The news that a New York city luxury housing development has carved out a separate entrance (a “poor door”) for its affordable housing units has sparked outrage. The reason for this “poor door” is pretty straightforward. It is a byproduct of “inclusionary zoning” policies that New York and other cities have pursued in recent years to increase the supply of affordable housing. The idea behind the strategy is that when a city government upzones land, i.e., allows landowners to develop more housing units on a given stretch of property, it increases the value of land; in exchange for doing so, city governments will ask developers to do something that is beneficial for the city as a whole, like build affordable housing units. Josh Barro has explained why it makes more sense to simply charge developers a substantial for taking advantage of an upzoning, as cash can be used to achieve many different public policy goals, including making housing more affordable. The “poor door” is a byproduct of the insistence that developers should pay for the privilege of developing her land not by giving the city more resources, but rather by assigning affordable housing units to a small number of people fortunate enough to win a lottery. Moreover, a separate entrance will make it easier for the developer to eventually allow some other entity (a non-profit, for example) to manage these affordable housing units at some point in the future.
The encouraging news is that a gaggle of writers have used the “poor door” as an excuse to talk about what’s really wrong with urban housing markets. Matt Yglesias, the most active proponent of the view that development restrictions are harmful to poor and rich alike on the left, has weighed in. So has Stephen L. Carter, the politically moderate Yale Law Professor, who makes a broadly similar argument Bloomberg View. And in a recent New York Post column, Steve Malanga of the conservative Manhattan Institute also makes the case against excessive local land-use regulation that limits housing supply, this time in a broader indictment of how New York city’s government burdens low- and middle-income families:
A 2005 NYU study found a host of government policies that drive construction prices higher in New York than in any other city in America (San Francisco was second).
For starters, city agencies responsible for overseeing and regulating building are often openly hostile to new construction.
Even experienced builders typically must employ well-paid “expediters” to move projects through the city’s foot-dragging approval process, adding an average cost of about $200,000 per building.
Taxes and fees tied specifically to development — many of them rare in other cities — also contribute to Gotham’s sky-high building costs. And it’s not just a Manhattan problem.
According to the NYU study, the cost of erecting a 15-story, multi-unit apartment building in The Bronx was nearly $20 higher for every square foot than in Chicago, $26 more than in Los Angeles and a whopping $55 higher than in Dallas
Needless to say, such expenses push up rental rates in the city’s unregulated apartments. The average asking price for an unregulated apartment here is $3,000 a month — nearly three times the national average.
Unfortunately, an emerging consensus among wonks will mean nothing unless policymakers find some way to spread the benefits of housing development to the incumbent homeowners who profit most from development restrictions. That is why David Schleicher’s TILTs – tax increment local transfers — proposal deserves more attention:
TILTs, or tax increment local transfers, would take this logic to land use politics. If a community board or city council person votes “yes” on a new zoning amendment that increased the space under the zoning envelope, residents inside their district would get a percentage of the “tax increment” created by the newly developable property for a number of years. The tax increment is just the new taxes generated by the increased property value — the new value times the tax rate.
This is just a bribe to local landowners to stop protesting development so much. Notably, though, it is very different from our current system of buying land owners, which has developers signing “community benefits agreements” or paying impact fees. Those end up serving like taxes on development, increasing the cost of housing. TILTs would be payments from the general treasury to those harmed by new development, a “deal” between those who have little incentive to care about an individual project because they each get only a little benefit (that is, all city residents and particularly housing consumers) and those who care too much (local landowners.)
Elsewhere, there has been a lively discussion, prompted by the work of economists Enrico Moretti and Chang-Tai Hsieh, of how development restrictions in high-productivity cities like New York and San Francisco are limiting wage and productivity growth for all Americans. Emily Badger of the Washington Post and Tim Lee of Vox have both offered detailed summaries of Moretti and Hsieh’s new working paper. Lee writes:
How much does this cost the economy? A new study by economists Chang-Tai Hsieh and Enrico Moretti tries to figure that out. They imagine a world where the housing markets in America’s most productive cities became more elastic, meaning that increasing demand led to more construction rather than higher rents.
If housing wasn’t so expensive in coastal cities, a lot more people would move to New York, Washington, Boston, Seattle, and the San Francisco Bay Area. The data suggests that — even after controlling for factors such as education — workers in these cities are more productive than in other metropolitan areas. The study doesn’t try to explain these productivity differences, but possible explanations include better infrastructure, opportunities to learn new skills, and a culture that encourages entrepreneurship.
Hsieh and Moretti estimate that moving American workers to higher-productivity cities could increase the income of Americans by a stunning amount: more than $1 trillion. That amounts to a raise of several thousand dollars for every American worker.
The rising visibility of the issue might, at the margin, help weaken the political case for development restrictions, though I still tend to think that Schleicher-style bribery is the more reliable way to go.