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Rent Control: Trying to Make a Bad Policy Worse in NYC

NYC Rent Control

In New York, lawmakers are currently debating a compromise between New York City and upstate interests to change the policies that shape residents’ housing costs. New York City lawmakers are fighting for an extension and expansion of current rent control laws, while Governor Cuomo wants to tie this extension to a two percent cap on yearly property tax rate increases. Legislators voted against a temporary extension of the current policy on Wednesday. The Wall Street Journal reports: The Senate Democrats had been urged by tenant advocates to reject even a short-term extension in an attempt to ratchet up attention on their efforts to expand protections for existing tenants. “Our members have said from the start: extension is not enough—we need to strengthen regulations,” said Austin Shafran, a spokesman for the Senate Democrats. Senate Republicans, meanwhile, blamed the Democrats for the defeat, noting that they are acting against a bill pushed by Gov. Andrew Cuomo, a Democrat who supports expanding regulations. City lawmakers ignore that in fact rent control laws make housings costs more expensive for many residents and would-be residents in order to appease the fervent interest group of tenants who currently live in apartments priced below market rates. In 1972, the Swedish socialist economist Assar Lindbeck famously wrote, “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.” Why then, are New York City politicians  — politically to the right of Lindbeck — fighting to protect rent control today? Rent control policy is detrimental to all those unable to find housing at rent stabilized or controlled prices as well as landlords. Rent control has not had the dire impact in New York that it has in other cities because the number of apartments that are fully rent-controlled is […]

Irrational, or responsive to incentives?

In the Washington Post Brad Plumer editorializes on the choice of many Americans to accept longer commutes by car in exchange for larger homes far from their workplaces. He says that consumers are unable to accurately calculate the cost of their commutes, including time spent driving, leading them to make “irrational” choices about where to live. However, Plumer downplays the policies that encourage consumers to buy homes rather than rent and that allow them to partially externalize the costs associated with driving. Plumer asserts that when buying a house, consumers think they will value additional space more than they do, but he gives no convincing reason that their subjective valuation of home size is incorrect. If in fact if consumers did undervalue the time they spend commuting in relation to home size when they purchased a home, he gives no reason why they would not eventually realize this error and improve their situation by moving to a smaller home closer to a city center. His piece is written in response to Congressman Earl Blumenauer’s recent report on the topic of shielding Americans from volatility in the oil market. Blumenauer does credit the policy environment dating back to the 1944 Federal Highway Act for shaping the car-centric culture that many Americans live in today, and he supports policies that provide incentives for decreased reliance on cars. Blumenauer asserts, “For too long, the Federal government has disproportionately subsidized highways at the expense of other modes, reducing consumer choices.” Rather than moving away from determining transportation and urban development through legislation, he provides policy prescriptions at the federal, state, and local level to decrease consumers’ dependence on oil. For example, Blumenauer suggests that mortgage lenders should be encouraged to take transportation costs into account, making it easier for those living close to their […]

Clear case of the damages inherent in policy uncertainty

Current policy evolution in Los Gatos, CA demonstrates the power that urban planners have to alter property rights.  The Silicon Valley municipality is currently debating whether or not to upzone a parcel where a developer would like to build 550,000 square feet of office space, replacing 250,000 square feet of an older office park. The lots, located near the Netflix headquarters, are thought to be the potential site for the company’s needed expansion. However, the Bay Area is already home to ample vacant office space, so the developer would like the alternative option of building multifamily housing in the location. In response to this request for a change in zoning that would allow either use, the planning commission chairwoman said she was “blindsided” by the owner seeking permission for options to use the land in various ways. In today’s world of master plans that dictate acceptable uses for each parcel of a city’s land, asking for the freedom to build different types of buildings, rather than approaching a commission with a plan in place for a specific zoning change, may seem out of line. In reality the owner is simply seeking permission to put his land to its most efficient use given future uncertainties. Entrepreneurs profit by seeing through these uncertainties to put resources to their most profitable uses, but in the market for land, policies limit their ability to do so. In curent conditions, in which developers are not building much new office space unless it is pre-leased, the planning commission has the power to determine the land’s expected value by requiring the owner to commit to a plan before moving forward with redevelopment. This is a classic Coasean case of the care that policy makers must take in assigning property rights. Russ Roberts and Richard Epstein did a […]

Affordable Housing for the Rich and the Failure of Zoning Bonuses

In the past I have not been kind to affordable housing programs. I have a lot of deeper problems with them that I’ll get to in a minute, but I think the extraordinarily high upper income limits on some of the projects are indicative of the broader problem of the essentially arbitrary and random (literally – they’re usually decided by lottery!) nature in which they’re doled out. In a way, even when the beneficiaries are blatantly undeserving, everybody wins – politicians get votes, and affordable housing advocates get paid. Everybody, that is, except market-rate renters, but when’s the last time they ever voted somebody out of power for sabotaging their interests? Anyway, your latest affordable housing outrage story comes from New York City (where else?) – specifically 138th Street in Harlem, where the 73 units at Beacon Towers are almost all under contract, and Curbed claims that most of the remaining units are income-restricted “up to $192,000”!!! Oh yeah, and they can’t even find enough people who qualify. Which brings me to another point: the Beacon Towers are not towers, and are certainly not any kind of beacon. They’re eight stories tall, and considering we’re talking about new construction in Manhattan, I’m going to take a wild guess and say they built right up to the zoning envelope. The immediate neighborhood is a mix of turn-of-the-century five- and six-story walkups (but little in the way of even cornice lines), some post-war towers-in-a-park-style buildings that reach up to 15 (!!) stories, along with a smattering of parking lots and other woefully underused lots. As Robert Fogelson wrote in Downtown, the New Yorkers of 1900 fully expected that by 2000, the whole island of Manhattan would be a river-to-river block of commercial skyscrapers. Perhaps that was unrealistic even if there had been no zoning code, […]

When “affordable housing” is just a random middle class housing subsidy

Affordable housing and inclusionary zoning are complicated subjects and it’s hard to sum up all my thoughts and objections to the schemes in one post, so I’m going to take the death-by-a-thousand-cuts approach. Today’s installment: income eligibility levels. Now, the stated intent of affordable housing set-asides has always been a bit unclear to me. The cynic in me thinks it’s just a way for politicians to buy votes with public money by essentially randomly redistributing from the many (market-rate renters and buyers) to the few (the lucky handful to win the lotteries for coveted subsidized units). The stated motivation, though, seems to range anywhere from a combination of helping the poor find housing to having a little bit of housing diversity, even if that “diversity” means upper-middle class alongside upper class. In my experience, though, the programs end up overwhelmingly fulfilling the latter goal. The latest example I’ve come upon, which doesn’t seem too out of the ordinary, is from a project called Tivoli Square in the Columbia Heights neighborhood of  DC, which looks like it’s associated with the big development corporation-driven DCUSA project (As an aside, DCUSA was basically a huge urban mall in what was an obviously gentrifying neighborhood. The city ended up spending a large amount of money on a parking garage that now mostly sits empty, and they’ve been having trouble renting the retail spaces set aside for local businesses. It’s also architecturally pretty ugly, and houses way more national chains than the rest of the neighborhood. Politicians hail it as a success, but in my opinion it’s the worst thing to happen to Columbia Heights since urban renewal.) Anyway, the zipcode’s median household income in 2009 was $57,393, and the project had a 20% set-aside for some combination of low- and medium-income. The upper limit for “low income” ranges from $50,000 for […]

A question for the blogosphere: How much affordable housing is enough?

Reading about a new ultra-luxury Far West Side rental project going up where over 40% of the apartments are going to have controlled rents (“affordable housing”), I’d like to pose a question to supporters of affordable housing mandates in the planning blogosphere (which includes pretty much the whole planning blogosphere): How high is too high? I’d also be interested to know why exactly the developers included so much affordable housing. I’m pretty sure there’s no program that requires that much affordable housing (the 80/20 state program obviously only requires 20%), but I think commenter Alon Levy is probably right when he suggests that various subjective review processes pressure developers into including more subsidized units than the government officially asks for. Tom Duane, a State Senator, has some testimony up on his website about the project that gives us a look into the mind of what seems to be a typical (at least for New York City) affordable housing-type NIMBY. Back in 2009, when he gave the testimony, the plan was for 50% of the 1,200 units to be kept at below-market rents “permanently,” but even that wasn’t enough for Duane. He was upset that “only” 40% of those units will have two or more bedrooms, and also wanted the amount of commercial space scaled back from two floors (i.e., an FAR of 2.0) to just one (1.0 FAR). Oh yeah, and he doesn’t like the 31-story tower and he wants the developer to really promise not to transfer the unused development rights elsewhere. Obviously, I oppose setting aside this much of new developments for affordable housing. People tend to think of different segments of the real estate market as distinct – how on earth could limiting the number of rich people on Far West Side make prices rise in Bed-Stuy? […]

Obama administration pushing dissolution of Fannie and Fredie

Big news out of Washington: Fannie Mae and Freddie Mac – which many (including me) think were at the heart of the financial collapse, and currently have some stake in the vast majority of post-crash mortgages – may be getting wound down soon. This NYT is reporting that the Obama administration may be releasing three plans at the end of the week, and the preferred (!) one is to shut down the two lenders entirely. These lines also stood out to me: Representative Scott Garrett, the New Jersey Republican who is chairman of the House subcommittee that deals with housing finance, on Monday told a mortgage conference in Florida that the government should leave the mortgage business. “I believe that, if there is to be any government assistance to homeownership, it should be limited to first-time homebuyers or rental housing,” Mr. Garrett said. Note that “rental housing” isn’t “homeownership” at all. Personally I think it’s a good idea to get the government out of encouraging homeownership entirely, on the grounds that homeowners are more likely to be in the perverse position of wanting the cost of housing – a basic expense for everyone – to go up, resulting in pervasive government interventions like anti-density zoning and blowing up the housing bubble. But even beyond this indirect sprawl promotion, they have inherent anti-density biases like their refusal to fund small mixed use projects.

Why I don’t like Inclusionary Zoning

Inclusionary zoning is a hot item among urban planners today, and is often seen as a solution to residential segregation and high housing costs. Exact implementations vary, but the general idea is that developers of multi-unit housing projects are encouraged to set aside a certain percentage of their units, generally ranging from 10-30%, but sometimes even more, as “affordable housing” units. In other words, some proportion of the units are under rent controls to the point where they must be rented (or sold) at a loss by the developer. Sometimes the schemes are voluntary and give developers density bonuses, sometimes developers can pay a fee instead of setting aside units. The exact proportion of units that must be set aside and loss developers take on each unit also varies. As you can imagine, I’m not in favor of this system, but it’s a complicated issue, so this is going to be a long article. Inclusionary zoning is a relatively new concept, first implemented in the 1970s, to combat the growing problem of residential segregation of classes and races, whose origins are interesting and, I think, germane to the conversation. I generally see two explanations given by proponents of IZ for why segregation and unaffordability arose in the first place: market forces and zoning (or, as they call it, exclusionary zoning). Quoteth a law review article: Affordable housing has always been a problem in the United States. Cities and towns originally engaged in forms of discrimination through exclusionary zoning to exclude low-income residents. Of course, this is only true if your history begins in 1930. But from the mid-18th century to the turn of the century, America underwent a tremendous urban population boom fueled by railed transit and a massive immigration wave from Europe, and the housing stock adjusted just fine […]

This is how gentrification happens: Northwest DC and the height restriction

Lydia DePillis wrote the Washington City Paper’s cover story on the case for Congress overturning DC’s height limit, which should be very familiar to readers of this blog. It’s got some interesting history in it (DC’s height limit was apparently influenced by George Washington’s personal aesthetics, despite the fact that he never governed from the city), but the part that was really interesting to me was the part where she discusses what the new limitations should be. It’s not politically practical to advocate for lifting the limit without reservations, as we here would like, and there are the usual caveats and equivocations (“What if additional height were granted on a competitive basis, and awarded for the best design?”). But the part that really stood out to me was this graphic (click on the image and scroll to the bottom of the linked page to see a bigger version), outlining where Lydia thinks the height restrictions should be lifted: Anyone familiar with DC geography will notice that the area most insulated from change – Northwest DC – is the richest part of town, full of desirable white neighborhoods. The areas where DePillis advocates lifting the height limit – neighborhoods east of the Anacostia River figure prominently in the graphic – are far blacker and poorer than the rest of DC. Sure, there are pretty buildings in NW and a lot of ugly ones in Anacostia, but there are also beautiful homes off of Benning Road and shitty ones in Burleith. (Which, I should add, could desperately use some taller buildings, given its proximity to the perpetually housing-strapped Georgetown University and its rather ugly architecture compared to Georgetown proper.) This tactic of upzoning poor black neighborhoods while leaving white neighborhoods unchanged is very common, and I realize that Lydia is just trying […]

The economics of redevelopment and the shape of socialist cities

Earlier today I read an article by Daniel Garst about Bejing’s awkward population distribution that reminded me of a journal article about the general shape of socialist cities that I read a while back. Garst talks about Beijing being a “circus tent” when it comes to density, with population density increasing as you travel away from the city center, in contrast to the “pyramid” style of most cities, with high densities in the center and lower densities around the periphery (see chart for a visual representation). This immediately made me think of an article by Alain Bertraud and Bertrand Renaud called “Socialist Cities without Land Markets,” where they describe exactly this phenomenon, and explain it as a failure of administrative urban planning. Here’s an excerpt: As their economy and their population grow, cities expand through the progressive addition of concentric rings, similar to the growth of trees in successive seasons. New rings are added to the periphery as the city grows. With each ring, land use reflects the combined effects of demography, technology, and the economy at the time when the ring was developed. Wile this organic incremental growth is common to all cities, in a market city changing land prices exert their pressure simultaneously in all areas of the city, not just at the periphery. Land prices exert a powerful influence to recycle already developed land in the inner rings when the type and intensity of the existing use is too different from the land’s optimum economic use. Thus, changing land values bring a built-in urban dynamism as ceaseless variations in land prices put a constant pressure on the current uses of land and trigger changes to new activities and/or densities. Under the administrative-command economy, the absence of land prices eliminated the main incentive to redevelop built-up areas by […]

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