When last we dipped into this intellectual contest, McHenry County Board member provided a point by point rebuttal to Steve Willson’s previous post. Here is the link that John Collins critique (the post contains links to all past pieces on this story):
From Steve Willson:
Willson asks for numbers
I have offered a clear, logical method for determining if a project makes economic sense.
Specifically, if two projects provide the same benefit and one costs more, choose the cheaper one.
And, specifically, this project costs twice as much to build as the cost of comparable housing available in the area, and will charge rents that will be nearly three times comparable rents.
Mr. Collins doesn’t dispute my numbers.
Nor does Mr. Collins offer a clear alternative method for determining when a project is too expensive.
Using Mr. Collins reasoning, ANY cost is justifiable. “This is a government project. Therefore that it costs twice as much to build and three times as much to operate is a good use of the public’s money.” Note that you could fill in any number here, since there is no logical connection between the “facts” and the conclusion. “Therefore if it costs ten times as much, this is a good use of the public’s money.” “Therefore if it costs a hundred times as much, this is a good use of the public’s money.”
In short, his reasoning doesn’t hold up.
Let’s look in closer detail at a few of his arguments to see why they fail.
On the per-unit cost comparison
Mr. Collins states that new, government-subsidized housing is a different asset class than existing condominiums and that this justifies government projects costing more than twice the market price for existing condos.
The assertion is false.
Assets are divided into classes on the basis that they differ in some fundamental way regarding risks and returns.
Government housing projects provide the identical benefit to the people who live in them as condos and apartments.
The only difference is the cost that we, the taxpayers, pay for government housing.
It’s not a different asset class, just a bad investment for the taxpayers.
His second assertion that new construction makes this project a fundamentally different asset class is also false.
New housing units must and DO compete on price with existing housing or no one would buy them.
Again, there is no fundamental difference is risk or returns that makes new housing a different asset class than existing housing.
If Mr. Collins himself, personally, were offered the choice of two apartments, essentially identical, but one costing twice as much as the other, and the real estate broker said, “But Mr. Collins, this one is a newly constructed government project,” do you think Mr. Collins would say, “Absolutely right! I’ll pay twice the price of that other apartment!”
Or course not.
At least, not with his own money — just with the taxpayers’ money.
What if each unit cost $1 million, Mr. Collins.
Would that be justified?
How about $10 million?
At what price does a project become unreasonably expensive, Mr. Collins, and how, explicitly, do you make that determination?
Mr. Collins does not explain.
Mr. Collins, unless you quit talking in generalities and explain why this particular project is economically justified at this price, your words have no meaning.
Cost matters, Mr. Collins.
You can obfuscate all you want, but this is an issue of dollars and sense.
On the tax credit subsidy argument
Mr. Collins begins with a personal attack, stating that I don’t understand how the Low Income Housing Tax Credit works.
I understand all too well, Mr. Collins.
Every LIHTC project provides tens of millions of taxpayer dollars to rich investors in order to provide a much smaller benefit to a handful of low income tenants.
It’s a taxpayer rip-off.
That “private sector investors, not taxpayers, bear the financial risk” is irrelevant to whether or not a massive taxpayer subsidy is justified.
Mr. Collins then states, “The government’s cost is foregone tax revenue, not an appropriation.”
So what?
How does that affect the economics of the subsidy?
If one program gives an investor a big government check, and another program offers a tax deduction equal in amount, the economic effect is the same.
As Mr. Collins himself concludes, “this is a real cost,” and so quickly contradicts himself.
The method of the subsidy isn’t the issue, Mr. Collins.
The amount is.
On the $350/month voucher alternative
Mr. Collins doesn’t dispute that the difference between the rents tenants will pay in the new project and market rents is only $350 per month.
He doesn’t dispute that the cost to the taxpayers will be more than six times that amount.
He never explains how to determine exactly how much of a subsidy is reasonable.
Instead, Mr. Collins argues that the markets have failed and so government must intervene, and cost be damned.
Well, Mr. Collins, Housing Action Illinois says there is “a staggering shortage of 289,616 affordable rental homes” in Illinois.
So, following Mr. Collins’ logic, to solve the problem, we, the taxpayers of Illinois, should give private investors direct subsidies and tax subsidies totaling $145 billion for construction plus $8 billion per year in rental subsidies.
If Mr. Collins denies this conclusion, then he must explain why it makes sense for this project but not for a couple hundred thousands more units.
Finally, Mr. Collins says vouchers are eternal is so my 30 year horizon is too short.
I agree.
The situation is worse than I indicated.
I chose 30 years as a reasonable investment horizon corresponding to the typical mortgage term.
But in 30 years either this project will continue to be subsidized or all the low income tenants living there at that time will be kicked out and then a new project will be built.
In short, the massive cost to the taxpayers is likely to continue forever.
