In London, England, converted Victorian-era slums still exist as government-subsidized “council housing.” The government, under the Labour Party leadership, has been trying to find more methods of providing affordable housing to millions of lower-class British citizens. Photo courtesy khaosworks.

Another component of government’s role is fostering public-private partnerships. Law and capital-enabling environments create marketplaces where market-wealthy participants develop, own, buy, and sell homes. These classic economic marketplaces alone will never produce sustainable affordable housing, because slums are economically rational, albeit societally undesirable. Achieving affordability means pushing down the affordability frontier, delivering a market-quality home to a slightly-below-market participant.

Decades of experience and billions of dollars of expenditures throughout the developed world have demonstrated that government is a very poor direct provider of social housing. Examples include "council housing" in the United Kingdom, public housing in the United States, and the citйs HLM in France. Government does better to steer, not row, by providing programmatic tools and inviting the private sector to use them to both make its own profit and reach government objectives. Today, virtually no responsible government advocates new public ownership; indeed the trend is toward privatization. Thus, US public housing—created as a result of the 1937 Housing Act—gave way to private-public housing following the 1968 National Housing Act and was privatized via HOPE VI, a program to eradicate severely distressed public housing. UK council housing privatizes via stock transfer to non-profit housing associations registered as social landlords.

In a public-private partnership, the private sector expects clean boundary rules, prompt and consistent administrative guidance, even-handed selection and judicious enforcement of law, acknowledgment of its profit motive, efficient decision-making, and protection against political or journalistic vilification. Conversely, the public sector expects program participants to do what they say they will do; be financially accountable; have real equity at risk; take their financial lumps when things go badly, whether through incompetence or misadventure; and not seek unwarranted bailouts just because things went wrong. This public-private partnership is a complex intervention that requires considerable skill and sophistication to establish and then equal parts cleverness and wisdom to implement to fruition. In South Africa, for example, the 2003 financial sector charter is a landmark effort to define the appropriate relationship between capital providers and government. Government sets targets and provides capital encouragement, and the capital providers then innovate toward specified societal outcomes such as increased black homeownership and redevelopment in formerly black townships.

Government must take the initiative by creating programs and agencies to administer those programs that make sovereign resources, such as borrowing capacity and credit enhancement, available to the private sector if—and only if—the private sector undertakes delivering a particular kind of home, at an agreed affordable price, for the benefit of a target customer group. When the relationship between the public and private sectors is balanced, there emerge developers, builders, lenders, and originators, who actively create homes and recruit affordable customers to buy or rent them.

The final listed responsibility of government is in subsidies and financial contributions. Public-private partnership will extend affordability only so far because the contributions of efficiency, scale, risk tolerance, and risk transfer materialize into only a few percentage points increase in affordability. For the bottom quartile of society, housing is unaffordable, unacceptable, and impossibly distant.

Government may wish it could secure affordability at no cost, but the laws of economics are unforgiving; true affordability for the population's lowest-income quartile requires financial contributions by the government. The science lies in designing the right concoction and adding appropriate subsidies and incentives to an existing ecosystem predicated on public-private partnership. Government can provide its resources in numerous ways: donated or cheaply sold land; increasing supply of higher-density inclusionary zoning in exchange for a portion of the created value; appropriated grants, such as down payment assistance or loans; ongoing subsidies like Housing Benefit; or fiscal incentives such as tax deductions and tax credits.

In the United Kingdom, for example, beyond the resources of land allocated by English Partnerships, housing grants allocated by the Housing Corporation, and Housing Benefit, the Labour government continues to explore approaches to expand its supply of affordable housing beyond the existing Housing Association stock. The UK’s capacity to develop affordable housing is constrained entirely by appropriations of Housing Grant. Much attention is being given to intermediate or key worker housing that will enable first responders like police, firefighters, doctors, nurses, and teachers to live in the communities they protect and serve. Similar challenges confront Ireland, where the booming Celtic Tiger economy is reversing the Irish diaspora and stimulating a metropolitan Dublin population growth intensity not seen in two centuries. Ireland is pioneering ways to create additional appropriated or fiscal incentives that will stimulate affordable intermediate housing as a permanent addition to supply, a waystation for families moving from council housing to homeownership.

Government must lead by establishing large sources of subsidy—whether direct appropriations or taxes foregone—compatible with existing public-private delivery mechanisms and programs to deliver additional affordability beyond what can be reached through the means of an advantaged market. The same housing specialists populating the public-private partnership sector will create even greater affordability by deploying subsidies.

Government's Final Obligation

Beyond its four roles, government must have the essential quality of far-sighted patience because it takes time to create effective financial systems, and they in turn take time to create sustainable, affordable housing. Individual housing properties are long-lived, composed of a long gestation period, a long development, and a long maturity. Add to that the complexity inherent in a successful interdependent housing financial ecosystem, and it takes decades to reach policy makers’ ultimate goal of developing functioning delivery at all levels of affordability based on the interplay of law, capital, partnership, and subsidy.

These ecosystems grow slowly and die quickly. Elected officials who create policy have to look beyond next week's headlines, beyond next year's election, and even beyond the next incumbent's administration. For that reason, affordable housing delivery is most effective when the commitment to housing affordability is a long-term policy bedrock so solid its support is bipartisan and non-partisan.