This article highlights the fact that housing shortages and high housing prices affect every major world capital – the direct result of global urbanization and immigration. While all these urban centers realize the ultimate solution lies in building vastly more new housing, the constraints on quickly producing new housing in dense urban areas results in the knee jerk reaction of imposing rent controls. Berlin imposed new rent controls in this context which has apparently not relieved its housing stresses. But Berlin only limited rent increases to 10% above neighborhood market levels. In fact, every existing or proposed system of rent controls allows for regular rent increases, usually tied to some independent measure of increased cost such as the CPI. The real test of whether rent controls work will come in New York, where the progressive administration of Mayor Bill de Blasio seems intent on pursuing a zero or near zero rent increase policy for the duration of the its tenure. The likely result will be the housing devastation that New York experienced in the post-War rent control era when there was no rent increase for 15 years and the City ultimately foreclosed on more than 100,000 apartments.
Megan McArdle, a reporter from Bloomberg View, gives her take in two well-written articles on the pros and cons of gentrification in major cities and specifically touches on the effects it has on New York City. The first article focuses on traditional housing projects, voucher holders in rent subsidy programs, inclusionary zoning, and why rent control doesn’t actually work.
The second article gives an in-depth look on the lack of power that government has in creating more affordable housing in the face of the ever-increasing demand for more units. Ms. McArdle says that the dream of adding new, affordable units while gentrifying the way some cities (such as New York City) are, is simply just a nice, but unfeasible dream.
Mayor Bill de Blasio’s first year in office has been an eventful one, to say the least. Despite other citywide issues, Mayor de Blasio has made it clear that his agenda throughout his term is to target the rental housing industry. Besides his appointment of five new members of the Rent Guidelines Board and a call for a rent freeze, the Mayor launched an historic affordable housing plan last May that will build and preserve 200,000 affordable housing units.
On February 3rd, the Mayor delivered his second State of the City speech and made his affordable housing plan the centerpiece of his 90-minute speech. As we already know, the plan calls to build 80,000 new units and preserve 120,000 existing affordable units. Mayor de Blasio stated that prior to the end of 2014, approximately 16,000 new units have been constructed, which is nearly a quarter of the proposed plan. As a result, we are left to believe that the task of constructing 80,000 new units may not be such a farfetched idea after all.
However, many people, including some elected officials, left the State of the City speech with doubts about this affordable housing plan after Mayor de Blasio delivered some big-time promises. The Mayor noted that the targeted area to construct a large portion (approximately 11,250) of these new affordable units is Sunnyside Yard, Queens, which is lacking in housing for a reason. For one thing, the land is owned by Amtrak, which is Federally operated, and the Metropolitan Transit Authority (MTA), which is State operated.
The MTA is currently using the land to store trains and is transporting materials needed to construct the new Long Island Railroad Station through Sunnyside Yard. Even if MTA wanted to sell the property, it would cost the City a hefty price tag, not to mention the additional funding needed to construct these thousands of units. The idea for this astronomical plan is perhaps nothing but a fantasy. Hypothetically speaking, if this long-term project was to be successful, it would take at least twenty years for it to be completed. Obviously, this is well beyond Mayor de Blasio’s possible second term, which would end in 2021.
The Mayor’s speech was primarily focused on his plans to construct another 60,000-70,000 affordable units throughout the City. The biggest question remains: How do you preserve 120,000 existing units? This is by far the biggest problem in his entire affordable housing plan. How will Mayor de Blasio reach his goal of preserving all of these units when his goals are to freeze rents and convince the State Senate to develop tenant-friendly rent regulations when the current rent laws expire in June? If there was ever any doubt that Mayor de Blasio is fully engaged in the Rent Guidelines process, his gloating over the “lowest rent increases in the history of the City” last year was a legitimate indication that he will continue to advocate for even lower if not zero increases. The math is simple Mayor de Blasio: small owners cannot maintain and preserve the existing affordable housing stock if you do not provide them with adequate rent increases while operating costs continue to skyrocket. Last year we raised concerns about this affordable housing plan and the question still remains: Is Mayor de Blasio’s affordable housing plan doomed?
There are only a few weeks to sit and ponder on Mayor de Blasio’s State of the City speech. We soon shall see how much the Mayor plans on having a say in this year’s process, with the Rent Guidelines Board expected to convene for the first time this year on Thursday, March 12th. RSA and the entire housing industry want to help the Mayor achieve this monumental goal, but we cannot do so if the blueprint is not realistic.
In many Liberal cities throughout the country, building and preserving affordable housing is a major priority. Take New York City for example where Progressive Mayor Bill de Blasio has promised to build and preserve 200,000 units of affordable housing over the next ten years.
Is it possible, however, that these political leaders and the view of the voters in their particular areas are adding to the affordable housing crisis in their own cities, rather than curing it? Housing experts seem to think so, with surveys showing that the more Liberal cities throughout the country, such as Los Angeles, San Francisco and even New York City, are having more trouble keeping their cities affordable than Conservative cities. The survey, which compares 32 Republican cities to 28 liberal cities (based off of results in the last Presidential Election in 2012), shows consistent matches in decline and recovery during the recession, but shows that affordability remains a bigger issue in the Liberal cities.
As we have said before, the important thing to note is that affordable housing is an issue throughout the entire country and in major cities internationally, not just in New York City. Progressives such as Mayor de Blasio lead residents to believe that housing affordability is only an issue in New York City and for a variety of reasons. In fact, however, affordability is at its lowest in San Francisco, according to these recent studies.
This does not necessarily mean that Liberal Democrats are the reason behind expensive housing. However, these studies have shown that because these liberal cities are less affordable, have lower homeownership, and have greater income inequality, greater regulation, political leaders in Democratic-leaning and Republican-leaning cities are evidently pushing for different policies.
Mayor de Blasio wants to build and preserve 200,000 units of affordable housing in New York City over the next ten years, a feat that has not been accomplished by any of his predecessors. However, this monumental plan is off to a rough start with the proposed Astoria Cove project in Queens.
In what the Wall Street Journal is calling “the first major project he has shaped from its early stages,” the developers of the 1,700-unit waterfront complex are proposing to set aside only 17-20% of the total units to below-market rents, which is causing much uproar with the de Blasio Administration and affordable housing advocates who are calling on 50% of the units to be below-market.
A de Blasio aide was quoted saying the administration is still identifying all of its tools to properly execute the housing plan. It is evident that Mayor de Blasio still has no general plan for his affordable housing proposal and that each project, such as the Astoria Cove, will have to be negotiated individually in order to achieve a certain amount of affordable units in each development. Going forward, it will be interesting to see how these large developmental projects will be handled in order to achieve the Mayor’s goal.
The recent enactment of the lowest Rent Guideline increases in the 46-year history of the rent stabilization system has provoked an outpouring of media attention on an issue that is usually ignored but will likely remain in the public eye until next year’s guideline deliberations and expiration of the rent laws. Already, tenant groups are calling for rent freezes on both one-and two-year leases next year while the RSA has called on the Mayor to limit increases in real estate tax assessments and water and sewer rate increases to one percent, equal to the allowable increase for one-year leases.
The debate over allowable increases for rent stabilized apartments has spilled over into a broader debate about housing affordability, the Mayor’s affordable housing plan and who really deserves to get housing subsidies. Jim Epstein at Reason.com points out that “freeloaders of the past” are occupying more than their share of rent-controlled apartments including wealthy celebrities and their children, as well as New York elected officials. And while Mayor de Blasio’s goals of future and existing affordable housing is purportedly to assist lower-income tenants current “affordable” housing programs subsidize households earning up to $193,000 per year. But, as Bob Knakal points out in his Economics 101 primer in the Commercial Observer, part of the problem is that the rent stabilization system has no income eligibility criteria – getting a great deal is a matter of luck and perseverance.
Kyle Smith of the New York Post has a different opinion on the City’s existing and future affordable housing stock, saying that not everyone has the “God given right to live in NYC” and that the City rents are right where they should be. Smith also says that Mayor de Blasio’s song and dance regarding affordable housing in the City has been heard and seen before through former Mayors John Hylan, John Lindsay, Ed Koch, and most recently Michael Bloomberg. The one thing all of these former Mayors have had in common with their affordable housing plans, which were all intended to end the affordable housing crisis in New York City, is that the so-called crisis still has not been solved over the last 80 years. Hence, Smith questions the “largest and most ambitious affordable-housing program initiated by any city in this country in the history of the United States of America” by Mayor de Blasio. Yes, Mayor de Blasio could increase the affordable housing supply, but that does not make the most desirable neighborhoods throughout the City cheap to live in. One interesting statistic that Smith provides that shows that the rent is right around where it should be is that as of 2011, New Yorkers on average spent 32.5% of income on housing, below the nationwide average of 33.1%.
So with arguments on all sides of the affordable housing equation, the question arises of what actually defines affordable in a City filled with diverse neighborhoods. Moving forward in this Progressive era led by Mayor de Blasio, affordability will be defined every more broadly. Major housing developments are continuing to be built with the majority of the units in each building going for market rents for higher-income families and a varying percentage of units in each building being set aside for lower-income families (or middle-income families or upper middle-income families). As long as government plays an ever greater role in the City’s housing market, there will be an increasing clamor for subsidies for the poor, the middle class and the wealthy. And as government’s role becomes ever more pervasive in the housing market, the market’s distortions, misallocations and scarcity will also become more widespread.
As you already know, the Rent Guidelines Board has proposed the possibility of a zero rent increase with guidelines ranging from 0% to 3% for a one-year lease and 0.5% to 4.5% for a two-year lease. This occurred on the same day the Mayor announced his housing plan to preserve 120,000 existing affordable apartments.
On Wednesday, May 14th, RSA Chairman of the Board Aaron Sirulnick wrote a guest editorial article in the New York Observer expressing not only his concern, but the concern of the entire rental housing industry and property owners throughout the City with the Rent Guidelines Board proposal.
It’s hard to imagine how the Mayor could possibly achieve his goal of preserving existing affordable housing with zero rent increases for property owners.
The numbers do not lie. Building operating costs increased in all categories for owners last year. Property owners want to provide safe, well-maintained, affordable housing for their tenants, but the cost of providing these services keeps rising and if there are zero rent increases this year, then it will be incredibly difficult to help the Mayor fulfill his housing plan.
Please be sure to read Aaron Sirulnick’s article in the New York Observer and see why owner participation at the RGB is more important than ever. The RSA is fighting for our members, but we need owners to join us at all of the RGB public hearings taking place next month. Call RSA Director of Communications Vito Signorile at (212) 214-9235 for more information about the public hearings and how to register to tell your story to the Rent Guidelines Board.
At the Rent Guidelines Board meeting on Thursday, April 10th, a representative of the City Department of Housing Preservation and Development (HPD) announced that Mayor de Blasio’s much anticipated affordable housing plan will be revealed the first week of May. As you may already know, Mayor de Blasio has been advocating for the building and preserving of an astounding 200,000 units of affordable housing over the next 10 years. The feat may seem highly improbable, but the Mayor and his administration seem very optimistic about the plan that is set to be unveiled on May 1st.
On that same day, the Rent Guidelines Board will be having their fourth meeting, which will also be when the RSA and other groups will present invited testimony. This meeting also comes four days before the preliminary vote on the 2014 rent guidelines and if Mayor de Blasio has a strong influence in the outcome, we should be expecting the City’s first ever zero rent increase proposal. Should Mayor de Blasio continue to insist on zero rent guidelines, he may very well damage his credibility with property owners throughout the City. This will make it very difficult to obtain their support as he prepares to release this monumental housing plan.
Although Mayor Bill de Blasio was able to negotiate a deal with the developer at the Domino Sugar factory site in Brooklyn to build additional affordable housing units, the agreement only secured an extra 40 units. The Mayor can consider this a victory, but he certainly has a long way to go if he would like to accomplish his goal of building and preserving 200,000 affordable units in the City over the next ten years.
The Mayor’s plans are still unclear but despite his efforts, as well as success from former Mayors Ed Koch and Michael Bloomberg, can the dream of continuing to provide thousands of affordable units in New York City ever be fulfilled? Hundreds of thousands of apartments have been built or converted over the last 30 years and are priced at below-market rates, including 190,000 under Koch and 165,000 under Bloomberg, yet the demand for affordable housing only seems to increase.
Even if Mayor de Blasio succeeds in generating 200,000 additional units, this still will not make a dent in New York City’s dream of providing affordable housing for all of those who need it. Perhaps City officials should reconsider their pursuit of what seems to be an impractical fantasy and direct their attention to providing rental subsidies to those truly in need, as the Section 8 program does.
With over 420,000 outstanding repair requests by tenants of NYCHA complexes throughout the City, Mayor Bill de Blasio last week spared the Housing Authority of approximately $52.5 million that is owed to the NYPD for police protection so that the money could be used to make the necessary repairs. Granting this relief to NYCHA is a great job by Mayor de Blasio, but he should consider giving relief to other agencies that provide major services to residential properties, such as the Department of Environmental Protection (DEP). While serving as Public Advocate, de Blasio suggested giving relief to DEP from making rent payments to the City. Now that he has been elected mayor, it would be great to see these suggestions come into fruition.