Shot in the Dark

Mandated Equality

Two truisms at play in this story:

  1. If someone has to mandate your equal outcome [*], then you probably really aren’t equal.
  2. Economics 101:  Forcing people to pay more or less for a good or service than they naturally would will distort the market.  Force the price up, and you’ll get a black market.  Force the price down, and you’ll get less of the good or service.

With that in mind, see if you can see both currents in this piece, about developers in NYC and their reaction to being forced (as a condition of a bailout) to include “Market-Rate rentals” which are, in fact, well below the market rate.

A Queens luxury tower that was bailed out by the city is blocking the large terraces of a few affordable units so tenants above with tiny balconies don’t get jealous, one resident claims.

Erin McFadzen chose her middle-income — and rent-stabilized — corner apartment at Long Island City’s new Q41 building because of its wrap-around terrace.

But when she moved in, half of it was fenced off by what she calls a “Jurassic Park”-style barricade.

The ugly 6-foot-high wire barrier also interferes with views from every window of her sixth-floor, $2,186-a-month pad.

“We’re caged in,” McFadzen told The Post.

“Every time someone comes over, I have to explain why the fence is there . . . and tell them we’re rent stabilized, like it’s a badge I have to wear,” she said.

And the tenants aren’t the only innumerate ones; the developers (read the story, for crying out loud) are just as bad.

The innumeracy washes over us in waves in this piece:

  1. Rent Control/Rent Subsidy (as well as the city’s systematic demonization of landlords, much as Minneapolis and Saint Paul are doing, although not nearly as effectively as NYC does – yet) is exactly why it’s impossible to find an affordable apartment in NYC.  “If you make a good or service worth less than it would naturally be, there will be less of it”.
  2. The city shouldn’t be bailing out failed developers – so the developers shouldn’t be complaining that the bailout comes with strings attached requiring them to include rentals for much lower rates than the market would ordinarily bear.
  3. Real estate in New York being as much about image as value, the “low-income” tenants shouldn’t be surprised that the developers are doing something to give the residents paying the actual market rates some sense that they’re getting something justifying the premium that they’re paying for the upscale places they’re renting.  And in that case, that means making the the full-rent balconies a better deal than the cut-rate ones.  Even just by the seemingly bitchy means they used.

If governnment has to make you equal, you’re probably not.

[*] Civil rights legislation is, of course, not an example of this; civil rights and liberties are not given to us by a landlord, but by our creator.  Nobody can justly take them away.  Housing is not a right – much less a specific class of housing for a specific price.

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Mitch Berg

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14 responses to “Mandated Equality”

  1. RickDFL Avatar
    RickDFL

    ”If you make a good or service worth less than it would naturally be, there will be less of it”.

    The major barrier to new housing construction is not rent control but zoning via height limits and parking requirements. Even if you abolished NYC rent control, it would still be illegal to significantly expand the number of housing units because you are just not allowed to build that tall.

  2. bikebubba Avatar
    bikebubba

    Rick, building high just tends to make the cost per square foot exorbitant. For example, I remember that back in 2001, the rebuilding cost for the WTC was going to be something like $600/square foot, about six times the average cost of office space at the time. All of those pilings down to bedrock and massive support structures ain’t cheap, so going high is not the solution.

    And ahem–don’t these people need to get to work? Getting rid of parking spaces isn’t the solution, either. Plus, the city owns tends of thousands of vacant buildings and hundreds of vacant lots. The question is not why the city won’t allow builders to build $500/sf apartments without parking, but rather why it doesn’t pay to build $100/sf apartments with parking on the tends of thousands of properties already owned by the city.

    And the answer to that would be “rent control”, as any good economist would point out to you that the only places in the country where you can’t find affordable housing are places with rent control.

    By the way, it’s also worth noting that even counting for parks, roads, and commercial land, four people in a detached home on 5000 square feet is pretty close to the population density of New York City. Put apartments on that land–four apartments with three people each and two parking spaces apiece–and it’s tight, but you’ve beaten NYC population density by a wide margin.

  3. bikebubba Avatar
    bikebubba

    More to the topic, it strikes me that mature people don’t get all bent out of shape that someone else has something nice. I drive a 1998 pickup with 162k miles on it, and for some odd reason, I don’t demand that bimmers be hidden. And at 2k/month in rent, I think an apartment OUGHT to have something of a view to commend it to renters.

  4. RickDFL Avatar
    RickDFL

    BB: Whether taller buildings makes fiscal sense is for the market to determine. The problem is that too often it is illegal to build that way. People who take public transit or walk don’t need parking spaces and should have an option to buy in a place that has no parking.

    Not sure what tens of thousands of vacant municipally owned properties you refer to.

  5. bikebubba Avatar
    bikebubba

    Rick, if increasing the height also greatly increases the cost per square foot, then height restrictions cannot be the root cause of unaffordable housing, period.

    And the buildings on the books are from the 1970s and 1980s–things got so bad there prior to Giuliani that thousands of property owners gave up their properties rather than pay their property taxes. Crime, rent controls, and poverty made it unaffordable to renovate and earn money on property.

    Giuliani and his successors (at least prior to the current guy) put the kibosh on a lot of crime, but they’ve still got rent control and poverty driving development out of certain neighborhoods.

  6. Joe Doakes Avatar
    Joe Doakes

    I can’t believe I’m about to say this, but . . . RickDFL is right.

    Not totally right – rent control does distort the market and leads to absurd balcony disputes. But right about land use planning as the problem, not the solution. See: Thomas Sowell on San Francisco.

    Consider our our own urban planning guri, the Met Council, with their resistance to highways and housing outside the MUSA line explicitly intended to force higher urban density to support light rail. Dreamers imposing their vision on the kulaks and peasants.

  7. bikebubba Avatar
    bikebubba

    Yes and no. Having lived in Boulder, yes, I know land use restrictions are a problem. I simply disagree that they are the major problem in a city like New York City with tens of thousands of empty city-owned buildings, or that the problem of a lack of affordable housing could be somehow remedied by preventing poor people from driving to work while putting them in $300-$600/square foot real estate.

    Let’s draw the picture; let’s assume 10 stories of $300/sf apartments, 700sf apiece with 300sf apiece in common areas like hallways and such. Each apartment is a capital cost of $300k for a rent payment of….$2-3k. So this is many things, but “affordable housing” is not among them, unless we are trying to remedy the long commutes of Wall Street brokers who live most of the time in Connecticut.

  8. RickDFL Avatar
    RickDFL

    Joe:
    To be clear, I agree rent control is bad. I agree with the Swedish socialist who said it was the most effective way to destroy a city other than aerial bombing. I just think it has little impact on new supply (vs upkeep of existing stock) and almost no effect outside of NY.

    And you are right about the Met Council in so far as I can’t think of anything dumber than trying to promote density where municipal rules make it illegal to build dense housing. Why build a light rail and then make it illegal for more than a handful of people to live within walking distance of it? I would happily trade an end to all housing subsides for elimination of municipal height limits ect.

    Sadly, too many liberals don’t want to be on the side of developers and too many conservatives abandon the free market when it means a tall building blocking their view.

  9. RickDFL Avatar
    RickDFL

    BB: If you have actual info on higher construction costs for multi family vs. single family please share. I doubt it since economies of scale generally run the other way. Second, you are forgetting the cost of land. A single family home bears the cost of the whole lot while a multi-family unit can share the same cost between dozens or more units.

    Finally, I don’t know where you are getting your figure on 10,000s of vacant city owned building in NYC. This says there are 141.
    http://www.gothamgazette.com/index.php/government/4906-the-mayors-vacant-lots-de-blasio-affordable-housing

  10. Mitch Berg Avatar
    Mitch Berg

    “I just think it has little impact on new supply (vs upkeep of existing stock) and almost no effect outside of NY.”

    It’s most drastic in NYC because that’s the place where it’s been implemented most completely (and disastrously).

    But components of NYC’s full enchilada have been implemented elsewhere – Portland, Philly, Camden, Newark, Saint Paul and others – with results that are a differing degrees of bad.

  11. bikebubba Avatar
    bikebubba

    Rick; look up the cost of commercial building vs. that of residential. Single family residential is typically around $100/sf, basic commercial (which would include 3-4 story apartment buildings) is twice that, and at the other extreme, the original WTC was built for about $500/sf, and the new one checks in at twice that.

    Here’s an image of the framing of the Willis Tower under construction if you wonder why. Suffice it to say that it’s way, WAY heavier than you’ll see in typical 3-5 story construction.

    http://www.willistower.com/building-information/history-and-facts

    And no, real estate is not exorbitant throughout Gotham. Google some real estate listings–I found a nice little house in Queens on a half acre for $180k.

    So the real question here is why doesn’t it pay for people to take all those vacant lots you mention in your link and build apartments on them. Gosh, could it be…..because the city implements rent control on everything besides luxury apartments and it doesn’t pay?

    Honestly, to argue that this isn’t a major factor is to say that you haven’t a clue about economics.

  12. RickDFL Avatar
    RickDFL

    Mitch: Does St. Paul have a rent control law? I can’t find it.
    This says Philly does not have a rent control law:
    http://www.rturn.net/rentincreases.php

    Portland OR can’t have one, because OR state law prohibits them.
    http://www.oregonlaws.org/ors/91.225

    BB: Any property market will have some vacant lots. 7,000 in a city of 8plus million does not seem that high. I can’t find any info to suggest NYC has a higher than usual rate of vacant lots.

    If you read to end of the article, the developer spokesperson (probably no friend of rent control) says they main cause of vacant lots is problems raising the cash to build and problems with permitting/red tape. He does not cite rent control as an issue. So if NYC has a higher than normal vacant lot rate, the developers don’t think rent control is a reason for it.

  13. bikebubba Avatar
    bikebubba

    Rick, you can quibble over how many vacant lots NYC ought to have, but that does not change the fact that if you limit what one side of the balance sheet says through rent control, you are going to make it more difficult to raise the money to build. Do you think bankers pay no attention to likely revenues when they are approving loans?

    And it means precisely nothing that this issue was not mentioned in a given article in the mainstream media. It’s not always going to be mentioned, and even if it is, you have to have a journalist who is willing to pick something of a fight with the city council by mentioning this as a problem. As the MSM’s shielding of President Obama shows, this is not a gimme.

  14. RickDFL Avatar
    RickDFL

    BB: Vacant lots are only an issue because you claimed to know something you did not. I have not argued that rent control has no impact, just that it is less important (probably in NYC and certainly elsewhere) than zoning restrictions.

    Finally the Gotham Gazette is a product of the NYC Citizens Union which was founded by J.P. Morgan and others to fight the Tammany Hall Democratic machine. Obviously a source that will be hostile to real estate developers.

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