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Promote Public Housing!

by Sebastian Gerhardt Monday, Aug. 27, 2018 at 4:11 AM

A basic principle of the market economy is that the market only reacts to solvent demand, not to needs. If a need is not reflected in a solvent demand, the market simply does not react. The supply side expansion of affordable housing is key, not subject promotion.


Arguments for a Housing Policy Alternative

By Sebastian Gerhardt

[This excerpt from a study on German housing policy published on July 6, 2018 is translated abridged from the German on the Internet, www.contra-mgazine.com.]

The turn of the millennium was marked by a real wave of privatizations… The arguments for the sales were the budget deficits of the local communities and the territories. On the political side, all the parties represented in the Berlin parliament including the PDS (today the Left Party or Die Linke) and the SPD supported this…

The politics friendly to selling faced financially strong investors mainly from the US… A clear shift in power in favor of aggressive actors can be seen on housing markets in population centers. Traditional housing companies adjusted their business policies to the new trend – supported by a politics that relied on free enterprise or financial market solutions.

4.3 New Housing Shortage

Open pandering to the financial markets is no longer “politically correct” since the crisis of 2007 and 2008 and is avoided in the public. The remarkable German distance to the housing question was clear in the reporting on the financial crisis. The pre-history of the US real estate history was not only a history of financial adventurers and the change of standards in awarding credits. It was above all the history of a still unsolved social problem that has worsened enormously in the past 30 years. Even leftist authors have all too often forgotten this aspect in their crisis presentations…

Changes on the housing market did not fall from the sky or come out of the blue. Dependent employees must go where their labor is sought. Even the German government had to concede homelessness and housing shortage have “structural reasons”: “rental costs rising intensely regionally or locally because of inadequate living space, particularly in small apartments” (German government 2017b). Rising costs are not only grounded on the “personal plane” – through factors like “economic emergencies, family problems, addiction problems and mental illnesses” as possible causes.

The non-existent apartment construction for normal wage-earners and the subsequent disproportion of supply and demand since the end of the 1990s are results of profit-oriented real estate and the corresponding development of real estate prices.

5. Market-conforming Answers to the Housing Shortage

…The housing shortage leads to rising rents but not to an adequate increased supply… The private market cannot cover the increased need for living space. With the usual investment models in freely financed homebuilding, a gateway or entrance rent inevitably results that exceed the purchasing power of a large part of the households… On account of the given income- and wealth distribution, a large part of households cannot acquire homes. This part of the population cannot afford any rents in freely financed new construction. “No supply is created for these households by the market” (Riessland 2014).

A basic principle of the market economy appears here in all sharpness: the market only reacts to solvent demand, not to needs. If a need is not reflected in a solvent demand, then the market simply does not react. This can be observed in the (non-existent) apartment construction. This affects the majority of society and not marginal groups…

The low interests of the last years only heated up the strained markets and did not lead to a sufficient building activity. They even have a fatal effect on the housing markets since they stimulate speculative investments for higher profits. The low interest-level benefits investors and owners, not renters (particularly foreign institutional investors in German real estate). All this contributes to higher real estate prices that are clearly regionally differentiated. The housing shortage leads to increased strain through rising rents. The necessity of an investment control system aiming at an increased supply of rental apartments is manifest in this experience.

While the emergency on the housing market is obvious, the inertial in the official housing policy is also obvious. An interest-guided “business as usual” prevails in the corridor of dominant politics. Its core is still the combination of promoting investors and caring for the poor by the state. In Germany, “balanced social, infrastructure, economic, ecological and cultural conditions” are sought. However, the real development does not correspond to this goal. The priority is clear in the market-conforming answers to the housing crisis.

5.1 New Substandard

Renouncing on any effective political design and waiting what happens would be a market-radical and nihilist answer to the housing crisis. Unfortunately, this is now the current reality because of lack of ideas and political will. A new substandard will be established with free enterprise solutions and continued renunciation on adequate political intervention in apartment construction. Zoning- and equipment standards will be lowered. The first signs of this can be seen in the increase of private dorms and student apartments… On the background of this danger of a new substandard, new concepts to strengthen an inclusive housing market are urgently necessary to counter the threatening segregation.

5.2 Strengthening the Demand Side: Promoting the Subject

The economic strengthening of the demand side (subject-promotion) is a classical liberal idea. The underlying idea is making needy households market-accessible by subsidizing their purchasing power. Subject-promotion is urged and necessary according to the course of things. However, the housing supply itself is left to the market forces. Subject-promotion exists in Germany in the form of housing subsidies and taking over housing costs…

Subject-promotion does not go to the root of the housing problem. Rents increasing on account of market tightness are subsidized instead of creating affordable living space and relieving the market. Promoting subjects while simultaneously dismantling supply leads to a real vicious circle. The funds expended in subject-promotion land directly in the pockets of real estate owners. Subject-promotion is both an expensive and an unsustainable use of public funds. Nevertheless, it is regarded as a suitable and overriding means against soaring rents by all the parties today…

Stimulating new construction by economically strengthening low-income households means subsidizing their purchasing power. Subject-promotion is simply not expedient. However, adjusting subject-promotion to movements on the housing market must be seen as a necessary evil enabling low-income households to survive in today’s housing market. But subject-promotion cannot redress the housing shortage – the core of the problem. Reversing the relation from the subject- to supply-side promotion would be worthwhile. Only this supply orientation would do justice to “changing direction in housing policy”…

5.3 The Old Model of Supply-Promotion: Advancing Private Parties

Supply-side promotion aims at increasing the supply of affordable living space instead of economically strengthening households. Public funds should be directed to building rental apartments. In the international comparison, there are very different models. The German model of social housing is only one of several possible models. Advancing property developers through grants, inexpensive loans and higher deductions or write-offs is the form of supply-promotion practiced for many years in the German model of social hou9sing… The system is the error…Building consistently oriented at affordable living space to the favor of renters must inevitably result in a non-competitive or market-distant segment…

6. An Alternative: Public Investments for a New Communal Housing Stock

A publically-financed apartment construction in public property is a social alternative to the old German special model. This option follows the social state maxims that public tasks belong in public authority, funds should be used as sustainably as possible and enrichment of private actors should be excluded. Several years ago, the Berlin senator Ulrich Nussbaum explained this.

Public housing can refer back to important historical precursors. So it was practiced in the British Council Housing of the postwar era and in Austrian community housing since the First Republic. Public housing is still vital today in Austria after being dismantled in Great Britain owing to the neoliberal policy of Margaret Thatcher and her successors. Community housing at 32% of rental apartments is a basic component of Vienna housing policy. Austria is considered an international model. Realizing this alternative in today’s Germany requires clarifying many questions.

1. A social solution of the housing question must take seriously the property question. Promote public housing instead of private!...

2. Public funds should be used by public housing firms for new apartments that remain permanently in public ownership and thus are open to a democratic political control. The communal self-government should be complemented by forms of renter co-determination.

3. Building a public housing stock aims at developing the social state. This is directed against the neoliberal dismantling of the social state into a care of the poor and against the replacement of government responsibility by private initiatives or charity. Subject-promotion and residual housing policy originate from liberal concepts.

4. New communal housing necessitates a supply-promotion, the commitment of state funds for building new apartments. Only an expanded supply can reduce the pressure of owners on renters. Subject-promotion (costs of housing lowered with housing subsidies) is necessary but cannot solve the housing problem.

5. An integrated communal housing policy that improves living conditions for the majority is necessary. A residual supply for “low-income households,” defined by politics as a problem group is not central. Rather, preventing the isolation of the poor as a step in fighting poverty must be the goal.

6. Financing on the plane of the Federal German government and the territories must be ensured so the current inequality in the communal financial outlay is not worsened. An investment control system must be materially funded and cannot exist in a vacuum.

6. Alternative Communal Housing

Only a massive public promotion would revitalize businesses that build and rent new apartments at socially acceptable conditions. A mere tax relief of non-profit businesses is not enough, as the calculations and investment estimates show (Holm, A./ Horlitz, S./ Jensen, I. 2017). The linchpin of affordable housing is the direct commitment of public funds.

Without a publically-financed investment program, a noteworthy increase in the supply of affordable apartments is not conceivable. The funds are certainly available from the public authority in times of high tax revenue and low interests. Their availability is possible and not only necessary and sensible. The question how these funds can be used most effectively and sustainably must be the starting point of our reflections. The regional building possibilities of local communities and territories must be developed parallel to the outlay of financial funds to make possible a democratic use of these funds.

The social question cannot be solved on the housing market. Housing costs will not fall. Decades of pressure on the income of dependent employees and the decline of union organizational power could be compensated. Very different fields of conflict exist here: decisions over the goals of social work, labor market problems, and working hours. Still, a democratic society needs a social infrastructure that includes an affordable housing supply.

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