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Scarcity by Design: The Legacy of New York City's Housing Policies.

Teachers of undergraduate economics love to use the example of New York City rent control to demonstrate to students the market distortions that result from ceiling price programs. Occasionally, the curious student will ask the question: "If rent control is so bad, why does it persist and how can we get rid of it?" The primary purpose of this book is to provide answers to these questions. But while the focus of the book is rent regulation, the authors also attribute the New York City housing crisis to overly restrictive land use regulation, overinvestment in public housing, and exorbitant property tax rates on rental housing. As the title suggests, the premise of the book is that the scarcity of affordable housing in New York City is the result of a long history of bad housing policies. The authors do a commendable job in their attempt to educate the reader that the government must be replaced by the market if the inefficiencies that plague the rental housing market of New York City are ever to be resolved.

This book would be of interest to noneconomists who have an interest in housing policy, economists who wish to learn more about the history and politics of rent control, and especially housing policy-makers. It should not be read by anybody looking for an academic treatise on the New York City housing market. The authors pay little attention to the many studies that have dealt with either rent control in general or New York City rent control, present no new data or results, and offer no novel policy prescriptions. The purpose of the book is one of advocacy and not to break new ground.

The introductory chapter concisely makes the authors' arguments. The rest of the book fleshes-out the points made in Chapter 1. Chapters 2-6 deal with rent regulation. Covered are the distributional effects (Chapter 2) and market effects (Chapter 3) of rent control, the conflicts that controls cause between tenants and landlords and how the state and city act as arbiters (Chapter 4), and the history of rent regulation at both the national and New York City levels (Chapter 5). Chapter 6 is entitled "Broken Promises" and shows by historical example why developers are likely to expect that their new apartment buildings will eventually be covered by rent regulation. The city and the state have changed the rules too often in the past for potential investors not to be scared away by rent regulation, even though existing statutes typically exempt newly built apartment buildings from controls.

But it is not just the fear of future regulation that retards new housing construction. One of the more astute observations of the authors comes in Chapter 3, where they argue that rent control reduces the expected demand for new housing. Developers may fail to build because they fear that tenants will not give up their below-market rents, even if they prefer the features provided by new housing.

Overall, the chapters that deal with rent regulation are factually correct, entertaining to read, and--most importantly given the authors' purpose--persuasive to a nontechnical audience. Even so, these chapters could have been even better if they would have drawn more fodder from the empirical literature to make the case that rent control is inimical to the public interest. In addition, little if anything is said about the immense administrative costs that New York residents incur from rent regulation. Regardless of who wins or loses in the housing market from rent regulation, all New Yorkers end up paying higher taxes to support the government's massive intervention.

The next three chapters (Chapters 7, 8, and 9) discuss the other three types of housing policies that have contributed to the New York City housing crisis: zoning, property taxation, and public housing. While these policies are common to all large cities, the authors maintain that their negative effects on the supply on private rental housing are particularly perverse in New York City. Chapter 7 "Zoning in New York" provides a history of zoning and argues two points: (1) that virtually every proposed housing development is an exception to the zoning and, as a result, necessitates a long environmental review that drives up the cost of housing construction, and (2) that landmarks preservation stifles new development. The authors do not argue for the elimination of land use controls, only that they become less restrictive to housing development. There is, therefore, inconsistency in their position on government intervention in the areas of rents and land use that may trouble the reader. The preoccupation of the book with government failure, without at least mentioning market failure is a shortcoming, especially at this point in the book. In the first paragraph of Chapter 8, the authors correctly state that the property tax discourages construction and encourages abandonment of rental housing and stifles overall economic growth. The problem is that the effective rate of the tax in New York City is high by national standards and is one to five times higher on rental housing and commercial property than on single family housing. The authors do an excellent job is explaining the effect of the property tax on housing abandonment, but provide no explanation for why the tax discourages construction. l do not believe the answer is self-evident to the intended audience of this book.

To support their position that lower tax rates result in economic growth they point to the growth that Massachusetts and California experienced immediately after rolling back their rates. The authors could have made a much stronger argument by citing the empirical studies that support the new consensus that intrastate tax differentials can have important affects on firm location. Taxes do matter, especially when they are way out-of-line with other states, as is the case with New York.

Chapter 9 contains a history of public housing and lists its well known deficiencies. It also contains a description of the New York City "in rem" (or tax-foreclosed) housing problem and persuasively argues that New York City should get out of the business of rehabilitating these units.

The final two chapters (10 and 11) consider policy options. The focus is on how to make the transition to a deregulated rental market as painless as possible. There are no new ideas here and the positions taken on this issue and the other issues covered in earlier chapters are consistent with policies that have long been advocated by housing economists.

Keith R. Ihlanfeldt Georgia State University
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Author:Ihlanfeldt, Keith R.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jan 1, 1994
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