The Housing Crisis Is Not Inevitable

The Housing Crisis Is Not Inevitable

New York Can’t Tackle It

Without Taking on Real-Estate Speculation

March 2017

Last year, urban geographer Tom Slater called the conventional wisdom on the high cost of housing—that it can be explained by an imbalance between supply and demand—“one of the most damaging myths of our age.”

Testifying before the New York City Council and the city Department of Planning, Mayor Bill de Blasio’s officials took turns insisting on that same conventional wisdom.

Carl Weisbrod, then planning commissioner, stated that “because our population continues to grow and exert upward pressure on rents citywide [70 percent of the city’s households live in rentals], we need to sustain higher levels of overall housing production to support housing affordability.”

In arguing this, he ignored the statistics summed up in a 2013 report by analysts from the nonprofit Association for Neighborhood Housing and Development:

“From 2000 to 2010, the population of New York increased by 2.1 percent while the US Census reported that the number of occupied housing units increased by more than twice that amount, 5.3 percent,” it said. “If we could build our way out of our affordability crisis, the ratio of housing costs to income should have gone down during this period. However, average rents and the share of income spent on rent both increased well above inflation over the same period.”

The mayor and his lieutenants occasionally concede that there are other contributors to the crisis: the nearly 300,000 rent-regulated apartments lost due to deregulation, the withdrawal of state and federal housing funds, and the gulf between soaring housing costs and the stagnant incomes of most residents. But they never acknowledge one crucial impetus to rising housing costs: real-estate speculation.

Until the city comes to grips with real-estate speculation, affordable housing will remain out of reach for too many New Yorkers.


A Neoliberal Solution

The theory that an imbalance between supply and demand has created a housing crisis makes some intuitive sense. People flock to cities, the story goes, naturally driving up rents in a competitive market.

But this simplistic account overlooks the role of speculators and other producers, who play a major role in creating this demand and the rising prices that go with it, along with the inevitable gentrification and displacement of poorer residents that follows.

The geographer Neil Smith put that forcefully in his classic 1979 article on gentrification, subtitled “A Back to the City Movement by Capital, Not People.” He wrote that, when we take into account the role of “builders, developers, landlords, mortgage lenders, government agencies, real estate agents, and tenants, it appears that the needs of production—in particular the need to earn profit—are a more decisive initiative behind gentrification than consumer preference…. The relationship between production and consumption is symbiotic, but it is a symbiosis in which production dominates. Consumer preference and demand for gentrified housing can be created after all.”

Today we’d want to add a significantly expanded global class of speculators to Smith’s list of producers. In 1979, however, real-estate investment was still primarily a local affair. It took the deregulation and the financial-services boom of the 1980s, which integrated real estate into the financial markets, to send speculation soaring to new heights. Innovative financial products like mortgage-backed securities made real estate more liquid, turning it into a readily tradable asset. Before long, investors seeking higher returns were moving their money from industrial production to the built environment

Real-estate speculation in New York takes myriad forms. But whether at the upper or lower end of the market, speculators are united in the view that housing is a financial asset to be built or purchased for maximum profit—not a home to satisfy the fundamental human need for shelter.

While more detailed research is needed to figure out exactly how much damage the hyper-commodification of housing has done, it’s clear that the explosion of real-estate speculation has contributed substantially to rising prices and to the tidal wave of gentrification pushing all but the most affluent out of the city or toward its margins.

So how could de Blasio and his officials fail to acknowledge such an obvious driver of the city’s housing crisis? Here the language they employ to describe the mayor’s housing plan, to sell it to the public and to respond to its critics, is revelatory. In line with the assumptions about supply and demand that are a staple of mainstream economics, they attribute gentrification and rising rents not to speculation but to “market pressures”—a term they use so often it almost constitutes a mantra.

They portray the market as a natural force, like gravity, rather than the product of human action. For example, in an interview on WNYC’s Brian Lehrer Show in March 2016, de Blasio invoked “the inexorable impact of market forces displacing people constantly” in the gentrifying Brooklyn neighborhoods of Bushwick and Bedford-Stuyvesant. He concluded, “My answer is, create a huge amount of affordable housing.”

The naturalization of the market, of course, is a central feature of neoliberal ideology. Bill de Blasio has presented himself as the pioneer of a new era in progressive politics, but he hasn’t broken completely with the neoliberal paradigm of urban governance that has shifted the focus of policy from mitigating material hardship to spurring economic development.


Housing New York

De Blasio has—following through on his campaign pledge to combat inequality—shown himself far more concerned with alleviating economic distress than Edward Koch, Rudolph Giuliani or Michael Bloomberg. But like his predecessors, de Blasio has wholeheartedly embraced economic development in the form of real-estate development, going so far as to install real-estate insiders in top housing and city planning positions.

To be sure, in his 2015 State of the City speech, he asserted that “nothing more clearly expresses the inequality gap… than the soaring cost of housing,” and he has tried to close that gap by supporting stronger rent regulations. Such initiatives, unthinkable for recent mayors, could play an important role in curbing speculation.

But what the mayor gives tenants with one hand, he takes away with the other. In his overall approach to the crisis, de Blasio aims not so much to cool down the speculative market as to operate within it, allying his administration with the real-estate industry’s imperatives. 

“We want markets to stay hot. That’s good for us,” Alicia Glen, de Blasio’s deputy mayor for housing and economic development, told the real-estate magazine The Real Deal in 2014. “The more people want to build, the more there is to talk about the percentage of affordable housing, and the more the industry is happy to engage in these conversations. Right now, what appears to be the insatiable appetite for New York real estate is something we completely embrace.”

What this means is that the centerpiece of the mayor’s affordable-housing plan—“a ten-year, five-borough” program—tries to “harness” rather than oppose the hyperactive market.

Under de Blasio’s plan, Housing New York, the city will entice developers to include “affordable” units (their actual affordability to most New Yorkers has been hotly disputed) in the mostly market-rate buildings they want to construct. The incentives take one of two forms.

First, the city will rezone 15 neighborhoods to allow developers to put up high-density buildings—thus reaping greater profits—on the condition that they provide some lower-rent apartments in their buildings. This program is called mandatory inclusionary housing (MIH), and the 12,000 lower-rent units it creates will be permanently affordable. Second, City Hall will subsidize lower-rent apartments in buildings scattered around the city. These 68,000 units’ affordable rents will expire in as little as 30 years.

Although it will account for 85 percent of the low-cost units created under the auspices of Housing New York, this second option seldom comes up in City Hall’s public statements. As a result, the news media have almost entirely ignored it, giving the impression that MIH constitutes the whole of the city’s plan.

That omission allows de Blasio to play up the idea that MIH extracts the maximum from developers—permanently lower rents at no cost to the city, which was not required under the extensive Bloomberg rezonings—while obscuring the fact that MIH comprises just 15 percent of the units in his plan, which makes this accomplishment seem somewhat less impressive.

Ironically, the mayor’s plan has a preservation component to address expiring affordability in housing programs from earlier eras. In return for new subsidies, landlords will extend the affordability of some 120,000 apartments. Future mayors will have to do the same for most de Blasio units; the mayor’s scheme, like previous ones, offers a temporary fix to an enduring problem.

Finally, it doesn’t take much statistical sophistication to see that for every new unit of affordable housing constructed under the de Blasio plan, two market-rate units will be built: 160,000 market-rate apartments by the administration’s own estimate. Critics have protested that in the 15 areas to be rezoned for MIH—neighborhoods from East New York to the southwest Bronx—construction of market-rate housing will almost certainly spur gentrification that will displace many of the mostly black and Latino low-income residents.

In response to such criticism, the administration has fallen back on “there is no alternative” rejoinders. They say that even without rezoning and MIH, gentrification will still come to these areas; like the market, it’s an inexorable, uncontrollable force.

“As long as there is demand, people will build,” then-city housing commissioner Vicki Been told a City Council hearing on rezoning last year. “Not passing mandatory housing will not stop those forces.” In a speech the previous month, she had already underlined the administration’s conviction that it is powerless in the face of “those forces”: “Too much of the discourse is about stopping development. You don’t stop development in a city like New York.”


There Is an Alternative

Gentrification and soaring rents are not inevitable. There is an alternative to de Blasio’s market-centered approach. But if the city is serious about bringing down housing costs, it has to be willing to acknowledge and take on speculative real estate development.

This would be the first part of an effective alternative plan. Building new units would become a secondary element in an effective housing policy. In the absence of federal funds for public housing, the new buildings could be created as part of community land trusts, limited-equity co-ops, or mutual housing—proven models that would keep the units off the commercial market and render them permanently affordable.

Only a very brave and unorthodox mayor would embrace this course. And no mayor would challenge the real-estate industry and its financial backers without strong, unrelenting public pressure. While advocates’ and activists’ responses to the de Blasio plan reveal a less-than-unified opinion on the pros and cons of working within the market status quo, burgeoning anti-speculative activism—so far mostly aimed at the private equity firms that target rent-regulated buildings—could provide the foundation for a broader movement.

De Blasio can say, as he did on WNYC last September, that “our job as government is to intervene to the maximum extent possible within a free-market system to ensure that the people’s interests are protected” and insist that MIH does just that. But anti-speculation activists here and abroad have proposed far more effective measures the city could take “to ensure that the people’s interests are protected.”

Of course, shifting emphasis from promoting new construction to curbing speculation would pit city government against powerful interests. But as long as the city remains unwilling to acknowledge and address real-estate speculation, it will fatally undermine any effort to solve the housing crisis.


Elizabeth Capelle writes about New York City housing, politics, and economic development. An earlier version of this article appeared on Reprinted with permission of the author.