Less Regulation to Produce More Housing

What’s the best way to increase the amount of affordable housing in New York City. The New York Times digital edition recently featured a collection of proposals that address this issue.

Most of the proposals were more of the same old: strengthen rent regulations, preserve public housing, tax increment financing, nonprofit ownership and other mechanisms that have been used in NYC to a greater extent than anywhere else, but have all failed to solve the “affordable housing crisis”.

Only one proposed solution has not been tried in New York and it comes from Ed Glaeser, an economics professor at Harvard University, who understands the laws of supply and demand. Professor Glaeser proposes a simple solution of easing housing demand by increasing the supply of housing. And the way to increase supply is to remove the barriers to building created by land use regulations such as zoning, historic preservation and air rights (and we should add rent regulations and labor practices).

But New York City, under Mayor Michael Bloomberg, has moved in the exact opposite direction. Major rezoning, affecting 40% of the city, has downzoned neighborhoods where developers were building higher-density market-rate housing without taxpayer subsidies. Development has instead been funneled into smaller development zones where even greater density will be required, together with subsidies to produce affordable housing.

Why the Rent Is So High in New York

By CATHERINE RAMPELL

In a magazine piece this week (and accompanying blog post), I talked about why many of the goods and services that high-income people consume are cheaper in New York — because it has such a large concentration of high-income people. I also mentioned that the big, glaring exception to this is housing, which is expensive for rich people as well as poor people.

So why is housing so expensive here, and getting even more so?

There are a few reasons. One is that New York has become a much more attractive place to live and work over the last few decades as crime has fallen and other amenities have improved. So demand for apartments here is up — and not just among people who live here full time.

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Who Says New York Is Not Affordable?

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One of the first things you learn when living in New York is that what qualifies as wealthy somewhere else seems barely middle-class here. On the Upper West Side, where I live, it’s hard not to feel as if Manhattan is impossibly expensive for young professionals. The average nondoorman, one-bedroom apartment in the neighborhood rents for about $2,500 a month. Oatmeal-raisin cookies at Levain Bakery cost $4 each. A pair of sensible, unstylish walking flats from Harry’s Shoes can set you back $480. I suppose, by comparison, that the $198 chef’s menu at Jean-Georges doesn’t sound so ridiculous.

New Yorkers assume that we live in the most expensive city in the country, and cost-of-living indexes tend to back up that assertion. But those measures are built around the typical American’s shopping habits, which don’t really apply to the typical New Yorker — especially not college-educated New Yorkers with annual household incomes in the top income quintile, or around $100,000. According to a recent study by Jessie Handbury, an economist at the University of Pennsylvania’s Wharton School, people in different income classes do indeed have markedly different purchasing habits. That may not be surprising, but once you account for these different preferences, it turns out that living in New York is actually a relative bargain for the wealthy.

While compiling her research, Handbury looked at Nielsen shopping data for 40,000 American households, across more than 500 food categories, with details on everything from organic labeling to salt content. Remarkably, she found that for households earning above $100,000, grocery costs are 20 percent lower in cities with a high per-capita income (like New York) than in cities with a low per-capita income (like New Orleans). There’s evidence that the same forces hold true for other products that cater to upper-income people, from high-end retail to beauty services. The average manicure, for example, is about $3 cheaper in New York City than in each of the rest of the top 10 biggest cities in the United States, according to Centzy, a company that collects data on the prices of services.

Part of the reason high-income residents get good deals, Handbury explains, results from a particular economic system. Highly educated, high-income New Yorkers are surrounded by equally well-educated and well-paid people with similar tastes. More vendors compete for their business, which effectively lowers prices and provides variety. There’s also a high fixed cost to distributing a niche product to an area; if there’s more demand for that product, then the fixed cost can be spread across more customers, which will justify bringing the product to the market in the first place. That’s why companies go through the expensive hassle of distributing, say, St. Dalfour French fruit spreads in rich cities but not in poor ones and why New York can support institutions like the Metropolitan Opera.

Of course, not everything that wealthy New Yorkers spend money on is cheaper here. Housing, after all, is absurdly expensive, even for the rich. Complex zoning regulations and limited land make it all but impossible for supply to grow alongside demand. Still, it’s somewhat unfair to compare housing costs here to those in a place like Buffalo, or even Atlanta, since perks like access to amenities and unusually lucrative jobs are baked into the cost of New York real estate. Yet those higher rents all but ensure that tenants will appreciate an amazing bakery or a fancy shoe store — and that retailers will have to lower prices to compete for their business. Regardless, the rent burden isn’t actually as onerous as people assume: the typical resident here pays roughly the same share of her income in rent as does her counterpart in Los Angeles, Chicago, Philadelphia and Houston, according to N.Y.U.’s Furman Center for Real Estate and Urban Policy.

Professional-class workers who like to moan about the cost of living in New York — and I’m including myself in this group — don’t realize how spoiled we are by both variety and competitive pricing. Truthfully, things seem more expensive here because there’s just way more high-end stuff around to tempt us, and we don’t do the mental accounting to adjust sticker prices for the higher quality. We see a sensible shoe with a $480 price tag or an oatmeal cookie for $4 and sometimes don’t register that these are luxury versions of normal items available from Payless or Entenmann’s. The problem, in part, is that people tend to anchor their own expectations for what they should buy based on what their neighbors are buying, not what some abstract, median American buys. It’s a phenomenon known by some as affluenza, and it partly explains the overborrowing by the lower and middle classes during the bubble years, when their incomes were flat but their high-income neighbors’ incomes were growing phenomenally.

There is, however, an ominous flip side to Handbury’s findings. When you look at the cost of living for low-income people based on their tastes and preferences, New York’s poor turn out to be even poorer than you think. According to her research, a household earning $15,000 a year faces approximately 20 percent higher grocery costs in cities with relatively high per-capita income. The same is very likely to be true for other essentials, like clothing. Real estate is most crushing for all but those lucky enough to get into subsidized housing. For the poor, it is impossible to unbundle apartments from all the perks that help drive up costs.

A concentration of rich consumers should lead to better salaries for low-skilled jobs like waiters or manicurists. But federal programs intended to help the poor, like food stamps or child-care subsidies, are generally not adjusted for the local cost of living. In New York, the poor are “getting disqualified from a lot of these programs because they’re being paid $10 an hour rather than $7.50 an hour,” says David Albouy, an economist at the University of Michigan, “which can sort of artificially put them above the poverty line or wherever the threshold is.”

Between these competing forces of higher-paying jobs and high living costs, the high costs seem to be winning out. As I talked to Handbury, I began to realize why, in part, New York seems so wealthy. It’s not so much that the city has been colonized by hedge-fund millionaires (though it often feels that way) as it is losing its lower classes. The greater New York area now has the longest average commute in the country (35 minutes, compared to a national average of 25). Many of the less-educated are leaving the metro area altogether: from 1980 to 2010, the population of college-educated workers rose by 73 percent, while the population of workers without college degrees fell by 15 percent, according to Rebecca Diamond, an economics graduate student at Harvard.

What’s happening in New York is just part of a national shift. Highly paid, college-educated people are increasingly clustering in the college-graduate-dense, high-amenity cities where they get good deals on the stuff they like, while low-skilled people are increasingly flowing out to cheaper places with a worse quality of life. The end result, Diamond’s research shows, is that measures of the growing income gap between the high-skilled and the low-skilled, which already look pretty shocking, seriously understate the inequality between these two classes.

This two-tier economy can seem inevitable, but other middle-income cities — particularly Sun Belt hubs like Houston and Charlotte — are now offering a third option, says Edward L. Glaeser, an economist at Harvard. A large part of their appeal has to do with policies that make it easier to build homes and expand the affordable housing stock for those people fleeing cities like New York. Places like Detroit are cheap, Glaeser told me, because they have become drastically less attractive locations to live and work. But places like Houston are cheap — and staying cheap, even as they grow — because the local governments have realized their comparative advantage is in deregulation, not in fancy cookies.

 

Source: The New York Times

When ‘Affordable’ Is Just a Word

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The spring has the real-estate press enthusiastically reporting on the construction of 432 Park Avenue, an apartment tower that its developers claim will be the tallest residential building in the Western Hemisphere. Apartments in the tower, designed by Rafael Viñoly and to be completed in 2015, are offered in the $20 million to $80 million range, which in the context of Ludicrously Priced Housing for Oligarchs Who Spend Most of the Year in Tax Exile on Mediterranean Yachts isn’t as numbing as it might otherwise be. Such is the historical moment that a few blocks west, in another glass tower, called One 57, apartments have sold in the past year for more than $90 million.

Barbara Cortijo and her sons, Joel, left, and Jomar, live in affordable housing in the Bronx.

Given these perversions, it is hard to understand what affordable housing means in New York, in one sense because the market doesn’t really abide it, and in another because the phrase itself in policy terms has become so amorphous.

Just as shocking, arguably, as the $44 million four-bedroom duplex in TriBeCa that turns up in the real estate listings of The New York Times is the $1,400-a-month, two-bedroom rental apartment in the Belmont section of the Bronx. According to the National Low Income Housing Coalition, which calculates what it calls the housing wage— the earnings necessary to pay no more than 30 percent of your income on rent, the threshold usually used to define affordable housing — you would need to make $26.92 an hour, or $56,000 a year, to afford the apartment. If you held a minimum-wage job, a likely circumstance in a neighborhood where the poverty rate is 43 percent, twice the city’s on the whole, and median household income is just over $22,000, you would have to work 149 hours a week to meet the cost. Alternatively, you could clone yourself 2.7 times.

As it happens, affordable housing was the subject of a mayoral forum last week at New York University. Democratic candidates all expressed the view that despite the Bloomberg administration’s ambitious and lauded affordable housing program — which has financed the preservation and construction of 165,000 units of low-, moderate- and middle-income housing — the city, at a time of record homelessness, soaring rents and stagnating wages, needs to do more and needs to generate affordable housing that is actually affordable.

Two months ago, a report issued by the Association for Neighborhood and Housing Development, a consortium of neighborhood housing groups, indicated that out of the 38,670 units developed by the Bloomberg housing plan from 2009 to 2011, only one-third of them were economically within reach of households making the median income or less for the typical household in their neighborhood. Of the units the city developed over the same period, only about 8 percent were intended for households making less than 40 percent of the metropolitan area’s median income, though they make up nearly one-third of all New York City households.

Another dimension to all this is what Alex Schwartz, a professor of urban planning at the New School, likens to a bathtub with a running faucet and an open drain. As the city builds new units of affordable housing, old units age out of the system. Much of the affordable housing isn’t meant to be affordable forever simply because it isn’t financially feasible, so rents go up, tax breaks expire and units nudge toward market rate. Last week, the housing development association issued new data indicating where existing affordable housing had disappeared or was threatened. In the University Heights section of the Bronx, 5,000 units of housing from 2008 to 2011 became unaffordable, with rents requiring incomes of more than 80 percent of the area’s median income.

The New York City Housing Authority, where the average monthly rent as of this year is $436, offers permanent affordability, of course, but there are currently more than 167,000 families on its waiting list (and more than 123,000 families on a waiting list, now closed, for Section 8 federal housing vouchers, which have had their financing reduced by sequestration). One partial solution to clearing the backlog would be to relocate older residents living alone in large apartments in public housing to smaller ones and give over two- and three-bedroom apartments to the families who need them. “It isn’t all that complicated,” Christine C. Quinn, the City Council speaker and a Democrat, said at the candidates’ forum, “even though it isn’t happening.”

Creating actual affordable housing, buildings that can pay for themselves in the absence of growing subsidies, will be a formidable challenge for the next mayor. John C. Liu, a Democratic candidate, proposes to do it with what he calls the People’s Budget, which he unveiled last week and which includes $27 million in housing vouchers for the homeless and $3.7 billion in capital funds to help create 100,000 units of affordable housing over a four-year period. He would finance these and other ambitions through tax increases on those making more than $1 million a year, charging rents to charter schools using city facilities and taxing private equity firms’ carried interest, to cite a few examples.

Advocates and analysts in the affordable housing world have talked about addressing some of this difficulty by cross-subsidizing buildings, a process that would have a mixed-income building in the Bronx, for instance, helping to offset the costs of a primarily low-income building in Brooklyn. I would propose another form of cross-subsidization called the You Don’t Need to Live in a $50 Million Penthouse Tax, which would require anyone buying a property for more than $10 million (of which there are currently about 280 listed in The Times) to pay a percentage of that cost to an affordable-housing fund. And then commit, in writing, to never complain about it.

Source: The New York Times

Tiny Apartment Winner Announced—In a Race to the Bottom?

New York City recently announced a winner in its competition to build “tiny” apartments. The winner will build 55 apartment as small as 250 square feet on City provided land with additional subsidies. Yet, rents for these apartments will be comparable to market rate studio apartments in this pilot program to provide more  “affordable” housing.

Any effort to provide more housing in New York City should be applauded, but this pilot program raises questions. Why stop at 250 square feet? San Francisco last year legalized apartment as small as 220 square feet while Paris permits apartments of less than 100 square feet. Of course, there are plenty of “tiny” apartments in existing rental and co-op buildings, many with less than 100 square feet, so it hardly seems necessary to demonstrate that even the tiniest spaces can be livable and are in demand. New York City could produce more housing faster if it simply picked a number, together with minimum habitability standards, and then let the private sector see if it can fill the niche.

But in New York City, it seems, anything called affordable housing requires a City imprimatur. Take for example the history of SRO housing (essentially rooms with common bathrooms) in New York. Decades ago, the City determined that SRO housing was sub-standard and banned any such new construction, except by a non-profit housing entity. But there is a market for such housing, as reflected by the remaining SRO stock, so why not re-legalize a form of housing that has served a distinct segment of the market. Maybe, after a few more competitions, we will get back to where we were.

                               

                                                    – Jack Freund, Executive Vice President, Rent Stabilization Association (RSA)

(Views and opinions expressed are those of the author and do not necessarily reflect the policy or position of the RSA.)

 

Additional Sources:

In Winning Design, City Hopes to Address a Cramped Future- The New York Times, 1/22/13

From San Francisco, a foreshadowing of the debate on tiny apartments that has not yet taken place in NYC

San Franciscans Divide Over Pint-Size Apartments

By MALIA WOLLAN
Published: September 26, 2012

 

SAN FRANCISCO — This city of sprawling Victorian homes and expansive harbor views has erupted into a fight over itty-bitty apartments.

On Tuesday, the Board of Supervisors had been scheduled to vote on proposed legislation to change the building code to lower the minimum size for apartments, allowing developers to build so-called micro-units as small as 220 square feet.

But amid a fierce debate over housing set off by the micro-apartment proposal, lawmakers chose to postpone the vote until November.

An artist's concept of a 300-square-foot apartment proposed for San Francisco.

“We have a housing affordability crisis here; rents are through the roof,” said Scott Wiener, the city supervisor who introduced the legislation and who says tiny apartments will help provide affordable housing to single people, students and the elderly. While the city’s affordable housing advocates agree that there is a crisis, many feel the micro-apartments will only exacerbate the problem by catering to the young, high-tech set, further driving up rental prices.

Opponents of the legislation have even taken to derisively calling the micro-units “Twitter apartments.”

The proposed change in the building code comes at a time when the city is already deep in the throes of an identity crisis brought on by an influx of technology workers from across the globe. In recent years, several large technology companies, including Twitter and the online game company Zynga, have chosen to locate their headquarters in the city’s urban core, eschewing more suburban Silicon Valley locales. The higher-earning newcomers have contributed to rapidly rising rental prices.

The average rent for a studio apartment in the city is $2,126, an increase of 22 percent since 2008, according to RealFacts, a company that tracks apartment rental data in cities across the country.

Mr. Wiener estimates that the rent for a micro-apartment will be $1,200 to $1,500 per month. The legislation would allow only new buildings to include the 220-square-foot apartments.

“What San Francisco really needs is affordable family housing,” said Ted Gullicksen, director of the San Francisco Tenants Union. “This is not family friendly. This is aimed at tech workers and those who need a crash pad.”

Proponents like Mr. Wiener say the units are not intended for those in the technology industry and point instead to the growing population of people living alone. Nearly 40 percent of residents here live by themselves, the census has found.

But such cramped quarters — about the size of five Ping-Pong tables — worry tenants rights advocates.

“Are we saying it is acceptable to box people up in little tiny spaces?” said Tommi Avicolli Mecca, director of counseling at the Housing Rights Committee, a nonprofit organization. “What standard are we setting here?”

Similar small-studio proposals are being considered in urban areas across the country. New York City recently approved a 60-unit pilot project containing apartments as small as 275 square feet. San Jose, about 60 miles south of San Francisco, already allows 220-square-foot units. Cities like Seattle, Chicago and Boston have also experimented with such units.

Internationally, cities like Paris and Tokyo have long been known for their pint-size pads. But in recent weeks housing authorities in Singapore, a hub of dense development, limited new small apartments to encourage developers to build more diverse and family-oriented housing.

“Units of this size already exist in the city,” said Tim Colen, director of the San Francisco Housing Action Coalition, a group that supports the micro-unit legislation. “And we think these small units are a logical, necessary response to an extremely high-cost housing market.”

 

Source: New York Times