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Here’s what Gavin Newsom, Elizabeth Warren and Microsoft should know if they want to end the affordable housing crisis

- January 31, 2019
Microsoft Corp. President Brad Smith announces a $500 million pledge by the company to develop affordable housing for low- and middle-income workers in response to the Seattle region’s widening affordability gap and to also to address homelessness. (Ted S. Warren/AP)

This month, California’s new governor, Gavin Newsom (D), proposed a plan to penalize cities and counties that didn’t supply enough affordable housing. His was just the latest attempt to tackle what’s become a national affordable housing crisis, at least in communities that have jobs. Late last year, Sen. Elizabeth Warren (D) introduced a bill to create more affordable housing nationwide. Key Bank, Bank of America and Microsoft have all announced initiatives to build affordable housing, lest clients and employees be priced out.

While it’s not clear which initiatives will go forward or how exactly they’ll be implemented, many communities have a NIMBY (not in my backyard) attitude toward affordable housing. Public housing “projects” have been notorious for concentrating poverty, crime and drug use in pockets of the city. How affordable housing affects neighborhood property values isn’t simple, with mixed empirical results, depending on how it’s designed and managed.

How might the new initiatives affect the neighborhoods in which affordable housing is created?

What if homes were not rented but sold at a subsidized rate?

Some planned initiatives are market-based approaches that aim to expand the supply of housing to drive down real estate prices across the board. Microsoft, for example, has pressured local governments to update zoning laws and land permitting processes to allow the creating of more housing in general. Such plans are often combined with proposals to subsidize the creation of housing specifically rented to members of low-income brackets. Most prominent public housing projects in the United States, including the failed Cabrini-Green project in Chicago, fall into this category of housing, and units in these homes are rented out to eligible families.

But what if homes were sold, not rented, at a subsidized rate? While there may be trade-offs between these two policies, my research finds that when people buy — rather than rent — homes at reduced prices, they are more likely to try to improve their local communities to increase their homes’ value.

What’s more, having their homes subsidized gives the new homeowners more resources — time, money and mental bandwidth — to organize on behalf of their new communities. When the homeowners are grouped together in the same apartment building or neighborhood, organizing becomes easier, according to research on the political effects of welfare policies generally.

Here’s how I did my research

Most U.S. affordable housing projects are rentals, so I’ve studied programs elsewhere to better understand the influence of ownership instead. In this project, I studied affordable housing in Mumbai, a metropolitan area of over 20 million that includes many slums. State and municipal governments have built a slew of apartments sold at a subsidized rate, many allocated through lotteries. That offers a natural experiment, with a control group and a group of beneficiaries that are, on average, quite similar.

In 2017, I interviewed 834 applicants to several Mumbai affordable housing lotteries that had taken place from 2012 onward. Of those, 421 had won the opportunity to buy homes sold at 30 to 60 percent of market price, with 25-year mortgages and a ban on resale for five years after possession. Of the winners, 387 purchased the homes, and the remaining families alongside the non-winners remained in unsubsidized rentals or small, crowded homes owned by extended family members.

Ownership encourages neighborhood involvement

The winners are roughly 10 percent more likely to report approaching bureaucrats and politicians to demand improvements to their local communities. Winners are also more likely to report voting for candidates who will improve their neighborhoods. Often, they’ve done this through homeowners’ associations formed with other program beneficiaries. Mumbai’s local governments are organized in ways that give bureaucrats good reason to respond to such requests, suggesting that making complaints actually improves neighborhoods and raises the quality of life for everyone in the community.

Mumbai’s housing lottery winners don’t have to move to the homes they’ve purchased; they can rent them out instead. But even those absentee landlords get involved in improving the communities where their new purchases are located. Fifty-nine percent of those who rent out their homes travel considerable distances — over an hour on average — to those new communities to stay involved in local development.

That’s consistent with research from the United States and European countries finding that homeownership results in or is associated with more active local citizenship — particularly political scientist William Fischel’s “homevoter hypothesis” that claims homeowners vote and participate in politics to keep their home values high.

We don’t yet know how new U.S. affordable housing programs will be designed

By now, many of the high-rise affordable housing buildings that were once so infamous in places such as Chicago, Philadelphia and Atlanta have been torn down. Dismantling these projects was part of Congress’s Hope VI project, passed in 1992, which aimed to create healthier and safer communities.

So far, the affordable housing initiatives being discussed have not clearly specified whether the resulting units will be rented or sold. Some affordable housing programs do not neatly fall into the categories of either rental or sale, including housing assistance for the homeless and community capital organizations. Nor do we know how corporations’ housing initiatives will compare with those managed by governments.

What we do know is that allowing residents to purchase their homes may well lead to healthier and more thriving communities overall. While U.S. cities differ dramatically from Mumbai in social, political, cultural and economic context, researchers have repeatedly found that the desire to protect home values is found anywhere that has a private real estate market.

Tanu Kumar is a PhD candidate in political science at the University of California at Berkeley.