Rising home prices and rents are creating an affordable housing crisis in America, and it’s been a rough few months for the effort to combat it.
First, Congress passed a tax bill in December that neuters the Low Income Housing Tax Credit (LIHTC) program, with one study suggesting it could lead to 235,000 fewer affordable housing units produced over the next 10 years.
Then, on Monday, the Trump administration released a budget proposal that eliminates the annual $4 billion in federal block grants that the Department of Housing and Urban Development (HUD) distributes to address affordable housing. It also guts public housing.
With federal support waning, cities are left to fend for themselves, and Berkeley, California, is exploring a radical idea to raise funds for affordable housing measures—cryptocurrency. The city, known for being a liberal hot bed and a global tech hub, announced that it’s exploring an “initial coin offering” that would exchange a new cryptocurrency backed by municipal bonds for cash that would go toward affordable housing measures.
Berkeley City Council member Ben Bartlett has been spearheading the effort along with mayor Jesse Arreguin. They’re partnering with UC-Berkeley’s Blockchain Lab and municipal finance startup Neighborly. The coin would essentially act as a blockchain tax-exempt municipal bond, with the potential for it to evolve into an exchange currency down the road.
“Berkeley is struggling to build sufficient affordable housing, especially as federal funds dry up and the new tax bill restricts their financing capabilities,” Neighborly’s Garrett Brinker wrote in a statement. “An initial community offering presents a unique opportunity to help raise the necessary funds through local investors to build low-cost housing while striving to improve social well-being and equity.”
If Berkeley goes through with the proposal it would be the first municipality to issue its own cryptocurrency. Such currencies have been at the center of the financial world over the last year as Bitcoin’s value has skyrocketed.
Cryptocurrencies have been extremely volatile, though, and a government—not to mention potential investors—entering that market would be taking an enormous risk. The hope is that backing the coin with tax-exempt municipal bonds would stabilize its value.
“It’s not a speculation tool,” Bartlett told CityLab. “It’s like a non-profit, special purpose vehicle, meant to fund social good…It’s not meant to be traded all over the world.”
Berkeley has been in the news for its strident opposition to president Trump and the violent protests that followed a planned speech at UC-Berkeley by conservative provocateur Milo Yiannopoulos. The politics of “resistance” are present in the talks around a potential cryptocurrency, as Bartlett told CityLab “The resistance requires a coin.”
It’s unclear how much money Berkeley hopes to raise in the scheme, but it comes in conjunction with an effort to reexamine state laws that might be hindering affordable housing in California, which has seen its housing valuations explode during the tech boom.
Last year, California passed a number of measures designed to raise money for affordable housing, including a new fee on mortgage refinances and other real estate transactions, which could raise more than $5 billion for affordable housing over the next five years. The state-wide ballot in 2018 will also include a $4 billion bond offering that would finance low-income housing developments.