I was interviewed by Indira Stewart on the TVNZ Breakfast show, the biggest morning news show in New Zealand, about New York City’s system of rent regulation (I serve as the Chair of the NYC Rent Guidelines Board). You can find the interview here.
Students in my Community Development Clinic and I have a column in the New York Law Journal, Small Business Jobs Survival Act May Have Opposite Effect. It reads,
The New York City Council is considering a bill, the Small Business Jobs Survival Act, that it claims will protect small businesses even though the Act contains no protections tailored to them. Instead, the Act would implement a new lease renewal arbitration system that treats all commercial tenancies the same, allowing businesses as large as Amazon to benefit.
The Act would create a bureaucratic process that works contrary to its stated goals. The Act is meant to “create a fair negotiating environment, which would result in more reasonable and fair lease terms to help small businesses survive and encourage job retention and growth.” The Act actually creates a system under which big businesses will benefit the most. Furthermore, the process is overly complex for mom and pop businesses owners who are not familiar with the legal system. To avoid exacerbating the advantages that big businesses currently enjoy in the rental market, the City should consider policy alternatives that are tailored to the needs of small businesses.
Although the Act is supposed to protect small businesses, it does not define what a small business is. By not distinguishing between big and small tenants, the Act gives businesses of all sizes the same rights to negotiate a lease renewal. For large businesses like Amazon with an in-house legal department, the new system is business as usual. Amazon does not need to worry about additional costs to negotiate a lease renewal. For mom and pop business owners, the system starts to feel like a tax simply to stay in business because they will need to increase their costs relative to big businesses.
The Act’s arbitration provision sets forth about a dozen factors that an arbitrator must consider when setting the rent. Those factors can then be supplemented by “all other relevant factors.” Such a complex and vague standard will lead to inconsistent and unpredictable results. Two arbitrators determining rents for similar businesses located near each other are likely to arrive at different rents for these businesses because of the broad set of criteria they can consider. Additionally, an arbitrator’s decision would be final and non-reviewable.
The City’s property tax system offers a cautionary tale. The system is complex, many of its decisions are unreviewable, and its results are arbitrary and unfair. One consequence has been that property owners in wealthier neighborhoods often pay lower property taxes than those in less affluent neighborhoods, a state of affairs leading to a high-profile lawsuit and a Mayoral push to reconsider the entire system.
In addition to a costly process, the proposed lease renewal system is not easily navigable for mom and pop business owners. These mom and pop shops would face a new world of legal processes not familiar to them and that have nothing to do with their businesses. The Act almost requires that small commercial tenants hire lawyers to guide them through a system that might begin to feel like the soul-crushing New York City Housing Court, where tenants and landlords spend countless hours and often obtain results as perplexing as the problems that brought them there in the first place. Unrepresented tenants, in particular, face steep odds against the confusing and impersonal system. They are often unaware of their rights and how the system works, leading to temporary relief that does not do much more than postpone the date of their eviction. If the Act is enacted, small business tenants who either can’t or don’t hire lawyers would face as many, if not more, obstacles than they do in the current system.
Given that the Act in its current form does not serve its intended goals, the City should consider policy alternatives like formula business restrictions, which may be a more effective way of targeting and protecting small businesses. The formula business restriction serves to prevent retail and fast food chains from operating in particular neighborhoods in order to protect their social fabric. These restrictions aim to protect the unique character of city neighborhoods that have yet to feel the full effects of gentrification and mall-ification. These restrictions will incentivize leasing to new small businesses while protecting existing ones that are at risk of losing their space to commercial chains.
Companies like Amazon should not be the principal beneficiaries of a “Small Business Jobs Survival Act.” Rather, the City should focus on targeted approaches like formula business restrictions that assist new and existing small businesses more directly.
David Reiss is a Professor at Brooklyn Law School, the director of the Community Development Clinic and the research director of the Center for Urban Business Entrepreneurship. Areeb Been Khan, Robert Levy and Juliana Malandro are legal interns in the Brooklyn Law School Community Development Clinic. They were recently invited to testify at a New York City Council hearing regarding the Small Business Jobs Survival Act.
Christopher Herbert et al. has posted Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion. It opens,
Efforts to enable greater integration of communities by socioeconomic status and race/ethnicity have to confront the issue of housing affordability. Cities, towns and neighborhoods that offer access to better public services, transportation networks, shopping, recreational opportunities, parks and other natural amenities have higher housing costs. Expanding access to these communities for those with lower incomes and wealth necessarily entails some means of bringing housing in these areas within their financial reach. While households’ financial means are central to this issue, affordability intersects with race/ethnicity in part because minorities are more likely to be financially constrained. But to the extent that these areas are also disproportionately home to majority-white populations, discrimination and other barriers to racial/ethnic integration must also be confronted along with affordability barriers.
Enabling greater integration also entails some means of fostering residential stability by maintaining affordability in the face of changing neighborhood conditions. This issue is perhaps most salient in the context of neighborhoods that are experiencing gentrification, where historically low-income communities are experiencing rising rents and house values, increasing the risk of displacement of existing residents and blocking access to newcomers with less means. More generally, increases in housing costs in middle- and upper-income communities may also contribute to increasing segregation by putting these areas further out of reach of households with more modest means.
It is common to think of subsidized rental housing as the principal means of using public resources to expand access to higher-cost neighborhoods and to maintain affordability in areas of increasing demand. But for a host of reasons, policies that help to make homeownership more affordable and accessible should be included as part of a portfolio of approaches designed to achieve these goals.
For example, survey research consistently finds that homeownership remains an important aspiration of most renters, including large majorities of low- and moderate-income households and racial/ethnic minorities. Moreover, because owner-occupied homes account for substantial majorities of the existing housing stock in low-poverty and majority-white neighborhoods, expanding access to homeownership offers the potential to foster integration and to increase access to opportunity for low- income households and households of color. There is also solid evidence that homeownership remains an important means of accruing wealth, which in turn can help expand access to higher-cost communities. Owning a home is associated with greater residential stability, in part because it provides protection from rent inflation, which can help maintain integration in the face of rising housing costs. Finally, in communities where owner-occupied housing predominates, there may be less opposition to expanding affordable housing options for homeowners.
The goal of this paper is to identify means of structuring subsidies and other public interventions intended to expand access to homeownership with an eye towards fostering greater socioeconomic and racial/ethnic integration. (1-2, footnotes omitted)
The paper gives an overview of the barriers to increasing the homeownership rate, including affordability, access to credit and information deficits and then outlines policy options to increase homeownership. The paper provides a good overview for those who want to know more about this topic.
Lee Anne Fennell and Benjamin Keys have posted the Introduction to their new book, Evidence and Innovation in Housing Law and Policy, to SSRN. It opens,
No area of law and policy presents more important and pressing questions, or ones more central to human well-being, than that of housing. Yet academic discourse around housing is too often siloed into separate topical areas and disciplinary approaches, while remaining distanced from the contentious housing policy debates unfolding in communities across the nation. In June 2016, the Kreisman Initiative on Housing Law and Policy at the University of Chicago Law School convened a conference in downtown Chicago with the goal of breaking down these barriers and forging new connections – between different facets of housing law and policy, between different disciplinary approaches to housing issues, between academic inquiry and applied policy, and between the lessons of the past and adaptations for the future.
This volume is the product of that conference and the dialogue it provoked among academics, practitioners, and policy makers. Its baker’s dozen of contributions comprises cutting-edge interdisciplinary work on housing and housing finance from leading scholars in law, economics, and policy. The pieces individually and collectively showcase how research and policy can come together in the housing arena. We hope the end result will have lasting relevance in setting the course – and identifying the obstacles – for housing law and policy going forward.
This book is organized around two interlocking roles that housing serves: as a vehicle for building community, and as a vehicle for building wealth. These facets of housing carry implications both for the households who consume residential services and for the larger economic, political, and spatial domains in which housing plays such a primary and contentious role. Cumulatively, the pieces here confront, and respond innovatively to, the dilemmas that these two facets of housing create for law and policy at different scales of analysis. (1)
This collection of papers brings together an all-star cast of housing nerds. While the papers are an eclectic mix, they are pretty consistent in that they ask important questions about housing policy. Even better, the Introduction contains links to open access versions of each paper. They are listed below:
Part I – Housing and the Metropolis: Law and Policy Perspectives
1 – The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day By William A. Fischel
2 – How Land Use Law Impedes Transportation Innovation By David Schleicher
3 – The Unassailable Case against Affordable Housing Mandates By Richard A. Epstein
Part II – Housing as Community: Stability, Change, and Perceptions
4 – Balancing the Costs and Benefits of Historic Preservation By Ingrid Gould Ellen & Brian J. McCabe
5 – Historic Preservation and Its Even Less Authentic Alternative By Lior Jacob Strahilevitz
6 – Losing My Religion: Church Condo Conversions and Neighborhood Change By Georgette Chapman Phillips
7 – How Housing Dynamics Shape Neighborhood Perceptions By Matthew Desmond
Part III – Housing as Wealth Building: Consumers and Housing Finance
8 – Behavioral Leasing: Renter Equity as an Intermediate Housing Form By Stephanie M. Stern
9 – Housing, Mortgages, and Retirement By Christopher J. Mayer
10 – The Rise and (Potential) Fall of Disparate Impact Lending Litigation By Ian Ayres, Gary Klein, & Jeffrey West
Part IV – Housing and the Financial System: Risks and Returns
11 – Household Debt and Defaults from 2000 to 2010: The Credit Supply View By Atif Mian & Amir Sufi
12 – Representations and Warranties: Why They Did Not Stop the Crisis By Patricia A. McCoy & Susan Wachter
13 – When the Invisible Hand Isn’t a Firm Hand: Disciplining Markets That Won’t Discipline Themselves By Raphael W. Bostic & Anthony W. Orlando
The NYC Rent Guidelines Board (of which I am a member) held a public hearing as part of its final vote on rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. My fellow board member, Hilary Botein, and I submitted the following joint statement at the hearing (also available on SSRN and BePress):
The Rent Guidelines Board determines rent increases for New York City’s 1 million rent-stabilized apartments. We must weigh the economic conditions of the residential real estate industry; current and projected cost of living; and other data made available to us. To make our decision, we reviewed reams of data and multiple analyses of those data. We also held five public hearings at which we heard hundreds of tenants speak, sing, chant, cry, and demonstrate. These hearings are among the only opportunities that tenants have to speak publicly about their housing situations, and they made clear the extremity of the housing crisis in the City, and that it will get worse without significant intervention.
Tenants who came to the RGB hearings are not a representative sample of rent-stabilized tenants in New York City. But they told us a lot about the state of housing in the City. We felt that it was incumbent on us to respond to what we heard, even where it did not relate directly to the jurisdiction of the Board.
New York City cannot expect any meaningful housing assistance from the federal government in the near term. Our observations therefore focus on state and municipal actions that could address some of the issues that regularly cropped up at our hearings.
There is a desperate need for affordable housing that is pegged to residents’ incomes. Housing is deemed “affordable” when housing costs are 30 percent of a household’s income. There is no guarantee that rent stabilized housing remain affordable to a particular household, and there is no income eligibility for rent stabilized housing. This aspect of rent regulation explains its durable political appeal, but makes it an imperfect vehicle for meeting the needs of low-income tenants.
Mayor de Blasio is protecting and developing hundreds of thousands of units of affordable housing through the Housing New York plan announced at the beginning of his term. More recently, his Administration announced a program to create 10,000 deeply affordable apartments and a new Elder Rent Assistance program. But more can be done to help low-income tenants.
The Senior Citizen Rent Increase Exemption (SCRIE) and Disability Rent Increase Exemption (DRIE) programs have proven their effectiveness in “freezing” the rents of more than 60,000 low and moderate income rent-stabilized households. The state should create and fund a similar program for low-income rent stabilized tenants who pay more than 30 percent of their incomes towards housing costs.
State laws governing rent stabilization must be amended. Three elements of the law particularly penalize low-income tenants in gentrifying neighborhoods, and were behind the most distressing tenant testimonies that we heard. They are not within the RGB’s purview, but change is critical if the law is to operate as it was intended to do. The state legislature has considered bills that would make the necessary changes. First, owners can charge tenants a “preferential” rent, which is lower than the legal registered rent for the apartment. Preferential rents are granted most often in neighborhoods where the rent that the market can bear is less than the legal rent. This sounds like a good option for both tenants and owners, and perhaps that was its original intention. But now, as neighborhoods gentrify and market rates increase, the prospect of increasing a preferential rent with little notice has become a threat to tenants’ abilities to stay in their apartments. Preferential rents should be restricted to the tenancy of a particular tenant, as was the law before a 2003 amendment. Owners would then be able to increase rents for those tenants no more than the percentages approved by the Board.
Second, owners can tack on a 20 percent “vacancy increase” every time an apartment turns over. This increase incentivizes harassment, and should be limited to situations of very long tenancies, to keep owners from actively seeking to keep tenancies short.
Third, owners making what is termed a Major Capital Improvement (MCI) – a new roof, windows, or a boiler, for example – can pass this expense on to tenants via a rent increase that continues in perpetuity, after the owner has recouped her or his expenses. We also heard allegations of sketchy capital improvement applications that were intended to increase rents without improving the conditions in the building. The state legislature should review how MCIs work in order to ensure that they are properly incentivizing landlords to invest in their buildings to the benefit of both owners and tenants.
New York City needs a repair program for broken gas lines. We heard from tenants who had not had gas in their apartments for more than a year. We understand that fixing gas lines is particularly complicated and expensive, and that gas leaks raise serious safety concerns, but it is unacceptable for families to go for more than a year without gas, and we are concerned about fire safety issues resulting from people using hot plates. The city needs to step in and make the repairs.
We have a housing crisis. Low income tenants, who live disproportionately in communities of color, experience this crisis most acutely. We will not find systemic solutions within the housing market. All solutions require a lot of money, and we cannot count on anything from the federal government. But it is imperative that our state and local governments act, or New York City’s already burgeoning shelter system will be forced to take in even more people. Since the 1970s, New York City has been a leader in committing public resources to housing its low income residents, and that legacy must continue. The Rent Guidelines Board cannot solve the housing crisis, but other arms of the New York State and City government can work together to reduce its impacts on low-income households.
The Center for Real Estate and Urban Analysis at The George Washington School of Business has released Foot Traffic Ahead: Ranking Walkable Urbanism in America’s Largest Metros for 2016. The Executive Summary opens,
The end of sprawl is in sight. The nation’s largest metropolitan areas are focusing on building walkable urban development.
For perhaps the first time in 60 years, walkable urban places (WalkUPs) in all 30 of the largest metros are gaining market share over their drivable sub-urban competition—and showing substantially higher rental premiums.
This research shows that metros with the highest levels of walkable urbanism are also the most educated and wealthy (as measured by GDP per capita)— and, surprisingly, the most socially equitable. (4)
This strikes me as a somewhat over-optimistic take on sprawl, but I certainly welcome the increase in walkable urban places over a broad swath of metropolitan areas. The report’s specific findings are that
There are 619 regionally significant, walkable urban places—referred to as WalkUPs—in the 30 largest U.S. metropolitan areas. These 30 metros represent 46 percent of the national population (145 million of the 314 million national population) and 54 percent of the national GDP.
The 30 metros are ranked on the current percentage of occupied walkable urban office, retail, and multi-family rental square feet in their WalkUPs, compared to the balance of occupied square footage in the metro area. The six metros with the most walkable urban space in WalkUPs are, in rank order, New York City, Washington, DC, Boston, Chicago, San Francisco, and Seattle.
Economic Performance: There are substantial and growing rental rate premiums for walkable urban office (90 percent), retail (71 percent), and rental multi-family (66 percent) over drivable sub-urban products. Combined, these three product types have a 74 percent rental premium over drivable sub-urban.
Walkable urban market share growth in office and multi-family rental has increased in all 30 of the largest metros between 2010-2015, while drivable sub-urban locations have lost market share. The market share growth for 27 of the 30 metros is two times their market share in 2010. This is of the same or greater magnitude as the market share gains of drivable sub-urban development during its boom years in the 1980s, but in the reverse direction.
Indicators of potential future WalkUP performance show that many of the metros ranked highest for current walkable urbanism are also found at the top of our Development Momentum Ranking—namely, the metros of New York City, Boston, Seattle, and Washington, DC. This indicates that these metros will continue to build on their already high WalkUP market shares and rent premiums.
There are also some surprising metros in this top tier of Development Momentum rankings, including Detroit, Phoenix, and Los Angeles.
The most walkable urban metro areas have a substantially greater educated workforce, as measured by college graduates over 25 years of age, and substantially higher GDP per capita. These relationships are correlations, and determining the causal relationships requires further research to prove.
Walkable urban development describes trends resulting from both revitalization of the central city and urbanization of the suburbs. For nearly all metros, the future urbanization of the suburbs holds the greatest opportunity; metro Washington, DC, serves as a model, splitting its WalkUPs relatively evenly between its central city (53 percent) and its suburbs (47 percent).
Social Equity Performance: The national concern about social equity has been exacerbated by the very rent premiums highlighted above, referred to as gentrification. Counter-intuitively, measurement of moderate-income household (80 percent of AMI) spending on housing and transportation, as well as access to employment, shows that the most walkable urban metros are also the most socially equitable. The reason for this is that low cost transportation costs and better access to employment offset the higher costs of housing. This finding underscores for the need for continued, and aggressive, development of attainable housing solutions. (4, footnote omitted)
There is a lot of import here. Is there more than a correlation between walkability and the educational level of the workforce and, if so, why? Why don’t more housing affordability studies take into account transportation costs when evaluating the affordability of a given community? What is the trend line of this new direction toward urbanism and how far can it go in the face of decades of investment in car-based communities? This annual study will help us answer those questions, over time.
The NYU Furman Center released its annual State of New York City’s Housing and Neighborhoods (2015). This year’s report focused on gentrification:
“Gentrification” has become the accepted term to describe neighborhoods that start off predominantly occupied by households of relatively low socioeconomic status, and then experience an inflow of higher socioeconomic status households. The British sociologist Ruth Glass coined the term in 1964 to describe changes she encountered in formerly working-class London neighborhoods, and sociologists first began applying the term to New York City (and elsewhere) in the 1970s. Since entering the mainstream lexicon, the word “gentrification” is applied broadly and interchangeably to describe a range of neighborhood changes, including rising incomes, changing racial composition, shifting commercial activity, and displacement of original residents. (4)
The reports main findings are
- While rents only increased modestly in the 1990s, they rose everywhere in the 2000s, most rapidly in the low-income neighborhoods surrounding central Manhattan.
- Most neighborhoods in New York City regained the population they lost during the 1970s and 1980s, while the population in the average gentrifying neighborhood in 2010 was still 16 percent below its 1970 level.
- One third of the housing units added in New York City from 2000 to 2010 were added in the city’s 15 gentrifying neighborhoods despite their accounting for only 26 percent of the city’s population.
- Gentrifying neighborhoods experienced the fastest growth citywide in the number of college graduates, young adults, childless families, non-family households, and white residents between 1990 and 2010-2014. They saw increases in average household income while most other neighborhoods did not.
- Rent burden has increased for households citywide since 2000, but particularly for low- and moderate-income households in gentrifying and non-gentrifying neighborhoods.
- The share of recently available rental units affordable to low-income households declined sharply in gentrifying neighborhoods between 2000 and 2010-2014.
- There was considerable variation among the SBAs [sub-borough areas] classified as gentrifying neighborhoods; for example, among the SBAs classified as gentrifying, the change in average household income between 2000 and 2010-2014 ranged from a decrease of 16 percent to an increase of 41 percent. (4)
The report provides a lot of facts for debates about gentrification that often reflect predetermined ideological viewpoints. The fact that jumped out to me was that a greater percentage of low-income households in non-gentrifying neighborhoods were rent burdened than in gentrifying neighborhoods. (14-15)
This highlights the fact that we face a very big supply problem in the NYC housing market — we need to build a lot more housing if we are going to make a serious dent in this problem. The De Blasio Administration is on board with this — the City Council needs to get on board too.
Lots more of interest in the Furman report — worth curling up with it on a rainy afternoon.