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Affordable Housing That’s Very Costly

At Abington House, a luxury apartment building in Manhattan, 20 percent of the rents are much lower than the rest because of a city program.Credit...Bryan Thomas for The New York Times

Abington House, at 500 West 30th Street near the High Line in West Chelsea, is a new luxury residential building and, like a lot of new luxury developments in Manhattan, it’s extremely expensive. The cheapest two-bedroom apartment now listed there rents for $5,850 a month. That gets you only one bathroom; a two-bed, two-bath can run as high as $8,695.

But 78 apartments in the building, or 20 percent of the total, are set aside as affordable housing under New York City’s “inclusionary zoning” program. That means 19 two-bedroom apartments are priced from $687 to $873 — about a 90 percent discount to market rents. Those apartments were granted to 19 households that make from $25,612 to $42,950 a year and won a housing lottery the city held last year.

There are two appealing facts about inclusionary zoning: developers pay for it, so it has no direct fiscal cost at a time when direct subsidy dollars for affordable housing are scarce; and it produces economic integration, with high- and low-income households living on the same hallways. This is no small thing in Manhattan, where high housing costs — rents rose 19 percent from 2005 to 2012 — are turning it into an island of exclusivity. On the other hand, the affordable housing units created by inclusionary zoning are extremely expensive. The subsidy to each family getting an affordable two-bedroom unit at Abington House will be worth nearly $90,000 a year. That money could cover rent for several families in a middle-income neighborhood in boroughs outside Manhattan, like Sunnyside, Queens.

Inclusionary zoning is especially common in regions with high home prices, like the Northeast and California, and high-price enclaves like Santa Fe, N.M. But New York stands out for its extremely high rents, so the extremely high implicit subsidies are necessary to make the inclusionary units affordable.

New York’s inclusionary zoning program is voluntary: Developers agree to set aside 20 percent of the units, and, in exchange, they are permitted to build 33 percent more square feet than is otherwise permitted. But many developers, especially those building small and midsize projects, choose not to participate, partly because the implicit subsidy for the affordable units is so high. As a result, inclusionary zoning generated fewer than 3,000 new affordable units from 2005 to mid-2013, according to an analysis from Brad Lander, a New York City councilman.

Mayor Bill de Blasio wants to create more affordable units by making inclusionary zoning mandatory: In areas rezoned to allow more density, developers would have to set aside inclusionary units, whether they used the additional density permitted by the zoning or not. By imposing this mandate, the mayor hopes to get both bigger buildings and more affordable units within those buildings.

This approach has met resistance, both within New York and elsewhere around the country. In 2009, a California appeals court threw out mandatory inclusionary zoning requirements because they violated the state’s law against new rent controls. Gov. Jerry Brown, who championed residential development as mayor of Oakland, has turned down mandatory inclusionary zoning proposals twice: once by casting a tie-breaking vote as mayor of Oakland and, in 2013, by a veto as governor.

In his 2013 veto message, Governor Brown wrote, “As mayor of Oakland, I saw how difficult it can be to attract development to low- and middle-income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community.”

Oakland is not New York, and property values in New York are high enough to support new development in spite of regulations, like inclusionary zoning, that could prove cost-prohibitive elsewhere. Still, there are other mandates the city could impose that might be more effective at creating housing that working- and middle-class people could afford.

Nathan Newman, the housing activist behind the group More NYC, offers another suggestion: straight up cash. In a recent report, he argued that the city should drop inclusionary zoning and instead offer developers additional density in exchange for cash payments that the city could use to finance affordable housing programs.

While Mr. Newman’s report overstates the amount of affordable housing a cash fund could create, its core insight remains: Inclusionary zoning generates fewer affordable housing units than a cash equivalent because luxury apartments make for an expensive form of affordable housing.

There is a recent precedent for a cash-for-density deal with developers. Near the end of his tenure, former Mayor Michael R. Bloomberg proposed charging office developers $250 a square foot to build bigger office buildings near Grand Central Terminal, money the city would then have spent on infrastructure improvements. Mr. de Blasio is expected to advance a revised version of Mr. Bloomberg’s plan.

A similar notion could work with residential development, but the difficulty would be turning development fee proceeds into new affordable housing. Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development, says inclusionary zoning is better than a fee because the scarcest resource for affordable housing in New York isn’t money — it’s land.

“Econ 101, money equals land, but not in New York City right now,” Mr. Dulchin said. If new dollars to subsidize affordable housing end up chasing fixed quantities of land and apartments, that could just drive up rents for middle-income New Yorkers.

Mr. Dulchin’s analysis assumes that the supply of buildable area in New York City is relatively fixed and that the number of added residential units would necessarily be low. Because of the political barriers to rezoning, and rent stabilization laws that make it difficult to tear down buildings to build taller ones, his assumption may be reasonable. Efforts to permit more land to be developed or to allow more development on a given piece of land often meet resistance from neighbors, who worry that noise will increase, light will be blocked and parking will become more difficult.

This isn’t universally true: At least one part of New York City, a cluster of Orthodox and Hasidic neighborhoods in northern Brooklyn, has welcomed increased density. As Stephen J. Smith has reported for The New York Observer, developers in South Williamsburg have aggressively pursued the right to build dense, boring apartment blocks to accommodate the area’s rapidly growing Hasidic population — and the added capacity has helped keep prices relatively modest, far below those on the north side of Williamsburg.

But elsewhere in the city, mandatory inclusionary zoning, and the related promise that any tall towers will contain affordable apartments, may be politically necessary to make added density possible. This trade-off shows up in a state law in Massachusetts allowing developers to override local restrictions on density, but only if they set aside affordable housing units.

The inclusionary-zoning-for-density trade also shows up implicitly in a 2013 column from Steven Spinola, president of the Real Estate Board of New York, a trade association for the real estate industry. Mr. Spinola doesn’t take the hard line against mandatory inclusionary zoning that you might expect; instead, he argues that a mandate “may prove to be an effective tool in facilitating a wider breadth of development throughout the city” as long as it comes with enough added density and policies that address property taxes, construction costs and land prices.

In other words, he argues that the city should impose this costly mandate only if it also increases possible development and decreases the cost of building.

Mr. de Blasio’s housing plan hits some of the same notes. It would pair mandatory inclusionary zoning with increased density, including repealing a state law that sets a hard cap on the density of residential developments. Mr. de Blasio has also said he wants to make it easier to convert obsolete commercial buildings to residential use (effectively opening up more sites for housing) and to reduce New York’s unusually high construction costs.

If the politics of zoning in New York City allowed for much greater density in residential development — and made developers pay for it — you could imagine that the creation of a large fund to subsidize affordable housing could be met with an expanded supply of nonluxury apartments. For now, inclusionary zoning may be politically necessary to make that additional density possible, even if the cost per affordable apartment is very high.

A correction was made on 
June 15, 2014

An article last Sunday about inclusionary zoning for housing — which lets developers build more housing units if they charge much lower rents for some of them — misstated the action Jerry Brown, now governor of California, took to block mandatory such zoning while he was mayor of Oakland. He cast a tie-breaking vote after the City Council deadlocked on the plan; he did not veto it.

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A version of this article appears in print on  , Section BU, Page 1 of the New York edition with the headline: Affordable Housing That’s Very Costly. Order Reprints | Today’s Paper | Subscribe

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