Money laundering and affordable housing

The Treasury's decision to investigate money laundering through NYC real estate might actually save New York from wholesale gentrification.

Constructing a lot of new housing can keep rents low by adding supply. Because it's expensive to build, developers prefer constructing luxury housing to get the quickest and highest rate of return. If the wealthy move out of older housing stock or locations further from the city center into these new luxury units, they free up housing for the less wealthy, who decamp from their older and further locations in turn freeing up housing for the even less wealthy and so on down the line. This is the one good reason for de Blasio's Zoning for Quality and Affordability (ZQA) -- allow new units to have higher ceilings to attract the wealthy out of less appealing older models.

But if the luxury housing is being bought by foreign speculators or money launderers who have no intention of living in the apartments, new construction does no good for the housing market. It turns the city's real estate into a non housing market crowding out the housing market. It's a disaster for the resident citizen, especially the low-income and immigrants.

(You might think, well if we eliminated rent regulations, the market would be flooded with vacant apartments, but this is both empirically and theoretically wrong. Most people who would be pushed out of deregulated apartments don't -- and often can't -- leave the local rental pool. They just move to a lower income neighborhood where they create a tighter market and push out lower income tenants who in turn move to lower income neighborhoods evicting people there, again, all the way down the line until at the bottom immigrants huddle up in substandard housing crowded together in dangerous conditions. At the top, landlords renovate the vacated luxury units and hike the rents there. Iow, deregulation doesn't free up the market, it's just a game of musical chairs, destabilizing everyone and raising rents everywhere. This happened in Boston when rents were deregulated, so we know that it's not just a theoretical speculation-- it's reality.)

The alternative to constructing luxury apartments to ease the housing market is constructing affordable housing. But if the monied are still coming to the city and searching for apartments, the pressure on gentrification in outer boroughs will be greater than the creation of affordable housing can accommodate.

It's easy to show that the current model of affordable housing creation is necessarily inadequate. De Blasio's Mandatory Inclusionary Zoning, for example, would require one affordable apartment for every four luxury unit. But as we know from Occupy and presidential campaigns and memes everywhere, the ratio of the wealthy to the struggling is not four rich folks to each struggler, but more like 1:99, and that's actually generous. 1:999 would be closer to reality. So the current model is beyond inadequate -- it's preposterously inadequate.

So again, the affordable housing model can only work if the luxury housing doesn't become a place for billionaires to park their money. It's got to be housing, not speculation, otherwise the entire geography of the city will be distorted into empty speculation at its center without even a tax base.