This past February, as a debate over the rising cost of housing in Wisconsin was heating up, the Wisconsin Institute on Law and Liberty – the state’s leading conservative law firm – put out a typical tweet: “WILL has examined the ways in which government regulation has actually contributed to the rising cost of home prices in WI – recommending both state and local policy makers to remove the barriers to development of more affordable market rate housing.”
Given WILL’s political inclinations, the anti-regulation language – also found throughout a report that accompanied the tweet – was hardly surprising. More astonishing, however, was just how closely the Institute’s rhetoric mirrored sentiments that have come to be associated with self-styled “YIMBY” progressivism.
YIMBY stands for “yes in my back yard,” a self-conscious rebuttal to the type of “not in my back yard” localism that has historically supported efforts to resist public housing and multi-unit developments in affluent urban and suburban neighborhoods. YIMBY adherents tend to emphasize the need for dense residential patterns and the acceleration of projects that will construct market-rate housing. As such, YIMBY activists tend to focus on eliminating restrictive zoning codes, limiting residents’ ability to hold up developments via lawsuits, and providing tax breaks and regulatory exemptions to facilitate building projects. The hope is that by constructing a larger supply of market rate housing, there will be a cascading effect that creates more and better affordable housing options for low-income communities.
The YIMBY movement seeks to use market forces to solve the very real, and growing, housing crisis that faces the nation and the Badger State. Yet while YIMBYs typically identify as progressives, YIMBY-sounding policy ideas have recently attracted support from conservative organizations like WILL, as well as leaders in Wisconsin’s Republican Party. In early June, Republicans succeeded in advancing a package of five bills that have been pitched as a solution to Wisconsin’s affordable housing crisis. The bills, all of which attracted some measure of bipartisan support and were signed by Governor Tony Evers, are aimed at enlarging the supply of housing. Among other things, the reforms would make it harder for residents to oppose local developments and would speed the way for projects in line with local zoning requirements.
Wisconsin is not a state known for political conviviality. The state has been described as “ground zero for political polarization” and our elections are often portrayed as existential struggles of good versus evil. Yet, on this issue of profound material consequence we find conservative legislators, liberal activists, and libertarian think tanks all coming to the same conclusion. Developers will save us from our housing crisis. The incentives for Republicans are clear. Facilitating development will lead directly to profits for the type of wealthy private investors the party typically serves. The progressive case is less obvious. Should we believe that we can solve our housing crisis by tweaking the market, or are liberals being taken for a ride?
An American dream deferred
In the United States, property has always been at the root of a grand political bargain. On the one hand, the U.S. has always lagged behind other developed nations in the level of social protections it offers its citizens. Yet the availability of land, and later housing, has long been a means to buy political quiescence from enough Americans to stave off political agitation even in the face of growing inequality and mass immiseration. As pioneering suburban developer William Levitt noted, “No man who owns his own house and lot can be a communist . . . he has too much to do.”
Even though the potency of the American Dream, as the availability of property came to be called, is on the wane, the promise of middle-class stability continues to frame our social and political aspirations. One reason for this is that major changes in public policy have continued to prop up homeownership as an end in itself. The New Deal, Franklin D. Roosevelt’s ambitious response to the Great Depression, targeted the construction industry to stimulate economic growth and its emphasis on supporting and growing home ownership in the country was a conscious effort to defuse the more radical political currents that characterized the early 1930s. The post-war American state extended this logic to smooth the transition from wartime to a consumer economy. Mortgage assistance was a core component of the GI Bill, and the home mortgage deduction served as a further subsidy to these middle-class homeowners. As historian Robert Self notes, post-war authorities thought that homeownership, “dissolved class tensions in the homogenous world of small property owners.”
Massive investments in homeownership may have built the middle class, but they also created a tight series of fortifications, keeping the American Dream out of reach for millions. There is no better indication of this than looking at the ways in which those systematically excluded from homeownership have fared in the last half century. The racial biases of the New Deal housing regime are well documented. Access to the type of mortgage benefits received by White families did not meaningfully reach Black families until the Fair Housing Act of 1968, and the multiple economic crisis of the 1970s meant that these families did not have the incomes necessary to take advantage of these benefits. As a direct result, Black families drastically lag white families in wealth, home ownership rates, and home values.
White families were able to achieve some level of financial security by investing in housing, while redlining excluded Black families from building a similar nest-egg. The result was a disproportionate dependence on the rental market among Black families, a discrepancy only exacerbated by the 2008 financial crisis in which Black and Latino families were fifty percent more likely to lose their homes to foreclosure than white families.
Today, renters are increasingly burdened by housing costs when compared to their home-owning peers. Homeowners spend an average of 23% of their annual income on mortgage debt, while renters now deliver approximately 30% of their wages to their landlords. And the problem is only getting worse. Average rent has increased 134% since 2000 compared to only a 76% increase in average wages. Not only are homeowners building equity, but the costs of renting are increasingly burdensome on those least able to afford it. A 2021 Census Bureau study found that the median renter in the lowest quintile of earners spent almost 63% of family income on rent, an increase of just over 3% when compared to 2019. Renters earn less, pay more, and are less able to build wealth.
Economic growth and housing in the neoliberal era
Numerous policy interventions have aimed at making affordable housing available to more Americans. Public housing, housing vouchers, subsidized housing, and the subsidized construction of for-profit multi-unit housing projects have all been pursued, but the United States has always spent much less on housing programs than other developed countries, and this investment has decreased over time. In addition, affluent communities have traditionally resisted the construction of public housing or even multi-family housing projects as a result of fears over property values or blatant racial animus. This is the origin of the designation “NIMBY” which stands for “Not in my backyard.” The success of these communities in resisting this construction has led to a whole host of problems including, racial segregation, concentration of poverty, discrepancies in the quality of education, and a general lack of overall units.
The YIMBY movement emerged largely with these issues in mind. The movement first emerged in cities like New York, San Francisco and Seattle, new economy boom town that drew a highly educated, tech focused milieu with upper middle-class expectations. The movement was a product of skyrocketing housing prices that kept this population’s home owning aspirations. As housing prices skyrocketed, rents increased, and homelessness exploded, the answer to all of these problems became the lack of market rate housing construction. While some YIMBYs are narrowly focused on making construction more feasible for developers, many also see the movement as a means of creating housing for less advantaged city residents. The assumption is that greater supply will lead to lower costs for all. The logic here is clear. If NIMBY resistance is racist, elitist, and unconcerned with broader social issues, YIMBY must be the answer. By liberalizing zoning restrictions and promoting the construction of multi-unit housing, supply will increase and, ipso facto, prices will go down.
There is a good deal of evidence to support the contention that housing supply is a problem. The National Multifamily Housing Council suggests that the nation needs an additional 4.3 million apartments to meet demand. More locally, a report by Forward Analytics suggests the state will have to build up to 227,000 units in the next decade to meet demand including 46,000 units in the Milwaukee area.
If the choice between saying yes or no to construction in our backyard, then the answer is obviously yes. But is this answer sufficient to solve the scale of the problems we face?
Putting the crisis in context: corporate dependence on government
To understand the limits of market-based solutions to the housing crisis requires a more careful consideration of how real estate developers make money. Developers have not always depended upon public subsidies and liberalized regulations to turn a profit. In the aftermath of World War II, high wages, explosive economic growth, and substantial increases in social spending made for an unprecedented housing boom and record profits. In the process, the United States created the largest middle class in world history. But this broadly shared prosperity was based largely on the unique status of the United States as the only undamaged industrial power at the end of World War II. This windfall allowed the nation to satisfy the needs of labor, capital, and increase social spending all at the same time, but the recession of 1973 marked the end of boom times and forced national officials to make choices. Since 1973, the rate of profitability in the US economy has declined from 27 percent to around 23.5 percent in 2021. This includes a decrease of 5 percent between the 1973 recession and the last pre-recovery year of 1980. The subsequent period between 1981 and 2007, often seen as the period of neoliberal growth, saw an increase the rate of profit of around 4 percent. But since 2007, profit rates have largely stagnated.
What changed over this period, however, was not simply the rate of profit, but the sources of profit. Overall rates of productivity growth have not changed substantially since the initial malaise of the 1970s and labor productivity increases have averaged less than 2% since 1987. Thus it is not the underlying productive economy that drove profit rates in this period. Instead, the period witnessed a massive redistribution of wealth that shifted revenues away from public expenditure and labor costs, and towards bottom line profits. Statutory corporate tax rates declined from 27% between 1973 and 2023 from 48% to 21%, and the effective tax rate, which measures actual taxes paid declined from approximately 30% in 1973 to 19.7% in 2022. Real average wages for Americans reached their peak in 1973 and then declined steadily until 1995, after which they grew slowly, only reaching 1973 levels in in 2020 with the help of COVID associated public subsidies. As a result of inflation, real wages have decreased over the past two years. Business returned to profitability because policymakers chose to augment profits by all means necessary even as these policies returned income inequality to Gilded Age levels.
In the real estate sector, profits have become increasingly dependent on a suite of transfer programs, tax breaks, and subsidies. One of the primary mechanisms is Tax Increment Financing (TIF) programs, which sequesters increases a portion of local property taxes for the purposes of economic development of a specific district within a municipality. These funds are usually used to improve infrastructure and facilities for businesses operating in the district. TIFs were virtually unheard of prior to the neoliberal period but are now ubiquitous. Wisconsin has been one of the most promiscuous users of TIFs with an estimated 1,241 statewide.
The economy that has developed over the past fifty years is one in which profits are augmented by disciplining labor, lowering taxes, providing subsidies for private firms, and intervening dramatically to rescue wealth in the event of a financial crisis. The continuing weakness of underlying productivity growth means that large pools of capital have little incentive to invest in expanding production. The dilemma investors face, then, is to find a landing place for capital that will actually result in a return on investment. Traditionally, one safe place to put this capital is in real estate, largely in the form of mortgage-backed securities. The 2007-08 financial crisis grew out of an irresponsible expansion of this practice, and was a direct result of a collapse in the value of securities and derivatives associated with residential mortgages.
What is new in this case is that firms are directly purchasing homes and condos, especially in highly sought-after neighborhoods. Investors purchased approximately 22% of homes sold in 2022. Such investor competition is driving up prices, and keeping families that would otherwise be purchasing homes, in the rental market. Indeed, the Dallas Fed estimates an 8.4% increase over the past year.
The low level of growth in the productive economy incentivizes firms to inflate bubbles, cut labor costs, and chase government subsidies. Wisconsin’s real estate developers, among the most well-resourced lobbies and reliable sources of campaign contributions in the state, thus have a vested interest in streamlining permit processes, limiting restrictions on construction, liberalizing parking requirements, and making it easier for localities to offer TIF funding. This, perhaps more than anything else, explains Wisconsin Republicans’ sudden adoption of YIMBY rhetoric.
A housing policy consensus in Wisconsin? The devil is in the details.
On June 14, the same day the state legislature ratified a controversial deal with the Governor on local funding, the Assembly and Senate both passed a series of bill related to local development. The laws aim to improve density and accelerate the construction of market rate housing throughout the state. One bill makes it more difficult for residents to hold construction projects up in court, while a spate of other bills establish revolving loan funds to spur the construction of market rate housing. The bills’ focus on increasing density and producing market rate housing are laudable, and it is certainly true that spurious lawsuits have allowed motivated residents to resist appropriate multifamily housing developments. Nonetheless, the singular focus on producing affordable housing through a stimulation of the private sector leaves some questions unanswered.
These bills incentivize a liberalization of zoning codes to make development less expensive. Three of the four revolving loan fund bills allow disbursement of funds only to localities that have lowered construction costs by “voluntarily revising zoning ordinances, subdivision regulations, or other land development regulations to increase development density, expedite approvals, reduce impact fees, or reduce parking, building, or other development costs with respect to the eligible project.” Another bill, AB 266, makes localities liable for damages related to inappropriately denying a development permit, making it risky for localities to hold up construction over disagreements on zoning codes. These incentives will certainly facilitate private development, but the question is whether this will have a direct impact on affordable housing, especially in Milwaukee.
There is no direct requirement that developments provide the type of housing needed by the low-income residents most impacted by spiking rents. The revolving loan funds being made available are for “retirement” or “workforce housing.” The definition of “workforce housing” however, is unlikely to help poverty-stricken Milwaukee residents. Rentals in “workforce housing” are limited in two ways. First, units cannot be rented to anyone making more than median annual income for the Milwaukee Metropolitan Statistical Area (MSA), which covers Milwaukee, Waukesha, Ozaukee, and Washington Counties. Second, rent is capped at 30% of the median annual income for the area. According to the Department of Housing and Urban Development, median family income in the Milwaukee MSA is $100,600 meaning that rent could be as much as $2,515/month. Most working Milwaukeeans will be unlikely to be able to afford units at that price. This highlights the basic reality that the market is notoriously inefficient in solving social problems caused by market failures. A host of other programs have sought to manipulate market forces to fix long term dilemmas caused by the profit motive. Carbon taxes, prescription drug programs, and the Affordable Care Act all aimed to fix social problems by mobilizing the profit motive of private firms, and all either failed to meet their prescribed goal or were wildly inefficient in doing so. The reason should not be hard to guess. Private firms exist to make money, and solving social problems is largely incidental to their decision-making process. We can expect these firms to maximize their returns from any government subsidy while minimizing their costs. In short, we must assume that they will game the system. If our goals are to open wealthier communities to less affluent renters, create more affordable housing, and diminish segregation in our community, then we should either directly fund this type of construction or compel developers to meet these goals. By weakening local authority over residential development, the laws passed on June 14 make it more difficult for towns, villages, and cities to leverage their regulatory codes for socially beneficial aims.
Throughout the country, regulatory liberalization has largely led to the construction of luxury housing. The justification of this type of policy is that access will “filter” down to poorer renters. As wealthy residents leave market-rate housing to buy new homes or move into new rental units, market rate units will open up for working class renters. In poor areas, this does not seem to be the case, and ew construction has tended to lead to gentrification. As a recent report by the Lincoln Institution of Land Policy notes, “It might stand to reason that development of housing — any kind of housing—would lead to lower housing prices. In most urban areas, however, the opposite occurs.” Any downward pressure on costs associated with increased supply tends to be overwhelmed by the fact that new construction is usually for higher income renters. Even in the best-case scenario,“filtering” can take decades to occur.
Density and increasing housing supply are good policy targets, but without policies that directly address the needs of low-income renters, we cannot expect construction to solve the underlying crisis. The recently signed Wisconsin housing reforms will not meet the needs of the state’s low-income residents. These laws put the interests of wealthy real estate developers before the needs of the state’s local governments. The widespread support for these bills among Wisconsin Democrats can be no surprise, however. During the 2022 cycle, developers gave 45 percent of their contributions to Democratic candidates, and the Assistant Leader of Assembly Democrats, Kalan Haywood, Jr. is the son of one of Milwaukee’s most prominent local developers.
We need a whole panoply of policies to deal with the drastic inequities produced by our current housing market. Legal protections for renters need to be reinforced. Investor ownership of single-family homes needs to be taxed or restricted to ensure more working people can access the housing market. There should be a massive investment in public housing. Finally, state and local authorities need to use their regulatory authority and financial resources to ensure that private developers are responsible for building affordable housing.
In short, it would be foolish to expect the profit motive to solve the housing crisis. Only our democratic institutions, acting on behalf of all citizens, can do that.
Sam Harshner is a teaching instructor in history and political science at Marquette University.
