The New York Times Magazine
Imagine a Renters’ Utopia. It Might Look Like Vienna.
By Francesca Mari Photographs by Luca Locatelli
Published May 23, 2023
Excerpt: concluding paragraphs
Perhaps no other developed city has done more to protect residents from the commodification of housing. In Vienna, 43 percent of all housing is insulated from the market, meaning the rental prices reflect costs or rates set by law — not “what the market will bear” or what a person with no other options will pay. The government subsidizes affordable units for a wide range of incomes.
Two-thirds of the city’s rental housing is covered by rent control, and all tenants have just-cause eviction protections. Such regulations, when coupled with adequate supply, give renters a level of stability comparable to American owners with fixed mortgages. As a result, 80 percent of all households in Vienna choose to rent.
Vienna has succeeded in curbing the craving to own. It has done it by driving down the price of land through rezoning and rent control. In general, the beneficiaries of these land-use policies are more the limited-profit housing associations, the origins of which preceded Red Vienna and have built 3,000 to 5,000 units a year for the last four decades.
Today limited-profit housing accounts for half the city’s social housing. Limited-profit housing associations are restricted to charging rents that reflect costs. Investors — banks, insurance funds — may buy shares of the limited-profit housing associations, generally to help fund initial construction. They are paid a low rate of annual interest on their shares. Any profits beyond that must be reinvested in the construction of new social housing. “It creates a revolving flow of financing for social housing,” said Justin Kadi, a professor in planning and housing at the University of Cambridge. Vienna’s main outlay toward housing is now providing low-cost financing for construction — and the government gets that money back.
The key difference is that Vienna prioritizes subsidizing construction, while the United States prioritizes subsidizing people, with things like housing vouchers. One model focuses on supply, the other on demand. Vienna’s choice illustrates a fundamental economic reality, which is that a large-enough supply of social housing offers a market alternative that improves housing for all.
Limited-profit housing associations, the origins of which preceded Red Vienna and have built 3,000 to 5,000 units a year for the last four decades. Today limited-profit housing accounts for half the city’s social housing. Limited-profit housing associations are restricted to charging rents that reflect costs. Investors — banks, insurance funds — may buy shares of the limited-profit housing associations, generally to help fund initial construction. They are paid a low rate of annual interest on their shares. Any profits beyond that must be reinvested in the construction of new social housing. “It creates a revolving flow of financing for social housing,” said Justin Kadi, a professor in planning and housing at the University of Cambridge. Vienna’s main outlay toward housing is now providing low-cost financing for construction — and the government gets that money back.
The spiral of overvaluation in housing, which makes the housing-haves rich and the have-nots desperately poor, has brought us to a point where only something radical can solve it. The problem with housing in the United States is that it has been locked in as a means of building wealth, and building wealth is irreconcilable with affordability. The housing crisis in the United States is proof. Even in 2017, before the pandemic, around 113 million Americans — some 35 percent of the nation’s population — were living with a serious housing problem, such as physically deficient housing, burdensome costs or no housing at all, notes Alex F. Schwartz, an urban-studies professor at the New School.
Calls for a federal social-housing plan in America might sound far-fetched, but make no mistake: The United States government intervenes heavily in the housing market. It’s just a two-tiered system, says Gail Radford, the historian who chronicles the New Deal-era debate over social housing in her book, “Modern Housing for America.”. There’s generous support for affluent homeowners and deliberately insufficient support for the lowest-income households. In 2017, the United States spent $155 billion on tax breaks to homeowners and investors in rental housing and mortgage-revenue bonds, more than three times the $50 billion spent on affordable housing.
That $50 billion isn’t nothing. In fact, in many U.S. cities, public spending per capita on housing and community-development subsidies is higher than in Vienna. But it seems clear that much of this money is misspent, whether through inefficient private-public partnerships like the low-income-housing tax credit; or through distortionary vouchers; or, most dubiously of all, through subsidizing homeowners, the people who need it least. “If you give everyone demand-side subsidies, like vouchers, and there’s a supply shortage, it’s going to drive up prices,” Chris Herbert, the managing director of Harvard’s Joint Center for Housing Studies, told me. It costs the state more, and landlords often wind up pocketing the profits.
Though Gemeindebauten (social housing) represented a large initial government outlay, Vienna’s social housing is now self-sustaining. Guess how much of the residents’ salary goes toward the program. One percent. Social housing drives down rents in the private market by as much as 5 percent. Vouchers may appear cheaper in the short term, but directly financing well-regulated public and limited-profit construction is the only way to mitigate speculation and hedge against ever-increasing housing costs. In 2020, New York and California spent $377 and $248 per capita, respectively, in housing development, while Vienna spent just $124 — and approximately half of Vienna’s spending is on low-interest financing that will be repaid and then re-lent.
Social-housing programs have existed in America before, and they exist in America to this day. Local social-housing programs, many of them inspired by Vienna, are underway in Montgomery County, Md.; Seattle; and California. And they have a long legacy in New York, which built 66,000 affordable apartments and 69,000 limited-profit co-op apartment units from 1955 to 1981 under the Limited-Profit Housing Companies Law, also known as Mitchell-Lama, after the two legislators who introduced it. In combination with public housing, Mitchell-Lama units are a main reason economic diversity remains in the Lower East Side, Williamsburg and Chinatown.
Comment:
One of the biggest barriers to constructing an adequate supply of affordable housing is the rising cost of urban land. So how did Vienna succeed in driving down the cost of land? As Patrick Condon of the University of British Columbia explains,
Because rent control disincentivized the private development of rental buildings, landlords were, for a time, removed from the market for urban land. Consequently prices finally went down, allowing the city to buy land at a much reduced price; often it was the only buyer in the market.
In the late 1920s, about 30 per cent of Vienna’s annual budget was spent buying land and financing housing construction, the money coming mostly from taxes on private property and land. They were levied on private apartment buildings and progressively increased with the assessed value of each unit. Very high taxes were also levied on vacant land, giving owners extra incentive to sell.
These policies stripped land speculation out of the marketplace.
As both the Vienna model and Henry George would suggest, the problem is forever and always the cost of land. Burdensome land costs, and the rentiers who gain massive wealth by passive land speculation, are the real enemies — not developers, not our homeowners, not our public officials.
Ultimately, the only solution the U.S. housing crisis is the elimination of land speculation in the real estate market and the expansion of social housing stock. And the Georgist remedy that will achieve this goal is a land value tax.
Tom Gihring, Research Director
Common Ground – OR/WA
