A New Vision for Social Housing in America

The United States faces a persistent and serious housing affordability crisis that demands bold action to solve. According to data from the U.S. Census Bureau, 21.8 million households spend at least 30 percent of their monthly income on rent, and within this group, 11.2 million spend at least 50 percent on rent.¹ This means that roughly 48 percent of the 45 million households that rent are considered cost burdened, with a distressingly high share facing an extreme cost burden.²

And monthly rental costs are not the only challenge. For too many Americans, the rapidly rising cost of health care and education has resulted in a growing student debt burden, which has crowded out money that could go toward housing. The search for decent, affordable housing often leads renters to live far from work, and even then, the available housing can be substandard. If public transportation is available, it often requires multiple transfers and a lengthy commute. Driving is often quicker but comes with the stress of covering car payments, insurance, gas, and parking. Additionally, economic insecurity can lead to frequent moves, which can interrupt children’s education and make it difficult for adults to build a social community.

As far back as the last quarter of the 19th century, social reformers looked on in horror at the squalor immigrants and rural migrants faced in crowded urban tenements. The conditions of New York’s Lower East Side are the most well-known, but the question of how to provide adequate, sanitary housing for laborers and their families touched every American city.³

State legislatures and city officials initially attempted to regulate the problem away by establishing minimum standards for rental housing.⁴ The approach proved ineffective. At the same time, philanthropists and reformers experimented with different building designs, hoping that careful planning could remedy impoverished living conditions.⁵ To raise capital for these experimental buildings, advocates approached philanthropies and large institutional investors, including insurance companies. The pitch was simple: help address a persistent problem while also earning a modest return. This led to the formation of limited dividend corporations and the expression “philanthropy plus five percent.”⁶

These efforts produced some excellent modern housing.⁷ Unfortunately, the units were not affordable for individuals and families living in poverty. There was no way to square the housing circle. The cost of new construction meant the resulting units were too expensive for tenement dwellers. The reformers had stumbled into what economists would call a market failure: There was a clear societal need that the market could not meet, no matter how modest the promised returns to investors. Yet with no forcing function, the issue of affordable housing simmered on the back burner. Then came the Great Depression. Mass unemployment quickly meant that millions of Americans lost their homes.⁸ Makeshift encampments—often referred to as “Hoovervilles” after President Herbert Hoover—proliferated, and housing rocketed onto the federal agenda.⁹

At the time, one overarching question dominated the housing debate in Washington: Would housing be classified as a right with heavy governmental participation to ensure basic living standards, or would it remain principally the domain of private market actors, including developers and landlords? The fight stretched out over a number of years with a compromise solution that heavily favored private market actors. The federal housing policy that emerged from this period of social and economic convulsion had two broad characteristics. First, the federal government would subsidize the construction and maintenance of a modest number of low-income rental housing units operated by public housing authorities (PHAs). Second, the federal government would use its full faith and credit to structure housing finance, creating a system that offered tens of millions of Americans the chance to purchase a home. This role evolved to include three pillars: a mortgage interest tax deduction; mortgage insurance; and an implicit federal backstop for the government sponsored enterprises Fannie Mae and Freddie Mac operating in the secondary mortgage market.

In the decades since the Great Depression, this policy approach has delivered substantial social and economic benefits that should not be overlooked, including a 66 percent homeownership rate.¹⁰ Yet the United States faces the same market failure that policymakers confronted nearly a century ago. The difference is that today’s affordability crisis extends beyond people living in intense poverty, to include millions of households with stable employment in low- and moderate-wage jobs. These households earn too much to qualify for traditional public housing and too little for adequate private housing. Simply stated: The private real estate market does not supply a sufficient number of housing units that are affordable, safe, healthy, and located close to economic opportunity.

To remedy this market failure, the federal government must use its fiscal resources to spur investment in the construction of new social housing units. This report proposes the creation of a new federal social housing program that would address this ongoing market failure. The goal of the program, funded at $50 billion over five years, would be to build hundreds of thousands of new affordable rental units in the coming years. The U.S. Department of Housing and Urban Development (HUD) would provide a mixture of grant funds and optional low-cost financing through the HOME Investment Partnerships Program to subsidize the initial construction cost. Once constructed, the new units would be transferred to either the local PHA or a nonprofit formed for this purpose. Unlike traditional public housing, which requires substantial ongoing operations and capital subsidy from Washington, rental payments would allow the social housing units to be self-sustaining over time.

In addition, Congress must shore up the affordable housing safety net. A new Center for American Progress proposal puts forth three steps:

1. Congress should provide $50 billion over five years to address the growing deferred maintenance backlog existing public housing units face.
2. Congress should provide $25 billion over five years to expand the supply of public housing units, which principally benefit extremely low-income households.¹¹
3. Congress should expand the Housing Choice Voucher (HCV) program by $25 billion over five years to provide immediate housing support while new supply comes online.

Taken together, this $150 billion proposal would deliver real and lasting benefits to working Americans facing the consequences of a severe housing crisis.

The proposed social housing program would deliver four overlapping benefits. First, the program would rebalance federal affordable housing policy away from an overreliance on subsidizing demand through vouchers and toward more production of affordable units. Second, the production of more affordable housing—especially in high-cost metropolitan areas—would help to slow rental inflation. This would help all renters as well as increase the purchasing power of federal housing vouchers. Third, increasing affordable housing supply would boost macroeconomic growth. Foundational research by economists Chang-Tai Hsieh and Enrico Moretti has shown that facilitating migration to and growth within the most dynamic metropolitan regions would significantly boost overall economic output and household earnings.¹² Federal social housing investments would be unlikely to crowd out private investment since the program is targeting a market failure. It’s not possible to crowd out units that are not being built.

Fourth, and finally, the United States has a two-tiered housing system dominated by a large number of politically influential homeowners who benefit from federal programs and often block new housing developments and a smaller and heavily stigmatized class of low-income renters and tenants of public housing. Building self-sustaining, publicly owned social housing for working Americans would break with this long-standing and unhealthy dichotomy. The federal government can and should play a more active role in ensuring that all Americans have access to safe, healthy, and affordable housing located in areas of high opportunity.

Under the banner of the New Deal, the Roosevelt administration successfully built the nation’s first public housing with money through the Public Works Administration. The push for federally financed housing for low-income households received a boost with the passage of the Housing Act of 1937, commonly referred to as the Wagner-Steagall Housing Act.¹³ The 1937 law encouraged states to pass enabling legislation authorizing the formation of local PHAs to administer federal housing subsidies. From Detroit and Jacksonville, Florida, to Los Angeles and Washington, D.C., New Deal financial support produced the first generation of public housing. It must be noted that these units were for many years strictly segregated by race: The first federal public housing project—Techwood Homes in Atlanta—evicted hundreds of Black families to build its 604-unit, whites-only neighborhood.¹⁴

At the same time, the Roosevelt administration helped to develop the modern home mortgage market. The National Housing Act of 1934 established the Federal Housing Administration (FHA), which to this day provides mortgage insurance to lenders, indemnifying them against losses in the case of a borrower’s default.¹⁵ With the federal government serving as a backstop to the mortgage industry, millions of Americans were able to access mortgages. Additionally, in 1938, the federal government created the Federal National Mortgage Association (Fannie Mae), which purchased FHA-insured loans and bundled them into mortgage-backed securities, creating a secondary mortgage market and replenishing the capital of banks making mortgage loans.¹⁶

Prior to the involvement of the federal government in the mortgage industry, the typical mortgage lasted five to 10 years with 40 percent or 50 percent down and interest-only payments over the loan period.¹⁷ At the end of the term, the borrower had to repay the outstanding principal.¹⁸ These terms were prohibitive for many prospective buyers. Furthermore, according to the Federal Housing Finance Agency, “In the absence of a nationwide housing finance market, availability and pricing for mortgage loans varied widely across the country.”¹⁹ The combination of FHA and Fannie Mae, along with other interventions, provided stability and liquidity to home finance—two essential elements for robust growth in homeownership. In the years following World War II, long-term, fixed-rate mortgages became the norm.²⁰

Yet as impressive as these measures were, during the 1930s and 1940s, there was a fierce political fight in Washington over just how far the federal government should push into the housing sector. Some advocates wanted more than a handful of low-income public housing units and accessible mortgage credit.²¹ In the years following World War I, a number of Western European countries undertook large-scale social housing construction programs. These efforts influenced American advocates such as Catherine Bauer and the Labor Housing Conference. These advocates, sometimes referred to as “housers,” called for a similar program of social housing in which the federal government would finance millions of new public units, providing housing for a substantial share of American individuals and families.²²

A pivot to private markets

The push for social housing was ultimately unsuccessful. And, in a dark bit of irony, federal housing and urban policy took a decidedly unsuccessful, market-based turn. The Housing Act of 1949 authorized $1 billion in loans for a new urban redevelopment and slum clearance program—more commonly known as urban renewal. Federal financing was intended to “assist local communities in eliminating their slums and blighted areas and in providing maximum opportunity for the redevelopment of project areas by private enterprise.”²³ The program resulted in the razing of city neighborhoods and old commercial districts in cities across the United States—often intentionally targeting historically Black neighborhoods.²⁴ Unfortunately, scraping away businesses and housing did not catalyze the burst of private sector redevelopment that Washington had hoped for. Instead of ribbon cuttings, many cities were left with empty lots overgrown with weeds and surface parking.

All the while, the housing needs of working Americans remained largely unmet. In 1961, Congress found, “The largest unfilled demand in the housing market is that of moderate-income families.”²⁵ In the 1960s, the federal government began experimenting with various subsidy programs to stimulate private sector production of affordable housing. These efforts had some success but were hopelessly inadequate in terms of scale. By the 1970s, Congress had grown increasingly skeptical of the cost and efficacy of federal funding for public housing construction programs. The decade would see another pivot to private market actors.²⁶ The Housing Act of 1974 created the Section 8 program, which initially provided project-based rental subsidies directly to landlords in exchange for letting units to qualifying low-income households.²⁷ Eventually, the Section 8 program was reformed to offer vouchers directly to qualifying households, allowing them to rent in any building that agreed to the terms of the voucher program. This means that the subsidy is attached to the qualifying household, not a specific property. Section 8 is now known as the Housing Choice Voucher program.²⁸

The turn to private market actors was not over. In 1986, Congress established the Low-Income Housing Tax Credit (LIHTC) program, which offers private and nonprofit real estate developers a tax credit to subsidize the construction or substantial rehabilitation of affordable rental housing.²⁹ Typically, developers sell the credits through a process known as syndication, which raises up-front equity capital to build new or rehabilitate existing rental units. By subsidizing the cost of construction or rehabilitation with tax credits, the private developer is able to absorb the cost of offering units at below-market rates.

The current status of affordable housing

What are the results of this pivot to private market actors? The LIHTC is currently the largest federal program for the production of affordable rental housing. Each year, the U.S. Treasury Department spends roughly $13.5 billion on the LIHTC program.³⁰ Between 1987 and 2022, the LIHTC provided a subsidy to more than 53,000 projects, helping to create or preserve 3.65 million affordable rental units.³¹ A serious limitation of the LIHTC program is that its affordability requirement is time-limited, and many units convert to full market rate following the expiration of the initial 15-year compliance period. Thus, while the 3.6-million-unit total is impressive, many of these units now rent at market rate. A recent report by Harvard University estimated that between 2024 and 2029, approximately 325,000 LIHTC units will reach the end of the 15-year compliance period.³² Moreover, research indicates that LIHTC units tend to be clustered in more economically distressed areas with “higher poverty rates and lower shares of non-Hispanic whites.”³³ Finally, most income-restricted LIHTC units are not targeted to the lowest-income households, typically defined as those with income below 30 percent of the area median income (AMI).

The HCV program is the federal government’s largest rental assistance program. According to the most recent data from HUD, the HCV program subsidizes more than 2.3 million rental leases at a cost of more than $32 billion per year.³⁴ Only about 1 in 4 eligible households are currently receiving a voucher.³⁵ A 2012 survey—the most recent national estimate—found that more than 2.76 million families were on a waiting list for a housing voucher,³⁶ an estimate that is almost certainly an undercount since only 80 percent of PHAs responded to the survey. Rental price inflation has put immense stress on the HCV program. According to the Center on Budget and Policy Priorities, “Higher voucher costs are expected largely because the program is continuing to absorb the rapid increases in market rents in recent years.”³⁷ Rapid rental price increases have pushed up the cost of the HCV program without an equivalent increase in the number of families served. For instance, between fiscal years 2019 and 2023, federal expenditures on HCVs increased by 34 percent. However, the number of vouchers increased by only 2 percent.³⁸

With so many resources focused on vouchers and tax credits, the nation’s public housing stock has suffered from years of underinvestment and neglect. Most of the roughly 900,000 remaining public housing units were constructed between the 1940s and 1970s and have approached the end of their useful life, needing major recapitalization.³⁹ The National Association of Housing and Redevelopment Officials (NAHRO) estimates that the cost of the deferred maintenance backlog on public housing units is around $90 billion.⁴⁰ Without significant investment, many of these units risk becoming uninhabitable in the coming years. Patchwork, short-term fixes are no longer sufficient. Additionally, an estimated 1.6 million households are currently on a waiting list for a traditional public housing unit.⁴¹ The sector needs not only repair, but expansion.

In sum, affordable housing in the United States is in a bit of shambles with insufficient federal investment that is overly focused on private market actors. The federal government needs to both increase overall investment in housing and rebalance its approach with an expansion of public and social housing production.

Building hundreds of thousands of social housing units targeted at households that earn too much for public housing or a choice voucher but too little to be well served by the private market will deliver significant social and economic benefits. Yet it makes no sense to charge ahead with a plan for social housing while the affordable housing foundation suffers from so many structural cracks. HCVs and public housing units principally serve households facing significant economic hardship. The first policy priority must be to repair and expand this safety net.

Both public housing and HCVs serve a diverse population of residents. According to research by NAHRO, “public housing remains a vital resource for low-income families and seniors; 35% of public housing units have families with children living in them and 36% of public housing units have an individual over the age of 62 as the head of household.”⁴² Data from HUD show that 39 percent of HCV recipients have children, 29 percent are elderly, and 18 percent have a disability.⁴³ Overall, 77 percent of HCV households are defined as extremely low income.⁴⁴ Again, this foundation must be strengthened.

In fiscal year 2023, the appropriation for HUD’s Public Housing Capital Fund—which provides grants to PHAs to help finance the repair and rehabilitation of public housing units, among other uses—was $3.2 billion.⁴⁵ While this funding level is a meaningful increase over previous years, it’s unfortunately nowhere near enough to make a significant dent in the maintenance backlog. Congress should increase the fund appropriation to $10 billion per year over five years and require that all retrofits or substantial rehabilitation projects replace carbon infrastructure, including natural gas lines and boilers, with electrical systems. This funding level would significantly address existing deficiencies.

In addition to rehabilitating the existing public housing stock, Congress should appropriate a total of $25 billion, or $5 billion per year for five years, to expand the number of traditional public housing units owned and operated by PHAs. The existing public housing waiting list of more than 1 million households speaks to the immense need for more housing targeted to the lowest-income individuals and families.⁴⁶ This expenditure could occur through the Public Housing Development program, which has been dormant since 1994, or through the HOPE VI program.⁴⁷

Expanding the supply of traditional public housing units will take time to plan and implement. In the interim, Congress should expand the HCV program with a total appropriation of $25 billion, or $5 billion per year over five years, over and above current outlays. This would represent a 17 percent increase in HCV funding. Based on current HUD data, this increase would translate to roughly 409,000 additional vouchers.⁴⁸

The idea of social housing has a long history in Western Europe. In the years after the end of World War II, housing was broadly seen as part of the “social contract between government and citizens which made up the welfare state.”⁴⁹ A key goal of social housing programs has been the “provision of affordable housing for the workforce.”⁵⁰ The characteristics of social housing programs—including core aspects such as the financing, ownership, tenancy, and rental charges—vary considerably by country. In some areas, the units are owned by the municipality. In other areas, the units are owned by nonprofit organizations that are often called housing associations.

The shared characteristic among Western European countries is a commitment to delivering affordable housing to residents as part of an enduring commitment to improving social welfare. Importantly, this does not preclude a robust role for the private sector. In the Netherlands, more than 30 percent of housing units are social. In Denmark, Sweden, England, and France, the share hovers just below 20 percent.⁵¹ Thus, even in countries with very active social housing programs, the private sector is still responsible for the majority of housing production and ownership.

Paris

France has a well-established and successful social housing program, combining new builds with retrofitted buildings, totaling more than 4.5 million units.⁵² Nationally, roughly 40 percent of renters live in social housing.⁵³ In Paris, roughly one-quarter of residents live in social housing.⁵⁴ With Paris suffering rapidly rising housing costs, social housing has become an even more important policy tool for providing low- and middle-income individuals and families with high-quality, affordable housing. Social housing has also helped the city avoid becoming a sort of “living museum,” with beautiful structures only available to the wealthy.⁵⁵

As with so many countries in Europe, France’s involvement in the provision of housing grew out of World War II. The destruction of housing units and the disruption of new housing construction placed enormous pressure on housing prices. Beginning in 1943, workers in the textile industry of Roubaix-Tourcoing worked with local firms and eventually settled on a 1 percent payroll tax to provide affordable housing.⁵⁶

Today, social housing units are principally financed with the tax revenues generated by a 0.45 percent payroll tax levied on total taxable payroll, such as salaries, bonuses, gratuities, and allowances.⁵⁷ The payroll tax is applied to businesses with 50 or more employees. In addition, social housing developments often benefit from low-cost, long-term financing.

In addition to funding, Paris and other municipalities in France are able to preempt property sales, taking advantage of a legal authority known as “droits de pré-emption,” or right of preemption.⁵⁸ With the city almost completely built out and little space for new construction, the right of preemption helps to ensure that Paris is able to acquire buildings that may be converted to social housing units. The city also exerts this authority for the acquisition of certain commercial sites, offering below-market rents to a diverse cohort of small businesses.⁵⁹

Through steady investment, the share of households living in social housing in Paris has increased from 13 percent in the early 1990s to roughly 25 percent today.⁶⁰ The program has brought affordable, stable, high-quality housing to more than 260,000 households, allowing Paris to remain a city accessible to residents across professions and incomes.⁶¹

Vienna

Created in the years after World War I, Vienna’s social housing stock is, a century later, the dominant provider of shelter for the city’s growing population. More than half of all Viennese residents live in either wholly city-owned social housing units or nonprofit-run cooperative housing units that receive municipal subsidies.⁶² The remaining residents live in private units but still enjoy strong tenant protections such as rent caps, limits on rent increases, and the right to stay in their units on a long-term basis. The primary means of financing new social housing units in Austria is a 1 percent payroll tax split evenly between employers and employees.⁶³ This tax generates around $250 million each year for the city of Vienna.⁶⁴

Two key policy designs have made Vienna’s social housing program sustainable since its inception in the 1920s. Units have relatively high income thresholds—70,000 euros per year for single applicants, with estimates that more than 80 percent of city residents qualify for public housing—and no income recertifications after a contract is signed, meaning a resident who eventually earns above the eligibility threshold is not forced to vacate the unit.⁶⁵ Instead, contracts never expire and many residents stay for decades, even enjoying certain rights to pass on the units to relatives. Given the ubiquity of social housing and cooperative units, the city is the majority landlord in the area. As a result, housing costs are lower across the board for all Viennese residents, in particular compared with American renters. In 2021, the average Viennese resident living in a private unit paid only 26 percent of their post-tax income on rent and energy costs.⁶⁶

Because of this deep, permanent affordability for a broad swath of workers, both the municipal and cooperative units are home to residents across income levels. Integration across income levels undermines the social stigma that often becomes associated with public housing, as it has in the United States, and creates a broader, popular constituency for the maintenance of the system. In stark contrast, nearly half of American renters currently spend more than 30 percent of their pretax income on housing.⁶⁷

The Netherlands

The Netherlands has a robust social housing sector that accommodates a very high percentage of renters. In the Netherlands, roughly two-thirds of all rental housing is owned by a network of 284 nonprofit housing associations called woningcorporaties.⁶⁸ These associations own roughly 2.3 million rental housing units that have a total value of more than 87 billion euros.⁶⁹

The two principal forms of subsidy for the provision of new social housing units are discounts on land and loan guarantees. Additionally, most loans for the construction of new social housing units are low interest and have an extended amortization period that can run to 40 or 50 years.⁷⁰ These loans primarily come from a large revolving loan fund that is principally capitalized with rental payments from existing housing association properties and some unit sales. This financial structure was made possible, in part, because the housing associations effectively inherited assets from an earlier era in which the national government provided more direct subsidies. In 2021, the housing associations “brought in €16.6 billion in rental income and needed only €14.8 billion to cover maintenance, debt service, overhead, and taxes.”⁷¹

A key takeaway from the Dutch approach is that social housing is not exclusively a safety net for people experiencing homelessness or who have extremely low incomes. Instead, the sector has evolved to be the principal mechanism for providing stable, affordable rental housing. Social housing in the Netherlands is mainstream. Moreover, the housing associations prioritize design and upkeep: “housing associations invest in high-quality architecture and maintenance, to the benefit of their tenants.”⁷²

The United States

Montgomery County, Maryland, has demonstrated national leadership in support of affordable housing through its Affordable Housing Opportunity Fund (AHOF), which serves as a revolving fund offering short-term financing to developers to “acquire properties at risk of loss of affordability.”⁷³ A developer may use financing through the AHOF to purchase an existing affordable housing unit or a parcel of land that may otherwise be purchased for exclusively market-rate development. The fund has been capitalized with $20 million in county funds.⁷⁴ These dollars have been matched on a 3-to-1 basis by private capital, increasing the total available lending pool.⁷⁵

The AHOF is intended to provide attractive financing on a short-term basis, its funding typically serving as a bridge loan until the developer can secure long-term financing. The county prioritizes applications with proximity to transit and a commitment to reserving at least 20 percent of the resulting units for households with incomes at or below 50 percent of AMI, among other factors.⁷⁶ In general, developers must commit to maintaining the affordable units for a period of not less than 10 years. This innovative revolving fund structure has allowed Montgomery County to use its resources in a targeted way to preserve and expand its affordable housing with attractive short-term financing.

For the 22 million households that spend more than 30 percent of their income on rent, the private market does not provide adequate affordable housing options.⁷⁷ Millions of families are paying half or more of their income for housing that is in poor condition and often located far from economic opportunity. The federal government can begin to address this problem by initiating a social housing program designed to deliver hundreds of thousands of affordable units that would be targeted to households that earn too much to qualify for either traditional public housing or HCVs.

The goal of this new CAP proposal for a federal social housing program would be to deliver enough of an up-front subsidy in the form of grants during the construction phase that the resulting units, which would be owned and operated by either the local PHA or a nonprofit established for this purpose, would be economically self-sustaining over time. The monthly tenant rental charges would be sufficient to repay both the outstanding loan obligations and contribute to a long-term capital maintenance fund. Tenants making between 60 percent and 100 percent of AMI would be eligible to rent social units. The PHA or the nonprofit would have the flexibility to designate criteria for prioritizing the allocation of the social units. The PHA or nonprofit would also have the option to lease up to 20 percent of the units at market rate to help defray annual operating costs and keep rental charges on the subsidized units as low as possible.

This program structure has three advantages over the LIHTC, HCV, and traditional public housing programs. First, the social housing units would remain affordable in perpetuity. Second, rental charges for social housing units would be pegged to loan repayment and depreciation, not market rates. This would allow social units to avoid the rapid price appreciation facing the HCV program. Third, the social units would be self-sustaining. Unlike traditional public housing, which requires ongoing appropriations from the Public Housing Capital Fund and the Public Housing Operating Fund, the new units would generate enough revenue to cover operations and maintenance as well as periodic recapitalization.

Grants and financing for the construction of new social housing units would be distributed on a competitive basis. The program would function as a set-aside within the existing HOME program at HUD. Given the size of the new social housing program, HUD would likely need to establish a dedicated team within the Office of Community Planning and Development to handle the grantmaking process. The advantage of this approach is that the existing HOME program regulations and administrative structure would allow for money to flow quickly. Similarly, participating jurisdictions, which HUD defines as “any state, local government or consortium that has been designated by HUD to administer a HOME Program,” have established the local administrative capacity to deploy HOME funds for affordable housing projects.⁷⁸

The social housing program would prioritize those applications with a strong climate-forward design. This would include prioritizing those projects that include all-electric building systems and energy-efficient units, along with on-site renewable energy generation, storage, and vehicle charging. The program would also give precedence to projects located within 0.5 miles of high-quality public transportation, which is transportation with scheduled weekday peak period headways of not more than 15 minutes. To ensure geographic diversity, no state would be permitted to receive more than 20 percent of social housing funds over the five-year period. The social housing program would include a set-aside for planning grants and technical assistance. Given the scale of construction envisioned by this program, planning grants would account for 5 percent of program funds in the first two years and 2.5 percent thereafter.

The social housing program would provide participating jurisdictions with $50 billion in grant funding spread over five years. Grant funds would cover 50 percent of eligible project costs. The project sponsor would be responsible for supplementing the grant funding with $50 billion in tax-exempt municipal bond financing. The project sponsor would have the option of securing a loan guarantee through HUD to lower the cost of capital by reducing the risk of investor losses. Sponsors would also have the option of refining their outstanding municipal dept after five years with a loan through the U.S. Treasury Department, provided that the sponsor could demonstrate that the capital reserve fund was fully funded.

The combination of grant funding and local borrowing would bring the total expenditure on social housing to $100 billion. Each year, HUD publishes a table that sets the total allowable development cost (TDC) for the construction or modernization of public housing units.⁷⁹ The table is based on industry construction cost data broken out by metro area. Based on the most recent TDC data from HUD, the program would produce approximately 357,400 new social housing units split evenly between one- and two-bedroom apartments.⁸⁰ This is a conservative estimate of the number of new units the program would produce. The HUD data provide unit development costs based on the building type. The most expensive multifamily building is one with an elevator. The estimate uses this building type.

This leaves the question of rental charges. Because the social housing units would not be subject to market forces, the monthly charge would instead by governed by two factors: debt repayment and depreciation. The monthly rental charges would need to cover the cost of repaying bondholders and to capitalize a reserve fund to ensure proper ongoing maintenance and rehabilitation of the units over time. The calculations used in this report assume a municipal bond interest rate of 3.5 percent and a depreciation rate of 4 percent, which is higher than the standard depreciation used by developers. Again, the intent is to provide a more conservative estimate of affordability by assuming a larger contribution to the maintenance and rehabilitation reserve fund than is standard for the rental industry.

Table 1 presents monthly rental charges for one- and two-bedroom units in three large metropolitan areas: Boston, New York, and Chicago. These charges would be sufficient to cover both debt service at 3.5 percent and a capital reserve contribution based on a 4 percent depreciation rate. Based on recent data from the U.S. Census Bureau, the table shows the level below which the rental charge would exceed 30 percent of household income. For instance, a household in the Boston area could afford to lease a two-bedroom unit with an income at or above 60 percent of AMI.

A final condition of the social housing program is that the nonprofit organizations or PHAs that take ownership of the social housing units must agree to allow the formation of tenant associations without any interference. Up to 5 percent of the capital reserve fund may be used to pay the legal expenses related to the formal incorporation of a tenant association and any future legal actions it may wish to pursue on behalf of residents. A key responsibility of these associations will be the approval of maintenance and rehabilitation expenditures tied to the capital reserve fund.

Federal housing policy emerged from the crucible of the Great Depression. The scale of unemployment and household dislocation thrust housing onto the national policy agenda. Many of the policy choices made during the 1930s and 1940s remain, with some modification, in place to this day. Crucially, the federal government chose to direct its fiscal resources, full faith, and credit to provide stability and liquidity to the home mortgage industry. Unquestionably, this decision has allowed millions of Americans to become homeowners, build household wealth, and achieve a cornerstone of the American dream. Yet the comparatively modest sums expended on public housing production from the 1950s to the 1970s—and more recently on vouchers and low-income housing tax credits—has meant that America’s housing safety net is precarious.

The time has come for the federal government to make bold investments in affordable housing. These investments should address the outstanding public housing maintenance backlog, increase traditional public housing, and expand the Housing Choice Voucher program. Finally, Congress should expand its involvement in housing to include social housing for households with moderate but stable incomes that are poorly served by private market actors.