By Eric Tuttle
In 1966, Congressman William Widnall quipped, “An elephant is a mouse built to government specifications.” A stunning example is Governor Beshear’s recently announced efforts to address the rental housing shortage.
According to the governor’s office, the state will invest $223 million to build 953 affordable rental units in communities impacted by the 2021 tornadoes. Half of this funding is in direct subsidies, and the other half in low-cost, tax-exempt bonds.
The program will support 11 projects across Graves, Hopkins, Christian, and Warren Counties targeting low- and moderate-income households. Units will be mostly 2 to 3 bedrooms, with some 4- and single-bedroom units.
Based on these figures, Beshear’s plan will cost taxpayers $234,000 thousand dollars per unit.
In comparison, in Bowling Green, there is a well-appointed, newly built apartment building with 16 units (2 to 4 bedroom) available for $2.1 million – or $131,000 per unit. This complex is not low-income housing, but apartments targeted at young families. So, if a normal rental property is valued at $130,000 per unit, how can a taxpayer-funded program warrant a cost of $274,000 per unit?
One need only look at the governors donor list, for an explanation. The state chamber of commerce and builders’ associations are significant donors to all our elected state officials, including the governor.
In communities like Bowling Green the biggest obstacle to economic growth is affordable housing. But as with any voter driven issue, the opportunity for corporate largess and government abuse is high. Various governmental and quasi-governmental organizations have allocated monies for the construction of low-cost housing but have left the method of use up to our governor.
Beshear is using this opportunity to play Santa Claus. He gets great press, and the builders, who will help fund his next election campaign (whatever office he seeks next), receive projects that will bring great profit and little risk since each project is underwritten with our tax dollars. Sadly, too many Kentuckians will celebrate the outcome without understanding the real cost.
Another solution would be to only use direct capital subsidies to encourage the building of low-income housing, without entirely underwriting every project. These capital subsidies can take several forms, but generally they reduce the amount that must be borrowed or obtained through a loan from a bank to develop a rental property because a capital subsidy does not need to be paid back.
By using a 40% subsidy model in conjunction with $130,000 per unit from Bowling Green (that’s 52,000 per unit in subsidy) and using the $100 million in direct funding that has been allocated,1900 units could be built. These units could be operated at least 35% below the current average cost of a rental of the same size. So, a 1 to 2 bedroom low income rental would be $550 to $800 a month.
The scenario above outlines one of many possible solutions to the housing crisis. Unfortunately, our governor is more interested in his own special interests – than the public good.
Eric Tuttle is co-founder of Warren County Conservatives.