The Lever - CHEAT SHEET: The Housing Crisis

In Austin, Texas, the average rent has surged 108 percent year over year. In New York City, rent has skyrocketed 41 percent. In Salt Lake City, it’s increased 40 percent. In Portland, Oregon, it’s 32 percent. Since mid-March of 2020, there have been just over one million evictions, with 6,613 in the past week alone. There were already half a million people experiencing homelessness nationwide in January 2020, and inflation and the pandemic have only exacerbated the problem.

Clearly there’s an enormous housing crisis. But what is causing it? And how can we address it?

Give us five minutes of your time to read this new edition of Cheat Sheet. We will explain the roots of the problem — and what can be done to help.

OUR NEWEST E-BOOK: John Roberts’ Revolution

In our brand-new 135-page publication exclusively for supporting subscribers, we reveal point by point how a court led by a celebrated “moderate” like John Roberts has become the most extreme in a century — and what can be done to stop it. Become a supporting subscriber and you’ll immediately receive your copy of John Roberts’ Revolution, as well as our Citizens’ Guide to Following the Money and Holding the Powerful Accountable

UPGRADE TO RECEIVE YOUR COPY RIGHT NOW

High Demand And No Supply? It’s More Complicated Than That

Some say the housing crisis is caused by increasing demand and inadequate supply, indicated in part by low vacancy rates. But while the San Francisco Bay Area has been experiencing an exodus of high-income renters thanks to the rise of remote work, the drop in demand hasn’t had much impact on housing costs in the region. Bay Area rents, while slower to rebound to pre-pandemic levels, are still obscenely high, at an average of $3,230 per month.

Plus, rents are going up even in places with high vacancy rates. Vermont, for example, has the highest vacancy rate in the country, at nearly 23 percent, according to LendingTree. But rents are still very high, with $2,500 for a two-bedroom being common. Homelessness has exploded in the state, and the situation is putting stress on social services.

No Rent Control

A more prominent culprit in the housing crisis is the near total absence of rent regulation in the U.S., as well as nonexistent vacancy taxes, which would tax empty homes to collect revenue for affordable housing and incentivize landlords to not leave them vacant for investment purposes.

Across the country, many cities, towns, and counties are prevented from implementing rent control policies that would cap annual rent increases at moderate amounts. In 1994, Massachusetts banned all local rent control ordinances. The following year, California banned new rent controls. Many other states prevent municipalities from doing essentially anything to regulate rent prices without state approval.

In New York, meanwhile, judges have watered down recent rent control legislation, leading to “thousands” of additional evictions. Democrats in the state have also sat on their hands on good cause eviction legislation, which would require that landlords have a valid reason to end tenancies, like nonpayment of rent, in addition to capping rent increases at 3 percent annually.

The ongoing, systemic failure by governments to protect renters is largely attributed to the power of the real estate industry, which spends and lobbies heavily to derail rent regulations.

Not Enough Affordable Housing

There’s also a massive underinvestment in affordable housing, which would increase the supply of high-quality homes for low- and moderate-income people. Many of the public subsidies for housing are for higher-cost options, not low-income housing.

While $360 billion in public pension plan capital is invested in real estate, most of that money is going to high-fee, high-risk private equity real estate, which exists to either pump up asset values for expensive commercial and residential property, or to prey on those in the single family rental market by pursuing aggressive eviction policies and failing to make repairs.

Of that $360 billion, less than $7 billion is invested in the AFL-CIO’s Housing Investment Trust, a low-risk bond fund that is currently building 7,223 housing units designed to be rented below market rate. If the full amount of public pension fund assets currently invested in real estate were instead invested in the trust, there could be 350,000 new affordable units in the pipeline in 2023.

This shift would substantially reduce the risk held by pension funds, generate tens of thousands of unionized jobs, and save retirement systems from paying billions of dollars in fees, much of which currently goes to anti-union and anti-pension billionaires.

Limited Public Housing

Meanwhile, the federal government has been derelict in addressing the affordable housing crisis. At the height of the pandemic in 2021, the federal government spent $90 billion on low-income housing. By comparison, the latest annual military budget was more than eight times that, at $715 billion.

One can’t forget the artificially constrained supply of government-funded public housing. Even with the 1998 Faircloth Amendment, which capped the total number of public housing units, there’s room for 227,000 new units of public housing nationwide. The key problem is that local housing authorities charged with building new public housing tend to be influenced by developers who oppose such a move. There’s also been very little effort on the part of the Department of Housing and Urban Development (HUD) and the White House for new public housing.

Finally, public housing funding is currently constrained by the budget cycle, which inhibits long-range planning. Instead, Congress could make such funding permanent.

Corporate Home Raiders

The outsized power of the financial industry plays a part in escalating housing costs. One in seven home purchases in top metro areas last year were made by investment firms seeking to rent or flip the properties. This state of affairs reduces the supply of homes for owner-occupied housing, and also allows for large-scale landlords to set rent prices across entire metro areas.

Don’t Forget the Fed!

Interest rate hikes by the Federal Reserve play a role in the housing crisis, too. Higher interest rates inhibit the flow of capital to everything by tightening the available supply of money and credit going into the economy. Tightening interest rates, as Fed Chair Jay Powell is focused on, will significantly reduce the supply of capital for new housing construction.

Some Governments Are Taking Action — But Is It Enough?

Some communities are responding proactively to the housing crisis. In Newark, Mayor Ras Baraka has launched initiatives to prevent corporations from buying up housing. In Montgomery County, Maryland, County Executive Marc Elrich has proposed extending the pandemic rent increase cap in response to the area’s soaring housing crisis. In California, Berkeley is considering expanding rent control, the cities of Santa Cruz and San Francisco will include a vacancy tax on their November ballots. In Boston, meanwhile, Mayor Michelle Wu is considering taking action on rising rents.

But more broadly, there needs to be a cohesive federal approach. The pandemic eviction ban should be resumed and national rent control should be discussed. Congress needs to make aggressive new investments in housing, and large public-sector unions should be pushing pension funds to move their money out of private equity real estate and into the Housing Investment Trust.

If you’d like to read future Cheat Sheets, please click here to become an $8-a-month or $70-a-year supporting subscriber. When you become a supporting subscriber, you get this kind of exclusive content, you get access to our live events, you get our Citizens' Guide To Holding The Powerful Accountable — and you are helping us hire more journalists.

Help us spread the word! Please forward this email to family and friends.

Was this email forwarded to you? Sign up for free to receive original reporting like this in your inbox every day.