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Wednesday, May 07, 2014

Selling my fellow conservatives on "Le MIZ": How rent control can be libertarian in NYC

Mayor de Blasio announced his affordable housing plan on Monday. Despite the mayor's reputation as an anti-capitalist lefty, the plan essentially depends on a dramatically libertarian element: The mayor wants to increase height limits imposed by NYC's Zoning Resolution. As Edward Glaeser has argued, the restrictiveness of NYC's zoning is an important cause of NYC's shortage of affordable housing. Loosening height limits would go far to reducing upward pressure on rents.

Here's the paradox: The plan to deregulate New York City may be defeated by conservatives bent on deregulation. The cause of this paradox is that those conservatives are naturally opposed to rent control, and the price for this increase in height is "mandatory inclusionary zoning" ("MIZ") -- the requirement that developers set aside units rented at below-market rates in return for extra floor-area ratio ("FAR"). Requiring developers to set rents below the market rate sounds like rent control, so the announcement of MIZ was greeted with cold hostility by the pro-development crowd. It is inevitable that, borrowing a strategy from California developers, someone will eventually file a lawsuit arguing that New York's Urstadt Law (limiting rent control) preempts the City's MIZ program, with developers and landlords cheering the suit on.

I suggest that this opposition to "Le MIZ" makes no sense coming from anyone with libertarian inclinations. Plain and simple, MIZ is the price of deregulation. The political economy of New York City's zoning is defined by "aldermanic privilege": Council can and will stop in its tracks any effort to build higher and bulkier unless they get something for their constituents in return. There is no way around the Council hurdle: Council peremptorily slapped aside De Blasio's effort to limit Council's role in zoning.

After the jump, I offer my current talking points to sell MIZ to my fellow libertarians. Your suggestions are most appreciated -- especially if you share my libertarian bent and can help me talk the talk.


1. MIZ is better than VIZ: The status quo in NYC is VIZ ("voluntary inclusionary zoning"). Under VIZ, developers get a baseline minimum entitlement to build "as of right," but, in exchange for affordable housing they can get a "bonus" of more FAR. The difference between VIZ and MIZ, however, is trivial unless you are unusually naive about baseline definitions. Say that Greenpoint's waterfront is zoned for medium-density "manufacturing" (i.e., under-used storage units, since industry of any substance is not viable in NYC). If a developer gets a "bonus" of, say, 4 residential FAR, then I guess this counts as "voluntary." Because the baseline development rights are so measly, however, the VIZ might as well be regarded as MIZ: No developer is going to invest substanmtial resources to build as-of-right another mini-storage building. Indeed, all MIZ is actually VIZ in the practical sense that, unless the developer starts from a vacant lot -- a rarity in NYC -- the developer can always choose between retaining the existing non-conforming use or demolishing and developing in accordance with MIZ. To get bent out of shape over the distinction between MIZ and VIZ, therefore, is to be a chump about purely verbal distinctions.

2. De Blasio really wants to build: Opposition to MIZ as a matter of principle makes sense only if one thinks that it is a really a ploy to restrict rather than expand the zoning envelope. As Bob Ellickson argued thirty-three years ago, MIZ could indeed be used as yet another exclusionary device masquerading as an effort to secure affordable housing: It all depends on whether the costs of the mandated units exceeds the value of expanding an existing structure. there is, however, no reason to believe that De Blasio is insincere in his expressed desire to build upwards. He wants housing, and, to get it, he needs to set the MIZ pirce at the sweet spot where developers will build and pay rather than walk. His housing team includes NYU's own Vicki Been, a land-use wonk (and the co-author of a leading casebook on land-use regulation, along with Bob Ellickson, Christopher Serkin, and -- SSP -- yours truly) who has published important empirical studies (cited here) on how to use VIZ and MIZ to gain affordable housing. Carl Weisbrod, de Blasio's planning chief, old-time NYC politico, and former head of Trinity Church's real estate operations, is obviously sympathetic to real estate development. It is not rational to believe that these folks want to deter developers from building with an offer that they'd have to refuse.

So come on, libertarians, realtors, and developers: Get on board. By all means, bluster as a bargaining strategy to influence the price of FAR. But do not sink the major deregulatory initiative of the decade out of sheer orneriness. Sometimes rent control can be the last best way to pry open a city for more housing.

Posted by Rick Hills on May 7, 2014 at 10:37 AM | Permalink

Comments

I think you are probably right about letting the perfect be the enemy of the good, but it's an important part of the equation to note that these rent stabilized units are forever. Please correct me if I'm wrong, but I believe such units are not subject to luxury decontrol.

Having seen how the sausage is made for a while now, I'm really disgusted by NYC rent stabilization / control rules. I have no problem with subsidized housing, but you'd be hard pressed to come up with a worse system. It rewards gaming and even outright cheating, and makes little to no attempt to distribute the benefits to the least advantaged. On the contrary, many many of these lottery units end up in the hands of the temporarily and nominally poor -- grad students who will go on to either make a lot of money, to marry a lot of money, or to inherit a lot of money. That's especially true in the "affordable homeownership" program.

Posted by: brad | May 7, 2014 11:48:52 AM

I do not disagree with your remarks about NYC's rules for controlling and stabilizing rents: It is a notoriously perverse way to subsidize housing.

Since de Blasio has not released the details of his MIZ plan yet, we cannot tell how the rules will deal with luxury decontrol. Note that judicial rulings holding that MIZ is preempted by the Urstadt Law would not necessarily turn on such details. The Urstadt law prohibits "any local law or ordinance" from "provid[ing] for the regulation and control of residential rents," and it is not obvious how the phrase "regulation and control" turns on the duration of restrictions on inclusionary units.

Posted by: Rick Hills | May 7, 2014 3:58:55 PM

I agree with this post, but wonder whether public opinion is really going to matter much here. It's going to come down to (1) whether deBlasio is successful in hitting the "sweet spot" where the financials are good for developers; (2) whether he is successful in overcoming the inevitable local opposition to high rise projects ; and (3) whether the larger real estate market continues to be strong enough to make (1) and (2) possible. The policy views of those without vested interests in particular development projects are unlikely to be important. Or am I missing something?

Posted by: AF | May 8, 2014 10:46:47 AM

AF, you are exactly right that the main issue is the market and the neighbors, neither of which care about libertarian ideology one way or the other.

But there is a third group that matters -- state officials, meaning primarily state judges and state legislators. They can read the Urstadt law broadly (judges) or press Shelly Silver for legislation curbing MIZ (state legislators). Upstate Republicans in the Senate can threaten NYC's state aid or otherwise pressure the city to back of MIZ -- and those decisions might very well be influenced by the perception that MIZ should be regarded as just as bad as rent control.

Posted by: Rick Hills | May 8, 2014 10:54:18 AM

Got it, thanks. And now I see that you already made that point pretty clearly in the post, I just missed it.

Posted by: AF | May 8, 2014 11:13:51 AM

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