Making Density Affordable

The Antiplanner once wrote that “the definition of a socialist is someone who doesn’t understand that subsidizing something is not the same thing as making it affordable.” New York Mayor Bill de Blasio has often been called a socialist, and seems to fit the mold, proposing to make some housing “affordable” by confiscating money from others.

Specifically, de Blasio’s administration has demanded that, in order to get a permit to build a new school building, Collegiate School–a private school that traces its roots back nearly 500 years–must contribute enough money to build 55 units of “affordable housing.” Worse, those 55 units are estimated to cost at least $50 million (nearly $1 million per unit is affordable?), and if they cost more, Collegiate has to pay the difference. (If they cost less, the city pockets the difference.)

Even if the housing cost far less than $1 million per unit, 55 units of affordable housing aren’t going to have any influence on the affordability of New York City housing. Nor is it likely that whoever ends up living in those housing units falls into a conventional definition of the truly needy. Instead, like many of the beneficiaries of New York’s rent control and other housing laws, they will probably be middle- or upper-middle-class people who happen to be friends with the right people.

Last week, the Antiplanner noted that density makes housing less affordable because of the increased competition for land. Someone challenged that in the comments, and I admit that by itself that claim may be hard to defend. However, it is clear that policies that aim at increasing urban densities end up making land more expensive, which in turn makes housing less affordable.
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New York City is already the densest spot in the United States, and one of the densest in the world. It is expensive partly because of the demand for living there, but also because of land-use policies in New Jersey, Connecticut, and other parts of New York that discourage development.

In 1969, the New York urban area was more affordable, measured by median home value divided by median family income, than Nashville, Tennessee is today. That is, the median home cost about 2.6 times median family income. In 1979, New York’s value-to-income ratio had risen to 3.3, meaning it was still more affordable than Merced, California; Portland, Oregon; or Longmont, Colorado. But by 1989, New York’s value-to-income ratio had risen to 5.5, putting it in the unaffordable category. Only a dozen urban areas are less affordable today, all of them in California or Hawaii.

New York’s affordability ratio has dropped to 5.1, a little better than in 1989 but still unaffordable. Even at today’s low interest rates, someone making a 10 percent down payment on a loan for a home that is 5.1 times their income and dedicating 25 percent of their income to the loan would require more than 30 years to pay it off.

What made New York (and cities in California and Hawaii) become so much less affordable by 1989 (and earlier in the case of California and Hawaiian cities)? The short answer is land-use regulation. The long answer is a combination of factors including rent control, development restrictions at the urban periphery, a lengthy permitting process, and other regulatory programs. But the only one that really counts is the restrictions at the periphery, for without those restrictions any region has an escape valve that allows people to avoid all of the other rules.

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About The Antiplanner

The Antiplanner is a forester and economist with more than fifty years of experience critiquing government land-use and transportation plans.

11 Responses to Making Density Affordable

  1. ahwr says:

    What’s the history here? On one parcel of a large development project that was supposed to contain “affordable” housing the developer wanted to renege on the prior agreement, and reduce the number of below market rate apartments that would have to be built, and put up a school instead. Now they want to go a step further and build no “affordable” housing on site, and the AP and Reason complain that the city expects them to at least pay part of the cost of building those units off site in exchange for their zoning change.

    AP is right though, many “affordable” housing units built under Bloomberg weren’t, and some were unavailable to those who made less than 100k.

    For a longish read:

    http://www.anhd.org/wp-content/uploads/2011/07/Real-Affordability-Evaluation-of-the-Bloomberg-Housing-Program2.pdf

    If a few ended up in the hands of friends of politicians instead of being given out by lottery, it’s a much smaller part of the problem than saying that thousands of the affordable units that were built require an income at 120%+ AMI.

    How useful is being able to afford a house on the periphery if you can’t afford the commute that takes you two or three hours each way? If I look on Zillow or other listing sites I can find cheap condos and homes in Spring Valley and other areas far from the fringe of the MSA. People don’t want to live there. Cheap housing far out exists, but NYC is still expensive. So much for the escape valve. Can’t help but think that relaxing zoning restrictions, increasing buildable area and removing the cap on number of units per site would be a much more helpful approach.

  2. C. P. Zilliacus says:

    ahwr wrote:

    How useful is being able to afford a house on the periphery if you can’t afford the commute that takes you two or three hours each way? If I look on Zillow or other listing sites I can find cheap condos and homes in Spring Valley and other areas far from the fringe of the MSA. People don’t want to live there. Cheap housing far out exists, but NYC is still expensive. So much for the escape valve. Can’t help but think that relaxing zoning restrictions, increasing buildable area and removing the cap on number of units per site would be a much more helpful approach.

    Sorry, Spring Valley (Rockland County, N.Y.) is not exactly “fringe” when discussing the New York Metropolitan area. Try Monroe County, Pennsylvania (and its neighbor, Pike County) if you want “fringe,” but don’t take my word for it. At least one private bus company runs over 20 weekday trips just from Stroudsburg/Delaware Water Gap to New York City, and I presume they are running those trips to make money.

    The same bus company also runs service between even more distant Scranton, Pennsylvania and New York, which appears to be oriented to commuters willing to tolerate a one-way bus trip of over 2 hours.

  3. Frank says:

    “The same bus company also runs service … which appears to be oriented to commuters willing to tolerate a one-way bus trip of over 2 hours.”

    And how many of those commuters would prefer not to tolerate a one-way bus trip of over two hours? How many of them would prefer to live in Manhattan or NYC proper but can’t afford the rent?

    Ten years ago almost to the month, I was offered a permanent job with the NPS at the Statue of Liberty at GS-5 salary. No way could I afford a place within an hour of work on that salary, so I turned it down (plus the job sounded horrendous). Even Long Island, where I lived for awhile, was extremely expensive, with a two-bedroom apartment renting for $1600—and that’s 11 years ago.

    Again, I call BS on the “land use regulation” has made NYC more expensive. What has made it more expensive is population growth and increased demand. Short of turning Central Park into 100-story high rises, there are simply no open places left to development. Long Island is practically all city to the Hamptons and Riverhead. Perhaps land use regulations can be blamed for protecting older (historic) properties where developers wanted to raze and build, but I doubt the effect is large. Like SF, NYC is geographically constrained, and there has been nowhere to go but up for more than a century. Going up is more expensive than going out. So demand has created density in NYC, and that density is expensive because of demand.

  4. JOHN1000 says:

    I had posted this another day previously but it really belongs here. (Maybe the Antiplanner got the idea for this article from my prior post? That would make me proud.)

    I live in the East and “affordable housing” is the code word for government control. Anything you want to develop in an urban area must have an “affordable component”, which often means making a project unaffordable to the developer unless they bring in some “governmental component” for financing or regulatory approval. Affordable housing apartment projects can cost twice as much as market rate housing (how can it be that building housing for the poor paying low rents costs more than building housing for those with incomes paying market rents?) That’s the trick you get with governmental supply and demand.

  5. ahwr says:

    @CP

    Yes, I said Spring Valley was far from the fringe. What development restrictions are in and around Stroudsberg that are keeping housing in NYC unaffordable? There’s cheap housing there too, it isn’t making it affordable to live in the core.

    @Frank

    You don’t have to go as far as paving over central park.

    http://www.crainsnewyork.com/article/20141120/REAL_ESTATE/141129990/williamsburg-warehouse-fetches-near-record-sum

    Here’s a plot of land that costs $432 per buildable square foot of housing because you’re limited to small buildings. Look at the area. Lot of crap around. If you allowed much taller buildings it would be economical to knock down existing structures and put up much larger ones. There are a lot of low density areas in the city that would be rebuilt denser if it was legal. It wouldn’t require eminent domain or anything of the sort. Just for the city to legalize it. To put that land price in perspective, what’s a wood frame low rise cost to build per square foot excluding land, $100 in a cheap city, maybe closer to $150 in NYC? $200-300 for a highrise? Forget about highrises in Williamsburg, there are single family houses in a lot of the city that would be rebuilt denser if it was legal. Structures with less than five units used to be a sizable chunk of the growth in the city just a few years ago, but the contextual rezonings under Bloomberg killed that market.

    http://newyorkyimby.com/2014/08/where-have-all-of-new-york-citys-small-builders-gone.html

    Now if one of those properties comes on the market it gets rebuilt as a pseudo luxury home, either a rehab or torn down and replaced with a mcmansion. That doesn’t help affordability.

  6. Frank says:

    Thanks for the details and the links.

    “Now if one of those properties comes on the market it gets rebuilt as a pseudo luxury home, either a rehab or torn down and replaced with a mcmansion. That doesn’t help affordability.”

    But isn’t that the result of the housing market in NYC? Certainly one could argue that a portion of that is due to regulations and government that favor their cronies. Certainly some of that is due to high demand.

    Guess the same thing could be said in Seattle where since the year 2000, only 5% of residents who have moved here are middle class (about 50k to 100k for household income).

  7. ahwr says:

    @Frank

    In NYC, in addition to regulations on form (setbacks etc…) every lot has a limit to how much housing can be built, some multiple of the lot area. For low density areas it’s typically 0.5*lot area.

    http://www.nyc.gov/html/dcp/pdf/zone/zoning_handbook/zoning_data_tables.pdf#page=1

    Separate from that every lot has a dwelling unit factor:

    http://www.nyc.gov/html/dcp/gif/zone/zh_density.jpg

    Divide the buildable area by the dwelling unit factor and you have the number of units that can be built – you round up at some point, either half or two thirds, maybe three fourths, it might depend on the zoning. You can always ask for a variance, but what is allowed to be built as of right is important.

    The price of land isn’t static, and any change in regulations could increase or decrease land values, but ignoring that for a moment:

    If a 4000 square foot lot zoned R1-2 is on the market, let’s say the house is in bad shape, maybe it was built in the housing boom after WWII, it’s original inhabitant hasn’t performed much maintenance in decades and just died, it’s going to get torn down and replaced with something. This was reasonably affordable at one point, decent chance the current occupant never made enough money to move into the neighborhood based on today’s prices if they didn’t buy when it was cheaper.

    Let’s say the sale price is $300k. Figure lowrise wood frame construction cost of $150 per square foot. Then a 2000 square foot home is $600k. A 1000 square foot home is half as much house, but still runs you $450k. If you instead allow a two family home to be built on that lot without increasing the buildable area you get two 1000 square foot homes at $300k, maybe with some premium to accommodate fire code or whatever applies to two family homes instead of one, so let’s increase the price to $325k. Now this increases demand for the land, because before only one family homes were allowed, now poorer families can pool resources in the form of a two family home, so let’s add another $50k to the price of the land. So you might have $350k 1000 square foot homes and $650k 2000 square foot homes available where before you have $450k 1000 square foot homes and $600k 2000 square foot homes – in practice you only get the larger homes. If you want to counter that increase in land values per square foot of housing, if you increased what could be built, land values might increase in absolute terms, but per square foot of housing it can drop.

    Now this has a negative impact on those who want a large detached house with a yard. Is supporting the stereotypical American dream, by protecting those buyers from having to bid against those willing to make do in denser conditions, in the public interest?

    There are two main ways for someone to deal with high housing prices. Buy less house, or move further out. AP focuses on the latter. The former is taken away as an option.

  8. Jardinero1 says:

    It is land use regulations. I cite my favorite trailer park example as proof.

    There is a trailer park a few miles from where I live. There are rows of doublewides located on 40 by 80 foot lots with a 30 foot lane running between rows. There is also a little pocket park and community pool with clubhouse in the development.

    I calculated that, including the lane, there were just shy of ten units per acre. Say there are an average of three occupants per unit, then you have 30 people per acre and 19,200 per square mile, including the lane! Call it, conservatively, 17,000 per square mile when you factor in the pocket park which was less than an acre. That’s denser than Boston, 12,900 psm; than Philly, 11400 psm; about the same as San Francisco, 17,600 psm; but less than NYC by just a third, 27,500 psm. Imagine that! A trailer park provides the same density as the urban forms – Philly and Boston and San Francisco – so desired by the densifiers.

    These trailers were 28 by 60 and cost about 85 grand, on average. That represents an installed square foot cost of fifty dollars a square foot. Trailers do not require a concrete footprint, they sit on piles, so trailer parks rarely cause the drainage issues that stick built subdivisions or skyscrapers present. At end of useful life, a trailer can be towed away and completely recycled as scrap. It is environmentally more benign than either a sprawling suburb or even a dense place like boston. If you are serious about increasing density, or reducing housing costs, or reducing your environmental footprint, then you should permit more trailer parks.

  9. ahwr says:

    Those cities devote a lot of land to low density housing and to retail, office, industrial etc…

  10. Frank says:

    Trailer parks? You can’t have housing that DEPRECIATES in value because…then…what will the Fed use to manipulate the economy when people can’t use their inflated home values as ATMs?

  11. CapitalistRoader says:

    Short of turning Central Park into 100-story high rises, there are simply no open places left to development.

    See Hong Kong or Shengzhen or Singapore. No need to build on Central Park. Just build taller buildings.

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