New York City Housing Follies, 2023 Edition
/Mostly I write about energy policy; but another important topic for this blog is housing policy, particular as practiced here in my home town of New York. For reasons that might not be immediately obvious, these topics of energy and housing policy are closely related. Both involve ignorant politicians promising to supplant the imperfect freedom-based economic system and achieve utopia by using their coercive powers to order that it shall be so. Yet somehow, utopia continues to elude us, and the government mandates only make things worse. And no lessons are ever learned.
Today’s topic is the latest in New York housing policy, and its inevitable consequences. Currently, both houses of our State Legislature, as well as the Governorship, are in the hands of the progressive wing of the Democratic Party. We have a rent regulation regime that dates all the way back to World War II (with many modifications along the way), and a resulting situation that is universally described as a “housing shortage.” Available apartments are scarce and expensive. Small amounts of new housing are built annually, but largely for a small slice of the market at the very top.
To our reigning politicians, the solution is obvious: order that rents be restricted and that the housing that gets built be made “affordable” and allocated by government lotteries to income-restricted beneficiaries. How are these policies working out?
Consider first the restrictions on rent levels. From the 1970s to 90s, we had an extremely tight rent-regulation regime, where landlords had almost no ability to raise rents, even in times of high inflation and even on apartments that had been vacated. The number of new apartments built during this time was barely above zero. In the 90s, a Republican-controlled State Senate and a Republican Governor were able to achieve a number of significant loosenings of the restrictions, the most important of which were: (1) on vacancy, a landlord could raise the rent 20% as of right, (2) if a landlord did what were called “major capital improvements” on the apartment, he could increase the allowed rent to recover the amount invested over 15 years, and (3) if the allowed rent went above $2500 as a result of (1) and (2), then the apartment was removed from the control system entirely. All these regulations made for a very cumbersome system, but nevertheless led to the rate of new construction multiplying by around a factor of seven.
In the 2018 election, the progressive Democrats were able to re-take full control of the Legislature and the Governorship for the first time in decades. One of their first priorities (along with “climate” legislation) was to get rid of the 1990s rent regulation reforms, particularly items (1), (2) and (3) of the previous paragraph. In June 2019 they passed an act called the Housing Stability & Tenant Protection Act of 2019. The 20% vacancy allowance was eliminated. The “major capital improvement” recovery was restricted to a fraction of what it previously was, and with a cap of $15,000 for any apartment. The “luxury decontrol” provision was eliminated. That’ll show those evil landlords!
By the summer of 2022, some preliminary results were in. A local newspaper for the real estate industry called The Real Deal had a piece on July 5 with the headline “In housing-starved NYC, tens of thousands of affordable apartments sit empty.” Excerpt:
[Thousands] of rent-stabilized apartments . . . now sit unoccupied and unavailable in a city desperately in need of low-cost housing. . . . The Housing Stability and Tenant Protection Act, a sweeping rent reform passed by the state Legislature in 2019, dramatically limited landlords’ ability to increase rents on stabilized apartments. The measure ended the vacancy bonus that had allowed owners to raise rents 20 percent when stabilized units became unoccupied. It also reduced to $15,000 over 15 years the renovation costs that landlords can recover by hiking rents.
How many apartments now sit vacant as a result of these restrictions?
In April, CHIP [Community Housing Improvement Program, a landlord trade organization] launched a campaign to call attention to the city’s unrentable housing stock. The group estimated that 20,000 rent-stabilized apartments in the city were empty because renovations were not economically feasible. In May, the city’s Department of Housing Preservation and Development released a more staggering number: nearly 43,000 vacant but unavailable units.
To show how the incentives have been undermined, the Real Deal interviews a small landlord named David Eshaghoff:
Eshaghoff’s empty apartments — about a dozen of his 200-unit portfolio — need repairs. Collapsing ceilings, disintegrating plumbing and shoddy electrical work render them uninhabitable. But he said that because of New York’s [2019] rent law, there is no economic rationale to fix them — even if he could afford to.
But don’t worry — New York’s politicians think they have the answer to where the additional low-cost apartments are going to come from. They’re going to order them to be built.
On December 8 Mayor Adams announced what he called his “moonshot” program, with a “bold three-pronged strategy,” to get some 500,000 new apartments built. The program does include some useful items, like permitting reform, but nothing to get rid of the legislature’s destructive new rent restrictions, nor anything to rein in the ability of local politicians, particularly City Council members, to hold projects ransom for their own extortionate demands.
So consider this next piece from The Real Deal, with a date of January 5, headline “Pol who sank Harlem housing project rallies against truck lot on property.” It seems that a developer named Bruce Teitelbaum controls a largely-vacant property at 145th Street and Lenox Avenue — right on top of a major subway station. He proposed to build a two-tower project on the property, containing over 900 apartments. In accordance with official New York religion, he proposed to make half of the apartments “affordable,” aka subject to income and rent-level restrictions:
The developer had offered to set aside half of the proposed complex’s 917 apartments as affordable to win Richardson Jordan’s support for the project — a vital prerequisite under the City Council’s tradition of deferring to the local member on land-use issues in a given district.
But the local City Council member, Kristin Richardson Jordan, objected, demanding that 100% of the apartments be made “affordable”:
Richardson Jordan . . . argued that the units would not be sufficiently affordable for her constituents and said she would not budge unless 100 percent of the units were income-restricted.
Result: Teitelbaum has decided to make the site into a truck parking lot instead, which he can do as of right under existing zoning. The Real Deal quotes him as follows:
“[Richardson Jordan] explicitly said that she actually preferred us to develop the site for parking, storage or our other as-of-right permissible uses, unless we built 100 percent of the apartments for folks earning an average of about $40,000 or less which she knew was impossible,” Teitelbaum said in a statement, going on to accuse the Council member of “trying to create a false narrative to justify her failure.” “We never had another choice,” Teitelbaum added.
I wouldn’t count on seeing Adams’s 500,000 units of new housing any time soon.