By Thomas Silverstein, President/Executive Director, Poverty & Race Research Action Council

A few years ago, the fairly wonky work that Montgomery County, Maryland had begun to develop mixed-income housing broke containment. First, even before Montgomery County’s first social housing development even opened its doors, Rachel Cohen Booth of Vox highlighted the County’s innovative approach. Then, Conor Dougherty of the New York Times brought the story to an even wider audience. Advocate and technical assistance provider Paul Williams of the Center for Public Enterprise evangelized for the model across the country. All of this led to an iterative cycle of follow-up pieces, addressing not only Montgomery County but also other jurisdictions that followed in its wake. To oversimplify, Montgomery County and its progeny take public sector equity stakes in already planned private development projects and leverage the combination of those stakes and money from revolving funds seeded with bond proceeds to ensure a greater breadth and depth of affordability than could be achieved through the cross-subsidization (profits from market-rate units compensating for losses from affordable units) effects of inclusionary zoning alone. 

What has never gotten quite as much oxygen in print – though, to be clear, Dougherty and Cohen Booth did not elide these concerns – is that many housing justice advocates are not particularly fond of the Montgomery County model an d, indeed, have actively sought to prevent the model from being what lay audiences first think of when they hear the term “social housing,” instead advancing an alternative set of principles like those of the Alliance for Housing Justice of which PRRAC is a part. Although these are not the sole concerns, it would be fair to say that many advocates want to see a greater breadth of affordability (i.e., the percentage of units that are affordable) and depth of affordability (i.e., the income level at which units are affordable) in social housing and that they want to resist the narrative that cross-subsidization from occupants of higher rent market-rate units (using the profit generated by market-rate units to compensate for the degree to which income-restricted rents are not enough to cover operating costs) alone is sufficient to make a social housing model work. 

I have been in many rooms where allies of PRRAC’s have voiced these thoughts. Fundamentally, they are not wrong, which also does not mean that a social housing model that does not address the concerns is not preferable to inaction. But a potential next part of the conversation is often neglected: how could Montgomery County (or another local government attempting something similar) build upon the foundation of its program to forge something that generates genuine enthusiasm in the housing justice world? 
 
Here are three answers to that question. 

  1. Develop Public Sector Capacity to Do a Bigger Slice of the Work 

Foundational to the premise of the Montgomery County model is that it is possible to achieve greater affordability than would be possible under inclusionary zoning (a requirement that private developers set aside a portion of units in their otherwise market-rate projects for low-income households) when the public sector has an equity stake in a project because a governmental entity need not make as great of a return as the private sector equity it is supplanting. That forgone profit can translate directly into a greater percentage of affordable units and units that are affordable at lower income levels. That is true, but local governments like Montgomery County have not  pressed that logic as far as it is capable of going yet. To pick three examples, putatively social housing developments often rely upon private for-profit contractors for construction, on for-profit property managers to run their inventory on a day-to-day basis, and on private, outside legal counsel to advise on deal structure. If the forgone profit from a would-be equity investor can translate into greater affordability, so can forgone profit from the litany of other types of profit-motivated actors typically engaged in the development process to an even greater degree. 

That is easier said than done, of course, and it may not be equally possible for all local governments exploring a social housing model. For Montgomery County, which has a larger population than six states, it should be feasible to achieve the economies of scale to bring these services in-house and to avoid inefficient downtime for masons, electricians, leasing agents, and transactional attorneys. There should always be a sufficient volume of activity to keep these workers busy and thereby justify paying, for instance, an attorney a full-time salary of $120,000 per year instead of paying a private law firm $600 an hour for the services of a lawyer with similar expertise. Smaller municipalities would benefit from a state housing finance agency taking on the onus of developing these types of capacity and offering services to them at below-market prices. In theory, even if there may not always be wiring work for an electrician to be doing on a social housing project in the state capital of Dover, there should always be a need for that work on a social housing project somewhere in Delaware. 

No matter how we get there, it should be possible to wring more affordability out of the Montgomery County model by replacing more traditionally contracted-out services with in-house public sector capacity. 

  1.  Combine Cross-Subsidization and Taxpayer Subsidy 

Cross-subsidization has limits. At some point, it is neither possible nor desirable to further increase rents on higher-income residents. In weaker real estate markets than Montgomery County’s where, for instance, home ownership is attainable to most households that could afford rents high enough to cross-subsidize low-income units, that point comes awfully quickly. But having limits does not make a policy feature bad, it merely calls for supplemental steps to compensate for those limits. Here, the obvious solution is to combine cross-subsidization with taxpayer subsidy. If a cross-subsidization model only feasibly allows for 20% of the units in a property to be affordable at 50% of the area median income (AMI) and what a community wants and needs is a property that is 40% market-rate, 20% affordable at 80% of AMI, 20% affordable at 50% of AMI, and 20% affordable at 30% of AMI, other subsidy is needed to bridge that divide. 

The simplest way for most local governments to do this is by prioritizing existing federal funds for social housing projects. Project-basing Housing Choice Vouchers, using HOME Investment Partnerships Program monies for gap financing, using Community Development Block Grant proceeds for pre-development costs, and even applying for Low Income Housing Tax Credits (LIHTC) are all steps that could be undertaken in a municipal social housing development as well as in private for-profit or non-profit development. Some of these programs carry real trade-offs that tend to drive up per-unit development costs and thereby reduce the scale of potential development. Additionally, attempting to prioritize these resources for municipal social housing can turn incumbent affordable housing developers – including mission-driven non-profits – that rely upon those funding streams into adversaries. Still, if a local government is looking to get up and running quickly and has sticky state law constraints on its ability to raise revenue through new taxes, this is a path worth considering. 

Ultimately, however, we are not going to solve the housing affordability crisis without new taxes and new revenue. Local governments should explore the tools that are at their disposal under applicable state law. Of course, it is preferable for new taxes to be progressive rather than regressive and to bring in relatively predictable amounts of money over time. Seattle voters imposed a tax on businesses employing workers making over $1 million per year, and Los Angeles voters imposed a tax on high-value real estate transfers. This money can and is being used to increase the breadth and depth of housing affordability within social housing models (although Seattle’s is municipal and Los Angeles’s relies on non-profits, community land trusts, and cooperatives). Long-term predictability of funding streams is critical if some or all of this money is intended to not just underwrite lower rents at the outset but also to serve as operating subsidy in a manner analogous to a Project-Based Voucher. An infusion of upfront subsidy that is not followed up with operating subsidy can underwrite deeply affordable rents initially but would leave a need for recapitalization at a later stage. 

Regardless of how a local government brings additional money to the table to supplement the positive contribution of cross-subsidization, the point remains that, when the public sector uses the tools that are at its disposal, it is possible to develop and maintain social housing that is more responsive to unmet needs than Montgomery County’s has been to date. 

  1. Democratize, Democratize, Democratize 

If you talk to tenants living in social housing in Montgomery County or, frankly, tenants anywhere in the country in our legacy social housing program, Section 9 public housing, you will hear that their experience of their landlord is not fundamentally different from that of tenants in purely private housing. Regrettably, if you search for examples of social housing landlords acting badly, you will find them: from shoddy maintenance to needless eviction filings over de minimis rental arrears to inadequate responses to harassment by fellow tenants or staff. Some of these pathologies may flow from the fact that social housing landlords often contract out property management to the same old for-profit bad actors, but that does not tell the whole story. There are also structural dynamics at play: in none of these scenarios do tenants have a meaningful say in how their communities are operated. Public housing authorities have designated Board of Commissioners seats for tenants, but they are always a minority of seats and therefore not enough to give residents a decisive say. Municipal social housing in the U.S. is more nascent and less uniform. Some emergent programs may not have any formalized means for resident participation in how communities are operated. 

It does not need to be that way. There may not be one right answer to what empowering residents in social housing governance should look like, but there is plenty of room to experiment and to probe the salience of potential guiding principles. For instance, residents could comprise a majority of a governing board or a substantial minority – such as one-third – with other sets of board members being sufficiently heterogenous that it is easy to envision residents exercising governing power in coalition with aligned stakeholders that are represented on a board (in line with how many community land trust boards are constituted). A social housing program could prioritize accountability and responsiveness mechanisms over direct governance authority such that property management must get back to residents or their resident association in a timely and thorough manner and can be punished for failing to do so. At the pre-development stage, there could be requirements to engage with low-income households and unhoused people when envisioning what the features of a social housing project that is being planned should be. The point is not so much that there is one right way to make social housing more democratic, but that the effort of striving for greater democracy is a worthwhile one. 

More transformatively, with all of the same tools as for a municipal social housing project, a local government could – whether from the outset or over time – create pathways for properties to transition to resident ownership. That could include a public developer constructing a property that is conveyed to its initial residents for cooperative ownership upon completion. It could also include longer-term tenant purchase rights that could be exercised either at any time or upon the occurrence of some specific event (such as the payoff of a property’s mortgage). To make those rights real, the public entity could provide technical assistance to resident associations. Limited equity cooperatives may have their own operational challenges, but they are a form of social housing that maximizes democratic accountability to residents. 

*** 

Ultimately, the federal government will have to step up in order for our society to end the housing affordability and homelessness crises, but local governments cannot afford to sit on their hands waiting for that to happen. Montgomery County’s public developer model is a promising intervention that is already playing a role in mitigating harm. There are people who are housed today and there are people who are not cost-burdened today because of what Montgomery County is doing. But we can also take the model as an ever-evolving work in progress and add to it in ways that make it more responsive to resident and community needs. That is work well worth doing.