Correcting New York's Housing Mistakes

A New Yorker looking for a satisfactory, reasonably priced apartment in a safe neighborhood might quickly conclude that New York City has a shortage of housing. One thing the city has not had for many years, however, is a shortage of housing policy. New York has been the site of more, and more aggressive, government housing programs—from public housing to rent control—than any other large American city. Why then do so many New Yorkers seem dissatisfied with the results?

A conceptual chasm separates the makers of housing policy from the average citizen. What housing specialists value in housing, and what they seek to promote, matches up rather poorly with what most New Yorkers want. Most people want to live in private houses; housing specialists want to build or renovate apartments. Most people want to own their homes; housing experts want to create rental housing. Most people prefer a little elbow room, or at least a glimpse of sky, and few enough neighbors that they might know a good portion of them; housing experts want to build at high densities, often in the neighborhoods that are already most crowded. Most people stubbornly prefer their own private patch of outdoor space, no matter how small; housing experts want their clients to live in tall towers surrounded by green parks that all residents share. In just about every dimension of housing, the arbiters of housing policy are out of touch with the desires of the average housing consumer.

Housing experts tend to be preoccupied with the material characteristics of individual dwelling units. To the housing specialist, good housing means modern housing—units that are in good physical repair, have modern appliances, and contemporary (i.e., smallish) room sizes. They see their primary job as replacing physically unsatisfactory dwellings with satisfactory ones. And because most unsatisfactory dwellings house poor people, housing specialists are preoccupied with building or subsidizing low-cost dwellings for the poor. That is why they see the government's primary housing job as supporting construction of more apartment houses, primarily in high-density inner-city neighborhoods. And because it is assumed that the poor cannot be expected or trusted to own their homes, these projects almost always consist of rental units.

The world view of the average householder is very different. What is "housing" to the specialist is "home" to the occupant: Most people see their homes not as a set of specifications, but as the primary setting for the conduct of their personal lives. It is the port in the storm to which they retreat from the stress of work or school, a place where they can enjoy the company of family and friends, and a canvas for their self-expression in furnishings, decor, and landscaping.

While most housing experts focus on dwellings and their deficiencies, in most people's minds the technical specifications that preoccupy the housing specialists recede into the background. It is not that these matters are unimportant, but they do not top the list of what most people want from a home, which is not mere physical shelter, but a place to live. Moreover, most people are pretty good at coping with physical inadequacies themselves. They can (and in New York frequently do) take old, unrenovated apartments or houses and transform them into homes.

Most important, this home, this place to live, consists not just of the dwelling unit but of a larger ambience of structures, streets, and people called a neighborhood. Some of the concerns people have about neighborhoods are physical: the condition of surrounding homes, the maintenance of the street, the scenery. But just as important are the people: whether the neighbors, or even the people passing through, are amiable, or at least well-behaved. These are matters over which most people, unaided by government, have much less control than they do over the decor or physical condition of their apartments. Yet housing experts, preoccupied with the "dwelling unit," tend to ignore them.

There is another, even more basic, gap between the beliefs of housing specialists and the behavior of housing consumers: Housing specialists see a static universe of dwellings and their households, and in this static universe some people are badly housed. Therefore, housing policy is engaged in identifying the badly housed and taking corrective action. Usually this means making new or renovated housing available to the badly housed, pretty much on a first-come, first-served basis.

Behind this paradigm lurk two key assumptions. The first is that the badly housed (by the standards of housing experts) are unlikely to seek or secure better housing unless they are rescued by some public policy initiative. The second is that the housing expert, from the safety of his high-rise office, is capable of designing "better" housing without consulting those who will live there.

The typical housing consumer, even if poor, operates on an entirely different model. For the members of a household looking for a home, the most important consideration is what they themselves want—in other words, consumer choice is critical.

This is not the barren tautology it may first appear; all Americans put great value on having a breadth of choice to find items that suit their particular needs, preferences, and budgets. In housing, choice is especially important. Any housing choice involves a complex set of trade-offs among a number of factors: rental or purchase price, size, amenities, location, proximity to job or family, aesthetics, and safety. Given the highly complex and personal nature of the equation, it is folly to believe that housing experts can provide precisely what consumers want without consulting them through such mechanisms as the market.

A typical household finds the right home by choosing from among the available options, constrained, naturally, by price and location. Most important, if a choice proves to be unsatisfactory, or if needs and circumstances change, people move.

Moving is in fact an essential consumer tool—one which housing policy generally ignores. Housing markets in which it is easier to change homes tend to satisfy more people than markets in which it is harder to do so, even as neighborhoods with two grocery stores tend to have happier grocery shoppers than those with only one.

Seen in this light, the right housing policy for New York, or any other city, is that policy which lets the largest number of households make satisfactory housing choices by their own standards. Government may well have a role to play in expanding housing choices, especially for the poor. But operating as a developer or owner of housing, as the city does now, is obviously not the best way for government to do this. Government agencies have not proven to be very good at putting together housing packages people want. And the siting decisions of public housing agencies may disrupt established neighborhood ecologies in ways that harm as many households as they help.

In other words, the questions housing policymakers ask themselves and accept as the obvious parameters of their profession—"Should we build more this year or less, how, for whom, and what should the housing look like?"—may be the wrong questions.

Support for this view can be found in the best source of consumer housing information: the American Housing Survey, conducted every seven years by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The survey measures housing conditions in the nation as a whole, as well as in specific metropolitan areas. New York City was last surveyed in 1987. The American Housing Survey asks respondents vital questions about neighborhood conditions and public services, as well as dwelling unit conditions, and thus includes many factors that conventional housing policy usually ignores.

In order to get a quick fix on housing conditions in New York, we compiled five tabulations from the survey—profiles of household population, housing stock, dwelling unit conditions, neighborhood conditions, and movers.

Chicago was chosen as a comparison because it is the next largest U.S. city and because it shares many of New York's housing market features. Figure 1, "Profile of the Population," shows that New York and Chicago have remarkably similar demographic profiles. Each has a preponderance of childless households, a large population of singles living alone, a high median age, and a fairly high level of education alongside a fairly low household income.

Figure 2, however, reveals striking differences in the two cities housing stock. New York has a much higher proportion of renters than Chicago (70 percent to 58 percent); a much lower proportion of single family homes (13 percent to 28 percent), and many more elevator apartments (39 percent to 12 percent). But few households in either city are living under crowded conditions (using the criterion of more than one person per room): 7 percent in New York, and 5 percent in Chicago.

Figure 3 attempts to measure how satisfied New York's housing consumers are with their dwellings. The good news is that residents are, on the whole, remarkably pleased with their housing. In 1987, three-quarters of households surveyed in New York (and the same proportion in Chicago) rated their dwellings as "good" or better. Although New York's renters were not as happy with their homes as owners, a solid majority (68 percent) still rated their homes favorably. Only about 5 percent of New Yorkers (and a similar proportion of Chicagoans) rated their homes as poor.

Given the prevailing assumptions of housing experts, the fairly high degree of housing satisfaction is somewhat surprising because New Yorkers simultaneously report a fairly high incidence of serious defects in their dwellings. Eighteen percent of New York respondents, for example, said they had insufficient heat, compared to only 10 percent of Chicagoans. Thirteen percent of New York's dwellings had leaky pipes, compared to only 7 percent in Chicago; 14 percent of New Yorkers had rats, but just 9 percent of Chicago households did. Overall, New Yorkers were more than three times as likely as Chicagoans to report "severe physical problems" with their homes.

How, then, can we improve housing conditions, if brick and stone and mortar won't do the trick? Figure 4, which contains data about neighborhoods, suggests more fruitful, innovative directions. The most intriguing piece of information is that New Yorkers are significantly less satisfied with their neighborhoods than with their houses, and the problems they cite crime, vagrants, traffic, litter, and street repair—are all amenable to improvement by city government.

Almost half of all responding households reported some problems with their neighborhood. Among the most frequent complaints, cited by 18 percent, were unacceptable levels of crime. In a related complaint, 16 percent of households in New York reported the presence of undesirable people. The most widespread complaints, other than those about human beings, were about noise and traffic. Thirty-eight percent thought their streets needed repairs. Likewise, though only 6 to 8 percent of households volunteered litter as a top complaint, nearly half reported that their neighborhood had some.

The fact that New Yorkers are having a harder time finding neighborhoods they like than finding dwellings they like is confirmed in Figure 5, which summarizes a series of questions the American Housing Survey asked to people who recently moved.

Why did the people who moved in the past year do so? There were three major reasons: changes in household status (starting one's own household because of marriage, divorce, or other changes in personal relationships); the desire for a better or larger home; and the need to be closer to a job or school. The first two reasons each explained no more than one-third of the moves in New York; the last was cited by about one-fifth of those who moved in each city. Thus housing conditions motivate people to move just about a third of the time.

What drives the choice of neighborhood? The single reason cited most often by New Yorkers is the desire to be near friends or family (28 percent). The second is the wish to live in a place more convenient to work (22 percent). But a close third, at 21 percent, is the selection of a neighborhood because of the way it looks.

The single most important factor in the choice of a dwelling in New York was its cost (37 percent). The design and appearance of the dwelling was an important second (26 percent). New Yorkers also had to contend with a low vacancy rate (likely a consequence of rent regulation), because 26 percent of households said they chose the only dwelling available, a response given by only 15 percent of Chicago households.

Did the move improve housing conditions? Apparently, because 59 percent of New Yorkers liked their new dwellings better than the ones they left behind. But New Yorkers are having a more difficult time getting into a better neighborhood: Only 43 percent of New York households thought their new neighborhood was an improvement over the old.

The conclusion that emerges is that people improve their housing conditions by moving, even if that is not their explicit reason for doing so. But they are far more likely to find a better dwelling than a better neighborhood. In general, the American Housing Survey data suggest that neighborhood characteristics and neighborhood appeal are important to housing satisfaction, and that moving is an important tool for increasing housing satisfaction. Even if people move for some other reason, they improve their housing conditions more than half the time by doing so. But it is apparently easier to find the right dwelling than the right neighborhood.

Thus, to maximize consumer satisfaction, New York City's housing policies ought to aim at expanding choice, ensuring a fluid housing market, and increasing the number of attractive neighborhoods among which New Yorkers may choose. Unfortunately, most of New York's current housing policies do exactly the opposite: They tend to narrow consumer choice, restrict the ability of New Yorkers to move, and ignore neighborhood improvement altogether.

For the most part, New York's current housing policies follow the traditional paradigm of replacing physically inferior dwellings with physically superior ones. In the past, this was done largely by building high-rise apartment towers set in large open spaces, and more recently by underwriting the maintenance and renovation of tens of thousands of vacant tenements.

By national standards, an unusually high percentage of New York households are clients or beneficiaries of the existing city housing programs. More than 13 percent of households in New York (twice the percentage in Chicago) have the government or a government-subsidized organization as their landlord.

New York has three basic ways of bringing buildings under city control, which together constitute the bulk of the city's conscious housing policy, as housing specialists have traditionally understood it.

The first route is public housing, reserved for families with incomes at or below the poverty level. The New York City Housing Authority owns and manages 166,000 such units, which account for 5 percent of the total housing stock—a larger proportion than in any other U.S. city.

The second way the city establishes itself in the housing business is through publicly subsidized, privately owned development. In the 1960s and 1970s, 140,000 units of "moderate income" housing were built by private developers under the New York State Mitchell-Lama program. Mitchell-Lama offered tax abatements and below-market-rate mortgages to developers who agreed, for a twenty-year term' to set rents at a publicly determined moderate income level and to restrict tenancy to "moderate income" households. Today, many of the original projects are now eligible to revert to market status. To forestall an expected jump in rents, the State Legislature and New York City's Department of Housing Preservation and Development (HPD) have acted to keep them from going to market, at least for the time being.

One problem with programs that target apartments rather than people is that there is no guarantee that benefits flow to the financially needy. Today, for example, many of the Mitchell-Lama tenants are quite affluent and would no longer meet the moderate-income criterion by which they were originally allowed to move in.

The third major city-run housing policy is the in rem housing program. In the 1970s some 400,000 privately owned apartments, generally in New York's worst neighborhoods, fell into city hands due to in rem foreclosures on tax-delinquent properties. After 1980, in a significant policy shift, the city stopped auctioning off most tax-delinquent residential buildings. Instead, the city's HPD began managing them—and covering the significant operating losses it incurred with unrestricted federal aid intended for general neighborhood improvements.

Today the city still owns and manages about 48,000 apartments. Gradually, HPD has been handing over its tax-foreclosed stock to one of the various rehabilitation programs that comprise its "Housing New York" plan. The ten-year, $5 billion plan, the most ambitious city housing initiative of the 1980s, may continue through most of this decade. It aims to renovate, at city expense, the entire inventory of New York's tax-foreclosed housing. Housing New York essentially gives away in rem buildings to private or nonprofit owners and pays for their rehabilitation, with a stipulation that the new owners manage the buildings for at least five years and reserve them for a city-specified mix of low-income, moderate-income, and formerly homeless households.

Aside from the plan's immense cost, its most important potential impact will be on the physical environment in the most heavily affected neighborhoods. Ideally, these improvements will have a catalytic effect, transforming some of New York's worst neighborhoods into reasonably pleasant places. On the other hand, if the new owners of the renovated apartment buildings want their buildings to succeed, they must draw stable tenants from existing housing nearby, leaving a vacuum that less-stable families will fill. Thus, the city's plan may merely cause the worst neighborhoods to be displaced. There is an unsettling precedent for this latter possibility: By attracting many of that borough's most stable households, the Mitchell-Lama developments built in the Bronx in the 1960s helped to precipitate the collapse of the Bronx housing market and the wholesale abandonment that followed.

The city's in rem housing program hurts neighborhoods in another way: The federal money HPD uses to manage and maintain derelict housing in a few devastated neighborhoods comes out of Community Development Block Grant funds intended for improving neighborhood facilities, such as parks and pools, throughout the city. Yet the quality of city-managed apartments and their surrounding neighborhoods remains abysmally low. If, as the American Housing Survey data suggest, the attractiveness of neighborhoods is very important to housing satisfaction, this may be a poor use of city funds.

All three housing programs that turn the city into a landlord suffer from several key defects: They concentrate most money on improving physical characteristics of structures—improvements which probably do little to improve consumers' housing satisfaction; they tend to lock their beneficiaries into specific, subsidized apartments rather than broaden their ability to choose; and they not only ignore the conditions of the surrounding neighborhoods, but also siphon off funds intended for neighborhood improvements, on the assumption that the poor need shiny new appliances more than clean and safe streets, parks, and playgrounds.

Rent regulation is New York's most pervasive housing program, governing some 1.4 million units of housing, or 45 percent of the entire stock. The program consists of two systems: rent control, which sets rent ceilings on 400,000 dwellings built before 1948, and rent stabilization, which allows limited annual rent increases for most of the rest of the privately owned rental stock.

Rent regulation has been attacked in a growing number of studies which indicate that it has caused New York's rental stock to deteriorate and discouraged new construction. These studies have also shown that rent regulation reduces rents primarily for well-to-do tenants, while most poor and moderate-income tenants receive little benefit (thus New York and Chicago have similar rent-to-income ratios).

But the worst aspect of rent control is that it powerfully constricts choice. Even the minority of New Yorkers (many of whom are affluent) who are receiving a significant economic benefit from rent regulation can, like subsidized tenants in housing projects, retain that benefit only by staying in the same apartment indefinitely. Such people tend to hang on to particular apartments much longer than they would otherwise, thus tightening the market, lowering vacancy rates, and restricting choice. The vast majority of New Yorkers, including most of the poor, get no benefit at all from rent control, but pay the price of low vacancy rates.

New Yorkers, for example, are significantly less mobile than Chicagoans. The 1987 American Housing Survey shows that 15 percent of New Yorkers moved in the previous year, and 55 percent had done so in the previous eight years. By contrast, 19 percent of Chicagoans moved in the previous year, and 65 percent in the previous eight years. Because Chicago has no rent control, this is an extremely suggestive datum: Together with the fact that Chicagoans and New Yorkers spend virtually identical percentages of their income on housing, it suggests that the principal effect of New York's IP rent control system is not to lower prices, but to make it difficult to move.

Rent regulation not only discourages many tenants from moving, but also discourages both new housing construction and the maintenance of existing buildings, thus circumscribing choice on the supply side. For though its economic benefit to average tenants is small, rent regulation can have a devastating effect on particular buildings, either because fixed rents happen to be so low that landlords cannot maintain the structure, or because destructive or nonpaying tenants take advantage of the system's huge tangle of regulations to shield themselves from eviction. Phasing out rent regulation should, over time, appreciably enlarge the housing options of all New Yorkers (including the poor) without significantly raising average rents.

A more fruitful role for city government than landlord or rent regulator may be to help build, maintain, and regulate the environment for all homes in the municipality. In other words, the city could expand housing choice by renovating neighborhoods rather than buildings.

The quality of neighborhoods depends on a variety of factors, many of which are at least partially or indirectly under the city's control. A critical variable is the quality of city services. Are the streets and sidewalks well-maintained? Is there adequate street lighting at night? Has the city planted trees to add greenery and grace to a crowded urban block? Are there parks and playgrounds, and are they clean and inviting? Are public buildings in the area kept in good repair? When the government does these things badly, it pulls down neighborhoods, narrows housing choices, and makes those that remain less attractive. The better the delivery of these ambient housing services, the better the housing choices available for New Yorkers.

The city could improve housing conditions dramatically by physically upgrading existing neighborhoods—constructing and maintaining roads, parks, public facilities, and other amenities. The city currently receives $250 million a year from the Federal Government expressly for this purpose, in the form of the Community Development Block Grant. But it spends most of this money maintaining tenement structures abandoned by their private owners. The city should restore these funds to their original purpose. In addition, it should consider allocating more of its regular capital budget to neighborhood improvements and direct greater allocations from the operating budget to road and park maintenance.

Besides directly providing services, the city also exerts a profound indirect influence on the quality of neighborhoods by the mix of activities it permits in the area through zoning for stores, apartment houses, garages, and other uses. The height, setbacks, and other design restrictions it imposes and the extent to which it enforces laws and regulations regarding the use and upkeep of structures also play a part. Zoning, properly understood, can be a powerful tool for maintaining the quality of neighborhoods and encouraging new residential development.

Unfortunately, New York's current zoning regime mostly undermines, rather than enhances, neighborhoods. One reason that the shortage of rental housing has not been alleviated by new construction is that New York City has imposed rigid land-use controls that thwart the development and renewal of New York's housing stock. Overlapping layers of regulation—a restrictive zoning code, repeated zoning amendments, environmental reviews, community hearings, and historic landmark designations—have discouraged new construction, further aggravating the city's shortage of rental housing.

In New York, as-of-right zoning has virtually disappeared within cocooning layers of discretionary review. The result is site-specific zoning, in which the city strikes deals with developers, trading away some zoning restrictions in exchange for public benefits. "Zoning for sale" is a bad idea, however. In the first place, it restricts renewal efforts because it is a game that only a few well-funded developers, flanked by costly lobbyists, can afford. Moreover, there is no guarantee that the "concessions" extracted from developers are worth the concessions they receive, and no way to measure whether they are.

To encourage private mid-priced housing development, the city might consider selling, to the highest reasonable bidders, some of the thousands of acres of developable land that it owns or controls, and whose disposition has been held hostage to unrealistic, time-consuming planning and policy constraints.

New York also needs to rescue neighborhoods inappropriately zoned for manufacturing. In 1961, the city tried to hold on to its manufacturing base by setting aside large areas exclusively for manufacturing.

Thirty years later, the number of manufacturing companies continues to decline, but the arbitrary curbs on residential development remain. The result is that despite high rents and low vacancy rates, many neighborhoods, such as Brooklyn's Red Hook and Sunset Park, have not been allowed to convert unused and decaying warehouse and factory land to residential use.

The biggest reason New York's government should pay more attention to supporting and maintaining good neighborhoods is that this is a job which city government is set up to do. Improving the physical condition of individual dwellings or building masses of new ones, however, is not a job government does particularly well, but it is one that other parties can more successfully undertake.

Most people can find solutions to problems inside their own front door. They need help with what is outside, and it is there that government has failed them. In the end, only government can set and enforce the rules for communal and public spaces. Private citizens and citizens' groups can help, but the authority and much of the funding will always come from government. Only government can fix New York's zoning mess. Only government can deploy the police department to help citizens keep order in neighborhoods. Only government can sweep the common streets and collect the trash, or at least set the rules and pay the bills for such services. Government action is required to fix the public schools. Doing so would also expand housing choices, for as it became easier to find neighborhoods with decent schools, the price and difficulty of buying into such neighborhoods would decline. All of these neighborhood services are actually housing improvement services, though few housing planners ever write about them, and all depend in some crucial way on government.

By comparison, broken plaster or even leaky pipes are easy to fix. Most American homeowners resolve such problems themselves all the time. In most other cities, renters often handle such problems themselves, negotiating with the landlord to shave the rent in exchange for do-it-yourself maintenance. In New York, unfortunately, such arrangements are relatively rare, in part because of the adversarial atmosphere created by rent regulation.

Improving neighborhoods through better city services and encouraging new development through appropriate zoning changes would widen the housing choices of all New Yorkers. But a comprehensive housing policy must take on one other task. After all, there is a reason the city got into the landlord business—a reason that a better housing policy, which takes consumer satisfaction seriously, cannot afford to ignore: improving the housing of the poor.

Making homes more affordable for the poor is a key aspect of increasing choice. The problem with the traditional way of increasing affordability—building or renovating subsidized housing—is that it also reduces choice by pouring the available resources into projects that many people do not like. Even good projects, as we noted, may have the effect of destroying nearby neighborhoods by siphoning off the most stable residents.

A far cheaper approach, and one that also harnesses the power of consumer choice, is to give eligible households vouchers to bridge the gap between market and affordable rents. The $1 billion per year the city already spends, directly or indirectly, on housing subsidies could easily fund a comprehensive voucher program reaching more families at a lower cost.

Housing vouchers subsidize people rather than buildings. Instead of stuffing the poor into the "one size fits all" dwellings city planners have prepared for them, vouchers allow the poor to make the same personal trade-offs between location, size, price, amenities, neighborhood, and appearance that wealthier housing consumers make. Vouchers also preserve for poor people the right to move as their needs change, rather than trapping them within the same four walls for the duration of their poverty.

The goals of traditional national and local housing programs, which emphasize the replacement of substandard dwellings and focus on the poor and near-poor as clients, are radically at variance with the concerns of the vast majority of households, even poor ones. Once we break free from the biases of the housing specialists, the elements of an effective housing policy are relatively simple. Subsidize people, rather than structures; build up neighborhoods, rather than housing bureaucracies; liberate captive neighborhoods from stifling land-use and zoning laws; and end the destructive reign of rent control.