Zoning In: De Blasio’s Vision for Affordable Housing

Since he became mayor-elect, Bill de Blasio’s oft-criticized progressivism has met with increased cries of caution from editorial boards, industry and others concerned about fiscal policy in the post-Bloomberg era. While the Bloomberg administration sometimes seemed to emphasize progress for the private sector, de Blasio’s progressivism dares to challenge the primacy of supply side economics to suggest people before profits.

To that end, de Blasio’s plan to create 50,000 units of affordable housing through mandatory or guaranteed inclusionary zoning nearly silenced a room of real estate executives at an ABNY breakfast in October. There’s a natural tension between improving people’s lives and the laws of supply and demand, but de Blasio’s choice reflects a clear indication of which should matter more. Unfortunately, that doesn’t mean guaranteed inclusionary zoning will work. But while the private sector simply shuts down a business when it’s no longer profitable, the mayor of New York has a far more difficult task.

Affordable housing is a concept that straddles the competing interests of industry and government. In New York City the struggle to develop a sufficient stock of affordable housing is in constant conflict with market forces. Whereas industry treats housing as a commodity to be produced at minimum cost and sold at maximum profit, government is forced to reconcile the ugly by-products of free market capitalism such as homelessness, poverty and a shrinking middle class.

Over the last decade the city has attracted a density of high-income individuals, driving up the equilibrium price and quantity of housing. Consumers are willing to pay large sums to live here, and producers (i.e., developers) are eager to meet demand. Currently the average market price of rental housing (excluding Staten Island) is over $3,000/month, while the average income for a family of four is only $50,000. Costs are rising faster than incomes. Combined with a vacancy rate of under 5 percent, New York City is in the midst of a full blown housing crisis: an unintended consequence of being a desirable place to live—a credit to Mayor Bloomberg.

In 2005 Bloomberg introduced the Inclusionary Housing Program (IHP) to encourage developers to build affordable housing through tax incentives and other public subsidies. The program defines affordable housing as a certain percentage of the Area Median Income (AMI) for a given neighborhood, and offers developers a variety of options for participation. The program is also voluntary; developers looking to build in New York City are not required to produce or preserve housing at below market rates. Although IHP has produced 2,769 units of afford-able housing, more than the previous R-10 Inclusionary Zoning program, 87 percent of all development over the last eight years has been built at market rate, a fair amount of it taxpayer-subsidized.

De Blasio and critics of voluntary inclusionary zoning propose to increase New York City’s affordable housing stock through mandatory inclusionary zoning, versions of which exist in San Francisco and Boston. Economists and housing policy experts counter that the San Francisco housing market has actually suffered under the program, driving down supply and putting upward pressure on price: the equivalent of a tax. But the mayor-elect is betting that New York’s housing market is sufficiently inelastic to withstand increased regulation—and he may be right, but it’s hard to be sure. Although the San Francisco program has indeed increased the supply of affordable housing, it has not produced the anticipated stock, let alone de Blasio’s aspirational 50,000 units. On the flip side, nor has it increased market rents as much as developers predicted.

So what’s the solution? It’s complicated. Mandatory inclusionary zoning will unlikely be enough to solve the housing crisis, but de Blasio should not be graded against private sector standards. There were compromises in Bloomberg’s calculus, and there will be different ones in de Blasio’s. Profit will be the last thing a successful plan for affordable housing produces; the first will, hopefully, be more homes for people who need them. The challenge will be to figure out exactly how.

Unlike business, though, government does not have the option of giving up.

Alexis Grenell (@agrenell on Twitter) is a Democratic communications strategist based in New York. She handles nonprofit and political clients.