The Democratic gubernatorial primary in New York State has lacked substantive ideas; the candidates’ bland platforms neither inspire support nor engender much criticism. Given Carl McCall’s recent proposal for sparking new housing development in Gotham (and throughout the state), maybe that’s a good thing. McCall has tried to position himself as a centrist, but his housing scheme is practically Soviet: it calls for new government entitlements that, if put into effect, would further depress Gotham’s already painfully anemic housing market.
McCall’s housing scheme hinges on expanding New York City’s rent control regime so that it once again covers the wealthy, rolling back a 1997 change in housing regulations that ended rent control for Gotham tenants who earn more than $175,000 a year—or whose apartments rent for more than $2,000 a month. McCall argues that the 1997 rule, known as luxury decontrol, is hurting New Yorkers by reducing the number of apartments under rent regulations and thus driving up rents.
In fact, luxury decontrol is exactly the kind of reform necessary to spur long-term housing development in the city. Rent control for the rich snuffs out potential new construction, because wealthy tenants, who’d have the money to buy or lease newly built housing, instead stay put in their deeply discounted apartments. Why should they move and give up such a great deal, even if their apartments might be bigger than they need or less state-of-the-art than they’d ideally like? Better to keep the cheap apartment in the city and use the monthly savings to pay off a mortgage in the Hamptons.
This lack of demand from prosperous but subsidized tenants is one reason why housing construction in New York, which averaged 35,000 units a year in the 1930s, before rent control went into effect, now averages a measly 10,000 units a year. It’s also why only 28 percent of Gothamites own their own homes, less than half the national average. McCall’s proposal would just set these patterns in concrete.
To solve the very problem that rent control helps create—a lack of investment in new housing—McCall wants government to bankroll more housing development. He’d try to get the feds to guarantee investments by pension funds in subsidized housing construction, and he calls for more government “partnerships” at all levels with nonprofit housing groups—who of course go gaga over them, because the subsidy money goes through their hands. But they’re bad ideas. Investments in subsidized housing rarely pay off for pension funds. And subsidized housing is a lousy way to get sustained new housing construction, since it doesn’t generate additional capital through profits for new housing investment. Instead, each new project requires new subsidies—if government funds are available. If they’re not, no new housing.
Aside from helping him win political support from housing advocates, who’ve now endorsed him, McCall’s proposals leave untouched the real causes of New York’s lethargic housing market. They don’t address the city’s tortuous zoning and building codes, its hefty taxes and fees, its construction union featherbedding, and organized crime’s heavy influence on the construction industry—all of which help make housing construction up to 40 percent more expensive in New York than in any other U.S. city. New York’s housing woes won’t improve until someone tackles some of these problems and sets the market free.