Representative Alexandria Ocasio-Cortez of New York and Senator Tina Smith of Minnesota have boldly announced a “solution to the housing crisis” in the form of the Homes Act of 2024. Their new confection contemplates the creation of a nonprofit “community land trust,” whose mission is to “develop a stock of permanently affordable, quality, publicly financed, and climate-resilient housing that is shielded from market speculation” as a way to “stabilize” housing markets that serve families who cannot pay for market-rate housing. These organizations must be “democratically accountable to residents, the community, and the public, with residents having a direct role in management decision-making, such as through a tenant organization.” Furthermore, these organizations are required to meet a series of simultaneous (but often clashing) conditions on such matters as gender and racial balance, long-term sustainability, efficient energy, and long-term safety for residents in a healthy environment. The federal budget for this operation is now set at $30 billion from 2025–35, drawn from a mix of direct appropriations and government borrowing. No one knows what the true costs will be.

To make good on their innovation requires that AOC and Smith first make an accurate diagnosis of the malady to which they then respond with a sensible cure. In their recent New York Times op-ed, the two advocates come up short on both points.

First, on the diagnosis side, they are overconfident in insisting that the villains of the piece are the corporate landlords who rake in billions while their tenants scrimp to pay the rents for substandard units. There is no credible evidence that supports the proposition that the shortfalls in the housing markets are a function of landlord greed. The housing market is a highly competitive industry. IRS data shows that about 10.6 million American landlords, managing at least 20 million units, rely on some part on rental income, and that many of these landlords often manage their own properties, usually as a part-time job, which could easily run up to forty hours per week. The largest property REIT (real estate investment trust), Starwood Capital, has 115,000 units under management. The big guys are far from cornering the market.

Nor do any of these landlords operate in an unregulated market. Thus, to start with AOC’s New York City, its ornate rules governing rent stabilization and rent control offer powerful constraints on what landlords can charge their tenants. These rules were strengthened by passage of the rent stabilization law of 2019, which vastly reduced the ability of landlords to set their own rents or recover their costs. No longer could landlords raise rents on units upon the change of tenants or recover the costs of their capital improvements. Thus, all too many landlords found that the newly capped rentals were so onerous that it made financial sense to remove their units from the market and wait for the laws to be relaxed. That inability of landlords to rent their units created serious weaknesses in the mortgage market for rent-stabilized units, causing large losses for banks such as New York Community Bancorp which specialized in lending on rent-stabilized markets. The situation in the city became grimmer for private landlords when a concerted effort by real estate developers to invoke the takings law to undo the most punitive features of the 2019 law failed. Their effort flopped when, after extensive deliberation, the United States Supreme Court in February 2024 denied certiorari in 74 Pinehurst v. New York a year after these landlords were laughed out of the Second Circuit Court of Appeals in New York.

The entire episode has confirmed the deep sense of futility among private property owners and investors, who have learned that they cannot rely on the current conservative majority to bail them out, as their dominant agenda is reshaping administrative law, not reviving the nascent property rights movement that had gained some modest traction during the Reagan years. The defeat has solidified the resolve of progressive forces in New York to dream of new ways to tighten the regulatory noose, making it highly unlikely that either large or small landlords will invest in rent-regulated property, thereby driving up rents in the nonregulated segment of the rental market.

Worse, these rent laws are only the tip of an iceberg that contains major restrictions on building codes, handicap access, exterior repairs, land market designation, and environmental rules. For example, the plea for climate resiliency has spawned New York City Local Law 97, whose emissions taxes on older residential buildings are so stringent that the start date for the whole program had to be postponed. Housing markets recoil from these shocks, knowing well that progressive forces are always eager to find other ways to tighten the noose. It hardly makes sense to subsidize new public units if the number of private units decreases proportionately. It is just as foolish to insist that the use of public funds should be structured for “making financing resilient to the volatility of our housing market and the political winds of the public appropriation process,” thereby locking in massive financial rigidities, so that the price system no longer gives information as to what projects should be undertaken, and what not.

Speaking more generally, what AOC and Smith miss is this simple proposition: fewer regulations mean that the government spends less while the private sector produces more. Instead, their proposal claims to undo the imaginary vices of the private sector by developing a model of affordable housing that seeks to operate in a self-contained way when it is impossible to be all things to all people. Thus, one desideratum is that low rents require low construction costs. Yet these cannot be achieved if all construction contracts must go to union firms which will drive up costs by demanding higher wages while imposing costly work rules that slow down construction. Nor is it credible to assume that these unions will not strike against these construction sites that are run and operated by a nonprofit community land trust that may have an implicit credit line to the federal government. Nor that any makeshift oversight board will hire the right firms or competently supervise the work needed to avoid shoddy construction.

In the private sector, the dominant property owner acts as a residual claimant who profits only if his coordination with and supervision over the other factors of production limits those costs so that there are net profits. It is therefore wrong to think of profits as wasted expenditures when their prospect is what keeps all other costs in control. Yet there cannot be a coherent governance structure to public projects accountable to residents, the community, and the public. There are sure to be conflicts among these various stakeholders, without any principled way to resolve them: just what kind of break should be given to tenants with disabilities or financial weaknesses? The quagmire of just-cause eviction rules under the current rent control laws will only get worse if tenant organizations can seek to lower rents or obtain other advantages. There is no one to resist their demands or to make sure that total receipts are in line with total expenditures. The Homes Act project will careen out of control even in the short run. And there is no one who will have the authority to take the steps needed to keep wayward contractors, employees. and tenants in line on a day-to-day basis.

Matters in the long run are still more complex because it is not possible to make sure that all tenants will remain eligible to maintain their ownership. It is a common difficulty to marry strict financial eligibility provisions and the continuity of ownership that is necessary to make any building culture work. The Homes Act contains mysterious “pre-emptive purchase options” to make sure, it appears, that these units remain open only to low- and moderate-income families. What then should be done about a family that prospers financially after obtaining a low-cost unit? Throwing them out is a huge impediment to the accumulation of wealth. Letting them remain means that the queues of needy applicants for these units grow longer. It is not conceivable that any management team will be able to make these tough determinations, let alone on an annual basis, and thus the entire composition of these units would be indeterminate. How can tenants in turmoil participate in governance?

The whole situation will thus degenerate into a free-for-all. Yet at no point does either AOC or Smith look back to the long history of failed public housing projects to ask just why and how they failed. When I lived in Chicago, the demolition of the failed Robert Taylor homes elicited throngs of happy onlookers. Referring to another public-housing failure, Cabrini-Green, the New York Times headline somberly read: “The Towers Came Down, and With Them the Promise of Public Housing.” The AOC/Smith program displays a similar, and reckless, excess of ambition. When will these ardent progressives get the message?

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