Solving the Housing Crisis

Data from a recent study by the city’s Housing Preservation and Development Corporation reported that rents have continued to rise in New York, even as wages have fallen. Based on the demographic (but not economic) trends that explain these figures, it was then reported that the city is preparing proposals for land use changes and infrastructure investments designed to accommodate a population expected to reach 9 million by 2025.Planning for future growth should be applauded, and policies that make the economy more flexible always deserve strong encouragement. At the same time, we should ask why, given our current population, housing is already so expensive, and has been for decades. Failing to understand the structural forces, embedded in our politics, that drive up the cost of housing and so much else in New York, such as health care, could make predictions about the future look naive in retrospect. As in the 1960s, the result could be increased debt that proves economically unsustainable.To understand the high-cost, low-income enigma that characterizes much of New York, a good starting point is Ronald Reagan’s memorable line, which William Weld recently quoted but misattributed. “If it moves,” Reagan would say, “they want to tax it. If it keeps moving, they want to regulate it. And when it finally stops moving, they want to subsidize it.” That’s a very good description of big government economic policy. A description, however, is not an explanation.At first blush, it would seem contradictory that the same people who want to tax and regulate business one day, will another day, when things turn sour, propose generous subsidies in the form of tax rebates or preferential loans. Yet that happens all the time. Why?The reason for this paradox is simple: That is how powerful interests, private and public, divvy up the marketplace. Driving economic activity through government helps selected private sector interests, by reducing competition or skewing spending priorities, while at the same time, almost by definition, expanding the size of government. Political scientists refer to this as corporatism. Insiders benefit generously from this game. The public at large does not.In this regard, it was reliably reported to me that when a major figure in New York real estate was asked about affordable housing at an event sponsored by the Manhattan Institute last year, he responded that the real estate community would not be happy, if we built more than 30,000 housing units a year in New York City. Real estate interests not wanting to build real estate! Only in New York.Or this. If a survey were conducted on the subject of New York City government, asking which city agency was the least efficient, it’s a near certainty that somewhere near the top would be the Buildings Department, notwithstanding improvements lately. A second “only in New York” story is the existence of an industry composed of so-called expediters, whose job is to shepherd projects through the bureaucracy. Recognizing that the real estate industry is the most powerful force in New York City politics, and could long ago have compelled the Buildings Department to shape up, the failure to act is telling.The reality is that New York’s Byzantine approach to housing works very well for certain, selected interests. Many large owners of real estate are perfectly happy with current policies that constrain growth in supply. Yes, with crime down and profits on Wall Street up, there is now increased pressure to build, but will it be enough? That is where skepticism is in order.The simple fact is that New York City used to build a great deal more housing than we do today, even if some consider this a boom market. In the 1960s, for example, when housing was much more affordable, we typically added more than 60,000 units a year. In response to this lack of supply – what academic Peter Salins once described as “scarcity by design” – New York’s politicians are forever announcing new programs and policies to build affordable housing. Yet somehow, for all these programs and policies, housing never becomes affordable. This should not be surprising.An economist at Rutgers University recently calculated that policies to provide enough affordable housing for all New Yorkers would require an infusion of $9.16 billion every year in government subsidies. Obviously, that would require an equivalent rise in taxes. There is no question that such expenditure would end New York’s affordable housing problems: the tax increases would drive so many businesses out of the city, and employees with them, that prices would drop precipitously.One obvious way to make housing more affordable is to reduce the cost of new construction. As secretary of state, I was in charge of the building code outside of the five boroughs of New York City. Thanks to our efforts, in 2003, we were able to adopt new standards and practices for New York State modeled on the International Building Code. According to industry experts, these have reduced the cost of construction by as much 15% per project.Mayor Bloomberg has made building code reform a priority in New York City, and so far has succeeded in adopting a new plumbing code. However, the bulk of the reform remains unfinished, in particular the code that pertains to multiple unit structures, what is referred to as Group R. As the technical negotiations over these changes proceed, all candidates for governor can and should make clear their strong support for reaching agreement swiftly. As with state changes, new city codes would lead to significantly lower construction costs.Perhaps the most important reforms that can be instituted to reduce the cost of housing involve zoning changes to increase the supply of new construction. While zoning decisions come largely under the purview of local authorities, again the governor can play a catalytic role through the Empire State Development Corporation, which under state law has the power to pursue zoning changes on land it controls.An additional key reform to make housing more affordable involves changes in the state environmental law known as SEQRA. Well intentioned, when first passed in 1975, the law has since become a perilous labyrinth for developers, dramatically increasing cost and risk (in itself a cost) for new projects. According to legal experts, exempting new construction projects of fewer than 100 units would significantly accelerate the pace of new construction, again making housing in New York City far more affordable than is now the case.New York City’s housing crisis can be solved. Strong leadership from Albany is an essential part of the solution.Mr. Daniels served as secretary of state in the Pataki administration and is a candidate for governor as a Republican.

Solving the Housing Crisis

Solving the Housing Crisis

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