Affordable Housing Needs a Reset #OWS
I’m super proud of the latest Huffington Post piece that Alt Banking put out entitled Affordable Housing Needs a Reset. Here’s an excerpt:
We’ve been hearing a lot lately from New York Mayor de Blasio on his affordable housing plan. He says he will “build or preserve” 200,000 housing units, but the plan would only build 8,000 units a year. Unless it is radically changed, the mayor’s plan will squander public assets, enrich real estate developers, but do very little for the record number of people living in the shelter system or at risk of landing there.
Let’s first talk about how the term “affordable housing” is defined and whether it jives with our concept of the kinds of places New Yorkers can actually afford to live in. The mayor’s plan defines an apartment renting for $41,500 a year as affordable because a family of four with $138,435 in income can afford it ― even though that is more than twice the actual New York City median 4-person household income of $63,000. That is, most New Yorkers cannot afford an “affordable apartment” by the mayor’s standards.
The mayor’s plan tracks the pattern New York City has religiously followed for quite some time of trying to “incentivize” private development. The city effectively pays a fortune to private developers to build this kind of stuff. Here is a frightening statistic from the Association for Neighborhood and Housing Development: in 2013, New York City gave private developers a pass on $1.2 billion in taxes in order to stimulate the building of 153,000 units of housing ― just 12,000 of which met the messed-up definition of affordability. Hard to believe we couldn’t have done a lot better by simply collecting those taxes.
Read the rest of the essay here.
mathbabe 
I don’t see a plan. I see only criticism. Present a better feasible plan. All ears.
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Abe,
We aren’t experts so I’m not sure why you would want our plan. The real problem isn’t knowledge, it’s motivation. If the city wanted to do better, it could. But, then major campaign funders would be unhappy. So, the most important thing it to expose the problem.
Having said that, we did refer to some past programs that were successful. And, if you are genuinely looking for more ideas, please read the report linked in the post (and below) and contact the Real Affordability for All coalition.
http://www.realaffordability.org/search/label/Media#
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Let’s start with the premise: “an apartment renting for $41,500 a year as affordable because a family of four with $138,435 in income can afford it.” Now let’s look at the affordable housing website and look what’s being offered. So I looked at 5 “housing opportunities,” and found the following eligible salary ranges:
1. 23K-35K
2. 30K-50K
3. 48K-138K (Central Harlem) <- There's your 138K outlier!!
4. 30K-50K
5. 39K-50K
While I'm no fan of DiBlasio, and agree that more affordable housing needs to be built, it seems that the fundamental criticism is undeserved. The criticism should be directed at the fact that it's way too little.
The City cannot do it from city and state taxes. The last big housing surge was the 1960s projects, which IIRC was federally (taxpayer) funded. Since that is not likely to happen soon, incentivizing builders is the best current solution.
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The mayors plan (see page 6) has 5 categories of housing it is looking to promote:
1. < 25K
2 25K – 42K
3. 42K – 67K
4. 67K – 100K
5. 100K – 138K
Two of the five are entirely above the median income. (deBlasio claims category 4 is 81-120% of median because he has fudged the number).
As far as "The City cannot do it from city and state taxes": It IS doing it with taxes. Tax abatements are "spending" revenue the city would otherwise have. And it is very unproductive spending. Also, the city spends a lot on homeless shelters (you wouldn't think so by looking at them but apparently they do). We are not necessarily calling for more spending as much as Better spending.
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I would assume that the mayor seeks to gather the support of the unions, and many teachers and other civil servants under union contract fall into categories 4 and 5, yet have a hard time finding affordable housing in the city.
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The high cost of housing in NYC, SF, Boston, and other places is caused by restrictive zoning and overuse of historic landmark status designation as has been pointed out by Harvard economist Edward Glaeser, Economics Nobelist Paul Krugman (referencing Glaeser), Financial Times columnist Tim Harford (who discusses this in his fun microeconomics book, “The Undercover Economist”) and many others.
In 1910 there were 2.3 million residents in Manhattan and today there are only 1.6 million.
It really comes down to simple microeconomics: artificially induced scarcity through politics (“rent seeking”) that makes the billionaire land owners even wealthier at the cost of others by making housing artificially expensive. The problem is that these wealthy landowners have too much political power at the city and even state level to keep politicians from reversing these restrictive land-use laws. I hope there is federal legislation breaking up the restrictive zoning just as there was legislation to break up monopolies (another form of crony capitalism).
Another example of politically induced market scarcity is the high cost of taxi medallions in NYC which has created artificially high taxi fares. The once $1 million cost of taxi medallions has dropped 17% thanks to Uber and similar services.
http://www.nytimes.com/2014/08/25/opinion/paul-krugman-wrong-way-nation.html
http://www.amazon.com/Undercover-Economist-Tim-Harford/dp/0345494016/
http://scholar.harvard.edu/glaeser/home
http://www.bloombergview.com/contributors/edward-glaeser
http://www.businessinsider.com/uber-destroying-value-of-taxi-monopolies-cartels-2014-11
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I looked around a bit and saw that Harvard economist Edward Glaeser has specific recommendations to Mayor de Blasio published in Aug 24, 2014 New York Post:
Build big, Bill
Shred red tape and unleash the private sector to produce affordable housing, as New York City once did
http://www.nydailynews.com/opinion/build-big-bill-article-1.1913739
“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%).”
[skip]
“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.”
[skip]
“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.”
*** The entire article is worth the read ***
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The 1910 population figure represents the huge influx of Eastern European Jews to the hyper-dense tenements of the Lower East Side. As the immigrants became more prosperous they started moving out to larger apartments and houses in Brooklyn and Queens, and later to Long Island. The population density in the Lower East Side was in the 1200-2400 persons/hectare and the surrounding area was 600-1200.Today that same area is in the 300-600 range.
Furthermore, there are lots of offices providing lots of jobs in Manhattan. Then there is the ever expanding Hospital Row on York Avenue, which with the cancer business booming is gobbling up real estate in Midtown and other areas. Just look at:
http://www.mskcc.org/locations
Of course we have tons of new hotel space and we have seen the commercialization of Disney-like Times Square.
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Another factor in the reduction of Manhattan (and Lower East Side) density was the Johnson-Reed Act of 1924, which restricted the number of Jewish immigrants to the US, thus increasing the populations of Canadian cities like Montreal.
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David, it is a significant and less than credible thing to change NYC into Manhattan. In 1910 there were 9 million people in NYC, and in 2010 there are over 19 million.
In 1910 Long Island’s Nassau and Suffolk counties, not Queens which is NYC, had 2 million residents. Today those two counties have 7 million. It is accurate to say that unleashing the private sector has gotten us where we are with over priced over leveraged housing built to the hilt without enough attention to that housing being affordable. Specifically evidenced by the reckless lending the private markets used after 2002 to create a bubble that popped in 2008. And please do not tell me Fannie and Freddie caused it when it was the private market led by the likes of Countrywide that lied to push mortgages on people who could not afford them, and pressured ratings agencies to lie about the quality of the mortgages so they could cheat investors into buying them. If public low income housing projects is responsible for 5% of that build out I would be surprised even if you included GI bills and the rest.
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Shoot. I knew that number seemed nuts, I was looking at population of all NY State not the city to get from 9 mil to 19 mil. NY City went from over 4 million in 1910 to over 8 million in 2010.
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I also mis-read the data on long Island. It does include Brooklyn and Queens which are part of NYC, I am going to go to sleep now before I have to correct anything else or write Aunt Pythia a letter.
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Reblogged this on Alina's Blog.
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It seems to me that you gave that article a “pass” on what seems to me to be a very dodgy assertion. Specifically:
“Hard to believe we couldn’t have done a lot better by simply collecting those taxes.”
uncollected taxes = $1.2 billion
“affordable” units = 12,000
That works out to $100,000 a unit. I don’t think there is any way you could build a unit which could house four people in NY city for $100,000 not even when building them in large projects of 1,000 units at a time. Sure the definition of affordable housing is absurd, but the statement that the city could have done better by collecting the taxes seems absurd as well. Maybe you could have built 3-4,000 units for that much money, but not 12,000.
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You don’t think? Plenty of single-occupancy houses get built out in Flatland for far less than $100k. If you didn’t have massive overhead dealing with NIMBY neighbors and inappropriately tight rules about what can be put up, I doubt the underlying costs of building (design, materials, labor) would run more per-unit than that. Estimates I found on Fixr.com suggest that for average materials and a simple design, the cost per unit — not buying the land, just building the units — should run $65-85k. I’d think for $100k you might be able to upgrade to greener materials and more efficient operations. Perhaps if you want to shoot for LEED Gold or Platinum, the cost might significantly exceed $100k per unit…
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It’s also worth remembering that, had the city declined to offer those tax credits, it’s not like the developers in question would have built nothing at all. The number of units added to the total housing supply would have been smaller, but it wouldn’t have been zero. And the total number of units being built is what we ought to care about — if there were the political will to let the market build as many units as people actually want, then the developers would diversify into the low end. The whole enterprise of keeping the number of units built down, while trying to then force people to build “affordable” units, is pretty much doomed from the get-go.
Think about it this way: If the car industry was only allowed to sell a thousand new cars every year in the whole US, what kind of cars would people want to build? Insanely expensive ones. They’d go for maximum selling price and maximum margin on each individual sale. OTOH, in the real world, where they can produce as many cars as the market will buy, they diversify, in order to sell cheaper models to the far-more-numerous low-end buyers.
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