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.

Secret Subsidies to Huge Corporations

Photo by Ron Dauphin

The ever interesting Greater Greater Washington recently asked “How much will Walmart cost DC taxpayers?

The argument: some of Walmart’s employees are earning a small enough amount, and draw so few benefits, that they actually still qualify for public compensation. GGW’s authors call this a “backdoor subsidy” to Walmart’s workforce–and interesting angle, no doubt.

Now, I think it’s a little deceptive to say that Walmart is costing DC taxpayers money in this scenario, since that assumes that the people getting those benefits would have had jobs to begin with if Walmart wasn’t around. But I won’t belabor the point.

The authors point to a study (PDF) which claims that it would only cost Walmart two cents on the dollar to give their employees the same benefits packages as their competitors give. They then carry this line of thought to its logical conclusion and suggest that the DC Council might force “large retailers” to pay a higher minimum level of compensation.

Now, I am extremely skeptical of studies like this, even when they are peer-reviewed, which this one was not, or printed in an academic journal, rather than merely presented to an advocacy group.

But you don’t need to share my skepticism of such things, and we don’t have to have a debate about the complicated question of determining just how much it would actually cost. There is a much simpler solution to the problem of “secret subsidies” than to increase the intrusiveness of regulations in the District. That solution is to get rid of those subsidies.

I’m not talking about eliminating public health benefits to low income individuals. I’m talking about changing the criteria for getting those benefits so that people who make as much as Walmart offers are no longer eligible for it.

Then we can leave things to people’s own choices–either they can keep their public benefits, or they can work and earn as much as Walmart can get them. If this”backdoor subsidy” is as significant as the post implies, then it might be that Walmart would have to start offering more benefits in order to attract as many workers as they need. Or it could be that enough people would be willing to give up the public benefits for what Walmart offers–be it what they would actually make to begin with or the possibility to make more later on–that Walmart wouldn’t have to.

Either way, the primary problem that the authors appear to be concerned with–taxpayer funds going to Walmart employees–would be entirely solved.