Asymmetrical Information - Megan McArdle

03.13.13

How New York Could Get More Affordable Housing

Rent control is not the way.

The Manhattan where I grew up was an expensive place compared to the small town in Western New York State that my mother hailed from.  Nonetheless, it was a fundamentally middle class place, not the wall-to-wall display of edgy affluence that it has since become.  In the 1970s and 1980s, my neighborhood had a fair amount of petty street crime, apparently including a transvestite prostitute who used to engage clients right underneath a friend's bedroom window.  There were housing projects, and some truly derelict hotels where the very-down-on-their-luck lived.  But there were also lots of genteelly shabby buildings, lots of them rental-to-coop conversions, where you'd find professors, city workers, various sorts of bookish-but-moderately-paid professionals, and of course, the uncountable elderly Jewish ladies who had often moved into their apartments right after World War II.  They made slow, dignified daily rounds using collapsible shopping carts as ersatz walkers, and could be counted on for a few hamentaschen every Purim.

Now that same stretch of Broadway contains mostly banks, sit-down restaurants and high end chain stores; every year, the Godiva line advances closer to West 96th Street.  The housing projects are still there, some of them, but they are islands in a sea of people who call themselves "middle class" on a mid-to-high six figures income.  It's getting harder and harder for ordinary workers, much less the poor, to find somewhere to live within the five boroughs, and advocates for the poor are urging the city to do something about it:

“What you will see is overcrowding or people being forced to move to places like Long Island, Connecticut and New Jersey. The impression is that we’re talking about a small segment of the population. In reality it’s close to half of all New Yorkers that are affected. The city is sending away its growth engine.”

In her annual State of the City address last month, Christine Quinn, council speaker and frontrunner to replace Michael Bloomberg as mayor, echoed this statement. “We need to make sure that the people who want to stay in our great city can afford to stay here,” she said. “We will not allow middle-class families to get priced out of the neighbourhoods they helped build.”

She called for the creation of 40,000 new homes and a push to make much of the city’s low-income housing stock permanently affordable, rather than allowing rent controls to expire after a period. More than 160,000 families are on the waiting list for affordable housing.

Since 2004, the Bloomberg administration has created or restored more than 140,000 affordable homes throughout the city, but housing experts say many are still too expensive.

There is, of course, something a little hilarious about that first paragraph, as if it were a terrible injustice to be forced to move to the Hobbesian hellscapes of Connecticut and Long Island.  On the other hand, it would be nice if New York could offer more homes to people who want to live there, including people on moderate incomes.  

Unfortunately, the would-be-future Mayor seems to have hit on one of the worst ways to accomplish this: refusing to let landlords take rent-controlled or low-income apartments out of circulation.  No, wait a minute, liberals, bear with me.  I'm on your side! I like economically diverse cities, much better than the high end shopping mall that my neighborhood has become.  But this is not the way.  

The units that she's talking about seem to be rent-controlled or low-income apartments that were created by giving landlords a special deal: if they built a building with some (or all) low-rent apartments that would be controlled for 25 years, they got a tax break from the city.  These tax breaks are quite substantial; whole nonprofit communities have sprung up to fill this niche.  That's why the landlords built the apartments.

But it's not the only reason.  Landlords also expected that, at the end of 25 years, they would have a very valuable asset in the form of a decontrolled building.  That was a big part of their calculations; without it, a lot fewer of these deals would be done. Building apartments in New York is an absurdly expensive and time consuming process that is often planned in terms of decades; I've heard one estimate that it takes around 20 years to assemble a large, desireable parcel for building and get all the required approvals.  

New York has been through this before.  The first rent control act was put in place during World War II. (These are those amazing, sweetheart deals that every sitcom character in New York is supposed to have: enormous apartments that rent for a few hundred a month.  Problem: it wasn't worth building new buildings at the controlled rent.  So the city council exempted new buildings--and then reneged in the early 1970s, when inflation was causing rents to rise very fast.  This haunted the 1970s and 1980s, as landlords were leery of building something only to have the government suddenly decree that they had to rent it out at below-market rates.  

By the 1990s, developers were starting to trust again, and the last decade saw a building boom.  Obviously, it was not enough to absorb all the demand for New York apartments.  But that won't be helped if New York once again reneges on its promises and forces landlords to rent an apartment out for less than they'd been expecting.

But that doesn't mean that New York can't do anything to create affordable housing.  It can, by making it cheaper to build.  Taller buildings and a less onerous approval process would do far more to create affordable housing than effectively seizing the property of anyone foolish enough to participate in your affordable housing program.