When New York’s new, populist-talking mayor, Bill de Blasio, laid out his 10-year, $41 billion plan to add 80,000 new units of affordable housing in the city and preserve another 120,000, he didn’t mince words, declaring the plan “literally the largest and most ambitious affordable housing program initiated by any city in this country in the history of the United States of America.” The New York Times editorial page called it “Mr. de Blasio’s Moon Shot.” Two days later, popular city blog Gothamist ran an article asking whether the plan was “Too Little, Too Late.” The story noted that, of the proposed new units, only about 16,000 would be aimed at households making $42,000 a year or less, representing less than 3 percent of the shortfall in affordable housing for the nearly one million households in that income group.
The discussion of de Blasio’s plan suggests just how overwhelming the housing issue is in New York: the most ambitious plan ever may address only a fraction of the problem. And the nation’s biggest city is not alone in facing it. Across the U.S., rising rents are becoming a hot-button topic. A 2013 report by Harvard’s Joint Center for Housing Studies found the percentage of renters paying more than 30 percent of their income for housing—a standard threshold for affordability—rose from 38 percent in 2000 to 50 percent in 2010. In big coastal cities, the jump in rents tends to be particularly striking.
So, is the New York plan a good model for other high-rent cities? And what else, if anything, could be done to take the pressure off families’ housing budgets? To get some suggestions about how to think about these questions, I reached out to researchers studying housing affordability.
“Manhattan is Underpopulated”
Ask an economist about why something costs what it does, and you’re likely to get an answer that has to do with supply and demand. In a 2005 paper for The Journal of Law and Economics, Harvard’s Edward L. Glaeser and Raven Saks, along with Joseph Gyourko of the University of Pennsylvania, took on the question “Why is Manhattan So Expensive?” The answer, they concluded, has a lot to do with government-imposed restraints on construction—zoning rules and such. Looking at the cost of adding new apartments in the borough, the economists found the combined cost of land and construction was less than half of the price the finished units could command. They concluded the gap was mostly due to land use restrictions, something that seemed to be a growing issue, with neighbors of proposed new developments becoming more and more effective at combating construction. Looking at housing markets across the country, they found similar issues in a number of big cities, including Boston, Washington, DC, Los Angeles, and San Francisco.
The authors argued that, even if there are some negative consequences of adding extra people to city neighborhoods, they’re probably not enough to warrant what they called a “development tax”—regulations that drive up everyone’s housing costs. “In short,” they wrote, “Manhattan is underpopulated.”
When I spoke with him by phone recently, Glaeser said de Blasio’s proposal incorporates some of the ideas that economists were talking about almost a decade ago. The mayor’s plan would get most of its funding from private sources—$30 billion, compared with $8.2 billion in city money and another $2.9 billion in funds from federal and state sources. To entice private money, it calls for denser development—taller buildings, less parking space, and more apartments. In many cases, it requires builders to essentially pay a fee for the chance to build more densely, in the form of setting aside some apartments to be rented at affordable prices.
To Glaeser, the notion of designated affordable apartments isn’t ideal: because the stock of such units is limited, they don’t benefit all low- to middle-income renters. Meanwhile, those lucky enough to score an affordable unit will be stuck in place for fear of losing the subsidy. But, he said, the simple fact that de Blasio supports new housing is a good thing. Glaeser said charging developers for adding an extra floor to a building isn’t a bad idea, but there might be better ways to spend the money.
“I think de Blasio’s heart is in the right place,” he said. “It may be production of affordable housing units is the only way to make development palatable.”
In principal, Glaeser said, it would be possible to add “an enormous amount” of new development, even in crowded Manhattan. But massive development would have political challenges, like rethinking the air rights system, which would make it basically untenable. Already, observers see de Blasio setting himself up for pitched battles with local community groups that don’t want more big towers next door.
Glaeser suggested that one more politically palatable way to make market rents more affordable might be to use city regulations to nudge builders toward constructing smaller units that more people can afford even at market rents.
In any case, no matter how much city policies are changed, Glaeser acknowledged that the prices of land in New York and the high costs of vertical construction mean many New Yorkers still won’t be able to afford to live in New York without some kind of subsidy.
Making Homes Affordable
The growing difficulty New Yorkers have in finding an affordable place to live isn’t just a matter of demand outpacing supply. It also involves a decline in existing government programs. Hundreds of thousands of city residents get help in paying for housing through some kind of subsidy, like public housing or vouchers from the federal Section 8 program that help pay the rent. Others benefit from the city’s rent control and rent stabilization programs, which limit landlords’ ability to raise rents. But, as de Blasio noted in introducing his plan, funds for building new public housing are “essentially frozen.” And, while about half of the city’s rental units are subject to rent stabilization, 250,000 units have left the program through deregulation over the past two decades. The plan calls for working to maintain apartments’ stabilized status, but getting that to happen is largely dependent on state, not city, policies.
To James C. Fraser of Vanderbilt University’s Department of Human and Organizational Development, the mayor’s plan and the standard ways of talking about housing policy in the US in 2014 are mostly oriented toward market-based solutions for reasons that have more to do with ideology than good public policy. In a 2013 paper published in the journal Cityscape, he and Joshua Theodore Bazuin, also of Vanderbilt, and Robert J. Chaskin of the University of Chicago, noted that in recent years public policy has shifted away from public housing and toward mixed-income developments that typically rely on public-private partnerships. In particular, the federal HOPE VI program that started in 1992 encouraged cities to tear down public housing projects and replace them with mixed-income projects—typically resulting in fewer units specifically targeted at low-income people. The idea was that poor people could escape ills like crime and bad schools associated with low-income areas and gain valuable social ties to middle-class neighbors. In reality, though, Fraser and his colleagues write, empirical studies have found “these proposed routes for increasing life opportunities for low-income residents have proven to be elusive.”
When I asked him about the current New York City plan, Fraser said it seems to depend largely on pushing private developers to produce affordable housing units. That strategy has some potential for helping middle-income households, he said, but less for low-income city residents.
“Telling a developer ‘you need to do mixed-income housing,’ they’re going to have to figure out a way to make it work financially,” he said. “They’re not capable of producing enough affordable units at the different levels of affordability.”
Fraser said one strategy that has been effective in some communities is using city housing trust funds to take property out of the private market and allow nonprofit developers to build homes. “I’m not against market-driven solutions if they’re only a part of it,” he said, “but there’s no way that it can be the whole plan.”
Policies for People
Given the practical financial and political constraints on any mayor’s ability to get things done, Ingrid Gould Ellen, director of the Urban Planning Program at NYU Wagner and director of the Furman Center for Real Estate and Urban Policy, said de Blasio’s plan is both ambitious and far-reaching. At 117 pages, she said, it’s “ten times the length” of any previous plan of its kind. Ellen, who guest-edited a 2011 Cityscape issue focused on affordable rental housing policies, told me that, while headlines about the plan have focused on increased density and efforts to court developers, there’s more to it than that. For one thing, she said, it emphasizes the use of affordable housing to revitalize neighborhoods. While the idea of adding housing for low-income people might sound like a recipe for making an area less appealing, Ellen said her work has found that it can do just the opposite, increasing surrounding property values and helping spur school improvement, if it replaces blighted areas—even if those areas are just pockets in higher-income neighborhoods.
While many details of the plan must still be worked out—and won’t succeed without cooperation from city council and outside parties like developers and state officials—Ellen said it suggests a number of areas to concentrate on that are supported by academic research. She said efforts to move people from emergency homeless shelters to permanent housing, and in some cases supplement supportive services for vulnerable residents within their housing complexes, are likely to be good investments: “In the long-run, it saves the city money on health costs, on policing, on jails and prisons.”
To Brendan O’Flaherty, professor of economics at Columbia University, the biggest flaw in de Blasio’s plan is both huge and unavoidable: it’s only for New York City, not for its suburbs, where it’s often cheaper to build new homes. “I think if de Blasio could change zoning throughout the metropolitan area, that would be more important,” he told me. “If I were in charge of the world, those are the places I would be concentrating on to make housing affordable for people who want to live in the New York metro area.”
In the introduction to the New York plan, de Blasio writes that “affordable housing is part of the bedrock of what makes New York City work.” O’Flaherty agrees that the economic diversity that affordable housing permits is important—but in the whole area, not necessarily in just the city itself. “There’s no particular inch of the metropolitan area that should be occupied by low-income people,” he said.
Affordable housing is inherently a local or regional issue. Conditions New Yorkers experience are entirely different than the ones in Las Vegas, where building housing is relatively cheap, or in Detroit, where the problem is excess homes for a falling population. Still, many people across the country face rents that are too high for their incomes, and many of the resources available to help them come from the federal government.
Nationally, the biggest form of support for renters is Section 8 vouchers, which pay for a portion of the rent to a private landlord. Among housing economists, that kind of subsidy is generally considered preferable to earmarking units as affordable, since it gives renters more choice about where to live and when to move. But that doesn’t mean it couldn’t be improved. In a 2011 paper published in Cityscape, O’Flaherty suggested changing how the Section 8 formula works to give preference to apartments in neighborhoods with cleaner environments and better schools.
“If Section 8 were better designed, there would be more pressure on neighborhoods to move them in the right direction,” he said.
Ellen also expresses some concerns about federal housing assistance, noting that the current system provides benefits to only one out of four eligible households, leaving the majority with no help at all. She said some people would like to simply quadruple the funding for housing programs, but that seems like a tough sell politically. Absent that, she said, it’s worth more research into whether a lower or time-limited subsidy might effectively help households while leaving more funds to spread around.
“If we were designing our federal low-income housing programs from scratch, I think few would argue that we should give all the resources to one in four eligible households,” she said.
There’s another issue Ellen says researchers tend to agree on when it comes to federal housing policy, which is that the substantial dollars spent on the mortgage interest tax deduction are not well spent. The deduction and other benefits for homeowners cost the federal government three times what it spends subsidizing renters, or about $200 billion a year, according to the liberal Center on Budget and Policy Priorities. When you add support for homeowners into the mix, the federal government provides housing benefits of $7,014 for the average household making $200,000 or more, compared with $1,471 for those making $20,000 or less.
Glaeser agreed that the size of the homeowner tax credit is a problem, not just because it helps wealthy households the most, but because “I think it’s by and large a mistake to help Americans to leverage themselves to the hilt.”
Reducing the benefits of the policy for the richest households could free up billions for rental subsidies or any other purpose the federal government chose to prioritize. But trying to make it happen would be an even more ambitious undertaking than de Blasio’s enormous plan.