Bernie Sanders' Housing Plan Calls for $2.5 Trillion in New Spending and Nationwide Rent Control

The socialist presidential candidate wants the federal government to take the lead in regulating rental prices and building new rental housing.

Sen. Bernie Sanders (I–Vt.) has released an ambitious housing plan that stays true to the candidate's interventionist brand of democratic socialism.

In a speech to trade union members in Las Vegas, Nevada, on Saturday, Sanders laid out his vision for tackling high housing costs, homelessness, and gentrification through a mix of nationwide rent control, increased federal spending on housing vouchers and public housing construction, and higher taxes on the wealthy.

"I don't have to tell anyone in America that we have an affordable housing crisis in Nevada, in Vermont, and all over this country that must be addressed," Sanders said. "It is unacceptable to me that over 18 million families in America today are paying more than 50 percent of their limited incomes on housing."

The most radical part of Sanders' plan is his call for a nationwide cap on rental prices above one and a half times the rate of inflation, or 3 percent, whichever is higher.

That's much lower than the rent increases allowed by either California or Oregon, which both passed statewide rent control policies this year, limiting rent increases to 5 percent plus inflation and 7 percent plus inflation, respectively.

Those laws also included exemptions for housing constructed in the last 15 years in order to mitigate the laws' effect on new development. The full version of Sanders' plan has yet to be released (it is apparently coming in the next few weeks), but he has so far made no mention of any exemptions to his proposed rent caps.

Rent control has long been derided by economists as a well-intentioned policy that comes with a host of unintended consequences: Limiting the return developers can make on new housing construction disincentivizes them from building more units. Some landlords, unable to pass on the costs of repairs or renovations to tenants, let their buildings deteriorate. Others might convert their regulated rental units into more expensive condominiums that can be sold at any price, reducing the overall supply of rental housing.

That's exactly what happened in San Francisco following an expansion of rent control in the 1990s, according to a recent study published in the journal American Economic Review. Building owners took their units off the rental market, resulting in citywide rent increases and increasing gentrification.

Housing investment has boomed in places like Toronto and Cambridge, Massachusetts, after rent control laws governing those jurisdictions' were repealed or nullified.*

Sanders is also calling for $2.5 trillion in new housing spending over 10 years that will be paid for by a wealth tax on the top 0.1 percent of families.

Details on how exactly this money would be spent are a bit spotty. It would include $32 billion over the next five years to "end homelessness," $70 billion to repair and expand the country's stock of public housing, and $50 billion in aid to local and state governments to enable the creation of community land trusts.

Sanders is promising to build or rehabilitate 7.4 million units of housing for low-income people, seniors, and the disabled, all of which would be funded by a permanent expansion of the federal Housing Trust Fund. His plan also calls for funding the creation of an additional two million units of mixed-income housing.

Though hardly optimal, Sanders' public housing construction spree would theoretically help mitigate a drop in private housing investment created by the rent control portion of his plan.

Nevertheless, building the number of new units the senator is calling for would require local and state governments to repeal their own restrictions on new housing development, a policy Sanders has yet to embrace.

Building affordable housing in expensive cities is not, well, affordable. That's because the same land costs, impact fees, union hiring and wage requirements, and restrictive zoning laws that make private development difficult also hamstring government and non-profit developers.

The median cost for building a unit of affordable housing in California is over $300,000, and individual projects in the Golden State have seen per-unit costs surpass $700,000.

So long as these rules remain in place, the level of public housing construction Sanders is calling for just isn't going to happen.

On the other hand, repealing rules that would prevent massive amounts of public housing being built would also probably make that public housing unnecessary, as a surge in privately funded housing development would start to bring prices down.

Places like Houston and Dallas have been able to stay relatively affordable by keeping their restrictions on new housing and suburban sprawl to a minimum. Seattle has seen modest rent decreases as a result of its upzoning land in and around its urban core.

Internationally, growing Tokyo has managed to keep rents mostly flat by having what's been described as "a free trade zone" for new development.

Sanders is not wrong to point out that many areas of the country suffer from major housing affordability problems, but that's not because we've failed to build enough public housing. It's because we've failed to build enough housing period.

Deregulating housing construction would ease affordability problems where they exist, and could be done without all the taxes and inefficiencies that will inevitably come with the federal government-led initiative Sanders is proposing.

Correction: The original version of this article said that Cambridge, Massachusetts repealed its own rent control law when in fact it was nullified by a state ballot initiative.