The private sector is failing to address California’s housing crisis. Social housing shows promise

When it comes to affordable housing, Californians mostly agree on one point – we don’t have enough.

There are different, sometimes overlapping explanations for why: zoning is too restrictive; regulations are too cumbersome; land is too expensive; homeowners are too resistant. It’s a supply problem; it’s a demand problem; it’s a corporatization problem; it’s a tax problem; it’s a tenant rights problem; it’s a short-term rentals problem; it’s an institutionalized racism problem. 

Each of these explanations is more or less true, and we can continue to debate their relative significance. Or, we can reckon with what they add up to: the private market has failed to provide us with the housing we need.

The market’s failure to adequately supply a public good is neither surprising nor unprecedented. If the point of building homes is to generate profits, unmet demand will inevitably exist in places where money cannot be made. The Urban Institute found that building homes for low-income households is not sufficiently profitable for the majority of developers, who need to charge market-rate rents to cover construction and operating costs. 

Even after decades of tax credits, density bonuses, inclusionary zoning laws and other developer incentives, we are still millions of units short.

Rather than continuing to hope for a private-sector solution, California should invest in a strong social housing program.

Cities around the world have used social housing to address affordability. Strategic Actions for a Just Economy recently traveled to Vienna with Los Angeles leaders to learn about their model. Sixty percent of Vienna’s 1.8 million residents live in housing managed by the city or by limited-profit associations – approximately 420,000 units in all.

Critics will say that Los Angeles is not Vienna, and that implementing large-scale publicly subsidized housing would be impossible in a city grappling with an affordability crisis and roughly 70,000 unhoused residents. But when Vienna launched its experiment nearly a century ago, it looked a lot like Los Angeles looks today.

During the last two decades of the 19th century, Vienna’s population swelled from around 750,000 to just over 2 million as the city began industrializing and absorbed adjacent suburbs. At the same time, rising inflation made building new homes extremely expensive. By the 1910s, overcrowding and slum conditions were prevalent, and the city was home to almost 170,000 unhoused workers.

In 1923, Vienna began levying a luxury tax to fund an ambitious public housing plan. Over the next 10 years, they created nearly 60,000 units in mixed-use apartment blocks on land the city either owned or purchased. These buildings were thoughtfully integrated into the urban fabric, built next to existing residences and along transit corridors and outfitted with amenities that served the entire neighborhood.

Vienna continued to invest in its social housing program, which today benefits residents from different economic backgrounds and stages of life, from low-income families to middle-class professionals to seniors to college students. It is funded by a 1% income tax, plus money generated from rents, ground leases and loan repayments, about 440 million euros annually. Most covers capital costs, including rehabilitation and new construction, while 15% is set aside for individual subsidies and tenant services. Surpluses are reinvested in the program.

California could take a similar approach. Even though the governor vetoed the Social Housing Act, he signed the Stable Affordable Housing Act, or Senate Bill 555, which requires a social housing study that could help create 1.4 million permanently affordable units over the next 10 years. Reviving proposals like SB 584 could fund affordable housing by taxing short-term rentals.

California needs to keep proposing solutions that deal with the failure of the private housing sector, whether that means instituting a Vienna-style social housing system or something else. But there can be no more debate that the market has failed, and that bold public intervention is necessary to guarantee housing as a right for all.