The long running joke about public policy in Pittsburgh is that it historically has been about a decade behind the times. And instead of learning from public policies that have failed elsewhere in prior decades, it inexplicably embraces them with typical “We-can-make-it-work” hubris.
Witness its bear hug of the heavily publicly subsidized “affordable housing” craze that supposedly makes housing more “affordable” for the few at the great expense of the many while reducing new housing options.
High-rise owners around the country, Pittsburgh included, have been clamoring for Sugar Daddy Government to turn out the pockets of taxpayers, dangling public dollars like a carrot on a stick to help building owners defray the cost of converting their languishing post-pandemic spaces from office to residential.
Those owners complain that using public dollars is the only way to make such conversions cost-effective. But the marketplace has spoken that they are not. Yet “leaders” in Pittsburgh use one hand to place plugs in their ears while the other keeps diving into taxpayer pockets.
And government typically insists there must be an “affordable housing” component to be “worthy” of public dollars.
But both at an incredible premium, as The Wall Street Journal reported last month on the California experience with “affordable housing” central planning:
“State and local governments in California have committed tens of billions of dollars to build more affordable housing. A new complex for some of the neediest low-income people doesn’t use any of it,” says The Journal story.
“By forgoing government assistance and the many regulations and requirements that come with it, SDS Capital Group said the 49-unit apartment building it is financing in South Los Angeles will cost about $291,000 a unit to build.
“The roughly 4,500 apartments for low-income people that have been built with funding from a $1.2 billion bond measure L.A. voters approved in 2016 have cost an average of $600,000 each.”
What an astounding waste.
Continues The Wall Street Journal story:
“Across California, efforts to address the homeless crisis by building more affordable housing with government money have been plagued by sky-high costs. A recent report commissioned by the city of San Jose found affordable-housing projects that received tax credits cost an average of around $939,000 a unit to build there last year.
“SDS, an investment firm, is financing construction of its L.A. building, scheduled to open in June, with a $190 million fund it raised to build an estimated 2,000 units for formerly homeless people in the city with mental-health and other medical needs.
“It is one of several such efforts venturing into an affordable-housing market that for decades has been dominated by developers and nonprofits that cobble together public funding and typically move at a snail’s pace.
“’We believe there’s a different way than using government money, which really becomes slow and arduous and increases cost,’ said Deborah La Franchi, chief executive of SDS.”
Imagine that. But you can bet “leaders” in Pittsburgh and elsewhere can’t. The proof is in the pudding with pols at the local, county and state levels falling all over themselves to subsidize classic rent-seekers.
So, why is purely taxpayer-funded “affordable housing” so economically inefficient? As The Journal further explains, such “housing must typically be built with labor agreements that dictate construction wages and working conditions, as well as energy-efficiency standards. Funding often comes from a variety of agencies, each of which has its own set of approvals and regulations that can slow construction and add to costs.
“But with private financing, ‘You’re cutting out millions of dollars just in soft costs,’ said David Grunwald, an executive at RMG Housing, which is developing the SDS fund’s projects,” The Journal reports.
So, if not from the public, from where does the financing come?
“SDS raises what is called an impact fund, a relatively low-return private-equity fund with backers that include banks and foundations,” the newspaper says. “Most of these institutions are required by federal laws to make some investments that benefit low-income communities. Major investors in the firm’s $190 million fund include Ally Bank, Synchrony Bank and Kaiser Permanente.”
Now, to be clear, The Journal reminds that while construction of such units does not use public financing, “many privately funded buildings would likely still depend on government funds to operate.
“Formerly homeless residents at SDS-financed properties, for example, are expected to use federal housing vouchers or other rental assistance to pay rent. The properties can also qualify for property-tax exemptions,” The Journal reports.
But it’s a far cry from what those in Pittsburgh and other locales keep pushing, is it not?
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
