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Socializing Housing To Lower Prices Is a Mistake

To increase overall affordability, let developers build new market-rate homes.

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When Americans seek to revitalize old neighborhoods, local activists often cry that change is resulting in “gentrification”—and to prevent poorer residents from being priced out, they call for heavy-handed government policies, such as rent control. New York City planner Sam Stein argues in his new book, Capital City: Gentrification and the Real Estate State, that the only solution to this dynamic is socializing land use; in his view, capitalist land markets are run for the benefit of developers. But using the law to restrict new market-rate housing is a mistake, because new construction actually increases overall affordability in most cities.

It’s true that in today’s New York City, housing is scarce, and lower-income neighborhoods are caught in a no-win situation. If government policies make a neighborhood more desirable (for example, by lowering crime or improving infrastructure) middle-class people are willing to move there, creating higher demand and thus higher rents. What Stein and other activists overlook is that this trade-off is not equally painful everywhere.  Admittedly, in a few expensive cities, exploding rents and high housing prices are common. But in most growing American cities, housing costs are more reasonable.

Over the 2010s, the fastest-growing large metro areas, such as Raleigh and Orlando, have allowed more housing construction than does New York or San Francisco, and their more generous housing supply has led to lower rents. For example, in 2018 just over 28,000 residential building permits were issued in the Orlando metropolitan area. In metro San Francisco (which has almost twice as many people than Orlando) only 17,421 units were issued, 40 percent fewer than in Orlando. Not surprisingly, Orlando has significantly lower housing costs; the average one-bedroom apartment in Orlando rents for under $1100, far less than most apartments in San Francisco or other expensive cities.

So one might think that the solution to high rents is to allow more housing. But rather than reaching this obvious conclusion, Stein writes that “[s]imply adding housing supply does not necessarily drive down overall prices” because some New York neighborhoods have been up-zoned to allow new housing, yet housing prices have risen. In other words, Stein argues: (1) some new housing supply was created; (2) housing costs rose; thus (3) new housing supply doesn’t hold down costs.

This argument is flawed because “some new housing supply” does not mean “enough housing supply to meet demand.” Stein writes that 69,000 new housing units were built in New York City between 2014 and 2017—that is, just over 17,000 per year. But according to a recent study by the Department of City Planning, the city added 700,000 new jobs, or 70,000 per year, between 2009 and 2018. Thus, Stein’s own data shows that housing supply lags behind the supply of jobs.

Moreover, this level of housing production is hardly high by historical standards. According to the Census Bureau’s American Community Survey, 633,816 of the city’s housing units were built between 1960 and 1979—or over 30,000 per year, far more than in the alleged boom years of the past decade. 761,112 units were built between 1940 and 1959—or almost 40,000 per year.   Thus, New York’s government is not allowing enough new housing either to keep up with demand or to keep up with its prior building levels. If Stein thinks New York has experienced a residential building boom, he is simply wrong. 

Stein especially opposes new market-rate housing in poorer neighborhoods, claiming that such housing “went the wrong way: displacing people of color from areas where they had built power, rather than integrating segregated White neighborhoods.” Thus, he seems to believe that new housing supply (other than subsidized housing for the poor) is bad, bad, bad. 

Stein’s argument seems to be as follows: new market-rate housing creates a “rent gap” between actual rents and possible rents: if people who can afford such housing move into an area, landlords will discover that they can afford to charge more rent, and thus start raising rents and evicting existing tenants. Thus, the solution to gentrification is to keep the non-poor out of poor areas, lest better-off persons infect them with the virus of rising rents. In Stein’s ideal working-class neighborhood, “any future development not only matches a planned community’s aesthetic patterns but also its income mixes.” However, Stein does favor housing of the poor in “rich White enclaves… forcing the wealthy to integrate a little bit.” It is not clear how “rich” a neighborhood must be to qualify for Stein’s proposals, or how “poor” a neighborhood must be to be shielded from gentrification. Still Stein writes near the end of the book that he favors a moratorium on up-zonings, which suggests that he favors no new private housing. 

In other words, Stein appears to favor a one-way movement of poverty: poor areas must stay poor forever, while middle-class and upper-class areas can become poorer. It is unclear whether middle- and upper-class households will find such policies to be desirable, or whether they will just move out of the city as they did in the 1970s.

Moreover, economic data contradicts Stein’s assumption that new housing raises rents for other housing. A recent study by Xiaodi Li of New York University examines new highrises in New York City, finding that “for every 10% increase in the housing stock within a 500-foot buffer, residential rents decrease by 1%” because of increased housing supply.” Another study by economist Evan Mast examines new multi-unit buildings in 12 U.S. cities, and finds that “building 100 new market-rate units opens up the equivalent of 70 units in neighborhoods earning below the area’s median income. In the poorest neighborhoods, it opens up the equivalent of 40 units.” This is because of new housing creates a migration chain: people who rent or buy new units don’t compete for older units, thus opening the older units up to less affluent households.

If new housing isn’t the answer to high rents, what is? Stein writes that “socialized land” is essential, because “as long as land and buildings are bought and sold in a private market, there can be no truly democratic control over the city.” Stein presents Cuba as a role model, claiming that the Communist revolution “did not blow up the colonial city; it took it, retained the beauty it created and transformed the social relations that had produced it.” Havana’s glitzy tourist areas must make Cuba look like a tempting alternative to capitalism. But even the left-leaning BBC now runs stories on “Cuba’s crumbling housing crisis,” pointing out that three buildings collapse daily in Havana alone.

Not surprisingly, Stein also favors sabotaging private ownership of land through rent control and heavy taxation of landlords and landowners. When you make something less profitable, you get less of it—so if the city follows Stein’s short-term prescriptions, it will reduce private housing supply. Stein wants to make up for this loss by building more public housing. But a city that does the former without the latter is likely to have a housing shortage. New York seems eager to do precisely that; its state legislature has strengthened rent-control laws, but seems far less eager to raise taxes to fund millions of new public housing units. So in the long run, New Yorkers may have the worst of both worlds.

Michael Lewyn, an associate professor at Touro Law Center, has written extensively on issues relating to urban and suburban development.

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