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New York Daily News

 

Build Big, Bill

August 24, 2014

By Edward L. Glaeser

Shred red tape and unleash the private sector to produce affordable housing, as New York City once did

The fight to define Mayor de Blasio's ambitious affordable housing agenda is in full swing.

In East Harlem, activists and City Council members are at war with plans to build three luxury skyscrapers — with some opposed to the towers entirely, and others urging that the buildings be half market-rate, half affordable.

They want neighborhood-wide rezonings across the city to demand half of all apartments to be be earmarked for lower-income New Yorkers.

This is all happening in the immediately wake of the fight over the “poor door,” at 40 Riverside Blvd., a high-rise built with the help of affordable housing tax incentives.

In that development, there will be two entrances — one for the occupants of market-rate units and another one around the corner for the adjoining building filled with affordable housing.

Advocates are absolutely right to beat the drum for more affordable living options for low-income families. And they're right that the “poor door” is symbolically awkward for de Blasio, to say the least.

But they're wrong to think that more regulation and government intervention is the way to achieve their stated goals.

In fact, their proposed solutions — strict new rules along with ever more incentives and subsidies on top of an already distorted housing market — may well make things worse for the low- and moderate-income New Yorkers they say they want to help.

And Mayor de Blasio's focus on creating or preserving 200,000 “affordable units” over 10 years, many of which would come at the expense of market-rate units, offers the prospect of two permanently separate cities:

In one New York, the market-rate city, housing will be freely accessible to anyone willing to pay — but many will be priced out as increased affordability requirements raise building costs.

In the “affordable” New York, housing will be dribbled out unenthusiastically by lottery to lower-income renters by developers who have no incentive to treat them with respect but see them only as a cost of selling market-rate units that will be even more expensive to carry the subsidized ones.

The possibility of scoring a prized, below-market unit like the type the city creates through special carveout programs creates intense competition for these units; a flock of my graduate students once left class early to enter into the lottery for subsidized units in Boston's new Mandarin Oriental.

Giving people a small shot of winning an affordable unit lottery is no substitute for encouraging the creation of a far more abundant supply of ordinary rental apartments. Radically upping that supply would leave far more New Yorkers able to rent something for a reasonable price on the free market, instead of allowing rents to continue to rise for most while a select few win access, via waitlists and lotteries, to a separate class of apartments at below-market rates.

Once upon a time, New York City understood this. In the early 1920s, we were building 100,000 new housing units, accessible to people across the economic spectrum, every year. As a result, the booming city remained affordable to working- and middle-class people like my grandparents.

How was this possible? For one, the city's regulations back then were relatively modest, focusing primarily on safety and light. Thanks in no small part to that limited red tape, the cost of producing new units was relatively low, and — surprise, surprise — they got built.

From that high point, we steadily drifted away from the supply-and-demand model — toward one in which government increasingly managed development and professed to hold all the keys to protecting affordability even as rents for most New Yorkers grew ever more unaffordable.

In other words, by theoretically trying to dig ourselves out of the hole, we only fell deeper and deeper in.

World War II brought widespread rent controls, which understandably chilled the private sector's desire to build new rental housing. The public sector then delivered thousands of units of public housing in vast, segregated projects, which were the ultimate poor doors.

Today, with the public sector completely in the driver's seat, the idea of building 100,000 units in a year here is unimaginable.

In fact, New York City builds at a slower rate than many other large, successful cities. A new study by the Citizens Budget Commission shows that between 2000 and 2012 — when we had mayors who were considered “pro-development” and a rising population — New York City added a lower percentage of new housing units overall (5.8%) than Washington (9.2%), San Francisco (8.8%) and Boston (7.3%).

Yet de Blasio wants to solve what he correctly calls “a crisis of affordability” with the goal of creating or preserving (mostly the latter) just 20,000 units a year.

To borrow from “Jaws,” we're gonna need a bigger goal. And de Blasio's policies can't help us reach it.

The poor-door fiasco illustrates exactly what we can expect from the mayor's attempt to cajole private developers into providing a public service. Many will provide the legally minimal level of care and respect for their affordable units. After all, builders are not social service agencies; they're in business to make money.

Now, to avoid future poor-door fiascos, the city will have to watch every cluster of affordable units with hawklike vigilance, getting government ever more involved in a sector in which it's already too deeply involved. This is economically unhealthy and wildly unrealistic.

We will never learn from the poor door if we don't put it in proper economic context. The distinct entrance at 40 Riverside Blvd. is unpleasant, but it is vastly less segregated and far better than the publicly supplied so-called affordable housing that I saw growing up in New York during the 1970s.

When demand for city living increased during the 1980s and New York's limited supply of new buildings became obvious, Mayor Ed Koch responded with an inclusionary housing program that allowed developers to build higher than they would otherwise be allowed, so long as they built some new, specially designed affordable housing.

That, by and large, made sense, because the plan was voluntary. It was designed to encourage affordable housing development without discouraging the production of market-rate units.

Contrast that approach with the mandatory requirements de Blasio is on the cusp of proposing — which will demand that all developers in various neighborhoods build a certain percentage of affordable units if they want to build at all.

Those rules may well deter new construction. Many developers will likely decide that a new project just doesn't make sense if 50% of the new units in it must be affordable, as some are encouraging de Blasio to mandate.

The fundamental tradeoff for subsidized, affordable housing remains the same as it ever was: We can perfectly integrate affordable units into even the toniest buildings, which means the price per unit will be high and thus the number of units will be relatively small. Or we can build elsewhere and save the money to spend on something else.

Realistically, the poor are never going to live on Park Ave., and we should accept that reality — as long as New York has enough options at different price points spread throughout the city. But the truth is, we're much more likely to see wealthier and poorer people living near one another if we don't classify the poor as a distinct housing market to be served by separately designed “affordable units.”

If we get smart and begin with the premise that we need more units at every income level, rather than a special set of designated “affordable units,” we'll start to see the world differently.

In the distorted housing market we have created, for example, empty nesters don't vacate their apartments, but routinely stay in spaces that are too big for them long after they would have otherwise downsized.

Rent control laws are one reason why. Affordable housing rules are another. In my own research, I have estimated that this lock-in generates social costs, because there is far less connection in rent-controlled units between the needs of a household and the apartment size that household occupies.

The current inclusionary zoning program, which is what gave rise to the poor door, is not intrinsically bad, but it is a distraction masquerading as a solution. According to one estimate, inclusionary zoning was responsible for the production of fewer than 5,000 affordable housing units in the city between 2005 and 2013.

If we really wanted to rapidly create lots of housing for all New Yorkers — poor, rich and in-between — we would forget about carving out a special class of “affordable” units and embark on another approach entirely: raise height limitations drastically, slow the spread of historical districts, speed the review process in much of the city and radically simplify the zoning code.

The development industry should then be tasked with doing what it does best: building on a vast scale. The places in America that are growing and inexpensive are cities like Atlanta and Houston, where developers have been given a comparatively free hand.

New York should loosen the city's stringent height regulations — and this doesn't mean giving property owners a vast handout. The city should charge builders reasonable fees for going up, to cover the costs of infrastructure and public services that come with big new buildings and their residents.

More radically, the city should impose a land tax on owners of underdeveloped property. If an owner is underutilizing space, then he should pay for that privilege. The city should also use zoning and the tax code to encourage creation of smaller, less luxurious rental apartments.

A robust pro-building agenda won't take care of everyone. The city needs to simultaneously do a better job maintaining its legacy stock of public housing and other affordable units.

And ultimately, if New York wants to make sure that less wealthy people can still afford the city, then the natural solution is housing vouchers. The federal government moved from public housing to vouchers 40 years ago.

Instead of creating a distinct stock of affordable units, vouchers provide support to allow poorer people to pay market rates and to choose where they want to live. With modern technology, landlords need not even know if their tenant is using a voucher, so the poor-door threat is minimized.

Of course, someone will have to pay for those vouchers. Perhaps that would be a reasonable use of the tax on underdeveloped land. It is far better to pay for a service with honest tax revenue than to try to get it by imposing regulatory burdens — like a mandatory affordability requirement — on particular activities.

New York has an affordability crisis. But an affordability plan that tries to create a separate class of subsidized units provided by private-sector builders follows the wrong path. The honest answer to this crisis is deregulating housing supply. The choice is plain: vouchers and the free market, or a future of more poor doors.

Original Source: http://www.nydailynews.com/opinion/build-big-bill-article-1.1913739

 

 
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