New York Politics

Localism Is OK If It Means Less "democracy"

Make NYC Boss Again? (niemanrports/thomasnast)

Make NYC Boss Again? (niemanrports/thomasnast)

This week, President Trump has been busy trying to amass some “wins” for his 100-day mark (which, sure, is arbitrary, but sort of isn’t) and has taken two shots at cities to do so. The first is his (so far) failed attempt at “punishing” Sanctuary Cities and the second is his “skinny” tax cut plan which would presumably make good on proposed significant cuts to HUD.  Both cases highlight the specter of Federal cuts hanging over struggling cities in the Trump era, which has heightened the call for greater local control.  There are some sound arguments for ‘localism’ but they must include less democracy to make sense.

Before I get attacked for being a fascist or (even worse) a technocratic neo-liberal, let me explain what I mean by less democracy.  There are two naturally existing powers that make our quirky form of urban democracy uniquely dysfunctional.  These powers are currently harming our cities, each in their own way, and they would only get worse if cities were able to control themselves without federal intervention or oversight.  Both of these powers would have to be weakened significantly to make the types of changes our cities need. It’s unclear to me how exactly localism would do that.

The first power in urban politics is financial power.  As progressive and liberal as big coastal cities like NYC are in many ways, rich people that live in them still donate to and vote for rich people policies.  This means lower taxes, less regulation, and more privatization. These policies generally don’t help a lot of not-rich people, but get a lot of attention and support from elected leaders who need rich people’s money and support.

The idea that these folks would embrace (or, more cynically, allow) truly progressive politics to capture and distribute their mega wealth or undermine their political or social power to shape policy is…optimistic.  It’s much more likely that they would continue to find, support, and get elected Cory Booker-types to appeal to the left while diligently normalizing rightward policies that potentially undermine the civic health of the city in the long run.

The second power in urban politics is voting power.   As progressive and liberal as big coastal cities like NYC are in many ways, most people that live in them still vote against policies that change (or perceive to change) their neighborhoods too much. NIMBYISM is a unifying feature across all income-levels. A lot of people just don’t want taller buildings, greater density, or more homeless shelters in their neighborhoods. They don’t think that the short-term disruption they would endure would benefit them in the long run (which is true in many cases) and generally resist top-down or outside-in policy prescriptions.  

After the horrors of Urban Renewal (though federally funded, its programs were controlled at city and state level, infamously by Robert Moses in bulk) this reaction was understandable and necessary.  Community Boards, ULURP, historical preservation, and other policy tools were all successful attempts to localize power at the neighborhood level.

However, decades later, many of these same tools have devolved into reactionary platforms that can easily be gamed by incumbent interests at the expense of other constituencies in the present, who don’t know the ropes, or future residents who can’t be at CB meetings and the like. This doesn’t serve the city's civic interests either.

So the inherent problem with localism is thinking that even in liberal, progressive NYC, we all want the same thing.  If only we could stop sending so much of our money to DC, we’d get the political out comes we all want spending it locally. It’s obviously not that simple.

Financial power and voting power sometimes align in NYC, but for the most part have few shared political goals.  And even if they have shared goals, they don’t have shared strategies.  For example, would most voters want charter schools to replace public schools? Would most wealthy residents (or corporations) stay if their taxes went up significantly? What would the political environment look like if these two groups clashed endlessly for power? Would it actually produce better results for NYC?

We don’t have to speculate much on this scenario, because its how politics worked in NYC for generations before there was any federal intervention. The city’s long and colorful political history is dominated by the struggle between financial power and voting power, which constituted “democracy” at the time. 

Tammany Hall is perhaps the most infamous political machine in American history and dominated the voting power in NYC (mostly by corralling the immigrant working class) from the late 18th century well into the 1940s, occasionally losing power at the city or state level to various temporary reform coalitions backed by wealthy interests.

The consistent result of this political dynamic was a deeply, shockingly divided city.  For most of the 19th century and early 20th century, New York was the epicenter of modern capitalism’s contradictions: The highest levels of progress and culture and the lowest levels of squalor and brutality.  No level of municipal government, political machine, or private philanthropy could fix this generational poverty and inequality.  These institutions had no interest in challenging the status quo because, in many cases, they benefited from it. 

By the way, if you haven’t heard of Henry George, this is a good opportunity to check him out.  This type of normalized corruption is what prompted Mr. George to study contemporary urban capitalism and democracy.  His seminal work on the topic, Progress and Poverty (1879) is why he is considered the father of progressivism. He even tried (and failed) to run for Mayor in NYC against Tammany Hall.

I’m not suggesting that NYC would return to 19th century machine-style politics in a new form of localism, but this history shows how truly “local” politics tend to create extremely disconnected factions.  Corruption and demagoguery thrive in this environment. Even worse, these factions tend to stabilize around a mutually beneficial status quo that rarely serve the interests of the larger political body (in the present or future). It also shows how exceedingly difficult it is for new politics to enter this status quo once its established.

This to me is the great contradiction of promoting localism.  How can localism create the type of political room to change our current status quo? Would it simply mean greater power in the hands of a small elite? Would it also mean greater power in the hands of NIMBYists? These problems already exist with the current levels of federal involvement, how would removing that involvement fix them?

Returning to Henry George for a moment, he (like me if you can believe it) was an optimist and believed firmly in people.  Democracy to him was not a collection of token attributes achieved simply by voting.  It was an ever-changing intellectual and emotional forum for all people to challenge the purpose of our economic and political organization.  He saw the small-d ‘democracy’ of the Gilded Age as an affront to this ideal and as a threat to our republican form of government.  No doubt he would see today’s small-d “democracy” in a similar vein. 

I see the appeal of ‘localism’ in its basic sense.  Next week I’ll talk about some of the larger dangers that I think it could present, but there is nothing wrong with wanting more local control.  Who would actually wield that control and to what end is the great unknown. 

Budget Process Continues to Expose Governor Cuomo

Different story this time around (cnn)

Different story this time around (cnn)

New York State is still without a budget and will likely remain so for the immediate future.  The Senate has left for its Easter Break, though the Assembly remains (unpaid) in Albany for now. They have collectively passed an emergency extender for two months, but there is a lot of bad blood circulating in Albany over why a budget agreement hasn't been struck.  As I laid out in last week's blog, the problem can largely be placed at Governor Cuomo's door.  Despite attempts to blame the uncertainty of the federal budget or the major differences between priorities in the legislature, the Governor can't distract anyone from his lack of leadership in a changing political landscape.  Housing shows why.

Given the affordable housing crisis gripping New York (primarily in NYC but not exclusively) major state action has been needed for a long time. Over the last few years, Governor Cuomo has happily stepped up to the microphone with grand proposals for addressing the crisis head on.  He has talked about turning JP Morgan settlement money over to homeless programs.  He has talked about reforming the controversial 421a tax program. And most famously, he has outlined an ambitious 20-year, $20 billion affordable housing plan. These grand promises were met with a lot of support, particularly from wary housing advocates.

However, almost none of these promises have been kept or even outlined in detail. Instead, we've seen the Governor feud with Mayor de Blasio by withholding state funds for housing. We've seen him spike a deal at the last minute on a revamped 421a plan the Governor himself proposed called Affordable New York. And we've seen almost none of the billions of dollars of funding called for in his plan allocated to affordable housing projects.

All of this posturing could be viewed as the Governor wielding considerable power over the political mechanics of the state, in a presumed ramp up to a 2020 presidential run. In reality, it has revealed a politician weakened in a new landscape, mired in his own contradictory impulses, and exposed for lacking a strong political base. Who is the Governor's core constituency?

The Governor has tried to please the strong downstate progressive element of his party in the Assembly while also trying to please the powerful, more conservative, developer interests aligned with upstate Republicans in the Senate. This balancing act works when the stakes are lower or when the issues are unrelated. 

The Governor can come out in favor of issues like gay marriage or anti-fracking because they don't impact developers' bottom line.  He can come out in favor of 421a reform, over the objections of many housing advocates, because it can be framed as an affordable housing mechanism even though it is largely a tax giveaway for large developers.

It doesn't work when those two worlds collide, which is what is happening over housing in budget negotiations. This budget requires some hard compromises on housing that simply can't match the Governor's promises to progressives and conservatives.  It doesn’t appear that the Governor anticipated the political environment he was entering, or at the very least, how this new environment would force him to make choices that he could previously avoid.

As of Wednesday, these negotiations have collapsed and state legislatures have walked away from the process without a deal. I don't want to suggest that housing is the only issue holding up the budget, but the issue shows how the Governor's leadership style has led us to this moment. 

Building housing in New York is difficult. Building affordable housing in New York is really difficult. These realities are partly structural - there are so many local variables, policies, and market forces that clash with each other that its nearly impossible to streamline a single affordable housing initiative. But these realities are also political. It's not impossible to pass a cohesive plan that addresses these structural issues, but it means pissing off somebody. Or lots of somebodies. 

Some politicians thrive under those partisan circumstances and some political systems even incentivize that type of style. Governor Cuomo is not that politician and New York State is not that system.  

That is the worst thing in the world necessarily.  There is something to be said for being a steely-eyed dealmaker and there is something to be said for a system that operates through old-fashioned power brokering rather than ideological extremism. Indeed, the previous six budgets during the Governor's reign have been passed on time and without going over major fiscal cliffs. 

However, over the years this has meant the “Three Men in A Room” style of governance involving the Governor and now disgraced Senate majority leader Dean Skelos and Assembly Speaker Sheldon Silver.  Both men were removed from office and convicted of federal corruption charges, radically altering the political landscape. Albany has always had the stink of corruption, but these developments, some of which have creeped into the Governor’s orbit, have undermined much of the Governor’s standing and power.

This ethical gray zone is largely why Governor Cuomo has maintained considerable control over Albany over two terms, with a hoped for third term on the way in 2018.  He has been able to strike deals in the legislature that have avoided big flair ups between parties by relying on his ability to maneuver in back rooms. But that is not the case anymore. (Although ethics reform has taken a back seat in this budget process.)

Without his fellow leaders to keep reigns on the political process, the Governor doesn’t have the type of cover he once relied on and it shows.  It is now up to him to make tough policy trade-offs in a much broader political arena than he is used to.  He has lost the initiative in crafting the budget process and can no longer control each chamber as he once could.

This isn’t lost on the Governor. His comments on the 421a negotiations show an almost child-like surprise that there are other motivations in politics than triangulation: “What we’re down to is truly ideological issues. 421a is an ideological, philosophical issue.”  Evidently, this is the first budget season where the Governor has had to consider actual political theory.

This openness has led to some truly bad ideas coming out of the negotiations, including linking 421a to rent regulation laws (which come up for renewal again in 2019.)  The Governor has come out against this line of thinking and it seems unlikely that a deal like this would be struck, but it shows that whatever deal does get done, Governor Cuomo will likely face the unpleasant realty of owning a divisive budget that he ultimately had less control over than his previous budgets.

How this will impact the Governor’s fortunes in 2018 let alone 2020 are unknown at this stage. But what is clear, and dispiriting, is that the housing crisis will continue, and many struggling New Yorkers will not get the help promised by the Governor so many times before. 

Cuomo In a Tantalizing Bind Over Housing

Working hard or hardly working, Andy? (ngn)

Working hard or hardly working, Andy? (ngn)

Tonight is the deadline for New York State’s elected officials to pass the next budget before the new fiscal year starts tomorrow. By all accounts it won’t happen. New York is not alone in struggling to pass a budget in the absence of clarity at the federal level.  President Trump has proposed severe cuts, which could imperil the $150b New York budget, making any proposals fraught with doubt.  But the president isn’t the only actor harming the process. Governor Cuomo has placed his ambitions and calculations ahead of the immediate needs of the state, particularly on housing.

I generally don’t care much for the horse race stuff about Governor Cuomo looking towards 2020 for a presidential run, but it is clearly a big part of his calculations right now. Unfortunately, this has a big immediate impact on affordable housing, so I’ll play along.  Though the presidential calendar has gotten shorter and shorter, it’s still too early for any candidate to be discussed seriously.  (For what it’s worth, I predict son following father and ultimately getting cold feet anyway.)

Before the governor can dream about 2020, he must get re-elected in 2018.  That’s likely, but not guaranteed.  That’s why this budget season is so crucial for him.  It will signal what kind of Democrat he will position himself as on the national level.  President Trump indirectly offers the Governor two radically opposed, equally fraught, options in my opinion.

Before I get to those two options, let’s remember a couple of important facts.  First, last year Governor Cuomo announced a huge five year $20b affordable housing plan that would build 100,000 units and outlined a longer-term plan for 20,000 supportive housing units.  Though light on details - it was through a Memorandum of Understanding (MOU) which isn’t handled like a normal budget allocation process and serves more as a wish list -  it was a major policy shift that scored political points from housing advocates across the state.

Second, Governor Cuomo also announced a (slightly) revamped plan called Affordable New York to replace the controversial 421a tax policy that expired last year when the governor blocked a compromised proposal over union wage labor.  The new plan would largely continue the existing framework of 421a, which would create dubiously affordable units at considerable cost to the city and state. Many advocates hate 421a, but developers love it.

In both cases, little has come to show for those initiatives. Of the initial $2b allotted in the 5-year plan, only $150m has been dispersed, while the rest remains frozen.  There is no deal yet on the new 421a/ANY plan either.

This lack of progress is because Governor Cuomo, relying on his love of MOUs, directly linked both proposals and one can’t happen without the other.  Because Democrats dominate the State Assembly and Republicans control the State Senate, the Governor seemingly made a political calculation that he could appease both chambers (or, more aptly their leadership) and deliver on his promises by using both proposals as balancing weights.  That has not panned out, despite the fact that both parties have agreed to allocate the frozen funding.

Governor Cuomo has had a history of making grand promises on affordable housing, attempting to deliver them through MOUs, and failing to do so. In addition to the current mess, has attempted to use settlement money from JP Morgan to combat homelessness to no avail, he has withheld funds for NYC over petty squabbling with Mayor de Blasio, and even his handling of the 421a expiration appeared to have been in bad faith.  It’s almost as if, even as a former HUD Secretary in the Clinton Administration, he isn’t that interested in housing policy.

Now we can return to the two democrats Governor Cuomo could portray himself as if he were serious about a 2020 run.  The first is the pragmatic power broker who gets things built while working with the other side.  This candidate is a more accurate representation of the Governor and could conceivably appeal to the donor class of the Democratic Party as well as moderate Republicans further alienated by the Trump Era. 

The second is the liberal firebrand championing infrastructure spending, gay marriage, and environmental protection that can rally the progressive wing of the Democratic Party without totally alienating centrists. Despite some notable achievements on some ‘liberal’ policies, this is not a natural position for the Governor to hold, even if that’s likely where the electorate will be.

This is why housing has proven to be such a challenge for Governor Cuomo to follow through on, despite his background in it. Right now, today, the issue is forcing him to pick one version of himself to commit to and it’s not clear which he should choose.

If he could deliver on affordable housing, it would further his narrative of being an effective progressive at the national level.  But to do this would alienate much of his bi-partisan bonhomie in the Senate and with wealthy developers whom he needs for his re-election in 2018.  Progressive affordable housing reform is deeply unpopular with these stakeholders and disappointing them poses an immense risk.

If he doesn’t deliver on affordable housing, it would leave him open to attacks from progressives at the state level. The need for affordable housing is so obvious and so urgent that failing to deliver on it could absolutely summon a credible challenger in a primary. This might not ultimately cost him the election in 2018, but it would solidify enough resistance that would damage his campaign and undermine his already flimsy progressive narrative on the national level.

Housing isn’t getting much of the focus in today’s last minute budget negotiations and there are certainly other issues holding up the process.  But that won’t let the Governor off the hook.  Housing looms over everything.

Though the state budget proposal does not spend much time addressing the potential cuts the state faces from the federal government, the Governor and elected officials from either party are rightfully concerned about them.  No one knows exactly how much of a gap this proposed budget will face if federal support dramatically changes over the next few years.

What is entirely left unsaid is that the state will be on the hook for the federal cuts expected to hit HUD and housing programs in general.  Given that NYCHA gets over 2/3 of its $3b budget from HUD, and HPD gets hundreds of millions, among other city-level programs, this leaves a potentially crippling whole that cities, even NYC, can’t possibly fill.  The fact that Governor Cuomo is dodging genuine leadership on housing even before these cuts should be alarming.  What happens if they do come? Will the Governor be there to help?

It’s possible that the budget will get worked out, housing funds will flow as promised, and these federal cuts won’t materialize.  Governor Cuomo could waltz along to re-election and to the national stage and New Yorkers would perhaps finally have some relief from the housing crisis.

But it is also possible that federal cuts will come, that their impact will effectively kill the current housing proposals, and potentially let the Governor off the hook for not delivering, while still appearing to champion affordable housing.  It would be deeply cynical to build a political strategy on this dire outcome, but politicians have done worse.

There are over 88,000 homeless in the New York State and nearly half of NYC renters are rent burdened.  The affordable housing crisis is too large to be viewed through a narrow political lens and it’s unacceptable that Governor Cuomo has chosen to do so.  Even without impending cuts from the federal level, the Governor has not delivered on his promises so far.  History will judge his next actions long after the voters in 2018 or 2020 get their say.

NYCHA, Don't Sell Out - Hold Out!

Jacob Riis Houses, a pillar of public housing success (homebodynetwork)

Jacob Riis Houses, a pillar of public housing success (homebodynetwork)

It’s budget season and President Trump’s first proposal to Congress has sent shockwaves through all levels of government for the audacity of its cuts.  Nowhere is that clearer than at HUD, where he is proposing $6b in cuts.  NYCHA, which gets two-thirds of its $3.2b operating budget from HUD, could be devastated.  However, recent plans to inject private capital into NYCHA (to offset some of its $17b in outstanding capital needs) show how much is at risk to the long-term mission of providing public housing by grasping for private sector funds under these circumstances.

The Trump Administration has always been clear about gutting HUD and why – because it helps the wrong people.  Much of the President’s “skinny budget” is merely symbolic posturing, with little chance of passing through Congress, but I would bet a lot of these HUD proposals would find sympathy from conservative Republicans.

NYCHA is a telling example.  By far the largest public housing agency in the country, it provides homes for over 400,000 poor and low-income residents across 2,500 buildings and 176,000 units. In addition, it also provides housing assistance through Section 8 vouchers for another 200,000 residents.  If it were its own city, it would be the 30th biggest city in the country.

However, it’s made up of poor and low-income residents, many of them very old or very young, with the majority of them representing minority communities.  When President Trump speaks of“making America great again” and “America first” he is simply not speaking to or for this population.  The Republican Party, and frankly some parts of the Democratic Party, has little interest in helping residents of New York City in general, and poor, minority residents specifically.

That’s why NYCHA has already received word to expect $35 million in cuts for the rest of 2017.  This would dramatically reduce the agencies ability to fund its operations and Section 8 programs – even before the more dramatic cuts to HUD in the president’s budget proposal. It has been called “devastating” by Shola Olatoye, the chair of NYCHA.

Public housing still gets a bad rap in the broader public image, but the truth is far more inspiring, which makes these cuts all the more depressing.  Despite years of poor management in the past, in 2016 the agency actually saw a surplus of $21m - which is now entirely wiped out. And despite some major issues, to be expected across such a large footprint, the vast majority of residents have a positive view of their homes.  There is a waiting list with nearly 260,000 families who want to move in.  This isn’t a failed government program, it’s a shining example of a living, thriving public commitment to housing.

The main problem facing NYCHA is the $17b in outstanding capital needs that remain unfunded (compounded by the missing $3b promised by FEMA for Sandy recovery.)  Many of the complexes were built at the height of the New Deal and are over 70 years old.  These buildings need new roofs and plumbing, remodeled fixtures and appliances, lead paint removal, new electricity and energy investments - just to name a few of the daunting list of projects.  This was true even before the Trump budget proposal and only becomes more of a threat to NYCHA’s long term viability if its operating budget keeps getting hacked apart (it was already potentially facing a deficit of $200m by 2020).

Starting during the Bloomberg Administration, NYCHA has increasingly turned to the private sector for ideas to make up for its funding gap.   One part of Mayor de Blasio’s 2015 plan, NextGeneration NYCHA, has called for selling underutilized NYCHA-owned land to developers in exchange for committing 50% of new units to affordable housing. It hopes to net 10,000 additional affordable units on NYCHA land, with about 7,000 market-rate units.

This part of the plan has been extremely controversial with residents and housing advocates. Though there are reasonable arguments to be made around selling certain pieces of land on individual developments, ‘underutilized land’ in many cases seems to mean a parking lot or a playground. Many residents would question how underutilized this land actually is (and some feel under-represented in these conversations).  

NYCHA has also partnered with private developers to upgrade some of its existing housing stock in exchange for equity stakes in those developments, which some advocates worry is the beginning of a slow creep towards privatization of public housing.

In the Far Rockaways, NYCHA has placed over 1,400 units in HUD’s Rental Assistance Demonstration Plan (RAD) that removes them from public housing and instead enrolls them in a Section 8 program. This allows the agency to partner with private lenders to qualify for mortgage-backed tax breaks netting significant revenue while removing fixed costs.

The program began under President Obama and has many supporters in the housing world, however, despite its outlined tenant protections, there is a distinct risk that these units will eventually lose the federal funding that protects them (more likely now, surly) forcing them to convert to market rates eventually.

In the East Village, NYCHA has sold 50% of its stake in several developments, notably Campos Plaza on Ave C to L+M and PDP Triborough in exchange for $350 million over the next 15 years.  Campos I has already seen parts of the $100m investment from developers in the form of remodeled units, a remodeled façade, and a new park.  However, a portion of those units can now be rented at market rate, with the private developers capturing the difference between market rates and the 30% income cap NYCHA can charge residents. 

In both cases, NYCHA has contractual protections in place to dismiss their private partners if they are unhappy with their services; and they have right of first refusal if they wish to sell their stakes.  That sounds good, but in reality NYCHA has gone down a road where they can’t risk scaring off potential private developers by dismissing them and they can’t anticipate being more financially solvent in 15 or 20 years based on current federal and state support. 

Private developers, even the most progressive, know this.  Maybe things work out well under this model, but these developers have more protections than NYCHA if it doesn’t. The risk is real that these units will leave public housing. It’s also opened the door to rationalize more private intervention in the future, perhaps across entire developments.

It’s difficult for me to criticize the Mayor or NYCHA employees for pursuing every option to fund its operating costs, especially given the federal hostility to its mission even before President Trump’s arrival.  The majority of the initiatives outlined in NextGen deserve our support, including investments in infrastructure,  more effort on efficiency gains in management and energy, tenant-centric empowerment and reach out, and new interior/exterior design guidelines, and a non-profit fundraising org. If you accept the reality that we live in, this is probably the best you can get.

However, this already frustrating reality is going to get a lot worse very quickly because so much of NYCHA’s plans rely on current HUD funding commitments.  Those are going to decrease, even when the President’s budget gets chopped down through Congress. How much can this plan work without the predicted fed funding? Mayor de Blasio has come out forcefully against the proposal but, cautioned that it's just the beginning of the process.  That reeks of hoping for the best and reeks of not working out.

But I also think this reality is unacceptable, cuts or not.  NextGen talks about the origins of NYCHA during the heights of FDR’s New Deal through LBJ’s Great Society.  There were 30 years of successful federal and state commitment to public investment in housing, along side a viable, competitive private sector. That's the reality we should live in again - with public housing on the offensive, not the defensive.

But don’t conflate the two.  Public housing should remain committed to being public.  Selling off to the private sector slowly over another 30 years will betray the values at the heart of the program.  As a republic, we should commit ourselves to offering affordable housing to all citizens. We already have a model that shows it can work if we remain committed to it. Even for all its leaky roofs, NYCHA still serves almost half a million New Yorkers, which shows that public housing is a strong investment the city and the country. 

Instead, for the last 30 years, too many housing advocates and government employees have been apologizing for the decline in funding, largely amongst themselves, rather than making the easy case for more funding to the broader public. They have accepted that the private sector is the only answer even though it hasn’t been in previous housing crisis.   They have accepted a reality that will only lead to public housing’s demise. All Americans would suffer in its absence.

We should, once and for all, reject the outdated narrative of public housing’s failure and reclaim the real one – that public housing works. Public housing is a commitment to and an investment by Americans for Americans.  It has worked in the past and continues to work today. 

We should be parading NYCHA around the country as a sign that supporting public housing is not just a great social program, but also a phenomenal economic development program. We should be organizing NYCHA residents together with NYCHA employees to promote its virtues to other Americans, rural or urban, who would benefit from more federal intervention in housing. We need to be a loud, passionate group that shifts the conversation politically.  A Tea Party for government investment.

NYCHA is fighting for its life, but if it recognizes and embraces that its fight is a bigger one for the right to affordable housing for all Americans, for a return of federal commitment and investment in public life, I believe it will find allies across all parts of the country.  Rather than being a symbol of past ‘failed government overreach’ it should be a symbol of hopeful, smart government investment.  The cause has the security of being true and the obligation of being right. 

The answer is clear – NYCHA must endure without conceding to the private sector.  It must endure without conceding to cynical dismissals of its purpose or possibilities.  It must endure in the Trump Age, because the ebb and flow of history will inevitably bring in another age, one committed again to the power of government and the power of public housing. NYCHA, its residents, and supporters should focus on bringing on that age sooner than later.

Stop Blaming the Mayor for the Homelessness Crisis, It's On Us

More like a flood (NYDailyNews)

More like a flood (NYDailyNews)

A lot has been made this week of Mayor de Blasio’s announcement of new homeless shelters around the city.  He has been criticized from all different sides, from community groups opposed to more shelters in their neighborhoods, to non-profit groups worried about getting paid for their services, and by political rivals questioning the Mayor’s effectiveness on the crisis.

However, this week also saw a settlement of a lawsuit at the state-level over rental assistance that quietly did more for the crisis than anything the mayor can do.  This speaks to the deeper structural problems causing homelessness in the city and why the political charade around the shelter system is missing the point entirely. The problem is bigger and deeper than any mayor can handle and we’re all partly to blame.

The lawsuit stemmed from the state’s Family Eviction Prevention Supplement (FEPS) program that started in 2005.  For women with children under a certain economic threshold facing eviction, the program offered rental supplements based on a formula set when the program began.  Rents have of course skyrocketed since 2004 while the payments remained flat, so many families were simply not benefiting from the program.

With the help of Legal Aid Society, two women successful sued the state to change the rent allotments to reflect the changing market.  A family of three that used to only qualify for $850/m now can get $1515 a month.  The new formula isn’t perfect, but it will no doubt help thousands of families in New York City under threat of eviction to stay in their apartments.

This is an important program because it has a simple mission: prevent eviction to prevent homelessness.  There are over 60,000 homeless in NYC of which 48,000 are women and children.  The number one cause of homelessness for this group is eviction.  Keeping these vulnerable citizens in their homes not only safeguards their well-being and future prospects, but it also saves taxpayers millions of dollars and lessens the burden on the few communities that host these shelters.

As the Mayor is finding out, it is both expensive and, at times, unpopular to shelter the homeless.  And he can’t simply ignore it.  Since 1979, the homeless in NYC have had a legal right to shelter. The Giuliani and Bloomberg administrations both fought to undermine this law, so it is a credit to the de Blasio Administration for not taking the easy way out.

It is a significant financial burden for the city to maintain the shelter system. NYC Department of Homeless Services has an annual budget of $1 billion and the Mayor’s Office estimates that it costs $44,000 to shelter a family for a year.  However, even the most ardent supporters recognize that DHS is barely a stopgap that doesn’t come close to meeting the basic sustainable needs of New Yorkers entering the system.

The shelter system also clusters in only a few communities in the city, which puts a potentially unfair burden on them relative to others.  It’s important to note that very few shelters actually cause ancillary quality of life problems for surrounding communities.  However, when only a few communities host most of them, this concentration inevitably has an impact that other neighborhoods don’t experience. It's unfortunate that many citizens don't want to help the homeless, but it's reasonable to ask all of us to share the burden equally.  We are not. 

All of this is to say that the Mayor has a nearly impossible task.  He has clearly placed too much political capital on his ability to solve this crisis, which is now costing him, but he has made progress.  Guaranteeing counsel in housing court for low-income tenants is a major victory in preventing homelessness. Finding additional resources for new shelters, however controversial, is also commendable.

Look, Mayor de Blasio can’t end the homelessness crisis. No mayor can.  The politics around the mayor’s handling of the crisis mask the larger problems that must be addressed at all levels of government.  Many people recognize this, even if most of the media only focuses on the horserace stuff.  

For example, today State Assemblyman Hevesi, a Democrat from Queens, proposed a state bill to provide comprehensive rental assistance to families receiving public aid.  The plan, called Home Stability Support, would replace FEPS and potentially help 80,000 families across the state, including NYC with real, reliable rent assistance.

The program is estimated to cost $450 million a year, but Assemblyman Hevesi makes a compelling case that it save money in the long run.  Compared to $44,000/year to shelter a family, this program would potentially cost just $11,000 per family.  Scott Stringer has estimated that the plan could the city save hundreds of millions of dollars.  Of course there are complex issues to address around intended/unintended consequences, but this seems worthy of support.

It’s not clear how much support there would be in Albany, though, and it seems very unlikely we can bank on federal help, so the future of the bill is questionable.  But it makes a strong economic argument for supporting greater rental assistance.  We are already paying an immense amount of money sheltering the homeless in NYC and that won’t end anytime soon.  Why not intervene earlier and put less money towards a more efficient policy?

It is crass to approach the homelessness crisis on economic terms, but starting there hopefully allows us to consider the issue on moral terms.  And we should.  We are making the choice right now not to help thousands of citizens who are economically insecure, who have lost their home or are close to losing it.  It is entirely in our power to solve this problem if we choose to. It is wrong that we do not. Blaming Mayor de Blasio lets us off the hook too easily.

As much as the right to shelter for the homeless has been fought by various city and state officials over the years, we must think bigger.  A right to housing for all residents should be an obligation of the state that falls under its public welfare mandate.  New York has always been a laboratory of progressive governance and we should continue this tradition when it matters this much to so many.  We need to make sure the state follows through on this obligation. 

Far from requiring huge amounts of new revenue, committing to housing as a right would allow the city and state to review the many programs and laws that currently apply money as band-aids all along the housing cycle.  It’s easy to see how such a simple policy goal could unleash innovative public programs, private partnerships, and lead to an overall reboot for thinking about housing in New York.  This is clearly what we need to do if we want to address the homelessness and affordability crises - and actually end them. It starts with every one of us deciding that housing is a right.

The Bigger Problem: Why Didn't Tenants Have Right to Counsel in First Place?

Long wait for justice (NYT)

Long wait for justice (NYT)

 

Recently, housing advocates celebrated the announcement that New York City will provide free legal counsel to low-income tenants in housing court. This relatively inexpensive program will undoubtedly improve the lives of many vulnerable New Yorkers by reducing the risk of eviction.  But why didn’t these tenants have access to legal representation in the first place?  Therein lies the bigger housing problem with our legal system and our country.

The obvious place to start is the difference between criminal and civil court in the US.  The 6th Amendment guarantees the right to counsel in all criminal proceedings (although surprisingly it wasn’t expressly outlined by the Supreme Court until 1963).  Anytime the state brings charges against you, you are guaranteed fair, conflict-free legal counsel through the public defender system (though some are cared for more than others.)

However, unlike most western democracies, you are not guaranteed the right to counsel in civil court in the US.  There are some exceptions to this - if there are concerns over due process or if the case risks your personal liberty.  This narrow view is partially based on Lassiter v Dept. Social Services in 1981.  It’s an utterly heart-breaking case and I strongly recommend you read this article about it to understand the sexist and racist assumptions that went into the broader argument against providing counsel for civil cases.

In New York City, the Housing Court (which was formalized as its own branch of the civil court system in 1973) sees 350,000 filings a year with just 50 judges. That makes for a painfully slow process that favors those who can afford lawyers who are familiar with its pace and process (and who can afford to take that long).  As of 2015, 90% of landlords had legal representation and only 10% of tenants did.

Now, ask any landlord and they will tell you its exceedingly difficult to evict a tenant in New York (which is absolutely true, certainly relative to other states) but with such a discrepancy between representation, it’s clear that tenants don’t have the same access to due process.  It’s also a substantially different circumstance when your home is at stake vs. part of an investment. 

It’s not hard to see why this is a problem.  According to the Coalition for the Homeless, eviction is the number one cause of homelessness for women and children in the city, who represent over 75% of shelter system residents (about 48,000 out of 62,000 people).  The right to counsel will have a profound impact on this particularly vulnerable population.

But why did it take this long to address? Because we don’t think of housing as a right.  Or, put another way, we don’t think the loss of a home is the same as loss of personal liberty

And therein lies the problem with our civil legal system (putting aside how unacceptably overworked and underfunded that system is) and our broader society.  Who defines personal liberty? Would a mother with several children consider herself free if she is homeless? Is she not deprived of her personal liberty and her children’s? Not being able to afford a home is not the same as choosing not to have one.

Courts have generally shown concern about the ‘slippery slope’ of where to draw the line on personal liberty.   That’s reasonable and one that the courts ultimately shouldn’t have to decide.  We should.  The right to counsel to prevent evictions is a wonderful start, but we must go further as a society.  We must decide that housing is a right.

To be clear, I don’t mean to suggest that it is the landlord’s obligation to provide that right.  There are malevolent landlords out there for sure, but there are also many more that are trying to make ends meet just like everybody else.  We can’t simply put the burden of providing free housing on landlords or demonize them when they are trying to get a return from their property.

We must think bigger. Adopting housing as a right as an organizing principle would have several major policy implications to do just that.

First, at the local level it would have a liberating effect on the stifling status quo of our current rent, occupancy, zoning, and property tax laws that collectively play a large role in the affordable housing crisis.  It would spur significant innovation around these regulations that would likely provide gains for all stakeholders.

Second, it could fix the federal government’s wasteful role in housing.  For too long, and at far too high a cost, the federal government has supported homeownership exclusively.  This choice has caused generations of systemic segregation, degraded our environment and civic life, and nearly destroyed our economy.  Building more types of housing in more kinds of communities for more types of people could arguably create a sustainable, equitable economic boom the likes of which we haven’t experienced in decades, if ever.

Finally, it could also potentially lead to a cultural reboot; something that Americans of all political identities appear to agree is needed.  For too many people, it’s not clear today what America’s role in the world is or will be.  It isn’t clear that our system is producing the type of peace and prosperity we’ve come to expect - or that it’s capable of fixing itself in order to do so.  It isn’t clear what America is. Let’s fix that.

Let’s start by getting back to basics. What is “life, liberty, and the pursuit of happiness’? Is it merely positive liberty (the freedom to do something) or is it also negative liberty (the freedom from something)?  How can you pursue happiness, liberty, or life without a place to call home?

We’ve always been our best when we’ve used our noble ideals to defend the vulnerable and innocent from the violent injustices of the world, here and abroad.  Surly we can address the housing needs of millions of Americans.  In the process, we can rediscover the ideals that have made us such a beacon for the rest of the world.

Housing is a Right, Not a Lottery

You have better odds at this than with housing (nylottery)

You have better odds at this than with housing (nylottery)

 

This week, an affordable housing lottery in Stuyvesant Town (where I live) opened to the public, which offers a useful illustration of how backwards our thinking on affordable housing is: to qualify for a$2800 1 bedroom apartment, you must have a household income between $84k-$119k. When Blackstone bought the property for $5.3b last fall, the city gave it $221m to keep 5,000 of the complex’s 11,000 units in an affordable housing program.  This lottery is that housing program at work.

Stuyvesant Town and Peter Cooper Village were built in the 1940s by Metropolitan Life Insurance as part of a government-subsidized housing program. It was (for a time, a racially segregated) working class complex that offered nice, modest living conditions protected by rent regulation

That all changed in 2006 when MetLife, getting greedy, sensing a bubble, or both, decided to sell the complex. This caused a feeding frenzy in the real estate market and ultimately led to the largest residential real estate deal ever. Tishman Speyer won with a $5.4 billion bid.

The deal was a disaster from the beginning (and has a lot of fingerprints from city, state, and federal elected officials who should have known better).  It relied on the continuing trends of vacancy decontrol and rising rents to make the numbers work with little regard for affordability or sustainability.  

In 2006 the deal looked like a safe bet, by 2009 not so much. The twin killings of the market blowing up and the Roberts court case (which reregulated 4,400 units - including my own) led to Tishman walking away from the property.  Tishman still made a profit while taxpayers ate $2b of debt through Fannie Mae and Freddie Mac.

After a few chaotic years, Blackstone jumped in to purchase the property for a slightly less historic $5.3b.  Mayor de Blasio and other elected officials, sensing some political leverage given the previous disaster with Tishman, were able to get Blackstone to agree to ‘preserve’ nearly half of the complex’s units in an affordable housing program for 20 years in exchange for around $220m in waived fees or tax subsidies.

A lot of people at the time hailed the deal as a win for affordable housing and tenants, but others questioned the rhetoric and scrutinized the details - and weren’t so sure.  With its fuzzy definition of affordable housing, the continued market pressure on the rest of the tenants, and the underplayed granting of air rights to Blackstone (which will likely represent hundreds of millions of dollars of additional income), the victory seems firmly in Blackstone’s corner rather than the public’s.

I’m not blaming Blackstone.  They are worth billions of dollars and certainly don’t need any tax breaks, so agreeing to any type of affordability deal wasn’t necessary for them.  But if they can score $220m in subsidies by agreeing to some vague promises for political points, why not?

But it’s obvious that our elected officials at all levels failed the public interest on this deal and on the larger challenges of the affordability crisis.  The lottery in Stuytown shows why. 

No one can claim with a straight face that $2800 for a 1 bdr is affordable or that someone making $100,000 needs rental assistance.  The fact that everyone involved with this deal actually is saying that should shock you out of any remaining complacency.

Some of this “tragical” thinking stems from the flawed logic used by the Department of Housing and Urban Development (HUD) in determining affordability that relies on the Greater New York average median income (AMI) which is $90,000, rather than NYC proper which is closer to $50,000.  

That higher AMI is the basis for all state and city affordability requirements including the lottery run by the Housing Development Corporation. Even when the city requires or negotiates a certain number of units below that AMI, it still means a lot of New Yorkers can’t touch any of these units.

Fixing AMI standards would create more accessible, sustainable affordable housing, but it wouldn’t fix the other two major flaws surrounding the Stuytown deal.  Namely, relying on the private market to solve the affordability crisis and treating housing needs differently than other needs-based programs like food stamps or Medicare.

Putting it more simply, we should demand that housing be treated as a basic right and form policy from there.

For decades, New York City has been attempting to survive the affordability crisis with policies designed to promote private development first, and affordability second.  Whether its tax policies like 421a, rezoning, even occupancy laws, housing policies have been billion dollar gifts to private developers. If this created or preserved a lot of truly affordable units, fine.  But look at the recent history of Stuytown and tell me that it does.

Until our elected leaders reject the premise that the market should be driving housing policy, we’ll never get more affordable housing and we’ll never get a better return on our tax dollars. 

This doesn’t mean that the government should replace private developers altogether (though public housing is underrated and due for a cultural comeback) but it does mean the goals should be reversed: affordable housing first, profit second.  Whether it’s looking into community land trusts, dusting off limited-dividend programs like Mitchell-Lama, or creating a state-level Section 8-style program, we have proven models to explore.

For this to happen, there needs to be political change from the bottom-up. Regulated and market rate tenants should ban together with smaller landlords to counter-balance the political power of big developers who dictate state and city policy. Tenant groups and affordable housing developers should embrace new technology both to organize and to promote alternative housing models.  Landlords should actually accept the premise of rent regulation in order to reform its more outlandish abuses. 

Too many actors in housing have been divided politically and have collectively suffered in our current paradigm, while a wealthy few benefits.  Only by breaking this cycle can we introduce, or in some cases reintroduce, innovative thinking to break the affordable housing crisis as well.  We must start by acknowledging that housing is a right, not a lottery.

421a Stinks, Here's a Better Use of Taxpayer Money for Affordable Housing

Community Land Trusts to the rescue? (bedford+bowery)

Community Land Trusts to the rescue? (bedford+bowery)

This week, the Independent Budget Office of New York released a damning report on the impact of the 421a tax program. It argues that over the last 11 years, $2.5-$2.8 billion of taxpayer money has been effectively wasted.  Far from encouraging more affordable development, which has been its main justification, the policy has rewarded condo owners and developers (particularly in Manhattan) with significant tax relief. 

In case you haven’t heard, NYC is in the midst of a massive affordable housing and homeless crisis. Rather than simply rebrand 421a, which is what the governor is proposing, and continue to throw taxpayer money away, we need to examine new ideas that can actually address this crisis full on.  Luckily, NYC Housing Preservation and Development (HPD) is potentially doing that by exploring Community Land Trusts.

421a has long been criticized for being an incredibly expensive and inefficient affordable housing policy, but the simple truth is that it was never an affordable housing policy. 421a was designed in 1971 during the Bad Old Days to promote development, not affordable housing.  Those goals are not mutually exclusive, but they are not one and the same. The checkered history of 421a shows that.

Originally, the policy gave a 10-year property tax rebate on any new housing development on vacant or ‘underutilized’ land.  After Trump Tower received millions from the program to construct exclusively high-end housing, Mayor Koch revamped the policy in 1985.  It then required any housing development using the program in central Manhattan (but not outside) to provide a certain percentage of affordable housing.  The policy has gone through various iterations and lapsed enforcement since, raising the cost of the subsidy while providing vanishingly small amounts of affordable units.  Given this complacency, the Governor’s revamped 421a plan "Affordable New York Housing Program" would cost taxpayers $400k-$600k per unit and apparently that’s OK.  It’s not and this thinking is not sustainable.

The point here isn’t to keep harping on 421a (or on using tax money to promote development in general). It’s to demonstrate two things. First, that focusing on development first, affordable housing second, has failed spectacularly in addressing the affordable housing crisis.  That much is pretty clear at this point.

Second, it is to show that there are existing models that focus on affordable housing first that are much more cost-effective, community-based, and sustainable.  One of those models, Community Land Trusts, is finally getting looked at seriously in New York City thanks to HPD

Community Land Trusts (CLT) have been around for decades, most successfully in Burlington, Vermont (started when Bernie Sanders was mayor).  The basic concept is very simple – remove the value of land from the value of the dwelling. When a CLT buys a house or building, it puts the land in a trust that removes it permanently from the private market. This of course removes the speculative possibility of the land, which is the main variable in real estate deals.  (It’s why Stuyvesant Town, where I live, got bought for $5.3 billion even though the buildings are 70+ years old and showing it. The 86 acres in the heart of Manhattan is what Blackstone paid for. The tax breaks are a cherry on top.)

HPD, after meeting with community groups like the New Economy Project, the NYC Community Land Initiativehas issued a request for economic interest (FREI) to groups that are interested in forming CLTs in the city.  As reported by NextCity, a group of residents formed the East Harlem-El Barrio CLT to take part in the first wave.  The FREI is a modest proposal to see if a CLT can “improve upon, or fill in the gaps of” existing city programs, but it is a signal that the city is at least looking at CLTs.  It remains to be seen how much HPD understands the model or how committed it would be to pursuing it, but residents and developers alike should welcome this move. 

Community Land Trusts could be a much better use of taxpayer money to address the affordable housing crisis because after the initial investment of acquiring the land, the model is self-sustaining.  A trust controlled by a diverse board of interests still collects rents, it can still do major capital improvements and pass along some of the cost to tenants, and it can even offer transferable equity to residents in co-ops or condos in certain cases. Again, this model already exists and has worked in many cities (including Cooper Square, the first and so far only CLT in NYC, which has been around for decades.)

421a cost taxpayers an estimated $1.2 billion this fiscal year alone. For a fraction of that, the city could purchase foreclosed properties or neglected properties and transfer them into either a publicly administered trust or to private non-profit trusts like East Harlem-El Barrio.  Almost instantly, the city would create thousands of sustainable affordable housing units that wouldn’t require anywhere near the level of operating support currently wasted on 421a and other property tax programs.

This policy might seem like anathema to the real estate dominated political interests of the city, but it shouldn’t.  NYC is an incredibly large city with a lot of property.  Even a large presence of CLTs wouldn’t impact this landscape.

If anything, supporting CLTs would presumably remove the cumbersome requirements of affordable housing that drives up costs for developers.  By creating a separate, robust affordable housing policy, lawmakers could reform current development policies to encourage other priorities, such as mixed-use or transit-oriented development that would allow developers to maximize a development’s potential. Perhaps a developer could receive FAR bonuses or tax breaks by supporting a CLT by providing capital or professional services.

To address the affordable housing and homeless crisis, New York City needs to explore every possible idea out there.  Building new, large public housing developments will never happen again politically. Relying on the private market has made the problem worse economically.  Ungodly amounts of taxpayer money are being wasted every year on poorly designed tax, rent, land-use, and occupancy policies.  Community Land Trusts aren’t the silver bullet to address these seemingly intractable problems, but by supporting them, perhaps we can create space to finally explore truly innovative ideas from the public and private sectors alike.

Death and Bad Tax Policy

Actually, not at all. (bizarrocartoons)

Actually, not at all. (bizarrocartoons)

NYC Housing Policy Tools Series

Over the next few weeks, as we prepare for the Trump Era, I will spend time on various housing policies in NYC in order to help frame the the affordable housing crisis.  I have picked four topics related to NYC housing laws: rent regulation, zoning, occupancy, and property taxes.  I concede that there are other policy tools that could be included (particularly around financing) but these four tend to have an immediate impact on the most people.  The hope for this blog series is to explain the current policy tool kit in New York, but also to show why questioning the underlying assumptions about housing policy might be able to expand it. 

Part 4 of 4: Death and Bad Tax Policy

For my final post about NYC policy tools, I come to perhaps the most opaque and the most frustrating topic: property taxes.  I can honesty say that after years of studying housing issues, I think the property tax system is the single biggest source of injustice in housing. The incentives are warped, the metrics are arbitrary, and the goals are backwards.

That last point is an important place to start.  What is the goal of tax policy? It is simply to allow a government to provide a baseline of services – police, fire, water, etc? Is it to encourage or discourage a particular type of activity or behavior? Is it to promote social cohesion through income distribution? Depending on your political ideology and personal experience, you probably have a clear idea of what you think it is supposed to do and not to do.

But if you think tax policy shouldn’t be designed to impact behavior or social outcomes, you might be disappointed to find out that all tax policy does that. All tax policy ever.  Anything that a government chooses to tax or not to tax obviously has social and economic consequences. Any federalist or anti-federalist can wrap their rhetoric on taxes around liberty, strong governance, and whatever they want, but they are attempting to codify subjective values. 

(There are also inherent problems with relying on property taxes to pay for things like public education that impact behavior and social outcomes, but I’ll address that at another time.)

This is what is so confounding about NYC property taxes.  What values are being projected? Nominally, it is designed to provide tax relief for homeowners but it doesn’t exactly do that. It is sort of designed to give tax benefits to condo/co-op owners, but it in fact gives huge benefits to speculators.  It isn’t expressly designed to screw renters, but it absolutely does.  For a city that is two-thirds renters, that is ass backwards.

Since 1981, NYC has split property into four classes with varying tax rates – Class 1: single-family homes (19.991%), Class 2: multiple-dwelling buildings (rentals, condos, co-ops) (12.892%), Class 3: utilities (10.934%) and Class 4: commercial (10.574%).  For this blog, I am only focusing on Class 1 and Class 2.

On the surface, it looks like homeowners get screwed comparatively.  But below the surface, these numbers are almost meaningless to compare.  How the value of each property class gets assessed, what portion of a given property can be taxed, and how often a property tax assessment can change all vary dramatically. 

There are two big differences between how this system works for Class 1 and Class 2.  In Class 1, the Dept. of Finance measures the market value of a property by matching it to comparable real estate sales in the surrounding neighborhood. This gives as close-to-market value for the land as possible.  In Class 2, instead, the DOF measures property income – ie the rent roll – rather than property value. (If you wonder why certain ground-floor retail space remains empty in buildings for a long time, here’s your answer. Unless a landlord can get exactly what they want in rent from a retail space, they have an incentive just to write it off.) 

Second, for Class 1 and Class 2, there are limits to what percentage of the market value the DOF can tax.  Instead of applying the 19.991% or 12.892% to 100% of the property value in each Class, Class 1 has a limit of 6% of a property's market value, while Class 2 has a 45% limit.  

There is also a 20% cap on how much a tax burden can go up over 5 years in Class 1. In other words, a homeowner is only getting taxed on 6% of the market value of their property and pays the 19.991% tax on that number.  And even if the neighborhood has exploded in value, there is a limit to how much the property tax can go up. These factors mean there is an effective tax rate (ETR) much lower than the stated rates.

A few years ago, City Limits showed a stark example of this inequality. Mayor de Blasio’s Park Slop home was valued at $1.4m but assessed $2,894 in property tax. A similarly valued home in Borough Park was assessed $15,000 in property taxes. The difference is how fast the value of Park Slope homes have changed compared to Borough Park.  This means that the biggest tax savings inevitably go to homeowners who live in highly valued neighborhoods. 

Owners of co-ops and condos, particularly in Manhattan, are the biggest beneficiaries in the current system. As I mentioned earlier, because Class 2 combines these with rental buildings, the DOF draws their assessment from the income streams of these buildings even though they are dramatically different enterprises.  (There is also a large tax abatement on the books since 1996 that gives back as much as 25% of property taxes for co-ops and condos.)

In some cases this means that an individual unit in a co-op can sell for more than the entire measured property value of the building.  According to the same City Limit report, a couple of years ago a co-op unit in the UES sold for $54m while the entire building was valued at $41m. That co-op owner’s property tax was on 45% of $41m divided by how many other units there are in the building, minus whatever further tax abatement they were qualified for.

This means speculators can make a killing in this market segment.  It’s why so many foreign interests buy this type of asset (see my blog on the Panama Papers.) I’ve already spent a lot of blog space talking about how 421a distorts the real estate market by giving away tax benefits to high-end developers and their buyers.  You can see how that policy on top of this tax system effectively erases any tax liability for these high-end buildings, which lends itself to favoring speculation.

Let’s talk about why renters get screwed in this system. To begin with, based on the way the Class designation works, renters live in buildings with a higher tax burden than single-family homes and condos/co-ops.  Renters ($41, 262) also have less than half the household income of homeowners ($86,468) in NYC.  As a result, you have a higher tax burden getting passed to individual households with lower incomes, causing a higher relative tax burden on renters.

Renters also don’t internalize the property tax system as much as homeowners do, even though their rent does.  This leaves renters without any political power to change the tax system. Just as I discussed how market-rate tenants don’t organize with rent-regulated tenants, very few tenants organize around property tax reform – they don’t think it applies to them.  This allows a deeply unfair system to remain in place and it robs the city of much-needed and rightfully deserved revenue.

Beginning shortly after the system came into place in the 1980s, there have been efforts by mayors, the city council, and other advocates to reform the system. The problem here is that Albany controls the tax policy.  Specifically, it controls how the classifications are defined, what % of an assessment counts towards billable tax, what the caps are, and how any corresponding abatements apply. NYC can set the specific rates in each classification, but that’s it. 

There isn’t much political will to change this system currently because it means upsetting the powerful developer interests in NYC (who benefit from the high-end speculative market segment) or upsetting homeowner groups.  Without a unified renter effort, it is difficult to change the status quo.

What would a fair property tax system look like in NYC? A good place to start would be reclassification.  Homeowners should be in one class whether they own a single-family home or a condo. This would remove the grave disparities between single-family home and condo/co-op assessments as well as separating owners from renters altogether.  In a city that is majority renter, many of which are poorer, having a system that burdens renters unfairly is self-defeating.  

Second, matching the billable percentages in each class somewhere in the middle would bring an effective tax rate in line to remove differences between owners and renters.  Additionally, this could remove the tax advantages that fuel speculation on the high-end ownership market. This distorts land-use and prevents more productive and equitable development.

Finally, removing the caps on increasing property taxes in popular neighborhoods would allow the city to capture the proportional value increase that a homeowner garners.  Given that the city is providing the same, if not better services to warrant that increase, it is entirely reasonable to do so. If there is concern that a dramatic increase in property tax might be too much for a poorer resident, institute a case-specific means-testing increase rather than a blanket cap.

These are just some of the ideas that have been floated, but there needs to be political action taken to organize renters on this matter. If there is one commonality between all four of these sections it is that point.  Renters are a sleeping giant in New York politics.  If awoken and organized, they can reframe the economic and political policy discussions in the city and create an unprecedented period of innovation and reform that could benefit all parties in the city.

How to Use Land

Don't worry, it makes sense to someone (reversezone)

Don't worry, it makes sense to someone (reversezone)

NYC Housing Policy Tools Series

Over the next few weeks, as we prepare for the Trump Era, I will spend time on various housing policies in NYC in order to help frame the the affordable housing crisis.  I have picked four topics related to NYC housing laws: rent regulation, zoning, occupancy, and property taxes.  I concede that there are other policy tools that could be included (particularly around financing) but these four tend to have an immediate impact on the most people.  The hope for this blog series is to explain the current policy tool kit in New York, but also to show why questioning the underlying assumptions about housing policy might be able to expand it. 

Part 2 of 4: How to Use Land

Unlike rent laws, zoning laws in NYC fall under the city’s purview, which makes them a very popular and powerful tool for its elected leaders.  Mayor Bloomberg rezoned nearly half of the city during his administration and Mayor de Blasio passed two significant inclusionary zoning plans earlier this year.  However, everyone from radical libertarians to the Obama Administration have criticized zoning regiments (in NYC and other cities) for being a major factor in the affordable housing crisis. 

The appeal to local elected officials is easy to understand – zoning can steer public policy in a certain, albeit ambiguous direction while enticing the private sector to pay for it.   It has the rhetorical promise of revitalization and the practical guarantee of profit – just the type of policy-win with little immediate political downside that an elected official covets.  

This also shows the central problem with modern zoning as a public policy tool.  It outsources too much public policy to the whims of the private sector and special interests and has many clumsy side effects that undermine other public policy goals.  

Zoning has become an incumbent-favoring, technocratic process that focuses on incremental adjustments rather than strategic objectives. To be fair, the latter is what the process was designed to do because urban planners, particularly in NYC, ignored public input and caused massive, lasting damage to many neighborhoods in the middle of the 20th century.  But rather than understand why we need zoning or question what we want zoning to accomplish, participants have lost sight of the larger opportunities it presents.

There have always been ‘natural zoning laws’ in every civilization dictated by the same impulse that drives real estate now – location, location, location. New York City became a trading powerhouse in the 18th and 19th centuries because it had a deep, safe harbor with a long coastline.  Industry naturally developed around the North (now Hudson) River and East River because there was quick, cheap access to shipping. Merchants and financiers centered close to the ports, which is why Wall Street formed where it did. Immigrants settled in the Lower East Side because it was close to port and trade jobs.  Wealthier residents built large estates further north to escape the smells and disease-incubating congestion of the downtown. You can trace any city’s development along similar economic activity driving locational decisions.

However, since Manhattan is an island, people started running out of space for building things.  That scarcity created more competition for land-use and more thoughtfulness about what should go where.  It also created the economic rationalization for taller buildings (more on that in our next section.)

This made New York City the first major city to enact zoning laws in 1916. Perhaps surprisingly, public health was the primary motivator and political justification. People recognized the risks to placing intensive industrial factories next to residential quarters, and they worried about newly created skyscrapers blocking out the sun and fresh air from vast swaths of city streets. The first zoning laws attempted to address these concerns by separating types of land-use and limiting the scale of a building on its lot. 

Our current zoning laws are based in on the 1961 plan, which firmly separated land-use into residential, commercial, and industrial areas. It gave some incentives for higher density in commercial and residential towers, but largely instituted low-density everywhere else. That means that much of the city outside of Manhattan and parts of Queens and Brooklyn, is low-density and car-dependent.  It means that virtually the entire the city is extremely segregated by land-use type, which has exacerbated racial and social segregation. It also means that much of our policy framework on zoning remains tied to 60 year old assumptions from when the city was still an industrial, blue-collar economy.

In short, we have a highly-technical, complex process built on outdated or entirely irrelevant policy thinking.  There have been some periodic reforms of our zoning laws, most notably with the introduction of the bottom-up ULURP process as a reaction to top-down urban renewal programs.  Mayor de Blasio’s experience with his Mandatory Inclusionary Housing and Zoning for Quality and Affordability plans show how difficult it is to even tweak the margins of the process.  But the plan also shows how lessons learned from the previous zoning mindset can create better policy today.

However, it is unlikely that there is enough political interest in writing an entirely new zoning plan for NYC.  The public and private centers of power in the city are too invested in the current process to willingly allow such a dramatic shake up.  Though the system seemingly allows for public input and can indeed slow down major developments, a highly connected and well-capitalized private interest can still get what they want in the end.  This type of gaming isn’t altogether shocking or even wrong. Preventing the process from working for a broader public good is.

If we could rewrite a 2017 Zoning Plan, what then would it look like? First, we would absorb the lessons of the 1916 plan – public health should be a major consideration of zoning.  Second, we would absorb the lessons of the 1961 plan – what type of public infrastructure are we designing to serve the city? We are a post-industrial city, so what does that require? Finally, we should think bigger than before and ask new questions – what do we want our city’s civic identity to be? The public good must stop being an empty rhetorical concept and become the starting point for anything in the built environment.

Here are just a few quick ideas that have either been suggested or should be suggested already:

Public Health

  •  Transit Oriented Development zones should have as-of-right double density within 15-min walking distance of the 470 MTA subway stations.
  • Density bonuses for giving funds or expertise to designated public projects for parks, hospitals, emergency services, or elderly services.
  • Inclusionary housing requirements expanded to include options for elderly, disabled, or homeless facilities.

Public Infrastructure

  • Community District quotas for public infrastructure – waste management facilities, MTA outposts, public schools, homeless shelters, etc.
  • Mandatory funding for climate resiliency to develop in potentially threatened neighborhoods.
  • Mandatory multi-purposing for public buildings – combining new schools with retirement centers, police facilities with social services, etc.

Public Good

  • Require mixed-use zones for commercial and residential developments, with small-business support bonuses.
  • Rezone existing areas for mixed use and encourage redevelopment of old infrastructure along mixed-use policies.
  • Minimum requirements for affordable housing units in every Community District based on census track per capital income and means-testing.

Airbnb Forced to Squat in NYC

Will Airbnb get evicted from NYC? (pbs)

Will Airbnb get evicted from NYC? (pbs)

Last week, Governor Cuomo signed into law a bill making it illegal to advertise short-term rentals in the state of New York and outlined extensive fines for the people doing so. As a result, Airbnb, the short-term rental $30 billion unicorn, has filed a federal lawsuit to stop the bill.  At stake for Airbnb is its largest single domestic market in the US (over $1b in revenue annually) and possibly more. How has it come to this and what will happen next?

I’ve written extensively about Airbnb and what I see as the pros and cons to the service.  It’s complicated to say the least. But I have no love for how the company has operated in New York. They set themselves up for such a dramatic (and expensive) loss.

The majority of business activity conducted on Airbnb has been illegal since 2010. That’s the basic premise to understand here, and what Airbnb knew from the get-go.  You can argue if the state should care if you rent your apartment or room for under 30 days or not, but that’s what the law currently says. Airbnb chose to ignore that, to lobby to relax some of those regulations, and half-heartedly crack down on egregious bad actors on the platform.  

They wanted to shoot first and ask questions later, much like Uber did initially, which was an obvious template as a business strategy to enter NYC.  The thing is, Uber eventually came around and played ball with the state and the city.  You have to be a TLC certified driver on Uber.  That was a big, undesirable concession that Uber chose to make. 

Airbnb didn’t seem to learn that lesson and continued to stonewall the state on data sharing even as Attorney General Schneiderman's 2014 report showed that 72% of listings were illegal. (Jared Meltzer, the NY public policy leader for the company, used to work for Schneiderman.)

So two years ago, Airbnb had a choice to make.  They could make some concessions (such as voluntarily removing ‘professional’ hosts – people renting out multiple properties for extender periods of time - or share data and crack down on bad actors) or they could holdout and hope the tide turns in their favor.  The basic economics were clear – the majority of the company’s revenue in the city came from such professional listings.  They followed the money.

They also made political mistakes by ignoring legitimate concerns from housing advocates and local politicians.  Their PR strategy was to demonize any resistance to Airbnb as being in the bag for the price-gouging hotel industry.  The hotel lobby is a powerful and rather unsympathetic special interest group, one that certainly lobbies hard against Airbnb, but the company was wrong to dismiss the concerns many New Yorkers have about affordability in their neighborhoods.

As a result of this strategy, it became an all-or-nothing situation and they lost.  Now, they have to turn to the courts with great uncertainty about the possible outcomes.

Airbnb stakes its legal defense on two points: first, under the Communications Decency Act, Internet companies can’t be held responsible for any content published on its site by its users and, second, the law also violates the company’s and its users’ First Amendment rights. 

The problem for Airbnb is that the law doesn’t hold them responsible – it fines the hosts posting their listings.  It doesn’t actually block anyone from using the platform; it just raises the stakes to use it illegally.  A First Amendment case also falls into dubious grounds because the state isn’t blocking any form of communication for the company or users; it’s just preventing postings that violate other state laws.

The other challenge for Airbnb will be how to make the case that their business doesn’t rely on others violating other laws.  If 72% of their NYC business was in fact illegal, it’s hard for a court to find an unfair hardship.  Does Airbnb bring a separate case against the state on those occupancy laws? Doesn’t it kind of have to?

This isn’t an isolated case for Airbnb, either.  They are under fire in several cities in the America, including their hometown, and in other countries.  The stakes couldn’t be higher for the company.  At some point they have to alter this model significantly and/or alter a lot of local laws.

It’s a shame that Airbnb resisted reasonable attempts at compromise with New York.  When it seemed clear that Governor Cuomo was going to sign the bill into law, they made an 11th hour attempt to do so, but it was too little too late.  They have not made enough friends on either side of the aisle in Albany.

They also assumed, incorrectly, that “average New Yorkers” would universally support the company.  They clearly misread or ignored the impact the affordable housing crisis is having on those average New Yorkers. Whether Airbnb actually harms housing affordability is difficult to determine (short answer, yes, but only in a few neighborhoods) but even the perception of a company damaging the affordability of the city is enough to turn off a lot of New Yorkers. It was hubris not to understand that.

That’s not to say that the courts won’t find some middle ground for the company and the state/city to go back to the drawing board over.  There clearly is some compelling argument for this type of economic activity for New Yorkers and there are enough New Yorkers who were using the platform legally that now might be thrown into legal limbo as a result.  It's easy to see where the court would argue that the law is an overreach

Whatever the result is, it won’t be good enough for Airbnb. Their entire business model is based on the revenue generated from the professionalization of their hosts.  They need more of those hosts renting more rooms for more nights if they want to justify their investor’s expectations.  That simply won’t happen if the company has to rely on hosts listing their spare room once or twice a year. 

I’ve said before that I think Airbnb is a great small idea, but a terrible big idea.  Someone renting out their kid’s bedroom now that they have moved out or a couple renting out their apartment for a weekend once a year hurts no one.  But once you take giant amounts of venture capital and have to grow exponentially to justify it, you have to chase the bigger sources of revenue.  You have to hope that neighborhoods turn into permanent hotels.  So far, that seems to be a losing strategy. 

There are 60,000 Homeless People in NYC Right Now

Homeless in the USA (huffingtonpost)

Homeless in the USA (huffingtonpost)

A recent article in the Daily News stated that New York City’s homeless population has surpassed 60,000, which is the highest count on record – outpacing even the darkest days of the Great Depression.  The number of homeless has more than doubled in the last 20 years.  This fact is disheartening enough but what is perhaps even more disheartening is how little attention this problem gets in the city.  The images of the Tompkins Square Park Riot of 1988 have long since faded from the day-to-day perceptions of New Yorkers.  It’s rare that a typical New Yorker comes across any homeless in the city, despite the record numbers. 

I’ll discuss why the homeless population has grown so much during this period, what the city is trying to do to address it, and why this issue doesn’t get much attention.

First, it’s important to understand the different types of homelessness.  The National Coalition for the Homeless lists three: Chronic homeless, transitional homeless, and episodic homeless. 

Chronic homeless are the stereotypical homeless - individuals that have been unemployed for an extensive period of time and rely on the shelter system for long-term housing.  They are typically older and often suffer from mental health disabilities and substance abuse problems but can also represent younger families who cannot afford housing.  They generally do not transition into stable homing as much as others. 

Transitional homeless are usually younger individuals or families that have suffered through some type of catastrophic event that has temporarily forced them into relying on the shelter system.  Whether it’s a natural disaster, a domestic abuse situation, or a sudden job loss, these people represent a high portion of the homeless that find new permanent housing.

Episodic homeless fall in between the other forms.  They are generally younger and filter in and out of the shelter system over a long period of time, whether as a result of higher levels of unemployment, mental health issues, or substance abuse issues.

The Coalition for the Homeless in NYC breaks down the numbers of chronic homeless.  Of the 60,000, reported nearly 24,000 are children.  58% are Black and 31% are Latino. The DHS also reported that over the entire fiscal year of 2015, there were 109,000 people who slept in city shelters, suggesting that there is also a significant transitional and episodic population of homeless that also needs addressing.

(DHS)

(DHS)

So why has the homeless population gone up so much? The obvious answer is the lack of affordable housing.  Rents have increased across virtually every neighborhood in NYC and by 75% overall since 2000. During that period median real incomes have declined by 5%, causing an immense amount of pressure for economically vulnerable residents.  

The other answer is the lack of support for larger policy interventions.  Mayor Giuliani is often (somewhat incorrectly) credited with the large decrease in crime and homelessness in the 1990s, but his policy (based on Broken Windows principles) effectively chased the homeless out of public places rather than addressing their underlying issues. 

In 2005, Mayor Bloomberg removed the preference for homeless families to receive vacant NYCHA housing, which many advocates see as a reason for the spike in chronic homelessness. 

The number of vouchers to help residents pay rent at a fixed 30% of income, commonly refereed to as Section 8, has also varied wildly over this time period.  The number of homeless families in city-subsidized housing declines from 10% under Mayor Koch to 4% under Mayor Bloomberg.

Finally, the construction of new units dedicated to the homeless has generally been a non-starter politically.  Mayor de Blasio’s major housing initiatives had little to say about requiring developers to provide homeless housing in private development.  Given the political opposition to the plan as it was, the Mayor clearly didn’t want to turn off more developers and residents. He has stated that out of 80,000 new units the administration homes to build 15,000 will be some form of supportive housing, though those details remain undefined.

That’s not to say the city isn’t doing more to address the problem.  Many advocates are quick to credit Mayor de Blasio with providing more of an outreach than any previous administration.  There is more coordination between city agencies, neighborhood groups, and non-profit organizations which has resulted in, among other things, the reduction of some of the more infamous cluster-site programs that have been seen as dangerous by residents of these shelters and surrounding neighbors.  The Mayor has also reintroduced NYCHA priority housing for homeless families.

(DHS)

(DHS)

One area that could potentially see the most gains for transitional and episodic homeless is the guarantee of a right to counsel in housing court.  Right now, many residents don’t have representation in housing court, which leads to a large amount of evictions (and a heavy cost on the city to provide homeless services.) The Right to Counsel Coalition has suggested that by paying $260m a year in defense counsel, the city could save a net of $320m on homeless services by keeping people in their homes.  This type of intervention has support from the Mayor, who has expanded city legal services by $70m, but he has so far not supported the larger policy change.

Developing meaningful programs to address chronic homelessness is admittedly much harder.  The number of individuals suffering from mental health issues and substance abuse calls for more intervention from health and social services in coordination with DHS. Efforts in places like Salt Lake City show that a commitment to providing basic shelter can make addressing these underlying issues easier for social workers and health care providers, but the costs in NYC appear to be prohibitive.

Despite how large a problem homelessness has been in NYC for decades, there is a basic “Out of sight, out of mind” element in play for most New Yorkers, although that has started to change.  Mayor Giuliani and Mayor Bloomberg had a much stricter policy on removing the homeless from park benches and other public places, which has been relaxed somewhat under Mayor de Blasio.  This has resulted in a larger presence of homeless than some New Yorkers have been used to seeing.

In this sense, given the raw numbers and the fact that some New Yorkers see the homeless more than they used to, you might say that the problem is objectively ‘’worse” than ‘before.’  But that's missing the point.  The homeless population has indeed grown considerably, but it has been at an alarming level for years.  Contrary to the media coverage over that time period, many advocacy groups have been sounding the alarm with little fanfare. 

We're hearing about the homeless problem now because it's starting to become politically useful.  The Mayor has made many enemies in his first term. Some of those enemies are products of differing political agendas and some are the product of missteps by the Mayor and his administration.  As the next citywide elections crop up on the calendar, you can expect potential rivals to test issues with the public that might be weaknesses to exploit. Homelessness might very well be a weakness for the mayor given the increase in raw numbers despite his background advocating on this issue. Christine Quinn, who lost in the primary to Mayor de Blasio last time out, was curiously quoted in the Daily News article about homelessness. 

It's a shame that this issue only crops up in the media with any consistency as primary season gets closer. Politics are politics, but framing this as some type of horserace wedge issue is missing the point. This is a problem that spans multiple administrations and should transcend shallow election media coverage or the occasional outrage piece. 

We can’t otherwise ignore that for years, thousands of New Yorkers, many of them families with children, haven't been able to afford to live in the city and have nowhere else to turn to but the city’s over-stretched shelters.  It should concern everyday New Yorkers beyond the discomfort of occasionally stepping over a homeless person on the way to the subway. The truth is, that experience is only a small window into the enduring trauma suffered by 60,000 New Yorkers that we don't ever see.

Finally, in the larger and more complicated sense, we also can’t otherwise ignore that the homeless represent just the first wave of victims of the affordable housing crisis, a crisis that has too many New Yorkers dangerously close to losing their homes if an unexpected event occurs or if basic economic trends continue. We can’t ignore that homelessness in NYC represents a larger problem about the nature of our economic and political system, where we can’t produce enough good paying jobs, affordable homes, and adequate social and health services for enough of our citizens. No Mayor and no city agency can address those issues alone, but we must start framing them together as one large issue if we want to solve any one of them.

Governor Cuomo Wants You to Pay Developers' Labor Costs

You guys got it, right? (truthaboutguns)

You guys got it, right? (truthaboutguns)

Housing construction is complicated in New York City, but leave it to Governor Cuomo to make a bad thing worse.  The Governor had already single-handedly killed negotiations on 421a, the infamous tax subsidy to developers who agree to construct some affordable housing units, in the midst of Mayor de Blasio’s push to pass his ambitious housing plan.  As a result, hundreds of affordable units, and perhaps the Mayor’s entire housing plan, have remained in limbo. The Governor’s recently proposed solution makes matters worse.

Readers of this blog will be familiar with the problems that arose through the implementation of 421a since it was passed in 1971.  It was conceived while the NYC market was at its nadir, but quietly became a massive cash-transfer for developers when the market rebounded.  It has cost the city hundred of millions of dollars in lost tax revenue over the last decade’s hot market run, prompting many housing advocates to call for it to be abolished outright when it was set to expire last year. 

Mayor de Blasio took a different approach when putting his two major housing policy initiatives together last year.  The Mayor’s plan relied heavily on remodeling 421a with input from developers and construction union leaders.  He appears to have understood the political need for developers and construction unions to buy into his plan and the economic need for some type of tax benefit to spur development with his new requirements.  At the time that the law was up for renewal, the mayor was working with unions and developers on a compromised 421a version that would allow some non-union labor on certain housing projects that fell under the proposed guidelines.

It would be one thing if the Governor was against 421a from a policy standpoint but, in many circles, the governor’s last minute insistence on prevailing wage levels was seen as a direct attempt to kill the mayor’s plan for personal reasons.  The long-simmering tensions between the Governor and the Mayor, despite both being Democrats and broadly agreeing on policy, has been a major impediment to state and city policy-making on a number of issues.  Given the Governor’s track record, it’s hard not to look at his action as a petty lashing out.  The situation may be petty but the stakes are real - over the last eight months, a number of developments have been put on hold or out right cancelled over the 421a uncertainty.

To some degree, Governor Cuomo had political coverage at the time because he promised to announce his own detailed $2b housing plan.  The Governor created the impression that, if he was blocking Mayor de Blasio, it was because his plan was bigger and better. We’ll never know because he has never revealed his plan.  It, along with the $2b, quietly got pushed from the agenda until next year.

Instead, Governor Cuomo sent out a one-page outline to developers that suggested restoring 421a with prevailing wave requirements with the state directly subsidizing the differences for developers.  This type of direct wage intervention is virtually unprecedented. Taxpayers will literally be writing checks to construction workers to the tune of millions of dollars.

At least we think.  We don’t really know the true cost of this proposal because there aren’t many details about where the money would come from, what projects would get covered, who would administer and monitor the payments, and what if any restrictions or caps would be installed.  Although some numbers have been mentioned under some circumstances, the publicly available information is sparse.

To the extent that other parties are able to comment on the proposal as it stands, developers appear to be open to further consideration (as you would expect) and even Mayor de Blasio has offered support if the state holds to its obligation of paying those wages instead of the city.  We can expect a lot of closed-door talks to take place into the fall.

Governor Cuomo’s political antics against the Mayor and NYC in general have always appeared petty and vindictive to me.  It’s not the first time a governor has been nakedly jealous or resentful towards a mayor of NYC, but given the stakes of this particular issue – lest we forget this is about addressing the affordable housing crisis – the governor’s actions are a stunning failure of leadership.

Simply put, no taxpayer should support a vague plan to directly subsidize a developer’s construction costs.  Taxpayers should support the right to fair wages and safe working conditions for construction workers, but these are not, nor should the governor try to make them into, related issues.  This type of policy proposal is ill-conceived and potentially reckless.

If 421a is necessary for all parties to move forward right now, fine.  There will need to be complicated discussions and complicated agreements.  I certainly concede that there are no simple solutions to creating more housing under the existing framework. Though I argue that there are more options to consider and more ideas to explore to improve the creation of affordable housing in NYC, we must get the best possible agreement from all invested stakeholders.  If the Governor is secretly setting on a much better plan, I am all ears.

The Governor should be held accountable for holding up progress on affordable housing in the state.  He should be held accountable for promising then punting on a major $2b housing proposal.  And he should be held accountable for continuing to operate behind closed-doors and in vague terms.  Every stakeholder in the housing market, whether public or private, corporation or citizen, deserves better leadership.

The Mayor's Housing Plan Runs into First Major Test

The site would consist of two towers that span a small sliver facing both 17th and 18th street (morris adjmi via nytimes)

The site would consist of two towers that span a small sliver facing both 17th and 18th street (morris adjmi via nytimes)

Mayor de Blasio’s sweeping affordable housing plan passed in March has run into its first serious challenge in the form of a proposed development in the Ladies’ Mile historic district in Chelsea.  At its core, the issue comes down to at what scale should a development fall under the new housing policies.  As with any type of development in NYC, this is a maddeningly complicated question.  The answer, expected next week, will have a huge impact on how the mayor’s policy will play out.

Let’s review the housing plan quickly.  Back in March, the NYC City Council passed two major proposals to address the affordable housing crisis in the city.  The first was the Mandatory Inclusionary Zone plan, which requires every residential development to have a certain percentage of affordable units.  The second was the Zoning for Quality and Affordability plan, which sets out design and size requirements based on the location of a proposed development. 

Here’s where it gets a bit confusing.  Though a developer has several options for how many units (and at what level of ‘affordable’) to set aside for the mandatory inclusionary housing (MIH), the policy appears to allow some wiggle room because it doesn’t expressly state at what number of units a development falls under the policy.  The assumption could be that every residential development does, maybe every newly submitted development does, or maybe every large development does.  Whether the city allows for a certain amount of nuance and negotiation - or not - has a huge impact on future developments. 

(morris adjmi)

(morris adjmi)

Enter the current proposal by Acuity Capital for a 17-story building containing 62 condos on 6th Ave between 17th and 18th.  The site is currently a parking lot but would also encompass two surrounding buildings that are protected under historical preservation laws, though the Landmark Commission gave the development the go-ahead back in 2014 (obviously before the mayor's new zoning laws. It's unclear if there is an issue with it under the new ZQA requirements). The developer needs to build around those buildings rather than demolish them and also needs a special permit from the City Planning Commission to build a structure larger than 6 stories at that site. The air rights for the existing structures would transfer to the new development allowing them to add an additional number of stories on the existing square footage.

Because the new development would be larger than currently allowed, some leaders, including Manhattan Borough President Gale Brewer, argue that the development should be subject to the MIH requirements.  The concern here is that any nuance or exemption will create room for developers to get creative and avoid the MIH requirements in other ways.  If the goal of the policy is to require affordable housing units from every development, then it should do so.

(morris adjmi)

(morris adjmi)

The mayor’s office (and the developer) appear to think that the development is a ‘rejiggering’ of zoning rather than a full enlargement of the site that would trigger the requirements. The concern for the city is if the plan is deemed too onerous by developers, they might sue the city and threaten the laws (or just not develop more housing).  The courts have previously overturned housing requirements in other cases, so the city is eager to avoid that risk, particularly since the laws are still so new.

The City Planning Commission will decide on the issue on Monday.  According to several people interviewed for the NY Times article, even the Commission appears to be split about what to do.  There is some discussion of a compromise where the Commission would require a percentage of the additional units available through the air rights allowance to fall under MIH requirements. That would only create a handful of protected units, but might be enough to get through the Commission. They could also presumably make the argument that the development has been in the pipeline before the housing laws were passed and shouldn't be subjected, but I haven't seen that. (I also haven't seen if the development runs afoul of the new ZQA laws.)

The Commission and the Mayor seem wary of this case creating too large of a precedent going forward and that’s understandable. However, the reality is that the new housing plan is a major departure for the city and these edge cases must have even basic guidelines as quickly as possible.  It's also important, even though this specific case wasn't impacted, to clarify how the new housing laws will interact with other regulations, such as historical preservation.  If other policy tools can be used to prevent the housing requirements, affordable housing targets could be undermined.  Some level of nuance and negotiation are already accounted for in the city’s zoning laws and its ULURP process, so developers expect complexity in NYC; it’s the cost of doing business.  But for the mayor’s plan to take off and meet its goal of 200,000 affordable units, it needs to avoid costly legal battles with developers and, more importantly, get developers to buy-in.  It’s not pretty, but nothing in the built environment is.

Report: Airbnb is hurting housing in NYC

5 parts of the city account for nearly 60% of Airbnb's listings (myf report)

5 parts of the city account for nearly 60% of Airbnb's listings (myf report)

It has been a rough stretch for Airbnb, the overwhelming leader in short-term home rentals. Though the company is reportedly close to securing a financing around that would value it at around $30 billion (which would make it the second most valuable startup behind Uber), the longterm prospects of Airbnb have started to come into doubt for the first time. The company, which was founded in San Francisco in 2008, has effectively been banned in New York State, is currently suing its home city, and has been accused of allowing racial profiling on its listings. Most distressingly for the company, and for renters, a recent report confirms what many housing advocates have long warned: Airbnb is damaging the rental market. A lot.

The report, published by two leading tenant advocacy organizations, MFY Legal Services and Housing Conservation Coordinators, focuses exclusively on the NYC housing market, which is Airbnb's biggest market by far, creating over $1 billion in revenue in 2015 (of which Airbnb only takes a cut). The report has identified so-called 'impact listings' that meet three criteria: Rentals that are an entire apartment/house, are regularly listed, and are operated for commercial use (by someone who lists multiple units).   

Impact listings have removed roughly 10% of the rental housing stock from the market, according to the report.  Over 8,000 of Airbnb's 51,000 NYC listings fall into this category and would likely move the vacancy rate from around 3.5% to 4% if they were prevented.  These are huge, awkward numbers for Airbnb given their repeated claims that they don't negatively impact the housing market.

That sweet spot that screws a lot of New Yorkers (myf report)

That sweet spot that screws a lot of New Yorkers (myf report)

These numbers mask just how concentrated this effect is, however.  Over 90% of NYC's listings are in Manhattan and Brooklyn, and over 53% are further concentrated in just 5 'macro neighborhoods': East Village/LES; Greenwich Village/West Village/SoHo; Hell's Kitchen/Chelsea; Williamsburg/Buchwick/Greenpoint; and Bed-Stuy/Crown Heights.   In these neighborhoods, the report shows that in some cases the vacancy rates would double without these impact listings. It also shows a strong correlation between the number of impact listings and median asking price for rents. This suggests that landlords in these neighborhoods are focusing on lucrative short-term renters while also benefiting from the corresponding pressure on rent prices.

That last point shows the real problem with Airbnb: the professional lister.  Once it becomes more lucrative to rent to short-termers in these desirable neighborhoods, you have created a perversive incentive for people who hold leases within them.  At some point people start gaming the system in two ways. First, a professional lister grabs up multiple leases and manages them commercially. Second, landlords become their own professional lister and withhold long-term leases in their buildings. The report, conservatively, shows that 30% of all NYC listings fall into this category. 

Number of units missing from the rental market (myf report)

Number of units missing from the rental market (myf report)

Airbnb was founded on the intention of people renting out a spare room if they are home or their apartment if they were gone for the weekend.  A lot of people use the site for just such a purpose. However, it is clear that Airbnb's revenue has increasingly become reliant on these professional listers, which have gotten the company in a lot of trouble for pretending otherwise. Particularly in New York State, they have often stretched their numbers to fit their preferred narrative.  One study shows that while Airbnb is technically accurate to say about 85% of NYC listings are from people who live in their apartments, over 50% of the actual bookings come from professional listers (who, as stated earlier, only represent 30% of listings.)  

It's also important to note here that NYC's Multiple Dwelling Laws make much of how Airbnb currently operates illegal. You are not allowed to rent an apartment out for less than 30 days if a tenant on the lease is not present.  Airbnb confirmed that over 50% of its listings violate this law when it published its own data last December, despite attempting to frame the argument positively.  Airbnb only released this data after pressure from NY Attorney General Eric Schneiderman and his own critical report from 2014.   Also worth a read, it outlined the many hotel tax laws and fire and safety laws that the majority of listings also violate.  Airbnb was clearly mistaken if they assumed those violations would be tolerated in the state.

As I discussed in my previous blog about the legislative session in Albany, Airbnb suffered a huge blow when the state made advertising short-term full-apt rentals illegal and attached significant fines to anyone found guilty.  This effectively adds material weight to the previously existing laws and prevents Airbnb from operating in its normal fashion.  It remains to be seen how this will play out (a number of their investors have been vocal about protesting the law) but the bottom line is that Airbnb's political strategy has been much less successful than its business strategy and the consequences could be huge for the company.

It's important to point out two things that complicate this picture from a housing perspective. First, much of the pressure on Albany came from the hotel industry rather than housing advocates. It's a sad irony, somewhat lost in all the grandstanding, but the only way that Airbnb's impact on housing has been addressed politically is through hotel lobbying.  If Airbnb hadn't had such an impact on lodging revenue in the city, they very likely wouldn't be facing such a political storm. Second, Airbnb has made attempts to 'legitimize' its services in New York over the last few years by at times voluntarily removing listings of rent-regulated units or blatantly commercial listings, and by proposing to pay hotel taxes on behalf of its hosts.  It is clear that in regards to the former, they have not made enough of an effort, and for the latter, negotiations evidently broke down at various points.  If you're left feeling confused about whom to blame for the current nature of Airbnb in the city, you're not alone.  That's how it goes in New York.

The larger problem for Airbnb is a matter of purpose.  While it's initial intention (made famous by its sanctified seed deck) was to provide some extra money for renters/homeowners and a better experience for budget conscious travelers, the rush to scale and raise money has made focusing just on that intention impossible for the company.  I have no doubt that the founders and early investors saw the potential virtues in disrupting hotels and didn't see the likely vices in disrupting housing. However, those vices are impossible for the company to ignore now, but it seems poorly designed to address them.  If the company sees a path to growth by focusing on single-listers (not likely) as was its intention, these latest issues could just be growing pains for a maturing company.  If the company doesn't see a path to growth without professional listers (more likely), then it might be in for some bigger problems in other markets in the future.

As a practical matter, Airbnb should have been smarter about its lobbying efforts, particularly in NY.  I briefly mentioned their half-hearted attempts to get ahead of certain problems, but they were only partially successful and clearly avoided other larger problems connected to housing that they must have been aware of given their data access.  This goes back to their focus on the hotel industry rather than the housing community. They probably just didn't see the necessity or value of having housing advocates on their side while trying to lobby in Albany against the hotel industry. (It's possible they didn't think they would ever get them onboard. Perhaps a self-fulfilling prophecy at this point.)

They could have taken the long-term view of sincerely focusing on single-listers while cracking down on multiple-listers, or they could have taken a hotel tax from users voluntarily and donated them to housing or homeless advocate groups to establish good faith with local communities. In turn that could have helped win over city and state leaders.  (Even Uber played nice with the TLC and the state eventually.)  Instead, through some combination of accident or arrogance, they have made many enemies in Albany - a place that's hard to get things done in even without enemies.  This damage isn't unfixable, but they need to make some significant changes to begin the process. The company's internal struggle to appease policy makers and investors would be fascinating to watch.

I'm not sure how you take what Airbnb has gotten right about 'hotels' and avoid what it has gotten wrong about 'housing.'  I have some ideas and we'll see how they play out, but clearly there are reasons to defend aspects of its model.  There are fewer reasons to defend Airbnb. They have gravely miscalculated their political standing in many markets where they operate and have callously ignored or fumbled opportunities to have honest conversations with local stakeholders to get the kind of buy-in that could sustain them. They have absolutely disrupted the hotel industry and are probably capitalized enough to weather the inevitable backlash from it. However, the fact that they have seemingly failed to appreciate how much they have disrupted the housing market could prove to be what costs them the most in the long run. 

Albany Blows it On Housing (and In General)

Is Albany upside down or just being itself? (ny mag)

Is Albany upside down or just being itself? (ny mag)

Last week, New York's State Legislature, acting more like an embattled frat house cramming for finals, passed a series of largely unremarkable bills in the final hours of its 2016 session.  Although we can all rejoice about now getting Bloody Mary's at 10:01 AM on Sundays, it's impossible not to deem the session a massive failure given what wasn't resolved.  Despite a desperate need for action on housing and a number of key bills and initiatives on the docket, no housing laws were passed.  There is plenty of blame to go around, notably the bitter feud between the Governor and the Mayor, but the bottom line is that the housing market right now is crippled by uncertainty and a lack of vision at a time when the future of affordability, particularly in NYC, hangs in the balance. I will highlight three areas where the Legislature has undermined, skipped, or out right blocked the chance for sweeping housing reform and give my take as to why.

Cuomo's Failed 'Memorandum of Understanding'

When Governor Cuomo announced his massive $20b 5-year housing plan back in April, he included $2b for 2017 to be spent on affordable housing and fighting homelessness.  In place of details, he outlined a Memorandum of Understanding (MOU) that was to be worked out among the "Big Three" (the Governor, the Senate Leader, and the Assembly Leader) at a later time.  This type of action, which excludes rank and file legislators from debate and negotiations, is notorious in Albany and decried by many taxpayer advocates and policy watchers because it is the source of so many shady deals in other areas of government. It has never been used in a housing bill, let alone one of such scale.  The Governor's decision to use this tool is even more stunning when you consider that two former members of the Big Three have been sentenced to prison on corruption charges (more on this later.) 

Back when I wrote about the growing feud between Governor Cuomo and Mayor de Blasio, I pointed to this plan as a signal to see if the Governor was serious about housing policy or simply trying to embarrass and impede the Mayor's own housing plan. If the Governor could reach a sweeping agreement to fund affordable housing, it could be seen as a generational shift in housing policy and in how business gets done in Albany.  Well, here we are in June and there is no MOU and no policy.

Our tax dollars at work (newyork.com)

Our tax dollars at work (newyork.com)

Clearly the biggest unfinished item is 421a, the controversial tax incentive given to developers for including a certain number of affordable housing units per building.  The bill sunsets every 4 years and Governor Cuomo allowed it to expire in January when negotiations over union construction wages broke down. This has left plans for thousands of housing units up in the air and threatens to kill Mayor de Blasio's housing plan in the cradle. Though a compromise is still possible, the fact that one hasn't been found yet shows a shocking lack of leadership and/or a childish level of personal animosity.

I've written a lot about how flawed 421a is as an affordable housing tool.  At best, it is a wildly expensive way to create a tiny fraction of the needed affordable housing units and, at worst, it is a market-warping give-away for developers that prevents more affordable housing units from entering the market. Certainly some advocates welcome the delay on 421a and would like to see it scrapped altogether. Others think that affordable housing can not happen in any form without it.  I certainly believe it should be reformed significantly to create better targets and measurements for affordable housing, but scrapping it abruptly leaves existing projects in chaos. 

The frustrating thing about this session however, is that there was never any serious talk about reforming the policy, nor was there any ability to given the ambiguity of the MOU.  The initial breakdown came when the carpenter's union rejected the wage floor suggested by the Real Estate Board of NY, which was more or less the same language in the current Republican-controlled State Senate proposal.  That is where the negotiation stood six months ago, and where it stands now.  We are left with a maddening binary decision between extending it as is or letting it die. Neither one makes any sense given the political landscape.

A compromise on this particular element is probably a few horse-trades away and you can argue one way or the other over the union's current position, but the fact that there was no larger review of the policy should anger every voter and taxpayer.   421a is not a short-term or long-term solution for creating affordable housing.  Perhaps, if properly designed and part of a larger effort, it could be an effective tool, but there was no ability for the legislature to debate this. Additionally, the Democrat-held Assembly attempted to expand the nature of the MOU by tying any reform of 421a to additional state funding commitments to NYCHA, but the Governor has not shown any interest in this effort and no deal has been struck.  This appears to be dead on arrival.

Despite the ambitious scale of the Governor's suggested housing plan, we have seen no details or policy discussions, no deal within the existing MOU framework, no sense of what it would take to accomplish one, no sense of how and where billions of dollars would be allocated in housing across the state, and no ability for our elected officials to properly debate these issues.  Is it any wonder that a deal wasn't struck?

Ethics Reform

This question brings us to the other major inter-related failure of this legislative session: ethics reform.  As I mentioned earlier, this past year we have seen two of the Big Three in state government sentenced to a combined 17 years in prison on multiple corruption charges. This is on top of more than 30 state elected officials meeting the same fate over the past decade.  Assembly Speaker Sheldon Silver and Senate Leader Dean Skelos, along with Governor Cuomo (who has been accused of blocking a commission on ethics), effectively ran the state between the three of them for years, during which New York has been seen as the most corrupt state in the Union.  The calls for reform have been deafening, but action has been slow and punchless.

The legislative session did pass one important ethics reform when it agreed to ban public officers convicted of office-related crimes from receiving pensions (it still has to be voted on next year to become part of the State Constitution.) This is a positive step for sure, but fails to address the types of crime that has gotten leaders into trouble in the past.  Specifically, there was no action taken to limit outside income for state legislators, to limit 'housekeeping' donations to political parties, or to close the so-called "LLC loop-hole" that allows unlimited donations from these corporate structures despite the ease with which individuals or corporations can hide behind them. 

2 out of 3 of these guys are going up the river, but stopping before Albany (ny post)

2 out of 3 of these guys are going up the river, but stopping before Albany (ny post)

All in all, here again we see a shocking failure of leadership across all parts of Albany. The fact is that the current system, as corrupt and ineffective as it is to the larger population, works well for both parties.  The unique nature of power in New York State allows for both parties to control just enough to keep the peace (and their seats) while blocking bolder policy initiatives and reforms.  Until ethics reforms pass on a larger scale, the status quo will remain in Albany to the determent of all New Yorkers - and truly sweeping housing policy won't see the light of day.

Airbnb Crackdown

A potential major blow to Airbnb is the final piece of legislation that I'll touch on because it could have an impact on housing in certain neighborhoods in NYC.  The bill, which has passed the Senate, bans any advertising of apartment rentals under 30 days, which is already illegal in NY state, and creates a series of fines for an owner caught listing them.  Whether this represents a true crackdown on the service remains to be seen (it also must pass through the Governor's Office before becoming law.)

It might seem like a surprise for me to include cracking down on Airbnb as a blow against housing, given how controversial the company and the practice are.  In addition to being illegal in NYC, there is no doubt that it has an adverse affect on housing costs in certain, trendy neighborhoods and has negative impacts both on potential renters blocked from finding units and on existing tenants or neighbors surrounded by strangers. (I also have a philosophical problem with a company that is fundamentally based on exploiting peoples' income insecurity around housing, but I'll have more on that at another time.)

I feel better already (weandthecolor)

I feel better already (weandthecolor)

The problem is how to separate the good actors from the bad actors, which this bill (and NY's general dwelling laws) does not do.  A couple going out of town for a long weekend once a year that wants to rent out their apartment, with the consent of their landlord or neighbors, is simply not a problem.  However, despite Airbnb's claims, there are a lot of renters that amass a large portfolio of apartment leases or building owners that opt to focus exclusively on short-term tenants (they also have a huge problem with racial discrimination by renters on the site, which they are are trying to combat). Airbnb doesn't release much data, but when it does, it appears that these types of actors are the majority of its listings.  Airbnb won't be completely honest about this for the simple reason that they make the majority of their money on 'professional' Airbnb renters. They can't justify their model to investors if they do rely on that couple going out of town once a year.

I think there could be a responsible way of allowing landlords/tenants/neighbors to make short-term rental agreements, but no doubt pressure from the hotel industry simply won't allow that discussion right now - and that's really where this bill came from.  This is less a win for tenant advocates as it is for hotel developers.  What could have been a chance to force Airbnb to evolve and become a stakeholder in NYC has instead likely inspired the company to double down on aggressive lobbying to fight the existing laws rather than improve its practices. Housing in NYC will continue to suffer in any event.

I have advocated for a broad reinvention of our housing and dwelling laws before and I absolutely think we should include short-term rentals in the discussion.  The toothpaste is out of the bottle with Airbnb and bad actors will still find ways around even this law. Rather than try to force it back in, we should...find more toothbrushes to put it on? (I'm tired and need to publish this before the Mets game, sorry.) At any rate, this bill doesn't come close to considering how best to handle Airbnb and similar technology-driven companies. (A bill to allow Uber and Lyft to expand upstate was blocked in the Assembly.)

The Airbnb law is the perfect example of rhetoric masking reality in state politics. New York isn't alone in this, but it is certainly more naked about it (not lease because of how many people seem to fail at balancing the act and get busted.) Special interests have a right to lobby their elected officials, but unfortunately that comes increasingly at the expense of the common good, which is never as well organized or funded. Albany is evidently trapped in a particularly vile cycle of sacrificing the public good whether out of greed or flawed ideology or both.  This could have been a significant legislative session given the public demand for action, the amount of ideas on the table, and the amount of actors across all spectrums who were engaged in the debate, but it wasn't.  The more the state government fails to take advantage of these circumstances, the harder it will be for them to materialize again.

Why You'll Never Get that Awesome Rent Controlled Apartment by the Park

Tenant advocates protesting rent increases (nycurbed)

Tenant advocates protesting rent increases (nycurbed)

This week the Rent Guidelines Board held a preliminary vote that called for an increase of 0-2% in one-year leases and a .5-3.5% increase in two-year leases for any leases signed between Oct 2016 and Sept 2017 across more than 1 million rent regulated apartments in NYC. Though there will be five public meetings before the final vote takes place on June 27, this initial vote frames the debate going forward.  This means that last year's historic rent-freeze (on one-year leases) will almost certainly not be repeated this year.  Still, as is the case with every other year, both landlord groups and tenant groups are unhappy with the result.

Tenant advocates protesting rent increases (brokeassstuart)

Tenant advocates protesting rent increases (brokeassstuart)

Background on Rent Regulation

Just to give a quick overview, NYC has two forms of rent regulations - rent control and rent stabilization.  Just under half of all rental units in NYC fall under some type of rent regulation. 

Rent Control was initially introduced in NYC by the federal government in 1943 to control inflation during WWII and the housing crunch expected with returning veterans; it was reformed to include all buildings built before 1947, but none after.  NY State took over rent control in 1951 (most states abolished it, but NY still had severe housing shortages) and introduced some ability for units to be decontrolled if their rent reached a certain threshold or became vacant. Despite every New Yorker's dream of finding a rent controlled apartment by the park, the reality is that rent controlled apartments only represent 1.8% of rental units, or about 38,000 units and they are disappearing fast. So you're not gonna find one.

Rent Stabilization was introduced by the state in 1969 after vacancy rates had plummeted and rents started to skyrocket over the previous few years. The law included all buildings built after 1946 with more than 6 units and any rent controlled buildings that had been decontrolled.  Stabilization has less restrictions than Control, mostly around when they can be deregulated and what other costs can be placed on tenants in them. Rent stabilized apartments (including my apartment in Stuy Town) represent 45% of rentals or 987,000 units. 

The rent laws are periodically renewed in Albany and have been the center of some truly epic fights, most recently in 2015. I won't get into those battles in this post, but will in the future. The main thing to remember is that these laws, in theory, would come off the books if the NYC vacancy rate ever surpasses 5% - which it hasn't done in over 50 years (it was 3.45% as of 2014).   In the meantime, the RGB is where this battle plays out every year.

The RGB as sin eater for city and state politicians (sbkmulletman.deviantart.com)

The RGB as sin eater for city and state politicians (sbkmulletman.deviantart.com)

The Rent Guidelines Board

The Rent Guidelines Board was set up in 1969 to oversee what, if any, increases in rent would be passed to rent-regulated tenants.  The board is made up of 9 members all appointed by the Mayor.  Two seats go to tenant advocates, two go to landlord advocates, and the other 5 (including the Chair) are intended to represent the general public. The terms of each appointment are staggered slightly between 2 and 3 years depending on the seat. Currently all nine have been appointed by Mayor de Blasio and, in some circles, it has been considered the most tenant-friendly board on record.

The main tool the RGB uses to determine their policy decisions is called the Price Index of Operating Costs (PIOC).  This factors in the yearly variances in the price of goods and services (like oil, electricity, staff, insurance, property taxes) that impact the overhead for landlords. This year, the Board determined that the PIOC fell by 1.2%, only the second time in its history, which some observers had suggested, before the vote this week obviously, might mean yet another freeze or even a roll-back. The backlash against the freeze from last year was likely too much for the board to ignore this time around, resulting in the increase.

Most landlord advocates, including the Rent Stabilization Association (the city's largest landlord organization) argue that PIOC fails to determine the actual costs to landlords for two main reasons. First, a blanket recommendation can not possibly factor in the varying impact of costs between big and small landlords, between different parts of the city, and different types of buildings.  The second is that it does not factor in major capital improvements, new compliance costs, or debt service, which are significant budgetary items for many landlords.

Most tenant advocates argue that the Board actually overestimates landlord's costs (which the RGB report itself describes) and that last year rent stabilized landlords had a net operating income return of 50%, which has increased every year over the last 10.  Especially now that energy costs have gone down, they argue that landlords have benefited significantly while interest rates and wages have not kept pace in the same time span.

Not surprisingly, I think both sides have fair points.  The RGB and its PIOC calculations are clunky and inelegant tools to address such a vast and complex system.  But something has to address it and the RGB does so while serving as a sort of sin eater for city and state politicians - a helpful symbol for parties to attack that at least partially insulates officials from the universally unpopular results. It functions as a populist valve rather than a meaningful policy vehicle.  This does a disservice to the many legitimate issues that landlords and tenants want addressed, but that is surly some of the point.

 

What does the future hold for NYC? (rogersmavel.com)

What does the future hold for NYC? (rogersmavel.com)

What is to be done?

Renting a home may not be the oldest profession, but it has been around for a long time and arguing over the rent is never going away. Landlords and tenants know that.  But they can still find common ground that could potentially improve everyone's position and the collective health of the city.

First, in a strictly micro-sense, they could advocate that the RGB and the city incorporate more dynamic IT solutions (coughs) to better calculate individual landlord costs and individual tenant costs.  Whether it's water use, heating, electricity, gas/oil whatever - there are already countless tools available that could be installed to measure the efficiency of buildings and the use-demands of individual tenants.  This could help calibrate a more accurate and tailored PIOC report as well as a fair allocation of costs within a building while also incentivizing better resource management for all parties. The cost to install these tools isn't cheap currently, but it could be spread out in tax-abatements. The argument here is that they would eventually significantly reduce the city's operating costs to monitor these elements and save the city in the long-run.  More information, and better ways to analyze it, will drive down costs for everyone in the market.

Second, in a macro-sense, landlords and tenants must both advocate for building more housing.  Obviously.  And though this can be done through changes in zoning, land-use, building diversity, transportation and many other factors, politically those options create divisions among tenants groups and landlord groups.  None of these issues fall easily into pro-landlord or pro-tenant categories so progress is painfully slow or non-existent.  Creating a clear policy platform that can gain the support of the most tenants and the most landlords would be difficult, but not impossible. Mayor de Blasio has tried, perhaps successfully, but the response hasn't differed all that much from the response to the RGB. 

Finally, in a philosophical sense, landlords and tenants should address some fundamental questions: Would everyone be better off if there was no rent regulation or universal rent regulation?  Before any landlord or tenant screams bloody murder, hear out the logic for both.  Considering radical alternatives might reveal practical solutions. (Assume for this debate that we live in a more elastic housing construction market and can build more housing across the board.)

No Regulation - What if there was some ideal natural vacancy rate (there are interesting debates about this) for NYC and the region factoring in employment and wage figures, inflation, goods/services costs, that would remove the need for rent regulation while still providing enough options for tenants and competition for landlords to retain affordability and diversity in any given neighborhood?  Houston is generally considered to be a model of affordability in a major city and has no regulation at all.  There is a 10% vacancy rate in the city which means there are a lot of options for people.  Now, you'll never see me argue for the type of sprawl that Houston is famous for, and I'm not suggesting 10% is universally ideal (or even ideal to Houston) but clearly we can learn something from the supply/demand tension that it has. Advocates are right to defend rent regulation right now because it's sudden absence without a significant increase in housing would result in massive disruption.  But if the city/region was able to produce the amount of housing that creates an ideal vacancy rate, that disruption (and the cost of subsidizing housing) would vanish.

Total Regulation - Before anyone gets the idea of some Soviet-style apparatus controlling where and how you live, think about what establishing a basic floor and ceiling for all rent pricing would look like.  It might look like a city that treats housing as a basic human need rather than a wealth generator.  Part of the reason that housing ends up being so expensive is the speculation on the value of the land it is occupying. If you remove that price inflation but guarantee some fair return on costs and risk, you would turn off some of the worst type of speculators and leave people interested in the long-term development of a neighborhood (and likely encourage local ownership).  You would still encourage personal investment and reward it fairly, but you would remove the extreme profit motive that in some cases perverts the landlord-tenant relationship. A major criticism levied against much of the modern development and redevelopment of NYC is how it maximizes short-term profits while sacrificing long-term sustainability and community health.  It might seem radical to suggest departing from this model, but it might create a more livable and exciting city than we are heading towards.

I introduce these concepts partly because I do think they both have merit and are helpful to think about, but more so to show again why institutions like the RGB are holding us back from the more important conversations and decisions we need to make as a city.  No one thinks the housing system works right now, as the most recent RGB vote showcases.  How can we just nibble on the edges or blame partisans for a system that is obviously designed to avoid the harder challenges?  We don't need sin eaters, we need prophets. 

The End of the Beginning: the Challenges Ahead for the Mayor's Housing Plan

Victory lap might be a short one for the Mayor (capitalnewyork via mayor's office)

Victory lap might be a short one for the Mayor (capitalnewyork via mayor's office)

Only a week has passed since the City Council approved Mayor de Blasio's ambitious housing plan, but already some observers have begun to discuss the many hurdles facing it that could spell trouble.  Though it will be years before anyone can assess the true scale and impact of these changes - and if they will deliver on the promise of more affordable housing - we can at least start to consider what this trouble could look like. Though there are a number of factors to consider, for this post, I will focus on three that seem particularly important to watch.

Governor Cuomo: Oh, yeah? (thewire.com)

Governor Cuomo: Oh, yeah? (thewire.com)

1.  Albany: 421a's & Heartbreak

The Mayor's plan has solidified political support in the city, but much of its success will depend on what transpires in Albany in the coming months and there are a lot of unknowns.  As I've outlined previously, Governor Cuomo has made his relationship with Mayor de Blasio something of a bloodsport; he has taken every chance to exert power over the city by withholding housing funds and creating excessive state oversight on projects wreaking havoc with city officials and developers alike.  It's not a stretch to see how much the governor would enjoy toying with the mayor over his signature policy achievement.

Perhaps no issue in Albany in the hands of the Governor could determine the fate of the housing plan more than the status of the expired 421a tax exemption.  I've gotten on my soapbox about 421a before, but the reality is that it was a major, if wildly flawed, tool for encouraging development of affordable housing.

Lawmakers, including officials from the de Blasio administration, had agreed on significant changes to the program when it came up for renewal in January, but the Governor surprised many and killed the talks by backing a call for developers to agree to new union contract stipulations to qualify.

As a result, 421a is off the books and many projects have been thrown into serious doubt while new projects will likely slow down as well.  There is no doubt that its previous form was a huge handout for high end developments that didn't come close to producing the needed affordable units, but simply killing it was political brinkmanship at its worst. Many people in real estate question if the mayor's plan can even work if 421a does not get extended.  Though the industry has a clear incentive to get 421a back as-is, the reality is tax policy is a major component of the mayor's plan and without buy-in from Albany, it's hard to see how the units get built.

Some of the Governor's political maneuvering might make more sense when he announces his own housing plan soon.  As I've speculated, if his plan greatly resembles the Mayor's but with more power and credit going to the Governor, it will be hard to defend.  If, on the other hand, it spells out a new direction in housing, and solves long lingering flaws in policy like 421a, then we might have something worthy of discussion. In either scenario, the Governor has made it clear that the Mayor's plan must go through Albany first and it remains hard to picture that being a pleasant journey.

CB15 (Sheepshead Bay) voting against the mayor's housing plan (sheepsheadbites)

CB15 (Sheepshead Bay) voting against the mayor's housing plan (sheepsheadbites)

2. Local Opposition: CB86'd

Though the City Council supported the plan by votes of 42-5 and 40-6 on the two major proposals, all but a handful of the city's 59 Community Boards rejected it.  CBs are made up of local residents and business owners and their votes are only recommendations, but their near-universal opposition was a chilling rebuttal to the Mayor and a potential sign of the pitched resistance these groups might undertake in the months and years ahead.

This opposition has practical implications because these same bodies review every development proposal in their districts under the city's ULURP land review process. Again, these votes are only recommendations and can be overcome through other city agency approval, but when time is money, opposition from a CB can delay and even derail projects.  If many residents have already opposed the plan overall, you can expect that this will continue with specific projects. For example, CB5, which includes East New York - singled out by the Mayor as a major focus of the plan- unanimously opposed the plan. It isn't likely that they will be open to the many projects already being discussed

The philosophical implications of local opposition are also important to consider. Though it is easy to dismiss some of these votes as naked NIMBYism, as the Mayor has unfortunately been close to doing, the issue is much more complicated.  No doubt, though, some of these positions are based on the more disappointing aspects of NIMBYism and resistance to the inevitability of a changing city.  

Preventing more density, more height, and more transit-focused development could have dire economic and environmental consequences for the city and the region, but it's hard for an individual to accept that when it means their trains or schools might get more crowded, their neighborhood might become a construction site and look very different at the end, and their parking could disappear. These are entirely understandable, if intractable, concerns.

However, it isn't just NIMBYism at play here, as many neighborhoods have built up mistrust towards the city over decades - whether it's from the scars of urban renewal projects, the slights of feeling overlooked by programs and services, or the perceptions of forced integration and change, community boards evolved from a resistance to top-down management and have long been wary of city-wide policies. New Yorkers have seen large scale, Big Idea type-plans before and are right to be wary of their true costs and benefits. 

It is up to the Mayor to outline these issues, outline the underlying causes, and explain why this plan is different and why it will be better for New York and for New Yorkers. There may well be many benefits in the housing plan for these communities, but there will also surely be trade-offs and negative consequences. The Mayor has obviously not done a good enough job of framing this discussion around those realities or to speak to the legitimate hopes and fears of New Yorkers regarding the plan.  For a Mayor who campaigned and won by recognizing the populist mood in the city, so far he has missed the opportunity to approach this plan through the same lens and vernacular.

The Mayor and his administration must do a better job of selling the tangible benefits of this plan while acknowledging the unavoidable pain of change.  Though the CBs are only advisory boards, their near-universal rejection of the plan could create havoc for his plan in the short term and greater consequences as the next election approaches in 2017. 

 

What (potentially) goes up, must (inevitably) come down (citylab)

What (potentially) goes up, must (inevitably) come down (citylab)

3. The Market: The Giveth and Taketh 

The real estate market is the easiest factor to overlook in all of these discussions, but ultimately it will have the final say in the future of the housing plan.  Many of the assumptions built into the plan, from the tax incentives available, to the expected population growth, are based on an ascendant market.  There are some early signs that the market may be headed for a correction or even something larger.  Given that the housing plan relies on the market to drive it, if the market tanks, it's unlikely that many units will be built, affordable or not.

Relying on the market has been a criticism voiced by many housing advocates as the Mayor's plan went under review, but given the power of the real estate industry and the construction unions in the city and the state, I don't think it would have been possible for the Mayor not to get their buy-in and still deliver a plan.  It might be incremental, but it is a necessary step in this political environment and the need demands that some action be taken right now.

The problem with a market-first approach, however, is relying on a market that is not healthy or functioning well to begin with.  Even what we talk about when we talk about 'the market' isn't terribly useful. It hides the fact that in reality, there are two markets in the city: the "asset" market and the "shelter" market.

The asset market has produced 432 Park on the high end and thousands of shiny doorman condos on the other end, many of which will sit empty for the majority of their ownership; this market has had severe ups and downs as would be expected when it is a function of the global economy, but it has created most of the new housing units in NYC over the last decade.  This operates more or less as a market should.

The shelter market is much larger but has not operated as a market should; it has had relentless pressure put on it without the necessary relief.  With the population of NYC expected to continue to rise, and the demand for all types of housing only increasing, a healthy market in theory should offer the incentive to produce a corresponding number of units.

The fact that this isn't happening owes to many complicated reasons, most of which we have discussed in this blog previously, but the main takeaway is that we're in a housing mess because the overall market is terribly distorted and there isn't much discussion about how to change it or even if it should be changed.  As a result, relying on said market, unaltered, to fix it is potentially a fool's errand. 

Much remains to be seen about the future of Mayor de Blasio's housing plan because so much of it falls outside of the Mayor's control, or anybody's for that matter.  The Mayor has much work to do in order to see the plan implemented and to see the types of benefits he, and many others, believes will result from it.  

Why Mayors and Governors in New York Rarely Get Along and Why it's a Problem

Leave the bonds. Take the Cannoli. (north country public radio)

Leave the bonds. Take the Cannoli. (north country public radio)

Several news outlets in the city are reporting on the latest beef between Mayor de Blasio and Governor Cuomo and how it could harm upcoming housing projects in the city.  This particular beef is over federal tax-free bonds made available to states to encourage construction of affordable housing, but it represents just one rift of many between the two Democrats.  Troubling as this feud is for residents of NYC, it is part of an old, long-standing Great Game between the two most visible elected offices in the state and represents a much bigger problem with politics in New York.

First, the details of the bond feud matter a great deal in the ongoing affordability crisis in NYC. For decades, federal bonds (worth about $900m in 2014 and $700m in 2015) have been dolled out from New York State to New York City with little state interjection. These funds are tax-exempt on the federal, state, and city level which makes them attractive to developers and generally follows certain guidelines ensuring the creation of affordable housing units. The city has used these bonds in about 40% of recent affordable housing projects according to the NY Times article.

However, starting last year the state has begun to withhold money, which already delayed a city plan to develop 1,200 units. This trend has continued as state officials have been quietly informing city officials and developers over the last month that the city will no longer receive the same levels of money.  The funds that the city will get will now be micro-managed by the state through the Empire State Development Corporation and Public Authorities Control Board.  City officials and developers appear to be confused about why this change has occurred and are uncertain about how it will affect developments that have been approved or are close to construction. 

The Governor has downplayed the changes stating that they are intended to "supplement" rather than "supplant" the city's plan but so far has not made any of his own $20b housing plan's details public (he is expected to do so in April.) Given that Mayor de Blasio has made affordable housing a signature policy focus, these changes in funding options clearly put his housing plan at risk and the timing of the announcement has certainly raised eye-brows across the city and state.

The big question is if the money will still eventually be allotted to the same projects with the same goals that the Mayor has laid out.  If that is the end result, it will be hard not to view the move as a petty power grab by the Governor.  If, on the other hand, the Governor's housing plan is radically different than the Mayor's then it would be easier to claim that it represents a new policy focus, but could still have severe consequences for current projects. Either way, it is very public rebuff of the Mayor's agenda and throws many affordable housing projects up in the air.

Though some of the feud between the Mayor and the Governor might be chalked up to personality clashes or political differences, the reality is that this dynamic has been common in New York state politics for decades and speaks to a larger issue of political disfunction. The main culprits for this dynamic are New York State's unique history and geography.

New York State counties by geography and relative population size (maps4office)

New York State counties by geography and relative population size (maps4office)

The modern state border of New York evolved through a series of (still contested) treaties with the Iroquois Confederacy before and after The French and Indian War and the British after the Revolutionary War but also through equally contested agreements with Connecticut, Massachusetts, Pennsylvania and New Jersey. This has created a widely varied geographical entity with little practical cohesion.  In 1797, Albany was chosen as the permanent capital city because it was central enough for state legislators to travel to and it didn't overly bias the state's business towards the dominance of New York, which by 1835 became the largest city in the country. This tension defines the state to this day.

As a result of its geography, New York State is better viewed as two distinct sub-states which are referred to as "upstate" and "downstate".  The definitions are debated, but generally Upstate New York is considered everything north and east of Westchester County and made up of smaller cities and rural communities while downstate consists of the metropolitan region of New York including Westchester and Long Island.  Out of 19.7 million state residents, 63% live downstate with 40% living in NYC. 

Politically, upstate has generally been more conservative than the downstate metropolitan region but the population difference has made New York an uncontested blue state, voting Democratic in every presidential election since 1988.  However, at the state level, given the structure of the State Senate, Republicans have held power almost exclusively since WWII, balancing out the large population difference between upstate and downstate.

This creates a unique political dynamic that some have even argued should be formally separated. That's not going to happen, but it shows just how different the two sub-states are in reality.  It also explains the different constituencies that a mayor and governor have to play to.  Even though Governor Cuomo and Mayor de Blasio are both Democrats, and both broadly agree on many issues, they have to navigate vastly different political territory and interests. 

This is absolutely true of any governor/mayor relationship, but the size of New York City and its importance both nationally and internationally create different perceptions of the two offices. With the potential exception of Illinois/Chicago, no other state has a situation where the mayor of its major city is better known than its governor. That can create some bruised egos.

Further complicating the relationship is the fact that, though the mayor of New York City is generally higher profile, in reality the governor has significantly more power over the city.  Whether its tax policy, economic development funds, the MTA, the Port Authority, or housing laws the Governor controls much of New York City from Albany.  This creates a lot of tension between the offices, especially when they are held by the same party - whether it was Mayor Lindsay-Governor Rockefeller in the early 1970s, Mayor Koch-Governor (Mario) Cuomo in the 1980s, or Mayor Bloomberg-Governor Pataki in the 2000s.  If you're the mayor and the governor is the same party, you almost have to expect more opposition given the structure of power in Albany.

The upstate/downstate divide isn't just about political personalities clashing for headlines.  It has a major impact on policy decisions because it warps voter representation and turnout.

I've already mentioned how the population tilt makes it a safe blue state nationally for Democrats while the balance of power in the State Senate has been dominated by Republicans since WWII because of redistricting.  This balance is a false and dangerous one perpetuated by both parties.  Senate districts have overrepresented upstate while Assembly districts have overrepresented downstate making sure the status quo remains intact. This has resulted in stunning corruption across the state and has frozen the political discourse.

Senate Districts (latfor)

Senate Districts (latfor)

It has also caused historically low turnout.  In Governor Cuomo's re-election in 2014 (33%) and Mayor de Blasio's election in 2013 (28%) the state and city experienced their lowest turnout on record. Some of the low turnout in those elections can be explained by the lack of a real contest.  For Mayor de Blasio, winning the primary assured a sweeping victory in the general election. Governor Cuomo had a closer race, but was excepted to sail to victory and did.  

A more troubling explanation could be voter disillusionment.  It's not hard to become cynical when Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver (two of the "Big 3" in state politics for a long time) were both found guilty of corruption while scores of other state officials have also been charged and convicted.  Voters don't have much faith in state politics and have turned away in New York State and beyond, which is surely fine with varied interests that benefit from the status quo. When voters aren't paying attention, a lot of deals can be made that they wouldn't like regardless of their political persuasion. 

It is natural and even healthy for tension to exist among elected officials.  Though much of the mayor-governor clashes in New York have been ego driven, some are based on policy and vision, which is how any healthy democracy should operate. The fact that the current dynamic between the Mayor and the Governor potentially distracts the media and voters from the larger issues of fair representation, transparency, and accountability at the state level is dangerous, however.  We can already see how the feud impacts affordable housing policy.  

 The ongoing calls to reform Albany must be repeated by the media to reach voters currently sitting out the process.  Only when more voters reenter the political discussion will we see the types of ethics reforms and policy changes that the state, whether up or down, needs.   

One Big Problem with Mayor De Blasio's Housing Plan Isn't Even His Fault

Deputy Mayor Alicia Glen (center) City Planning Director Carl Weisbrod (far left) and Housing Preservation and Development Commissioner Vicki Been (near right) testify before City Council (newyorknimby)

Deputy Mayor Alicia Glen (center) City Planning Director Carl Weisbrod (far left) and Housing Preservation and Development Commissioner Vicki Been (near right) testify before City Council (newyorknimby)

Over the last two days, top officials in the De Blasio administration have been testifying before the NYC City Council about the mayor's proposals to increase affordable housing in the city through changes in zoning laws.  The Mayor has promised to construct or protect 200,000 affordable housing units over the next ten years but has faced some political opposition from tenants groups, unions, and elected officials who argue that the proposals will only encourage more gentrification and high-end development while failing to meet the mayor's goals or the city's needs.

The two programs under review by the City Council, which were approved by the City Planning Commission last week, include the Mandatory Inclusionary Housing (MIH) and Zoning for Quality and Affordability (ZQA) programs.

There are two big policy proposals in MIH that would break with the current orthodoxy - setting aside affordable housing units in new developments would be mandatory and those units would be permanently affordable. As it is now, setting aside affordable units is voluntary (part of a FAR bonus program for 20% affordable units) and those units have a defined 'sunset' where they return to market rate (35 years has been the standard).  These developers would be eligible for subsidies from the city and state.

The ZQA begins to touch on some points that I made in an earlier blog about zoning with proposals to encourage affordable housing by relaxing some zoning requirements for specific types of housing (including elderly housing) and incorporating the MIH proposals into the zoning code.  There are also proposals to encourage better street-level design and pedestrian experience (even bankers hate all the bank branches in Manhattan). 

At least it's not a bank. (NYC DCP)

At least it's not a bank. (NYC DCP)

What defines 'affordable' is usually where programs like these run into controversy, which presumably explains a lot of the protests occurring during and around the hearing. Inclusionary housing policies in the city base their definition of affordable on two factors - the income threshold to be eligible and a cap of rent-to-income percentage. Generally, as is the case with the highly controversial 421a tax exemption state law, the income level is set at 60% of the Average Median Income of the NYC region according to the US Census.  The cap on rent has generally been 30% of monthly income. 

The key point about AMI here is that it is based on the NYC region (which includes Westchester and Long Island) and not just the city's five boroughs. So for the purpose of policy creation, the AMI is $86,300.  However, the AMI of just the city is actually $50,700.  The AMI calculations are set by the US Department of Housing and Urban Development (HUD) and are obviously grossly unreflective of the nature of income in the city.

There are many people who have beef with this calculation, including Congressman Jose Serrano from the Bronx 15th District.  This number egregiously distorts policy decisions and their impact on New Yorkers who are rent burdened across the entire city, but it particularly impacts low-income families concentrated in poorer parts of the city.

Mayor De Blasio is obviously aware of this (probably has beef with it too) and has outlined for developers to set aside 25% of units for residents with 60% of AMI or 30% of units for 80% of AMI among other options. However, this can't change the fact that the baseline numbers increase the cost of subsidies to the city while limiting the scope of units available to the New Yorkers most in need of assistance.

That's a point that bears repeating.  The distorted AMI number masks the true needs of New Yorkers but it also totally ignores where those New Yorkers live - and where they need assistance.  The AMI in Manhattan is a lot different than the Bronx, for example, but that won't mean development is going to the Bronx because it's needed there.  According to an awesome report from the Furman Center,  the city's current inclusionary housing program and all of its associated subsidizes only work in developments that are located in higher-rent neighborhoods to begin with.  You might have heard of the "Poor Door" controversy where residents of high-end luxury buildings don't want to share entrances with the "20%" low-income residents.  

The policy of removing a small fraction of poor residents from a neighborhood to live in subsidized housing in a wealthy neighborhood has long been a divisive political issue in urban politics. (Here's an interesting study from Johns Hopkins on it).  I think the premise is flawed to begin with, since it relies on private developers to create new housing in areas that are economically viable and can guarantee an acceptable return. By this definition the only way new, subsidized affordable development will reach poor residents where they live is when their neighborhood becomes attractive enough to developers to build.

Trying to squeeze developers for a small fraction of affordable units in a select amount of hot neighborhoods based on faulty calculations doesn't solve the housing problem and costs the city a lot in subsidies. Though Mayor De Blasio's plan has a number of good ideas and a lot of buy-in from various stakeholders, it still relies on a premise that hasn't proven to work.

There are alternatives that could be explored.   Reintroduce SROS.  Explore Community Land Trusts.  Or encourage local neighborhood groups that provide economic justice in underserved areas.  Some of these, and many others, can surely work in NYC.  It won't be one mayor or one plan or one idea that changes the game for affordable housing, but we need to encourage policy makers to consider every option.  It would also help if policy makers use the most accurate data for us to work with.