Old tool for the new school: the return of social housing in cities

After decades of favouring market-based solutions, cities are increasingly deploying social housing as a means to address the worldwide urban housing crisis.

The urban housing crisis

While housing prices in OECD countries surged by an average of 95% between 1995 and 2016, median household income grew by just 30%. As of 2019, one-third of low-income renters spent more than 40% of their disposable income on housing across the OECD on average, while 19% of EU households spent more than 60%.

This dichotomy has placed a particular strain on big cities. House price inflation in inner London was around double that of the rest of the United Kingdom between 1995 and 2019, while house price inflation in Paris between 2005 and 2019 was around 50% higher than in the rest of France. This growing chasm between income and housing costs has contributed to homelessness and gentrification in cities worldwide. Spiking rent prices have forced long-time city residents to choose between spending up to 60% of their income on rent and leaving their home. There are almost 1.3 million homeless residents in the US and Europe, mostly in cities, and COVID-19 has only exacerbated pre-existing housing inequalities. While temporary rent freezes and emergency housing were important stopgaps, the housing crisis persists.

One explanation, amongst others, may be the public sector’s withdrawal from urban housing markets while speculative real estate practices intensify. The mass-scale commodification of urban housing over the past two decades has coincided with the retrenchment of social housing, and correlates with an explosion in urban housing prices. This ballooning unaffordability in cities must be reversed to ensure that cities remain hubs of culture, diversity, and opportunity for all, and are not reduced to bastions reserved exclusively for the affluent. A renewed investment in social housing can help avoid this outcome.

Social housing works, despite inadequate funding or support

Social rental housing represents just 6% of total housing stock in OECD countries (Figure 1). Since 2010, that stock has declined in all but six countries (Netherlands, Austria, Iceland, Korea, Spain, Lithuania) due to reduced public investment in social housing and privatisation of units. The United Nations, the European Commission, and the OECD have each acknowledged a relationship between the global housing crisis, the homelessness epidemic, and the depletion of social housing stock.

Source: OECD (2020), “Social housing: A key part of past and future housing policy”, Employment, Labour and Social Affairs Policy Briefs, OECD, Paris.

Even in France, which requires municipalities to maintain 25% of their total housing stock as social housing, creation of and funding for new social housing units has dropped precipitously in recent years. In reality, more than half of eligible French municipalities escape their obligations, and just one-third pay the required fine for not maintaining the social housing quota. If prolonged, the reduction of housing subsidies (APL) could lead to disinvestment and ultimately divestment due to insufficient budgets, forcing the sale of social housing units on the private market.

A similar sequence unfolded with the United Kingdom’s Right to Buy programme, which enabled social housing tenants to buy their units below market rate, permanently removing them from social housing stock. The programme has removed 4.5 million total social housing rental units from cities’ affordable housing supply, contributing to rising rent prices and homelessness. To reverse these negative impacts, Scotland and Wales have abolished the programme altogether, while London has introduced the “Right to Buy Back” programme, which helps local councils re-purchase former social housing units lost through the original programme.

Yet despite governments’ broad preference for market-based solutions to the urban housing crisis, social housing remains a viable option. New York City’s social housing network, home to more than 400 000 people, shields the city’s poorest residents from gentrification and ballooning private rent prices, despite being deprived of funding and threatened with privatisation for decades. While market-driven subsidy and voucher programmes falter via sunset clauses or landlord scandals, and despite poor conditions due to systemic defunding, New York’s social housing units continue to provide residents with stable, permanent affordable housing. Funding to modernise existing units and construct new ones would only deepen such impacts, making cities more equitable.

Cities are finding creative ways to provide new forms of social housing                

After encountering the shortcomings of certain market-based instruments in providing affordable housing, social housing may be back en vogue. Several cities are taking direct action to convert commercial, hotel, and vacant properties to social housing. Barcelona (Spain) is combatting speculative real estate practices by legalising the forced sale of long-vacant units to the city. In Berlin (Germany), residents approved by referendum in 2021 that real estate firms controlling more than 3 000 total units must sell all properties beyond that number to the city. Los Angeles (US) recently passed laws to allow the conversion of motels to “supportive housing” for its sizeable homeless population.

Other cities are supporting the development of cooperative regimes. Reykjavik (Iceland) has allocated funding to non-profit housing cooperatives, while Bologna (Italy) has created a publicly operated housing co-operative exclusively for residents under 35.

A new age for social housing?

Cities are at risk of irrevocably becoming unaffordable for middle and low-income households. Pushing them further outside the city centre may strain transport infrastructure, harm the environment through urban sprawl, reduce productivity by distancing the labour force from employment opportunities, and exacerbate already grave spatial inequalities. COVID-19 has heightened these challenges, putting workers at risk when traveling into city centres via mass transit, or isolating them via localised lockdowns.

This is why investments in social housing construction and renovation should be integral to cities’ and states’ efforts for a sustainable, inclusive COVID-19 economic recovery. Such thinking also underlies the EU’s “Renovation wave”, as part of the European Green Deal. In the US, proposed legislation would invest USD 172 billion in ecological social housing and repeal a law banning the federal government from building new units.

Social housing helped make cities affordable for residents throughout the 20th century. After decades of neglect and defunding, now is the time to bring it back.

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Juliette Jestin is a Policy Analyst at the Cities, Urban Policies and Sustainable Development Division of the Centre for Entrepreneurship, SMEs, Regions and Cities, where she supports the OECD Champion Mayors initiative's work on issues related to housing affordability, employment opportunity, transport-oriented development, and land use. s. Prior to joining the OECD, Juliette worked in urban planning and architecture agencies and at the French Ministry of Foreign Affairs where she contributed to the Delegation for the External Action of Local Authorities call for projects "Sustainable Cities in Africa”. She holds a Bachelor's and Master's degree in urban planning and political sciences from Sciences Po and the School of Landscape and Architecture of Bordeaux (France).

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Andrew Lombardi is a Policy Analyst at the Cities, Urban Policies and Sustainable Development Division of the Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) where he supports the OECD Champion Mayors initiative's work on issues related to inclusive growth, affordable housing, sustainable urban transport, spatial planning, and innovation and data use in cities, as well as CFE projects on land value capture, the future of city centres, and opportunities for midsized cities. Before coming to Paris, Andrew worked in city government in New York, NY, and has conducted urban policy research in Mexico City, Manila, and Barcelona. He holds a Master’s degree from Sciences Po in urban governance and policy.