Gotham hasnt had a functional housing market in nearly a century, because generations of New York politicians, confusing rational housing policy with utopian social policy, wont trust the market to do its job. But right now, New York has a historic chance to loosen the government stranglehold that has kept the forces of supply and demand from allocating housing resources. The reason: the government policy responsible for so much harm over the years, rent regulation, will slowly wither and die if left alone. Just as important, the resurgence of Gothams neighborhoods beginning in the 1990s means that a healthy free market would strive to meet demand for housing nearly all over New York, not just in a few safe enclaves.
But Mayor Bloomberg wont unleash the market. Instead, through his New Housing Marketplace program, hell thwart it by further building or preserving 165,000 units of affordable housinga plan that will keep rent regulation alive well past its scheduled demise. Just as bad, hell prolong Gothams ill-starred twentieth-century attempt to achieve an impossible social goal: tip-top housing for the poor. However well-intentioned this plan, a look at the citys dismal history of housing intervention shows that past efforts to do good by thwarting market and social forcesfrom implementing strict rent controls to constructing acres of public housinghelped nearly kill New York.
And the plan raises one further question: How much intervention is sufficient? A close analysis shows that the city can never build enough affordable housing. The logical end to Bloombergs New Housing Marketplace is city control and allocation of all of New Yorks housing resources, public and private.
Bloomberg envisions a mammoth government role in housing because, like generations of his predecessors, he confuses housing policy with other issues. As he says, We view the production of affordable housing not only as one of the urgent social needs of our time, but also as a sound economic investment for the future. Whats more, hes no believer in letting the market do its job, in housing or anything elseas witness his emphasis on large-scale subsidized projects, like the planned Bruce Ratner basketball stadium in Brooklyn and the failed West Side football stadium in Manhattan.
But instead of creating the utopia the mayor envisions for the citys working-class and middle-class citizens, Bloombergs top-down government housing plan, because it contorts the market to provide housing benefits to a comparative few, will drive up housing costs for millions of working-class and middle-class New Yorkers who dont win city-subsidized apartments. And the cost of maintaining the citys vast housing bureaucracy further burdens these taxpayers: as Bloomberg once put it, New York companies shouldnt complain about paying the high taxes, since they really amount to a justified luxury premium for the luxury product of being in Gotham. Through high housing costs and high taxes for anyone living or investing in New York without benefit of city subsidies, Bloomberg fulfills his own prophecy: he creates a city where middle-class jobs and housing are scarcer than they need be.
Of course, twentieth-century New York never trusted the market to do the straightforward job of housing its citizens. Gothams strict rent-regulation regime, in fact, commonly thought a legacy of World War II price caps, was really born in 1920, after the city underwent a postWorld War I housing shortage. Foreshadowing generations of militant tenant activists to come, veterans, housewives, old folks, and union laborers held mass meetings to protest rent profiteers and demand rent-increase caps, convincing then-mayor John Red Mike Hylan that the law of supply and demand should not apply so far as the renting situation [is] concerned, as the New York Times reported. Hylan was easy to convince: his distrust of market forces was so sweeping that he also refused to allow subway operators to hike their nickel fare to keep up with inflation, plunging them into eventual bankruptcy and a municipal takeover.
The tales from the Times about rent control in the Roaring Twenties would be at home in todays papers. As temporary emergency rent laws periodically threatened to expire, renters and landlords squared off, with tenant activists and their captive politicians crying that renters like Mrs. Hannah K. Tence, . . . a frail old woman, the sole support of two children, would be kicked to the curb without a blanket of rent regulations covering the city, and landlords warning that the hysterical present rent laws were thwarting the maintenance of old buildings and the construction of new ones.
Gotham won a respite from what would later become a never-ending political and financial battle when then-governor Al Smith allowed rent restrictions to expire gradually before the Great Depression. But a little more than a decade later, New York got its permanent rent-control regime, when Washington mandated wartime price caps at the citys request. As the feds extricated themselves after World War II ended, Albany and Gotham took over again.
Six decades later, rent regulation continues to thwart what would otherwise be a thriving market. Gotham and Albany regulate the rents of 1.1 million apartments, insulating fully half the citys rental stock and nearly a third of its total of homes from market forces. For most regulated apartments, the city sets annual rental increases for renewal leases under state law and allows for larger, but not market-rate, increases for most vacated apartments. (Vacant apartments escape regulation only when they reach $2,000 a month, and occupied apartments escape when they reach the $2,000 ceiling and their landlords can prove that their tenants consistently earn over $175,000 a year.)
But rent regulation isnt a rational, necessary protection for low-income and middle-income New Yorkers, as its advocates claim. Data culled from the 2002 census for City Journal by Alan Salzberg of Quantitative Analysis, Inc. bear out what many suspect: although most New York renters live under rent regulation, most of the benefit goes to a comparative few who live in the richest neighborhoods and have remained in their apartments for decades. In Greenwich Village, for example, most regulated tenants surveyed by the census paid $600 to $1,600 a month, depending on the original rental prices, capital improvements approved by government officials, and the number of years the tenants had lived in their apartments. By contrast, a free-market tenant, because that free market is so supply-constricted, paid $1,500 to $3,400. On the Upper West Side, a free-market renter might have paid $1,900 to $3,400, while a regulated tenant paid $600 to $1,700.
But in the citys middle-class neighborhoods, the difference between regulated and market units is less than $200 a month: the regulated tenant in Astoria might have paid $800 in 2002, according to the census data, while the free-market tenant paid $1,000. In Flatbush, a free-market tenant might have paid $850, while a regulated tenant paid $690. In Riverdale, free-market apartments commanded about $936, compared with regulated units $700. In Throgs Neck, free-market apartments commanded about $750, while regulated rents ran about $625.
Despite the fact that most tenants see such a relatively modest financial benefit from regulation, Manhattan-based tenant activists succeed because theyve got every grandmother in Bay Ridge believing that her landlord would hike her rent from $800 to $3,000 if New York jettisoned regulation. The most fascinating true-life tales of rent regulation that pop up in the press every now and then dont help to dispel this popular notion, as witness screenwriter Nora Ephrons recent New Yorker article about how she moved into a five-bedroom apartment in the storied Apthorp on the Upper West Side in 1980 and stayed there for 24 years, paying one-third the true market rent.
Rather than cocooning most tenants in such gilded elegance on the cheap, rent regulation more often cages working-class and middle-class tenants in declining apartments for decades, harming landlords, tenants, and New Yorks real stock of affordable housing, as well. Many tenants live in the worst of both worlds: their regulated rent isnt low enough to provide the massive subsidy that regulated residents of rich neighborhoods enjoy, but its low enough to discourage them from moving on, freeing up larger spaces for families. Meanwhile, though, its also low enough to discourage their landlords from maintaining their apartments above the minimum required.
In fact, rent regulation makes it impossible for many landlords to keep their buildings in good condition, even if they wanted to, as some numbers will demonstrate. The average landlord with no commercial tenants reports spending about $599 per apartment each month on heating, water, taxes, insurance, and the like, according to the citys finance department. But this figure does not include what he must pay to finance the mortgage on the building. After that, whats left over to turn a profit is really very thin in many cases, says Jack Freund of the Rent Stabilization Association, a landlords lobby. If a landlord carries $25,000 in debt per apartment, he pays an additional $158 or so a month for that apartments share of the mortgage.
After collecting the citys median regulated rent of $855, the landlord nets only $98 or so per apartment each month. That means each year, the landlord has, if all goes well, $35,000 available for a 30-unit apartment building for capital expenses, new investments, and profit (subject, of course, to income tax).
These figures may seem workableeven, as the tenants advocates insist, generous. But they hold only for a landlord who collects the median citywide rent, while keeping costs and debt down; change one of those wildly variable variables, and the landlord is in trouble. In reality, half of regulated apartments rent for lower than the median rate, and 20 percent200,000rent for less than $600. And these apartments dont necessarily carry the lowest costs: if a landlord owns a fixer-upper in a marginal neighborhood, where tenants sometimes dont pay their low rents on time or even at all, he quickly could find his building in disrepair.
We are always falling behind, says Ken Haron of Artimus Construction, a Harlem builder and landlord. Rents dont change as fast as costs change. Further, due to the pro-tenant bias of New Yorks courts, says Haron, if just three of, say, 20 tenants are not paying their rent, or are damaging the building, it takes three years to get them out. The other 17 lose their services, because you cannot keep up the building.
As a result, Gothams finance department considers nearly 12 percent of buildings in New York to be distressed due to high costs and low incomenearly double the 6 percent found in 1999because landlords cannot pass through the skyrocketing fuel costs and taxes to their tenants. Further, a landlord who is not officially distressed but faces a double-digit increase in fuel costs one winter but a single-digit rent increase is tempted to defer necessary work until the good times arrive. And since regulations encourage tenants to stay in one place, satisfied or not, landlords dont have a financial motivation to keep buildings in tip-top shape, even if their rents give them enough cash to do so.
In addition to rent regulation, Gothams acres of high-rise public housing loom as another durable example of how pols long ago set out to achieve a working-class and middle-class housing utopia and instead ended up almost killing the city. New York built its nearly 200,000 public-housing apartments beginning in the thirties, beneficently intending to give deserving working-class families an escape from what experts considered to be obsolete slum housing, and to benefit society as well by removing pressure upon the slum child, which would supposedly cut juvenile delinquency and crime in working-class neighborhoods, as the Times put it in 1934. Aiming to promote racial harmony, too, New York chose its project tenants on a colorblind basis starting in 1939, and proudly boasted of how black and white children played a big part of welding the white and Negro families together at the projects, as one academic put it in 1950.
The city had an economic rationale for building its housing projects, as wellthe same one Bloomberg offers for subsidizing affordable housing today: it was supposedly an economic investment in the citys working class. In 1934, unions representing more than half a million workers pushed Gotham to treat housing as a public enterprise akin to transportation and education, and the city obliged.
But in a span of 17 years between the fifties and sixties (when some of the largest projects were built), the cheerful Times headlines lauding that New York Citys public housing projects demonstrate that Negroes and whites can live together as good neighbors had turned into hysterical headlines screaming brownsville sinks in decay and fear. Why?
First, city and state officials utterly destroyed existing neighborhoods before rebuilding them, razing block after block and sometimes leaving the land vacant for years before work began. Second, because officials carefully screened the first generation of housing-project tenants to choose tenants likely to maintain successful households, they took away the best tenants from struggling private landlords, pushing working-class neighborhoods and buildings further into disrepair. Third, Gotham began to muddle its intentions: Was public policy intended to help the working poor to better themselves, or was it intended to achieve radical social justice? In the sixties, New Yorks goal shifted from uplifting working-class New Yorkers in carefully planned new environments to maintaining permanent poverty there. The projects and their surrounding neighborhoods became crime-ridden wastelands, since no New Yorker with an option to live somewhere else wants to live with a dysfunctional underclass.
Further, government solutions to the ills of the projects only exacerbated those problems. In the seventies, the feds switched from constructing housing projects in cities to giving individual tenants personal Section 8 vouchers for rent money, theorizing that tenants would thrive if the government let them escape the high-rise projects and live in privately run low-rise buildings. Instead, thousands of New Yorkers armed with the new vouchers forced working-class tenants out of fragile neighborhoods, capturing more such neighborhoods for the permanent poor.
In the end, the citys twentieth-century vision of decent low-income housing ended up creating a nightmarish worst-of-both-worlds instead. The projects became desolate breeders of crime and squalor; the underclass neighborhoods around them crumbled, as the working class and the middle class scrambled to get as far away as possible. Add in the citys negligent pre-Giuliani-era policing, which let junkies and landlords torch buildings with impunity, and its no surprise that the market simply abandoned 200,000 apartments, leaving 65 percent of Central Harlem and entire swaths of Brooklyn and the Bronx to drug-addled squatters.
But when New Yorks leaders surveyed the moonscape of abandonment in the mid-eighties, they came away not with an understanding of how much damage government intervention had done to New Yorks neighborhoods but only with a renewed belief that the free housing market couldnt work here. It followed that then-mayor Ed Kochs solution was yet more government intervention: $7.7 billion (in todays dollars) to rebuild neighborhoods destroyed by generations of government policy just as effectively as Hurricane Katrina destroyed New Orleans.
The good news is that Mayor Bloomberg has an unprecedented opportunity today to liberate Gothams housing market from its dismal legacy of government control. The city is in the midst of a spectacular housing boompart of a global fever for real estate in or near world-class cities, and still percolating as of this writing. Just since 1998, New Yorks rate of residential construction has nearly quadrupled, with permits filed for more than 30,000 new units last year, the highest level since 1972. And this time around, the boom is diffuse: in 2005, builders filed more permits to build in the Bronx, in Brooklyn, and in Queens than in Manhattan, contrary to the historical trend. And because former mayor Giulianis activist policing made even some of New Yorks most crime-infested neighborhoods safer, upper-middle-class renters and affluent buyers have pushed development into areas like Central Harlem and Bed-Stuy, while luxury apartmentdwellers now populate neighborhoods like the Lower East Side, Chelsea, and Red Hook, reviving areas that once languished in the shadow of the housing projects.
While working-class and middle-class New Yorkers cant afford many of these new homes, the building boom would nevertheless be good news for them if New Yorks market worked properly. As upper-middle-class New Yorkers vacated their older apartments for newer ones, the middle class could move into the best of the citys older housing stock, freeing up their old apartments for yet more middle-class residents, and so on down the income ladder.
And because rent regulation is slowly loosening its stranglehold, due to the nineties legislation that pulls most vacant apartments off the rolls once their rents reach $2,000, this turnover is poised to happen, albeit painfully slowly, as some apartments wont advance to the $2,000 deregulation point for two decades. Further, landlords who once thrived by warehousing Section 8 voucher tenants are finding that they finally can attract unsubsidized tenants now that middle-class New Yorkers again want to enter once-decayed neighborhoods that used to be unofficially reserved for government clients.
But the bad news is that Bloomberg wont let the market heal. Indeed, through New Housing Marketplace, hell inflict more pain, by further thwarting basic economics.
Bloombergs scheme works like this: hell offer cheap to free land or tax-exempt debt, or both, to developersnonprofit and for-profitto build 92,000 new apartments and homes for low- and middle-income residents, with a special emphasis on developers who agree to build mixed-income developments that mingle market-rate residents with subsidized moderate- and low-income ones. For one recent spate of 26 projects planned for Harlem, the Bronx, and Brooklyn, the city chose groups ranging from the for-profit Yuco Real Estate Co. to a partnership that includes NY Acorn Housing Co., part of the radical Acorn activist group.
The city also will continue to award developers tax breaks for building in rich neighborhoods, or in some cases will let them erect denser buildings than code allows, if they set aside a percentage of their apartments for subsidized tenants. Further, the city will directly build some housing itself, on public land.
In addition to new construction, the city will preserve 73,000 units of existing subsidized housing, by offering landlords and co-op associations cheap financing for renovations if they pledge to maintain their buildings affordability, by offering tenants financing to buy and renovate their apartments at below-market prices, and by directing future federal tax credits to preserving old housing.
The Just-Wait Solution to Gothams Housing Crisis
Gothamites have complained about housing costs for generations. But for half a decade, home prices havent been just high; theyve been unjustifiably high and increasing at an unsustainable clip. The solution is not to throw money at affordable housing but to wait.
The best data come from Yale economics prof Robert Shiller, cocreator of the Case-Shiller Home Price Indices. Since the late eighties, Shiller has tracked successive sales of single-family homes in and around ten cities, including the metro areas and commuting corridors of New York, Boston, Washington, Chicago, L.A., Las Vegas, Miami, and San Francisco.
Shillers charts since 2000 tell the story: in six years, home prices more than doubled, after having risen only 60 percent in the 13 years from 1987 to 1999. Across the ten regions, the same home that sold for, say, $300,000 in early 2000 sold for $669,450 by the end of 2005. Around Las Vegas, a person who paid $300,000 in 2000 could have sold the same home for $695,820 six years later. Around Boston, the sale price would have been $528,840; around San Francisco, $646,680; and, of course, around New York, $640,350.
This surge is unprecedented: the only period that came close occurred after World War II, when returning servicemen got married, ignited the baby boom, and moved to the suburbs. But that was much more of a fundamental event than what we have now, Shiller said in a June press conference. Its surprising that were having this boom now. . . . If you look at the . . . fundamentals, including building costs, population increases, and interest rates, none of those really explains [it]. . . . [T]heyre not that strong. Nor is the price surge due to the appeal of city living: New Yorks index, for example, includes counties as far away as New Haven, Connecticut, and Pike, Pennsylvania.
Signs of a speculative bubble abound: in May, the Chicago Mercantile Exchange launched futures contracts based on Shillers index, in effect monetizing the fear among some investors that this fever wont last. (Through the futures contracts, homebuilders and mortgage lenders can hedge their liabilities in the event of a downturn by betting that the market will fall, thereby limiting their losses if it does.) Further, prices have begun to decline in bellwether cities like Boston, and Shiller notes that the sales volume of both existing and newly built homes peaked last year.
Some economists predict a soft landing, because people cant dump their homes as readily as they dumped tech stocks when that bubble burst in 2000. But sellers dont determine what kind of landing the market has. Will buyers go along with sellers bubble-era prices when they see that the inventory of homes for sale grows as sellers hold out?
Sure, some sellers have discretion as to whether theyll take a buyers pricebut many dont. Speculators who bought only for a quick flip would lose money every day in a downturn if they couldnt cover mortgages with rental income, for one.
When the real-estate market regains sanity, part of the affordability crisis will be solved. New York renters who cant afford a one-bedroom could find themselves looking at newly affordable two-bedrooms as the market struggles to absorb new construction, for example, while families who cant afford homes in their parents neighborhoods on Long Island could have newfound choices. Market forces can do what Bloomberg cant.
While the city extols itself for harnessing the private market to create affordable housing, the mayors plan only reasserts and expands the same strict controls over large swaths of Gothams housing that have so harmed the city in the past. Almost incredibly, the plan will reinvigorate rent regulation. Most of the nearly 117,000 affordable rental apartments that the mayor will subsidize will fall under the citys permanent rent-regulation regime, which Department of Housing Preservation and Development deputy commissioner for development Rafael Cestero told me is still the primary mechanism for ensuring long-term affordability. Indeed, largely due to the mayors building program, even while the number of older rent-stabilized units fell by 28,000 between 2002 and 2005, the number of new rent-stabilized units rose by 29,000.
In prolonging this peculiar institution, Bloomberg forces market-rate residents of new mixed-income buildings, in which unregulated apartments may command $2,400 but identical affordable apartments rent for $600, to fork over higher prices to subsidize their neighbors. Take the Aspen, for instance, a new mixed-income rental building in Harlem, built by BFC Partners, which set aside nearly half the 238 apartments as affordable for prospective households earning as little as $25,000 to as much as $155,000, while it rented the rest at market rates. But as one individual who worked on the project noted, It leads to a difficult scenario with neighbors with the same income with significant disparities in rent, since some middle-income rentersworkers earning, say, $100,000 for a family of fourwho dont win the affordable lottery opt to rent market units, effectively subsidizing everyone else. Such disparities also raise the specter of a wholesale reregulation of rents if, in a time of high inflation, middle-class market renters face double-digit hikes while their neighbors are protected.
Second, in addition to keeping rent regulation alive, the citys plan to build some housing itself, rather than bid it out to developers, will break new ground in ensuring that new affordable apartments remain off-limits to the private market forever, not just for a very long time. Bloomberg will create a public-sector company to build thousands of apartments near existing public housing on Manhattans West Side, most to be rented or sold to New York families who earn between $50,000 and $100,000 a year.
Third, to ensure a steady supply of land now that it has successfully sold off its inventory of thousands of repossessed buildings, Gotham will create a land bank to buy private or public property (owned by state agencies, for example) to develop it or transfer it to third parties for affordable development. As Cestero told me, the city might want to compete with the private sector if that private sector wants to build luxury townhouses instead. The result: buildable land will grow even scarcer, costlier, and more heavily taxed.
In addition to thwarting economics, Bloomberg repeats the social mistakes whose lessons are cruelly etched in the citys landscape. Though Gotham no longer builds low-income housing projects, Mayor Bloomberg continues to subsidize the behavior of the permanent underclass through subsidized housing. The nonprofit Abyssinian Development Corporation, for example, has built 1,000 affordable units in Harlem over 15 years in various government partnerships, and is eager to build or renovate more in partnership with Bloomberg (the group won one large-scale government project nearly two years ago). But when I asked ADCs Zanetta Addams-Pilgrim if it was important that ADCs tenants work, she told me that if a woman is pregnant or if she has five children, working is not something shes going to be doing.
Such subsidy for the dysfunctional underclass doesnt confront the real problem of the culture of single motherhood that afflicts so many poor communities. Yet none of the nonprofit representatives with whom I spoke considered single motherhood to be a problem. When I asked if they used their housing programs to try to encourage family formation, for example, answers ranged from this infringes on their privacy to earnest lectures on how lack of jobs and poor schools hurt poor children more than absent fathers.
Unlike ADC, for-profit developers dont have ideological reasons to choose dependent tenants; in fact, they valiantly try to do the opposite. The developers whom the city chooses to build affordable housing have some leeway to choose their tenants, provided they fall within strict income bands and are selected for initial consideration on a random basis. Developers consider choosing the best low-income tenants to be so vital to their mixed-income projects that consultants hold entire seminars on the topic.
Artimuss Haron, who builds affordable apartments through city programs, has an economic reason to choose his tenants well: if his low-income residents exhibit underclass behavior, he cant command high market rates at his unregulated units to subsidize them. Those developers who choose imperfectly run a very real risk for themselves and for the city, particularly in still-marginal neighborhoods like Central Harlem and East New York, from which some market-rate tenants might flee if a downturn affords them other options. Because landlords cannot easily evict bad tenants, just a few working-poor mothers who look good on paper but who raise unsupervised children who grow up to terrorize buildings and neighborhoods could ruin a building by prompting tenants who can leave to do so.
The worst part of Bloombergs plan is: it never ends. More than 70 years and untold billions of dollars since Housing Authority chairman Langdon Post confidently noted that it would take $1.5 billion to end New Yorks housing crisis, New York is still just getting started.
The sheer number of New Yorkers who theoretically qualify for affordable housing demolishes Bloombergs rationale for building it. In Bloombergs New York, nearly 1.7 million families, or 5.7 million peoplea full 92 percent of New Yorkers who identify themselves as families, or pretty much every single family in the city besides Bloombergswould qualify for city-controlled housing, as some numbers will show.
Of Bloombergs 165,000 affordable homes, hell build 112,200 for New York families earning less than $50,240. The problem: this category includes 1 million New York families. Bloomberg will build another 18,150 units for families who earn between $50,000 and $75,000. The problem: another 300,000 families qualify. And what about New Yorkers who earn more than $75,000, but who dont earn enough to disqualify them from middle-income housing? Bloomberg will build 34,650 apartments for thembut nearly 400,000 families are eligible.
Indeed, before the mayor had even broken ground on most of his 165,000 apartments, advocates at a May affordable-housing conference were saying that the city should build 500,000 affordable units. Unless Bloomberg effectively nationalizes the citys entire private housing stock to ensure that everyone who he believes deserves affordable housing gets affordable housing, all he has done is create a lottery in which 10 percent of the people who qualify win. But this isnt a voluntary lottery; everyone else pays through higher home prices and higher taxes.
Further demolishing the housing programs rationale is that since all of the New Yorkers supposedly priced out of the city are counted here in the census, they can afford to live here by definition. In fact, despite the hysteria that the political class and the media regularly fan, and despite the stratospheric price increases of the past half-decade, New York still offers an array of middle-class housing.
Calling around Brooklyn and Queens, I found that I could rent a one-bedroom apartment in a good neighborhood for $870 and a two-bedroom for $1,200; the classified sections in the Post and the Daily News teem with ads for apartments under $1,200. In a real-estate feature, the New York Times recently found that the good news is that there are plenty of one-bedrooms renting for $1,000 to about $1,150, and they are better than decent. . . . [O]nce you get out of Manhattan, . . . there are apartments to be hadand they can be found without even looking very hard.
A leasing agent at one apartment complex that looked perfectly decent from the outside told me over the phone that the income requirements were $35,000 for the one-bedroom and $50,000 for the two-bedroom; a married couple earning $25,000 each, or an adult pair of immigrant brothers, say, could earn enough to qualify, if they make $12 an hour. (No, a single mother with a low-wage job couldnt afford such an apartment on her own without government help. But that is a problem not of affordability but of single motherhood.)
Further, according to New Yorks finance department, the median single-family home in an outer borough sold for $378,000 in Brooklyn and $309,000 in the Bronx in 2004yes, up more than 80 percent over five years but, with monthly mortgage costs of between $1,800 and $2,150 at todays interest rates, still within reach of New York families who earn $80,000. New Yorkers can also buy two-family homes for about $460,000, cutting their $2,700-or-so mortgages with $1,000 or more in rental income.
And New Yorkers are more resourceful than the mayor and the media think. Consider Kathleen Johnson, who lived with her husband and three children in a Brooklyn building for nearly two decades, paying $900 a month in 2001.
Johnson was a beneficiary of yet another city rent-regulation program: Mitchell-Lama. Starting in the late fifties, the city and state gave generous financing subsidies to developers who pledged to build housing and keep it affordable to middle-class New Yorkers for two to three decades. Once the developers had paid off their financing, they were free to go to market rate.
But when Johnsons landlord paid off his obligations under the city program and moved to evict his residents when their leases expired so he could build market-rate housing, the Times moved in to bewail the plight of the victims. Where would we go after [were evicted]? Kathleen Johnson asked the Times in April 2001. If youre not a CEO, to get a nice affordable apartment you practically have to give up your firstborn.
When I found Johnson five years later, yes, she had been evicted from her apartment in 2004. She and her husband now were paying $2,500 for the two top floors of a Fort Greene, Brooklyn, brownstone. And yes, she had given up her firstbornto college.
Like many New Yorkers, Johnson grumbled: Im so unhappy about paying this rent. This is a tremendous amount of money, but this is the market. Neither is she too happy about how much it would cost to buy a Brooklyn apartment. Yes, she went through an unpleasant experience, but she lived to tell the tale: Bloomberg should have faith in New Yorkers survival skills.
Distorting the market doesnt just result in higher housing costs for most New Yorkers (and higher taxes to fund the subsidies and maintain a vast housing bureaucracy). The citys incessant distortion of its housing market has a political cost, for it creates thousands of voters who vote on one issue: literal rent-seeking.
Mitchell-Lama, for one, spawned a generation of militant tenants associations that have expertly treated mayors, city council members, and state assemblymen as their own lobbyists for permanent affordability. Thousands of rent-stabilized tenants vote on just one issue as well: they demand a mayor and city council members who will fight for their below-market rents. Anyone who doubts their fervor should attend one of the citys spring Rent Guidelines Board meetings, at which tenants remind politicians of their political devotion just as mayoral appointees prepare to vote on annual rent hikes.
The most articulate tenants speak idealistically of how New York must remain affordable and accessible for everyone. But in reality, their civic idealism extends as far as the walls of their own apartments. No regulated Upper West Side tenant of a two-bedroom, $1,200 apartment earning $70,000 a year, for example, would ever pay more to live in a more modest apartment in the same neighborhood and let a poor immigrant family move into her digs, although its clear who really deserves the benefit in a world of true social justice.
Nor do liberal co-op owners who cannily bought their prewar homes on the Upper West Side 15 years ago offer to forgo millions in profits by selling out cheap to new middle-class liberals rather than to the rich hedge-fund managers who can afford todays market prices. If Bloomberg tried to enact such a profit-limiting law, which truly would protect affordability, hed have an enraged mob at his heels.
Adding injury to insult, todays activists use affordable housing as a cudgel with which to club other citizens rights. In Prospect Heights, Brooklyn, developer Bruce Ratner wants to raze decent privately owned housing to erect outsize skyscrapers. Bloomberg and other pols favor Ratner, although their constituents hate the plan, because Ratner has pledged to set aside housing to feed the affordable crowd. If Ratner gets his way, his affordable-housing benefits will be dispensed by local Acorn chief Bertha Lewis, one of the most radical members of what City Journals Steven Malanga has branded New Yorks New New Left.
And since the city has spent decades co-opting the private sector into its various subsidy programs, from Mitchell-Lama 40 years ago to New Housing Marketplace today, government interference in the housing market now has so much institutional support in New York among the development and banking community that it will be an uphill battle ever to lessen it. Nearly 1,000 attendees, hundreds of them nominally from the private sector, showed up at a May affordable-housing conference in Manhattan to learn about the latest round of subsidies. Sponsors and advertisers included many of the citys leading banks and consulting firms, as well as the usual politically connected developers like Forest City Ratner. Of course, developers today are happy to tell reporters and government officials that they absolutely cannot build housing for any New Yorkers save for the very rich without government subsidy.
To fix housing, Bloomberg could lobby for Albany to speed up rent regulations demise. He could also spearhead reform of New Yorks irrational property-tax system, whose gross inequities understandably lead developers to demand breaks and loopholes. The mayor also could harness the creativity of the Department of Housing Preservation and Development to work with the feds to dismantle finally and humanely the citys vast public-housing archipelago, ending that permanent entitlement so that the neighborhoods most devastated by yesterdays bad decisions can recover fully.
But if the mayor doesnt want to do any of those things, he could do more good for the city than most public officials have done over the past century by reminding himself: first, do no harm.
Research for this article was supported by the Brunie Fund for New York Journalism.