The President of the Government has announced the construction of 43,000 public houses to provide affordable rent to people unable to obtain it in the market. This initiative takes place in parallel to the processing in the Congress of Deputies of the government bill that introduces very profound changes in the regulation of urban leases and that has unleashed sharp criticism from the opposition and from the majority of experts in this subject.
Although the debate has focused on this legislative text, it is an opportune moment to analyze the other proposal of the Cabinet: the offer of residential parks of state, regional or local property whose destination is to be leased to individuals and households with income levels low.
First of all, it is essential to point out something obvious: the lack of faith of the head of government in the ability of his bill to increase and lower the price of flats for rent for people with fewer resources. Otherwise, the State would not be encouraged to become a builder, which, ceteris paribus, means assuming the ineffectiveness of the legislation submitted to the Lower House to achieve the objectives pursued by the government coalition and its parliamentary partners, not to mention , which anticipates and discounts their failure to achieve them. But there it does not end, rather the story begins.
From the outset, experience shows that large public housing projects under lease have created, wherever they have been undertaken, negative environments for the balanced and sustainable development of cities. Being left out of the market in perpetuity, this type of urban centers are not capable of adapting to the recycling process of residential property, essential for cities to be dynamic, grow and offer housing opportunities for all their inhabitants.
They tend to become islands of declining value, even though the surrounding urban environments have modernized and prospered. In colloquial terms, they have become ghettos. This has led on many occasions to the need to destroy them, as happened with the famous Chicago and St. Louis Towers in the United States (H. Husock, “Public housing becomes the latest progressive fantasyâ€, November 2019).
The reason for the ghettoization dynamics is very simple. On the one hand, there is its negative impact on the job offer of the people receiving the, let’s call them, social rentals. These are placed at a lower price than the one resulting from the crossing of supply and demand in a free market, which creates incentives for their “beneficiaries”, the people located in the lower income levels, to adjust to this situation and do not have incentives to get out of it.
If, in addition, this “benefit” is perpetual and is complemented by transfers from the assistance programs of the welfare state, its recipients have little interest in improving their economic position and moving to a better apartment and neighborhood. Thus, the habits of work, savings and education that allow individuals to improve their living conditions disappear or, better, weaken.
On the other hand, the classic axiom of the tragedy of the commons: “What belongs to no one, no one has an interest in keeping” is manifested with crystal clarity in the case of public housing on a lease basis. This causes, once again experience shows, a sharp deterioration of the areas where they are located. In the case of living with private residences, the value of these is significantly reduced, which impoverishes their owners.
Assuming they are isolated, they lock up those who live in them in the so-called “poverty trap” that feeds on itself. And all this without taking into account the appearance of very negative and habitual externalities, that is, an increase in crime, whose best-known expression is that of large North American cities.
Finally, there are very serious management problems. To begin with, if the demand for this type of residence is greater than the supply, which always happens, the public sector has to resort to rationing to allocate them. This implies not only the existence of long waiting lists, twelve years in the Netherlands, for example, but also opens the doors to favoritism and corruption.
Similarly, the authorities may face significant obstacles in enforcing the tenant’s contractual obligations. A government, read Spanish, that does everything possible to prevent private apartment owners from evicting defaulting tenants, it is unthinkable that it does so as the landlord.
The case of the Netherlands is very significant because it is the State of the European Union with the largest public housing stock as described; for a third of the population. In the Netherlands, the citizens with the right to demand such habitats are those who receive the bulk of their income from social programs and those with a below-average salary. Once the residence is granted, the eligibility conditions to continue in it are not reassessed and it is only lost if the tenant decides to leave it voluntarily.
What’s going on? What was pointed out in the previous theoretical exposition. The vast majority of tenants end up living in them permanently and only a squalid minority move to another address over time. That is, they voluntarily decide to stay in low-income apartments and neighborhoods because they do not feel any incentive to improve their financial or social position ( W. Dijk, “The socio-economic consequences of housing assistanceâ€, Mimeo, November, 2018).
The emergence of a broad and accessible rental market for individuals with fewer resources implies increasing the offer and this is not achieved either with more public housing to rent or with regulations that restrict it, but with regulations that offer legal certainty to landlords and allows the parties to freely agree on the contractual conditions. Housing problems in Spain are not a “market failure”, but a monumental and verifiable “State failure”.
