Social Bonds for Social Housing
Social Bonds for Social Housing
Brad’s plan to generate affordable housing through federal social bonds.
Brad’s plan to generate affordable housing through federal social bonds.
The affordable housing crisis continues to plague New York’s 10th Congressional District. Rents have surged, homeownership is out of reach for working families, and thousands of our neighbors continue to live out on the street. Wages are not keeping up with median rents, and new affordable construction lags far behind the need.
I am a long-time and resolute champion for zoning reform and land use changes, like the ones I led in Gowanus, where over 8,000 new homes are rising, nearly 3,000 affordable to low-income and working-class families. Those reforms matter, but they are only half the equation. Even when affordable housing developers are legally permitted to build housing, they often cannot secure the financing they need.
The cost of financing is one of the largest barriers to affordable housing construction. Market-rate developers often pass financing costs on to renters or buyers through higher prices. Affordable housing developers cannot. As a result, the affordable, below-market, income-restricted housing we need most is hardest to finance.
As New York City Comptroller, I issued the city's first-ever "social bonds," long-term municipal bonds whose proceeds were dedicated entirely to affordable housing. We attracted mission-aligned institutional investors, improved transparency and accountability, and lowered the cost of capital for affordable housing projects, since the debt service is paid through the City’s general obligation, rather than by the tenants. The proceeds were dedicated to financing 100% permanently affordable housing for low-income seniors, families, and people with special needs. The buildings were mostly built by not-for-profit housing developers, sometimes referred to as “social housing,” since they cannot be privatized or sold for profit.
A federal Social Bond Program would authorize the U.S. Department of the Treasury to issue long-term bonds, structured like existing Treasury securities, with proceeds dedicated to financing social housing, new affordable housing for low-income and working-class families, seniors, and people with special needs, as well as the long-overdue renovation of public housing.
The Treasury would issue Social Bonds as a dedicated instrument, clearly labeled with a use-of-proceeds commitment, at terms comparable to standard long-term Treasury securities (10- to 30-year maturities). Social Bonds would be fully backed by the full faith and credit of the United States, making them low-risk, investment-grade instruments attractive to pension funds, sovereign wealth funds, endowments, and ESG-oriented institutional investors worldwide.
Proceeds would be capitalized into a new Federal Social Investment Fund, housed within an existing or new federal lending entity like the Export-Import Bank, Fannie Mae, or Ginnie Mae, or possibly the Community Development Finance Institution (CDFI) Fund, with a mandate to deploy capital into affordable housing, social housing, and public housing. The fund would lend at below-market rates to qualified developers of permanently affordable housing: non-profit developers, community land trusts, housing cooperatives, public housing authorities, and mission-driven affordable housing corporations.
Eligible projects would also be required to meet affordability standards. We must find the right balance of rent regulations, serve households at a percentage of Area Median Income, and maintain affordability for the life of the financing.
We need more housing at all income levels, and I will support broader efforts to increase housing supply, as I have consistently throughout my career. But we need deeply affordable housing the most, and it is the hardest to finance. The term "affordable housing" has become too broad. Federal policy often counts housing serving households at 80% of AMI as "affordable." In New York City, though, 80% AMI can be over $100,000 per year. Families at 30% AMI are more desperately in need could be earning $30,000, who face eviction because the housing safety net has collapsed.
Social bonds would be dedicated to social housing: new affordable housing for low-income and working-class families, seniors, and people with special needs, owned by dedicated affordable housing entities (non-profit developers, community land trusts, housing cooperatives, public housing authorities, and mission-driven affordable housing corporations) and removed from the speculative market so it can be maintained permanently as affordable.
Social housing has been incredibly successful in Europe and, more recently, in American jurisdictions like Montgomery County, Maryland, where the county-run Housing Opportunities Commission builds mixed-income housing that generates revenue to cross-subsidize units for the lowest-income residents. Vienna has maintained its municipally owned housing for a century. While deeply affordable social housing will likely require additional subsidies to support it than market-supporting affordable housing, we need to build for the full spectrum of housing needs, but those most squeezed by the housing crisis deserve the deepest investment.
We need more housing. The housing shortage affects everyone by driving up rents for working families, pushing tenants out of cities, and concentrating poverty by limiting where low-income households can afford to live.
But abundance without equity is gentrification without displacement protection. If we only build what the market will build on its own, luxury condominiums and market-rate apartments for upper-income households, we will expand overall supply while deepening housing inequality. The cities that have best tackled the housing crisis, like Vienna, Singapore, and Amsterdam, have done so through large-scale public and social investment, not market forces alone.
Federal Social Bonds will help bridge the gap between the abundance agenda and the equity agenda. They lower the cost of financing for housing that the market will not build at scale on its own, while catalyzing overall housing production by moving capital into projects that are shovel-ready but financially stalled.
The federal government already subsidizes housing on a massive scale through the mortgage interest deduction, the capital gains exclusion, and property tax protections that disproportionately benefit wealthy homeowners. Federal Social Bonds, though, would be a subsidy for people who need help the most.
Any federal program to help build housing must ensure good jobs come with it. Construction workers are subjected to stagnating wages, often misclassified as independent contractors, and continue to face union-busting when they work to organize. Public capital must be used to promote good jobs.
Projects financed by social bonds would include prevailing wage requirements, as required by the Davis-Bacon Act standard, for all construction and substantial rehabilitation work. Some critics argue that these requirements drive up construction costs, limiting the number of units that can be built. There is credible evidence that prevailing wages modestly increase construction costs, though less than often claimed, because higher-paid workers tend to be more productive and because skilled labor reduces costly construction errors. On net, the cost increase is real but manageable, particularly when offset by lower financing costs, which is precisely what Social Bonds provide.
Workers must also have labor protections. We must legislate anti-misclassification protections and subcontractor accountability to ensure that labor standards are high. Projects above a defined size threshold must either operate under a project labor agreement with building trades unions or demonstrate equivalent worker protections.
Labor standards build political sustainability for a major public investment program. The coalition for affordable housing needs to include the labor movement, not compete with it. A federal Social Bond Program that creates good union jobs in housing construction, particularly in communities that need both homes and employment, can build durable political support across constituencies.
We can not suppress wages to make affordable housing pencil out. Instead, we will lower the cost of financing through Social Bonds and other public tools so that we can afford to build with good jobs and still produce housing that is affordable to live in. This proposal does both.
For generations, the United States has financed public goods like roads, bridges, schools, rural electrification, and the interstate highway system. Housing is just as essential. We know that working families need stable, affordable housing, but we have allowed the housing safety net to deteriorate while only subsidizing, at scale, housing investments for the already wealthy.
As Comptroller, I issued over $4 billion in the City's first four rounds of social bonds to finance the development of 15,000 units of affordable housing. Now, we have an opportunity to do the same at the federal level. It is time for the Federal government to do what cities and states have been doing for years, and what I did as Comptroller of New York City, at the scale the crisis demands. We should build permanently affordable housing and social housing that stays affordable for generations, and finance it with the full faith and credit of the United States government.