New series: The Tenement Puzzle, a social, cultural, economic and architectural history

Why are some tenements -- built in the ghetto for poor, immigrant labor -- so elaborate, covered with expensive terra cotta and glazes, stone and tinted brick while others are simple and plain?

Over the years I've heard several speculative explanations, often ingenious, but always wrong, always misled by a simple deception of the streetscape. Unlike an archeological site arranged in chronological layers each earlier than the one above, the street shuffles the history together in one jumble. Each style of tenement belongs to a structure of a particular moment in the city, not to its neighbor on the street.

Why is the city streetscape so varied with big and small, plain and ornate, dull and colorful? Why are some old neighborhoods lined with narrow buildings, others with only expansive, stately buildings? Why are corner buildings in those narrow-lined neighborhoods typically more grandiose than the midblock buildings?

The real estate of New York is a direct reflection of the social and economic growth of the city, including the government and cultural ideological response to that growth. Unlike any other aspect of the history of New York, the architectural history is in plain view -- if you can read it. This series intends to show how to read it, and to show where the documentary record misleads: the only way to read the history is through experiencing the history itself, and the buildings are that faithful historical remnant. Architecture does not lie -- it's history presented in brick and stone. The subtext of this series is "don't believe everything you read." Look -- with informed eyes.

I'll start with two speculations about why some tenements look so lavish. one, landlords looking for better tenants; the other, landlords accommodating illiterate tenants. The actuality reveals a much deeper cultural relation between rich and poor.

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.

Piketty and immigration

Just finished Piketty's Capital in the 21st Century. His central claim is that the ratio of capital/labor increases as the rate of economic growth decreases because the rate of return for capital remains constant, and, he claims further, the growth rate will decline through the rest of the century as the population rate (the rate, not the absolute population) declines.

He recommends a tax on wealth/capital. But if he's right that the rate of growth will decline ceteris paribus, seems to me his wealth tax is not the only option: opening the borders should slow wealth inequality. Open borders w/naturalization would also counterbalance the political influence of wealth, Piketty's underlying complaint against wealth accumulation.

His tax could happen in Europe, but not likely here in the US. How would a push for immigration fare as a means to grow the economy? With an alliance of business with immigrants? After all, Piketty's prediction is a ratio, not an absolute quantity of wealth or its buying power. r>g holds when g increases, even though the ratio of wealth-income decreases. It would be a win-win for business and immigrants. It should not hurt unions in the long run either, although in the short run it might hurt a lot. 

WNYC covers rent regulations

Adam Davidson, appearing on WNYC's morning "Brian Lehrer Show" discussion program, gave his strongest argument for rent deregulation without any analysis at all. Instead, he appeals to authority: economists on all sides agree that rent regulations are bad for the housing market and harm the middle class. 

True, economists agree on across-the-board rent regulations, but that's not New York's model. New units in NYC are not required to be regulated, so rent regulations here incentivize new construction. Deregulation would remove that incentive since raising rents and evicting tenants are cheaper and easier than construction. The New York model is actually healthy for the market.

Davidson refers to one economist, Christopher Mayer, but Mayer completely forgets that deregulated tenants don't simply disappear from the rental pool. If they have to vacate, they move from upscale neighborhoods into middle class neighborhoods and create a tighter market, raising rents there. So deregulation will hurt the middle class especially. In aggregate: 

deregulation = same # of units, same # of renters, just more wages going into rent, a windfall for landlords and no incentive to construct or ever ease the market. 

A land tax would help, tagged to upzonings in selected neighborhoods that can withstand increased development. 

The Times at it again

Rent regs in the Times again. Amazing to me that they can print baldfaced lies. 

This was empirically studied in Boston:  when rents were deregulated, all rents rose. 

Mayer's key assumption is false. When the deregulated renters vacate, they don't disappear -- they have jobs and family in the city. They move to cheaper neighborhoods where their numbers create a much tighter market in those lower-income neighborhoods, raising rents, displacing more renters who in turn move down the ladder creating a tighter market down the line.

So deregulation would raise rents steeply for the middle class and those below. The highest renters alone might get a break. Deregulation is a win for landlords and maybe the wealthiest renters, a lose for everyone else. 

Building new units will increase supply and ease market rates. Since new units are not required to be regulated in New York, our rent regulations incentivize new unit construction. Deregulation would end that incentive: raising rents and evicting tenants are cheaper than building new housing. Deregulation will likely raise rents steeply across the board while tightening the market even more, driving the middle class out to the further reaches of the metro area. Deregulation is a gift to landlords at the expense of nearly everyone else.

NYC's rent regulations are healthy for its housing market except it's deeply unfair for new arrivals. The state should really get back into housing of all kinds -- upscale to low -- using the upscale housing to finance the rest.

Rent regulations

Thinking about the construction boom and the Rent Guidelines Board rent hike, I went back to a piece I did for Met Council refuting the claim that rent regulations artificially raise market rate rents. The key insights were two: 1) in New York, newly constructed apartments are not required to be regulated, so regulation doesn't add to the tight housing market (in fact, rent regs are one of the few incentives to construct in NYC); 2) deregulation doesn't flood the market with new apartments since evicted tenants don't leave the local pool of renters, and wherever they go they tighten the housing market there, displacing lower-income renters. 

Looking back, I'd want to explain explicitly why it is that displacement always shifts downward, and not just a musical chairs of apartments among renters. Deregulation eviction implies that the tenant can no longer meet the high market-rate rent. In a tight housing market, if they go to a lower-income neighborhood, they will find an apartment by displacing someone who was renting at a lower rate. The displaced renter does the same in the next lower-income neighborhood and so on.

[Update: on second thought I think I was right in the original, not as in the paragraph immediately above. Obviously deregulation evictions out of prime locations also allow high renters to move upward -- upward displacement. That displacement doesn't ease market rates: the evicted have created a tighter market down the line. On the other hand, if new upscale renters are entering the market from outside the pool, they would increase downward displacement pressure.]

Some of those deregulation-evicted tenants can pay higher rents than they'd been paying under regulation, just not quite as high as the market rent where they'd been. No one will seek a cheaper apartment -- if there was something cheaper suitable to them they'd have decamped long before deregulation. But some will seek apartments somewhat more expensive than what they'd been paying under regulation. So the only change in the economic equilibrium is the added funds available for rent among the deregulated. 

At the end of the day, deregulation increases the aggregate funds available for rents taken from whatever else the regulated tenants had been spending on in the economy. All of that increase goes to the landlords. Deregulation is just a pointless shift from the non real estate economy to landlords and a downward spiral of displacement, while more upscale renters flow into the city to raise the luxury rates. With more funds flowing into the real estate market, developers construct to meet those upscale renters, who then recreate the commercial economy in their own image, buying upscale items. 

So rent regulation is just a restriction on upscale real estate speculation and upscale commerce. It doesn't raise market rate rents, but actually dampens them. And it's good for non upscale commerce.

So here's the article. The point about the rent pool seems to have grown legs -- I've heard it repeated by lawyers as well New Yorkers on the street. 

Why Rent Regulations Don't Raise Market Rents 

By: 

Rob Hollander

Published: 

June 2011

"If rent decontrol would mean a fairer, less insane market, then it is a just cause," the libertarian-conservative Cato Institute argues.

In every debate over rent regulations, someone—often an angry tenant paying outrageous rent—argues that regulations are responsible for pushing market-rate rents way up. If those regulated rents were brought into the free market, the market would level down, allowing a fair rent for all.

This argument has had wide currency among conservatives in their effort to undermine rent regulation and promote developers and landlords, the market suppliers in the real-estate industry. It appeals directly to people who, bitter over their heavy rent burden, welcome a convenient scapegoat: their own neighbors. And the authority, the landlord, is conveniently exculpated.
This argument is false. It is based on these premises:
1) Rent regulation discourages housing construction, restricting housing availability;
2) landlords make up their losses on regulated rents by gouging market-rate renters; and
3) deregulation would level the playing field, lowering high rents

Its conclusions have been demonstrated to be empirically, factually untrue. It is time to put this claim to rest.

Let's start with the basics. Not only conservative think tanks like the Cato Institute, but the consensus of economists, even the liberal Paul Krugman, accuse rent regulation of discouraging new housing construction. Without new apartment units, the supply can't keep up with demand, and fierce competition for the few remaining units pushes market rates up.

Their observations are true where rents for new construction are regulated. But in New York, it isn't.

New construction is exempt from rent regulation in New York. Building new affordable housing is entirely voluntary in New York, and developers only provide it where the city gives them special incentives, such as allowing construction beyond the zoning restrictions or giving tax breaks. In fact, rent regulation encourages new construction, as the Citizens Budget Commission has pointed out, since new units can garner far higher rents than older regulated units. If landlords can't cash in on regulated units, the only other means to make money is to build new, unregulated units. Rent regulation is an incentive for construction.

The difficulty of building in the city has many causes—the cost of land and construction, restrictive zoning laws, building codes, permits and bids, and, not least, the private and political graft involved. Nevertheless, New York continues to see housing construction. Even during the recession year of 2008, the city issued 33,911 permits for new housing, the greatest number since 1972. In a city of obstacles to construction, rent regulation is one of the few encouragements to build.

The second premise contends that if landlords can't raise regulated rents, they will raise rents on unregulated units to make up for the lost revenue. Unfortunately for the landlords, the free market doesn't work that way.
Market rates depend on renters' willingness to pay, not on owners' costs or losses. Rents can't rise above what renters are willing and able to pay, and the nature of the profit motive ensures that market-rate rents will rise exactly to that level of renter willingness, regardless of what other renters are paying.
In a city where construction lags behind demand, it may be legitimate to ask whether deregulation would free up apartments and ease the market down—the third false premise. Quite aside from the consequences of displacing individuals or even whole communities, the answer is a surprising no.

Rent deregulation, believe it or not, raises market-rate rents. The conservative Manhattan Institute, in its 2003 study of deregulation in Cambridge, Massachusetts, found that, following deregulation, landlords invested in improvements to attract the highest possible market-rate renters. The result of the 1994 deregulation in Massachusetts has been better-quality housing, but higher market rents across the board.

That shouldn't be surprising. A tight housing market implies that many renters can't find apartments in their preferred locations. That's the meaning of a housing crunch. Renters can't find the spaces they want, and the ones they have to live in become overpriced. But when vacancies appear, those renters are willing to pay exorbitant rents for the locations they prefer, and landlords will meet their willingness.

The market value depends on three general factors: demand, supply, and the aggregate available funds for rents. If regulated renters are paying less than their available rent funds (the excess of which presumably goes into the goods and services economy), when they are forced to pay more, it will increase the aggregate funds going to landlords as rents, since most of those renters are tied to the metropolitan area by work, family, or preference. If their rents are deregulated, these people will force rents up wherever they go in the metropolitan area.

That's a recipe for disaster. When renters can't afford their location as a result of deregulation, they move to lower-rent neighborhoods, where they create a tighter rent market, raising the rents there and even gentrifying the area. Some of the longtime renters in those neighborhoods will be priced out and move to even lower-income neighborhoods, tightening those locations in turn.

More affluent longtime renters will see their rent increases as an opportunity to move to a more desirable location. But wherever they go, landlords will raise their rents as high as they are willing to pay. If the market is tight and people are not leaving the metropolitan area, the market rates will remain high.

Market rates only go down if demand goes down—if people leave the city entirely or excess housing is built. But New York's population is increasing, not decreasing, and construction is costly and difficult. Deregulation here will not ease the market any more than it did in the Boston area.

It's not even certain that in a tight market like New York, landlords would invest widely in improvements, as they did in Boston and Cambridge. Unregulated renters have few rights, so if they complain to the city about lack of services or repairs, the landlord can retaliate by refusing to renew their lease when it expires. Regulated renters can compel repairs without that fear. So it is possible that deregulation in a tight market would result in lowered quality of housing and a degrading of services, as well as higher market rents. That's exactly what happened in New York when vacancy decontrol was imposed in 1971.

Regulated rents actually help to depress market rates. Renters who pay exorbitant rents may think it's unfair that regulated tenants pay so much less than they do, but the source of exorbitant rents is not regulation. It is landlords' profit motive and New Yorkers' desire to live here. We are the market that sustains high rents.

So what is the effect of deregulation? It provides a cheaper means of placing money into landlords' hands than construction does. The chief effect of deregulation is an increase in the aggregate funds available for rents. It doesn't ease the market, it won't improve the quality of housing in New York, and it won't create more housing. It will give more money to landlords, it will raise rents all over the city, and it will wreak havoc on communities as markets are tightened even in low-income neighborhoods, causing a spike in gentrification and displacement.

Rent regulation does create an unfairness—the lucky get to spend their money on the local economy, not just on rent, while their market-rate neighbors have to suffer. But forcing everyone to suffer doesn't solve the suffering of the overpriced. It just makes life worse for everyone. Two wrongs don't make a right. Deregulation is a lose-lose. 

End of public review?

The NYC.Gov questionnaire on Environmental Review ("environment" here includes all impacts of a development on communities and includes public review) invites developers to provide reasons for dismantling ("streamlining") the review process. Once again, I urge you to go to the NYC.Gov Environmental Review questionnaire and explain why public review is important and should be strengthened.

Here's what I posted on the questionnaire (for an explanation of Environmental Review see the post below)

In answer to the question, "What contributes to the length and cost of the environmental review?":
What contributes to the length and cost of the environmental review is the government's essential responsibility to protect the public good, the indispensable need for public oversight, the public's need for protection from harmful development, and the responsibility of government to ensure that the public is not only protected, but informed and empowered against private interests that are not concerned at all with the public good or with sound urban planning.

In answer to the question, "How can City agencies communicate more effectively with the public concerning public hearings and meetings?" (the only well-meaning question there):

Community Boards and the city administration should provide the means for local organizing, with neighborhood websites and street-by-street blogs devoted to community issues where local residents and business owners can read press releases and post on issues of concern.
Community Boards should be required to publicize hearings at least one month in advance.
Developers should be required to post their building plans on the construction site as soon as they apply for plan approval.

And in answer to the question, "We want to know where you see opportunities for improvement. Which aspects of the process are successful and could be used as models to improve more problematic areas? Why?":

1) Including alternatives in the review enhances the value of the process and takes best advantage of resources. More alternatives should be included to afford the process greater flexibility and allow better planning directions and ideas a chance to be considered.
2) The independent research firm that conducts the reviews should be assessed and vetted by independent public interest urban planning groups including The Municipal Arts Society and the Historic Districts Council.
Currently, zoning EIS's have the uniform look of a rubber stamp for DCP. a) The independence of the public review must be ensured. It should not respond to developers' needs, but to the public's needs. b) The objectivity of the process must be protected. The Environmental Review must not become a rubber stamp for development.
3) The comprehensiveness, detail and thoroughness of the Review must be ensured and expanded. All aspects of impact on the community and surrounding communities must be carefully and objectively assessed by an independent party.
4) Public hearings and public outreach must be expanded.
5) Means of informing and educating the public must be enhanced.

The end of public review?

The mayor is planning to undermine government regulation and the public voice yet again.

The public's most powerful protection against destructive development is called the "Environmental Review" process. It's not about ecology. It's intended to be a public assessment of the impact of a proposed development on the entire community -- on population density, traffic, housing, services... And it includes crucial public hearings.

Developers hate this process. It's an obstacle in their way. They prefer to avoid public review or eliminate it entirely. And now the mayor wants to help them. Take a look.
http://www.nyc.gov/html/misc/html/2009/environmental_questionnaire.html

The mayor's Economic Development Corporation is seeking to "streamline" the process to "reduce the costs and delays" specifically for "property owners." The questionnaire is designed as a first step towards making it easier for developers to bypass Environmental Review.

Note the wording of the first topic: Topic 1 - Obstacles and Roadblocks
"We are interested in understanding the obstacles and roadblocks that may be experienced by applicants for projects subject to environmental review...."

I urge you to go to the questionnaire and explain why public review is important and should be strengthened. Let the EDC know that
1) The independence of the public review must be ensured. It should not respond to developers' needs, but to the public's needs.
2) The objectivity of the process must be protected. The Environmental Review must not become a rubber stamp for development.
3) The comprehensiveness, detail and thoroughness of the Review must be ensured and expanded. All aspects of impact on the community and surrounding communities must be carefully and objectively assessed by an independent party.
4) Public hearings and public outreach must be expanded.
5) Means of informing the public must be enhanced.

Remember that this is the same mayor who came up with a plan to restrict legal challenges to illegal developments. Without public review, residents and small businesses have no protection against development, against demolition, bulldozing, eviction, gentrification. It's giving the entire city over to developers whose interest is not the public good. It undermines government regulation and public oversight of destructive private interests. It's taking the city away from the public and handing it over to the few who just want to make a killing off your city and your lives.

DHCR hearings on demolition eviction

August is a busy time for government hearings. It's that small window of opportunity for government to escape notice while everyone is on vacation. (That hearings are even allowed during August is a disgrace in a democracy.)

Tuesday's DHCR hearing was something of a diversion.

DHCR currently allows landlords to demolish buildings solely for the purpose of evicting rent stabilized tenants and rebuilding minus rent stabilized tenants. It's just another way to skirt rent protections, along with owner-occupancy according to which a landlord can evict you from your home for his personal use of it (reminiscent of feudal driot de seigneur, which also included taking your wife and daughters -- if they were worth money, that would be next on the agenda) and luxury decontrol. By allowing landlords to compensate evicted tenants for a limited number of years, rather than requiring landlords to return the tenants to the rebuilt building with their previous rents, DHCR is encouraging landlords to evict and demolish and eliminate affordable housing.

Demolitions should be allowed only if the tenants are endangered by a structurally unsound building, not to endanger tenants merely for the landlord's profit.

Yet the hearing didn't address the question of whether demolitions should be allowed in structurally sound, inhabited buildings. Instead, the hearing concerned whether the whole building must be razed completely to the ground or only partly to the ground to allow for such evictions and how much or how little the evicted should be compensated for their loss of home. Sort of like asking whether murderers should be required to clean up their victims' bloody corpses or may they leave them lying around the house or in the street. Surely these are the wrong questions. They assume too much. This is a world stood upside down.

The best testimonies -- perhaps the best given by Monte Shapiro -- emphasized that demolition should only be allowed if the building is structurally unsound, that tenants should be relocated in comparable space in the neighborhood at comparable rents and, after the structure is rebuilt, offered comparable space at comparable rent in the rebuilt structure. That would deter landlords from demolishing solely for the purpose of building a new structure, as several people put it, "in no significant way different from the original structure except without the rent stabilized tenants."

The demonstration prior to the hearing was attended by a crowd unusually large for the steps of City Hall. Our Councilmember Rosie Mendez spoke first and coordinated the speakers who included Martin Connor, Gale Brewer and Dick Gottfried, a few others; Deborah Glick's office helped organize the demonstration. Councilmember Tony Avella appeared but had to leave early for a Council hearing. Paul Newell, who is challenging Sheldon Silver in the democratic primary, attended as well. Silver didn't show.

Three pressing issues all at once: rezoning, eviction policy, class-action suit against rent hikes.

1. Rezoning
Deadline tomorrow, August 7, to submit opinions to Borough President Stringer on the rezoning that will bring 53% more development than current zoning, less than 10% of which will be "affordable" housing, and leaves Chinatown and the Bowery unprotected.

City Planning's Hearing on the rezoning: August 13, 9-11am, Tishman Auditorium of Vanderbilt Hall, New York University School of Law, 40 Washington Square South.


2. Eviction policy
DHCR's hearing on their proposal to allow tenants to be evicted for gut renovations with little or no compensation. Tuesday, August 12, 10am-4pm Spector Hall, 22 Reade Street.

Demonstration prior to the hearing, organized with the help of State Assemblymember Deborah Glick, on the steps of City Hall, 10am, then march together to the hearing.


3. Class action on flat-rate rent hikes
Class action law suit against the flat-rate $45-$85 rent hikes for low-rent tenants. The Rent Guidelines Board allows landlords for the first time to impose a flat rate $45/one year, $85/two year lease increases on stabilized apartments. This flat rate discriminates against low-income renters. The Board is unmistakably trying to "cleanse" the city of low-income renters by increasing their rents even above the percentage increases applied to higher-paying renters. Legal aid needs to hear from tenants who wish to participate in the law suit. Call 212 577 3964.