>For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects.
So, I agree with this, of course, but there's still an argument for subsidizing the 'affordable' projects first. - this argument is that even in the above case (where, I agree, eventually cheap (compared to cost of construction) projects will be constructed,) more expensive housing (larger, more luxurious) will be constructed first because it's more profitable, and building companies and homeowners will do all they can to keep less expensive units out of the market as long as they can (I mean, builders will switch once they can't sell any more luxury units, but homeowners won't, and more homeowners means more anti-building pressure.)
I think there's an argument to be made, in this case where the housing market has been so distorted for so long, for moving utilitarian, smaller-unit high-density construction projects to the front of the line. Luxury housing needs a lot less subsidies, but if you don't put something in to prevent your housing subsidies from going to luxury housing, your housing subsidies will go to luxury housing.
(removing restrictions on density isn't a subsidy, you say? tell that to the people who's houses will be worth less if we build enough of the small condos to satisfy small condo demand. If we do build enough housing, the average Californian will lose a lot of money due to the decrease in real-estate prices. Sure, it's not a a government subsidy, but changing the rules so that one group gains and another loses is going to be opposed by the losers.)