In big liberal cities, the most politically acceptable form of new housing—apartments officially designated as affordable—isn’t sold to the highest bidder or rented to the first tenant willing to pay the going rate. It’s given out by lottery. This fact deserves a lot more scrutiny than it gets.
Instead of simply allowing enough apartment construction to keep up with employment and population growth, New York, Boston, San Francisco, Los Angeles, and many other cities have restricted housing development but simultaneously offered developers tax credits, zoning changes, and other incentives to include below-market-rate units in their projects, which have in many cases been made available to the public via lottery.
Last year, New York City’s Department of Housing Preservation & Development oversaw drawings for 10,000 such affordable apartments, whose rents are capped so that tenants spend no more than 30 percent of their income on housing. For these units, the city received 6 million applications. In other words, households had a one-in-600 chance of winning each lottery they entered. Boston similarly receives hundreds of applications for many of its available affordable rentals.
Although an open market for housing reflects the economic inequalities that exist within the country’s most prosperous cities, efforts to circumvent it produce what we might call “hidden markets”: mechanisms, such as lotteries and waiting lists, that allocate the necessities of life without meeting demand. Hidden markets—the subject of my research and my new book—can be cruel in their own way. Affordable-housing lotteries reward the ability to navigate complicated city bureaucracies, the strategic sophistication necessary to game systems, and the patience to wait for years, if necessary, to win a unit. As with many other lotteries, most people who play are going to lose.
[Yoni Appelbaum: How progressives froze the American dream]
The problem is that demand for below-market-rate housing will always outstrip supply. Whenever a resource is available at a below-market price, more people will want it than can get it. Once that happens, communities need a way to decide among the applicants. Many communities try to manage excess demand for low-cost housing via dispiriting waiting lists. In Chicago, waiting lists for public housing can stretch 25 years. In New York, the waiting list for Section 8 vouchers, which provide rental support, was briefly reopened last June for the first time in nearly 15 years.
For cities concerned with equity, lotteries offer a superficially fairer way to decide who gets what. Lotteries can give each person an equal chance of winning or, if a municipality wants, can be designed to provide priorities to designated groups. Many cities provide priority to municipal employees or veterans. San Francisco aims to correct its past mistakes by offering priority to families, and descendants of families, that were displaced in the 1960s through the 1980s by the city’s Redevelopment Agency. Boston gives priority to people displaced by domestic violence or hate crimes.
But lotteries have other significant drawbacks. The most fundamental one is that they do not create more units. Worse, they may contribute to the problem by diverting attention from the true paucity of affordable units.
[Annie Lowrey: Why isn’t the government doing more about the housing crisis?]
Lotteries might mask how little affordable housing is actually available. Research in behavioral economics has systematically found that people overweight low-probability events. This quirk contributes to our demand for lottery tickets: You can thank it for recent Mega Millions and Powerball jackpots reaching the billions. But it also might give us unjustified hope that lottery entries will eventually lead to stable affordable housing when there truly is not enough to go around. People who might advocate for more development—or move to a city where they can afford market-rate rents—instead enter lottery after lottery hoping for their golden ticket.
For most applicants, housing lotteries provide only an illusion of hope. In 1984, George Orwell imagines a downtrodden proletariat successfully distracted from its oppression by the prospect of winning a lottery with a “weekly pay-out of enormous prizes.” In that classic story, average workers would hold out hope that something better was on the horizon, rather than rising up to improve the status quo.
In the real-world scramble for housing, individuals can take concrete steps to improve their odds of getting an affordable unit. One is to apply to many, many lotteries. This is commonly the advice of housing authorities themselves. In the spirit of expanding access, online platforms such as New York City’s have tried to make applying easy, in many cases with just the click of a button (although paper applications are typically accepted as well).
But when lots of people are applying for many units, including ones whose configuration or location they feel lukewarm about, lotteries can be deeply inefficient. Because of the luck of the draw, I may win a spot in your first-choice development, and you may win a spot in mine. Then, generally speaking, there is no practical way for us to swap. Indeed, affordable units might become golden handcuffs: When moving out of one means giving up a heavy discount, people have massive incentives to stay put, even when they’d much rather move neighborhoods or have a bigger or smaller unit.
Improvements in lottery design could improve this weakness. One solution is to batch lotteries on a regular basis, say every two or three months, and let people rank their preferences for developments so that they have a higher chance of matching with the apartments they desire most. New York City and other places use similar centralized clearinghouses for seats in public schools, and the systems have lots of desirable properties.
Another option is to give applicants extra entries each year that they can put toward developments that particularly interest them. This design—much like a charity raffle where you can enter multiple tickets in the drawing for the prize that you want most—at least allows people to express the intensity of their preferences.
But although these improvements can allocate the affordable apartments more efficiently, they will not make those units any less scarce. And cities cannot simply conjure up more. To build their own below-market-rate units—as New York mayoral front-runner Zohran Mamdani has promised to do on a grand scale—they’ll need to redirect money from other priorities. Require too many affordable units from developers of new apartment buildings, and those projects become unprofitable and won’t be built at all.
[Jacob Anbinder: New York NIMBYs turn against democracy]
Ultimately, cities and their residents need to adjust their expectations. Currently, many municipal officials would rather tolerate the injustices of a housing shortage than stare down neighborhood groups that, in cities and towns across the country, have the power to delay proposed apartment construction for years or kill it entirely, creating housing shortages that drive up rents. Not wanting to look like Scrooges, NIMBY neighbors who insist—despite extensive evidence to the contrary—that market-rate housing will fuel gentrification may grudgingly assent to a project that includes affordable units.
Lottery apartments simply aren’t a sufficient answer to a housing crunch. The only reliable way to deliver widespread affordability—and spare urbanites from the cruelty of hidden markets—is to expand supply to lower housing costs across the board.
