rooms, and elevators. Funding from the national government paid for most of the renovations, which largely took place without having to displace the tenants.

The dismantling of the Soviet Union in the late 1980s triggered a large influx of immigrants from Eastern Europe into Vienna. During the next decade, to accommodate the more than 100,000 new arrivals, the city added 10,000 units a year. Once Vienna built sufficient units to address the influx of immigrants, it continued to expand its social housing stock. Reflecting Austria’s increasing affluence, the average size of Vienna’s apartments has steadily increased, from 237 square feet per person in 1961 to 430 square feet per person today.

The city has significantly expanded its public transit system, which is now inexpensive and comprehensive, linking its pre-war inner-city areas and its outlying neighborhoods. Seventy-four percent of Vienna’s residents commute by public transit—the highest in Europe. Bike and pedestrian lanes are safe and widely used. Sound planning has kept Vienna from the catastrophe of suburban sprawl. Austrians want to live in their capital city, which now houses 1.8 million of the metropolitan area’s 2.6 million people.

 

THE LEGACY OF RED VIENNA, providing decent, affordable housing for all its citizens, regardless of income, persists. Vienna today has about 800,000 housing units. The municipality is Vienna’s largest landlord. It owns about 1,800 apartment complexes with 220,000 rental apartments, housing over 500,000 people, more than one-quarter of the city’s population. In recent years, the city has also nurtured the growth of private nonprofit and limited-profit housing associations, which account for most of the increase in new government-subsidized housing. These associations now own and manage another 140,000 apartments. Most housing complexes are six to eight stories, well-designed, colorful, and filled with communal amenities. Zoning laws and municipal ownership of much of Vienna’s land limits speculation and makes housing construction less expensive.

Vienna spends about 600 million euros ($682 million) a year on social housing, two-thirds of it from national government coffers. In contrast, London spends slightly less, even though its population of 8.7 million is almost five times the size of Vienna.

The nonprofit and limited-profit developers compete for city subsidies and are required to reinvest profits back into the housing. Committees comprised of city officials, community residents, architects, and others decide which projects will receive permits and subsidies based on what Wolfgang Förster, a Vienna resident who chairs the United Nations Economic Commission for Europe’s housing committee, calls the “four pillars” of social housing—good design, strict construction-cost controls, energy-efficient and environmental requirements (such as solar energy and recycling of “gray” water and rainwater), and income mixing. In the United States, politically connected for-profit developers often get favorable treatment in the allocation of government housing subsidies and permits, but Vienna has not experienced such cronyism.

(Thomas Ledl/Wikimedia Commons)

Set on 59 lushly landscaped acres, the Alt-Erlaa complex has 14 swimming pools. Every unit has at least one balcony.

About 5,000 Vienna residents are homeless, but “none of them are on the street,” explains Förster, one of Vienna’s most eminent housing experts. Instead, Förster proudly notes, “We make sure they can stay in temporary housing, where they get the help they need to reintegrate into society so they can live in their own apartments.” (In contrast, Los Angeles, whose population of four million is twice that of Vienna, has 34,189 homeless people, three-quarters of them without any shelter.)

Alt-Erlaa, built between 1973 and 1985, is one of Vienna’s largest social housing complexes, with 3,172 apartments and close to 11,000 residents, a mix of low-income workers, shopkeepers, and affluent professionals, including politicians and professional sports stars. Two-thirds of the apartments have at least three bedrooms. Set on 59 acres, the buildings rise to 27 stories. Lush green spaces and woods keep it from feeling like a fortress. Each unit has at least one balcony. The complex includes two health clinics, three schools, two day-care centers, a gym and fitness center, a church, a shopping mall, a sauna, a solarium, tennis courts, soccer fields, playgrounds, seven indoor swimming pools (located in the basements), seven outdoor swimming pools (on the roofs), two monthly newspapers, a TV station, and a nearby rail station. Owned by a nonprofit association, the complex includes a tenants’ council to represent residents’ interests.

Because social housing is so popular, only one-fifth of Vienna’s homes are owner-occupied. Renting remains attractive in Vienna because tenants have significant rights and control over their housing. Unlike low-income subsidized housing in the United States, residents are not asked to leave if their incomes go up. Tenants do not rent their homes on a month-to-month or even year-to-year basis. Instead, they enjoy unlimited tenure and can even pass on their apartments to their children. Tenants who lose their jobs or have to miss work because of an illness get housing allowances so they can remain in their apartments.

“It’s a cultural thing,” explains Förster. “We don’t think of rental housing as just being for the poor.”

Viennese who live in apartments owned by the municipality or nonprofit associations pay about 25 percent of their household incomes in rent. The typical rent is about $650 a month. These payments do not constitute the same burden they often do in the United States, because other basic services—health care, child care, university tuition, and retirement pensions—are universal and heavily subsidized by the government.

Vienna’s city planners insist that the different kinds of housing exist in the same neighborhoods, guaranteeing a mix of incomes. Thanks to enlightened planning, Vienna has managed to revitalize its older housing, and construct new housing, without triggering either gentrification or suburban sprawl.

Other Western European nations have adopted different versions of social housing, combining municipal ownership, subsidies to nonprofit and limited-profit developers, and rent controls. Some nations have put greater emphasis than others on homeownership, but social housing remains popular and widespread. Denmark and Sweden share more in common with Austria than England and Italy. Countries under conservative governments have reduced government subsidies for housing and encouraged privatization. As a result, in some countries families are paying more for rent and the number of homeless people has surged among both native citizens and recent immigrants. (In the countries of the former Soviet Union, ownership accounts for more than three-quarters of all homes, most of them in large fortress-like complexes with small units and few of the communal amenities found in Western Europe.)

But Austria—and particularly Vienna—is in a league of its own when it comes to social housing. Why do the Viennese support such a robust mixed-income social housing program? Austria’s relatively equal income distribution and low level of poverty (its poverty rate is half that of the United States and its poor are less poor than their American counterparts)—plus low unemployment and crime rates—help create cross-class empathy. But political factors are crucial. Vienna’s housing policy has benefited from the steady leadership of the Social Democratic Party, which has governed the city for most of the past 70 years, even while the federal government has occasionally shifted to the right. Even Austria’s current conservative far-right coalition wouldn’t dare cut federal housing subsidies to Vienna and other regions. Most important, Vienna’s residents are pleased with the results of the city’s century-long social housing program and see no reason to change course.

 

MORE THAN ANY OTHER affluent nation, the United States relies most heavily on private market forces to house its population. Government’s role dates primarily from three turning points. In the late 1800s, local governments began adopting tenement reform laws in order to set building-code standards and regulate housing safety. In the 1920s, cities began adopting local zoning laws to regulate land use. The federal role in housing began during the Depression, when reformers recognized that the private market and philanthropy could not solve the nation’s housing problems. The New Deal adopted policies to regulate banks and support mortgages in order to expand homeownership. It also created the first public housing program to stimulate jobs and provide subsidies to the working class. Housing reformers and union leaders envisioned that public housing would be for the middle class as well as the poor. They pushed for well-designed, mixed-income, government-subsidized housing projects, sponsored by unions, church groups, and other nonprofit organizations as well as government agencies.

(Dominik "Dome"/Flickr)

Alt-Erlaa, built between 1973 and 1985 is one of Vienna's largest social housing complexes, with 3,172 apartments and close to 11,000 residents.

During its first few years, the New Deal built a few model developments that reflected this vision. They included day-care centers and playgrounds, involved residents in cultural and educational activities, and were physically attractive enough that upwardly mobile working-class families wanted to live there.

But the reformers were soon outmaneuvered by the real-estate industry. Developers, real-estate agents, and bankers worried that well-designed and affordable government-sponsored housing would compete with the private sector for middle-class consumers, and warned about the specter of socialism. After World War II, recognizing the pent-up demand for housing and fearing competition from public housing, the industry mobilized a major campaign against the program, promoting government-insured suburban housing instead. With the federal Housing Act of 1949, the industry sabotaged public housing by pressuring Congress to restrict its funding, give local governments discretion over whether and where to locate developments, and limit them to the very poor. Southern senators made sure that local governments had the authority to keep public housing racially segregated.

With limited budgets, and requirements that the cheapest materials be used, many projects were poorly constructed and badly designed—ugly warehouses for the poor that stigmatized “government housing” as housing of last resort. The local housing authorities—owned by local governments but with boards dominated by business and real-estate representatives—often sited public housing developments in areas without adequate stores, transportation, or schools. The sites were often isolated from middle-class neighborhoods, contributing to the concentration of poor people in cities. Few suburbs wanted public housing at all.

In other words, the problems we now associate with public housing were not inevitable. They were due to political choices made in Congress and by local power brokers. Even so, the best-kept secret about public housing is that it actually provides decent, affordable housing for many people. In most cities, there are long waiting lists to get into public housing, which is more affordable than apartments available to the poor in the private housing market.

The high-rise projects, most of them in the largest cities, accounted for many of the most problematic developments and cast a giant shadow on the whole program. Many have been torn down. Most public housing developments today are garden apartments, low-rise walk-ups, and single-family homes or townhouses.

Right-wing politicians nevertheless have used misleading stereotypes about public housing. In the 1980s, the Reagan administration wanted to sell off public housing. After Hurricane Katrina in 2005, Republican Representative Richard Baker was overheard telling lobbyists, “We finally cleaned up public housing in New Orleans. We couldn’t do it, but God did.”

Today, public housing—1.1 million apartments that house about 2.1 million low-income people—constitutes less than 1 percent of the nation’s housing stock. Local housing agencies are required to house the most vulnerable people in their public housing. The average annual income for a public-housing household is $14,753. Without public housing—for which residents pay 30 percent of their incomes, with the federal government paying the rest—they would be living in awful substandard private-sector homes, paying half or more of their income just to keep a roof over their heads, and constantly under the threat of eviction.

The Nixon administration ended construction of new public housing. Since then, the federal government has relied on two other approaches to house the poor—private-sector projects and housing vouchers, often used in tandem in order to get close to the deep affordability provided by traditional public housing.

In the 1970s, the U.S. Department of Housing and Urban Development (HUD) began giving subsidies to private developers to construct low-income housing, but limited the subsidies to 20 years. That initiative added another two million apartments, but some developers subsequently converted these projects to market-rate apartments, so only about one million of them still provide low-income housing. Starting in 1986, Congress invented a new way to bribe the rich to help house the poor—the Low-Income Housing Tax Credit, which gives corporations and wealthy individuals tax breaks to invest in low-income housing projects. The program has added about three million new units in roughly 46,000 projects, but many are ticking time bombs, because the tax breaks end after 15 years.

Housing vouchers have become, by far, the largest federal subsidy program. HUD now provides 2.2 million vouchers to low-income families, who use them to find apartments in the private market. The families pay 30 percent of their income and HUD pays the rest. But HUD puts a ceiling on voucher payments, which leaves many decent apartments in better neighborhoods off-limits to voucher holders.

Federal housing programs tend to concentrate the poor in low-income ghettos in the nation’s cities, since most suburban governments have resisted efforts to spread low-income housing more evenly. Unlike food stamps, housing subsidies are not an entitlement program for the poor. In total, federal housing subsidies provide help to only five million low-income families—about one-fifth of families who are eligible for assistance.

In the past two decades, America’s housing situation has gotten much worse, not only for the poor but also for the middle class. The nation’s homeownership rate is now 64 percent, down from the all-time high of 69 percent in 2004. Millions of homeowners have still not recovered from the 2007 mortgage meltdown created by reckless and abusive Wall Street practices that resulted in an epidemic of foreclosures and huge loss in wealth for many families. The homeownership rate for millennials is much lower than it was for the members of older generations when they were in their twenties and thirties.

The decline in homeownership has increased demand for apartments, but most new rental housing built in recent years has been high-end luxury units. In 2016, the median rent of newly constructed units was $1,478, about half the median renter’s monthly income, but in many metro areas rents are much higher. Nearly half of renters now spend 30 percent or more of their income on rent. More than one in four renters pay over half their incomes just to keep a roof over their heads.

This housing/income squeeze is particularly onerous for the poor. A report by Chris Salviati, “Rental Insecurity: The Threat of Evictions to America’s Renters,” reveals that more than one in four renters with incomes below $30,000 were unable to pay their full rent in at least one of the previous three months.

There is no state in the country where a minimum-wage worker working full-time can afford a two-bedroom apartment at the fair market rent, according to the National Low Income Housing Coalition’s “Out of Reach” report. In order to afford a modest two-bedroom apartment, renters need to earn a wage of $21.21 an hour. This “housing wage” is much higher in some areas.

Since Reagan began slashing federal housing assistance for the poor, it has been difficult for housing advocates to convince Congress to maintain, much less increase, HUD’s budget for subsidized housing. But it turns out that the Internal Revenue Service, not HUD, is  the nation’s largest housing assistance agency. In 2017, the federal government provided about $130 billion in tax breaks for homeowners—almost twice the size of HUD’s total budget. That includes about $64 billion in tax deductions for mortgage interest, $33 billion for local property taxes, and $32 billion on the capital gains when these homeowners sell their houses.

These tax breaks primarily benefit the wealthiest Americans with the most expensive homes. More than four-fifths of the value of these homeowner tax breaks goes to households with incomes of more than $100,000, and more than two-fifths goes to families with incomes above $200,000. Most low-income and working-class homeowners get crumbs—a few hundred dollars a year in tax breaks. Overall, in other words, federal housing subsidies disproportionately help rich investors and homeowners, not the poor or the middle class. Housing activists have called on Congress to limit housing tax breaks for the wealthy and redirect those funds to expand social housing.

Americans’ preference for homeownership is not only a legacy of the Founders’ strong belief in property ownership, but also the result of our nation’s weak tenants’ rights laws. For the almost two-thirds of Americans who own their own homes, it is their major asset and principal source of wealth. They view their home as an investment that will appreciate as housing prices rise. In the absence of a strong welfare state like those in Western Europe, they consider their homes a buffer for when they retire, face extraordinary medical bills, lose their job, or need to borrow money to pay for their children’s college education. But as we’ve seen in the wake of the mortgage meltdown, there’s no guarantee that home prices will always rise; in fact, they can plummet.

Public policies can shift the relative attractiveness of owning and renting. American homeowners take for granted that they can make a profit from the sale of their homes. Landlords assume that they can raise rents to any level if there are desperate consumers willing to pay. We associate the problem of eviction with renters. Yet if homeowners do not fulfill their obligation to pay their mortgage, they can lose their homes to banks.

But, as Vienna’s example shows, laws can confer on renters many of the benefits that we typically associate with ownership. For example, cities with rent-control laws bestow additional rights on tenants in terms of security and affordability.

 

HOUSING NEED NOT BE a simple choice between homeownership and renting. Even in the United States, there are embryonic variants of social housing—such as limited-equity cooperatives, mutual housing associations, and homes built as part of community land trusts—that eliminate or dramatically reduce profit-taking, viewing housing as a social provision rather than as a commodity. Residents trade secure tenure and affordable costs in exchange for giving up the opportunity to speculate on the value of their homes. Social housing involves long-term affordability, government subsidies, and, in the best-case scenarios, mixed-income projects.

Housing cooperatives, for example, share many attributes of homeownership. In a co-op, the residents hold shares in a corporation that owns the building(s). The shareholders enjoy the same benefits as traditional homeowners. But in limited-equity cooperatives, the corporation limits the extent to which shareholders may profit from the sale of their units. Emily Thaden, director of national policy for Grounded Solutions Network, estimates that the United States has between 165,000 and 225,000 units of resident-owned limited-equity housing. About 165 community land trusts sponsor another 32,000 units of rental and ownership housing with similar provisions.

Many local governments provide subsidies to help low-income families purchase homes, but impose “deed restrictions” that limit how much owners can sell these units for and require them to sell to other low-income households—provisions meant to limit speculation and preserve long-term affordability. According to Thaden, local governments have imposed deed restrictions on about 200,000 to 250,000 units to ensure long-term affordability. Many of these are the result of local inclusionary zoning laws that require developers of market-rate apartments and condos to set aside some units—rental and for-sale—for low- and moderate-income households.

Social housing is much more widespread in Europe than in the United States. In this country, between 600,000 and 750,000 shared-equity or deed-restricted units, plus the 1.1 million units of public housing, can be called social housing. “They represent an innovation that can become a foundation for a new direction in national housing policy,” says Thaden.

Rent control is a key feature of social housing in Europe, but only a handful of American cities—mostly in New York, California, and New Jersey—have some form of rent control, protecting between five million and ten million tenants from arbitrary rent hikes and evictions. This may soon change. Because more Americans view homeownership as increasingly out of reach, there’s now a burgeoning new renters’-rights movement spreading across the country, demanding “less rent, more control.”

No other major industrial nation has permitted the level of destitution and decay found in the United States, and few have allowed decent housing to get so far beyond the economic reach of so many families. The Vienna experience can teach us that there is a better way, and that social housing should be a big part of the solution.  

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