Jason M. Barr June 22, 2021
Today is primary day, and New Yorkers are heading to the polls. This year, the Big Apple is using ranked choice voting, a bold new experiment in democracy. It shows that New York is still capable of adjusting policies when the need arises. And now that the state has eliminated nearly all pandemic-related restrictions, the city is poised for a rebound.
The next mayor will need to deal with several issues put aside because of the pandemic: Improving housing affordability and fixing transportation. These problems stem from decisions made over sixty years ago. Attempts to alter course have run into push-back from residents who resist policies that will aid in wide scale modernization. Bolder approaches are required to bring New York fully into the 21st century.
The ultimate question then is: How does New York reform itself in a way that does not just tinker on the margins but embraces much-needed, larger-scale reforms? To this end, I propose six policy ideas that will help grease the wheels of change and allow the city to accommodate a larger population while improving affordability and the quality of life.
1. The Transportation System
The Problem
New York’s transportation system is outdated and too easily subject to frustrating congestion and delays. Nearly all the various routes and modes we have today were completed by 1960, and there have been no significant increases in subway lines, highways, railroads, and bridges and tunnels since then.[1] The transportation system is like an overweight 45-year-old man trying to cram into the same jeans he wore in college. The problem is made worse by the decentralized nature of management. Subways and buses are operated by one agency, another maintains the highways, and multiple entities oversee the bridges and tunnels.
The Policy Solution
The goal of any transportation network should be maximum mobility—to move as many people as quickly and efficiently as possible. The solution begins when the city considers all types of transportation—car-based, rail and subway, and bike and pedestrian—as one interconnected system. Then, using big data technology, the system should be operated to allocate this finite resource much more efficiently.
Prices should be continuously set based on relative supply and demand. Prices for congested routes should quickly become expensive, while costs for uncongested routes get reduced nearly instantaneously. If a specific bus line is underutilized while a close-by subway line is over-utilized, prices should rise for the subway and fall for the bus. This means that some routes can be free or nearly free, while parallel but congested routes are relatively costly. This also means that all tunnels and bridges need to have tolls, which should move up or down based on congestion levels, and how empty or full the city’s streets are at any given time. The pricing scheme also applies to street parking meters.
Prices can be announced via a website, mobile phone app, on digital signs at bus and subway stops, and on billboards. Data analysis can also reveal what trips will cost and their likely duration say 30 to 60 minutes ahead, to help travelers better plan. During rush hour, people would choose the alternatives that entail the best benefit to cost ratio. Not in a rush? Take a cheaper but longer option. In a hurry? Take the route that gets you there quickest, but possibly at high expense. In this way, people have complete information about the best way to travel, facilitating the movement of the most people possible and limiting congestion and frustration.
2. Zoning and Housing Affordability
The Problem
New York City regulates land uses and building densities through zoning. The last time New York undertook a citywide rezoning was in 1961, which was a massive reduction in allowable density from the previous set of rules established in 1916. This was accomplished by limiting the so-called floor area ratio (FAR), which gives the maximum square footage that can be built on a lot. The FAR is given in multiples, so an FAR of 1 means that for a 2,500 square foot lot, 2,500 square feet of floor area can be erected. With a FAR of 10, reserved for the densest residential neighborhoods, a developer can build a 10-story building on the whole lot or, say, a 20-story building on half the lot.
One of the main ways to make housing more affordable is through new supply—more units from new construction, subdividing houses, or conversions. The current zoning regulations act as a barrier against new construction, causing housing costs to rise. For example, it is illegal in over half of New York’s residential land to build anything that is not a one- or two-family home.
This was by design. The 1961 zoning codes originated from two—now obsolete—core beliefs. First was that urban density was an evil that must be curved through strict zoning regulations. And second, New York City should zone itself for stabilization rather than growth. From 1960 to the early 1990s, that assumption was born out because of population declines and big-city problems. But since Gotham’s renaissance, those notions have become outmoded and harmful.
The Policy Solution
However, any significant adjustments to the zoning rules, naturally, lead to the cry, “Not in my backyard!” because of the fear that change will harm neighborhoods and affordability while seemingly to be applied unfairly. To help solve these problems, the city needs to implement “automatic rezonings” that loosen FARs based on four key affordability metrics.
- The 30% rule: The majority of low-income renters should be paying 30% or less of their income on rent.
- Rental vacancy rates: A higher vacancy rate (due to extra supply) gives apartment dwellers more options and lower prices. A vacancy rate close to 10% is healthier for the market.[2]
- The 4 to 1 rule: The median house price should not be more than four times the median household income since, at that ratio, housing costs will remain at or below 30% of household income for most people.
- The “Astor Index”: Officials should compare the cost of vacant lot sales to land values with buildings on them. If vacant lot prices diverge from land values with structures, there is a “shortage” of land in the neighborhood.
When the “needle turns red”—when these indicators hit certain thresholds—the market is signaling that local housing costs are too high and would benefit from new supply. This would automatically trigger a neighborhood upzoning of, say, 0.5 FAR “points.” So, if you live on a property with an FAR of 1, the rezoning becomes 1.5. Neighborhoods very close to subway or rail lines should get higher FAR adjustments to encourage more sustainable transit-oriented design.
The benefits of automatic rezonings are: First they are not gameable, given they are automatic. Second, they apply to everyone and are fair based on observable, clear metrics. No neighborhood is singled out. Housing will get built where it is in the most demand. The extra supply will moderate prices—in all communities.
3. Neighborhood Infrastructure and Services
The Problem
Another problem that generates resistance to change is the fear that neighborhoods will be gummed up with congestion after a rezoning. However, careful planning can assuage people’s fears and improve neighborhood quality.
The Policy Solution
The way to do this is to announce ahead of time automatic infrastructure and public services upgrades when the population is close to hitting a new threshold. The city should maintain key metrics—so many acres of park space per 1,000 people per neighborhood, for example. When the population grows by 1,000 people, the city adds that much more acreage. The same system can be implemented with schools, bike lanes, etc. Residents need confidence that the quality of their lives will improve as their neighborhood densifies. These upgrades can be paid for by the economic growth engendered by more people moving in.
4. Land Value Insurance to Reduce NIMBYism
The Problem
One reason why homeowners cry, “Not in my backyard!” is due to the fear that changes will negatively impact their home values, which, for many families, is the largest component of their wealth.
The Solution
To assuage fears that change will not harm their investments, the city needs to create a land value insurance program. When a household purchases a house, the program determines the property’s value and how much of the value comes from the structure versus how much comes from the land. For a fee, the homeowners are then insured against reductions in the land values, which are determined by what is going on in the neighborhood.[3] If, for some reason, densification or change should reduce a property’s value, then the homeowner can rest assured that she will not lose the value of her investment.
5. Renters Benefits
The Problem
Until World War II, May 1st of every year in New York was Moving Day. In early February, landlords would give notice of the upcoming rents. The tenants would then look for new housing and the best deals. On May 1st all leases expired, and mass moving ensued.
The existence of a Moving Day meant that people not only expected to move as their circumstances changed, but also that they could find better deals. It also allowed for more turnover in the housing stock because of increased choices for renters and competition among landlords, which kept prices in check (landlords frequently lured new tenants with a free month’s rent—a hearty discount).
In the 21st century, New York has become an “immobile” city in the sense that there are tremendous forces at work that prevent people from leaving their residences, even if they want to move. A large fraction of renters is getting below-market rates through rent stabilization. If they move, there is a good chance they will have to pay more. Similarly, homeownership keeps people in their houses for much longer because it takes time to develop a large equity stake if you have a 30-year mortgage.
The problem is that the lower the turnover, the less dynamic is the real estate market. A dynamic market allows for better matching of supply with demand. When people are willing to move (to get better deals or better-quality units as they come online), the easier it is for a landlord to empty a building, and the faster it can be redeveloped to add housing units. More dynamism means more supply and lower prices.
The Policy Solution
The city should create policies that help renters against the vagaries of the market (more housing availability is a big way) and encourage would-be owners to rent. A problem with homeownership is that it turns households into “banks”—the home becomes a store of wealth, so homeowners do what they can to ensure monopoly power over their investment by limiting competition—i.e., by stopping or slowing down new construction. If renting were more of an appealing option, it would give the market more flexibility to match housing supply with housing demand.[4]
Renters Savings Accounts
The next mayor should work toward creating renters savings accounts. The idea is that renters would add an extra payment each month on top of their monthly rent, going directly into a savings account, say 3-5%. The state would make sure the account offers a minimum return. This way, renters can create wealth similar to a homeowner. Plus, if the tenant falls on hard times, the savings can be used to stave off eviction (thus also reducing homelessness).
Eviction Vouchers
Densifying neighborhoods means getting people to move out of lower-density homes or apartment buildings so developers can build more housing. Suppose a property owner empties her rental building to tear it down and erect a denser structure. In that case, the evicted occupants should get a voucher or payment from the city to move to another location nearby.
6. Revisit Large Housing Developments
The Problem
While the above policies are designed to create more housing options and lower prices for the vast majority of residents in the city, the lowest-income residents will always be at a relative disadvantage. For these groups, extra help is needed to incentivize new construction and give low-income renters more affordable options.
In low-income neighborhoods, upzonings may not trigger new construction since construction costs are so high. Housing vouchers can help households, but only if voucher holders are on equal footing with non-voucher holders. For this to be the case, there must be significant housing vacancy, which gives renters a relative advantage with landlords. Construction subsidies can also help, especially if builders in low-income neighborhoods get relatively greater subsidies than upper-income areas. But the city should revisit getting back into the large-scale housing game.
Policy Solution
Today we see large-scale, low-income housing developments in a bad light. The mistakes of public housing have severely damaged the government’s reputation when it comes to providing low-income housing. However, part of the success or benefits of large housing developments is that they can take advantage of economies of scale. By building everything at once over a large land area and arranging the buildings and infrastructure more efficiently, housing can be built more cheaply on a per-unit basis.
We tend to forget that from the 1950s to 1970s, large privately-owned housing developments were erected, which gained the benefits from scale: Stuyvesant Town Village in Manhattan, Coop City in the Bronx, and LeFrak City in Queens, to name a few. Admittedly, Jane Jacobs soured America on these kinds of urban projects. But, in the 21st century, they can be built to allow for more affordable housing construction and adhere to good urban policy designs.
In this vein, the next mayor should establish a land-lease authority. The authority buys up large lots, especially old industrial areas in the outer boroughs, cleans them up, and prepares them for redevelopment. Next it issues a call for development to private developers, which specifies the important parameters: the population density, the number of units, the amount of units for low-income residents, and the types of services and infrastructure to be provided. The authority then auctions off the construction rights to the winning developer by issuing a 50- or 75-year lease.
In other words, the authority initiates the development through an auction. The winning bidder pays for the land lease, and bids based on a calculation of how much the developer can pay and to get a sufficient return on investment. This process is done in many Asian cities and has the benefit that the city gets much-needed housing, the developer locks in a minimum return, and the land value gains get captured by the municipality.
The Future of New York
While the COVID pandemic has made us rethink the nature and functions of cities, the truth is that cities are the engines of our modern world—they provide jobs, entertainment and culture, and housing. New York City will continue its global importance. But for too long, Gotham has pretended that it can move into the future by tinkering on the margins. The time has come for the next mayor to embrace new policies that incentivizes change for the better and allows the city to embrace its greatness.
I would like to thank Maria Thompson for editorial assistance.
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[1] While there have been some important completed or initiated projects, like the Second Avenue subway, the AirTrain to JFK Airport, the East Side Access tunnel to Grand Central Station, and congestion pricing in Manhattan, they do not fundamentally alter the problem—the system is still a 20th-century one.
[2] Before the pandemic, apartment vacancies in the rent-stabilized and non-stabilized sectors were 2.4% and 6.1%, respectively. A higher vacancy rate is better for consumers.
[3] Homeowners would not be insured against the value of their structures, so as not to create an incentive to under-maintain the property.
[4] Note that I am not saying we should eliminate homeownership. But I am saying that renting should be made more appealing.
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