Tag Archives: supply

Housing, Out of Reach

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House_at_309_Railroad,_Las_Vegas_NM

The National Low Income Housing Coalition has released Out of Reach 2015: Low Wages & HIgh Rents Lock Renters Out. The Introduction reads,

Since its founding in 1974 by federal housing policy expert, Cushing Dolbeare, NLIHC has used data to document America’s housing affordability crisis. As part of her original analysis, Cushing observed a fundamental mismatch between the wages people earn and the price of decent housing, what we now call Out of Reach. Today, housing is still out of reach for far too many, and the gap between what people earn and the price of decent housing continues to grow.

The 2015 Housing Wage is $19.35 for a two-bedroom unit, and $15.50 for a one-bedroom unit. The Housing Wage for a two-bedroom unit is more than 2.5 times the federal minimum wage, and $4 more than the estimated average wage of $15.16 earned by renters nationwide. The Housing Wage is an estimate of the full time hourly wage that a household must earn to afford a decent apartment at HUD’s estimated Fair Market Rent (FMR), while spending no more than 30% of income on housing costs. The data in Out of Reach illustrate the gap between wages and rents across the country. In 13 states and D.C. the 2015 Housing Wage is more than $20 per hour.

Many renters earn far less than the Housing Wage in their community and struggle to find an affordable place to live. This edition of Out of Reach highlights some of the economic challenges facing low income renters, including lagging wages, inconsistent job growth, and the rising cost of living. Undoubtedly, the lack of affordable housing remains the overarching problem for low income households, a problem made worse by these economic challenges.

Expanding and preserving the supply of quality, affordable housing is essential to any strategy to end homelessness, poverty, and economic inequality. As our nation’s policymakers seek ways of overcoming these societal ills, access to affordable housing must be a cornerstone of any proposal. (1, emphasis removed)

Some of the particular findings are disturbing. For instance, “There is no state  in the U.S. where a minimum wage worker working full time can afford a one-bedroom apartment at the fair market rent.” (1) This state of affairs reflects many trends, including the fact that the minimum wage has not kept pace with inflation and is worth less today than it was a few decades ago. It is worth unpacking this finding a bit.

The report defines “affordability” as costing “no more than 30% of a household’s gross income” for rent and utilities. (2) It defines “Fair Market Rent” as “the 40th percentile of gross rents for typical, non-substandard rental units.” (2) In some ways, this report overstates the affordability crisis because minimum wage workers may be able to afford housing that falls below the 40th percentile of gross rents. Perhaps a better measure would have been to determine how many units are available to the minimum wage workers in that jurisdiction. That being said, the report does document how “rents remain out of reach for many renters.” (2) For instance, 75% of extremely low income renters spend more than 50% of their income on housing costs . . ..” (5)

Income and wealth inequality have reached extreme proportions in America today. This report highlights how this is playing out in the context of the housing market. (I would also note, however, that the report does not account for how restrictive land use policies keep the supply of new housing from growing many communities, but that may just be a subject for another report.)

3 Housing Riddles For De Blasio

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I wrote an op ed for Law360,com that was posted today. While it is behind a paywall on Law360, it reads in full as follows:

3 Housing Riddles For De Blasio

As Mayor-Elect Bill de Blasio is making the transition from campaigning to governing New York City, it is worth contemplating some of the fundamental riddles that perplex those who spend their time thinking about the city’s housing policy. I address three of the most perplexing below.

The Riddle of Mandatory But Not Sufficient

The housing policy centerpiece of the de Blasio campaign is to require developers to build some affordable housing units when they build on lots that have been upzoned, a policy known as mandatory inclusionary zoning. The campaign website states that this policy will create 50,000 new units of housing.

Let’s put aside the fact that this number appears to be very aggressive given the lack of significant upzonings on the horizon (see second riddle below). Just because the city mandates that affordable housing be part of any new construction, it cannot mandate that developers build any housing at all if the deal does not make economic sense for them.

The de Blasio administration will need to carefully calibrate the mandatory inclusionary zoning rules to ensure that builders are sufficiently incentivized to build in the first place. This may limit the amount of affordable housing that can be mandated as part of that new construction.

One key aspect of this policy is whether the mandatory affordable housing will be required to be on-site or if the developer can build it off-site. If it is the former, it will help achieve the progressive goal of increasing socio-economic diversity in a city that is rapidly losing it.

But each unit of on-site housing would likely be more expensive to construct than off-site affordable units. And the opposite is true if the mandatory affordable units are allowed to be off-site; they will be likely cheaper to construct and thus more housing could be built. But it would not work toward increasing socio-economic diversity in the city.

And thus, the riddle of mandatory but not sufficient poses two challenges to the administration. Can it incentivize the creation of a meaningful number of units? And should it favor socio-economic diversity or the maximum production of affordable units? No easy answers here.

The Riddle of Now Versus Later

Can you increase the supply of housing to address the needs of a growing population while also downzoning large swaths of the city to respond to the preferences of the city’s current residents?

The Michael Bloomberg administration wanted to have this both ways, but that can’t work. The Bloomberg administration had planned on an increase in population of roughly another million people by 2030 while at the same time downzoning a large swath of the city (and, to be fair, upzoning some other portions).

This downzoning made current residents happy as it kept big, modern, out-of-context buildings from popping up near their homes. But it also limited the opportunities for increasing the housing stock, particularly near transit hubs. This is the basis of the second riddle — what is seen as bad by current residents may be good for future residents.

It is a fundamental economic truth that if more and more people are flocking to New York City, housing costs will rise unless supply increases. But for city residents, there is a paradox. New Yorkers see gleaming towers rise in their neighborhoods along with the rents for their nearby apartments. There are two explanations for this paradox.

First, the supply of new housing may be increasing without keeping pace with rising demand. Historically, New York City has not had many new units of housing built each year, maybe 20,000 units or so in a good year. This modest increase in supply has been overwhelmed by the increase in population of a million people in the last 20 or so years. This disparity goes a long way to explain the high rents and the miniscule vacancy rates that are seen throughout the city.

Second, new housing in one community (Williamsburg, for example) may be causing or be part of a wave of local gentrification in the existing housing stock. So, even if the new housing is having a tendency to decrease housing costs in the city overall because it increases the supply, it can also be pushing rents higher in the communities in which it is situated.

Increasing the supply of housing has to be a key component of providing “safe affordable homes for all New Yorkers,” as de Blasio calls for on his campaign website. This has to mean zoning significantly more land for high-rise residential construction as well as incentivizing the construction of affordable housing units in that new construction.

At the same time, de Blasio must attend to the concerns of those negatively impacted by the new construction. Hence, the riddle of now versus later.

The Riddle of the Few Versus the Many

The de Blasio campaign website calls for “tighter standards that ensure subsidies meet the needs of lower-income families and are distributed equitably throughout the five boroughs.” Distributing affordable housing subsidies equitably throughout the city is important, but there is another equity issue — should the city heavily subsidize affordable housing for a small portion of those who are eligible or should it distribute resources more broadly and thinly among everyone who is eligible?

Fewer than 8 percent of low- and middle-income households receive a direct or indirect subsidy for an apartment (excluding public housing) while more than 20 percent live below the poverty line of $23,283 annually for a family of four.

Should the city’s limited resources be used to create a relatively small number of new affordable units or should some of them be used in ways that benefit a broader swath of low- and moderate-income New Yorkers, albeit more modestly?

Certain policies can address the needs of many, many more low- and moderate-income households than does heavily subsidized new construction that houses perhaps a few thousand low- and moderate-income households each year.

Examples of such policies include tax credits for low- and moderate-income households that put money in their pockets and increased enforcement directed against landlords who try to illegally drive their tenants out of rent-regulated units. On the other hand, without an affordable apartment, staying in NYC can just be untenable no matter what additional benefits the government may be able to provide through more broadly available programs.

Thus, the third riddle is — do you give a lot of help to a few or do you give a little help to the many? It’s like choosing between the rock and the hard place for policymakers and New Yorkers alike.

Mayor-Elect de Blasio and his team will have to struggle with these riddles, and more. The only thing that is clear is that there are no right answers and no easy answers when it comes to housing policy in New York City.

—By David Reiss, Brooklyn Law School

David Reiss is a professor of law at Brooklyn Law School. He concentrates on real estate finance and community development and writes about housing policy.