Reformers at the gate: Progressives set their sights on the housing market

In her five years at Coalition for the Homeless, policy analyst Jacquelyn Simone has seen thousands of New Yorkers come through the doors of the coalition’s Manhattan office, often looking for a hot meal, access to shelter or job training to help them get back on their feet in a city that’s often described as a concrete jungle.

However, Simone said she’s noticed a disturbing trend in the past few years — a growing share of those asking for assistance are working New Yorkers who simply can’t keep up with booming rental prices topping nearly $3,000 per month. As a result, she said the city is facing it’s worst homelessness crisis since The Great Depression.

“Many people who are experiencing homelessness are working and they’re just not making enough to afford the rent,” said Simone, who added that the length of stay for people in the shelter system has steadily risen as the the supply of affordable apartments has declined. “About a third of families in shelter have someone who is working and just can’t afford an apartment.”

Simone is part of a burgeoning movement, where a number of cities and states across the country have set their sights on radical rent control and zoning reforms as record numbers of residents are pushed to the streets in the face of booming housing costs.

In August, Oregon became the first state to nix single-family zoning in cities with more than 25,000 residents, and Minneapolis followed suit in October with the passage of the city’s Minneapolis 2040 plan, which included a $25 million subsidized housing fund and new inclusionary zoning requirements.

During the same period, California, Washington D.C. and New York City became hotspots for rent control reform, with legislators and advocates going toe-to-toe over passed and proposed bills to improve affordability.

Indeed, the reformers are clamoring for the real estate industry.

‘Everyone’s trying to figure out how to get out of this mess’

Zillow senior economist Skylar Olsen said the groundswell of support for wide-ranging rent control and flexible zoning laws has been nearly a decade in the making, as former homeowners flooded the rental market in the aftermath of the 2008 housing crash.

“After that recession trauma, we’ve had very slow but steady economic recovery, which made people be finally able to form households, but mainly in the rental market,” she said.

During the housing boom, developers placed their focus on single-family detached homes, thereby creating a rental market unable to meet the needs of the nearly 10 million homeowners who lost their homes to foreclosure between 2006 and 2014.

As a result, national rent growth increased as much as 12 percent year-over-year, with nearly 50 percent of renters spending more than 30 percent of their monthly income on housing.

Olsen said developers quickly responded to the increased demand by building large, luxury apartments, so that renters that would’ve competed for existing housing stock now had a new unit to move into. While that inventory boom benefitted investors and higher-income renters, it left renters in the middle-to-low income range with few options.

“Rent is growing fastest in the affordable housing stock segment, and yet, all the units are being added at the top and that’s not providing any relief for the affordable segment,” she said. “More and more people who are experiencing market-rate rent are doing so where your rent is exceeding the affordability threshold of 30 percent.”

Joint Center for Housing Studies’ 2019 State of the Nation’s Housing report backs up Olsen’s assertion — the stock of low-cost units priced below $800 per month has declined 17 percent (4 million) since 2011.

Olsen said it’s difficult for developers to secure financing for affordable housing projects because it limits the return on investment investors could experience, and its difficult for developers and cities to force investors’ hands.

“It’s hard to force the people who have the finances to direct [investments] where you want it to be directed,” she said. “So, its a whole swirl of events. Everyone’s trying to figure out how to get out of this mess.”

BRIDGE Housing board of directors member Molly Turner said a good starting point for solving affordability issues are the “three Ps” of production, preservation, and protection, which is evidenced by the recent moves legislators and advocates are making in terms of zoning and rent control reform.

“I think with a lot of the up-zoning, you’re seeing a huge push for more production to increase density, particularly in cities and neighborhoods in cities that are close to transit and jobs,” Turner explained.

“With rent control, you’re seeing an emphasis on [the] protection of tenants with the philosophy being that maintaining [lower income] tenants in their housing is a lot more affordable for society than if they were to be evicted and had to housed in subsidized housing or god forbid, entered homelessness.”

‘Rent control isn’t a panacea, zoning isn’t a panacea’

In October, Minneapolis made headlines for becoming the first American city to eliminate single-family zoning through its 10-year comprehensive plan, Minneapolis 2040.

Although the elimination of single-family zoning gained the most attention, Minneapolis 2040 included several housing policy measures, including an increase in density near transit stops, a $25 million subsidized housing fund and a new inclusionary zoning provision that 10 percent of apartment units must be reserved for moderate-income households.

Minneapolis Long Range Planning for Community Planning and Economic Development director Heather Worthington said Minneapolis 2040’s housing policies are based on feedback gathered from more than 100 community meetings over the course of three years.

During those meetings, Worthington said residents began to share their concerns about housing, which included making frequent moves and grappling with ever-changing rental rates that required anywhere from 40 to 50 percent of their monthly income as  the city’s attached-housing inventory (e.g. duplexes, triplexes and fourplexes) declined by 43 percent.

Although the lowest-income residents could rely on housing subsidies and public housing, residents making 80 percent of the median area income were struggling to find permanent affordable housing as Minneapolis’ naturally-occurring affordable housing stock decreased by 15,000 units in 15 years, due to market-rate conversions.

With that information in hand, Worthington’s team went to work, digging into mounds of data and conducting hundreds of interviews with residents who had been silenced through years of racism and segregation.

“We looked at a lot of data, and we were interested in looking at it by race in particular because we learned back in the 2014-2015 time range, we had the deepest racial disparities in terms of outcomes in the nation,” she explained.

Worthington realized the racial disparity was helping fuel Minneapolis’ housing crisis since wealthier, white-identifying residents in suburban neighborhoods with access to more amenities such as good schools, parks, and transit stops had greater influence on zoning and housing policy plans than residents of color, who often didn’t know what their city council representative’s name was.

“There’s a whole element of this work that I think is really tied up, in an important way, in how people participate in our democracy and how people participate in local decision making,” she said.

Worthington said the passage of the Minneapolis 2040 plan is only the first step. Her team is currently working on creating specific inventory and project goals, as the elimination of single-family zoning gives the city an opportunity to effectively triple its current housing stock through the development of triplexes.

“It’s a question we haven’t quite answered yet, and we’re in the process of defining what our metrics will look like and we’re working with a couple of different groups to do that, and one of them is the University of Minnesota and the other is the Federal Reserve Bank in Minneapolis,” she said.

However, looking forward, Worthington said she recognizes zoning isn’t the final solution for Minneapolis or any other city facing worsening affordability. She believes zoning along with other measures such as greater housing subsidies, inclusionary zoning, and rent control are needed.

“For instance, Washington D.C. already has rent control and they have a lot of subsidized units, and they still have an affordable housing problem,” she added. “So, rent control is not a panacea, zoning is not a panacea, none of these things alone work. They have to work in tandem with one another.”

D.C. Tenants Union organizer Stephanie Bastek knows what Worthington is talking about all too well — the D.C. resident is one of the leaders of Reclaim Rent Control, a coalition of more than 30 tenants’ rights, labor unions and state organizations lobbying for more comprehensive rent control in the nation’s capital.

As the D.C. City Council prepares to reauthorize the city’s 34-year-old rent control laws ahead of a Dec. 31, 2020 deadline, tenants’ rights activists saw an opportunity to constrict landlord exemptions, extend tenant protections, and lower current annual rent hike standards, which is 2 percent plus the consumer price index.

“The real problem is that there is very little available rent-controlled [housing] stock anymore,” Bastek noted while highlighting that stock has been slashed from 120,000 units down to approximately 80,000.

Bastek said landlords have been abusing exemptions in the current law, such as a rule that allows landlords and tenants to agree to a one-time market rate increase in exchange for building upgrades and the ability to file a Substantial Rehabilitation Petition to increase rents by as much as 125 percent to fund building upgrades.

In addition to landlords using these rules to begin renting units at market rate, Bastek said current building efforts are being concentrated at the luxury end of the market, leaving lower and mid-income tenants to fend for themselves.

As a result of weak rent control measures and lackluster affordable housing inventory, the median rent for one and two bedroom apartments in the city have ballooned to a little more than $2,300 per month.

Bastek said D.C.’s inflated area median income statistics that include wealthier suburbs, such as Arlington and North Potomac, have masked the affordability crisis on the Capitol’s streets.

“There are over 40,000 people on the waitlist for subsidized housing, and over 6,000 people are sleeping on D.C. streets or in shelters each night,” she repeated from a manifesto on Reclaim Rent Control’s website.“Almost half of D.C. residents pay more than 30 percent of their income in rent, and one in five spend more than 50 percent of their income on rent.”

“That’s one of the big reasons why we’re pushing for the current rent control law to change its annual increase [allotments].”

‘We’re experiencing the worst homelessness problem since the Great Depression’

More than 200 miles north of D.C., Coalition for the Homeless policy director Jacquelyn Simone is dealing with the fall out of decades of housing policies that fail to adequately address residents’ needs.

According to Simone, New York City is currently facing it’s worst homelessness crisis since 1930s as more than 62,000 New Yorkers, 22,000 of which are children, sleep in shelters each night.

“We’ve seen the length of stay for people in the shelter system has been going up steadily as the the supply of apartments that are affordable to New Yorkers with the lowest incomes and people on fixed incomes in particular, has been declining,” she said.

The current median rent for a one-bedroom apartment in New York City is $2,980 per month — a cost that’s untenable for the average New Yorker who makes $50,825 per year.

“In New York City, if you were going to be working 40 hours per week, given the cost of a two-bedroom apartment at [fair market rates], you’d have to be making more than $30 per hour and our minimum wage is $15 per hour,” Simone explained.

Stagnant wage growth paired with booming rent growth has forced full-time workers in the retail and public service, hospitality, and health sectors to the streets, causing the city to push nearly $3 billion towards homelessness services during FY 2018— a 112.5 percent increase from the previous fiscal year.

Simone said the additional funding towards homelessness is crucial to the work her coalition does. She even lauded Mayor DeBlasio’s “Right to Counsel” plan that provides legal counsel for low-income tenants facing evictions, and a new law that requires landlords to give tenants who have lived in their building for more than two years a 90-day notice before eviction.

“We’re seeing some promising signs on the prevention aspect, but what we really need on the back-end is to create more deeply-subsidized permanent housing that will help people move out of shelters once they become homeless so they can have homes of their own,” she said.

For Simone, the path to more affordable permanent housing includes stronger inclusionary zoning and rent control laws, and creating incentives for developers who build affordable housing units.

“If you have a mandatory, affordable set aside, but its only affordable to households making 130 percent of the median area income, that’s not actually going to be addressing the housing crisis for people that are feeling it most acutely,” she said.

The coalition is currently lobbying for the passage of “Intro 1211,” a revised inclusionary zoning plan that requires any buildings that receive any city financial assistance to set aside a minimum of 15 percent of their units for homeless people.

“Especially in New York City where we have a lot of development happening, we’re really trying to ensure the development that is going up is better aligned with people’s needs,” she said.

‘That’s the million-dollar question’

Although the push for better rent control and more inclusionary zoning is arguably a good thing, Urban Land Institute fellow and former Pittsburgh Mayor Tom Murphy said there’s no guarantee that any of these plans will deliver the results citizens, advocates and legislators are looking for.

“Short term, [those changes] will cause a lot of conflict because everyone thinks the idea of affordable housing is great unless it’s going to be near them,” he added. “‘How will it work in the long term?’ That’s the million-dollar question.”

Olsen said the success of plans in places such as Oregon, Minneapolis and New York City will ultimately depend on the cooperation between developers, citizens and cities, whose needs sometimes conflict.

“As an economist, I may believe overall that rent control is bad in the long run for affordability and some of the other issues its trying to tackle, [however] it still creates some winners, and sometimes those winners are very vulnerable and we, in our public discourse, can decide through various flavors of rent control that we need to protect those vulnerable populations,” she said.

Murphy also added that these current rezoning and rent control reforms are fitted to meet the needs of today, which may create a problem during the next, great population shift.

“Changing the zoning gives local governments huge opportunity to experiment and it could encourage developers to look at different ways to do affordability,” he said while pointing to some cities’ acceptance of stylized modular housing.

“However, [long-term success] depends on whether people will want to continue to live in cities, or will they eventually want to go back to the suburbs?”

Worthington, Simone and Bastek are grappling with the same dilemmas as they acknowledge the success of their plans are based on unknown factors, such as how developers will respond to rezoning or reformed rent control, possible legal battles and repeals, or resistance from other community members.

However, everyone agrees that the fight for affordable and secure permanent housing comes down to two things: What do we want our cities and country to look like, and what values do we want them to thrive on?

“If a city is only affordable and accessible to people at the upper level of the income spectrum, then the city’s economy will collapse,” Simone said. “It’s the teachers, police officers, and senior citizens who really make the city the place we want to live.”

‘Where next?’

Olsen and Murphy said its difficult to predict where the next hotspot of zoning and rent control reform will be since the majority of American cities are dealing with their own affordability crises to their own degrees.

“There’s shared experience that rent and home values are growing so much faster than income, and that means there’s more money being pulled out of your pocketbook,” Olsen said. “So everywhere, the potential for a conversation about rent control, about affordability is on the table.”

With that in mind, Murphy said cities that are currently considered affordable, such as Nashville, Dallas or Oklahoma City, need to begin examining zoning plans before substantial housing price hikes come their way. That examination should include streamlining approval processes and considering wider-ranging housing types.

“When I visit cities, that’s one of the big conversations that goes on, whether the city is efficient in processing [applications],” Murphy said. “Part of it is the efficiency of doing it, and the other is maybe the need to change some of the regulations.”

Finally, all experts agreed there’s ample room for real estate professionals to join the zoning and rent control conversation, as governments and coalitions need people with first-hand experience to create viable plans.

“We need a table that is made up of people like me who are more of the policy wonks, and we also need the people who do the construction and do the deals,” Worthington said, while pointing out policy makers sometimes don’t understand the economics of making a development deal work for both parties. “It’s a very complex process that people who don’t have experience with real estate don’t understand.”

“They need to be involved because for their business to be successful, their communities need to be successful,” Worthington added. “I see this process and a system that is interdependent, so a healthy community that’s thriving is a great place for developers and real estate folks to work.”

Email Marian McPherson.