What Can Government Do to Solve Our Housing Crisis?
Now that the 421a tax abatement program has expired without renewal (so far), we hear a lot about what city and state governments could do to promote construction of more housing in New York City, especially affordable housing.
Maybe we should revive 421a with reforms and adjustments. Maybe we should issue bonds for affordable housing. Maybe all projects should have mandatory affordable units, hiding their true cost. Maybe we should have tax incentives or subsidies for community-based nonprofits that build affordable housing. Maybe we should have special “prevailing wage” rules for affordable housing projects. Maybe the city should itself build more housing. The opportunities for new programs, expenditures and lost real estate taxes seem endless, along with the opportunities for new paperwork, procedures, issues, requirements and delays.
The discussion always emphasizes having government do more rather than less. Rarely does anyone ask whether the housing market might work better if government did less rather than more. Instead of adding new programs, maybe we should subtract some programs and laws that distort the market, complicate and delay development and make it difficult or impossible to build new housing except slim towers for billionaires. Here are a few programs to reconsider.
Real Estate Taxes. The city taxes multifamily rents at an annual rate much higher than single-family houses or co-op apartments—about 4.5 percent of value versus about 1 percent. For rentals, the city seeks to capture 25 percent to 30 percent of the owner’s gross revenue. This is an extraordinary percentage. And the more you tax something, the less of it you get. The taxes on multifamily rentals make them very difficult to build unless the city reduces that burden through programs like 421a. But wouldn’t it make sense to adjust the tax system so multifamily rentals don’t bear a disproportionate tax load, and hence multifamily development makes economic sense?
Rent Regulation. In an ordinary housing market, people move as their needs change, developers demolish and replace obsolete buildings, and the market adjusts to shifting population. Fifty-plus years of rent regulation have massively interfered with all that, ossifying New York’s residential market, promoting overconsumption of housing and bestowing random benefits largely without regard to need. Once you start regulating rents, though, it’s hard to stop. If we want to bring a functioning housing market back to New York City, maybe we should gradually phase out or at least reduce rent regulation. It’s not so awful to expect people to move. The average American does it every five or 10 years.
Landmarking. New York City has a robust landmarking program, preserving a variety of old and some not-so-old structures. Whenever a structure becomes landmarked, redevelopment is at best substantially more expensive and difficult than otherwise. The structure often becomes uneconomic. And wherever landmarking occurs, little affordable housing gets built. Might it make sense to cut back on landmarking? Could we limit it to truly special structures and not make it such a widespread impediment to redevelopment, especially of affordable housing?
Zoning. The New York Times recently said 40 percent of Manhattan buildings don’t comply with today’s zoning. In other words, over time zoning has become more restrictive, further limiting the size of new buildings. Although that may reduce shadows and serve other goals, it also reduces development potential, making it harder to meet the demand for housing and hence driving up rents. Should we judiciously allow larger and taller buildings than current zoning permits, especially near subway stations in the five boroughs? The Bloomberg administration did some of this, but should we go further?
Housing Formats and Building Code. City codes require a certain quality and size of residential units. Anything smaller or of lower quality normally can’t get built. For example, once upon a time, single-room occupancy hotels provided affordable housing. But then our governments both outlawed and sought to preserve that housing format. Why not loosen the restrictions that make it impossible to build that type of housing? What else in city codes stands in the way of affordable housing?
Environmental Impact Review. Many substantial development projects must endure an extended period of environmental impact review. Has this process become more complex and extended than necessary? Has anyone taken a hard look at the environmental impact review and its impact on development of new housing, especially affordable housing?
Each government program listed above exists for a reason, of course. Once in place, it develops its own life. It becomes institutionalized, part of the landscape. It eventually grows over time. It benefits some people, who vote. Government employees with special expertise administer it. Questioning it amounts to heresy. But maybe we should ask those questions.