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?
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?
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.
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.
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.