Affordable Housing and Rent Control

By | August 20, 2021

The need for more affordable housing is one of the top priorities for every community in the United States. Minneapolis is no exception. City officials, developers, politicians, and community groups have consistently focused on this problem – a wide variety of efforts to mitigate this problem have been tried. New construction, rehabilitation, and rent control are examples. The problem persists and is steadily worsening! It seems as if we are only taking an aspirin pill in an attempt to eliminate a major disease – a disease that has been spreading and affecting more of our citizens for many years; many decades.

The Crisis in Rental Housing

In 1975 (46 years ago) the President of the Minneapolis City Council, Alderman Lou DeMars, asked me to chair a blue ribbon committee to investigate the rental housing crisis in Minneapolis and to respond to rent control efforts that were being advocated. Apparently I was considered neutral and able to keep control of a group of passionate housing advocates – developers, owners, renters, property managers, city and state public officials, national advocates of different housing aspects such as modular housing and rent control and even representatives of financial institutions and building materials. This was truly a group that represented every conceivable point of view regarding the housing situation in Minneapolis.

The committee met more than 60 times during the following year. Every aspect of housing – the physical buildings, the management of the buildings, and the occupants of the buildings was discussed – almost endlessly but to the satisfaction of the entire committee.

We published a report “The Crisis in Rental Housing.” The conclusion of the year long study and of the report did not focus on the cost of building materials or the quality of management or the behavior of building occupants or even the expressed financial needs of the building owners. No, the unanimous conclusion was that the problem was tenant affordability or more succinctly stated – non-affordability of the tenants – the inability of the tenant to afford the cost of rent along with all of their other costs of living – food costs, health care costs, the costs of transportation, education, taxes, heat etc. etc. The total sum of their costs was beyond their income – their ability to pay.

Minneapolis Rental Housing Task Force Report, 1976

Rent control was also thoroughly discussed during many of the meetings in 1975. Ultimately the community agreed that “rent control would not solve the basic lack of income problem – the disparity between the ability to pay rent and the rent required to operate rental housing in a satisfactory manner.” Rent control was not supported by the committee.

The problem in 1975 was an affordability problem – the tenant of rental housing was unable to afford to pay all of their costs of living – food, health care, housing taxes, transportation etc. etc. The problem today, 46 years later, has not changed; actually the problem has worsened because all of the costs of living have increased far more rapidly than personal incomes, which after adjusting for inflation, have barely changed.

There are only two ways to address the affordability problem – to reduce the affordability squeeze.

  1. Increase the income of the tenant
  2. Reduce the costs of housing so that rents could be reduced

  • Increase tenant income The most direct method to improve affordability would be to increase or supplement the tenants income. For example, Universal Basic Income (UBI) is a financial tool being tried in California and elsewhere. UBI is the provision of funds to eligible individuals in an effort to assist them in covering their costs of living. Other efforts to increase income should be supported – such as the $15.00/hour minimum wage.
  1. Reduce the costs of housing –
  • Materials and labor – the rapidly rising cost of materials and labor work against cost reductions
  • Rent control is not the answer! Since renter affordability is the problem, rent control makes no more sense than placing similar controls on all other rental costs. How about food cost controls, health care cost controls, gasoline cost controls, etc? Lee Shafer wrote an excellent article on rent control in the Star Tribune dated July 4, 2021. The article was not supportive of rent control – suggesting the addition of more rental units as a solution to the affordability problems rather than rent control. The addition of more housing units, thereby providing competition for available tenants, should theoretically reduce rents. The opposite effect might result – New construction may well be terminated if total net income is problematic to the developer.
  • Reduce the cost of money. The developer of rental housing expects to pay a “market” rate for the money needed to pay all of the costs of materials and labor to build the building – or expects a “market” rate return for the amount he or she invests as equity in the building. To the extent the cost of funds can be available at a “below” market rate, the total building cost would be reduced which then will allow lower rents – and better affordability. This subsidy can be provided through the use of social impact funds (below market interest rate funds), crowdfunding (below market rate funds for a particular project) and from the public sector though low income housing tax credits (LIHTC). All of these techniques are helpful in reducing housing costs – but they are not nearly adequate in the amount of funds provided.

There could be another source of below market funds – a source with greater potential!

In our society there is an enormous amount of discretionary/disposable income controlled primarily by persons of the Boomer generation (born between 1945 and 1965). These funds are often being provided for worthwhile causes at below market rates. Many of these funds are, or could be provided as pure contributions with zero expectations of even a return of the capital provided. Current recipients of these funds, for example, the Cancer Society, Humane Society and Walker Art Center, receive substantial amounts annually to support their other sources of income. An Affordable Living Fund could be established – not in lieu of but as an alternative to these other worthwhile causes. Substantial funds could be available annually with the donor receiving a deduction for tax purposes. These efforts to reduce the cost of funds needed to provide “affordable housing” would result in lower rents and improved affordability.

While a direct income supplement would be the most effective means to improve affordability – adding new units and reducing the costs of funds will certainly help. ANYTHING TO IMPROVE AFFORDABILITY, AFFORDABLE LIVING IS THE GOAL!

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