Facing an affordable housing crisis, it may be time for the big apple to rethink zoning.
By Adrian Pietrzak
Long before Occupy Wall Street protesters flooded the cramped concrete soapbox that is Zuccotti Park, New Yorkers’ frustrations were directed at the shadow they stood in: the imposing block-sized monolith that is the Equitable Building.
The building, aptly named for its impartial application of a seven-acre shadow, is brutally efficient, earning its nickname as the “world’s heaviest building”. But the temple to commerce brought worry to New Yorkers that their streetscape would be transformed into one of dark “canyons.” Within one year of the Equitable Building’s completion, New York became the first city in the Americas to enact comprehensive zoning reform.
Yet, the building may have more in common with modern day economic anxiety than is proximity to the epicenter of corporate disobedience. Its origins, and modern day uses, are closely linked with the City’s affordability crisis and some truly inequitable growth.
EQUITABLE GROWTH?
Over the past few decades, the changing tide of globalizing economic reality have, once again, made cities the beating heart of the American economy. After decades of urban flight, New York’s once withering population has recovered, and surpassed its 1970’s peak. And there’s few signs of that changing; the City is expected to surpass 9 Million residents by 2040. And it isn’t happenstance that people are returning to the concrete jungle. Globalization’s focus on skilled labor has concentrated key industries in areas where they can compete over the brightest workers. GDP growth has averaged stronger in the City than in the Nation. And just as more and more Americans are dropping out of the labor force, New Yorkers are putting their work boots on.
Yet, while globalization has made the city an attractive new home, living costs are anything but. The Census Bureau estimates that between 2011 and 2014, median rent rose by a whopping 3.4% after deducting inflation, with the median renter paying $1,200 per month. By contrast, the median renter only saw a 1.1% increase in their household income; leaving an increasing share of their income devoted to rent payments. And this comes in an already rent strapped city. A full one-third of renters are “rent-burdened,” meaning that they expend more than 50% of their monthly income on rent.
A rent strapped populous is more than just a trope; New Yorkers are getting the short end of the stick regarding a serious market inefficiency. The rise of housing rose some 40% relative to other goods and services since 1970, diverting New Yorkers’ money away from potentially supporting local businesses and upstarts. Moreover, increases in the relative price of housing (as renters have seen weaker gains in income than homeowners) has increased income inequality by some 25% since 1970, making an already stratified city truly separated by a canyon of wealth.
BETWEEN A PLAZA AND A PARK SPACE
Yet, higher rents aren’t so surprising. If more people demand to live in a city, it’s natural that the influx of residents will bid up the rent of a fixed level of existing housing. The issue lies with the supply of housing; developers and the local government have struggled to satiate the desire for new homes as newcomers flood into the city. While many have validly pointed to tighter credit following the 2008 Financial Crisis and Hurricane Sandy damage, New York’s housing shortage goes far beyond these temporary afflictions: the City’s regulatory and zoning codes may have produced perverse city growth patterns.
While most economic theories regarding urban growth focus on proximity to city centers or other industries (in economics jargon, the monocentric city and agglomeration models), recent advances in literature have pointed to other culprits explaining high rents: zoning and urban planning regulations. The NYC Department of Planning, ironically situated in the Equitable Building, was created to mitigate the externalities of mixed land development. Plagued by pollution and poor sanitation, the city hoped to separate residential, commercial, and industrial (RCI) developments into “zones” where they are permitted to exist.
However, today, zoning regulations go far beyond just RCI; buildings must abide by strict codes such as height limits, floor-to-area ratios, and minimum lot sizes. For example, the densest of apartment towers have a height cap of 210 feet, and outside of Manhattan, these towers can only take up 40% of the lot and must supply a parking spot to at least 40% of its residents. These zoning controls have influenced some of New York City’s greatest monuments. The code allows buildings to add 20% more space if they build a park or plaza open to the public, a policy which created the famous Zuccotti Park. Towers are required to include “setbacks,” leading to the tapered form of the Empire State Building. Yet, the strictness of these regulations have only tightened. Nearly 40% of all buildings in Manhattan would not be allowed to be built today: they’re either too dense or too tall. And these noncompliant buildings define some of the greatest neighborhoods in the city; such as the fashion heaven of SoHo or foodie paradise that is the East Village.
NOT IN MY BACKYARD AND AN UNLIKELY URBAN COALITION
These regulations can have serious effects of urban welfare. Zoning helps prop up residential property values. In a sense, these regulations amount to a “regulatory tax” with sizable effects; causing Manhattan apartment prices to be upwards a full 50% higher than under a free development policy. And these impediments change the very structure of the city. Restrictions against dense residential lots make them less responsive to what economists call an “income shock,” or an influx of higher wages or wealthy individuals. As a response, construction is shifted to areas where it’s more profitable to construct small, suburban housing. This leads to a city constantly pushing its bounds: urban sprawl and gentrification in neighborhoods outside of the city core.
The cause of these restrictions are surprisingly political. Progressive reformers allied with real estate interests, one seeking to clean up urban geography and the other seeking to protect their property value. In Chicago, the president of the Chicago Real Estate Board, Ivan O. Ackley, predicted that zoning would raise his property values by over $1 Billion, or an increase of 25% of the current value. Today, regulations tend to become stricter in areas with more affluent residents or more homeowners versus renters.
City development ends up reflecting a political equilibrium that benefits a few at the expensive of the overall robustness of the city’s welfare. New research suggests that construction slows and regulations tighten in areas where the addition of new residential property does not benefit the median voter. Homeowners, affluent voters, and entrenched residents tend to be opposed to additional population growth as it imposes increased public service costs on them: more people use their subway train, sit in their park, and walk on their sidewalks. New residents may compete for existing amenities, however, strict regulations only reduce welfare. Instead of creating new amenities, strict zoning regulations tend to increase rents far in excess than the benefits existing residents receive from fewer neighbors.
AFFORDABILITY AROUND THE CORNER
Rather than constricting the will of the market to build new buildings where people want them, policymakers should instead focus on their true mandate: the provision of public goods. Local lawmakers ought to focus on building new subway and bus lines, improving public park space, and boosting local amenities through innovative policies such as urban beautification programs or tree planting. Restricting the influx of newcomers for the sake of preserving the advantages of existing residents is backwards: policy should be oriented to actively improving every resident’s welfare.
There have been some signs of hope. The De Blasio administration has proposed the elimination of the current floor-to-area restrictions with SB 5469, however, it is unclear if the amendment will pass in Albany. Some zoning reform has encouraged the construction of affordable housing (although the existence of the lottery is notoriously Soviet in style). However, zoning reform should go further. New York should embrace its self-proclaimed culture: a city bigger, taller, and more aspiring than any other. While the concerns over the Equitable Building’s imposing “canyon” creating façade are valid, and zoning is undoubtedly a useful tool of city planning, the building’s density and efficiency in land use should model the potential to solve many of New York’s rent problems. A more concrete jungle may truly be a better (and more affordable) one.
The Economics Review 