MI senior fellows Eric Kober and Michael Hendrix discuss the housing market in New York City. They’re joined by Rebecca Baird-Remba of Commercial Observer and David Schleicher of Yale Law School.
In June, Manhattan's average rents hit a record high, over $5,000 a month. Applying the 40 times rent rule for July prices, the median one-bedroom apartment in New York City requires a $150,000 salary. Why are rents so high? What are the drivers of rental demand today? What role do rent regulations play? And does Mayor Eric Adams's housing plan do anything to tackle today's rental woes? In this week's special episode of 10 Blocks, Eric Kober and Michael Hendrix of the Manhattan Institute are joined by David Schleicher of Yale Law School, and Rebecca Baird-Remba of Commercial Observer to discuss the drivers of surging rent prices in New York City. We hope you enjoy.
Michael Hendrix: Welcome to the Manhattan Institute's event on rent. I'm Michael Hendrix, the senior fellow and director of state and local policy here at MI. It's good to be with you. By rent, of course, I'm referring to what you pay to put a roof over your head. And New York's been a pricey place to live—we all know that. But after a pandemic-era reprieve, rents by all accounts are soaring once more throughout The Big Apple. The median rent on newly leased Manhattan apartments reached $5,000 a month in June, according to one report. And the number of homes renting for less than $1,500 a month is rapidly shrinking. So why is this? And why are rents so high, and for whom? What can we do about it?
To give us a complete picture of all of this, and New York City's rental market today, and these important questions—as part of our Klinsky series here in New York, we're going to be asking a terrific panel of experts to fill us in on the details. And what all this has to do with the economy, and law, and politics. There's so much to get into. First up, Rebecca Baird-Remba, reporter for Commercial Observer. Rebecca's lived in New York City since moving for college. She got her start covering real estate with Brownstoner and worked at NY YIMBY before heading to Commercial Observer. Next up, Eric Kober, senior fellow at the Manhattan Institute. He retired in 2017 as director of housing, economic, and infrastructure planning at the New York City Department of City Planning. Eric's also, I might add, co-teaching the storied introduction to planning and development class at the Yale School of Architecture this fall.
And speaking of Yale, last but not least, we have David Schleicher, professor of law at Yale Law School and an expert on land use, local government law, federalism, urban development, and much more. Also street grids. Definitely, if you run into him talk to him about street grids. You should have a T-shirt saying that. Anyway, thank you so much for joining us. Really excited to dig in here. Rebecca, let's start with you. Give us a sense of how New York City's rental market is looking today. You wrote last month that while Manhattan rents are up, so too are rents even in the once-affordable parts of Brooklyn and Queens. What are you seeing?
Rebecca Baird-Remba: Yeah. So it's just an extremely tight rental market. And it's tighter than it was before the pandemic, because you have all this pent-up demand of people who are moving to the city for the first time, who maybe put it off during the height of the pandemic. And then you have all of these high-income people who left, maybe they went to the Hamptons. Maybe they moved someplace else in the country, maybe they moved to Connecticut, whatever, they're coming back. And so you have this huge crunch in housing that's driving up rents to these really unprecedented levels all over the city, even in places like Bushwick or more affordable parts of Brooklyn and Queens and Upper Manhattan. So there's just this level of anxiety layered over apartment hunting for everyone, particularly middle-income people. But even higher-income people are freaking out about finding any kind of apartment for a normal price in New York City for sure.
Michael Hendrix: Well, we'll get back to that sense of freak-out and what different people at different levels of income are seeing. Eric, I want to get to you to give us the big picture. There was a headline in the New York Times, I think it was this weekend explaining quote, "Why the rent is so high." When we talk about rents, correct me if I'm wrong, but we have to be clear about what portion of the market we're speaking of, where the data is coming from, and so on. What are you seeing across the market whether from new units, newly listed units, rent-regulated units, the black market or elsewhere?
Eric Kober: Well, the fundamental issue in New York City is that it's a city where employment is increasing over time. More people are coming to the city for jobs. The population is increasing, and the housing stock is not increasing fast enough to keep up with the additional demand created by a growing population and employment gains. And the city and the state have really exacerbated that problem by making ill-considered policy choices. For example, the state legislature passed very strict rent controls in 2019. The objective of those rent controls is to enable people to stay in their apartments. And they do a very good job of that. What they didn't think about in the legislature in 2019 was, well, what are we going to do about people who are forming a household in New York City, leaving their parents' home and need a place to live, perhaps partnering with somebody? What are we going to do about people who are coming to the city to take a job? And there the city has really failed. The city controls its zoning resolution.
I was an official at the Department of City Planning during the Bloomberg administration. They did really two things. They did some very ambitious zoning changes in places like Hudson Yards and West Chelsea in Manhattan, Greenpoint and Williamsburg in Brooklyn, and downtown Brooklyn. And they built on zoning changes that were passed in the previous administration, particularly in Long Island City. And so there were a few areas of the city that were zoned for tremendous growth and that grew tremendously in the last decade. And then the other thing that the Bloomberg administration did—it was really a political trade and it seemed like the right thing to do at the time—is that it made the zoning more restrictive in a large swath surrounding the areas where zonings had occurred that resulted in a great amount of development.
But the situation that the city faces in the 2020s is that it has gotten most of the gain from the rezonings that took place during the Bloomberg administration. The de Blasio administration did not follow through with a further program of ambitious rezonings. Most of the rezonings that it did were in low-income neighborhoods and were very dependent on public subsidy. Therefore, the amount of housing that could be constructed is capped by the amount of public subsidy that's available. Late in the de Blasio administration, they rezoned two areas that were high-income, Soho/NoHo and Gowanus, but we've not seen a big payoff yet from those areas. And the city goes into the 2020s with a sort of pumped-up demand because of rent regulation, not enough supply because of restrictive zoning.
Michael Hendrix: That's a great distillation. I'm sure others are going to have some other follow up and feedback on it. But real quick, David, to you. Kind of piggybacking off of Eric, I really want to home in a little bit more on the why question. Why are we seeing the rental market we have today in New York City? Is it possible to give us kind of your snapshot of the varying causes?
David N. Schleicher: Yeah, sure. Thanks for having me. And this is great. I think you can, as with any market, think about demand-side factors and supply-side factors. And Eric started us on the supply-side factors, but I think it's useful to start off with the fact that short-run things are almost all driven by changes in demand. The long-run factors are almost all . . . The most important thing will be supply. In the short run, New Yorkers frequently have the pretty myopic attitude toward what's happening elsewhere in the world, and not thinking too much about what happens away of our island, out of sight of our city. But you saw a huge increase in housing prices all across the country. In fact, much larger increase in housing prices outside of the downtown cores of the other metro areas. And the basic story is that you saw big increases in housing demand, partially from people wanting more space for work from home, and large increases in household formation, people leaving their parents' house or breaking up roommates or whatever.
And this effect was muted in New York City in part because there was somehow migration due to the same forces, people wanting yards or whatever. And partially due to declining immigration, which has two effects. One is there's just fewer people seeking apartments, but also immigrants use housing more intensively than non-immigrants. And so you have fewer people per unit. And what we've seen in the last recent period as Rebecca noted, is New York kind of catching up somewhat to national trends. It was going at a fast rate because it didn't see the increase before, but that you are seeing the kind of increases in household formation that are driving demand in the New York market the way that you see them driving demand elsewhere. That people are breaking up groups of roommates. If you need to Zoom occasionally, having seven roommates in a ratty flatiron apartment is not advisable. And so that's the trend.
But the bigger story is that even though New York City is seeing huge, fast increases in rent, and the market seems completely bonkers, over the last three years there's been faster increases in Boise and faster increases in Westport overall—two different types of places—than there have been in New York City. Now, the rates of change are coming off the prices they were in 2019 and 2020, which were ridiculously high to start off with. And the driving forces there, as Eric noted, were things about the restrictions we put on building housing. Housing growth in New York City has been per capita extraordinarily slow for 30 years, or even more than that, perhaps. We think of San Francisco as a slow-growth place, but New York City per capita builds much less housing than San Francisco does. And New York City's metropolitan area is even worse, probably the two biggest limiters of growth in terms of where there's a lot of demand are Westchester and Nassau counties.
New Jersey's obviously much better. Connecticut, the less said about it, the better on this front. And there are a lot of policy reasons which I'm sure we'll get into in a minute, or policy decisions that Eric kind of got us started talking about. But the broad picture of what's happening with changes in demand that are happening quickly, but in the broader market is that they are driven by that kind of long-run limitation on housing growth. Regulations are a part, but a large part is just the huge number of limits on building.
Michael Hendrix: Rebecca, any thoughts on what Eric or David shared?
Rebecca Baird-Remba: Yeah. It was pretty on point. It's always interesting to hear from people like Eric who oversaw these huge zoning initiatives, especially under Bloomberg, who had a very complicated rezoning legacy that we're still grappling with today. We have this huge mess of luxury development in North Brooklyn that has no affordable housing and that's a Bloomberg legacy. And you sort of have the same thing happening in Hudson Yards. And you sort of have to look back and think about like, maybe these rezonings were good, but these were sort of lost opportunities. And now we have this huge level of vacancy in the sort of highest income levels of housing. And that was sort of borne out in the housing vacancy survey that came out pretty recently, and was true for a lot of the pandemic. So this question is, do we need $7,000 two bedrooms in Greenpoint? I don't know. And that's sort of an issue that the Adams administration is still grappling with today.
Michael Hendrix: Yeah. And I think we'll get back to what types of units are coming on the market and for whom and how. And especially the kind of market-oriented product versus the capital affordable housing product. There's a lot to get into there. Rebecca, just sticking with you for a moment. One kind of question that I had is, I've seen folks wondering online why is it that you can have one set of headlines over the past couple years, warning of crazy out-migration from New York during the pandemic. You sort of had that over here. And then another sort of set of headlines over here warning of crazy demand, for even pricey units. How do you, in writing about this very complicated market, square that circle?
Rebecca Baird-Remba: Yeah. Ultimately, I think it's just simple demand fluctuations with lots of people, especially higher-income people leaving at the height of the pandemic. We also had a lot of lower-income people who were either priced out or died especially in 2020 and the early part of 2021. And so you had these two groups exiting the housing market at the height of the pandemic. And once higher-income people started to come back, and New York City's job market started to rebound, you had both rich people returning from their country houses, their summer homes or whatever. And then you also had younger people who were deciding to move to the city for the first time who'd been putting it off, or college students, that kind of thing, people getting their first job. So you sort of see this quick snap back in the rental market, that happened over the course of a year and a half, or a year. And it sort of just had to do with the amount of inventory on the market in early to mid- 2021 versus early 2022. It's like a 100 percent drop.
David N. Schleicher: I also think that there's been a composition change to some extent. One is declining immigration; immigrants use housing more intensively. They have larger household sizes on average than non-immigrants. And so the immigration decline you saw during the pandemic resulted in housing being used less intensively. Which can result in replacement by somewhat richer populations using housing less intensively, which you can see a population decline—replacing families of six with families of two, that type of thing. And the second thing is, you have seen nationally an increase in housing information, people demanding more space, which can reflect itself in the increasing demand for apartments overall, by decreasing population or not increasing population. And this is something that New York City's been seeing for a long time.
So the population of the Upper East, Upper West sides have been falling or stagnant for a long time. And one of the factors that's driven that has been house-apartment combinations. So if you go in the apartment building I live in in New York, a lot of the apartments are combined two and three apartments. And that is richer people demanding more space, but leads to declining population. And as you see increasing with income inequality, which isn't increasing right now but was increasing for a while, you see things of that sort.
Rebecca Baird-Remba: I have found this among a lot of 60 something, 70 something retired New Yorkers. I know from my cycling club for example, these people who live in Stuyvesant Town, they live on the Upper West. There're empty nesters who live in these like probably rent-stabilized apartments a lot of them, but they're large. So it's like they're not giving up that housing, so we're not seeing the kind of turnover in those more expensive markets that you would've been seeing maybe 30 years ago when those first people were first moving in.
Michael Hendrix: And I was just going to add to Eric, I feel like this is a vindication of something that you were saying back a couple years ago. When there was this battle of a comedy club owner writing on LinkedIn about an obituary for New York City during the height of the pandemic. And then the comedian, Jerry Seinfeld writing a response, and it's like a comic club owner and comedian were fighting over whether New York City was going to die. And I remember he's saying like, well, okay, if rents are going down, maybe this is an opportunity for a new generation to come in, capture opportunity, get their chance to live in Greenwich Village–whatever their cool adjunct experience was. And I think we were called very recently, there was a survey of young graduates of where they would want to move.
And right at the top of the list was New York City. They wanted to be in New York City. And does that seem like a vindication that maybe young people were taking advantage of that kind of momentary pandemic-driven decline in rents to say, you know what, I'm going to live the New York City dream. Or should we kind of still be worried, because I'm also seeing evidence of older millennials in this kind of era of peak household formation saying, maybe I’m interested in having kids, maybe it’s time to eye the exits now. Was it a moment of vindication, or something different?
Eric Kober: Well, it's a moment to which New York is doing sort of what it does or what it has done. There was a period of time in which the immigrants to New York City . . . People who were moving to New York City were dominated by immigrants, and young college-educated adults became the largest group over time as immigration declined. And it began declining prior to the pandemic. And so there is obviously an attraction for young, college-educated adults who find New York an exciting place to live. They find it a place to meet their mate. And that has increasingly been the case, or was certainly the case in the decade before the pandemic. But those people, when they have children as many of them do, often decide to move to someplace where a house with a yard is more readily available and less expensive.
And so we have this continual churning of the population. What I think happened in 2020, is that the class of 2020, the people who graduated from college didn't really arrive because businesses weren't hiring. And so they took refuge for a while perhaps in their parents' homes. But they came eventually in the 2021, and the class of 2021 came as well. And the class of '22 now has come. And so the migration of young college educated adults back to the city has resumed, that employers are hiring. And perhaps people who can work from home all the time if they're young college-educated adults, they like the idea of working from home from New York City because they view it as a great place to live. And so all of this is propping up the housing demand at a time in which the supply is simply not increasing at a rate commensurate with demand.
And so we see these battles over the few market-rate apartments that are available where people end up paying more than the asking rent. And we see these under-the-table payments for rent-stabilized apartments when they become available. And so the only way we're going to get out of this is to greatly increase the number of apartments that are available for people to rent. And the city council in the last budget cycle had a big discussion about whether we should double the amount of city aid to build publicly subsidized housing. And that didn't happen. The city is really constrained in terms of the amount of money that it put into its capital budget. And so we're left with really the one and only way that this is going to happen, which is to allow private investment in housing on a large scale. And that is something that at this point, neither, the city council or the state legislature is prepared to counter. And it's a very, very distressing situation in which there's really only one way out, and we're not taking it.
Michael Hendrix: So Eric, I want to do a deeper dive shift to part two of the conversation, a deeper dive into the causes here. So just to stay with you for a moment, you said as part of your response that we need more housing. And that kind of implies we just need housing of all types. But as you also noted toward the end that this often does point to a conversation on what type of housing are we talking about that's being approved. Is it—whatever you want to call it—luxury housing? Is it subsidized housing? How is it being subsidized? Is this middle-income subsidized housing? And just on and on.
Are you of the mind that we just need all housing of all types and just let it rip? Do you think that there's some kind of nuanced middle that you take? Going to put words in your mouth that you can push back on. Or do you agree with those who would say really we cannot fight our way out of this without subsidy being the kind of main tool to fight for affordability?
Eric Kober: Well, I do believe, first of all, that we need geographically dispersed housing. One of the markers of the last decade was that housing construction was not geographically dispersed. A handful of neighborhoods got a lot of new housing mostly under rezonings that were passed during the Bloomberg administration, and the Giuliani administration. And many community districts in the city got very little housing, including community districts that are relatively affluent, and where the level of rents and condominium sale prices would support the construction of new housing. So we need geographically dispersed housing. In order to do that we need to have a way to produce non-luxury housing. Rebecca talked about two-bedroom apartments renting for $7,000 a month, and clearly we could do rezonings of the most affluent parts of the city.
And we could even cross-subsidize lower-rent units with the rents as high as $7,000 a month. And that is essentially the policy that was adopted during the de Blasio administration, which was called Mandatory Inclusionary Housing, which required that every new building cross-subsidize affordable housing. The problem with that is twofold. First of all, it only works with another program, a tax-exception program called section 420-a which expired in June of this year. So right now, there is no tax-exemption program. And without that tax-exception program, the economics just don't work anywhere. The second problem was that, even with the tax exception program, the economics only worked in the most affluent parts of the city. And we've seen a handful of these buildings constructed with only tax abatements, both in Manhattan and in the other higher-end parts of Brooklyn.
But in the broad swath of middle-income neighborhoods around the city, we've not seen any units constructed without public subsidy, even where places that had permissive zoning prior to the inauguration of the de Blasio administration are getting new housing. Places you know that I've written about like Forest Hills in Queens where a special zoning district was enacted in 2009 and has produced perhaps a half-dozen new apartment buildings at this point, and could produce more over time. But it doesn't have these cross-subsidy requirements. So the city needs to reconcile itself to building housing in middle-income neighborhoods. And not imposing such strict affordability requirements on them that nothing gets built at all, so that is something that's very important. Another thing that's very important is to look at housing types.
One of the consequences of the widespread down-zonings that took place during the Bloomberg administration is that a housing type that was very common prior to these down-zonings has become very uncommon. It's what is sometimes called by national commentators missing-middle housing. It is a walk-up building with three apartments stacked one on top of the other. It's a relatively low-cost prototype to build. And it's very difficult to find this kind of place in the broad swaths of the boroughs outside of Manhattan, where you can do it legally at this point. And that's the kind of housing that was built by smaller developers, by immigrants, by minorities. And we missed that housing type because we've really zoned to prohibit it. So there are many things that the city needs to do to create a sort of geographically broad increase in the amount of housing being constructed.
Michael Hendrix: David, I wonder if you have thoughts on this and specifically on the geographical breadth point that Eric made. Should for instance, Northern New Jersey be a key part of New York City's housing strategy along with Connecticut?
David N. Schleicher: It is terrific that Northern New Jersey is building a lot of housing. I think that generally housing experts make these issues much more complicated than they actually are. For any given amount of housing that's built, people will adapt it to their uses. And so we sometimes, for instance, limit the number of dwelling units per building, but then we see a legal conversion into multiple apartments inside those apartments. Or ultimately, where we have lots of apartments and people will demand bigger places, people will buy two apartments and combine them. The central question for housing markets is just how much there is in terms of number of amount of housing that gets built. And in terms of geographically spreading it, there are political reasons why we'd want to do that. And there are infrastructural reasons to balance subway lines and this kind of thing.
But the broader question is just the amount that gets built overall. And that is the driving force on prices. Now, in terms of the geographic spread, a lot of the issue is not just in New York City as you noted, but in New York City suburbs which are the slowest growing, most NIMBYish places in Christendom (not fair—there are some places in London that are as bad, but there are not many in the world. Shout out to people in Marin County, I guess.) I'll step back a little bit and probably give some historical perspective. Up until roughly the 1980s, there were no housing markets, possible exception of the ones in California, where the regional cost of housing was higher than the average cost of building housing.
And this is because there's always some place to build. And the two places to build were largely in the exurbs and in the big city. Starting roughly in the 1980s, this ceased to be the case. And this is because you saw across lots and lots of jurisdictions, enough restrictions go in such that build housing wasn't being built in the broader region. One part of that story was kind of the ending of the exurban fringe. And one thing we may see now by the way, is the exurban fringe gets further and further away in a work-from-home world than it did before. And so we may get people on the commute one time a week or something, or a couple times a month. The relative market may get bigger in that respect, and that may be a limiting factor on housing prices.
The other thing is the big city, which in traditional models was run by growth machines, but in most big cities around the country that has ceased to be the case, at least in most coastal big cities and this used to be the case. In New York it stopped earlier, we were ahead of the curve. We killed that golden goose in the 1960s. But the broader story here is that we've seen restrictions across lots of jurisdictions. And you see a few pro-growth jurisdictions in northern New Jersey, but it is a very small factor in a very large housing market. So the real question is just the amount of housing that gets built, broadly speaking. There are political reasons why you want to spread it. There are necessities, too. But if we could build extremely tall towers and New York City got rid of it's 12 F.A.R. cap on residential, that could also limit housing prices. And we could build lots of towers in Manhattan, theoretically that could have that effect also.
Michael Hendrix: David, real quick. Do you agree with the sentiment that today's luxury housing might be tomorrow's affordable housing in a world of housing abundance?
David N. Schleicher: Of course, anyone who's lived in New York has lived through this. So, I don't generally like personal-level anecdotes, but I grew up briefly in part of what was a brownstone in Park Slope that was built as a mansion, was converted into apartments, which is when I lived there briefly. And then was reconverted back into a mansion. And that is the story of the broad housing supply, having an effect on one individual unit. So we can convert units from being luxury to being non-luxury. It was non-luxury in the brief period when I lived there, possibly because I was a disamenity or something. And we see that across all types of housing markets. And you see in places like Houston, which has these very fluid housing markets, that relatively quickly middle-class housing get divided up into apartments.
They get broke, put back together. And the question is mostly just like built space devoted to housing. We can talk about conversions and stuff like that if you want to. But yes, I do believe luxury housing can become non-luxury housing. And also building luxury housing draws demand away from other housing. Evan Mast did this great study of New York. This doesn’t replicate in other places as well, but building a new luxury unit means that people who would've otherwise bought a less-luxury unit, and put in whatever that font is that people put on their brownstones when they become yuppified, and that become the other side, the neutral font. So those fancy apartments in Greenpoint are drawing demand away from other places and so on.
Michael Hendrix: Yeah. Rebecca, I have a couple questions for you. One from the audience, but first, David and Eric a little bit talked about the cost of construction. You recently wrote a piece on the rising cost of construction. So there's kind of broad supply-demand questions, but also just building kind of any type of housing now, including capital affordable housing. It seems like it's also becoming more expensive nationwide, but also in New York. What did you find in researching your latest piece?
Rebecca Baird-Remba: Yeah, the cost of construction has been going up in New York City forever. I don't know, but it's sort of accelerated in this fairly dramatic way during the pandemic for very concrete supply chain and labor shortage reasons. We don't have enough people to fill certain kinds of construction and skilled trade jobs. And we have very long waits for certain kinds of specialized equipment, like kitchen equipment, HVAC equipment, things that are made with special chips in Asia. And this stuf—it's the air conditioning in your apartment and it's your fridge or your stove. People are like, I can't get this across the Canadian border. I can't get this from Germany. I can't get this from Japan or Italy. And that's a lot of what's slowing down a lot of these projects.
And also more just general material costs. Timber, steel, we get a lot of steel from China. So the fact that we import so much of our construction material, and we are sort of so impacted by the rising cost of not just the commodities themselves, but the cost of transport. So the massive oil shortage, all the Ukraine war stuff. So it's just sort of been this perfect storm of all of these things happening that have sort of created this really big crunch in terms of how expensive it is. And how just sort of like time-consuming it is to build stuff. On top of like just our very sort of slow rezoning process and department of buildings permitting process. And all the other like alphabet soup of things you have to jump through just to do sort of any development in New York City, and not to mention the cost of land.
Michael Hendrix: And I remember reading somewhere the Department of Buildings has today one of the biggest staffing shortages across all of the departments in New York City.
Rebecca Baird-Remba: Absolutely.
Michael Hendrix: And that it's hurting inspections. But also I can imagine of course the people watching this from sort of housing and building Twitter saying, yes, but there's also kind of ongoing building codes issues, stairway requirements, and elevators, and crane or no crane.
But also like I said, just I guess acknowledge that all that kind of discourse exists out there. There's these kind of like big-picture questions that apply to New York, but also many other places that how we build, and the requirements of how we build also kind of just raises the cost of construction as well. Real quick, the people are demanding this. Our viewers are asking about rent regulation, rent stabilization, rent control, just the whole universe of rules around rent. I know it's been mentioned before a little bit early in the conversation. Rebecca, just wanted get your take first. When you hear folks asking this question or you yourself are wondering about this question, how do you approach how rent regulations do or do not play a role in the broader rental marketplace?
Rebecca Baird-Remba: Sure. Yeah, Eric made a good point about this. I think I mentioned it briefly, but I'll expand a little bit on it. Just the fact that the 2019 rent laws, because they dramatically capped the amount of monetary improvements on a percentage basis that landlords can collect from apartment and building renovations in the form of increased rents. That sort of changed the financial incentives for landlords to improve rent-stabilized units. So units that became vacant after the 2019 law passed, a lot of landlords sort of looked at them and said, the rent on this unit is very low, and the financial incentives don't work for me to put whatever it is, $50,000, $100,000 worth of renovation into it. And because I won't be able to collect that in the higher rent. And so you have this sort of shadow economy of units that kind of aren't in good shape because people vacated them after a long time, particularly during the pandemic.
And it's kind of unclear how many there are. When I talk to like Andrew Barrocas at MNS, he'll say I think definitely there's several thousand of these rent-stabilized and uncontrolled units that landlords don't want to fix up, because the rent is so low. And there's no way for them to recoup the cost of essentially a full gut renovation on this apartment. And so it's a really tough situation. And when you talk to the landlord groups, like I talk to Jay Martin at CHIP and he'll say, we need some kind of subsidy or something. There needs to be some kind of financial help for rent-stabilized landlords that can't afford to renovate these units, because it doesn't work for them. They don't have the capital to do it, especially in these sort of middle-income to lower-income parts of New York City, The Bronx, Queens, Southern Eastern Brooklyn, where you have $1,500 units that have essentially disappeared from the market.
David N. Schleicher: Yeah. So there are a couple of things that you would want to think about the effective rent controls on the broader housing supply. And so the first order thing, the kind of normal argument people make about rent control anywhere, is that it decreases incentives to build. In New York City, first of all because it only applies to older buildings absent the newly added things through mandatory inclusion, and which are kind of a separate set of tech system of rent stabilization and rent controls. The effect there is you wouldn't see it as kind of a first order effect.
The question of will it be reimposed on new buildings I think is a newly interesting question. It could be. And so maybe the bigger thing is that we limit supply in so many other ways in New York City, that the effect of rent control and supplies like belts and suspenders. That said rent control has these indirect effects that Rebecca and Eric were talking about, people taking units off the market due to it no longer being worth it to make them habitable or that you can't increase the rents. And secondarily it causes huge effects in misallocation. So richer people with rent-stabilized apartments, in addition to transferring wealth from landlords to renters.
The one thing I'll say on this front is that there are some I think newly interesting legal questions that have emerged about rent control following the Supreme Court's taking cases in the last year. And particularly, with respect to one aspect of the rent-control regulations, which are the limits on owner reoccupation. So the rules of governing owner reoccupation, since an owner of a building or someone who owns a building and wants to move into it themselves, can only move into one unit they own and has to convince a judge that it is necessary. I forget the exact term. This was made much stricter in the 2019 regulation that were part of the broader package that also limited the ability to increase rents for improvement, and got rid of vacancy decontrol and luxury decontrol.
This specific limit on the ability of owners to move back into their units is, I think—and not just me, but other experts think—is potentially legally suspect. It's not really being directly challenged by the litigation being brought by the rent stabilization association. You'd have to like fail at this effort. You'd have to find a landlord who tried to move in and was rejected, and then have a case that was going to take a little while. But I think that this is pretty vulnerable following the Supreme court's recent decisions and could be because of big change in New York City rent regulation, because it would effectively allow for the condemnation of all rent stabilized apartments in one way or another.
Rebecca Baird-Remba: So maybe it sounds like you're aware of this, but the RSA case is being heard at the same time as a case from a landlord that's upset about their inability to reoccupy in Long Island City. And I think when it was heard by . . . I want to say the court of appeals, the judges were like very skeptical because the whole setup was like kind of weak, honestly.
David N. Schleicher: It's a great question. So under the old regulation—and the Second Circuit had a previous opinion that said that the Supreme Court has said that rent controls are fine and have been fine since the 1920s. And the Second Circuit has pretty close precedent on if it's going to be reversed, it's going to be reversed by the Supreme Court itself and not by any other institution. And a lower court would never do this. Now is it sure to win? No, but it's somewhat possible, I'd say. It would whether the Supreme Court takes this case up, a case from somewhere else up, you never know. But again, I think that the universe of things the Supreme court may do, people's minds have opened to the possibility of greater change coming from the Supreme court than they might have thought previously across. And geez, I think that the Second Circuit, yes, it was extraordinarily skeptical in that decision.
Rebecca Baird-Remba: And the RSA case is just like rent stabilization is a taking. And it's exactly like this other Supreme Court case where the union organizers shouldn't have been allowed to go organize the grape farm workers in California, which I was like, come on.
David N. Schleicher: The thing about that case, I don't want to derail us too much, is like there is language in that case that they're seizing on. The RSA's case is very strangely set up, but they’re very talented lawyers bringing the case, and they are seizing on things the Supreme Court said. Now, will it be convincing? Does the Supreme Court care what it says? It's a great set of questions that are a little hard to know. But the court, they are seizing on language the court used, even though the situations are extremely disanalogous. The last thing I'll say about it is that the RSA case is, as you noted, this weird frontal attack. It doesn't feel strategic, which was a little strange. But I think that was largely driven by the fact that people were driven nuts by the 2019 law. It made people so crazy and so angry for some good reasons that their litigation ended up being a little . . . I don't know, like all-guns-blazing kind of crazy.
Michael Hendrix: But all that to say, this is a space that we should be watching, and that there will be likely much more to come in the future. And certainly, and I want to turn the conversation to where we go from here at the city and state level. Eric, I do want to come back to you. Rebecca, real quickly though. You're watching all of these kind of reform movements. You're watching what's happening at the city and the state level. What are you hearing from mayor Adams's administration about their housing strategy, the recent issue to plan, what's it status? Where is the administration going? And then I do want to get us back to the state level, and what we're seeing in the courts, and all that coming down the pike. But I really want to come back to New York City real quick.
Rebecca Baird-Remba: Yeah. So it's interesting. I think Eric touched on this, how the state legislature or rather the executive office, Kathy Hochul, she came in, and her office issued this list of zoning overrides that they wanted to do. And the state legislature was like, nope. And so now the state is looking at creating the supportable housing commission to try and fix some of these big problems that impact what makes basically only New York City. So like 421-a property tax reform, which, like our property tax system in New York City, is super inequitable. So we have a lot of these issues that fundamentally the Adams administration kind of can fix. But mostly they can only fix by going and lobbying the state and making it clear that this is a priority for them to fix.
But in terms of Adams's housing plan, I would never claim to speak for the Adams administration but I can sort of tell you what other people's take's on it is. The reactions have been very mixed, because he had this press conference where he announced it and he said, we want to get more people into housing. And he sort of said this is about sort of reducing the barriers to leasing these units and accelerating these processes to get people into housing, accelerating the development process. But then he sort of said, "Well, but I don't have these concrete development goals in terms of number of units." And the de Blasio administration did. De Blasio came out with this plan where he was like, I am going to build X hundred thousand units of housing and people are like, okay. But Adams doesn't, and it's a little more nebulous.
And so people are pretty skeptical at this point about what the administration really wants to do, especially since they're still with these really big staff shortages in the agencies, HPD, DOB— all of these agencies that build and review projects, approve their financing. You sort of have to square all of these different things in order to fix our housing problems. And it's not clear how the Adams administration is like moving forward with doing that other than trying to put more homeless people in hotels because he's getting all this public pressure that people don't like seeing homeless people on the streets. And that there's all of this discussion of like, is the Adams administration really going to deal with the homeless crisis? And how are they really going to do that? He says, I'm going to build 15,000 units of support housing in the next two years, but where's that going to come from? How are we doing that? Like what sites we're building that on?
Michael Hendrix: Yeah. Eric, you had a lot of thoughts on this too. So when Adams came out with his plan, you had thoughts. You also had thoughts too when Governor Hochul had her housing suggestions. Can you give us sort of a rundown of what your reactions were to Adams and Hochul, a way to point us toward your preferred outcomes?
Eric Kober: Well, I think that Adams really faces a perfect storm of everything going wrong at once. And just to sort of give you an idea of this, we talked about construction labor shortages. We talked about the inability of the buildings department to fill positions. This is all related to the housing crisis that it's very hard to get someone to move to the New York metropolitan area, to New York City for a job that's not a high-paying job because there is simply no housing available. And if you have a set of skills that you could use at the building department in New York, you could use it in lots of other cities where warehousing is much more readily available. And even if you paid somewhat less in those cities, because the cost of housing is much lower you can end up with a better standard of living.
So all of these things are related. And I think the criticism that's been directed at Adams is that the proposals that he's made have just not been up to the sort of massive extent of the crisis. And I think certainly that at the staff level they're aware of that, but it's just difficult for political reasons. It's difficult for budgetary reasons to be honest, and to really make a statement about what we need to do. But I think that there are aspects that they're grappling with that we've only touched upon here. Adams has lately been talking a lot about border states, shipping people. Asylum seekers have been released into the United States being shipped into New York City on buses. And ending up in the homeless system in New York City and exacerbating the problems that they have.
But of course, the problem that they have is that they don't have housing to place. These are not people who need supportive housing. They're not a population with special needs. They just need a place to live, but there's no housing for them to be placed into that's available. And so the numbers in terms of homeless that are being housed, the census that the city takes every night, it went down for a while during the pandemic because housing was available. That there were places where you could place people. And that of course is becoming increasingly not the case. So we were heading back toward the levels of sheltered people that we saw at the height of the de Blasio administration in 2018, 2019. So everything is related to everything else. And housing has a lead time that even if you thought of ways to do it, your approval process is very long. The building process that is logged beyond that. So even if you came up with solutions, the crisis would still be about as bad as it is now, or maybe even worse for several years until new housing actually became available.
Michael Hendrix: But nevertheless, in the world of this conversation that we have, David Schleicher has now been appointed housing czar. And he will put forward at the local and the state level, a series of actions that will address what Eric called a crisis. So David, given sweeping powers to address the city's housing market for the long term, what do you do?
David N. Schleicher: First thing I would do with that position is quit. What an unforgiving terrible job that would be. You get yelled at by members of community boards all over the city. Here's the thing, the solutions to this are actually as a policy matter, not complicated at all. We need to somewhere let more housing be built. And we probably also need to reform our property tax system into ways that make it look like any other place’s property tax system. The policy solutions are not complicated, but the politics are remarkably complicated. And I think that I just want to finish off with a couple of thoughts about this. One is that New York City and New York state are completely outside of where the rest of the debate in the rest of the country is on housing.
You see pretty up and down the West coast, but also in Massachusetts and New Hampshire, and certainly among experts, a broad consensus that housing restrictions have become far too strict. And there are a variety of methods, there are things in some policy that are more effective and less effective. But the belief that more supply is the solution to housing prices or allowing more supplies solutions to housing prices, is at this point among experts a relatively universal bend. There's some weird holdouts and dead enders and stuff, but for the most part it is Asia. And you see it increasingly true among policy makers and New York City and New York state are completely outside of that, in which there are officials who say things of this sort. But for the most part the debate does not take the form of, we need to build housing but maybe not here.
It's a variety of people who say, absolutely not in my neighborhood under any circumstances. And now are extremely density-skeptical or building-skeptical. The second thing I'll say about this is the Adams administration's plan kind of operates on two levels. One is kind of quiet, citywide changes that they are proposing and that may pass. You saw some of this during the de Blasio administration. Well, there's a lot of discussion about and we talked briefly about mandatory inclusionary zoning. But probably the most important land-use change that happened during the de Blasio administration was zoning for quality and affordability. Which is a citywide kind of complex boring change that actually freed up a decent amount of new housing. And you're seeing the kind of bubbling up of that in the new Adams administration. The more high profile stuff is neighborhood specific rezonings.
And when Adams was running, I was somewhat hopeful that someone who had the kind of political machine that he'd built around him—big union support but also big employer support—would have the type of political muscle to be able to force things through. And so you saw at the very end of the de Blasio administration, a few neighborhood-specific rezonings. As it's turned out, the Adams administration has not tried at all to do anything on this front. And we've seen the efforts, we just saw a big, huge project not go down, but almost go down in Queens, Central Harlem, all of these projects. And the question that faces the Adams administration is not what to say rhetorically, but do you have the stick to push things through when neighborhood individual council people are doing what they do in trying to stop new projects?
Do you have the political threat and power in order to do this? And the same thing is true, I think, for the Hochul administration in Albany. Says all the right things on housing, made a percent of proposals. And as soon as there was even a slight bit of pushback from a completely no-hope gubernatorial challenger, folded a house of cards. So if I were the challenger, I would try to convince the people who are actually in charge, who are the politicians who lead the things to actually try and to fight on this score. And maybe they'll be successful or maybe they won't. But I think it is important for a New York-centric crowd to remember or notice exactly what a weird outlier New York City and New York state are on this front.
New York City is really the only state that is engaged in absolutely no land-user form of the high-demand states in the whole country. And some states have done kind of gestural things like Connecticut, but at least they're doing something. New York state has done nothing. And New York City is really an outlier in its rhetorical structure relative to other big cities. And so I think that you can be hopeful about certain things about what you're seeing among the political beliefs of young people and other sorts. But New York City is really weird and really different from what you're seeing in the politics of other places.
Eric Kober: Just to build on that, I think that one aspect of that are the politics of the state legislature and the city council. And in other states you have a reform caucus in the state legislature. You have people like Scott Weiner in California—and he's not the only one in the California legislature—people who have put together in the case of California, it's really a cross-party coalition which has managed to pass constructive legislation to sort of push towards a liberalized land-use framework. There's really none of that going on in the New York state legislature. And you could say, well, why is that? It may be a function of one-party rule, maybe a function of the system in which there's an election every two years.
So everybody's always running for reelection. It may be a function of just the sheer number of legislators we have in New York state compared to other states where each legislator represents a larger number of people in New York City. There are more assembly districts, and there are council members. And there are probably too many council members as well. But we've not seen leadership at the state legislature. We've not seen leadership on the city council, rather we've seen just a lot of professed hostility. And I think that the challenges for both the governor and the mayor, who I think sincerely want to move in a pro-housing direction, is how you put together a majority in the legislature and on the city council to do things that move us forward.
And I think another important point about New York state is that procedurally also it's an outlier. It's not only an outlier in terms of not doing things. California is really the only state that has an environmental review process that's comparable, perhaps even worse. I was stunned when Chris Elmendorf wrote an article comparing New York's SEQR process favorably to California's SEQR process. But compared to anybody else, New York state's SEQR process is just enormously expensive, enormously time consuming. And one of the best things the state legislature could do is just exempt housing entirely from this necessity of going through environmental review, particularly in cities of more than 1 million population with a housing emergency. Yes, we can have a traffic impact but is that worse than what we have now?
So I think that's very important. We need obviously some kind of tax reform at the state level. Also, to not have 421-a and not have property tax reform at the same time, just puts us in a situation where rental housing becomes impossible to finance and construct. And we can't really solve our housing crisis under those circumstances. So there are many things that have to be done. There's a political coalition that doesn't exist that has to be put together, and it has to be put together very quickly.
Michael Hendrix: So we've heard the solutions. We've heard the political need. And the need for learning about comparative case studies, case studies of other jurisdictions that have reformed or are in the process of reforming, or at least have the groundwork laid for reform, for that follow Rebecca. Follow her work here in New York. And Eric, I know you just came out with a piece on six rezoning ideas throughout New York. You've done other work too on the jobs-housing mismatch nationwide and in New York. David, everybody please follow David Schleicher on Twitter, his podcast, his academic work, everything from the zoning budgets to consistency requirements in the state zoning enabling acts. You name it, he has great work out there. And thank you for tuning in. Please follow the rest of our work at the Manhattan Institute and my colleagues. And please stay tuned for more conversations like this on important and timely topics in New York City and beyond. Thank you very much.
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