Bill de Blasio has been in office for a little over six months, and his affordable housing plan is starting to take shape. Last month, the Mayor’s office unveiled its vision for making New York City more affordable: 200,000 new housing units “built or preserved” at a cost to the city of $8.2 billion. For the building part, de Blasio’s team aims to entice developers through zoning. But as a recent interview with de Blasio’s housing czar highlights, there’s a fundamental tension in their approach: The more units they can build, the less affordable New York City has to be.
Plan a luxury building, and you’re limited to a certain number of apartments, but sprinkle in some subsidized units — 20 percent in most areas, or 30 percent or more in the most in-demand neighborhoods — and de Blasio will permit you to build more. That means more profits for New York City developers (and could be the difference between a viable project and one that’s not worth pursuing).
A new piece in real estate trade magazine The Real Deal on Alicia Glen, NYC’s deputy mayor for housing and economic development, closes with the following:
But Glen said that from the administration’s point of view, spiking land prices aren’t a bad thing, and can even help it meet its housing goals.
“We want markets to stay hot,” Glen said. “That’s good for us. The more people want to build, the more there is to talk about the percentage of affordable housing, and the more the industry is happy to engage in these conversations. Right now, what appears to be the insatiable appetite for New York real estate is something we completely embrace.”
Herein lies the issue — perhaps even delusion — of a housing affordability plan that relies mostly on so-called “inclusionary zoning” (essentially charging developers for the right to build, and funneling the money into subsidized housing) and discounts the ability of more market-rate supply to drive down prices citywide: The administration succeeds when the city is at its most unaffordable.
To see why the position puts the city in a can’t-win position, some thought experiments are in order.
Let’s say that for whatever reason — New Jersey repealing all zoning laws, foreign oligarchs deciding what they really want is a huge lawn and a three-car garage on Long Island, whatever — the price of housing in New York City is cut in half. Most New Yorkers would consider this a victory for affordability. Much of New York City’s rental housing stock is rent stabilized, but like most rent controls, it’s only a partial buffer from market forces — when you leave a unit, or the rent exceeds a certain threshold (in New York, it’s now $2,500 a month), or the Rent Guidelines Board says so, rents can and will rise. But with declining market-rate housing prices, tenants would no longer fear rent hikes, and could even get a rent break.
But for de Blasio’s goal of building 80,000 new units by taxing developers, this would be a disaster. With lower prices come lower profit margins based on prices builders already paid for land, which means less money the city can extract for affordable housing construction.
Now let’s say the cost of housing changes drastically again, but in the opposite direction. Wealthy hedge funders start fleeing the newly slumified Connecticut suburbs, a neo-Great Leap Forward sends China’s millionaires packing for safe havens abroad, the federal government repeals all taxes for foreign billionaires. Overnight, New York City becomes Monaco — an enclave for the world’s über-elite. Prices skyrocket to the point where even modest homes in Queens cost $5,000 per square foot.
Most (would-be) New Yorkers without rent-stabilized leases — immigrants, kids moving out of their parents’ homes, divorced adults — would be immediately forced out of the city, sent packing to the outer reaches of Long Island or North Jersey.
Such a shift would spell disaster for the cultural and social vitality of the city, but the administration would get Monaco-like affordable housing ratios! Every housing project could include a sizable number of below-market-rate units. The vast majority of wannabe New Yorkers wouldn’t win the lottery for these units, but the administration would meet its 80,000 new-build affordable quota, maybe even many times over.
Under a loosely-regulated housing market — for example, the one that existed in New York City before the 1961 zoning code — rises in prices are moderated if supply increases commensurate to the rent hikes. High housing costs are self-correcting, rather than something to be cheered on.
But once you give up on the market to supply anything even remotely resembling affordable housing — as New York City’s mayoral administrations have lately (yes, even Bloomberg’s) — high prices are something to welcome, as Glen does. Though given that the vast majority of New York City renters don’t live in subsidized housing and, at least when they sign new leases, are still subject to the vagaries of the market, hoping that prices will continue to skyrocket seems quite cruel and premature.
Obviously, the Monaco scenario is not an ideal one for New York City. Unfortunately, it’s not quite so obvious to de Blasio’s housing crew.
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Stephen J. Smith is a reporter based in New York. He has written about transportation, infrastructure and real estate for a variety of publications including New York Yimby, where he is currently an editor, Next City, City Lab and the New York Observer.