Contra Subsidized Housing

N. Capitol & K

Photo by Vince Kelley

Times are tough, and transportation programs help all residents, rich and poor, which is why it’s good for DC to be making the investment. Education, public safety, and much more are also critical. But it’s also unfair and unreasonable to make budget cuts disproportionately hurt the neediest residents.

-Greater Greater Washington, “DC budget unfairly hits affordable housing and more

It’s always interesting how specific spending cuts are picked on as “unfair” or cruel or immoral, but rarely do the critics go on to point out areas where spending could be cut that would be fair, humane, and moral. Take the Greater Greater Washington quote above–it applauds Mayor Gray for not cutting in some areas, then criticizes the one area under discussion where he does cut. Meanwhile, there is an expected budget gap of over $300 millionsomething is going to have to be cut.

Nevertheless, what should be cut is a legitimate discussion, so I will briefly state the case for putting this particular item on the chopping block.

At stake is a cool $18 million siphoned from the Housing Production Trust Fund (HPTF). According to the Washington Post;

The trust fund provides direct subsidies to developers to set aside units or, in some cases, entire buildings that they rent or sell for less than market rates. The developers must agree that rental units will remain affordable for 40 years and ownership units for 15 years.

In short, with HPTF the DC government offers developers a bargain–we will give you extra money if you use at least some of it to build apartments that you cannot charge a profitable rate for.

This bundles a housing subsidy with a very specific kind of rent-control. I think all all forms of both are counterproductive, but this one is stranger than most.

Granted this is way, way preferable to old-school rent-controls of the sort enforced in places like New York, where people were just categorically told they couldn’t charge more than a certain price to their tenants. This at least is as voluntary for the parties involved as anything funded with tax money can be.

Nevertheless, subsidies don’t make sense in a city where the supply of housing is increasing like gangbusters (if subsidies in the housing market ever make sense to begin with!). And rent-controls of any kind always suffer from the same problems.

The problem stems from lack of real ownership. Oh sure, some of these HPTF funded rental buildings may be owned by someone. But not in the important economic sense of being a residual claimant.

Econ 101–people have an incentive to invest in their property because they can personally benefit from any increases in its value. When I say “invest”, spending money can be involved, but also things like time and attention.

The pathologies associated with rent control and housing projects are well documented–landlords underinvest in the maintenance of rent-controlled flats, housing projects become dens for crime and violence. When no one owns something, no one has any incentive to see that it is properly maintained, or protected.

When the price system is allowed to work, any increase in the value of a property is reflected in the price. If the price can’t rise, then a big incentive to increase or maintain the value of that property has been erased.

Building entire rent-controlled buildings, or even just rent-controlled units within otherwise free buildings, is to sink resources into something that will inevitably fall into disrepair and display other, worse symptoms of negligence.

So I don’t think cutting HPTF is a bad thing, especially when the District government is already spending above its means.

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