“If you want the right to make a very tidy profit on land that we’re going to open up for development,” Public Advocate Bill de Blasio said during Tuesday’s mayoral debate, “we’re demanding affordable housing back in the name of the people.”
In a city where the average apartment goes for $3,000 a month, de Blasio may win votes by claiming he can score cheap apartments for cash-strapped New Yorkers. But if the de Blasio administration’s housing policies look anything like the candidate’s campaign promises, it will only constrict the supply of cheap apartments — while continuing to funnel tax dollars into the pockets of the affordable-housing industry.
The issue under debate is “mandatory inclusionary zoning,” a simple concept with a name only a housing wonk could have dreamed up. Over the past 12 years, the city has rezoned about one-third of its land area, enabling developers to build residential buildings in many neighborhoods once reserved for manufacturing.
Is this a giveaway? Sure is, says de Blasio, who cut his political teeth as a member of the City Council, which derives a good deal of its power from manipulating New York’s zoning code to reward friends and punish enemies.
In de Blasio’s worldview, allowing developers to make productive use of desolate land isn’t a worthwhile end in itself — unless some sort of concession is extracted. So the cornerstone of his housing plan is to require that developers who put up market-rate buildings in upzoned areas set aside a portion of them as “affordable.”
(Joe Lhota, de Blasio’s hapless GOP challenger, claims he’ll effectively do the same thing, but won’t make it mandatory on the dubious grounds that such a rule would be unconstitutional.)
Here’s the problem: Affordable housing developers aren’t simply do-gooders or risk-taking Silicon Valley entrepreneurs; they’re expert crony capitalists. If they’re not going to make a lot of money, they’re not going to build. It’s that simple.
Staffed with an army of expert budget nerds with deep knowledge of the city’s red tape and its wide array of local and federal subsidy programs, the developers won’t under any circumstances be squeezed.
Over the years, and perhaps especially these past 12 years, New York City’s affordable housing industry has done a terrific job at earning itself boatloads of money while producing a relatively small number of cheap housing units.
Take Via Verde, an affordable housing development that opened last year in the South Bronx. The project, which was mostly financed by federal taxpayers, cost about $98 million and yielded just 220 below-market-rate apartments, translating to about $445,000 per unit. Next time, can we just give families $445,000 and let them buy buildings in the South Bronx?
Developer TF Cornerstone got permission to build its 24-story rental tower at 455 West 37th St. larger than the area’s zoning rules would have otherwise allowed in exchange for designating 20% of the units affordable. But the extra floor space was hardly enough enticement on its own.
As part of the deal, TF Cornerstone got $136 million in tax-exempt bonds, worth around $2 million a year in savings; federal taxpayers kicked in $10.7 million in cash paid out over a decade through a popular tax credit program, and over 20 years the developer is very likely to save at the very least $60 million off of the city’s brutally high real estate tax on rental properties.
De Blasio has promised that he’ll adhere to “real-life finances” when crafting his housing policy, but some of his campaign promises are based on research by the Association for Neighborhood and Housing Development, an advocacy group.
ANHD has put forth a “guaranteed inclusionary zoning” plan that would require developers to set aside about 20% of their units as affordable without tapping into any other public subsidy programs.
While we’re at it, why not also mandate that each affordable unit be outfitted with free HBO and a Sub-Zero fridge? The bottom line is that simply permitting developers to build big won’t cut it. Unless they’re making beaucoup bucks with minuscule risk, they won’t build. That’s why mandatory inclusionary zoning programs have been an abysmal failure in every city they’ve been tried.
In 2002, Denver passed a mandatory inclusionary zoning program that over the next decade produced a paltry 1,133 affordable units, and now the city is looking into adding more financial incentives for developers. Boston launched its own program in 2000, and 10 years later it had yielded on average just 80 units per year.
If our next mayor truly wants to make New York more affordable, he’ll pursue more upzonings with fewer strings attached, reform the city’s building’s code, and look into converting New York’s patchwork of affordable housing subsidies into voucher programs that put the money in the hands of the those they are supposed to benefit, all “in the name of the people.”
Epstein is a producer at Reason TV.
