Government Spending That Is Not Cost-Effective Makes The People Poorer

In your family, you have a limited budget.  If you spend some of your money wastefully, that means that you will not have enough left for your higher priorities.  It is obvious to you that wasteful spending makes you poorer.  So you are careful to spend every dollar effectively. 

And then you have the progressive vision of government as the source of perfect fairness and justice through government spending.  The money comes from the tooth fairy.  Spending on favored progressive causes is a moral issue -- how could you be so cruel and callous as even to consider cost-effectiveness of spending when we are dealing with values as fundamental as fairness and justice?  Try to find any example of a progressive considering the issue of whether wasting public money makes the people poorer.  And thus we get, for example, the folly of "affordable housing."

"Affordable housing" has been in the news this week in several suburban and rural jurisdictions around New York.  Read anything you can find on the subject, and you will find one hundred percent acceptance by all participants in the discussion that the building of "affordable housing" through some kinds of government support or subsidies is a good thing and indeed some kind of moral necessity.  Has anybody (other than yours truly) ever asked whether this government spending is cost-effective?  If it has ever happened, I can't find it.

Now, recognize that in the suburban jurisdictions the cost-ineffectiveness of the "affordable housing" is not nearly at the extreme level that we see in Manhattan.  Only in Manhattan do we hand out to poor people apartments that, if in the private market, would have values in the range of $3 million to $5 million each -- meaning that we provide these "poor" families with annual subsidies in the range of $150,000 to $250,000 per family.  And yet, because these families continue to have little to no cash income, we continue to count them as "poor."  It seems almost inconceivable that the taxpayers could spend $250,000 per year to subsidize some families, only to have them remain poor.  That's what you get when you spend taxpayer money out of guilt without considering cost-effectiveness.  But just because the suburban "affordable housing" programs are not as financially disastrous as their Manhattan counterpart does not mean that they could remotely make sense if cost ever got considered for a moment.

Anyway, out in New Jersey, affordable housing is in the news this week.  New Jersey has long imposed state mandates on its municipalities to generate affordable housing within their borders, supposedly enforced by a state agency called the Council on Affordable Housing.  But according to the Wall Street Journal on June 27, in 2015 the state Supreme Court found that the Council had failed to enforce the appropriate requirements, and stripped it of its powers.  That sent the matter to the state's appellate division court, which is expected to rule shortly on the extent of the responsibility of municipalities for failure to generate affordable housing during the period 1999 to 2015, when the Council was said to be falling down on its job.  The pending appellate division decision has set off a debate between those who consider "affordable housing" a moral necessity versus those who want to "preserve the character of our towns."  Of course, neither side even mentions the critical issue, which is cost-effectiveness.

As an example, for the side of "moral necessity," we have Richard Smith and Christian Esteves writing at for the Newark Star Ledger on June 6:

We are confronting a moral reckoning in New Jersey.  The Garden State remains one of the most segregated states in the country — where too often the color of one's skin determines a person's future.  This system of de facto segregation is undergirded by a long history of exclusionary zoning practices by suburban municipalities seeking to keep low-income residents confined to struggling inner cities, where they are unable to take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to jobs.

OK, Richard and Christian, if as you say the answer to lifting the poor out of poverty is to provide them with government-subsidized "affordable housing" in previously segregated communities where they can then "take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to good jobs," then can you kindly look right across the river to your neighbor Manhattan and explain to us why tens of thousands of people on that little island, supplied with multi-million dollar subsidized "affordable" apartments in the richest county in the country, still remain mired in poverty for decade after decade?

For the other side of the debate, the Journal quotes one Jeffrey Surenian, an attorney for the town of Barnegat in the litigation before the appellate division, who is seeking to minimize the obligation of his client to make up for affordable housing not built in the 1999 to 2015 window.  His argument:

“If the numbers are so high that every site has to be zoned for affordable housing, that is a huge infringement on how the municipality is ultimately developed,” Mr. Surenian said. “You could have sites that are developed at densities 10 times greater than they were originally planned for.”

OK, but how about pointing out that subsidized "affordable housing" costs a fortune in taxpayer subsidies for a small number of beneficiaries, and then, instead of helping them escape poverty, it traps them in poverty for life?  Somehow, no one thinks of that argument.

The Journal article does not get into any detail on the economics of so-called "affordable housing" in New Jersey.  But in Connecticut, where I am now sojourning, an article in the current (June 30) issue of the Lakeville Journal (sorry, this particular article does not seem to appear on their website) gives us the details of the economics of one "affordable housing" project in this jurisdiction.  The article has the headline "Sharon Ridge," and is authored by the former vice-chair of the Sharon Housing Authority, Lea Davies.   

For those who have not heard of the place, Sharon is a rather tony town of only about 3000 people in northwest Connecticut, most famous as the long-time home of the Buckley clan (William F., James, et al.).  The mansion where the Buckley brood was raised sits right on the main drag just south of the town green.  (It looks rather stately, but actually has long been carved up into condominiums.):

But yes, even in remote Sharon, they have government-subsidized "affordable housing."  Ms. Davies writes to brag about the recently-completed 12-unit addition to the Sharon Ridge project. Here is her statement of the economics:

Development costs were approximately $4 million.  The land was already owned by the SHA and zoned for additional building lots, simplifying the process enormously.  Government funds for a project of this size were essential to ensure a financially feasible project.  The SHA received a grant of more than $3 million from the state of Connecticut.  In addition, the SHA obtained a $1 million, 30-year loan (at a 3.5 percent annual interest rate) from the United States Department of Agriculture (USDA) Rural Housing Program.  Of paramount importance was the USDA providing annual rental subsidies for the new units, making them even more affordable.  

See that -- it's as good as free!  A $4 million cost, paid for with a $3 million state grant (free!) and a $1 million federally-subsidized loan (almost free!); plus ongoing operating costs substantially paid for by ongoing federal subsidies (free!).  Or alternatively, we can do a little simple math: $4 million for 12 units comes to $333,333 per unit.  Oh, but they already owned the land, which somebody must have paid for.  So say, about $400,000 per unit.  Plus ongoing operating costs.

Go to websites for real estate listings, like Zillow or Trulia, and look for the town of Sharon.  Even in this tony town, you will find about a dozen listings for houses for sale under $300,000, including several under $200,000.  Check under the adjacent (less tony) town of Canaan, and you will find several dozen listings under $250,000.  From the pictures, these places look perfectly pleasant, if modest.  So why exactly are the taxpayers spending $400,000 per unit, plus a lifetime of operating subsidies, to construct new "affordable housing," when there is plenty of perfectly good housing on the market at half the cost?  The only reason I can think of is, so that some bureaucrats can get bigger empires and more staff and growing budgets.

But why should we care if it's all "free"?  Somehow Connecticut, while getting big kicks out of passing out the "free" money for progressive moral crusades, has taken itself into a dead end of endless budget crises and economic stagnation.  Do you think the two might somehow be related?  Well, at least they don't spend $5 million per unit on their "affordable housing" like we do in some spots in Manhattan.