The Mayor’s Housing Progress Shows Why Relying on Market Isn’t Enough

But is the Mayor listening? (propublica)

As Mayor de Blasio gears up for his re-election campaign, he has been touting his progress on his signature policy initiative, affordable housing. In an Op-Ed for The Daily News last week, he highlights how his $41 billion plan to create or preserve 200,000 affordable housing units over 10 years is on budget and on schedule. In the last fiscal year, nearly 24,00 such units have been allotted, the most in a single year since 1989 (for a total of 78,000 since 2014).

The administration’s focus on affordable housing has been commendable and real progress has been made, but the larger picture is less sanguine. The affordability crisis and the homelessness crisis in NYC (which the Mayor appears to treat as a separate issue here) will not be solved by market-based solutions alone. We need much deeper federal government intervention on a number of fronts.

The Mayor’s affordable housing plan relies on several key premises (which mirrors the national focus of the LIHTC). First, it calls for attracting private development to drive construction. Second, it requires those developers to include a certain percentage of affordable housing units with each project. Third, it incentivizes that private development with tax breaks. The second and third premises have been highly controversial, while the first one has not been as much.

Starting with the second premise, in 2016, the Mayor passed his Mandatory Inclusionary Housing and Zoning for Quality and Affordability laws which require developers to set aside a percentage of units for “affordable housing” and continues a general trend to upzone new neighborhoods in the city. These were both met with heavy resistance from neighborhood groups worried about displacement and new development, but ultimately passed the City Council. That it takes so much political capital to create a basic environment for more development is disheartening and, despite his plan’s flaws, the Mayor deserves credit for recognizing this and following through. However, it’s not surprising that residents would be wary of private development based on other experiences in the city.

The third premise has also run into controversy, though of the political variety. The Mayor’s plan relies on tax incentives, notably the toxic 421a program. Governor Cuomo stunned many people when he allowed the program to expire and used it as a political football to undermine the mayor’s plan. The Governor claimed he had a better plan himself (which never really materialized) and the program has been rebranded as Affordable New York. A recent article estimates that the subsidy costs NY taxpayers $400–600k per unit — while not producing nearly enough units (or in some cases any affordable units, due to lax oversight). Somehow this is “just how it works.”

This brings us back to the first premise, which is the original sin of all of these policies. Relying exclusively on the private market to create (and to a lesser extent preserve) housing units is an expensive, inefficient, and inequitable way to create affordable housing.

To state the obvious, it is incredibly expensive to build in NYC. Land, labor, materials, planning, and design — all of these things are expensive and, for the most part, there are no secret shortcuts around them. The lack of productivity gains in the construction industry in recent decades is a fascinating sideshow to this larger conversation, but the important point is that these costs are largely fixed for any type of developer.

Once you accept this, the only way to really build cheaper is to have the federal government involved. First, it can borrow money for a lot less than the private sector, which keeps costs down (we’re missing a golden opportunity to improve our infrastructure as a result). And second, it doesn’t have to turn a profit. This means it can build the housing that NYC needs rather than what the market rewards. All of the tax incentives in the world will not cover the difference between what is good for the bottom line of a private company and what is good for the public interest in the housing market.

Relying on the private sector also crowds out alternative models of housing and ownership. The Mayor isn’t staffing people with this experience, isn’t listening to housers with this experience, and isn’t drawing political contributions from people with this experience. Large-scale co-living spaces, community land trusts, or (heaven forbid) more public housing all get ignored as policy tools or goals when a market-based approach runs through planning. This is a missed opportunity to consider new ways to use existing funds and assets under city control.

A truly transformative housing approach would include market-based and non-market based solutions because the goal would be simply to lower the cost of shelter. The goal for the mayor’s housing plan includes this, but also includes keeping powerful real estate developers happy and at least keeping neighborhood groups and homeowners from openly revolting politically. It also internalizes a hostile Albany and an indifferent Washington.

I don’t envy the Mayor’s need to balance these political realities, but clearly a bolder vision is not only necessary, but could be very popular with voters, and serve as a rallying point to change the nature of housing policy in the US.

Mayor de Blasio was elected on a progressive platform not seen in the city for 20 years, which remains popular (perhaps even more so after 2016). He doesn’t appear to have any major rivals despite constant badgering from the press (not entirely undeserved). And yet 27,000 arguably affordable units is the best we can get? It is under a market mindset.

We have been tinkering with neoliberalism for the better part of 40 years at the national and local levels and it demonstrably isn’t working for 80% of the country. Voters want new ideas. Many technocrats want those new ideas to come from local city governments given the paralysis at the national level. So far the Mayor has passed on matching his progressive rhetoric with progressive reforms in housing.

It’s a shame because there are lots of good ideas — some old, some new, but hardly any that are radical — that the mayor should be willing to explore. Many of them can be tried without Albany or Washington.

But the truth is the Mayor de Blasio needs the state and particularly the federal government to take on a larger role in the affordable housing crisis. There are too many macro economic forces at play with the affordable housing crisis, which is why over 99% of US counties are suffering from it. Only a stronger federal commitment to housing, to wealth equality, and to tax policy can make a difference on that level.

The Mayor can be more helpful in forcing Albany and Washington to change the status quo on housing. NYC is the biggest city, the most powerful real estate center, with the largest public housing population in the country. If you want to change the conversation on housing, NYC is the place to do it. That change must include thinking about housing outside of the narrow, flawed lens of the market. The Mayor needs to think bigger and I think he would be rewarded for doing so.

Pete Harrison is the CEO/co-founder of homeBody. www.joinhomebody.com @peteharrisonnyc