Proposals for market-based solutions to the housing crisis have precedents in the elite-driven housing policy of the 20th century. Those policies favored business interests at the expense of poor and working-class people while worsening racial divides.

A row of apartment buildings on Bushwick Avenue in Brooklyn, New York. (GHI / Education Images / Universal Images Group via Getty Images)

From the passage of Joe Biden’s subsidy-ladden infrastructure and climate legislation to calls from prominent liberals like Ezra Klein for a “supply-side progressivism,” Democrats appear to have rediscovered a long-standing tradition of using state subsidies to incentivize private enterprise to achieve social policy goals. This approach entails funneling public funds to business with the goal of unleashing private investment in ways thought to serve the public interest.

The idea dovetails with an increasingly popular line of thought about how to fix one of the biggest problems plaguing blue states — namely, a lack of affordable housing. The “YIMBY” (short for “Yes in my Backyard”) movement, for instance, argues for loosening zoning regulations on the grounds that increased housing supply of all kinds will have a trickle-down effect, bringing down housing prices overall.

Democratic lawmakers are increasingly embracing the YIMBY line. California state senator Scott Wiener (D-San Francisco), considered a likely successor to Nancy Pelosi’s congressional seat, has spearheaded several reforms that cast government regulations as the culprit blocking needed housing development. The targets of this legislation have included environmental review regulations, laws mandating wage floors for construction workers, lengthy permitting processes, and especially the ability of municipalities to reject housing developments or restrict neighborhoods to single-family housing. The goal is to “upzone” or remove the barriers to more housing development.

Putting aside the record of this approach in actually increasing affordable housing, the idea that unlocking private investment is the solution to social ills has a long lineage. In recent years, a number of historians have examined liberals’ repeated resort to supply-side market reforms as the means of addressing social problems; their research helps us understand why this tradition has endured alongside the unrelenting growth of the inequality it seeks to address.

Renewing Cities for Capital

Since the New Deal, federal policy meant to address urban poverty has been the product of liberal compromises with conservatives and business elites. One of the original concessions liberals made in “urban renewal” legislation was to allow for local implementation of federal slum-clearance and redevelopment legislation. As a consequence, the effects of such legislation varied widely: some cities today still boast some amount of subsidized welfare-state-like housing and cultural and recreational spaces meant to improve life for residents, but most cities have very little.

Much of the 1937 federal urban renewal legislation was written by housing reformer Catherine Bauer, who aimed to follow the model of European social housing with the hope of fixing overcrowded slums. This legislation gave cities the ability to clear areas classified as “blighted” or as slums, with the goal of creating better housing for the urban poor and working class.

But local elites overseeing development often had different ideas. For example, the Chamber of Commerce of Cleveland, then the United States’ fifth-largest city, slowly evolved past their opposition to government spending with the realization that private charity could not address the scale of deprivation of the Depression. Undertaking studies of what kind of government action they might accept, they ranked European-style public housing last and instead favored public-private partnerships. They viewed government action to acquire and clear slums in particular as necessary to insulate private investors from risk and make private development profitable.

The preference for public action clearing the way for private housing development was eventually codified into federal urban redevelopment policy. Federal Title I legislation in 1949 adopted the “write-down” approach, wherein local agencies would clear blighted urban plots and sell the land at a discount to housing developers.

Between 1949 and 1968, amid an acute postwar housing shortage, Title I was used to raze 425,000 housing units, with only 125,000 built as replacements. In Chicago’s “Black Belt” — named for the burgeoning African American population just south of the central business district — planners replaced slums with spaced-out project towers of mixed-income housing, several large interstate highways, and the campus of the Illinois Institute of Technology. Here, as in many cities, redevelopment powers meant to reduce poverty were instead used to tackle the perceived threat of that poverty to nearby downtown property values.

Elite Capture of Anti-Poverty Efforts

In his 2023 book Illusions of Progress, historian Brent Cebul shines a harsh light on how Democratic policymakers and local capitalists have overcome resistance to government spending by directing anti-poverty programs to their own ends. He points out that business elites lobbied for and used institutions like regional planning boards and municipal bond markets to fund infrastructure development where they faced roadblocks like state-imposed statutory limits on tax increases or when voters rejected referendums that would have increased taxes.

This policymaking approach flowed from the needs of capitalists, who wanted government funds to decrease their own investment costs but also worried about giving the government too powerful a role in directing investment. Cebul details several decades worth of “supply-side liberal” lawmaking on the local level and in federal policy, but the evolution of federal urban renewal housing policy is particularly revealing. Starting with the 1949 Housing Act, where legislators aimed to increase local authorities’ effectiveness in remaking slums, the goal shifted away from building public housing and toward incentivizing private developers to undertake housing development.

New subsidies were created to allow for Federal Housing Administration (FHA) loans to private developers, including the 1954 creation of Section 220, which subsidized mortgages for apartment-house development. This approach contributed to the massive displacement and increased segregation seen in Chicago and many other cities — in part because it created a smaller number of apartments with rents at a level that were higher than most could pay, but which was needed to ensure a profit for developers.

Cebul cites a representative Cleveland urban renewal project built in the 1950s with an FHA subsidy. A few years after completion, it had a vacancy rate of 50 percent due to high rents. By 1967, the owners of this project, like those of 40 percent of all Section 220 projects, were described as having difficulty making good on mortgage payments.

Cebul joins other scholars like Keeanga-Yamahtta Taylor, Preston Smith, and Destin Jenkins, who, with varying emphasis, have in recent years made the argument that the main flaws of twentieth-century federal urban policy were due to the role of capitalist interests in shaping them.

The conventional narrative about urban renewal, embraced across much of the political spectrum, has often posed government action and spending as the original sins of housing policy. Critics of urban renewal typically blame government for segregated housing and overlook the role of capitalists. (Richard Rothstein’s The Color of Law, frequently cited by YIMBYs, is an influential contemporary example). And political historians have often spoken about a “tax revolt” among white homeowners in response to perceived excesses of liberal anti-poverty spending.

New scholarship from Cebul and others has instead positioned some of the populist “backlashes” to government programs as, rather than nascent conservatism, attempts by working-class and minority residents to resist the interests of local elites. Cebul draws attention to local politicians and working-class voters who successfully campaigned to reject tax increases on residents and instead, as Cleveland politician Ralph Perk put it, worked to “shift the [tax] burden from the homeowner to business and industry.” Policymakers, for their part, cited local voters’ electoral anxiety over taxes as a reason for technocratic public-private coordination and increasing reliance on private municipal debt.

On the whole, urban renewal oversaw a bonanza of both public and private money remake mid-century urban America according to capitalists’ designs — and the failure to address inequalities had political consequences. Urban redevelopment policy, like FHA loan-making for renewal projects, in addition to hardening segregation, privileged the interests of large capitalists over those of homeowners and small landowners.

Cebul recounts several instances where capitalists, while railing against New Deal liberalism, lobbied for increased redevelopment subsidies or tax loopholes while working-class voters saw their own interests as opposed to more government spending. The key missing ingredient for the realization of urban social democracy like that achieved in Europe was, as Bauer later recognized, an organized working class fighting for the implementation of a popular agenda.

Glimpses of an Alternative Left Coalition

There are glimmers of alternative local political coalitions in the United States that could have led to different outcomes. In some cities, a high degree of working-class and tenant organization might have produced an alternative politics of development.

Though New York City is rather singular in boasting much more tenancy than homeownership, the political situation there is instructive. On its surface, the city in the postwar era embodied the standard capitalist-dominated urban renewal approach, with an unelected Robert Moses overseeing a disproportionate amount of federal funds for massive slum clearance projects. But he and other officials came to work closely with the labor movement, which had extensive experience with developing and financing cooperative apartments. Labor’s involvement resulted in New York State legislation that scaled up nonprofit housing development (while mandating affordability controls) and even influenced FHA financing programs created in the 1960s that were intended to aid nonprofit groups, including black community groups.

State programs created by Governor Nelson Rockefeller reflected civically minded capitalists’ longtime private sector investment solutions to the slum problem. But the degree of organization of workers and tenants played a significant role in setting the political terms of this public-private partnership to ensure below-market rents.

The massive labor- and Moses-backed Co-op City illustrates this conflictual partnership, where the union-owned nonprofit kept increasing residents’ maintenance charges in order to make the project’s debt payments. But residents undertook the largest rent strike in US history, forcing the state to refinance the project’s mortgage on terms that ensured long-term affordability for residents. Labor’s relative influence in setting policy is reflected in the fact that in the quarter-century after World War II, 30 percent of the nearly eight hundred thousand units built in New York City were some form of government-subsidized, below-market-rent housing.

By the late 1960s, the possibility of this kind of left coalition, with the power to shape semiprivatized state welfare programs in a positive direction, was disappearing. Inflation (combined with the government’s growing bill for the Vietnam War) put significant pressure on federal funds to cities. Consequently, Lyndon B. Johnson’s social policy agenda, the War on Poverty, was drastically scaled down — its urban aid program, Model Cities, was budgeted for only $2.3 billion when civil rights groups had called for at least fifty times that amount. Johnson’s reforms to the FHA again emphasized inducing the private sector to build low-income housing, mostly because public housing was seen as a drag on an overburdened federal budget.

The climax of the civil rights movement in the late 1960s should have been the opportunity to push Washington to address many of the segregationist sins of New Deal labor and housing policy. But the Vietnam War and tensions within the civil rights movement helped torpedo A. Philip Randolph and Bayard Rustin’s attempt to forge a coalition around a program of full employment and a vision of a racially egalitarian social democracy.

Instead, Johnson’s reliance on the private sector to implement residential integration accelerated conflict between white and black working-class homeowners (which would continue in debates over school busing). This was due in part, as Taylor has documented, to Johnson’s charging the private sector with fixing racial discrimination — while the housing and real estate industries continued to rely on discriminatory practices to reap profits.

The real threat of loss of property values, coming alongside opposition to tax increases and later busing, was among structural forces driving white working-class resistance to residential integration. Segregated real estate practices (which predated and undergirded federal redlining) meant that for white homeowners, a black person purchasing a home in their vicinity would result in the rapid decline of the value of their property. Real estate agents would then buy cheap properties from panicked whites and sell at a high markup to black homeowners.

Resentment at integration, led by flawed private-public partnerships that drew upon rather than discarding these practices, must be understood, Taylor argues, within the context of the onset of prolonged inflation “and the absence of a genuine welfare state.” Greater public investment might have led to shared prosperity for working-class white and black residents, instead of leading to what many perceived as a zero-sum fight for resources, further fueling racial animus.

In many ways we are still living with the consequences of the failures of Democrats’ supply-side policies. YIMBYism, with its focus on encouraging private development, appears to be little more than a rebranding of that basic approach.

Demanding More, Not Less, Redistribution

Advocates of supply-side progressivism are keen on reviving this tradition of liberating the private sector to address housing shortages through, for example, upzoning. But as Seth Ackerman has observed, applying trickle-down economic theory to housing neglects the role of speculation in determining urban land prices.

Upzoning can often lead to higher land prices, working at cross-purposes to its stated aim. Zoning, the major form of government restriction on development, Ackerman argues, is not the main driver of housing prices ― the bigger culprit is wealthy renters whose presence in a rental market increases valuation of potential development, which in turn leads to a flurry of speculative development of market-rate and luxury housing.

While gentrification is the main issue in expensive cities, in those with low land values (like Detroit and other Rust Belt cities), a shortage of affordable housing again suggests the downside of relying solely on the private sector. Private actors, quite rationally, will not develop or maintain housing where profits are more easily made elsewhere. The root problem in both cases is the mismatch between the kind of housing the market is able to produce and what society needs.

The Left, then, should be wary of the revival of “supply-side liberalism” and its YIMBY branch in particular, which promise to carry on this market-based, elite-centric approach. We should resist the narrative offered by those who blame government regulation for our housing crisis (rather than market failure), and instead argue for public action to realize a housing policy that prioritizes social utility over the profit motive.

But the history of urban policy in the twentieth century suggests that such a program won’t be forthcoming unless labor or other movements of ordinary people (like tenants’ organizations, for example) can forge strong coalitions to articulate and push an alternative agenda. Those forces are likely the only ones that can stand up to capitalists’ pressures to design housing policy in their own interests.

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