This week, Nick and Goldy discuss the concept of social housing with Vox Policy Correspondent Rachel Cohen. They explore how local government investments in mixed-income housing can keep cities affordable for the middle class. Drawing from her reporting, Cohen spotlights the innovative social housing experiment in Montgomery County, Maryland, which demonstrates how well-designed public housing can rival private market options without falling prey to stigma or inefficiency. They also explore the financial benefits of publicly owned housing and its potential to alleviate the widespread housing crisis by providing a sustainable, scalable solution that benefits low- and middle-income earners by delivering lasting affordability.
Rachel Cohen is a policy correspondent for Vox Media. She focuses on U.S. social policy, covering issues such as education, abortion, economic policy, and housing. Rachel has been covering social policy issues for more than a decade, with her reporting published in more than two dozen national outlets, including the New York Times, the Atlantic, Bloomberg, the Daily Beast, and the Washington Post.
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Further reading:
What if public housing were for everyone?
One possible housing crisis solution? A new kind of public housing for all income levels
An Innovative Financing Model for Affordable Housing
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The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
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It’s time to build our economy from the bottom up and from the middle out, not the top down.
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Middle out economics is the answer.
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Nick Hanauer:
Goldy, today we’re going to talk about one of our favorite subjects, and when you’re right, you’re right. The world is definitely catching up to an idea that we’ve been kicking around for a long time, which is this idea of social housing, the idea of using government dollars, not necessarily tax dollars, but borrowed government money to develop workforce housing in cities and use the public’s power of the purse effectively to build housing at scale and to keep the price of it at affordable rates.
Goldy:
When you say workforce housing, what we mean is housing affordable to the middle class.
Nick Hanauer:
Yes, correct.
Goldy:
To ordinary working people.
Nick Hanauer:
Humans.
Goldy:
People who aren’t poor, people who aren’t-
Nick Hanauer:
Rich.
Goldy:
Rich like you. Just people in the middle earning somewhere in that 80 to 120% of area median income. The middle middle class, which nothing is built for them.
Nick Hanauer:
That’s right. Yeah.
Goldy:
Nothing. I mean, there’s some subsidies for very low income housing. There’s a shit ton of expensive housing being built, but why would you build towards the middle when you can make more money building higher up?
Nick Hanauer:
At the top, yeah.
Goldy:
Yeah,
Nick Hanauer:
Correct. Which is where the market goes and why we have the problems that we do. But today we get to talk to a journalist named Rachel Cohen is a reporter who writes for Vox Media, who sort of focuses on these sorts of things. Rachel has written in particular about the experiments that the actual things that are going on in Montgomery County, Maryland. Actually building housing like this, which is very exciting. I think. With that, let’s talk to Rachel.
Rachel Cohen:
Hi, I am Rachel Cohen. I am a policy correspondent at Vox.com and at Vox I write about housing and homelessness and child care and abortion rights and other sort of aspects of social policy in the US and I’ve been really excited to be covering this idea about mixed income social housing in the US and yeah, I’m really excited to talk about it with you.
Goldy:
We saw an article you wrote for Vox on social housing as a solution to our housing affordability crisis. Why don’t we start by defining what social housing is? Because I’ve always felt that term doesn’t adequately describe the concept.
Rachel Cohen:
Yeah, and the concept, the term people do use different words, and I think part of that also has to do with the American historical context. So essentially what it is is housing that is a mix of market rate rental housing and subsidized housing together. Now some housing, in some countries, they use the term social housing more frequently, like Singapore and Vienna. Those are places we see it. Social housing is used in some places in the US, but some people also are calling it publicly developed housing or mixed income social housing.
Rachel Cohen:
There’s sort of all these different terms and part of it is that people are trying to avoid calling it public housing, even though that could be a term that would be more comfortable in another place. But there’s so much stigma and baggage with the federal Section 9 Public Housing Program in the United States that people are trying to find an alternative term. But essentially it’s publicly developed and in some cases publicly owned housing.
Nick Hanauer:
Yeah, because we screwed that old thing up so badly.
Rachel Cohen:
Exactly. Exactly.
Goldy:
Not that we’ve built any for decades, but personally I’ve adopted the term a public option for housing. I understand that the word public is still weighted, but I feel it’s less weighted than the word social for many reasons, because when I say social housing to people, they think, “Oh, oh, it’s a commune.” It’s like, right? It’s only going to be a bunch of lefties living together and cooking meals communally because it’s social or something.
Goldy:
And of course, that’s not what we’re talking about at all. What it tends to have in common is that it is either publicly owned or it is in some way restricted in terms of what private or not-for-profit owners can do in terms of jacking up rents.
Rachel Cohen:
Yeah, I completely agree. I don’t find social housing to be very clarifying when I’m talking to folks. I think it does create that kind of, sort of campy idea when actually these could be completely private. You don’t have to talk to your neighbors if you live in these apartment buildings. I mean, hopefully you might, but you don’t have to.
Nick Hanauer:
So can I level set just a little bit more because I think it’s so important. So we have been talking about and thinking about this idea for quite a long time now and have felt strongly like it is kind of the answer to affordable housing in… Certainly here, but it’s the best solution we’ve been able to find from around the world.
Nick Hanauer:
But the economic common denominator of this idea is that you use public money, borrowed public money effectively to develop housing and crucially, the public continues to own that housing effectively in perpetuity, because the problem that we’re trying to address is maintaining housing at rents that people can afford, rather than putting it in the hands of people who, for obvious reasons as a private owner, would want to maximize the return on that investment over time by raising rents to the very limit of what the market will bear. So do you agree with that way of understanding this idea?
Rachel Cohen:
I think one piece of it that’s important to think about is that unlike traditional subsidized housing, the government in building these, mixing some social housing, public housing options actually can make returns too. It’s more cost-effective. They’re not just spending in this way, they have access to certain kinds of financing that makes it… They’re basically playing the same role as the private developer in New York, but they’re not seeking as great of returns as maybe that company.
Rachel Cohen:
So I think something that has been really appealing to housing officials in cities about this model is they actually see this as something that they can do on top of the affordable housing strategies they were already doing and it can actually be sort of a smart financial move for the city, because they’re increasing their assets, they can collect rents, they’re not going to be just spending at a loss over decades, which is new in that-
Nick Hanauer:
Right, right. And I think that what we in particular wanted to explore with you because you’ve done so much research on this and talked to so many people is the variety of business models that are available. So if you don’t mind, let me just posit one, which seems like for us, like the baseline idea, which is you use borrowed.
Nick Hanauer:
So we’re working with King County in Washington state, in the Seattle area to develop a program like this and the baseline idea is to use the county’s bonding capacity, which is effectively infinite. I mean billions and billions are available.
Goldy:
It’s just, it’s unused-
Nick Hanauer:
Instead of… Yeah. And to build first-rate workforce housing, ideally by the way, as you mentioned in your piece on land that they already own, because all these cities and counties own all this land and then you can rent that, those units to people at market rates and defray the cost in the same way that a developer would defray the cost of building the unit.
Nick Hanauer:
But the baseline idea for us is, and then the county continues to own it forever in some kind of entity, like a housing authority, but the subsidy comes in never raising the rents or raising the rents only as much as you need to continue to maintain the property. So on day one, it’s at market rates, but 20 years later you may be paying 20% of market rates for a really great place to live in a very, very desirable location. But then from that baseline you can do anything you want.
Nick Hanauer:
So for example, you could raise rents on affluent families and use that extra cash flow to subsidize in families that were below the poverty line in the same building, for example. Or you could let the rents rise, create an asset which cash flows in this very good way and now the city or the public actually has this really, really attractive asset that they could monetize in a variety of ways. They could sell, they could borrow against whatever it is and use that money to help other people or pay for other services.
Nick Hanauer:
And then there’s a million kind of little variations in between those things that I think are a bit reflected in the piece that you wrote. People are experimenting with flavors of how you would do this. Does that ring true? Is that…
Rachel Cohen:
Yeah, and I think that is really one of the exciting parts of this because I think cities are taking a look at their own powers that they have not really exercised very much in a long time and they’re taking a look at maybe land that they own or land that they could acquire cheaply, because they have certain tools and it just does not hurt to have those kinds of assets under your belt, because you can use them for so many different purposes.
Rachel Cohen:
I live in Washington DC and the city is able to take a fire station that they don’t necessarily need anymore and turn it into a homeless shelter, because they own that and they can do that and there’s just so many things that you can do by having ownership over facilities and land and yeah, and I think to your point about experimenting, in one early criticism, I was hearing, although I think there’s becoming greater understanding now that is not an inherent problem or it can be worked around, is some people worry, “Well, this model can’t help people who need deeper subsidies who are at the lowest level of the enter spectrum.”
Rachel Cohen:
And I think what cities are experimenting with now is, “Oh, we could do this model.” And then they’re also exploring ways to layer other programs and subsidies on top to help get a broader range of incomes that make it pencil out and I think we’re still sort of at the beginning stages of figuring out all these different ways, but there there’s just a lot that can be done and it’s very exciting, I think, to see that so many cities are kind of stepping up to that.
Goldy:
I’ll tell you one thing that’s already happening in King County. The King County Housing Authority for years has been… Well, they’ve only been building low income housing. They have, at times, acquired existing affordable housing, median income housing, to keep it from being converted into higher income and so they own this stock of market rates somewhat slightly below market rate, middle income housing and they have been putting their voucher clients into the housing that they already own.
Goldy:
One, because it’s hard for them to find housing since a lot of landlords won’t accept vouchers and two, because they’re charging lower rents for the same types of properties, they save so much money putting voucher clients into this middle income housing that they actually are able to serve a couple of hundred more clients with the federal funds they get than they otherwise would.
Goldy:
So while this model isn’t a subsidized model, it ends up being something which can allow you to more efficiently use the subsidies you already have.
Nick Hanauer:
Yeah. But I think the point that Rachel raised, I’d love to… I’d like to underscore the dynamics of that because I think what’s really important for folks to consider is that this approach that we have to… Let me step back and say that we have to acknowledge that there are two separate but related problems we are trying to solve when we’re talking about housing.
Nick Hanauer:
The first is just enough normal workforce housing to fit everybody in, because for a lot of places in the country, the populations have grown way, way, way, way faster than our ability to build housing in those places. Like King County for example. I think we’re down 200,000 units or something like that because it grew so fast.
Nick Hanauer:
And so that’s the first problem. And the second problem is, well, I mean 50 years of neoliberalism, which impoverished so many people that we need a huge stock of low-income housing, but it is very expensive to provide low-income housing to people because you have to subsidize it. It is effectively free to build workforce housing using borrowed public money and charging market rates.
Goldy:
Rent sufficient to cover the bonds-
Nick Hanauer:
Correct.
Goldy:
And operations and-
Nick Hanauer:
That’s right.
Goldy:
And [inaudible 00:15:15] and so forth.
Nick Hanauer:
So for the public, there’s no real big outlay for the latter, but for the former, subsidized housing, of course, is very expensive. But over time, the more housing you build, the easier it is to subsidize people into it, I guess.
Rachel Cohen:
Yeah. And I think one of the interesting things to me about watching cities kind of perk up as they grasp and start to understand this idea more is this doesn’t take away from the funding that they have to build live tech credits or whatever, but this is something they can do on top of that and as those resources have been exhausted and they’re all hoping the federal government will increase subsidies to build more affordable housing, and maybe they will, but they haven’t really, it’s been very modest.
Rachel Cohen:
And so this is a tool to add to the housing supply and in some case, add to some of the affordable housing supply, that they can do in the face of federal government not acting and it doesn’t mean, obviously, the federal government shouldn’t act, but I think they’re sort of realizing, “Oh, wait-“
Nick Hanauer:
We can do this.
Rachel Cohen:
We don’t have to just sit on our hands.
Goldy:
Right.
Nick Hanauer:
Yeah. No, for sure.
Goldy:
And just I want to interrupt just for listeners. When Rachel said LIHTC, that’s the low income housing tax credit, which is the main means by which the federal government subsidizes the building of low income housing. When we say low income, we generally mean very low income housing.
Goldy:
But that’s not what we’re talking about here. Building again, we started off by talking about the baggage that the term public housing has. If you could, Rachel, talk a little bit about Montgomery County, Maryland, what they’re building and what that housing looks like, because I think it’ll surprise people who aren’t familiar with it. The type of housing that is being built as under this term social housing right now.
Rachel Cohen:
Yeah. So Montgomery County, Maryland, which is a suburb basically just outside of Washington DC, it is kind of the furthest along right now in moving this model forward, although we’ve really seen a lot more people step up over the last 18 months. But Montgomery County deservedly gets a lot of credit and attention, because they’ve been doing this and now they are at the point where they actually have these… This isn’t just an idea on paper, they have buildings built that were publicly developed that are leased up and working as we’re talking [inaudible 00:18:01].
Rachel Cohen:
So that’s what makes… A lot of people have been looking to Montgomery County, talking to their housing officials, trying to figure out how to do it and so it’s very common to hear the Montgomery County model phrase in this space and I think something that they had advantage to start early is that they had someone on staff with this real estate financing background who knew how to do it.
Rachel Cohen:
And a lot of housing authorities do have the legal authority to do some of this stuff, but they didn’t actually have any staff with that knowledge on board. So that’s sort of how they had started. But to also, I guess, to add to that, Maryland recently passed a law to help other jurisdictions in the state do what Montgomery County is doing to help spread that kind of knowledge and capacity.
Rachel Cohen:
So I think a common thing that has happened in the last year, some people like to say, “Oh, well it couldn’t work where we live, because we’re not as… Montgomery County has more money or they’re more affluent. It’s just not possible.” And I think that’s not true. I think that there’s a lot of people right now trying to figure out how can we spread the playbook on how to do this and how do we help local housing agencies feel more empowered? And we’re seeing that, that’s why recently Chattanooga stepped up, Atlanta stepped up.
Goldy:
I’d like to know just a description for our listeners about what the actual housing they’ve built looks like as opposed to this concept of public housing as being dirty, graffitied, towers with broken elevators, the stuff they’re building, what it looks like compared to what you might rent on the private market.
Rachel Cohen:
I mean, it looks like something you might rent on the private market. It honestly, it looks like a nice apartment building. I would definitely live there and you can walk around there, they have building units near transit. They have these glistening lobbies, like these sleek kitchens. I have some photos in my article of one that opened in April 2023. It’s this 268 unit apartment building and it looks so nice. I think if you didn’t know that some of it was developed by the government when you walked in, you would have no idea if no one told you, because it just looks like a normal nice rental building.
Rachel Cohen:
And that was their goal. They wanted to have… They have a fitness center, they have multiple gathering spaces, they even have a courtyard pool and I think part of their goal was to make something that is just nice and it’s not something that you’re stigmatizing. There’s no reason that government developed housing has to look bad. In fact, we know how to make it look good and so I think that’s a very powerful idea and it’s going to take a long time to get people to think public housing is not just Chicago in the sixties.
Nick Hanauer:
Cabrini Green.
Rachel Cohen:
Yeah.
Nick Hanauer:
Yeah, yeah.
Rachel Cohen:
But I think every time there’s a new case example that we can point to that is going to help and pretty soon it’s going to be, I think, hard to argue that governments all across the country can’t do this.
Nick Hanauer:
Can you talk a little bit more about the differences in approach that people are taking from your research? What do they do? So they’re doing certain thing in Montgomery, they’re doing other things in Boston, Atlanta, it’s all sort of variations on a theme, but what are the differences?
Rachel Cohen:
Yeah. So in Atlanta, they created this kind of new entity that’s going to be sort of managing and overseeing it, whereas in Montgomery County, they had existing infrastructure already when they started to change how they were. A lot of it has to kind of do with, “Okay, what’s going to be the entity that’s sort of working with these various different partners and looking at these bids?”
Rachel Cohen:
And in Rhode Island, for example, they’re looking to make a state level public developer, which is a little different than we’ve seen in some other states. So I think-
Nick Hanauer:
Yeah, but it’s a county-sized state.
Rachel Cohen:
That’s true, that’s true. But I think the idea is some places you’re seeing more interest from the state to get involved. So we are seeing that a little bit in Massachusetts, although they’re not fully there yet, but you could have states getting, sort of lending assistance, like we just saw in Maryland you could have it just be on a city or county basis. They might be integrating it with their local housing authority or maybe they make some sort of new public-private corporation that helps lead these projects.
Rachel Cohen:
There’s definitely a lot of different ways, and I think… There’s this one thing called the Center for Public Enterprise, and they’ve been really leading a lot of the intellectual work and working with city agencies and I think we’re going to continue to see a playbook model of best practices emerge. I know next week there’s Bloomberg Philanthropy and the Aspen Institute are having their annual city lab conference and they’re flying 500 mayors out there.
Rachel Cohen:
And I know there’s actually going to be a panel on this idea there. They’re bringing someone from Montgomery County and someone from Atlanta and they’re going to have someone, I think, from Singapore talk about social housing. So I think that is also really encouraging how they’re spotlighting the idea next week.
Nick Hanauer:
Why do you think all of a sudden there’s this and talk about this? And by all of a sudden, I really mean over the last year or two, because like I said, I’ve been looking at this for about 12 years and I can tell you when I first started talking and writing about it got blank stares and eye rolls.
Rachel Cohen:
Yeah. I’m also really interested to hear where you first started paying attention to it. But I think the reason, so I think there’s a couple of reasons why it’s gotten big in the last year. The first is that Montgomery County, as I said, actually just made it a reality. It was no longer sort of just an idea. They could finally point to this beautiful building that people run and live in.
Rachel Cohen:
And so it was something that other cities could tour and they did host, actually, sort this national convening for other interested cities. I think after my article came out in February and I had written about it, I wrote about the idea in August 2022 before, when all these ideas were still on paper and then I wrote about it again this past February and after that someone from the White House I know then reached out to Montgomery County and they had a meeting and then it suddenly became sort of a part of the Biden budget that was released a month later.
Rachel Cohen:
And the other big factor hanging over all this is the financial situation our country’s been in with really high interest rates, it’s been really… And our growing affordable housing shortage, it’s been really hard, especially over the last two years with inflation and interest rates for private financing on housing projects to go forward.
Rachel Cohen:
And a lot of deals have fallen apart even though we know we need to build more housing, the rate of return that a lot of these private investors want to see have really been hard to pencil out and so they haven’t been happening and that has, I think, motivated a lot more cities and people to be like, “Well, what else can we do?” And really one of the cool things about this model is that you can make deals in times of higher interest rates.
Nick Hanauer:
Right. Well that, by the way, I talked about King County acquiring affordable housing. One of the ways they’ve been able to do it is they are able to move quickly and the housing authority had the cash lined up and could move before private developers could put together the funding, which is a huge advantage for local governments since they have access to this, to the bond markets in the way that private investors don’t.
Rachel Cohen:
Yeah, and I imagine, I mean we’re not quite there yet, but you can imagine in five or eight or 10 years if this becomes more common, if we see just a wider range of cities and counties doing this, then a lot of people will be able to move even faster, because there will be just so many more people and practices around to model it.
Nick Hanauer:
But to be clear, I mean, I think that what’s really important for listeners to take away is that this is… The only places where there seems to be not a crisis of housing, both availability and affordability, are in places on planet earth that have really committed to some version of this model, because just letting the market address this has not worked outside of a dramatic downturn in the economy. Like you show me a place where the economy is collapsing, I will show you plenty of affordable housing.
Goldy:
Which will be scooped up by private equity in order to maximize profits down the road.
Nick Hanauer:
Yes.
Goldy:
Which is what happened after the housing bubble collapsed.
Nick Hanauer:
That’s right. But absent collapse in the economy, you show me a normal fast-growing city, I will show you a housing shortage and a housing affordability crisis, because the math just can’t work any other way. The way in which the economic feedback loops work.
Rachel Cohen:
Yeah, there’s a real market failure.
Nick Hanauer:
It is a total market failure. If you want to have a city where housing is abundant and affordable, the market will not fix this problem. Again, assuming that the city is doing well. If the city has gone into a crisis like Detroit, then of course all bets are off. But-
Goldy:
That’s not what I read in my econ 101 textbook.
Nick Hanauer:
Yeah, I know.
Goldy:
We should leave this to the market, because the market is going to build it more efficiently and allocate resources to those who value it most. And that’s why there’s people who can’t, don’t have housing. They just don’t value it the way you do.
Nick Hanauer:
Exactly.
Goldy:
I’m wondering, Rachel, when you talk about this, you write about this, what right now is the biggest pushback that you’re hearing? The main things with people? I grew up in Philadelphia and I lived in New York and I can tell you my concern there, which I don’t have in Seattle, is, “Oh, my God. Those governments are so corrupt. Can I really trust them to do this or are they just going to give sweetheart deals to their buddies?” But after I hear from you, I’ll tell you the big pushback I’ve heard. What have you heard?
Rachel Cohen:
So they kind of range it. So there’s actually people who are more on the YIMBY, pro housing supply that I think have been less enthusiastic about this idea than I think it merits because they are worried that this is going to take away energy and motivations for these other housing supply reforms. We need to do zoning and things like that and so there’s kind of this competitive feeling.
Rachel Cohen:
I don’t think that has merit, because if you actually look at who all the people are in these cities that are doing this idea already, there are already people who are for zoning reform and want to help build more housing. They’re not exclusive ideas. There’s just, I think, some people are worried because they’ve talked themselves into the idea that zoning is the only or the most important solution and so they feel weird about other solutions coming on board. I think we have-
Goldy:
I heard that. I’ve heard that. That’s one of the ones that I got back. Sound familiar, Nick? It’s land use reform is the answer and then the market will fix this.
Nick Hanauer:
Yes. I know
Goldy:
This is just getting in the way of what needs to be done. What else have you heard, Rachel?
Rachel Cohen:
I mean, I mentioned this earlier in the show, but I think that we are going to see it at least for the next couple of years and then maybe there will be enough case studies to advance it. But I think there’s just a lot of people who sort of are like, “Well, that’s something Montgomery County can do, but that’s not going to be helpful for me or that’s not going to be helpful for most places in the city.”
Rachel Cohen:
And they’re sort of a rich blue area that can do things that no one else can and I think it’s just going to take more examples to counter that. I don’t think it’s true, but I think right now there is that perception from a lot of places. I don’t know if that’s something you guys have heard.
Goldy:
Well, we’re one of those areas like Montgomery County where we have a lot of affluence and also, I can’t say it’s necessarily always a competent local government, but zero corruption. There just aren’t people out there personally enriching themselves. I mean, it occasionally happens, but we don’t have a culture of that out here. Very, very different from the East Coast. The big thing I’ve heard, and partially it’s the circles I travel in, is really angry pushback from the left.
Goldy:
They think this is immoral that we are not focusing on the most vulnerable first and that if we can spend a billion dollars building housing that is affordable to people earning between 80 and 120% of area median income, why aren’t we spending that billion dollars on the people who need it most? And of course the answer is because the money’s not available for that, because this isn’t a subsidy that the bonds need to be repaid by the rent. We’re bonding against future rent.
Goldy:
But when I say, but over the next 20, 30 years as we dramatically increase the housing supply, it’s going to benefit everybody, that’s too slow. This is just a totally immoral approach to our housing crisis and it’s coming from inside the house, Nick.
Nick Hanauer:
That’s right. No, for sure. I think, yeah, certainly in a left leaning city, the enemies of this will be the far left who believe that every dollar of public spending should be devoted to helping the people at the bottom of the spectrum and I don’t disagree that those folks need help, but this is a little bit of a marshmallow test. If you do this for a while, right?
Nick Hanauer:
If you commit public borrow dollars to this at scale, the problem for the folks at the bottom of the spectrum in the future decline dramatically. That’s how you solve the problem is you build enough of this housing and keep it out of the market so that 10 or 20 years later, you have enough housing for everybody and you have all the housing in the world that you need to either just let people rent at those lower rates or subsidize them into, and then of course, on the right, you have all the market fundamentalists, the people, the property developers who don’t want the state intervening.
Nick Hanauer:
And because I think that one of the biggest benefits of this over time at scale is that it puts a huge amount of downward pressure on the private market, because in a city where there are 40,000 or 50,000 units of this housing available at rates half or a third less than the sort of going rate, well, that changes the going rate. Right? That really, really has a big effect on what people can charge for privately held apartment buildings or what have you and I think, again, I think that’s to the benefit for the public.
Nick Hanauer:
But for sure, if you’re a person who owns a ton of apartment buildings, the last thing you want is for a ton more to be built and for them to be cheaper than yours.
Goldy:
Or if you’re private equity who scooped up a bunch of buildings.
Nick Hanauer:
Yeah, right. But anyway, I…
Rachel Cohen:
And just on the point about people on the far left wanting it to go elsewhere, I do think they’re missing often a benefit of this model, which is that we see all the time that when affordable housing units are built with low income housing tax credits, which in some cases are the best thing available, and I’m not saying we shouldn’t use them, but they do often transition to fully market rate when the tax credits expire. And this is a way to build housing that’s not going to expire in 15, 30 years and it stays in public ownership.
Rachel Cohen:
And so there’s this element to this model that helps strengthen, I think, the left and progressive visions for cities and it doesn’t exclude then building those tax credits if they’re available to build. But I don’t know. I think we do have a problem where a lot of our affordable housing stock has turned over and now is no longer affordable.
Goldy:
I will leave you with a metaphor that might be useful to explain this before we get to the final questions. Rachel, you wanted to know how this idea came to my attention, and it was when I was a reporter for the Stranger, a local alt weekly, covering a proposed arena deal. It was a privately funded arena, but essentially the financing mechanism for it was the city and the county would issue bonds to build it and then the private owner would pay rent to pay off those bonds.
Goldy:
And he was guaranteeing that he would pay enough rent, there’d be enough rent and taxes from the arena to service the bonds and the city would ultimately own the arena and as I looked into it, I was trying to figure out what the advantage was doing it this way and I realized, “Wait, so if we can bond against rents to build a basketball arena, why can’t we bond against rents to build housing?” And I realized we had social housing all over the country, but it was for basketball, baseball, football and hockey teams, not for people.
Goldy:
We were already using this model, whereas elsewhere in the world, we were using that financing model to build housing and it just seems so obvious to me. So when people say, “Why aren’t we already doing it?” Well, we are doing it. We’ve been doing it for decades. We’ve just been doing it for stadia and arenas.
Rachel Cohen:
That’s a good point. That’s a really good point.
Goldy:
Nick, you want to get to the final questions?
Nick Hanauer:
Couple of final questions. First is benevolent dictator. So if you were in charge of the world and were relatively unconstrained and cared about this issue, what would you do? What would you recommend maybe at a federal level that we should do?
Rachel Cohen:
I guess, I mean I think probably would be very helpful is giving more local governments capacity and expertise in some of these financing deals, which they’re legally, most of them, if not all of them, are allowed to do, but just they haven’t really done it. It hasn’t been a muscle that a lot of these agencies have exercised in the last couple of decades and I think that can change and I guess I do want to just say why.
Rachel Cohen:
Part of it is because state governments and local governments have just really relied on the federal government for leading all of that public housing building since the sixties and they sort of let the federal government take over. They took a step back and then when Congress under Reagan and Clinton slashed the budgets, no one really then stepped back up to fill the void.
Rachel Cohen:
So I think if I had a magic wand, I would give all these state and local governments kind of the push to lean back into what they previously did and can do again and might just need a little bit of training and help and maybe some new staffers with a certain set of skill sets. Because really, they’ve just been doing a lot of subsidies and vouchers and things like that, which is important, but I think they could do more.
Nick Hanauer:
And one final question, why do you do this work?
Rachel Cohen:
It’s corny, but I really do believe that this whole democracy thing doesn’t work without people having the best information that they can and I really do, I cover problems, but I’m really interested in finding practical, good solutions to the problems and so yeah, I feel really lucky that I get to learn about a lot of different policy ideas and then lean into ones that I think actually will make a difference.
Nick Hanauer:
Well, thank you so much for being with us and good luck on your work on this issue.
Goldy:
Yeah.
Rachel Cohen:
Thank you. Thank you for having me.
Nick Hanauer:
Goldy, I didn’t know that’s where that whole story about the stadiums, that’s where your instinct came from.
Goldy:
Yeah, it was the Soto Arena, the Hanson Arena.
Nick Hanauer:
Yeah. I remember.
Goldy:
If you remember, it was originally, it was the city, and then they said but if they also get a hockey team, then a certain amount of money will be kicked in from, by King County. And I could not figure out why they needed King County’s involvement in this. And it was simply because Seattle has taxing authority, so they use their bonding capacity and there’s a limit to how much they can use.
Goldy:
Whereas the county has all this bonding capacity it doesn’t use, because it has very little taxing authority. So for the extra money, they needed the county to go in and it’s like that sent me down one of my rabbit holes, Nick, and I realized, “Oh my God, they’re bonding against rents.”
Nick Hanauer:
Yeah. If you can do that, you can do a lot of things.
Goldy:
Right. And I asked, “Well, why don’t we do this?” And people said, “Well, obviously, it’s because we… Well, we don’t do this because it can’t be done, because if it could be done, we’d already be doing this.” Which of course is not true. I mean, the reason why we don’t do this is because we don’t do this, not because we can’t do this.
Goldy:
And I think one of the interesting things is when she talked about, and we’ll provide a link in the show notes to Rachel’s piece on Vox, What if public housing were for everyone? When we say everyone go and look at those photos or look this up yourself. There’s a lot of stuff that has been written about what Montgomery County is built partially because it’s pretty spectacular.
Goldy:
This may be not a place you would want to live in Nick, because you are a billionaire, but for somebody like my daughter is looking for a place in LA and oh my God, the crap for $3,000 a month, the shitty old buildings that are available if you want a two bedroom to split with somebody. If you’re going to try to live alone, you can’t for under $2,000 and this is really nice stuff. And I think part of what Montgomery County has done is they built things and I’ll call it the Field of Dreams approach, build it, and they will come.
Nick Hanauer:
Yeah, for sure.
Goldy:
If you build this great housing and affordably price it, people will want it and they’ll want you to build more of it and that’s why it’s so important just to get this ball rolling all throughout the country in as many places as possible and start building this to show that publicly owned housing, a public option for housing, whatever you want to call it, can be… It’s just as good.
Goldy:
And, in fact, if you look at a lot of the low income housing that’s already being built, I’ve toured the stuff that the King County Housing Authority has built in the past 10 years. It’s the same stuff that people are renting for three times the price on the private market. It’s always the same construction companies. We don’t have public construction companies, and in many cases, it’s the same developers.
Goldy:
They’re hiring private developers to build the same thing that they would build at market rates. In this case, there are these tax credits that help subsidize it and, in fact, they’re using some of the same financing model because they’re issuing these bonds already, which are bonded against rents, but they only cover a small portion of low income housing.
Goldy:
Because the low income housing residents can’t afford to pay the full cost of paying off those bonds and that’s why those credits, those tax credits are necessary. So this is a very real and doable idea, Nick, and it is, unlike a lot of other solutions, it’s something that we can build at scale and that’s what really excites me about this. It is really, really scalable.
Nick Hanauer:
Yeah. The country could build millions of units doing this and not ask the taxpayers to subsidize it.
Goldy:
Right. And the reason why it’s affordable, Nick, and why it can be permanently affordable is because there is a difference between charging rent and rent seeking in the economic term.
Nick Hanauer:
Yeah, for sure. On day one, the markets will be market rate, but 10 years later?
Goldy:
Well, it’s whatever it costs on day one. This is the difference, and this is what a lot of people mess up about the housing market. They conflate price and cost. That somehow the price of your rent is determined by the cost of the unit and that is not true. It’s possible you could be renting a place where the price is below cost initially.
Goldy:
It depends on what the market will bear. That’s not generally what happens, but they’re not going to leave it go vacant because it’s not covering their costs. They’ll lose more money that way, right? So the difference between price and cost. And so the market, the reason why half of… Wherever you are in this country, whatever rents and incomes are, half of renters are paying more than 30% of their income in rent is because the market is determined that that’s what they can extract from you.
Goldy:
But when you’re publicly owned, you’re still charging rents, but you’re not trying to maximize your profit, so you’re not rent seeking from this existing capital stock anymore and so it is over time, because it’s the cost of the money that is your actual cost. Over time, you borrow a hundred million dollars, 20 years from now, it’s not worth a hundred million dollars.
Goldy:
Inflation has eaten away at the value of that initial… Of that debt. So over time, this housing gets cheaper simply because the money is eroded away, the cost of the money erodes away and over decades, as we’ve seen in places like Vienna and Singapore, over decades it becomes even more affordable and it’s very exciting. You and I won’t live long enough to see it, Nick, but hopefully we’ll live long enough to see it start to gain hold here.
Nick Hanauer:
I agree. Very exciting.
Goldy:
Again, if you want to read more from Rachel Cohen, we have a link in the show notes.
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