Public housing is the supply-side solution to the rent affordability crisis
In an alarming trend, New York supply-side liberals have been aligning themselves with for-profit developers by claiming the answer to the housing affordability crisis plaguing the city and many others throughout the United States is simply to build more market-rate apartments. By the law of supply and demand, they argue, if you build more, prices will drop.
In a totally free market, they may be right. But in a world incentivized by tax abatements and private-public partnerships, all things are not equal. The concept of supply and demand is based on the principle that when a product becomes too expensive, the consumer will simply choose not to buy that product. When the product is housing however, demand is a matter of need over choice.
Objectively speaking, for-profit development and affordability are antithetical to each other. Like stadium subsidies, the public pays a heavy price to subsidize “affordable” housing stock while developers reap the benefits.
History’s only proven supply-side solution to reigning in the costs of NYC housing has been to build more public housing.
At the start of this year, New York City Housing Preservation and Development (HPD) and the much-maligned New York City Housing Authority (NYCHA) unveiled their “Where We Live” capital plan, a five-year outlook that took two years to develop, with the goal to create a “better understanding of the fair housing challenges New York City faces today and to identify goals, strategies and actions that the City will undertake to advance fair housing over the next five years.”
Within this 200+-page report are many infographics breaking down the city’s housing demographics in great detail. One in particular — figure 2.2: New Housing Production by Decade — was seized by these market theorists as “proof” that the severe jump in housing costs, particularly over the past three decades, aligns with some of the lowest housing production numbers of the past 100 years. The 1990s, for instance, saw the lowest number of new housing production of the modern era.
What these private development proponents fail to acknowledge, however, is that nearly all of New York’s 175,000 public housing units were built between the 1940s and the 1970s. The 1950s and 60s alone saw over 120,000 public units created in a housing expansion buoyed by the post-war boom.
“In the years immediately after the war, returning GIs married in record-breaking numbers only to discover that the city’s available housing stock was borderline nonexistent, forcing many of them to live in crapulous overpriced living quarters that they could barely afford or, in the case of my own mother and father, to move in with their parents or in-laws, their home on earth reduced to a childhood bedroom, cramped common space, unasked-for personality clashes, and an unbearable lack of privacy.” — Richard Price for Guernica
Obviously conditions, and available land to build on, are not the same as it once was, but to illustrate the immense influence of public housing during this time, if you transposed the number of units built in the 50s and 60s to the 2000s and 2010s, the overall production in those years would outpace every other post-depression decade.
Not surprisingly, the effect on rent was almost in complete lockstep with these numbers, offering some credence to the supply-side argument.
According to a 2012 review of Manhattan housing prices of the last 100 years by Miller Samuel Real Estate Appraisers & Consultants, the New York City real estate industry enjoyed a steady 650% increase in the rental market over four decades, or from an average of $50 per month in the 1940s to $335 in the 1970s. That’s a monthly inflation rate of roughly 1.3%, below the 2% rate normally associated with expansion and well below the actual inflation rate during the same time, which peaked as high as 19.7% in March of 1947.
So what changed? A combination of national economic stagnation and white-flight to the suburbs spun New York City into a fiscal crisis in the 1970s. The New York economy largely mirrored that of the rest of the country, which was in a recession by the mid-70s, but being a bastion of public infrastructure, New York became the target of the rising conservative movement.
“The city had nineteen public hospitals in 1975, extensive mass transit and public housing, public daycare and decent schools. The municipal university system — the only one of its kind in the country — provided higher education to all, free of charge. Rent stabilization made it possible for a middle class to inhabit the city. For many, the fiscal crisis showed that it was no longer possible for New York to finance these kinds of services.” — Kim Phillips-Fein for The Nation
In response, Washington began to shift from funding public housing development to subsidizing private market rentals through programs such as Section 8, which was established in 1974 when Congress passed the Housing and Community Development Act. In a twisted sense of irony, the impetus for the program was not the substandard living conditions of public housing, but the high percentage of income being spent on market rate housing. In other words, the housing affordability crisis fell outside of NYCHA, and in fact, public housing became safe havens as the rest of the city fell into disrepair, and crime rose with the vacancies that surrounded them.
“As New York falls apart in the 1970s, in ways that have been largely forgotten, the housing authority’s projects were anchors of stability and safety. They were places that you wanted to get into as the neighborhoods were deteriorating around you,” Gregory Ubach, author of “The Last Neighborhood Cops”, wrote for The New York Times’ oral history of New York public housing. ”All of this changes in the late 1980s. The 1980s is the first time when you’re more at risk of criminal violence on NYCHA property than you are in the surrounding neighborhood.”
Something else changed in the 1980s. In his first year in office, Ronald Reagan dramatically cut funding to HUD and the section 8 program. When Congress passed the Fair Housing Act of 1968, it committed to a goal of producing 2.6 million units of housing a year, including 600,000 annually for low-income families. After Section 8 was introduced, the funding commitments from the federal government began to drop and by 1982, that commitment was reduced to an estimated level of fewer than 150,000 units per year. More alarming was that financial commitment was almost entirely shifted to Section 8, with no focus on new construction.
Bill Clinton continued the downsizing when he signed The Quality Housing and Work Responsibility Act (QHWRA) in 1998, which repealed a rule that had required replacing any demolished public housing on a one-for-one basis, and the Faircloth Amendment in 1999, which capped the number of public housing units the federal government would pay for, essentially putting an end to any new public housing development. The number of public housing units has been in drastic decline ever since.
The impact of the Reagan and Clinton administrations on public housing and the homeless population has been debated by the right and left ad nauseam, as has the cost effectiveness of building new units vs. subsidizing existing ones. But what cannot be debated is the effect it has had on New York City rents.
In one decade, the average rent in Manhattan jumped more than 500% to $1700 a month by the end of the 1980s. The four decades following the end of federal funding for public housing and the shift to subsidized private housing, the average rent increased over 1100% from $335 at the end of the 1970s to nearly $4000 a month by the start of the 2010s.
Then came voluntary inclusionary housing and tax abatements.
The 421a tax abatement program was started in 1971 to encourage the development of unused or unwanted land by drastically reducing your property taxes. In 1985 the law was changed to ensure developers included affordable units in order to get the full tax benefits. In 1987, New York City passed the Voluntary Inclusionary Housing policy, which gave even bigger tax breaks to developers who built on land zoned for residencies of 10 units or more. Thus creating the “new norm” of building affordable housing alongside — and oftentimes within — luxury condos. The results were sparse… until Mayor Michal Bloomberg was elected.
Early in his first term, Bloomberg’s administration rezoned waterfront neighborhoods like Williamsburg, West Chelsea, Long Island City, as well as major avenues in the outer boroughs to allow for large-scale development. Simultaneously, he greatly expanded the voluntary inclusionary housing program.
To its credit, this private-public partnership has actually increased the number of affordable housing units created when compared to the Reagan and Clinton years. According to a report from the conservative think tank Manhattan Institute, the VIH program has resulted in an uptick of 8,476 new affordable units citywide, and another 2,065 units after Mayor Bill de Blasio enacted the Mandatory Inclusionary Act in 2016, which removed the option for building in areas that have been rezoned for large development. Roughly 10,000 units in two decades might pale in comparison to the 140,000 affordable units the Mitchell-Lama program created from 1955–1978, but it’s still an uptick in supply. So what has it done to the rents in those areas?
The New York City neighborhoods that have seen an influx of new development have also been the areas to see the most extreme jumps in rents, especially where affordable units were voluntarily included in tax-incentivized developments like 421-a. While there are multiple economic factors involved, the main reason — conveniently overlooked by market proponents — is that by allowing private developers to control the amount of supply you’re also letting them control the demand.
Since 2017 when New York Governor Andrew Cuomo renamed 421a “Affordable New York” it redefined “affordable” as allowing developers to charge rent at 130 percent of the median income for the entire New York City region. Thus what is “affordable” is not based on the true market rate of the immediate area, and almost always leads to an increase in rents in lower-income areas.
As Brownstoner pointed out in 2018, almost all of the lottery units available in Bushwhick were priced above the average annual median income for all of New York City, with none coming in under $2,000 for a studio. Further exasperating the problem is the fact there are rarely more than a few hundred available affordable units at any given time, and the steep increase of luxury units in these two-family-home-heavy areas like Bushwick or Bed Stuy has pushed the average median income higher than it would if these developments fell in wealthier areas. Simply put, gentrification causes rents to rise city-wide, not just where new development is occurring.
But ultimately, the pro-supply argument falls apart when you look at what happens when market-rate apartments sit vacant. The law of supply and demand hinges on the notion that vacant apartments would force the prices to fall. But more often than not, developers let these units lie vacant rather than lowering the rent. According to The New York Times, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold.
In the rental market, landlords will offer “concessions” of one or two months free as opposed to lowering the rent. Pro-market supporters will claim this does lower the net effective rent, but oftentimes the concessions come at the end of a lease that has been extended to 13 or 14 months. A lease, by the way, that is still signed at the gross rent rate, thus maintaining the ability to keep out lower-income families.
Keeping affordable units so low that thousands of families are applying for a handful of units, while keeping luxury units vacant instead of lowering their rents has only intensified the housing affordability crisis in New York City. It reflects the national trend of building too much inventory for the wealthy while ignoring the needs of most Americans, creating a snowball effect that will not reverse course without an uptick in housing created specifically for middle- and lower-income families.
The last 40 years have proven that private developers will not put the needs of the people over their profit margin. It’s time to reverse the course set by the Reagan and Clinton administrations and reinvest in public housing.
