The Struggle Between Economic and Social Goals

It’s no secret that rents are continuing to rise all around the country.  This is especially the case in large urban markets like New York City and San Francisco.  While many pin this rise to demand for rental housing in light of a reeling for-sale market, it is also a byproduct of the economic successes of certain industries like technology in San Francisco.  Although complaints of this meteoric rise are well-documented, it seems like there is no end in sight, as cranes in the skylines continue to be the rule rather than the exception in certain markets.  Scott James describes this phenomenon in his recent NYT blog post entitled “With Record San Francisco Housing Prices, No Where to Go but Up”.

But what is perhaps even more interesting than the economic ramifications of such increases in rental pricing in these markets are the social ramifications.  As rents continue to increase, the question of who can afford rental apartments becomes begged.  It is easy to envision a scenario where cities like Manhattan and San Francisco become playgrounds for the rich simply because everyone that’s not a banker or a post-IPO techie is priced out of the market. 

In order to tackle any impending social problems, municipalities have been pushing long-standing incentives for developers to reserve at least 20% of the build-able units for rent for a specific property for renters deemed “affordable” by certain metrics.  We know this is commonplace in New York City.  There are projects like the Edge in Williamsburg or the Avalon Bay project on Chrystie Street that have either entire buildings or sections of buildings dedicated to “affordable” renters. 

But while these programs were conceived with the best of intentions, it can be argued that their implementations actually set back social missions instead of furthering them. For example, in the aforementioned buildings in NYC, the affordable units do not have access to the amenities that the rest of the building has and there is a stark drop-off in the building quality of those units.  As a matter of fact, stacking those units next to the market rate units highlights how austere they can be.  It makes us wonder whether there was a true social angle on the minds of the developers (and the city too) or whether this whole thing is just lip-service to be able to develop on prime property.

Beyond the potential reversal of the social goals, there are the now several ways in which developers are avert the inclusion of affordable housing and yet still have access to the same incentives anyways!  According to James, “Since 2002, the city has offered incentives to commercial developers to include units for low-income residents in their projects. But in 2010, it changed its rules to create more leeway for developers to pay fees instead of including the units, and possibly profit more in the hot rental market.”

Clearly, there is a potential problem here whereby half-baked government incentives are attempting to remedy skewed economic dynamics.  The way forward here involves a more holistic approach to development that incorporates social goals as well as economic goals.  Urban planning is essential to the equation because it is to the benefit of no one to have stark disparities between rich and poor in America’s flagship markets.  The cities will be the truest source of intellectual capital going forward as urbanization becomes a mainstay.  However, much of the natural flow of growth can be impeded if we are not careful. 

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