In which I disagree and then agree about housing policy

Here’s a question: why does New York have an affordable housing crisis? Or, put differently: Why is New York’s affordable housing crisis so much worse than, say, Dallas’? Or Cleveland’s?

Credit: Katy Silberger

Henry Grabar’s Next City feature on NYC mayor Bill DeBlasio’s housing plan – which is worth a read – never really offers a theory on that front. He makes a few gestures towards one, though, of which I think these are representative:

The red-hot markets of gentrifying neighborhoods are both decried as the problem, because they displace existing tenants, and hailed as the solution, because of their appeal to real estate investors.

Entrusting affordable housing to real estate developers is a bit like going to McDonald’s to lose weight.

Over the past two decades, New York City’s rental stock has grown and changed. In 2011, the share of rental units under regulation stood at 47 percent, down from 59 percent in 1991…. But the state’s two rent regulation programs, with a median tenant income of $36,000, remain the most powerful single guardian of New York City’s economic diversity.

While the city can do its share to expedite housing construction, it can’t do much about the cost of labor, materials or land. The average price of land in Brooklyn, the city’s most populous borough, rose 25 percent between September 2013 and 2014. In some of the borough’s neighborhoods the increase was larger: Between January 2013 and 2014, land prices in Downtown Brooklyn (the focus of a major Bloomberg-era rezoning) rose from $75 to $350 a square foot. Prices for land in East New York, an area targeted by the de Blasio housing plan, nearly tripled in the first eight months of 2014.

So, in order:

1. The “red-hot market” is “the problem” – but why is there a red-hot market?

2. Just as McDonald’s unhealthy food makes you fat, real estate developers’ (unscrupulous?) behavior eliminates affordable housing. But I find it hard to believe – and I know of no evidence suggesting – that, say, Phoenix has relatively low-cost housing because its real estate developers are particularly well-behaved.

3. A declining number of rent-controlled apartments has certainly reduced the amount of housing affordable to the working class in New York. And yet Houston has literally zero rent controlled apartments, but many, many more affordable homes for people with modest incomes.

4. Land prices are rising rapidly, which for obvious reasons leads to higher home prices. But why are land prices rising?

DCF 1.0
These Phoenix homes are cheap, but not because the people who built them were nice. Credit: Hanroanu

I ask all this not to be snarky, but because I’m honestly not sure where Grabar sees the housing crisis coming from. To be fair, none of these excerpts are meant to be cohesive explanations. But given the ambitions of the piece, that seems like a problem.

Grabar’s feature is obviously meant to discredit – or set up the discrediting – of what he refers to as de Blasio’s “market-based” solution: allowing more homes to be built so as to better balance supply and demand, and requiring many of those new developments to include units with below-market rents. “If the plan falls far short of its goals,” Grabar writes, “it…will go a great length toward disqualifying the dominant municipal philosophy of affordable housing.” (Whether this is, in fact, the “dominant municipal philosophy of affordable housing” is, of course, another question. A question to which the answer is “no.”)

One issue with this framing is Grabar’s assumption that the strategy de Blasio – and before him, Michael Bloomberg – have espoused is, in fact, the strategy they’ve implemented. But just as Bloombergian zoning doesn’t mean what some people think it means, New York has not, in fact, been adding housing at a furious pace. “New York City added 180,000 units of housing between 2002 and 2011,” Grabar writes, without providing context that this represents a gain (over a slightly different period, 2000 to 2012) of just 5.8% – less than low-cost boomtowns Dallas, Houston, and Phoenix, but also significantly less than built-up cities like Boston, Seattle, and Washington, DC.

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Speaking of Washington, it’s a bit odd, too, that Grabar uncritically quotes Hunter College professor Tom Angotti:

“This is the great myth, that there’s some magical market that functions so that when you increase the supply the price will decrease,” says Tom Angotti, a professor of urban planning at Hunter College. “It never works that way.”

…given that just a day before his piece was published, the Washington Post reported:

Year-over-year average rent growth among mid-quality, three-star apartments declined during the third quarter for the first time in 2014, while average rents in higher quality four- and five-star apartments have been dropping since the second quarter of 2013…. Why has the rent gap shrunk?…. An unprecedented number of new apartment units (about 24,000) have arrived in the area in the past two years, increasing the total apartment inventory by roughly 5 percent. That new supply wave cut rents for four- and five-star apartments even further, even as rents at three-star apartments continued to outperform. But the narrowing may be slowing as the wave of supply takes its toll on three-star rents as well, working in renters’ favor.

But all of this is beside my current point. Despite these problems, I actually agree with Grabar’s central argument, which is that New York City proper is unlikely to solve its affordable housing crisis – is unlikely, in other words, to create a city in which people of average and below-average income can reasonably expect to find housing without major financial strain – by allowing lots of private-sector construction and using inclusionary zoning to squeeze out some non-market-rent units from that construction.

No, my point is that a reader of that piece won’t necessarily understand why this strategy, even if actually implemented, is unlikely to work. Interestingly enough, I think a Truthout piece from last October does a pretty good job on that front (their subject is San Francisco, but the principle is the same):

Take it from a person who knows supply and demand very well, the president of the San Francisco-based start-up and real estate investment firm, Engmann Options Inc. “You can’t build enough housing units to meet that insatiable demand in order to get the price down where it can become more affordable,” Engmann said.

…Developers won’t be able to build an unlimited supply of housing, or even build to a point where prices will drop substantially.

The problem with attempting to match supply and demand in places like New York and San Francisco – world capitals of industries that generate ungodly sums of money, cultural playgrounds for the world’s aristocracy – is that the demand is simply enormous, and there is no practical way to build enough to meet it. At least, not in the built-up central cities. (Notably, many of New York’s suburbs are actually quite low-density, and adding lots of housing there – where the majority of people in the New York metropolitan area already live – could go a good ways towards lowering average prices across the region.) That’s why we need to nationalize Manhattan.

Wall Street will not let you in. Credit: Jens Schott Knudsen
Wall Street will not let you in. Credit: Jens Schott Knudsen

But when the reason is articulated this way, a few things become clear. First of all, if we’re no longer implying that the laws of supply and demand for some reason simply don’t apply to housing – we’re merely pointing out that, given the circumstances in NYC and SF, there’s no way to supply enough to meet demand – we can see that even if building a lot doesn’t solve the problem (as in, yay, we’re done), it can slow or arrest the rise in rents, which is certainly not a bad thing. See, for example, Washington.

Second, we can see that the circumstances NYC and SF find themselves in are not the circumstances of most American cities. Most American cities are neither world capitals of robber-baron-lucractive industries, nor playgrounds of the global aristocracy. In most American cities, demand for housing is not an insatiable beast. In the vast majority of American neighborhoods, you can, in fact, build enough to meet demand.

Now, that’s still not to say that the only affordable housing policy Chicago (or Seattle, or wherever else) needs is to build until rents are reasonable. As both Grabar and Dylan Ruiz and Joseph Smooke of Truthout mention, the cost of constructing new housing – and, probably more importantly, maintaining older housing – makes it unprofitable to rent below a certain level no matter what, and many people find themselves unable to afford housing even at those market-bottom prices. Even Ed Glaeser, the most libertarian of the prominent housing supply advocates, has staked out a position in favor of massively expanding housing subsidies for the very poor.

But I do think all of this demonstrates the importance of thinking about housing policies beyond whether they fall in buckets labeled “Good” or “Bad.” Most policies don’t solve major problems all on their own, and most policies’ effectiveness depends on the context in which they’re deployed. It should not actually be shocking that the zoning laws that determine how much housing developers can legally build fit both of these descriptions.

12 thoughts on “In which I disagree and then agree about housing policy

  1. I said this briefly on Twitter, but I’ll try to flesh it out more here. Given that NYC and SF exist in a totally different housing market than almost any other US city, with nearly insatiable demand and limited land to develop, I wonder if looking to other *cities* for guidance on affordable housing isn’t, perhaps, the wrong question. When I think of places with huge demand, high construction costs, and little land to build on, I tend to think of smaller places–resort towns, some college towns, the like. It’s obviously not a perfect parallel, but I think there are some commonalities–crazy demand for a very small town (or section of town) can send prices skyrocketing. I’m thinking of places like Provincetown (though to be fair I’ve never been there, so maybe it’s cheaper than I think), Vail, Aspen, Jackson Hole, etc. I was just in Hudson, NY last weekend–there’s plenty of room to build there, but all of the Brooklyn second-homers who come up for the weekend only want to be on one or two streets, and so the prices on those streets are stratospheric (by the standards of Columbia County). I don’t know how much there is to learn from these places, or if any of their affordable housing strategies are remotely scalable, but it might be something of a start.

    1. I feel like those places’ affordable housing strategy is ultimately quite similar to what NYC historically did (and should be doing now as well): provide the affordable housing some distance away from the most central and desirable area, and then provide affordable transportation to let the people in that housing access the jobs in the center of town. So, while demand for housing in Manhattan may well be insatiable and the market may well never provide truly “affordable” housing, there’re plenty of opportunity to do so in places like the Bronx or Queens or even Hoboken. Good thing there are subways that reach all those places, relatively quickly and relatively cheaply. SF has much the same problem, and much the same solution: the western neighborhoods, Oakland, and the Peninsula have plenty of room to grow, and reasonably good transit links to downtown. Unfortunately both the Bay Area and NY have basically prohibited this solution by downzoning the outer areas so that very little new housing can be built.

      1. Yeah. There’s a limit to that, though – income segregation is its own problem, and is only somewhat mitigated by transit access to the privileged quarter.

    2. This is a very perceptive comment. As a resident of Princeton, I recognize that we have many of the same challenges as NYC, just on a different scale. (Residents here would utterly reject any comparison with NYC of course-any attempt to build housing here is routinely denounced as ‘turning us into a mini-Manhattan’.)

      We also have a housing crisis, and like the author of this NextCity article, most residents blame developers. The original headline for the NextCity article was “Can the Developers Responsible for New York’s Housing Crisis Solve It?” I wrote on their Facebook page, pointing out that this was absurd. Without making any comment, they quietly changed the headline to the more neutral “Inside the Gamble That Could Make or Break Bill de Blasio.” They also deleted the original link from their Facebook page. NextCity is a good site but this was not their best work. It was a polemic masquerading as factual reporting.

      1. Thanks. I do wonder if the problems of smaller towns are sometimes even more intractable–I feel like “neighborhood character” arguments are bullshit in most urban areas, but in a small town, transforming Main Street or building new, tall buildings around a historic college campus really can wipe out the town’s aesthetic appeal, which is sometimes the only thing it’s got going economically. That’s not to say that small, wealthy towns don’t make bad zoning and development decisions–they do. But I think when your margin of error is smaller than NYC’s, and your appeal is based largely on looking cute, rather than having a large, diverse economic base, you do have to think about things a little more carefully. I’ve never been to Princeton, but I’m thinking about Northampton, where my aunt lives–there’s limited room for growth downtown, and I’m struggling to think about where the town could grow that wouldn’t either fundamentally transform its aesthetic appeal or be too far away from Main Street to not be walkable. But the town *does* need to grow; it’s a great place to live, and housing in-town is so expensive that even two-income, professional-class families like my aunt’s are pushed out to car-dependent suburban developments.

    3. Huh, that’s interesting about the analogy to smaller towns. And the geography of housing demand is really interesting; surely there must be some interesting things written about it?

    4. I’d flip it around and ask if maybe the scale the issue in NYC and SF means we need to look at solutions put forth on a national level where similar constraints exist, such as in east and southeast Asia. The Japanese especially have very intense urbanism and actually quite affordable housing, despite the perceptions of most westerners to the contrary. The numbers of new housing units brought online in such cities is much more like what you see in the booming sprawlburgs of the US, but it’s through mid-rise apartments, townhouses, and other dense multi-family buildings. Part of the reason for this is national control of zoning, which is very simple and quite permissive, which allows for much more fine-grained and varied developments that don’t need to go through miles of approval red tape, NIMBY-ism, or wheel-greasing of alderman. That’s the kind of solution to appease not only housing advocates and urbanists, but free market libertarian types as well. There are several interesting examples at the Urban Kchoze blog:

  2. If additional goals are increasing civic cohesion and reducing human misery, we also need to see to it that the people living and begging on the street have someplace to live, plus be clothed and fed. How do you achieve this for nyc’s and sf’s homeless, in an economically sane fashion?

    1. Homelessness is an issue that I’m really not qualified to speak on. I’d love to hear from people who are, though.

  3. I’m not quite sure it’s insatiable in NYC. There’s a lot of room to build upward, and if you have that to the point of getting stable or declining rental/housing prices you’ll also cool the inflow of rich folks buying mostly-empty places as a way to dump cash (since they won’t be going up in value).

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