All good points, I share your concerns. But, hope/think they can be overcome if the plan is bullish enough on increasing market rate housing.
If we start with the proposition that loosening zoning, will increase supply and lower prices (relative to a hypothetical baseline) then in theory there is an "affordable housing" trade off to be made to allow the politics of this to work.
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Originally Posted by mhays
The details can grow/shrink the level of subsidy required, but they're still a subsidy paid for by the market-rate units. .
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Agreed, IZ is a cost that is passed on to either the developer or the buyers. In a way this is a stupid policy, "implicitly taxing" new housing construction to subsidize affordable housing. A better approach would be to use general taxes (or even a "historic district tax') to subsidize affordable housing. It's always a stupid policy to tax what you want more of "i.e. market rate housing". But unfortunately, I think the politics of this are too difficult. Therefore, I think a dumb tax (IZ mandates) is the least worse option. The affordable housing component makes the link to new more housing clearer to most people. But, yeah this needs lots of new market rate density to work.
Plus, developers in NYC are in some sense earning "monopoly rents" due to zoning rules limiting their competition and driving up aggregate land prices. They are selling units for well above their production + capital costs (i.e. economic profits are zero).
Need to dust off the old economics text books, but I believe one of the ideas behind removing supply constraints is that per unit producer profits will fall, but overall production will rise.
It’s more likely the most/all the cost of the IZ units is born by the developer rather than being passed along to the buyers. If this is eats into their “rents” then this won’t reduce construction overall.
Ultimately, this requires some careful calculus (which yeah, I’m not sure they have done. De Balsio is not always known for his pragmatism). You need something massively pro-market (a big increase in allowable development) to offset a minor anti-market policy (IZ). If the scales aren’t right (too little new development or too much IZ), the whole thing will collapse.
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Originally Posted by mhays
Further, going tall typically means more construction cost per square foot, particularly with highrises. It can be worth it if rents are high enough. But rents need to be substantially higher with the burden of inclusionary zoning. The result is that supply won't happen until rent pressure is high enough. Market rents might need to reset higher to make this worthwhile, and that will apply to the entire market, not just the new units. .
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This is something I’m curious about as well.
I know construction costs psf rises as height increases, but how much does it rise going from say 3-stories to 5-stories or 15-stories to 20-stories? 20-stories to 40-stories? A big part of NYC real estate prices is due to land prices (which fall per sf of development). It seems there could be a happy medium, where psf construction costs rise or stay the same, while land costs psf fall.
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Originally Posted by mhays
Inclusionary zoning has another big problem. The same dollars don't go as far as they would if, say, a housing non-profit got the same money. The onsite requirement suggests an emotional basis, not a desire to maximize housing.
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100% agree. Mandating affordable housing is super-lux buildings is the height of inefficiency. I believe SF has a trade off policy that allows developers to donate money in leu of new units on site. Hope that is included here.