Gary and Virginia have lived at Berkeley Place in lower Park Slope, Brooklyn, for the past 29 years, almost since moving to the United States from Trinidad in the late 1960s. It's a peaceful neighborhood of oak trees and brownstones, a neighborhood of middle-class homeowners near the park and immigrant renters farther west, families who shop together at the local food co-op and pride themselves on being a comfortably diverse and socially aware community. It's not the kind of place you'd expect to see old people and little kids being put out onto the street.

But the times they are a-changin'. As the housing market just across the river in Manhattan has become unaffordable to anyone but the very rich, young stockbrokers, publishers, and doctors with money have had to look elsewhere to spend it. They've flocked to New York's outer boroughs, snapping up sleepy brick buildings in places like Park Slope (where about 25 percent of the neighborhood's housing stock changed hands over the past decade, according to a study by the 5th Avenue Committee, a tenant advocacy group). This has driven up prices there, too--and in their wake, rents.

When Gary and Virginia's building was sold earlier this year, they didn't think to worry. But then on June 1, the new landlord--"just three years old when we moved in here!"--informed Gary that the monthly rent was being raised to $1,000, more than double the $450 Gary and Virginia are paying now. It's an increase they cannot afford. The couple has offered to pay $700 to stay in the apartment and neighborhood where they have lived most of their adult lives, but the young owner refused to budge. Instead, he served them with a preliminary eviction notice. (Under community pressure, he finally decided to let them stay for two years.)

A few blocks away, Jacinta Morales, a young mother caring for three small children, is in a similar predicament. A recent immigrant from Mexico, she lives with her husband in a ramshackle apartment on President Street. When the building changed hands early this summer, she says, the new landlord began to come to the apartment daily, telling her she had to get out. The rent he wants to charge is almost double what she's paying now. After weeks of harassment, Jacinta agreed to leave. She has no idea where she'll find a new place to live.

This is the dark side of New York's economic boom. Over the past three years, the median rent citywide has increased nearly twice as fast as tenant incomes. Over a quarter of New York tenants now pay more than half their incomes for housing. Nonetheless, many still can't find a place to live. Overcrowding is on the rise. Following a slight decline in the early 1990s, the number of homeless families in the city has been increasing over the past two years. The Coalition for the Homeless reports that about 5,000 families and 6,700 single adults sleep in shelters for the homeless every night.

Economists used to blame rent control for this kind of housing disaster, and New York was often offered as the prime example. But as it turns out, what's happening in Park Slope and other once-affordable neighborhoods around the city is something else altogether. Government interference does not seem to be causing New York's tight housing market. On the contrary, insufficient government regulation and participation appear to be a large part of the problem.

As vacancy rates in New York fall to their lowest levels in over a decade (2.6 percent in Manhattan, 2.1 percent in Queens, 3.3 percent in Brooklyn), rents are rising all over the city. According to a recent study by the Center for Urban Research at the City University of New York and the New York Daily News, the median rent in Chelsea, an upscale Manhattan neighborhood, rose 67 percent between 1991 and 1999. And as middle-class renters fled such places, the median rent in Williamsburg, Brooklyn, typical of the outer borough communities they fled to, rose by 47 percent. At the end of this chain of dominoes, the effects are devastating. Citywide, the supply of apartments with rents under $500 a month has shrunk by more than half. And without adequate legal protections against rent increases in gentrifying neighborhoods, more and more elderly and poor tenants are facing eviction.

Yet despite the crunch, the housing market has not kicked in to provide new buildings. Though the city's population has grown by 356,500 since 1981, a net 41,660 rental units have been added to the city's housing stock over that time. During the 1990s, the number of rental units actually declined.

To some extent, New York's dizzying rents are a consequence of the past decade of economic expansion. The richest urbanites, swimming in stock-market gains, have more cash to devote to competing for that scarcest of goods, a Manhattan apartment. At the same time, immigration to the city has picked up again. Even if the private-housing market had responded quickly to demand, there would have been a time lag, as new buildings went up, when rents would soar.

In a larger sense, the lack of affordable housing reflects the sharply unequal distribution of income in the city, which has been exacerbated by the boom. What competing buyers will pay for a building zooms up with the stock market, and then they hike rents accordingly. But most tenants' incomes aren't rising nearly as quickly. If wages were going up fast across the board--as they did in the 1950s and 1960s--it wouldn't matter so much that rents were, too. Indeed, rising middle- and working-class incomes might jump-start private-housing construction, making more housing eventually available to the poor. In a way, the "housing shortage" is just another symptom of the larger crisis of poverty in New York City, as much a shortage of income as of buildings.

But economic factors are only part of the story. More important is the political dimension. After all, the New York housing market has been fairly tight throughout the past half-century, during which vacancy rates have never climbed above 5 percent. On some level, New York is perennially on the brink of a "housing crisis," requiring only the slightest uptick in the economy to become full-blown. Over the past decade, what has changed dramatically is not the housing market itself but government policy regarding housing.

During the postwar boom, the municipal, state, and federal governments intervened aggressively in the city's housing market. They regulated rents, protected tenants from eviction, and built massive amounts of new housing. The willingness to do so reflected a larger faith that government could manage the economy to serve the poor and middle class. The postwar era also saw a rising standard of living for all classes as a result of a whole range of state policies--from support of labor unions to public investments to the fledgling welfare state.

Today, instead of seeking to counter the effects of an out-of-control housing market, the city and state government, under pressure from real estate interests, have relaxed the rent regulations that used to protect tenants from rent hikes and maintain a base of cheap housing. At the same time, at all levels of government, public investment in housing has collapsed. No longer confident in their ability to shape economic life, policy makers have abandoned New Deal institutions and retreated before the free market, allowing it to exacerbate economic inequality and wreak havoc on city life.

Off Broadway

An afternoon at the Rent Guidelines Board hearings on rent increases for regulated apartments has got to be the best theater in New York City, and it doesn't cost a penny. The nine members of the board--all white men--sit on the stage in Cooper Union's Great Hall, where Frederick Douglass, Abraham Lincoln, and Victoria Woodhull once spoke. A parade of landlords and tenants comes forward to testify. An 82-year-old Russian Jewish immigrant, recently arrived from Moscow, pleads that he can't afford higher rent--he has barely enough money to eat. A young landlord complains he can't cover his bills. Finally, an exasperated landlord advocate comes right out with what's on her mind: "We're in America, which is a free market, and we don't want control of our industries." Besides, she goes on, "if we didn't have regulation, we'd have all kinds of housing." (A voice from the peanut gallery shouts, "So move to Texas!")

It's hardly surprising that a shill for the real estate industry would favor repealing rent regulation. But until just recently, most academic economists thought she was right--that rent control caused the city's housing crunch. The arguments come straight from Micro-Economics 101. Developers won't build new housing because they're afraid controls might be extended. Landlords abandon properties because they can't raise rents to cover costs. Tenants stay in one apartment all their lives instead of moving to the suburbs when they have kids or to Florida when they're old. So the market shrinks for newcomers, arbitrarily benefiting current city residents at the expense of immigrants to the city.

But over the past few years, scholars of the urban economy have started to dissent from important parts of this analysis. For one thing, the dissidents point out, it assumes that rent control is equivalent to a rent freeze. But in New York, rent regulation is far more moderate. Annual increases based on costs, inflation, and a "fair" profit are meted out by the Rent Guidelines Board, an appointed municipal agency. Moreover, about one million apartments--nearly half the city's rental housing stock--are not regulated. New construction is exempt from regulation, though developers can volunteer for the program in return for tax breaks, as many do. Small buildings--like Gary and Virginia's and, indeed, most of the buildings in outlying neighborhoods like Park Slope that are now attracting buyers--are also exempt; this is why a change in ownership can mean a sharp spike in rents.

Although the most orthodox housing economists still firmly oppose any regulation at all, many no longer believe that "moderate" rent control has a negative impact on the housing market. Most important, they don't believe it reduces new construction. A 1996 study of 60 New Jersey cities by housing economist John Gilderbloom found that rent regulation had "no impact on new construction." In New York City, according to a 1999 study by New York University's Center for Real Estate and Urban Policy, high costs and the complexity of the city's housing code have most strongly inhibited new construction. Developers' anxieties about the extension of rent regulation to new construction were simply not an important factor.

The claim that rent control causes housing abandonment--by depressing rents so landlords can't cover costs--has also come under serious criticism. Abandonment was endemic in declining northeastern and Rust Belt cities in the 1970s, regardless of whether or not the cities had rent control. "Abandonment was a response to very low incomes of tenants in these buildings and neighborhoods. With little or no prospect of future profits and no buyers in sight, landlords cut back on maintenance and eventually walked away from their properties," says Queens College economist Elizabeth Roistacher. Moreover, it's not the case that rent regulation makes it impossible for landlords to turn a profit; not even counting capital gains, landlords in regulated buildings in New York have been doing handsomely over the boom. According to the city's Rent Guidelines Board, operating income in rent-regulated buildings has increased by 11 percent over each of the past two years.

There's more ambiguity on the question of whether rent regulations benefit current tenants at the expense of newcomers to the city, by encouraging old tenants to stay put. But even here, the facts belie the old economic assumptions: There is actually substantial turnover in rent-regulated apartments. Between 1993 and 1996, 35 percent of them turned over at least once, compared to 42 percent of unregulated apartments. Clearly, the system does not benefit only those who have already lucked into a regulated place.

The evidence shows that rent regulation doesn't have the disastrous impact on urban housing markets that economists have claimed. In which case, you might imagine that public officials would be eager to provide tenants with better protections from sudden and dramatic rent increases in an economic boom. But instead, the exact opposite policies are being followed today.

The New York State legislature--under intense pressure from the real estate industry--substantially revised the state's rent stabilization law in 1997. It created a statutory "vacancy bonus" (the amount rents can rise between tenants) of 18 percent instead of leaving the amount to be set by the Rent Guidelines Board every year. Landlords receive additional bonuses if the departing tenant has been long-term, if the apartment rents for less than $500 a month, or if capital improvements have been made. As a result, the median rent increase between tenants in regulated apartments rose from 8 percent before the law was changed to 12 percent in the first year after the change. In upscale Manhattan (below 105th Street), the median increase rose from 12 percent to 21 percent. Vacancy bonuses are one of the primary reasons the number of low-rent apartments in the city has dwindled over the past 10 years, and with the new law the losses can only accelerate.

Given what's happening in places like Park Slope, you'd think there would at least be a move to expand rent controls to cover more apartments. Instead, the 1997 law contained provisions for "vacancy decontrol": Any apartment renting for more than $2,000 a month leaves the rent regulation system altogether. Thousands of apartments stopped being regulated in the first eight months following the passage of the law. Although these were primarily Manhattan apartments, the change has transformed the housing market for the entire city, pricing middle-class people out of Manhattan and pushing them into Brooklyn and Queens.

A Public Housing Tradition

Protection from galloping rents is only part of what's needed, of course. The city also needs, quite simply, more housing. And one crucial factor contributing to the present shortage of new construction is the recent rollback of public investment in housing--despite the long history and manifest success of publicly subsidized housing in New York.

Consider Mount Eden, a bustling commercial neighborhood way up in the southwest Bronx, which boasts newcomers from Ghana and Guyana as well as Puerto Rico and the Dominican Republic. It's not Woody Allen's New York, but the streets full of small businesses, thronging with activity on a busy Friday morning, are a metropolitan scene as classic as any postcard shot of the Chrysler Building.

At the heart of this neighborhood are the New Settlement Apartments. Until 1989 these 14 buildings lay vacant. Rehabilitated by the city in a massive investment program, they now provide almost 900 units of housing for low-income and formerly homeless people. (Some of the apartments are rented to families with higher incomes, who pay higher rents.) Turnover is low, and the apartments are in high demand. The attractive brick buildings--run by a nonprofit development company--have small gardens in front and community rooms in their basements, housing a day camp and even a carpentry workshop where local teens build wooden boats to be sailed on the Harlem River.

New Settlement Apartments is just the latest installment in a long tradition of publicly developed housing in New York. During the postwar boom, public investment played a critical role in expanding the city's housing supply. Public housing was seen as an integral part of the city's housing stock rather than housing of last resort for the very poor. Some 642,500 housing units were built between 1954 and 1974, and a full third of them were subsidized by federal or state government. It's no surprise that the private market is much less active now than it was then, when Queens was empty and there were good profits to be made from construction of affordable housing. But why the collapse in public investment when the need is so great? Subsidies from New York State, which helped build 100,000 affordable apartments and co-ops in the postwar era, now help fund the construction of only a few thousand single-family homes a year. And during the first half of the 1990s, the New York City Housing Authority built only 1,400 new units, according to a report by the Citizens Housing and Planning Council. Despite a waiting list of 138,000 and a miniscule vacancy rate, no new public-housing units are being built in the city today.

Indeed, one of the stated purposes of the Quality Housing and Work Responsibility Act passed by Congress in 1998 is to prevent any growth in the nation's public-housing stock. The federal Low-Income Housing Tax Credit of 1986, which was supposed to replace direct spending on public housing, has come nowhere near to matching the old programs. Meanwhile, federal rent vouchers (Section 8 vouchers)--which go to tenants who use them to pay for housing in the private market--are no longer so abundant. An average of 2,500 new Section 8 vouchers were issued annually in New York during the 1990s, compared to 4,300 during the 1970s. The city's waiting list for rent vouchers is now about 216,000 households long.

When the federal and state governments retrenched in the years of Fed Chairman Paul Volcker and Ronald Reagan, the municipal government--responding to New Yorkers' shock at people sleeping in the streets--stepped in to fill the gap. Mayor Ed Koch initiated a 10-year, $4.2-billion housing investment program, mostly using city funds to leverage dwindling available federal and state monies, leading to the creation of many developments like the New Settlement Apartments. The city renovated its in rem housing stock (abandoned buildings the city took over after their landlords fell into tax arrears), rehabilitating tens of thousands of vacant units, and it also built new housing.

But the Giuliani administration has not made housing production a priority. Despite a booming economy, under Giuliani annual spending on housing in the city's capital budget has fallen by half from what it was in the Dinkins years. The city has stopped taking abandoned units into ownership for rehabilitation. Instead, it is now auctioning off many of the remaining vacant in rem properties to private developers, without even stipulating income limits for the people who will reside in the renovated apartments and condominiums.

In this era of reinventing government--when the stock market is supposed to replace social insurance, and private charity substitute for the state--it may hardly seem surprising that regulations are being lifted and public investment withdrawn from housing development. But the irony of extolling the free market as the only viable tool of social policy is that the simple, neoclassical model fails to account, even in a narrow economic sense, for many of the peculiarities of the urban housing market. This unusual market responds very slowly to price signals, generating rent increases out of step with the real economy. Moreover, housing supply within the city is not infinitely elastic. Some people will never be able to afford housing at the market price, and good economic times may only exacerbate the problem. The horrific housing conditions captured by Jacob Riis at the turn of the past century clearly demonstrate what laissez-faire means in practice for city housing.

There are many programs and policies that would ameliorate New York's housing crisis: income supplements for poor tenants; construction of new public or nonprofit housing; subsidies for private-sector development; restoration of a somewhat stricter system of rent regulation, especially necessary in boom times; and protection for tenants in small buildings. But viewing housing policy only in terms of physical buildings can be a way of obscuring the pervasive social inequality of which the housing crisis is but one dimension. Ultimately, a lasting solution to the housing crisis may depend upon a more equal distribution of income--which in policy terms means bolstering rather than repressing labor unions, raising the minimum wage, and jettisoning an ideology of free market absolutism that is as rigid as any Soviet shibboleth. ¤

Sidebar: The Squeeze

Laura Maggi

In most city neighborhoods, the flight to the suburbs continues--with families leaving the city the moment they acquire the means. However, in a handful of trendy cities, there's been a movement in the opposite direction. This may be just what the cities thought they wanted, but it often leaves the poor with nowhere to live.

Rents are surging not just in New York, but in the hot housing markets of San Francisco, Seattle, and Boston, where lots of well-off people are vying for a limited number of apartments and houses. Among the rich and the upper-middle class, incomes may be keeping pace with the bounding rents, but incomes at the bottom are not. In each of these cities, housing activists report seeing increasing numbers of poor families shelling out 50 percent or more of their income in rent or crowding more than one family into an apartment. Across the country, the U.S. Department of Housing and Urban Development estimates, 5.4 million households now live in these substandard conditions, up from 4.8 million only nine years ago.

The imbalance between housing need and affordable supply is something the government used to make its business to redress. But for 25 years, federal investment in affordable housing (defined nowadays as housing that costs no more than 30 percent of a household's income) has steadily declined. Nationwide, the total number of low- to moderate-income housing units made affordable by federal rent subsidies, construction subsidies, or public housing programs is now down to 4.3 million--less than half the estimated need. In San Francisco, the wait for public housing is three to eight years. Seattle estimates the current wait there for a rent voucher at up to three years.

In Boston even families with a federal rent voucher in hand often can't find affordable housing. One of the city's agencies for helping the homeless, in fact, takes busloads of people to look for apartments in less prosperous cities an hour or more away. For single mothers on welfare, says Alfredo Ribot, who works at a Boston shelter for homeless women and children, moving away from friends and family they've counted on for support can be both daunting and costly. Even for those with more resources, moving this far away from their jobs, families, neighbors, and church parishes can be traumatic.

Nonetheless, the need for affordable housing gets virtually no national political attention. The two major presidential candidates both had official "issue positions" on the subject--Bush focusing on moderate-income families that wish to buy homes and Gore essentially proposing to continue Clinton administration policies--but they hardly ever mentioned them. The Clinton administration's main housing strategy was to call for more rent subsidy vouchers. (In 1995 Congress froze the number of vouchers issued, and it didn't permit any increase until last year, when a mere 50,000 new vouchers were finally issued to help the estimated 5.4 million households needing them. For next year's budget, Clinton asked for an additional 120,000 vouchers, and Congress approved 80,000 in appropriations bills. While the additional vouchers would be useful in many parts of the country, they wouldn't accomplish much in markets as desperately short of housing as Boston, San Francisco, and Seattle. There, what's most needed is new construction.

Specifically, we need construction subsidies targeted at people with very low incomes. The few federal construction programs that still exist don't reach them. Housing advocates say the Home Investment Partnerships Program, called HOME, and the Low-Income Housing Tax Credit--the two major federal programs that help build apartments to be rented at discounted rates--are used primarily to help people who earn about 60 percent of the median income, or $36,000 for a family of four.

When nonprofit or commercial developers want to build housing for families poorer than that, they need to cobble together a myriad of subsidy sources to make the project financially possible, says Anne Gelbspan, a project manager for the Women's Institute for Housing and Economic Development, a nonprofit provider of housing and support services to poor families in Boston. And the extra time and work that goes into grubbing for money makes these projects even more expensive. Gelbspan says that to build 26 units recently for very low-income grandparents raising their grandchildren, the Women's Institute had to pull together tax credits, money from state and city programs, loans from a Federal Home Loan Bank, and foundation support. And still the group needed to work with local authorities to create a pool of rental vouchers to be attached to the building, which was the only way they could charge rents low enough for these poor families to afford.

In San Francisco last year, the gentrification driving lower-income families out of neighborhoods they have lived in for generations was a hot issue in the mayor's race. This year, there are two propositions on the November ballot targeted at the dot-com companies many feel have taken over the city; both propose to restrict office construction. Meanwhile, San Francisco's Mission District--a neighborhood of working-class Hispanics and activist artists--reports growing numbers of vandalized SUVs and renovated buildings tarnished with anti-yuppie graffiti.

In Boston, where the city is requiring convention center and waterfront developers to put money into a fund for building at least a small amount of affordable replacement housing, a major brouhaha has erupted over the distribution of these funds among desperate neighborhoods--and over the hopes of at least one politician in the Irish-American enclave of South Boston that the new housing could be for current (i.e., white) residents only. People in the old neighborhoods of these trendy cities feel like they are under siege and, often enough, at each other's throats.

"My family and community are going away," said Frances "Lucky" Devlin after a passionate and packed neighborhood meeting in South Boston this summer. "This is becoming a community of the rich; we're just pushing the poor out. Where do they go? Who is watching out for them?"

In a nation whose largest public investment in housing is the markedly regressive mortgage interest tax deduction--which is good on home loans up to $1 million and is expected to cost the U.S. Treasury $100 billion in lost revenues this year--more people should be asking Lucky Devlin's question. ¤