What can we really learn about housing from Vienna? By Matthew Yglesias

What can we really learn about housing from Vienna?

Mostly that it's good to build more housing

MATTHEW YGLESIAS

MAY 30, 2023

There’s a perennial fascination in certain circles with the success of Vienna’s large-scale social housing program, which really does seem nice (Vienna is a nice place in general) and which demonstrates that public ownership of a very large share of the housing stock is possible.

The city was recently described in the New York Times as a “renters’ utopia,” and the Financial Times profiled it in 2018 as a “renters’ paradise.” More pointedly, Daniel Denvir and Yonah Freemark wrote a piece in Slate last week calling for more investment in public housing as the real solution to America’s housing woes. I find Freemark to be a vexing figure. He was the lead author on a recent study that conclusively proved supply skepticism is wrong, but chose to frame the outcome as calling YIMBYism into question.

And his praise of Viennese social housing seems to suggest that there’s something missing in the argument between those of us who believe relaxing regulatory barriers to construction is good and those who believe relaxing regulatory barriers to construction is bad:

But this debate is often impoverished. As policymakers continue to confront this crisis, it is time for them to reconsider an obvious but long-taboo solution: building new public housing. Right now, it’s so disfavored that you rarely hear anyone argue about making more of it—but that’s beginning to change in a number of cities and states.

But this debate is not impoverished at all. The stakes around the regulatory issues are quite high, and battles are currently being waged over them in many different places. Land use reformers have won a lot of battles lately; we’ve also seen promising initiatives go up in smoke in New York. In Texas, we came really close to passing an ADU law but were narrowly defeated. The coalitions in each place are different, the organizing dynamics are different, the strategies pursued are different, but the goal is always the same: fewer constraints on housing supply.

Meanwhile, I don’t actually understand what problem it is that social housing, specifically, is supposed to solve. Normally, you look to the public sector to build things when the thing to be built is socially useful but so unremunerative that private capital isn’t willing to finance it. In that case, the government needs to either subsidize it (the way the Inflation Reduction Act subsidizes zero-carbon energy production) or build it (the way most of our infrastructure is built). But the whole point on housing is that private capital does want to expand the housing supply, and there are lots of rules in place to constrain that. Those same rules would also constrain the public sector, over and beyond other problems with publicly financed homebuilding, including the need to raise taxes to pay for it.

So what, exactly, are we talking about and why?

Viennese-style housing requires massive deregulation

Here’s a building in Vienna that has eight units per floor built around a central corridor with one staircase.

It’s built to the Passivhaus standard for ultra-low energy use. I’m not sure whether this particular building is part of Vienna's public housing program, but it seems pretty nice.

Meanwhile, in the United States, it’s illegal to build a mid-rise apartment building across the overwhelming majority of residentially zoned land. Not just in the NIMBY suburbs or on the west coast — on 48% of D.C.’s buildable land you can’t build apartment buildings, and even where you can, you often can’t build one that’s eight stories tall. And almost nowhere in the United States are you allowed to build a building this tall that’s served by a single staircase. The NYT article on housing in Vienna profiles the large Alt-Erlaa complex, which features apartment towers that are 70 meters tall, much taller than you’re allowed to build anywhere in D.C.

So if your point about Viennese housing is that America should reduce regulatory barriers to home-building, then I agree. Of course what makes the situation utopian is that not only are the apartments nice, they’re cheap to rent. How does Austria make housing cheap without creating huge shortages?

According to Statistics Austria, 16,000 new units were built in Vienna in 2021, not including additions to existing buildings. In all of Austria (population 9 million), 71,000 units were added.

The Los Angeles Metropolitan Statistical Area contains approximately 13 million people, roughly 50% more than the country of Austria, but it adds housing units at less than half the rate.

New York City builds about 50% more units per year than the city of Vienna, but it has about quadruple the base population — so it’s adding units at a dramatically slower rate.

Compared to the United States, a very large share of Austria’s new units are publicly financed and publicly owned. But as Michael Lewyn noted during an earlier iteration of this argument, Vienna also builds private housing at a much higher rate than America’s most constrained cities. Vienna and Manhattan have similar populations, but Vienna adds private housing units at 10 times the rate of Manhattan over and above its social housing. It’s also worth noting that Austria’s social housing units are awfully small by American standards.

And that’s fine. But it’s worth keeping in mind that this debate is always making a bit of an apples-to-oranges comparison. If you really wanted to attract middle-class Americans into social housing, the units would probably need to be significantly bigger than Austria’s co-ops and communal flats, which would end up raising costs.

What problem are we solving?

Vienna, of course, was the capital of the Habsburg Empire, which on the eve of World War I was a vast polyglot state of 52 million people.

Then four long years of war imposed economic difficulties on the residents of all the belligerent countries, especially the Central Powers, which were subject to Allied blockade. Things only got worse once they lost the war, and the post-war Austrian successor state was saddled with reparations and other problems. But from an economic point of view, Austria was in even worse shape than Germany because its whole economic structure was built around a country that no longer existed. Austria used to export manufactured goods to and import agricultural commodities from the eastern areas of the empire. It used to have a port city in Trieste. It used to provide administrative functions for a large empire rather than a small nation-state. Patterns of trade and employment were completely disrupted, and the various postwar successor states were run by cranky nationalists who didn’t cooperate with each other. Several parts of Austria tried to break off and reunite with Germany. The upshot was that the economy tanked and the central government tried to pay the bills by printing money, leading to ruinous hyperinflation. Amidst the chaos, national Austrian politics tilted to the right, but local politics in Vienna tilted left, setting the stage for “Red Vienna” and the social housing boom:

The macroeconomic turmoil of the late 1910s and early 1920s added fuel to conservative resentment, but it also presented an opportunity. The revenue raised from city taxes went further because the city government was able to buy out property owners buffeted by hyperinflation and economic crisis. This gave the public housing programme access to land all over the city that otherwise would have been prohibitively expensive (if it were for sale at all). The massive economic dislocations of the postwar years gave the Social Democrats’ housing plan an edge. By 1924, the municipal government was the biggest property owner in Vienna.

“The Social Democrats took advantage of a crisis,” says Janek Wasserman, associate professor of history at the University of Alabama. “They used that hyperinflationary moment to basically expropriate land and property from people going under – the people who owned a lot of the real estate stock in the city.”

You could imagine this turning out poorly — Austria had a lot of ups and downs between 1924 and the withdrawal of Soviet occupation forces in 1955. But as it happens, it worked out well.

The government bought land cheaply, employed what would have otherwise been idle labor building up the city’s housing stock, and following WWII, Austria became a peaceful and prosperous country with a rich capital city that benefitted from the existence of all this social housing. It’s good that the Viennese have kept up with it because a functional public sector institution is a valuable thing, and it’s absolutely a cool and noteworthy story of social policy development.

But this is nothing like the situation in any high-cost American city.

By the same token, Singapore’s housing and development board construction, another frequently cited social housing success story, also arose under conditions quite unlike those in the U.S. today. Lee Kuan Yew started out as the leader of a very poor country. One of his big ideas was that a poor country could develop economically by having a very high domestic savings rate, which would lead to a lot of capital accumulation. But he didn’t want Singaporeans to just accumulate financial capital in the form of foreign assets; he wanted to increase Singapore’s stock of domestic physical capital. So people were essentially forced into a government-run savings scheme that then plowed their savings into domestic apartment construction. It’s a different financing structure than the Viennese program, but it also seems to have worked well and mostly achieved its goals — another good public policy success story.

But, again, these are not the circumstances facing any high-cost American city today. Private capital is absolutely willing to finance the construction of apartment buildings in expensive jurisdictions. There are just lots of rules making it illegal. I don’t think those laws are a good idea, and an increasing number of people agree with me. Lots of other people, though, are on the other side of this and want it to continue to be illegal to build denser building types in various places. Publicly financed construction is a solution to a problem we don’t have, where some hypothetical high-cost city does want new housing and has created a regulatory framework that’s friendly to new housing but that the private market doesn’t want to finance. That’s something that can happen — but it’s not the thing that actually is happening.

It’s bad to waste money

Among single-minded housing supply enthusiasts, I think it’s become fashionable to play nice with the internet’s tiny cabal of self-proclaimed PHIMBYs who want public housing to play a big role in increasing supply.

And on some level, I agree with that. Texas was recently considering a big ADU bill that had the support of most, but not all, Republicans in the legislature. It narrowly failed because even though a few Democrats supported it, most were opposed. If throwing some money for public housing into the bill had gotten two Democrats to flip from “no” to “yes,” that would have been a deal worth making. And if that legislative math doesn’t work in Texas, maybe it does in Hawaii or Massachusetts. Anything is worth a shot in terms of coalition-building.

But I do want to say that in a world of limited budgetary resources, this really does not make a lot of sense as an expenditure category.

If you’re making market-rate housing more abundant but are still concerned about the fate of poor people, why not give them money? For state-provided housing to be a better deal than cash, you’d need to believe that either the government is going to be able to build more cost-effectively than private developers (which I think is wrong) or that the government has some kind of comparative advantage at landlording, which is definitely wrong. There are plenty of situations in which it absolutely does make sense to spend money on public sector construction projects. Only the government is going to build the infrastructure to prevent rainwater runoff from poisoning rivers. Only the government is going to build the transportation infrastructure that growing cities need.

At the same time, we can see that almost every level of government is struggling with contracting issues and cost control in its construction projects. There’s no need to take on ancillary, unnecessary construction projects. We need to be figuring out how to execute better on the public sector projects we really need. We need to be providing people with social services (schools, police, parks) that only the government can provide. And we need to be giving poor people money so they can be less poor.

Getting intellectually invested in public housing solves the very niche problem of “you understand that housing supply is important, but you’re uncomfortable sounding like a libertarian or someone who’s friendly to capitalism so you’ve decided to find a socialist way to do it.” But while this seems to be a problem that a decent number of journalists have in their lives, it doesn’t seem like a major problem facing Americans as a whole. What we need to be doing is working on solutions for people’s concerns about traffic and parking while continuing to build bipartisan coalitions for regulatory change.