The economics of public housing
Virtually all economists, and a growing segment of the public, agree that we are in the midst of a housing supply crisis in the United States. Prices and rents have risen rapidly as supply has consistently failed to respond to growing demand. But the discussion about the need to bolster supply has conspicuously overlooked a small but critical part of the supply-side solution: public housing, specifically the need to preserve the 900,000 public housing units across the country that have fallen into disrepair.
Public housing has never been popular. When it was initially debated in the 1930s, the real estate industry feared competition, and conservatives were skeptical of public ownership. The program was ultimately sold to Congress — over the objections of market advocates — as a strategy to increase employment and stimulate the economy. There were of course some early supporters, including mayors who welcomed the support to clear slums in their cities and progressive housing advocates. But by the late 1950s, even many of those who thought public housing was a good idea in theory had turned against how it had played out in practice. Fair housing advocates charged that the program concentrates poor families in high-poverty neighborhoods and exacerbates racial segregation. While public housing developments are not as isolated as they once were, public housing developments are still located in census tracts with poverty rates of 29 percent and minority shares of 61 percent. The indelible image of the Pruitt Igoe towers in St. Louis being deliberately dynamited continues to haunt any meaningful discussion of the topic.
Economists, for their part, have written very little about public housing, perhaps because most so clearly favor housing vouchers — or portable subsidies like those provided under federal Section 8, which cover part of the rent for homes leased on the private market — as the way to make sure low-income people can secure housing (even though vouchers will not solve the supply-side problem on their own).
But the economics of our current public housing stock are worth a closer look, especially in New York City, where the New York City Housing Authority continues to provide homes for over 170,000 low-income households, including 150,000 living in conventional public housing developments. These households face few other affordable options in the city, and none that are guaranteed to be permanently affordable. As building new housing has become increasingly difficult, the last thing we need to do is to demolish a source of permanently affordable housing or to let it deteriorate to the point of obsolescence or inhabitability. Effective supply strategies must not only bring in new units through the front door but also invest in existing homes to keep them from falling out the back door. Unfortunately, pro-housing advocates rarely focus on preservation.
The pro-housing movement can also lose sight of the fact that all the supply in the world will not solve the housing challenges of very low-income households. Their incomes are simply insufficient to cover the costs needed to operate and maintain rental housing. These households will likely always require some form of subsidy to cover rent. And this is another key reason to prioritize preserving public housing. Rigorous recent research shows that public housing improves children’s test scores, grade advancement, and economic mobility over the long-run. This research counters the common view that public housing is bad for children.
Further, today’s public housing is often located in relatively high-income neighborhoods, helping to lock in economic and racial diversity in those communities. In New York City, gentrification has meant that two-thirds of public housing units are now surrounded by census block groups with an average household income above the citywide median. So at least in New York, public housing developments are no longer isolated, high-poverty communities but rather part of mixed-income neighborhoods. Recent research on the U.S. Department of Housing and Urban Development’s (HUD’s) HOPE VI program shows that children who grow up in renovated or new public housing developments that are part of mixed-income communities earn about 50% more as adults than those living in other public housing developments. The gains appear to be driven by the children living in revitalized public housing developments surrounded by more affluent communities.
The core challenge, of course, is that as public housing buildings have aged significantly, the repair and maintenance costs have risen dramatically. And absent intervention, the stock will only continue to deteriorate, exposing tenants to growing risk of mold, broken elevators and malfunctioning electrical and heating systems. Current estimates suggest that the cost of preserving public housing nationally has climbed to close to $170 billion.
The New York City Housing Authority estimates that it needs some $80 billion to preserve just its stock of public housing. And yet while the federal government helps to support operating costs and to fund renovations and capital improvements through the public housing capital fund, both of these federal subsidy streams have long been inadequately funded, forcing housing agencies to defer needed capital repairs. Congress isn’t likely to come to the rescue with new capital funding for the public housing program any time soon.
That said, Congress provided something of a lifeline in 2012 when it enacted the Rental Assistance Demonstration (RAD) program. The RAD program allows public housing agencies to convert developments from conventional public housing support (Section 9) to project-based Section 8 contracts, which commit HUD to provide long-term rental assistance funding to the building. In New York City, NYCHA PACT and the Public Housing Preservation Trust both rely on the RAD program to convert public housing to Project-based Section 8. One benefit of these conversions is more steady operating support. While public housing has long been under-funded, Section 8 rental assistance has enjoyed steady, bipartisan support in Congress, in part because most of those dollars flow to private owners, and in part because cuts to Section 8 would force housing agencies to take away subsidies from current recipients. (Cuts to public housing force housing agencies to make far less visible cuts to maintenance and repairs.) With Section 8 funding, developments can also leverage more sources of public and private funds for capital needs, rather than relying simply on the Congressional appropriations provided by Section 9. Nearly 200,000 public housing units nationally have now converted to Section 8 contracts through the RAD program, and another 65,000 units are in the pipeline.
Advocates have expressed concern that RAD makes tenants vulnerable to eviction given that most conversions bring in private owners and managers. Mayor Mamdani voted against establishing the NYCHA Public Housing Preservation Trust when he was a member of the New York State Assembly, presumably out of concern about any movement towards privatization. But as mayor, to his credit, he has taken a more pragmatic and ultimately more effective path to preserving public housing, embracing PACT and the Trust as critical tools, in addition to committing $5.6 billion in city capital dollars over five years. Some advocacy groups have criticized the Mamdani plan for its reliance on RAD. But designed with an eye toward avoiding the displacement the HOPE VI program caused, RAD retains many of the same tenant protections provided by the Section 9 program. The RAD program requires one-for-one replacement of demolished units and guarantees that the original tenants can continue to live in (or move back into) renovated developments without new eligibility screening. Recent research shows on average, RAD conversions have not been associated with increases in eviction filings or judgments in New York State or nationally. Hopefully this research will help to reassure advocates about the RAD program since, at the moment, it’s the only game in town. The Mamdani administration will also need to work closely with residents to demystify the PACT and Trust options, convey the lack of alternative funding sources, and reassure them that despite some potential disruptions and temporary relocations, they will maintain their rights, and the housing will remain permanently affordable.
On a related note, public housing agencies should also consider using some of the open space on their campuses to create new developments that can help to raise capital for repairs and also create mixed-income communities. They can do this “in-fill” development while still protecting legacy residents as well as preserving the long-run affordability of the public housing units. The key is maintaining public ownership of land.
Even without new building, in many cities, including New York, public housing now offers a chance to allow low-income families to remain in neighborhoods seeing growing investment, and potential improvements in services and conditions. That said, it may be necessary to take explicit steps to break down the walls that often isolate public housing campuses from their surrounding neighborhoods and ensure that all residents can take advantage of any burgeoning opportunities. Local community organizations may be the best positioned to do this work, through offering programs and services to the full set of neighborhood residents. Investing in inclusive public spaces and forms of social infrastructure can also help to build bridges.
But what about vouchers? Yes, virtually all economists prefer housing vouchers over public housing, and for some good reasons. One, they have been shown to be cheaper, and two, because they empower low-income households to choose where they want to live, including in neighborhoods that provide a richer set of resources and opportunities for upward mobility. But vouchers rarely work as cleanly in practice as they do on the pages of economics textbooks. Most fundamentally, vouchers only work if there are homes that are vacant and available to renters using vouchers. Our recent work on voucher success rates shows that nationally, just 57% of households who received housing vouchers (after typically waiting for years to receive them) were able to use their vouchers to rent homes. While voucher success rates may have been particularly depressed as rents rose rapidly in the immediate wake of the pandemic, success rates floated at around 65% in the pre-COVID years. So even prior to the pandemic, about a third of voucher recipients nationally were unable to use their vouchers. These rates show that the vouchers can be challenging to use in tight markets, especially for certain types of households.
Further, without meaningful changes that make housing easier to build on the supply side, expansions to the voucher program may simply lead to higher rents, as additional voucher recipients compete for a fixed supply of units. Several studies have found that landlords already capture some amount of existing housing voucher subsidies through rent increases.
Economists might view the first-best solution to the housing needs of low-income households to be housing vouchers (or even cash transfers) combined with radical reforms to land use that make it easier to build. But in the here-and-now,the prospects for radical land-use reform are slim. Plus, other barriers beyond land use regulations make it difficult to build quickly, including geographic constraints, labor and materials shortages, and limited land.
Public housing continues to be the neglected stepchild of affordable housing programs. The growing pro-housing movement overlooks it as a key source of supply. Economists — and many affordable housing advocates — prefer vouchers. Even progressives touting new models of social housing often overlook the nation’s existing stock of social housing. Whether it is sound public policy to actually build new public housing is an important question for another time, but at the very least, it is critical to invest in and preserve the existing homes that we have.
