Housing Voyages of the Public Enterprise

The FWD #189 • 828 Words

With limited federal funds, local and state governments are exploring new ways to address the housing crisis. 

Local governments across the country are facing rising pressure to address their housing problems. We’ve done plenty of recent coverage on the nascent zoning revolution, and are also keeping an eye on the growing examples of publicly-owned land being dedicated to affordable housing. These help solve the question of where new homes can go—but what about the how?

One answer might be for the public sector to become a developer themselves. But instead of the public housing model we’re familiar with—which has a sordid history in the U.S.—there’s another approach gaining traction.

Public enterprises for housing

The new model for public sector residential development is the public enterprise for housing. These are municipally owned and operated entities capable of self-financing projects that can achieve a wide range of affordability.

Keep in mind that public enterprises providing core services isn’t a new concept, even here in Virginia. Along with many public water and gas utilities, there are also more than a dozen municipal electric providers in the state. The Greater Richmond Transit Company is also a government-owned public service corporation.

Elsewhere, Ohio’s largest public power company—Cleveland Public Power—is government-owned. Another example is Seattle’s Pike Place Market, a food market and small business incubator, which is run by a public development authority.

In his 2021 essay “Public Housing for All”, Paul Williams puts it this way:

“If a [public enterprise for housing] built or bought a luxury apartment building, instead of those rents going into [private investment funds], they could instead flow into the municipal housing development fund where they help finance low-income and mixed-income housing. Instead of hoping Congress will support a big new grant every few decades, you’d be setting up a stream of passive income by just collecting high-income households’ rent checks every month.”

This system is a mainstay in Europe and many other nations across the world. In this “social housing” model, municipalities develop apartments where market rents from higher-income tenants offset below-market rents paid by lower-income residents.

Around the globe,  there is no single definition of “social housing”. But in most countries it includes both government- and nonprofit-owned housing for a mix of incomes that is permanently affordable. Multiple speakers at our past xChats events (Affordable Housing Beyond Our Borders and The Single-Stair Case) have shared noteworthy examples of social housing in their presentations.

Here in America, this model would take the uncertainty and bureaucracy of federal funding out of the equation and instead puts control—and potential profits—back into the hands of local government.

Social housing across the Potomac

Montgomery County, MD’s local public housing authority, the Housing Opportunities Commission (HOC), has already been leveraging local dollars to develop its own mixed-income housing. In 2021, the County seeded a $50 million Housing Production Fund. With this fund, HOC estimates that it can develop nearly 8,800 units of housing, 30% of which will be income-restricted, while the remaining will be market rate.

This mixed-income approach will allow for self-sustaining affordability across Housing Production Fund projects. Projects by HOC are already under construction with the Fund and are leveraging other housing assistance programs such as Rental Assistance Demonstration (RAD).

Other localities are also seeing the value of the public option. This past February, Seattle voters approved Initiative 135, a ballot measure that creates the Seattle Social Housing Developer, a public development authority (PDA) to develop, own, and maintain publicly financed mixed-income housing developments.

State housing enterprises in the works

States are also realizing that they can develop housing too. In June 2022, Rhode Island passed legislation for a pilot program that would use $10 million in COVID-19 stimulus money to build mixed-income public housing through its state housing finance agency.

California could follow suit with AB 309, The Social Housing Act. This bill would establish the intent to create the California Housing Authority, an independent state agency with the ability to fund, build, and manage affordable, mixed-income rental and homeownership opportunities. This bill passed an initial committee vote in April and has a long road ahead, but its patron notes that “existing strategies to address the lack of affordable housing have not produced nearly enough to meet demand.”

Meanwhile, Colorado already passed legislation to create the Colorado Workforce Housing Authority and Hawaii passed several bills to make it easier for the Hawaii Public Housing Authority to create mixed-income, mixed-finance housing developments.

Over-hyped or here to stay?

The wave of localities and states expanding their tools to create mixed-income housing reflects how housing access and affordability is a growing issue across the political and income spectrum. But before you write these efforts off as the housing fad du jour, keep in mind that a recent poll showed that 60% of likely voters supported a public option for housing. Nonprofits, private developers, and public enterprises might just be what’s needed to make real progress on affordability.

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