Micro Apartments and The Housing Crisis

photo by BalazsGlodi

The NYU Furman Center has posted 21st Century SROs: Can Small Housing Units Help Meet the Need for Affordable Housing in New York City? The policy brief opens,

Throughout much of the last century, single-room occupancy (SRO) housing was a commonly available type of low-rent housing in New York City, providing housing to people newly arrived in the city, low-income single New Yorkers, and people needing somewhere to live during life transitions. SRO units typically consisted of a private room with access to full bathroom and kitchen facilities that a renter shared with other building occupants. As the city fell onto hard times, so did SRO housing. During the second half of the last century, many SROs came to serve as housing of last resort, and policymakers enacted laws limiting their construction and discouraging the operation of SRO units. Many SROs were converted to other forms of housing, resulting in the loss of thousands of low-rent units in the city.

New research and analysis from the NYU Furman Center addresses the question of whether small housing units (self-contained micro units and efficiency units with shared facilities) can and should help meet the housing need previously served by SROs. In this policy brief, we present a summary of the paper, 21st Century SROs: Can Small Housing Units Help Meet the Need for Affordable Housing in New York City? We provide an overview of the potential demand for smaller, cheaper units, discuss the economics of building small units, analyze the main barriers to the creation of small units that exist in New York City, and suggest possible reforms that New York City can make to address these barriers. (1)

The policy brief makes a series of recommendations, including

  • reducing density limitations for micro units near transit hubs
  • permitting mixed-income and market-rate efficiency units
  • creating a government small unit program to promote the construction of micro apartments

There is no doubt that the lack of supply is a key driver of the affordable housing crisis across the country. Small units should be part of the response to that crisis, not just in New York City but in all high-cost cities.

Eminent Domain and Trump’s Wall

photo by Sandeesledmere

Sucamore Gap on Hadrian’s Wall

Mashable quoted me in Sorry, Cards Against Humanity Can’t Stop Trump’s Wall. It opens,

As much as we may want to believe it, a card game company probably can’t save our country.

This week, owners of the irreverent (and kind of obnoxious, imo) Cards Against Humanity game unveiled their annual PR stunt and it has higher aspirations than last year’s pointless hole.

As part of the Cards Against Humanity Saves America campaign, it announced the purchase of “acres of land” on the U.S.-Mexico border and promised not to build a wall on it.

Going further, the company said that it had retained the services of legal representation specializing in property rights, “to make it as time-consuming and expensive as possible for the wall to get built.”

Sounds good, right? Guess there won’t be a wall!

Not so fast, patriots.

The government has a big ace up its sleeve when it comes to taking land from property owners. It’s called “eminent domain” and it’s right there in the constitution’s Fifth Amendment, below the part that people always talk about on lawyer shows. The Fifth Amendment states the government can’t take “private property be taken for public use, without just compensation.”

But it can still take land for public use, and it almost always does.

Government is mightier than the card game

The several law professors we talked to all came to the same forgone conclusion: the government will ultimately take that land from Cards Against Humanity.

“The power of eminent domain is considered to be a fundamental power of any government to use,” Professor of Law David Reiss at Brooklyn Law school said. And in this case, given the limited facts that were available to him, “ultimately the government would succeed.”

Over the past several decades, the judicial definition of eminent domain has expanded broadly. Historically, governmental use of eminent domain would fall under the umbrella of public use by using the acquired land to build a road or build a hospital. That’s changed in recent years, as the blanket phrase of “public use” has been used in eminent domain cases to include razing blighted urban areas or if the land could be seen as encouraging economic development.

Richard Epstein, Professor of Law at NYU, emphatically agreed that Cards Against Humanity would not stand much of a chance. Legally speaking, he saw, “the wall [will be seen] as a public good. There’s nothing you could do to resist them taking the land.”

Lynn E. Blais, Real Property Law Professor at the University of Texas at Austin, also thought that the government would easily win, but acknowledged how Cards Against Humanity could make an impact.

“They can’t stop the border wall for sure,” Blais said. Legally speaking, “it’s clearly for public use [but] they can challenge the process at every step if they want. That could take a long long time.”

And just as the company mentions in its announcement, it hopes to get in the way and meddle up Trump’s plans to build a wall, at least in that one plot of land it purchased. That delay tactic might prove exceptionally effective.

“They may not be looking to stop it, but merely to delay it. Delay can be very powerful. Sometimes delay can be as effective as winning the case,” Reiss said. “With enough money, it can be delayed for years.”

Did CAH fall down at the starting line? 

A few of the legal experts we talked to were adamant that Cards Against Humanity, in openly alluding to the fact that they hoped to make the wall construction “as time-consuming and expensive as possible,” invariably hurt their chances to gain favor with a judge. Basically, in flipping Trump off through a land buy, they exposed their bias and they might not receive a full case because of it.

“I wonder if they shot themselves in the foot if they admitted this was a delay tactic. Some judges might few that negatively,” Reiss said. “Judges wouldn’t look kindly on admitting delay.”

Epstein was very certain that the company’s promotion would hurt their chances of winning any case the federal government might bring against it.

“They are tacitly admitting that the goal is to block the president,” he said. “It’s one one of the dumber ideas I’ve heard of.”

He was certain that it would only invalidate any defense Cards Against Humanity tried to bring up, seeing as how the company already showed its actual intent. Still, he thought of it as a sign of the times, saying, “One of the consequences from the president acting like a crackpot means you get crackpot solutions.”

Blaise, however, believed the opposite side of this argument, and thought that land owners can do whatever they damn well please.

I don’t think it matters why you don’t want the government to take your land. As a property owner, you get to be as irrational as you want,” she said.

So you’re saying there’s a public use chance…

Even though a prospective case doesn’t look too promising for Cards Against Humanity, it still has avenues it can take to launch a defense of their new land. According to the legal experts we talked to, the most promising defense would be on whether the wall is really for public use. This is given that “public use” in the Fifth Amendment is not terribly defined and that arguments could readily be made that a border wall with Mexico might be more harmful than good.

“Public use is now often an incredibly broad term,” Reiss said. And, should the case go to federal court, the government’s potential case would invoke border security or immigration policy, which Reiss thought a judge would probably find compelling evidence.

Regulatory Approaches to Airbnb

photo by Open Grid Scheduler

Peter Coles et al. have posted Airbnb Usage Across New York City Neighborhoods: Geographic Patterns and Regulatory Implications to SSRN. Two of the co-authors are affiliated to Airbnb and the other three are affiliated to NYU. The paper states that “No consulting fees, research grants or other payments have been made by Airbnb to the NYU authors . . .” (1) The abstract reads,

This paper offers new empirical evidence about actual Airbnb usage patterns and how they vary across neighborhoods in New York City. We combine unique, census-tract level data from Airbnb with neighborhood asking rent data from Zillow and administrative, census, and social media data on neighborhoods. We find that as usage has grown over time, Airbnb listings have become more geographically dispersed, although centrality remains an important predictor of listing location. Neighborhoods with more modest median household incomes have also grown in popularity, and disproportionately feature “private room” listings (compared to “entire home” listings). We find that compared to long-term rentals, short-term rentals do not appear to be as profitable as many assume, and they have become relatively less profitable over our time period. Additionally, short-term rentals appear most profitable relative to long-term rentals in outlying, middle-income neighborhoods. Our findings contribute to an ongoing regulatory conversation catalyzed by the rapid growth in the short-term rental market, and we conclude by bringing an economic lens to varying approaches proposed to target and address externalities that may arise in this market.

I found the review alternative regulatory approaches to be particularly helpful:

City leaders around the world have adopted a wide range of approaches. We conclude by reviewing these alternative regulatory responses. We consider both citywide as well as neighborhood-specific responses, like those recently enacted in Portland, Maine or in New Orleans. A promising approach from an economic perspective is to impose fees that vary with intensity of usage. For instance, in Portland, Maine, short-term rental host fees increase with the number of units a given host seeks to register, and a recent bill from Representatives in the Commonwealth of Massachusetts (H.3454) propose taxes that vary with the intensity of usage of individual units. Such varying fees may help discourage conversions of long-term rentals to short-term rentals and better internalize externalities that might rise with greater use. That said, overly-customized approaches may be difficult to administer. Regulatory complexity itself should also be a criterion in choosing policy responses. (2-3, citations omitted)

We are still a long ways off from knowing how the short-term rental market will be regulated once it fully matures, so work like this helps us see where we are so far.

Rental Housing Landscape

A Row of Tenements, by Robert Spencer (1915)

NYU’s Furman Center released its 2017 National Rental Housing Landscape. My two takeaways are that, compared to the years before the financial crisis, (1) many tenants remain rent burdened and (2) higher income households are renting more. These takeaways have a lot of consequences for housing policymakers. We should keep these developments in mind as we debate tax reform proposals regarding the mortgage interest deduction and the deduction of property taxes. When it comes to housing, who should the tax code be helping more — homeowners or renters?

The Executive Summary of the report reads,

This study examines rental housing trends from 2006 to 2015 in the 53 metropolitan areas of the U.S. that had populations of over one million in 2015 (“metros”), with a particular focus on the economic recovery period beginning in 2012.

Median rents grew faster than inflation in virtually every metro between 2012 and 2015, especially in already high rent metros.

Despite rising rents, the share of renters spending more than 30 percent of their income on rent (defined as rent burdened households) fell slightly between 2012 and 2015, as did the share spending more than 50 percent (defined as severely rent burdened households). Still, these shares were higher in 2015 than in 2006, and far higher than in earlier decades.

The number and share of renters has increased considerably since 2006 and continued to rise in virtually every metro from 2012 to 2015. Within that period, the increase in renter share was relatively larger for high socioeconomic status households. That said, the typical renter household still has lower income and less educational attainment than the typical non-renter household.

Following years of decline during the Great Recession, the real median income of renters grew between 2012 and 2015, but this was primarily driven by the larger numbers of higher income households that are renting and the increasing incomes of renter households with at least one member holding a bachelor’s degree or higher. The real median income of renter households with members with just a high school degree or some college grew more modestly and remained below 2006 levels in 2015.

Thus, the recent decline in the share of rent burdened households should be cautiously interpreted. The income of the typical renter household increased as the economy recovered, but part of this increase came from a change in the composition of the renter population as more high socioeconomic status households chose to rent their homes.

For almost every metro, the median rent in 2015 for units that had been on the market within the previous year was higher than that for other units, suggesting that renters would likely face a rent hike if they moved. The share of recently available rental units that were affordable to households earning their metro’s median income fell between 2012 and 2015. And in 2015, only a small share of recently available rental units were affordable to households earning half of their metro’s median income. (3, footnote omitted)

Poverty in NYC

photo by Salvation Army USA West

NYU’s Furman Center has released its annual State of New York City’s Housing and Neighborhoods along with a focus on Poverty in New York City. The State of the City report is always of great value but each year’s focus is where we get to see the City in a new light. This year is no different:

In New York City in recent years, rents have risen much faster than incomes. The pressures of rising housing costs may be greatest on those with the fewest resources—people living in poverty. New York City has a larger number of people living in poverty today than it has since at least 1970. This sparks a range of questions about the experience of poverty in New York City that we address in this year’s State of New York City’s Housing and Neighborhoods Focus. Who in New York City is poor today? Where do they live? What are the characteristics of the neighborhoods where poor New Yorkers live? Are poor New Yorkers more likely to be living in areas of concentrated poverty than they were in the past? How, if at all, do the answers to each of these questions differ by the race, ethnicity, and other characteristics of poor households?

Though the share of New Yorkers living in poverty has been relatively constant over the past few decades, there was a drop at the end of the last decade and then an increase in 2011–2015. Poverty concentration—the extent to which poor New Yorkers are living in neighborhoods with other poor New Yorkers—followed a similar trend, dropping in 2006–2010 and increasing again since then. The neighborhood of the typical poor New Yorker varies substantially from that of the typical non-poor New Yorker, but those disparities are largely experienced by black and Hispanic New Yorkers living in poverty. The typical poor Asian and white New Yorkers live in neighborhoods that do better on the measures we examine than the neighborhoods of the typical non-poor New Yorker. We also find that neighborhood conditions vary significantly based on the level of poverty in a neighborhood. Higher poverty neighborhoods have higher violent crime rates, poorer performing schools, and fewer adults who are college educated or working. And, poor New Yorkers are not all equally likely to live in these neighborhoods. Poor black and Hispanic New Yorkers are much more likely to live in higher poverty neighborhoods than poor white and Asian New Yorkers. Children make up a higher share of the population in higher poverty neighborhoods than adults or seniors. (1, footnotes omitted)

Policymakers should have a lot to chew over in this report. Let’s hope they give it a read.

Carson and Fair Housing

photo by Warren K. Leffler

President Johnson signing the Civil Rights Act of 1968 (also known as the Fair Housing Act)

Law360 quoted me in Carson’s HUD Nom Adds To Fair Housing Advocates’ Worries (behind a paywall). It opens,

President-elect Donald Trump’s Monday choice of Ben Carson to lead the U.S. Department of Housing and Urban Development added to fears that the incoming administration would pull back from the aggressive enforcement of fair housing laws that marked President Barack Obama’s term, experts said.

The tapping of Carson to lead HUD despite a lack of any relative experience in the housing sector came after Trump named Steven Mnuchin to lead the U.S. Department of the Treasury amid concerns that the bank for which he served as chairman engaged in rampant foreclosure abuses. Trump has also nominated Sen. Jeff Sessions, R-Ala., to serve as attorney general. Sessions has drawn scrutiny for his own attitudes towards civil rights enforcement.

Coupled with Trump’s own checkered history of run-ins with the U.S. Justice Department over discriminatory housing practices, those appointments signal that enforcement of fair housing laws are likely to be a low priority for the Trump administration when it takes office in January, said Christopher Odinet, a professor at Southern University Law Center.

“I can’t imagine that we’ll see any robust enforcement or even attention paid to fair housing in this next administration,” he said.

Trump said that Carson, who backed the winning candidate after his own unsuccessful run for the presidency, shared in his vision of “revitalizing” inner cities and the families that live in them.

“Ben shares my optimism about the future of our country and is part of ensuring that this is a presidency representing all Americans. He is a tough competitor and never gives up,” Trump said in a statement released through his transition team.

Carson said he was honored to get the nod from the president-elect.

“I feel that I can make a significant contribution particularly by strengthening communities that are most in need. We have much work to do in enhancing every aspect of our nation and ensuring that our nation’s housing needs are met,” he said in the transition team’s statement.

The problem that many are having with this nomination is that Carson has little to no experience with federal housing policy. A renowned neurosurgeon, Carson’s presidential campaign website made no mention of housing, and there is little record of him having spoken about it on the campaign trail. One Carson campaign document called for privatizing Fannie Mae and Freddie Mac, the government-run mortgage backstops that were bailed out in 2008.

The nomination also comes in the weeks after a spokesman for Carson said that the former presidential candidate had no interest in serving in a cabinet post because he lacked the qualifications. That statement has since been walked back but has been cited by Democrats unhappy with the Carson selection.

“Cities coping with crumbling infrastructure and families struggling to afford a roof overhead cannot afford a HUD secretary whose spokesperson said he doesn’t believe he’s up for the job,” said Sen. Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee. “President-elect Trump made big promises to rebuild American infrastructure and revitalize our cities, but this appointment raises real questions about how serious he is about actually getting anything done.”

HUD is a sprawling government agency with a budget around $50 billion and programs that include the Federal Housing Administration, which provides financing for lower-income and first-time homebuyers, funding and administration of public housing programs, disaster relief, and other key housing policies.

It also helps enforce anti-discrimination policies, in particular the Affirmatively Furthering Fair Housing rule that the Obama administration finalized. The rule, which was part of the 1968 Fair Housing Act but had been languishing for decades, requires each municipality that receives federal funding to assess their housing policies to determine whether they sufficiently encourage diversity in their communities.

Carson has not said much publicly about housing policy, but in a 2015 op-ed in the Washington Times compared the rule to failed school busing efforts of the 1970s and at other times called the rule akin to communism.

“These government-engineered attempts to legislate racial equality create consequences that often make matters worse. There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens, but based on the history of failed socialist experiments in this country, entrusting the government to get it right can prove downright dangerous,” wrote Carson, who lived in public housing for a time while growing up in Detroit.

That dismissiveness toward the rule has people who are concerned about diversity in U.S. neighborhoods and anti-discrimination efforts on edge, and could put an end to federal efforts to improve those metrics.

“If you’re not affirmatively furthering fair housing, we’re going to be stuck with the same situation we have now or it’s going to get worse over time,” said David Reiss, a professor at Brooklyn Law School and research affiliate at New York University’s Furman Center.

Homeownership in NYC

photo by Nathan Hart

Brooklyn’s Charles Millard Pratt House

NYU’s Furman Center and Citi have released their joint Report on Homeownership & Opportunity in New York City. It opens,

In New York City, the notoriously high costs of rental housing are well documented. But becoming a homeowner in the New York City real estate market is also a considerable challenge for low- to middle-income households. Households earning less than $114,000 face a severely constrained supply of homeownership opportunities in New York City.

This report seeks to shed light on the extreme variation in homeownership rates among New Yorkers and quantify the homeownership options that exist at different income levels. We do this by analyzing 2014 home sales prices and examining the potential purchasing power of households at various income levels in New York City, as well as in the nearby counties of Nassau, Suffolk, and Westchester.

We use five income categories for this analysis—Low-Income, Moderate-Income, Middle-Income, NYC-Middle-Income, and High-Income. These income bands are based on percentages of Area Median Family Income (AMFI) for the New York City metropolitan statistical area established by the Federal Financial Institutions Examination Council (FFIEC) and are based on data from the 2006-2010 American Community Survey. This report includes an additional middle-income band (NYC-Middle-Income), given that affordable housing programs in New York City serve households up to 165 percent of the U.S. Department of Housing and Urban Development (HUD) area median income (AMI). (3)

You’re all wondering, of course, what NYC-Middle Income is, so the report provides the following explanation of the income categories:

“Low-Income” households have an annual income of $34,000 or less, or 50 percent of AMFI;

“Moderate-Income” households have an annual income between $34,001-$55,000, or 50 percent to less than 80 percent of AMFI;

“Middle-Income” households have an annual income of $55,001-$83,000, or 80 percent to less than 120 percent of AMFI;

NYC-Middle-Income” households have an annual income of $83,001-$114,000, or 120 percent to less than 165 of AMFI; and

“High-Income” households have an annual income above $114,001, or 165 percent of AMFI or greater. (3, emphasis added)

The report finds that

the purchasing power of most New York City households is limited, largely due to growing housing prices and stagnating incomes since 1990. In addition, while New York City had a relatively low share of homeowners compared to the U.S. in 2014, it was disproportionately low for Low-Income and Moderate-Income households relative to their U.S. counterparts.

The vast majority of home sales in New York City in 2014 were at prices unaffordable to Low-Income and Moderate-Income households, which comprised 51 percent of New York City households. Of the nine percent of sales in the city affordable to these households, three percent were affordable to Low-Income households and an additional six percent were affordable to Moderate-Income households. Home sales with prices that were affordable to Low-Income and Moderate-Income households in 2014 were, for the most part, concentrated outside of Manhattan.

Prospects for homeownership were not much better for Middle-Income households. In 2014, Middle-Income households, which comprise 15 percent of New York City households, could afford an additional 13 percent of sales (based on a total purchase price of up to $364,000), leaving 78 percent of sales out of reach for households with incomes of less than $83,000 annually. Less than half of sales in 2014 (42%) were affordable to 77 percent of New York households, including those characterized as NYC-Middle-Income.

Moving outside of New York City does not necessarily improve a New York City household’s potential to buy a home. In Westchester County, only two percent of sales were affordable to New York City Low-Income and Moderate-Income homebuyers combined in 2014. In Nassau County, only 24 percent of sales were affordable to New York City Low-Income, Moderate-Income, and Middle-Income homebuyers in 2014. In Suffolk County, 42 percent of sales were affordable to New York City Low-Income, Moderate-Income, and Middle-Income households. (4)

New Yorkers, and a lot of non-New Yorkers, are going to eat up the graphs in this report (what IS the median sales price in Brooklyn?!?), so it is worth a read for the real estate obsessed (yes, you). But it also has policy implications about the housing stock of the City and the surrounding region. The report itself does not make any policy recommendations, but it offers a stark reminder of how important rental housing policy is to any effort to maintain socio-economic diversity in the City.