Responding to Jason M. Barr – Professor of Economics, Rutgers University–Newark
Professor Barr posted an analysis of the building boom in the 1920s-early 1930s in his popular blog: Building the Skyline: https://buildingtheskyline.org/housing-twenties/. Barr credits many things for the astonishing growth of housing in the post-WWI period, even including the Great Depression, when housing starts were still greater than a comparable 14-year period until today, concluding:
Lessons for Today
The key lesson for today, however, is that when a city builds housing faster than its population particularly in the outer areas, prices drop or flatten, quality improves, and residents have more choices. If a city builds large quantities of middle-income housing, it frees up older units for lower-income residents (through filtering), and they get better housing than otherwise.
Unlike the Roaring Twenties, however, the New York faces the need to redevelop and densify in a built-up city. I have written widely on what the New York can do to fix this problem but let me itemize a few key steps.
Transit Oriented Development
First is to encourage transit-oriented development by the subway lines outside of Manhattan. Upzone these areas for mid-rise buildings. 92% of housing near subway stops outside of Manhattan is three stories or less. If each building was redeveloped by adding double the current stories (and units)—that is, from two to four, or three to six, the affordable housing crisis would be over.
Target Vacancy Rates
Second, city government needs to target neighborhood vacancy rates. One strategy is for the City to buy large, under-utilized lots and sell off the ground leases to developers for new middle-income housing. As the vacancy rates go above 5%, tenants will have more flexibility and choices, and developers will be freer to redevelop their properties to contain more housing.
Reduce Construction Costs
Third, the government also needs to reduce regulations that choke off the building of affordable housing; and it must offer construction subsidies to lower the high construction costs, with proportionally higher subsidies for buildings that will rent to those with moderate and lower incomes.
Plan for Growth
Lastly, the City must plan for growth. As neighborhoods add more residents, the government needs to be ready to invest in better transportation—like streetcar service, dedicated bus lanes, and more subway lines—and to add more schools, services, and parks to preserve the quality of life.
City of Yes?
To his credit, Mayor Eric Adams is promoting re-writing the zoning rules to allow for more housing across the city through his City of Yes Housing Opportunity program. However, even if fully passed by the city council, which seems doubtful, the program would only generate about 7,000 additional units per year–hardly enough to make a dent in the problem.
If New York really wants to make housing affordable it needs a new Roaring Twenties for the 21st century–there’s still time to get started!
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However, the Land Value Tax of this period was not included. I added the following in the comments section:
There is another big reason for the relative explosion in housing construction in the 1920s and into the late 1930s (because housing starts are planned years in advance, there is a lag between policy and production): the Land Value Tax. The late Georgist professor Mason Gaffney wrote about it here: https://economics.ucr.edu/papers/papers01/01-01.pdf.
“The leading specific topic is to illuminate the aftermath of NYC’s 1920 law exempting
new housing construction (but not the land values) from the property tax from 1920 until the end
of 1931. I will identify it as “The Al Smith Law,” after the New York Gov. who sponsored and
signed it. The finding is that NYC population grew much faster, percentage wise, than that of
comparison cities, from 1920 to 1940, and for a while thereafter…NYC had been slowing down just before the law of 1920. After 1931 when the law expired, NYC grew slower than before, but this was the Great Depression, when most
comparison cities stopped dead, and began to waste away. NYC not only held its #1 population
ranking among U.S. cities, it pulled farther ahead in numbers, even in percentage terms.”
The population grew along with housing. Gaffney writes:
“The original stimulus for this study was a pamphlet by Charles Johnson Post, titled How
New York Solved its Housing Crisis. Post gives data on per capita spending on new buildings in
NYC and four comparison cities for the years 1910 to 1929. These data show that NYC abruptly
recovered from stagnation in 1920, and outstripped the other cities: Philadelphia, Boston,
Minneapolis, and, to a lesser extent, Chicago. Post credits the housing tax holiday, enacted in
1920, for this recovery.”
Today, we have almost the opposite policy by undertaxing vacant lots, then greedily ramping up taxes on developed lot, even right next door! This discourages building unless the profits are so humongous that they can overcome the tax increase. Meanwhile, undertaxed surface parking lots continue on, while their owners wait for the right opportunity to “pounce” (sell) and make a huge profit, largely because the value goes mostly untaxed. Our policies encourage hoarding and speculation, instead of production to the highest and best use. Zoning compounds these malinvestments, but it’s not the only cause, or, arguably, even the largest in some neighborhoods.
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Georgists may wish to add their own thoughts and references to Barr’s otherwise excellent analysis. You will reach many people interested in urban housing policy.