The Affordable Housing Scam
A remarkable new paper published by one of the state's premier think-tanks exposes hard facts no politician wants you to know.
Note: Since 1991, The Cascade Institute has served as one of Oregon’s voices for public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. Among the many papers published recently was a study of the national mania for “affordable housing.” It was written by Randal O'Toole, a land-use and transportation policy analyst and director of the Oregon-based Thoreau Institute. He is the author of several books including American Nightmare: How Government Undermines the Dream of Homeownership, along with fellowships or visiting professorships at Yale, the University of California at Berkeley, and Utah State University.
Here are excerpts from his study…
U.S. taxpayers spend tens of billions of dollars a year subsidizing housing for low-income households. Previous researchers have shown that subsidized housing costs about 20 percent more per square foot than unsubsidized homes; that developers capture most of the benefits of such subsidies; and that affordable housing does little to make overall housing more affordable because the construction of new subsidized dwellings displaces almost as many new unsubsidized homes.
All these problems have gotten far worse in the last two decades thanks to a planning ideology that says that more people should live in high-density housing. Less than 60 years ago, housing was affordable throughout the United States. Since then, state and local governments in the Pacific Coast states, Colorado, the Northeast, and a few other places have made housing expensive by limiting the land available for new homes using urban-growth boundaries and other policies collectively known as growth management.
The resulting increases in housing prices have led politicians to increase spending on affordable housing subsidies. Yet such subsidies do nothing to make overall housing prices more affordable and, depending on how affordable housing funds are raised, can even make housing less affordable.
Most Americans prefer or aspire to live in single-family homes as opposed to multifamily apartments, which have less privacy and are more vulnerable to crime, even if the costs were the same. Yet the dense, mid-rise and high-rise housing that planners want to see costs at least twice as much, per square foot, to build as low-rise buildings.
To promote such denser development, many cities have convinced the state and local agencies passing out affordable housing funds to primarily favor this kind of housing. Whereas most affordable housing built in the late 1980s and early 1990s was low-rise housing, since the mid- 1990s affordable housing projects in Denver, Portland, and Seattle have increasingly focused on mid-rise and high-rise housing. Affordable housing developers mitigate the high costs of such housing partly by dividing buildings into tiny apartments, sometimes as small as 260 square feet and rarely as large as 1,000 square feet.
This raises serious issues of equity and social justice. Why should affordable housing funds be used to promote this ideology when a more sensible use of such funds could see twice as many housing units built for the same amount of money? Why should low-income people be consigned to live in cramped apartments when most other Americans get to live in single-family homes that cost less per square foot? Why should low-income people be expected to ride transit and discouraged from driving cars when automobility would give them access to far more jobs and economic opportunities than even the best transit systems?
This paper also shows that affordable housing funds have led to the creation of an Affordable Housing Industrial Complex, whose public face is non-profit groups that are guaranteed a share of the funds. These non-profits lend an aura of altruism to the system when in fact they are anything but altruistic as they charge millions of dollars in fees for each project and pay many of their employees well over $150,000 a year. Yet when rising housing prices reach crisis levels, these non-profits become the face of the unhoused and they promote “solutions” that primarily benefit the developers (including themselves), not people who need housing to be more affordable.
Instead of wasting money on high-cost housing, project- based affordable housing funds should be abandoned in favor of tenant-based voucher subsidies. Meanwhile, Oregon and other states should make housing markets more affordable by abolishing urban-growth boundaries and other rural restrictions on housing developments.
Three Lessons of Affordable Housing:
First, these projects can easily cost twice as much, per square foot, as privately built housing. Second, affordable housing developers make their projects appear more affordable by dividing projects into individual dwelling units that are much smaller than private homes. Third, even non-profit developers charge high fees that can greatly increase the cost of these projects.
One recent example is the Buri Building, which opened in 2020 at a cost of $28.4 million. Owned by Northwest Housing Alternatives, which claims to be “the leading not-for-profit developer of affordable housing in Oregon,” the project was designed by MWAArchitects, built by Walsh Construction, and is managed by Cascade Management.
Walsh Construction is typical of companies that have specialized in building affordable housing projects. The company says it has “built more than 55,000 homes” and that “multifamily affordable housing is the heart and soul of our enterprise.”
Founded by brothers Tom and Robert, Tom (who died in 2022) was particularly well connected, being part of former Oregon Governor Neil Goldschmidt's “light-rail mafia.”
In the 1990s, Tom Walsh became the general manager of TriMet, Portland's transit agency. From that position, he directed tens of millions of federal and state funds toward the subsidization of numerous multifamily transit-oriented developments, many of which were built by his family construction company. Supposedly, this wasn't a conflict of interest because his brother was running the company.
The Buri project includes 102 studio apartments, 51 one- bedroom apartments, and six two-bedroom apartments. It was built with support from six different funds: low-income housing tax credits, Metro's transit-oriented development fund, the state Local Innovation and Fast Track (LIFT) program, the Oregon Multifamily Energy Program, the Energy Trust of Oregon, and the Wells Fargo Housing Foundation. Multnomah County has also waived property taxes on the building and the land it sits on….
Northwest Housing says that construction cost $20.5 million, land acquisition cost $2.5 million, while soft costs, which would include architect and developer fees, were $5.2 million. While the building has more than 90,000 square feet, only about 70,000 square feet are living area while the rest are hallways and lobby areas. This means construction alone cost about $290 per square foot of living area; with soft costs the average was $365 per square foot and adding land costs brings the total to $400 per square foot.
According to Home Builder Digest, basic home construction costs in Portland started at $159 per square foot in 2021.59 More recent sources quote basic costs of $170 per square foot. Of course, high-end homes will cost more, but there is no reason to think that affordable housing should be high-end housing. The Buri Building appears to have cost 70 to 80 percent more per square foot than basic construction of private homes in Portland.
The Buri Building was in the news recently because its design made it unlivable. Homeless people “shoot up in the stairways, sleep on couches in common areas, smoke fentanyl in the elevators, and vandalize plumbing.” In 2022, the first full year the project was open, “police, fire and medical personnel have responded to six calls about stabbings, 17 for assault, four about shots fired, seven for vandalism, eight on restraining order violations, and one labeled ‘death–obvious–cold/stiff.’”
This will not be surprising to anyone familiar with many of the public housing projects built in the 1950s. Many were so crime infested that housing agencies were unable to fill them with residents even rent-free. The mid-rise projects favored today contain many of the same design flaws that make them vulnerable to crime.
In the 1970s, as St. Louis was demolishing some of its high-rise public housing projects, an architect named Oscar Newman wondered why crime was such a problem in those projects while it wasn't in nearby low-rise housing occupied by people of the same income class. He did an extensive study comparing crime rates with architectural features and concluded that the key to keeping crime rates low was “to allow residents to control the areas around their homes.” He called this “defensible space.”
Single-family homes were easily controllable because occupants would immediately know whether someone in their yard belonged there or not. In contrast, occupants of high-rises and mid-rises would have no idea whether someone in a common area such as a hallway, lobby, or outdoor areas was another tenant, a guest of one of the tenants, or a potential criminal. This is one reason why, as Arenson noted, condominiums in mid-rise buildings “sell at a discount” to similar-sized single-family homes.
Advocates of affordable housing often appeal to concerns about equity and social justice. But growth-management policies that make housing less affordable are not socially just. MIT economist Matthew Rognlie (now at Northwestern) has shown that rising housing prices are the main cause of growing inequality. Those who care about equity should demand the repeal of growth-management policies that have made housing expensive.
Instead, many are supporting more subsidies to affordable housing. Yet putting low-income people in tiny apartments that most Americans would reject in favor of single-family homes is hardly equitable, especially when single-family homes cost less to build.
Read the entire report here. We recommend subscribing to the Cascade Institute’s newsletter here.
As some of you must know, Portland's housing costs have been the lowest among comparable cities on the west coast and somewhere in the middle nationally. Cost of land in the dessert or anywhere else with no constraints may produce lower cost housing but fails to measure long term externalities which is why we have the UGB. Whether the UGB or permitting costs are being administered wisely is a separate question.
Regarding affordable housing, you might find this of interest.
https://www.youtube.com/watch?v=XfonhlM6I7w&list=RDCMUCX4ppwcUldlxpuiRGoT1INQ&start_radio=1&t=47s&ab_channel=TheAestheticCity
They want people crammed into cities where they're easier to manage and control.