Tag Archives: zoning

Reiss on Fair Housing Falsehood

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The Providence (R.I.) Journal quoted me in its Truth-O-Meter column:  Mike Stenhouse: According to HUD, It’s Unfair, Unjust for Wealthy to Live in Exclusive Neighborhoods. The column reads, in part,

For more than three years, the Rhode Island Division of Planning has been working on RhodeMap RI, a long-term economic development plan meant to help guide efforts to improve the state’s economy.

The process, partly financed by a $1.9-million grant from the U.S. Department of Housing and Urban Development (HUD),  didn’t get much notice until a nearly 200-page draft of the plan was released in mid-September, igniting a firestorm of controversy.

Critics of the plan denounced it as a thinly disguised blueprint for social engineering. If it is implemented, they say, local communities will be forced to cede authority to the federal government on issues such as affordable housing and land use, and individual property rights will be under threat.

Supporters, including Governor Chafee and the planners and community leaders who drafted the plan, say it’s a well crafted, comprehensive guide that will help move the state’s economy forward over the decades ahead. They say there’s nothing in the plan that would infringe on individual property rights or local home rule.

The debate grew so heated at one meeting a shouting match broke out, with charges of racism and bigotry hurled. And last week, at a meeting of the Statewide Planning Council, opponents called it unconstitutional, socialist and even treasonous. Nonetheless, the council voted unanimously to adopt it.

Mike Stenhouse, CEO of the Rhode Island Center for Freedom and Prosperity, a conservative research group, has led the opposition. A few weeks ago, he talked about the plan on WPRO-AM’s “The Dan Yorke Show.”

Yorke asked Stenhouse to cite a component of the plan “that highlights what you think is problematic.”

“I’m going to give you my interpretation,” Stenhouse responded. “I don’t have their plan in front of me. What we believe, for instance, take Poppasquash Point in Bristol. According to HUD, it is patently unfair and socially unjust that wealthy people can live in an exclusive neighborhood.”

We wondered whether Stenhouse was right about HUD’s view of wealthy neighborhoods such as Poppasquash Point, one of the state’s priciest enclaves.

When we asked Stenhouse about his statement, he told us he was not directly quoting HUD, but said that his statement was “an accurate interpretation of HUD’s openly stated intent.” He provided links to multiple documents to support his position.

While we don’t view Stenhouse’s statement as a direct quote of HUD policy, we do  believe that listeners who heard Stenhouse’s preface — “according to HUD” — would assume he was summarizing HUD’s policy.

Stenhouse’s backup is comprised primarily of links to a news story and an editorial in Investor’s Business Daily and links to various legal  documents and HUD regulations.

*    *    *

According to David Reiss, a professor of real estate and housing policy at Brooklyn Law School, “HUD does not interpret the FHA [Fair Housing Act] to mean that `wealthy people’ can’t `live in an exclusive neighborhood.’”

“An exclusive neighborhood is an expensive one – the FHA does not ban expensive neighborhoods.” Reiss continued in an email statement. “What it does do is ban exclusionary practices.  Exclusionary practices are those that exclude people based on certain of their characteristics such as their race, sex or religion.  To my knowledge, HUD has never taken the position that merely living in an exclusive – that is, expensive — neighborhood violates the FHA.”

We also asked HUD whether Stenhouse had accurately characterized its rules.

“There are simply no policies, practices, regulations or anything that can validate such hyper hyperbole,” Brian Sullivan, a public affairs officer with HUD, said in an email statement.

Our ruling

Mike Stenhouse said “According to HUD, it is patently unfair and socially unjust that wealthy people can live in an exclusive neighborhood.”

There’s no doubt that HUD has challenged what it considers to be discriminatory practices at the community level, including exclusionary zoning ordinances.

But that’s not nearly the same as objecting to the right of wealthy people to live in expensive neighborhoods.

We rule Stenhouse’s claim False.

Manufacturing Jobs in NYC

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The New York City Council released a report, Engines of Opportunity: Reinvigorating New York City’s Manufacturing Zones for the 21st Century. I am always worried that discussions of increasing manufacturing jobs, especially in a city as expensive as New York, are informed by a romantic vision of a past that cannot be recaptured. This report seems to be aware of that trap. It focuses on marginal improvements that can be made to support the kind of manufacturing and creative economy jobs that can survive the brutal competition for space and skilled employees that New York companies have to deal with.

The report makes three land use policy recommendations:

1) Industrial Employment District – A zoning district which provides the space for those industries which are critical to the economic well-being of thousands of New Yorkers and the health of the overall economy. In places where a concentration of  manufacturing/ industrial activity exists — in many of the existing “Industrial Business Zones” for instance — a re-writing of the use regulations to focus on the protection and growth of these industries is essential, as is allowing for additional density to create the option for more space for new and existing firms to expand. Combined with strategic incentives and targeted enforcement, these districts will provide a stable regulatory framework for investment.
2) Creative Economy District –A dynamic new combination of industrial space and commercial office space. These creative economy districts would no longer be hindered by competition with incompatible uses like mini-storage or nightlife or blocked-out by unproductive warehousing of property in hope of future residential rezoning. With the additional density, property owners would gain much more lucrative development opportunities than under the current zoning while growing the City’s employment base. Robust workforce development strategies will need to be implemented in tandem with these new districts to ensure a wide variety of New Yorkers will have access to these new jobs.
3) A Real Mixed Use District–Mixed-use industrial-residential-commercial neighborhoods like parts of SoHo or Long Island City or Williamsburg or the Gowanus have a unique dynamism that has made them tremendously desirable. Other cities are increasingly trying to emulate the dynamic synergy of these mixed-use neighborhoods. The creation of the “MX” zone acknowledged the value of mixed-use neighborhoods and tried to find a solution that could increase the residential capacity while maintaining their dynamism. Unfortunately because MX allows but does not require a mixture of uses, the economics of real estate have lead residential development to dominate and displace other uses. A zone which supports and requires the creation of commercial and compatible industrial space alongside residential would create dynamic new neighborhoods instead of just residential development. (5)
The big problem with this (and similar reports) is that it does not directly address the opportunity cost of such proposals.  What are we giving up when we create these new zoning districts? For one thing, we make less land available for residential uses, which tend to crowd out other uses because of the immense demand for housing in New York City right now.
More generally, how do we properly balance the various needs of the City in our overall zoning plan?  There is no right answer to such questions, but they should be asked and proposals like this should put their answers on the table for others to consider.

Reiss on NYC Development Rules

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Law 360 quoted me in Looser Rules Pave Way For NYC Affordable Housing Projects (behind a paywall). It opens,

The commissioner of New York City’s Department of Housing Preservation and Development detailed Wednesday how the agency will streamline the development process for affordable housing projects, allowing developers faced with new mandatory inclusionary zoning rules to breathe easier.

Since Mayor Bill de Blasio announced his ambitious plan to create or preserve 200,000 units of affordable housing in the city over the next 10 years, developers and their attorneys have been cautiously optimistic.

Many have seen the positive side of residential projects being allowed in places where they would not have been previously, thanks to planned zoning changes. But with those zoning changes comes a mandate to build an affordable component with any new development, and the administration has been adamant that there will be few — if any — new monetary incentives.

So when HPD Commissioner Vicki Been told attendees at a Citizens Budget Commission event Wednesday that sweeping changes are coming to the way the agency does business that will cut a lot of red tape and speed up the process, many developers and their attorneys were pleased.

“It was great to hear,” said John Kelly, an affordable housing expert and partner at Nixon Peabody LLP. “I think it’s the right first step, and it’s necessary if they’re really going to carry out the plan they want to do.”

Included in that first step will be significant changes to the two elements of the development process that experts say create the biggest bottlenecks: design review and clearance.

The design and architecture review will likely be completely overhauled, Been told the attendants at Wednesday’s meeting, and the HPD will shift to the self-certification system backed up by random audits that has seen success elsewhere in city government, including at the Department of Buildings.

These changes are expected to cut down on the waiting time that many developers often suffer through as they try to get a project off the ground, adding unnecessary costs and — perhaps most importantly for Been’s purposes — dissuading some from seeking out affordable housing opportunities.

HPD staff will still have a hand in reviewing projects, but the changes — which Been said will be explained in more detail soon — are expected to be significant.

“It’s exciting to start to see specifics of the plan, we’ve all been kind of waiting for that,” said Jennifer Dickson, senior planning and development specialist at Herrick Feinstein LLP.

But she noted that the process, even with the proposed tweaks, is extremely complex. As the city attempts to make affordable housing development more attractive and expand inclusionary zoning districts, a growing number of architects and developers with little experience in this arena will be joining the fray.

“I think they will be looking to the city agencies to continue to guide them,” Dickson said.

The specific extent to which HPD officials will remain involved in the process is one of many questions that remain unanswered. Another is exactly how the agency will ensure compliance with a new self-certification process, outside of random audits.

“The risk of self-certification is: What if people don’t certify well? There’s always a balance of government regulation between reducing red tape on one hand, and assuring people live up to the appropriate standards on the other,” said David Reiss, a real estate professor at Brooklyn Law School.

Compact Units: Mountain or Molehill?

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NYU’s Furman Center has posted a short Research Brief, Compact Units:  Demand and Challenges. The brief notes that there is no formal definition of a compact or micro unit of housing, but

the term is typically used to refer to units that contain their own bathroom and a kitchen or kitchenette, but are significantly smaller than the standard studio apartment in a given city. Accessory dwelling units (ADUs) are self-contained units located on the property of a single-family home. Sometimes ADUs are separate structures, like a cottage on the same lot as a primary dwelling; sometimes they are attached to the primary structure, located in a basement, in an extension, or over a garage.

Proponents of compact units argue that they allow seniors to live independently, respond to changing household sizes and demographics, reduce sprawl through urban infill, mitigate the environmental effects of larger developments by reducing energy consumption, free up larger units for families, and help cities provide housing affordable to a wider range of households. (2)

The brief is a very useful overview of the debate concerning compact units but my own take is that they represent a mere molehill of possibility when it comes to affordable housing. No new construction in cities, unless heavily subsidized, is geared toward low-income households and probably only a small portion of such new construction is geared to moderate-income households. The economics of new construction just don’t allow it.

This is not to say that New York City shouldn’t change its larger-than-average minimum unit size regulations (400 square feet) so that they are in line with those of other cities (220 square feet). These small units could work well for all sorts of one-person households, which, by the way, make up more than half of all households in NYC. They just wouldn’t be low-income households. But, by expanding the total number of units available, they can put at least some downward pressure on rents.

My bottom line: compact units are good, but they will not provide the mountain of affordable housing that some claim they can.

Reiss on NY RE Regulation

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Law360 quoted me in What’s Up Next In NYC Real Estate Legislation (behind a paywall). It reads in part,

New York City lawmakers have introduced a slew of new bills in recent months that could impact commercial real estate owners and developers with changes like new protections for rent-regulated tenants and more public review for zoning changes. Here are explanations and some experts’ thoughts about the proposed laws.

*     *     *

Fighting Alleged Double Standards for Regulated and Market-Rate Tenants

City Council members Mark Levine and Corey Johnson are drafting a bill to combat what they claim is a trend of property owners unfairly discriminating against their rent-regulated tenants, preventing them from taking advantage of amenities that market-rate tenants can enjoy.

The issue gained a lot of attention last year when news broke that Extell Development Co.’s project at 40 Riverside Drive might have two separate entrances: one for owners of its condominiums and one for those living in the affordable units.

The “poor door” arrangement, which has reportedly been used at several buildings around the city, sparked outrage from tenants, who argued that developers were abusing the 421-a subsidy program, which gives tax abatements in exchange for affordable housing.

Levine and Johnson’s new bill would alter the city’s rental bias code, which protects tenants from discrimination based on race, gender or age, to include rent-regulated as a protected status.

Under de Blasio’s plan for mandatory inclusionary zoning at all new development projects, the bill appears to be an effort to establish actual integrated communities, said Brooklyn Law School professor David Reiss.

“Mandatory inclusionary zoning is not just about affordable housing; to a large extent it’s about socioeconomic integration,” Reiss said. “I think this bill about double standards is really not about protecting affordable housing as much as it is about respecting socioeconomic diversity.”

*     *     *

Requiring Two Years of Experience for a Crane Operation License

In April, Manhattan Councilman Benjamin Kallos introduced a bill that would require crane operators to have at least two years of experience working in New York City in order to obtain licenses.

Industry insiders note that the licensing process is effectively controlled by a local union, and many are concerned that this new bill would give the union even more power, essentially blocking the use of any crane contractors that are not affiliated with it.

“There’s a spat between developers and unions, and the bill is firmly taking the side of the unions,” Reiss said. But he added that the real question is what is actually in the public interest. “What is the level of safety that we need?”

The Bloomberg administration had a more developer-friendly approach, creating a plan to allow operators to get licenses if they had worked in a similarly dense city before. But the crane operators’ union sued over those rules, and the litigation remains pending.

Rebirthing NYC Neighborhoods

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One can imagine Mayor de Blasio thinking about his ambitious housing plan with one voice saying “Density!” over one shoulder and another voice saying “Preservation!” over the other.  But which voice is the angel’s and which is the devil’s?

Peter Byrne has posted a short essay, The Rebirth of the Neighborhood, to SSRN. The essay represents the voice of Preservation and engages with Edward Glaeser, a voice of Density. Byrne argues that

new urban residents primarily seek a type of community properly called a neighborhood. “Neighborhood” refers to a legible, pedestrian-scale area that has an identity apart from the corporate and bureaucratic structures that dominate the larger society. Such a neighborhood fosters repeated, casual contacts with neighbors and merchants, such as while one pursues Saturday errands or takes children to activities. Dealing with independent local merchants and artisans face-to-face provides a sense of liberation from large power structures, where most such residents work. Having easy access to places of sociability like coffee shops and bars permits spontaneous “meet-ups,” contrasting with the discipline of professional life. Such a neighborhood conveys an indigenous identity created by the efforts of diverse people over time, rather than marketing an image deliberatively contrived to control the perceptions of customers. At its best, a neighborhood provides a refuge from the ennui of the workplace and the idiocy of consumer culture, substituting for churches (or synagogues), labor unions, and ethnic clubs that structured earlier urban social life. (1596-97)

Byrne argues that the “three chief legal tools for neighborhoods have been zoning for urban form, historic district preservation, and environmental protection.” (1597) In criticizing Glaeser and his ilk, Byrne writes that they often complain “such “laws destroy or take private property.” (1603) Byrne replies that “historic district regulations enhance property values by protecting the setting within which any urban property sits and from whence it derives most of its value.” (1603)

I am not going to resolve this debate in a blog post, but I will make a few points. First, a lot of these assertions are not self-evidently true and should be empirically tested, if possible. Second, the perspective of the Essay is that of the “new urban residents” who actually make up a small proportion of the total residents of a city.  Those “old urban residents” are more likely focused on the affordability of their own homes, the quality of their children’s schools and the safety of their streets. Third, it is possible that Preservation and Density can work together intelligently as we rework the urban fabric.

As Mayor de Blasio struggles with the implementation of his housing plan, it is worth remembering that Preservation and Density can each be an angel, can each be a devil. It is the Mayor’s job to make both of them listen to their better natures.

State of the Union’s Rental Housing

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The Joint Center for Housing Studies of Harvard University released its report, America’s Rental Housing: Evolving Markets and Needs. The report notes that

Rental housing has always provided a broad choice of homes for people at all phases of life. The recent economic turmoil underscored the many advantages of renting and raised the barriers to homeownership, sparking a surge in demand that has buoyed rental markets across the country. But significant erosion in renter incomes over the past decade has pushed the number of households paying excessive shares of income for housing to record levels. Assistance efforts have failed to keep pace with this escalating need, undermining the nation’s longstanding goal of ensuring decent and affordable housing for all. (1)

The report provides an excellent overview of the current state of the rental housing stock and households. Of particular interest to readers of this blog is how the report addresses the federal government’s role in the housing finance system. The report notes that

During the downturn, most credit sources dried up as property performance deteriorated and the risk of delinquencies mounted. Much as in the owner-occupied market, though, lending activity continued through government-backed channels, with Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) playing an important countercyclical role.

But as the health of the multifamily market improved, private lending revived. According to the Mortgage Bankers Association, banks and thrifts greatly expanded their multifamily lending in 2012, nearly matching the volume for Fannie and Freddie. Given fundamentally sound market conditions, multifamily lending activity should continue to increase. The experience of the last several years, however, clearly testifies to the importance of a government presence in a market that provides homes for millions of Americans, particularly during periods of economic stress. (5)

 The report, to my mind, reflects a complacence about the federal role in housing finance:

Although some have called for winding down Fannie’s and Freddie’s multifamily activities and putting an end to federal backstops beyond FHA, most propose replacing the implicit guarantees of Fannie Mae and Freddie Mac with explicit guarantees for which the federal government would charge a fee. Proposals for a federal backstop differ, however, in whether they require a cap on the average per unit loan size or include an affordability requirement to ensure that credit is available to multifamily properties with lower rents or subsidies. While the details are clearly significant, what is most important is that reform efforts do not lose sight of the critical federal role in ensuring the availability of multifamily financing to help maintain rental affordability, as well as in supporting the market more broadly during economic downturns. (8)

The report gives very little attention to what the federal housing finance system should look like going forward, other than implying that change should be incremental:

To foster further increases in private participation, the Federal Housing Finance Agency (FHFA—the regulator and conservator of the GSEs) has signaled its intent to set a ceiling on the amount of multifamily lending that the GSEs can back in 2013. While the caps are fairly high—$30 billion for Fannie Mae and $26 billion for Freddie Mac—FHFA intends to further reduce GSE lending volumes over the next several years either by lowering these limits or by such actions as restricting loan products, requiring stricter underwriting, or increasing loan pricing. With lending by depository institutions and life insurance companies increasing, the market may well be able to adjust to these restrictions. The bigger question, however, is how the financial reforms now under debate will redefine the government’s role in backstopping the multifamily market. Recent experience clearly demonstrates the importance of federal support for multifamily lending when financial crises drive private lenders out of the market. (27)

I would have preferred to see a positive vision from the Center for how the federal government should go about ensuring liquidity in the market during future crises and how it should support an increase in the affordable housing stock. Perhaps that is asking too much of such a broad report, although the fact that Fannie and Freddie are members of the Center’s Policy Advisory Board which provided funding for the report may have played a role as well. [I might add that I found it odd that the members of the Policy Advisory Board were not listed in the report.]

I do not want to end on a negative note about such a helpful report. I would note that it takes seriously some controversial ideas about increasing the supply of affordable housing.  The report advocates for the reduction of regulatory constraints on affordable rental housing construction. I interpret this as a version of the Glaeser and Gyourko critique of the impact of restrictive local land use regimes on housing affordability. As progressives like NYC’s new Mayor know, restrictive zoning and affordable housing construction are at cross purposes from each other.