Manhattan’s Central Harlem and the South Street Seaport neighborhoods seem to have little in common. Studios in the former can be had for $300,000, while apartments in the latter go for more than $2 million. But the two neighborhoods share an unfortunate link: apartment complexes poised for construction in each are stuck in place and being used as parking lots instead.
The projects demonstrate the problem with the city’s housing politics, especially its requirement that new projects contain enough affordable—meaning subsidized—units. This “mandatory inclusionary housing” policy, which began under Mayor Bill de Blasio, is a cornerstone of the city’s housing regime. But as Manhattan Institute senior fellow Eric Kober has noted, it poses a fundamental obstacle to the development necessary to reduce housing costs citywide.
Affordable units were part of both proposed projects. The Seaport development, located at 250 Water Street, would have contained 270 rental units, with 70 set aside as affordable—defined as within the means of a family of four earning just $45,000 a year. Such units are the price that developers must pay to navigate the city’s planning politics, which, in this case, included review by Manhattan Community Board 1, the Manhattan borough president, the New York City Planning Commission, and the city council. They weren’t enough to help the Howard Hughes Corporation in court, however. A state judge halted the project, agreeing with community opponents that the tower would “overwhelm and dominate” the museum district and overruling the Landmarks Preservation Commission’s approval in the process. Though the developers met the affordability criteria, future developers, already facing reduced profits from the mandate, might reduce their ambitions. (One must wonder, though, whether a building that was significantly smaller, reduced by the absence of the affordable units, might have been more acceptable to the neighbors by being lower-rise. It’s entirely possible, as well, that neighbors were unhappy about the low-income units but judged it impolitic to say so.)
Affordability demands paralyze construction in poorer neighborhoods, too. A parking lot on West 145th Street in Central Harlem was to be the site of a new, 915-unit apartment building. But neighborhood demands that it be “100 percent” affordable—and thus operate at a loss—ensured its status as a truck parking lot instead. The developer had agreed to set aside 40 percent of units as affordable, but that failed to satisfy activists. Indeed, once affordable demands become normalized, advocates admit no limiting principle. Not wanting to operate at a loss, the Harlem developer walked away and is renting the site out to 18-wheelers.
By demanding affordable “set-asides,” the city forces market-rate units to subsidize low-rent ones. In an ideal zoning regime, the affordability mandate would be scrapped. New York already has more subsidized housing than any other city; let developers build whatever zoning allows and charge whatever rents or prices they think they can get. Some buildings will be fancier than others; others will be simpler and more affordable. This time-honored approach gave New York much of its existing housing stock, from Bay Ridge to Pelham Parkway to the Rockaways.
Restoring a truly free housing market would be a stretch, given Gotham’s politics. But reinstating the 421(a) property tax breaks on which new residential development has relied, as seems necessary to spark development, could at least let developers satisfy affordability mandates while turning a profit. Before 2008, this tax incentive allowed developers of market-rate buildings to finance lower-income units in lower-cost neighborhoods, where land is less expensive. Requiring affordable units in neighborhoods with higher land costs will inevitably mean that those units will be costlier to build and that the tax subsidies will support fewer units.
The utopian idea of a socioeconomic cross-section in every building and neighborhood may sound attractive, but it cuts against the grain of Americans’ housing preferences. Census data have long indicated that Americans tend to sort by income and educational status, preferring to live with people like them in those respects.
Construction of more housing of any kind will make more housing available generally. Only so many super-wealthy households live in New York City. Letting the Water Street building sop up some of their demand will mean lower prices elsewhere. Housing markets can work—if only New York would let them.