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Strangling the Cities

eye on the news

Strangling the Cities

Affordable-housing proposals supported by Alexandria Ocasio-Cortez and Bernie Sanders would limit supply and choke American cities with even more regulation. October 22, 2019
Cities
Politics and law
Economy, finance, and budgets

Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders recently proposed nationwide rent controls as part of their sweeping plans to transform America’s housing market. They would cap rent increases nationwide at 3 percent annually, unless inflation goes up. In addition, they would permit no exemptions for new construction, except some for smaller landlords. Taken together, the plans would stymie new housing and keep cities choked in red tape.

As part of his presidential campaign, Sanders introduced a $2.5 trillion Housing for All plan akin to an Apollo program for bricks and mortar. He pledges $32 billion to “end homelessness,” $50 billion for community land trusts, and $70 billion to repair America’s public housing stock. The plan includes Section 8 housing vouchers for qualified applicants and an effort to build or rehabilitate nearly 10 million units of affordable and mixed-income housing. To pay for it all, Sanders proposes a wealth tax on America’s 180,000 richest households, resulting in an estimated $4.35 trillion sum that, over the next decade, he also expects will help cover Medicare for All, universal child care, and other initiatives that are estimated to cost as much as $97.5 trillion over that same interval.

Ocasio-Cortez’s housing bill focuses on rewriting housing rules to favor tenants. In addition to imposing national rent control, she plans to tighten eviction standards and require substantial disclosures from large landlords. More significantly, her plan would redefine affordable-housing eligibility. Currently, the Department of Housing and Urban Development regards families paying more than 30 percent of their income for housing as eligible; Ocasio-Cortez would set the bar much lower, to 9 percent. She would also deny federal loans to large landlords or owners with a history of evictions.

More than a half-dozen Democratic presidential candidates have rolled out housing plans. Senator Elizabeth Warren calls for large investments in subsidized housing. Former HUD secretary Julian Castro, much like Senators Kamala Harris and Cory Booker, calls for fully funding Section 8 housing vouchers, with the aim of promoting affordability for low- and middle-income households.

Democrats’ increasingly national focus on housing has emerged as numerous states address rising rental costs. California lawmakers, allied with tenant activists and a contingent of pro-development advocates, recently passed a statewide cap on annual rent increases, only a year after voters rejected a similar ballot. Oregon has approved an “anti-rent-gouging” law, while New York strengthened and enshrined its rent regulations indefinitely, with talk of a rent cap coming next year. Compared with Oregon’s cap set at inflation plus 7 percent, and California’s at inflation plus 5 percent, the universal 3 percent cap supported by Sanders and Ocasio-Cortez is the most stringent yet.

Rent control, as any economist will tell you, is deeply unfair. Housing insiders—those with rent-protected units—generally win at the expense of outsiders and newcomers. Long-time tenants will be less likely to move or downsize to make way for new residents. Housing supply ultimately becomes constrained as capital investment in new construction falls; below-market rents, in turn, encourage condo conversions. Universal rent control represents a one-size-fits-all policy blurring the very real differences between, say, San Francisco and San Angelo. Sanders’s and Ocasio-Cortez’s plans would kill the American housing market as we know it.

Restricting profits and protecting tenants, it turns out, becomes a way of “decommodifying” housing—leaving only shelter, which Sanders and Ocasio-Cortez view as a right. If the profit motive is removed entirely, only public housing is feasible. What sort of housing, for whom, and by what means are questions left unanswered. Neither Sanders nor Ocasio-Cortez are willing to advocate for purely socialized housing, but they have laid the foundation for it by calling housing a “right.”

The idea of allowing rent control and other tenant protections in exchange for the expansion of housing—publicly subsidized and otherwise—has become something of a devil’s bargain.  Some YIMBY (“Yes-in-My-Backyard”) advocates believe that such measures can create a fairer market while untangling the excessive regulations choking prosperous metros, but those who recall the disaster of America’s mid-century housing projects know that public dollars and price controls cannot support demand. The only housing “right” will be a waiting list. Meantime, older, entrenched renters will have secured their apartments, and under Sanders’s plan, homeowners are promised the ability to sell their dwellings at a profit.

Sanders’s housing plan would perpetuate a generational divide, with baby boomer bailouts masquerading as millennial subsidies. It resembles a cross-generational pact, exemplified by his recent endorsement by Alexandria Ocasio-Cortez, between boomers and first-wave gentrifiers that secures protections against subsequent waves of high-income migrants who boost rents or further gentrify their neighborhoods. “If I can’t afford housing,” they effectively say, “then neither will you.”

America’s housing market, no doubt, confronts many problems. Since 1970, housing prices have doubled in New York City and Los Angeles and tripled in San Francisco. Roughly one in four renters nationwide spend more than half their income on housing, and their ranks are growing, which is why America needs more housing. You can’t have “housing for all” without building more housing.

Confronting an historic mismatch between housing supply and demand, Sanders and Ocasio-Cortez want to limit supply. Worse yet, they trade the chance at a freer market in housing for a political market based on favors and favoritism. The upshot will be cities that stay frozen in place.  

Photo: Kena Betancur/Getty Images

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