A Single Solution for New York's Two Biggest Problems

When I was growing up in Brooklyn in the 1980s, it was a watchword for urban decay, notorious for its high levels of violent crime and joblessness. Most of our family friends fled the city as soon as they could cobble together a down payment for a house in the suburbs, and it was hard to blame them. But the Salams toughed it out, and we are now delighted to have done so. By the 2010s, New York City had experienced a dramatic revival. Kay Hymowitz, a senior fellow at the Manhattan Institute, vividly describes this transformation in her recent book, The New Brooklyn. Violent crime has plummeted and the local economy has boomed, to the point where there is more anxiety about the galloping pace of gentrification than there is about middle-class families rushing for the exits. Compared to the nightmare that was the crack epidemic, gentrification is a champagne problem, as most New Yorkers of a certain age would happily concede.

Yet New York’s good fortune has brought with it two formidable challenges: the challenge of displacement, the product of a rental housing market that has long been starved of inventory, and of meeting the transit needs of a growing city. To address the first, state and local officials have to overcome popular resistance to new housing development, despite the lingering suspicion that it will offer established residents little more than added congestion. The second will require recapitalizing a transit agency that has long since lost the public’s trust. Thankfully, Alex Armlovich, also of the Manhattan Institute, has devised a grand bargain that can tackle both challenges at once.

As anyone who has visited New York in recent years can discern, the city is in the midst of an acute transit crisis, which has been greatly exacerbated by the feckless leadership of the notoriously small-minded governor of New York, Andrew Cuomo. Underinvestment and gross mismanagement have badly damaged the city’s subways, its lifeblood, and low-income commuters in the outer boroughs have been hardest hit. Money alone won’t solve all that ails the Metropolitan Transportation Authority, but the agency needs an infusion of funds to, among other things, modernize its dangerously antiquated control systems. The question is where the money will come from. Local commuters aren’t exactly thrilled by the prospect of paying higher fares, and local taxpayers are understandably reluctant to shovel more money into a transit agency notorious for its profligacy. Short of a federal bailout, which is nowhere on the horizon, New Yorkers will have to find someone willing to foot the bill.

And then there is displacement, fear of which looms large in the local imagination. As New York City has grown more desirable, it has experienced net population growth. While large numbers of New Yorkers leave the city every year, they are being replaced, and then some, by newcomers from elsewhere, including large numbers of high-skill professionals. Close to 9 percent of households in New York earn over $200,000, and it is no exaggeration to say that much of the rest of the city’s workforce caters to this slice of the population. This increase in high-end demand is, for most communities, the stuff of dreams, and it has redounded to the benefit of those fortunate enough to own property. However, New York City has failed to accommodate increased demand for housing by easing local land-use regulations that have, over the course of decades, drastically decreased the number of units that developers are allowed to build.

That artificially constricted supply has prompted affluent households to look beyond neighborhoods that have traditionally been the city’s most desirable, and that offer professionals the shortest commutes, to neighborhoods in Brooklyn and elsewhere that had hitherto been dominated by families of modest means. If established neighborhoods in the urban core had built more housing, it stands to reason that there would have been less spillover of the well-off to outlying neighborhoods. Gentrification can be a positive force, to be sure. For one, by reducing the concentration of poverty, it can improve the life chances of the poor children who remain in gentrifying neighborhoods, by reducing their isolation from society’s middle-class mainstream, a dynamic I touched on in National Review in 2014.

But these benefits do not extend to poor children who find themselves displaced from these neighborhoods, who might then settle in higher-poverty neighborhoods elsewhere in the city, or in less transit-rich inner suburbs. It is possible for gentrification to lower the concentration of poverty in a neighborhood without causing displacement, provided the supply of housing increases enough to accommodate increased demand, thus holding down rent increases. If the supply of housing does not grow sufficiently, however, displacement is a likely consequence.

Some scholars, such as Joe Cortright of City Observatory, have suggested that the threat of displacement has been overblown, and it is certainly possible to overstate it. What is also true, however, is that an alarmingly high share of New York renter households—more than half, according to the Joint Center for Housing Studies—are “cost-burdened,” i.e., they spend more than 30 percent of their gross monthly incomes on rent. In other words, many families that have yet to be displaced are very vulnerable to displacement, and anxious about the prospect. No one, least of all Cortright, would deny that this is a real obstacle to upward mobility.

It is imperative that policymakers find some way to boost housing development without triggering the natural defensive reaction of local residents who are confident that its benefits will elude them. Somehow, these benefits have to be made concrete. Over the years, a number of scholars, most notably David Schleicher of Yale Law School, have devised various schemes to do just that, with only modest success. But one wonders if the urgency of New York’s transit crisis can create an opening.

Which leads me to Armlovich’s ingenious proposal. In a new report for the Manhattan Institute, he sketches out a plan for boosting housing supply while upgrading public transportation. Specifically, he proposes the creation of “transit growth zones,” areas around transportation hubs, in which regulations would be eased so that higher-density housing could more easily be built. In these zones, builders would pay fees per square foot to build up to the maximum allowed in New York state, or else fees to build beyond the limit set by current regulations. Such fees and taxes could be channeled to the MTA, provided the agency is willing to lower its obscenely high procurement costs.

Ultimately, the new zones could be a win for everyone. “I estimate that property taxes and one-time development fees from the creation of roughly 411,000 new private housing units over 10 years would generate about $54 billion for the MTA during the same period,” he writes. Meanwhile, housing supply would start catching up to unmet demand, easing prices across the city, even as the city’s subways are restored to health. Instead of adding to the congestion problem, revenue from new housing development would be leveraged to help.

If Armlovich’s vision sounds too good to be true, well, it could be. As the urbanist Stephen Smith has observed, increases in supply are never perfectly keyed to increases in demand. Historically, New York’s developers have oscillated between irrational exuberance, leading to an oversupply of new housing, at least for a time, and its morose opposite, in which chastened developers overlearn the lessons of the last cycle of boom and bust. Brooklyn’s high-end rental market, for example, has cooled in response to the construction of large numbers of luxury properties. Perhaps developers won’t leap at the opportunity afforded by Armlovich’s grand bargain, as they are still licking their wounds over the lackluster response to their latest frenzy of building. But I suspect his proposal would indeed stimulate the animal spirits of would-be real estate tycoons, which in turn will help replenish the depleted offers of the MTA.

And if that does indeed happen, New York City would become something more than the “luxury city” envisioned by former mayor Michael Bloomberg, or the grim “tale of two cities” often invoked by his maladroit City Hall successor, Bill de Blasio. Rather, it will become a place where middle-class families, much like the one in which I was raised, will be able to find affordable and dignified places to live, and where their children will find it just a little bit easier to scramble up the ladder of success.