Making first homes in the world’s second home

While City Hall tries to brand New York City as “The World’s Second Home,” the median price of a Manhattan apartment continues to spiral up beyond last year’s threshold of one million dollars.

In cities where median incomes are out of whack with the cost of a first home, city planners will try to catch up any way they can. Usually, this amounts to offering developers density bonuses, fee waivers, and streamlined permit processes in exchange for projects with affordable units. However, the problem in Manhattan—as in just about everywhere else this approach is tried—is that voluntary incentives never seem to be enough to attract actual affordable housing projects from actual developers.

Typically, after voluntary incentives are given a few years to fail, the planners’ next suggestion will be to make affordable housing mandatory. That is where New York City is at today.

Last week, I was in the audience at a panel discussion on inclusionary zoning presented by Community Board 8, my local board in the Upper East Side. “Inclusionary zoning” refers to zoning regulations designed to achieve affordable housing as a primary by-product of market-rate development. Panelists for the discussion included Brad Lander of the Pratt Institute, Tom Angotti, professor at Hunter College, and Joshua Kahr, a developer and consultant.

Long-term planning usually refers to a process of envisioning 20 or 25 years down the road and designing a plan that incrementally meets the challenge. For New York, that challenge will include producing homes for a projected 2.3 million new residents. The panelists agreed that even an unlikely 15,000 new units per year would fall short of the long-term demand.

Many housing advocates consider mandatory inclusionary zoning a necessary tool to meet the long term housing challenge. Its attraction is that if anything gets built at all, a portion of the development must be made affordable. That’s considerably better than what we have now, which is nothing affordable being built at all.

However, in additional to meeting the housing demand, inclusionary zoning advocates also promote “integration and mitigation.” Sensitive to the harm done by the segregated public housing projects of an earlier era, planners want income “integration” to be a feature of any newly mandated affordable housing. By this, they mean housing for a range of income groups should be an integrated feature of new projects or neighborhoods. In addition, redevelopment in New York should include “mitigation” for the people displaced by new high-priced market rate housing by providing equivalent new housing in or near the new development.

Mr. Kahr was the lone panel member with a developer’s background, and he did a good job providing a balance of opinion on the issue of inclusionary zoning. Essentially, he found several flaws with inclusionary zoning, and questioned what would be wrong to allow private developers to build market rate housing at the highest acceptable density and for the city to collect fees to address the issue of affordability.

In practice, inclusionary zoning amounts to a development tax on market-rate units, since market-rate costs must absorb the subsidy needed to create the mandated affordable units. Mr. Kahr asked if it would make sense to reduce the number of market-rate units in order to build affordable units within the same project. Inclusionary zoning would do exactly that, thereby reducing the number of market rate units available for subsidizing the cost of affordable housing construction. Mr. Kahr suggested that revenue generated for affordable housing should be spent efficiently, which probably shouldn’t include building affordable units in luxury Manhattan high rises. For that kind of money, two or three units could be built in Queens for every one in Manhattan.

Furthermore, a policy that would trades two units in Queens for one unit in Manhattan amounts to denying affordable housing for at other needy households. Goals such as economic integration of housing may be well intentioned, but, if housing is akin to a right, it should be the city’s priority to create as much housing as possible with whatever scarce resources are available.

Mr. Kahr questioned the integrity of a zoning code that has two acceptable densities, one for market-rate housing and a higher density for affordable housing. Wouldn’t an honest zoning code have only one acceptable density—the higher of the two?

If market rate housing could be built at the highest acceptable density, revenues from an enhanced development tax would be available to be used as creatively as the city wanted: non-profits could be funded to build integrated units, existing buildings could be bought up and turned over to tenants, and even some new condominiums could be bought to economically integrate Manhattan.

I left the Community Board 8 panel discussion with the feeling that if the city’s goal is to house 2.3 million new residents over the next twenty-some years, then planners can’t afford to encode any disincentives to development or get distracted from priorities. I hope Mr. Kahr’s questions are given the kind of consideration that inclusionary zoning is receiving from certain quarters these days.