A New York Housing Grand Bargain?

Happy Tuesday and welcome to another edition of Rent Free. This week's stories include:

• The Saudi Arabian government is downsizing its ridiculous plans to build "The Line."

• Hawaii is considering giving counties the power to ban short-term rentals.

• A study examines when affordable housing mandates get you less affordable housing.

But first, our lead story about the potential housing deal coming together in the New York Legislature this week.

A New York Housing Grand Bargain?

Most state legislatures put together housing-specific bills to set housing policy. Not so much in New York, where the Legislature takes a cue from the federal government and tries to cram as many must-pass policies as they can into the state's annual budget agreement.

Already lawmakers have missed an April 1 deadline for passing a budget. One thing holding up a budget bill is the big question of what lawmakers might do about housing policy in one of the highest-cost, highest-regulation states in the country.

It's a complicated matter because most people want something to be done about housing, and lawmakers want to be seen to be doing something. But the interest groups that play the biggest role in shaping housing policy all have specific policy demands that are either in tension or mutually exclusive of each other's demands.

So, the shape of a deal is still very much in flux. In an interview with The New York Times, Gov. Kathy Hochul equated the process of assembling a housing deal to playing a game of Jenga. (She made this metaphor before New York got hit with an earthquake.)

Like previous years, New York's elected socialist lawmakers and affordable housing advocates are primarily dedicated to passing a "good cause eviction" policy (effectively rent control) that would cap "reasonable" annual rent increases and require landlords to renew current tenants' leases unless they had a "good cause" for not doing so.

This same group of left-wing lawmakers and activists are also dead set against any changes to New York's 2019 amendments to its long-standing rent stabilization law that has made it effectively impossible for owners of rent-stabilized buildings to increase rents to cover the costs of repairs or reset rents to something closer to market rates after a vacancy.

Securing changes to the rent stabilization law is the top priority for owners of rent-stabilized buildings. They argue that the 2019 amendments have made it impossible for them to renovate dilapidated units and are making it increasingly impossible for rent-stabilized buildings to receive financing.

Turmoil at New York Bancorp and other banks heavily invested in rent-stabilized properties is blamed on the 2019 law's rent limitations, which crashed the value of rent-stabilized properties.

A recent city report found that close to 10 percent of rent-stabilized buildings are operating at a loss, and that number has increased sharply since 2019.

Smaller landlords are primarily committed to stopping a good cause eviction policy, and in particular, any good cause provisions that would require them to renew leases for current tenants.

Developers are mostly focused on renewing the expired 421-a program that gave builders tax credits in exchange for building below-market-rate housing units.

Renewal of that program is controversial amongst left-wing housing advocates and lawmakers, who consider it a giveaway to developers. Housing experts argue it's the only thing that made the production of new housing feasible in New York City, which requires most new housing developments to include below-market-rate units.

The state's trade unions are eager to see any new tax credit program include union wage guarantees.

On zoning reform, the state's Yes In My Backyard (YIMBY) activists, as well as Mayor Eric Adams, are pushing for a loosening of state-set density limits on residential construction in Manhattan.

The zoning reforms on offer this year are a lot less dramatic than what was being considered during the 2023 budget negotiations.

Last year, Hochul had pushed for a "housing compact" that would have mandated local governments change their zoning laws to allow for more housing.

For a while there, it looked like some version of that housing compact might pass along with a very strict "good cause" eviction policy that treated any rent increases above 3 percent as "unreasonable."

Ultimately, the Legislature did nothing of consequence on housing last year.

This year, neither the most aggressive form of good cause eviction nor sweeping upzoning is on the table. The New York Post reported last night that Hochul is warming to the idea of a good cause eviction bill that caps rents at the lower of 5 percent plus inflation or 10 percent.

That makes for less dramatic negotiations but increases the likelihood that some sort of housing package will be included in this year's budget.

People familiar with the negotiations expect the outlines of a deal to be hammered out this week.

Down The Line

For years now, Saudi Crown Prince Mohammed bin Salman has been pitching a utopian new city called The Line to be built in the country's sparsely populated Tabuk desert region.

The original plans for the aptly named "The Line" called for a miles-long, car-free city sandwiched between two long skyscrapers. Inhabitants in this ultra-planned city would be able to access the amenities of daily life within five minutes of travel. Getting from one side of The Line to the other would take 20 minutes tops.

It appears that there's trouble in this planned, linear paradise, reports Bloomberg. The original goal was to have 1.5 million people living in the Line by 2030. That's now been shrunk to 300,000 people living there by 2030.

We'll see if the city ever gets that many residents, given how fundamentally flawed the design of The Line is.  

In all nominally capitalist countries where land prices influence development, cities have a radial pattern of development with a dense urban core surrounded by lower-density neighborhoods.

There's a reason for this, as I wrote in 2022:

The Line would ditch this radial urban development pattern for an incredibly inefficient, well, line. Incredibly valuable land above and below the center of The Line would have to be left vacant. Meanwhile, out-lying areas of The Line that are further away from the city center, and therefore less valuable, would have inefficiently high densities.

Micro-managing the location of amenities so that everything is within a five-minute walk or train trip would also seem to leave little room for businesses and residents to make their own trade-offs between cheaper floor space and closer access to customers and amenities.

Expect future disappointing news from this project.

Hawaii Considers a Crackdown on Short-Term Rentals

The state with perhaps the harshest restrictions on new development is trying to reduce its highest-in-the-nation housing costs by cracking down on demand.

The Hawaii Legislature is advancing two bills that would allow counties to phase out and eventually ban short-term rentals, reports SFGate. The bills would amend an older statute that prevents county governments (Hawaii has no municipalities) from banning pre-existing residential uses of land.

Proponents, which include Hawaii's hotel trade association, argue that preventing homes being rented on platforms like Airbnb will make more homes available for sale or long-term rentals to existing residents.

Short-term rentals are frequent targets of restrictions in higher-cost tourist destinations where there's lots of demand for part-time lodging.

High-cost tourist destinations, including Hawaii, also typically have lots of regulations on the construction of new housing. The additional long-term housing supply that could be created by banning short-term rentals could also conceivably be achieved by liberalizing regulations on new development.

Unlike bans on short-term rentals, which could create new long-term rental housing once, deregulating supply would constantly allow new homes to be built to keep prices under control.

Hawaii Gov. Josh Green attempted to streamline development last year (which I dubbed "YIMBY martial law") with a controversial executive order that would have given individual developers the ability to bypass zoning laws, environmental review, and more.

The governor was sued over that order by the American Civil Liberties Union, Sierra Club, and Hawaiian cultural advocates, and he eventually walked it back.

Green has since criticized the proliferation of short-term rentals in Hawaii.

When Affordable Housing Mandates Get You Less Affordable Housing

A new report from the University of California Berkeley's Terner Center for Housing Innovation takes a deep dive on the effects of Inclusionary Zoning (IZ) policies, which require developers to include a certain share of below-market-rate units in their housing projects.

Shane Phillips, the report's author, examines IZ through the lens of Los Angeles Transit-Oriented Communities (TOC) policy, which gives residential developers incentives (like density bonuses or reduced parking requirements) in exchange for offering a share of new units at below-market rates.

Phillips' paper estimates how much housing Los Angeles developers would build by pairing certain TOC incentives with differing IZ requirements.

Phillips concludes, "poorly calibrated IZ policies could lead to reduced housing production, higher rents and housing prices, or both, should prompt caution. Up to a point, higher IZ levels may increase [below-market-rate] production, but likely at the cost of substantially lower market-rate housing production. Beyond a certain threshold, higher IZ requirements are likely to reduce market-rate and [below-market-rate] housing production."

Quick Links

• Everyone is rushing to file amicus briefs with the U.S. Supreme Court before it hears oral arguments in the City of Grants Pass v. Johnson case later this month. The court will consider whether to overturn a 9th Circuit Appeals Court opinion in Martin v. Boise that limits local governments' ability to enforce bans on public camping. Liberal groups' briefs argue the court should uphold the Martin decision. A mix of local governments, conservative and libertarian legal groups, and business groups, want to see Martin overturned.

• Philadelphia is considering the creation of another historic district in the center city area. If created, new construction and redevelopment projects within the district could need to go through public hearings and get the approval of the city's Historical Commission. Urbanist Daniel Trubman has a long thread on X (formerly Twitter) pointing out all the historic parking lots that would get preservation protections in the new district.

• Columbus, Ohio, is considering zoning reforms that would pare back parking requirements and allow developers to skip consultation with neighborhood commissions when constructing taller buildings.

• Montgomery County, Maryland, has approved a new zoning reform that will allow churches to build below-market-rate housing on their properties.

• While the San Francisco Board of Supervisors is downzoning parts of the city, San Francisco Mayor London Breed calls for allowing more mid-rise apartments citywide.

The post A New York Housing Grand Bargain? appeared first on Reason.com.