Bringing Soviet Planning to New York City

New York City Mayor Bill de Blasio wants to bring the same policies that worked so well in the Soviet Union, and more recently in Venezuela, to New York City. “If I had my druthers, the city government would determine every single plot of land, how development would proceed,” he says. “And there would be very stringent requirements around income levels and rents.”

As shown in the urban planning classic, The Ideal Communist City, soviet planners also believed they were smart enough to know how every single plot of land in their cities should be used. The cities built on their planning principles were appallingly ugly and unlivable. They were environmentally sustainable only so long as communism kept people too poor to afford cars and larger homes.

If de Blasio believes in this planning system so much, why doesn’t he implement it in New York City? The biggest obstacle, he says, is “the way our legal system is structured to favor private property.” He blames housing affordability problems on greedy developers who only build for millionaires.

The reality is that, under the control of private property owners, New York City housing was quite affordable in 1969. It was only when planners began to interfere with private property rights that housing prices spiraled out of control.

In 1969, New York City median family incomes were $,9692 and median home prices were $25,700, for a value-to-income ratio of 2.7. This was affordable because, at 5 percent interest, someone could devote 25 percent of their income to a mortgage that is 2.7 times their income and pay off the loan in 15 years. Housing was even more affordable in the suburbs, as value-to-income ratios in the New York metropolitan area were 2.6.

By comparison, value-to-income ratios in 2015 were 8.8 for the city and 5.1 for the metropolitan area. Even at today’s 3 percent interest rates, someone buying a home that is 8.8 times their income could devote a third of their income to the mortgage and not be able to pay it off in 40 years.

What happened since 1969 to make housing so much less affordable? Contrary to de Blasio, one thing that didn’t happen is that developers got greedier. While there is no accurate measure, I am sure that people were just as greedy in 1969 as they are today. The human desire to accumulate wealth hasn’t changed in thousands of years, which is one reason why the kind of socialism that de Blasio favors never works.

Instead, one thing that happened was rent control. New York state first imposed rent control in 1950, but the law exempted rental housing built after 1947, and other housing was gradually deregulated through 1969. But in 1969, New York passed a new law that applied rent control to all housing, thus discouraging anyone from building new rental housing.

Another thing that happened was the city’s historic preservation ordinance, which was passed in 1965 and which has gradually restricted more and more of the city from redevelopment. More recently, New York City responded to unaffordable housing by passing an inclusionary zoning ordinance which provides affordable housing for a tiny number of people at the expense of making it less affordable for everyone else.

New Jersey and Connecticut did their part by passing statewide growth management laws, thus restricting people’s ability to escape New York City’s high housing prices by moving to the suburbs. Connecticut first passed its law in 1974 and New Jersey in 1986.

All of these actions are examples of the kind of government control that de Blasio supports, and all of them contributed to the high housing costs that de Blasio objects to. The next time he wants to find a greedy person to blame for unaffordable housing, he should look in a mirror.


8 thoughts on “Bringing Soviet Planning to New York City

  1. prk166

    I would imagine some of Mayor de Balsio’s dedicated supporters are quite used to talking about feedback loops when they espouse to the world about the dangers of climate change.

    I’m curious what they’d think of the feedback loop going on here. However it got rolling, we see an economy that’s working well for the upper middle class and the wealthy. They have more money to spend on housing. That encourages builders and buyers to find more housing that they like to be able to sell it to them.

    At the same time, de Blasio is putting his boot heel on the neck of those renting out their properties to people on the low end of the income spectrum. He’s held up a large number of evictions, already a very lengthy extremely costly process for the owners. And he’s tightened the rent caps that are in place.

    This makes anyone looking to buy property all the less likely to invest in something on the middle and lower end of the market. That in turns gives existing property owners needing to do something today, more of push to do something for the high end of the market.

    Less units than would otherwise exist at the low end gives politicians like de Blasio more incentive to create even more evictions and rent restrictions on the low end. That further pushes market activity away from the low and middle end and to the upper middle and high end.

    Foreign buyers from China, Russia and elsewhere may be primarily looking to squirel away wealth where their native authoritarian governments can’t grab it from them. But when they see what’s going on in that market, they may be tempted to buy more to try to make some money themselves. Which helps drive up more demand on top of the local upper and wealthy doing well and spending more on housing.

    etc, etc, etc.

    I’d be curious if they recognize that feedback look. Or if they only invoke them when it’s expedient for their ideology.

  2. prk166

    I’m not sure how much of a difference restrictions would make in New York City itself when it comes to housing prices. I’d imagine some. But I get a sense that a key component to the high sales are the wealthy and the super wealthy.

    If that’s the case, then a lot of what is driving this is the new economy and globalization. More supply may mitigate some of the pricing but I’m not sure how much it would help fill units with locals living and working in NYC. Most of the foreign buyers are buying regular homes in places like Florida and Texas. I get the sense that global cities like NYC are getting more of the wealth buying in.

    Less regs in NYC may simply mean a glut of tear downs with even more high rises going up to sell to that market. It may not result in much in the way for units on the lower and middle part of the spectrum even out on suburban Long Island.


  3. JOHN1000

    Rents in NYC have to be ridiculously high just to cover the taxes and utility costs.

    Only deBlasio and his friends believe that a property owner can rent theproperty for less than it costs to maintain and still magically make a profit. Making a profit is considered to be a criminal activity by deBlasio so his administration makes it hard to do so. And he blames the greedy landlords when the people have to pay what it costs to meet deBlasio’s taxes and demands..

    As for the super rich, that is a small fraction of the seven + million who live in NYC. Builders go broke if they build more than they can sell or rent so if they keep building multi-million dollar penthouses, they will run out of buyers because the average person can’t just print money to buy/rent one. No affect on average housing at all.

  4. LazyReader

    Rents and taxes are high to finance the city’s impending and enormous infrastructure deficit. Subways, roads, streets, electrical, sewage, water. Punch that with hundreds of thousands of illegal aliens who live in the city and pay little or nothing on the services they utilize, but they wanna give em drivers licenses…then charge these “poor, unfortunate” masses congestion fees.

    The great MIT economist Robert Solow once made the joke that the way to do a PhD in economics was to find some crazy social arrangement or outcome in the world and then think of the informational asymmetry that made it constrained efficient. The most plausible case along these lines was made by Robert Allen in his book Farm to Factory. Allen pointed out, rightly of course, that in 1917 the Soviet Union was a very backward economy with poor institutions and far behind the world technology frontier. Allen’s big leap was to argue that in an environment with poor institutions central planning was a rational way of industrializing such an economy. In fact, if you compare the growth of the Soviet Union to that of other parts of the world, such as Latin America, over the period 1928-1970, the Soviet Union does quite well. For 40 years the Soviet Union was indeed a growth miracle, but it was a spectacularly unsustainable one based on extractive political and economic institutions. The powerful Soviet state could generate large productivity increases by moving people from rural areas and putting them into factories. But the system totally failed to generate incentives for improving productivity or for innovation except in military areas where they put a huge amount of resources. Inevitably the Soviet economy ultimately collapsed. When people were not forced to buy the goods Soviet industry produced, they went out of business, and now the Russian economy is held up not by the benefits of centrally planned industrialization but by high natural resource prices.

  5. LazyReader

    If you don’t watch Alex Jones or Glenn Beck for amusement, watch it for they occasionally illustrate why socialism and planned society fail. Gregory Copley, author of 34 books and thousands of articles, and an advisor to governments on strategic long-term planning. Greg is one of the last great Big Picture thinkers, a philosopher, and a devoted student of history. Key forces shaping the world?—?depopulation, urbanization and nationalism. Because of their sluggish pace of manifestation, these are not sexy, nor are they necessarily immediately investable, but they are key to strategic understanding?—?the closest thing to a crystal ball.
    The Globalists forces use massive, urban centers, megacities, to destroy communities and usher in complete control over populations.

    Megacities are unstable systems poised over an abyss of their own making. As the countryside becomes depopulated and the knowledge base of agriculture shrinks, the potential for a food-supply disaster increases. Urbanities have no appreciation for how food appears on their plates and no, not the foodies who cultivate stuff in alley gardens are few and far between. They do not understand soil, the implications of drought on crops, logistical complexities, etc. Perhaps more significantly, “urban man” is now “energy man”. As electricity dominates life to a far greater degree than ever before, we are painfully vulnerable. Today, the real threat is cyber warfare, not nuclear weapons. If a cyberattack were to bring down the grid in the American northeast for two weeks, tens of million would die for lack of food, water, sewage removal, etc. How, after all, can we filter water without electrical power? Trillions will need to be spent rebuilding infrastructure to reduce these risks. Governments will need to start planning and acting. The investment opportunities are theoretically enormous.

  6. prk166

    In fact, if you compare the growth of the Soviet Union to that of other parts of the world, such as Latin America, over the period 1928-1970, the Soviet Union does quite well.
    ” ~ Lazy Reader

    ONly if

    a) You assume that Soviet numbers were relatively accurate. There’s a butt ton of evidence that it was far from that.

    b) It’s not amazing at all. Russia had already been rapidly industrializing. In fact, prior to the Feb 1917 revolution that brought democracy and the Oct 1917 that brought communism and the ensuring 6 year ( ? ) civil war, they were starting at a measurement that was low due to internal strife and war.

    I can’t say this enough. Russia was rapidly industrializing before Lenin and Stalin morphed it into the Soviet Union. What happened after was nothing different than what was happening before. Below is one example of a body of academic evidence of the growth rate.

    It should be pointed out that the Russian average (GDI/GDP) for
    1885-1913 (12-14 %) was, however, 1.5 times lower than in Germany, the USA and
    Japan (large and dynamic economies of the late 19th – beginning of the 20th cc.).
    Starting from the very low levels, Russia during its period of industrialization
    (1885-1913) eventually outstripped many of the large now advanced countries during
    the periods of their industrial surge by average annual growth rates of Physical Capital
    per unit of Labor: in Russia 2.2-2.3%; in Great Britain (1785-1845) 0.5%; in France
    (1820-1869) 1.2-1.3%; in Germany (1850-1900) 1.5-1.6%; in the USA (1840-1890)
    1.9-2.0%; in Italy (1895-1938) 2.0-2.1%; in Japan (1885-1938) 3.1-3.2%36.
    As for the estimates of the average annual growth rates of Russian GDP, they are
    still under the debate. According to calculations and estimates of R.Goldsmith and
    O.Crisp, this indicator in 1880-1913 was on the order of 2.7-2.9 %. P.Gregory, who
    made rather sophisticated, detailed calculations of the dynamics of Russian National
    Income, came to a conclusion that in 1885-1913 its average annual growth rate should
    be higher (3.3-3.4 %). His figures look reasonable. The growth rates could have been
    faster. However, combining indices of production, he applied Paasche formulae
    (weights are figures of value added of the last year, 1913). Therefore the shares of less
    dynamic sectors in total sum of value added were understated, and those of more
    dynamic sectors – were overstated. I made some rough recalculations. If to use as
    weights the shares of the sectors in total production for the earlier period (1883-1887,
    or 1894) and to make adjustment for overstatement of the industrial growth (due to
    under-account of rural industrial production during initial phase of the
    industrialization), the corrected figure for average annual growth rate of Russian
    GDP/NI in 1885-1913 would be of the order of 3.1-3.2 %37.

  7. btreynolds

    “But I get a sense that a key component to the high sales are the wealthy and the super wealthy.”

    Good point. There were very few wealthy people in NYC before 1970.

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