Gentrification, Housing

Affordability and Economic

Inequality

Professor Richard Froehlich

Columbia University
Chief Operating Officer and General Counsel
NYC Housing Development Corporation

September 2016
 Contents
 What is Gentrification?
 Causes and Effects
 Displacement
 Defining Affordability
 Economic Challenges and Trends
 Broader Issues of Income Disparity
 Policy Tools for Affordable Housing
 Case Studies

2
 Different Messages
• Mayor Bloomberg early in his first term (Jan. 2003): “If
New York City is a business, it isn’t Wal-Mart—it isn’t
trying to be the lowest-priced product in the market. It’s a
high-end product, maybe even a luxury product.”
• Nearing the end of his third term (Oct. 2013): “Somebody
said that there’s not enough housing. That’s a good sign,”
Bloomberg said. Adding, “In cities, if you want to have
lots of vacancies where everybody could easily find a
place, you don’t have a good economy.”
• Mayor De Blasio in his State of the City Address
(Feb. 2014) offers a different approach:
“Because the truth is, the state of our city, as
we find it today, is a Tale of Two Cities – with
an inequality gap that fundamentally
threatens our future. It must not, and will not,
be ignored by your city government.”
• He adds specifically on housing: “We will lift
the floor for New Yorkers crushed by
skyrocketing rents…by requiring developers to
build affordable homes for everyday people
rather than simply multi-million dollar condos
for the most fortunate among us.”
3
 Gentrification
o What is gentrification?
o The process of renewal and rebuilding accompanying the influx of
middle-class or affluent people into deteriorating areas that often
displaces poorer residents

o In a community undergoing gentrification, the average income

generally increases and average family size generally decreases
o Why does gentrification matter? Is gentrification good or bad?

o Sometimes, public policies aimed at development encourage

gentrification if there are no set-asides
o Market demand will increase in improving neighborhoods

4
 Cause Begins with Growth
o With more than half of the world's population–over 3 billion people–
now living in cities, urban areas face more challenges than ever
before.
o Growing cities, like NYC, are faced with increased demand for
housing due to larger populations. The economics of that demand is
obvious; putting pressure on rents irrespective of stagnant income.
o New York has experienced cycles of growth, dispersion and
disinvestment followed by renewed growth.
o New York’s population hovered near 8 million from 1950-1970 but
had dropped to 7 million by 1980. Since then, it has grown
dramatically from that nadir to a high of 8.55 million people today.

5
 Cause Begins with Growth
o There are multiple causes of gentrification including:

 Increased housing demand

 Lack of housing supply

 Changing attitudes, lifestyles, and demographic trends

 Potential residents seek out the new “Hot” areas

 Job growth and the search for economic opportunities

 Spillover effects from wealthy neighborhoods, etc…

o A combination of these factors cause neighborhoods to become more

attractive to new population groups with higher incomes

6
 Effects of Gentrification
o Why does gentrification elicit such visceral responses?

o Does gentrification necessitate displacement?

o Is it worth trying to reframe the nomenclature?

o What are the favorable and unfavorable dimensions of gentrification,

for whom, when and why?
o Potential Benefits: Renewed housing investment, blight elimination,
decreased crime, improved retail services, revived tax base, a
community with the power to demand better public services, etc…

7
 Fears and Concerns
o Gentrification is a catchword for neighborhood change
o Implied change: Mostly economic, racial, and the fear of displacement
o Displacement—actual, potential, indirect?
o Fear of the Other
o Anger from people who have had to accept poor services, weak
schools, high crime, government inattention, sub-par retail amenities,
and may not receive the benefits of gentrification
o Spike Lee, famous movie director, writer and actor complained about
the influx of white families into Fort Greene in Brooklyn:
o Part of what he said: "Why does it take an influx of white New Yorkers
in the South Bronx, in Harlem, in Bed Stuy, in Crown Heights, for the
facilities to get better?"
8
 Displacement
o Is all new development good?

o Public policies aimed at new development may trigger rising market rents in
a neighborhood, causing existing, lower-income families to relocate because
they can no longer afford to pay market rents or increased property taxes.
o “The term "displacement" has been used to cover a variety of neighborhood
phenomena. Unfortunately, the indistinct meanings attached to it muddle
policy discussions and may even contribute to stoking community fears of
gentrification.” (Freeman and Braconi, 2002)
o How to measure displacement? Hint: It is extremely difficult!

o How do we keep neighborhoods affordable and prevent displacement?

o First step, define affordability…

9
 Defining Affordability
o How do we define affordability?

o The generally accepted definition of affordability is for a household to pay

no more than 30 percent of its annual income on housing.
o According to the U.S. Department of Housing and Urban Development, an
estimated 12 million renter and homeowner households now pay more than
50 percent of their annual incomes for housing
o Nearly 95 million Americans (35% of U.S. households) have a housing
affordability problem
o There are nine million low income renter households with only 6.2 million
affordable units
o Supply of affordable multifamily housing may decrease by approximately
100,000 units per year due to obsolescence or shift to market-rate status
10
 Defining Affordability
300,000
All Other Renter-Occupied Households**
Households Paying >30% of Income Toward Rent*
250,000
Number of Renter Households

200,000

150,000

100,000

50,000

0
10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200
% HUD Income Limits (FY2011)

Source: 2011 Housing and Vacancy Survey (U.S. Census) and

HPD Housing Policy Research & Program Evaluation
11
US Cost-Burdened Households
High Rent Burden

Cost-Burdened
26% Renters Paying
Greater than 30%
of Income for Housing
20%

49% Severely-Cost-Burdened
Renters Paying
41%
Greater than 50%
of Income for Housing

* In addition to a 9% decline in renters’ incomes in the US from 2001 to 2014, the

percent of cost-burdened renters in the US has risen from 41% to 49%
with severely-cost-burdened renters up from 20% to 26%.
*Source: Joint Center for Housing Studies for Harvard University – America’s Rental Housing (12/9/15)
Link: http://www.jchs.harvard.edu/record-number-renter-households-face-severe-affordability-problems

12
 Defining Affordability
o Depth of Affordability – Affordable to whom?
o Based on income qualifications of tenants
o Length of Affordability – When will it be lost?
o Based on the number of years a unit remains income restricted
o Location – Where has housing been built?
o Location of affordable developments and concentration affordable areas
o Household Size – Housing for what size?
o Based on the number of units and unit sizes. Studios versus 3-4 bedrooms
o Community Impact – How to build stronger neighborhoods?
o The value brought to neighborhoods beyond housing (commercial, community
and other mixed-uses)
Source: ANHD Real Affordability (2013)

13
 Economic Challenges and Trends
o Nations around the world face serious economic challenges.
Governments have taken on too much debt and public funding is
limited in the United States, the European Union, and elsewhere
o Future demographic trends are likely to exacerbate economic
challenges, driven by plummeting birth rates and a rising elderly
population that is promised expensive services and care
o Lack of housing affordability is a leading cause of homelessness
o Lack of housing affordability causes or aggravates poverty
o Those who pay more than 30 percent of their income for housing are
considered cost burdened and may have difficulty affording
necessities such as food and transportation.

Source: The Bipartisan Policy Center (2012)

14
Economic Challenges and Trends
63% of renter households have low incomes (< 80% AMI)

Source: American Community Survey and

HPD Housing Policy Research & Program Evaluation
15
 Economic Inequality
o In December 2013, President Obama gave a speech on economic
mobility, in which he called income inequality and lack of upward
mobility “the defining challenge of our time.”
o Yale professor and economist Robert J. Shiller said economic
inequality in the United States and other countries is "the most
important problem that we are facing now today."
o There is an on-going shift in urban geography, in which
concentrations of extreme advantage and disadvantage are replacing
neighborhoods that were once overwhelmingly middle class
o Disturbingly, crime rates continue to fall in most areas, while at the
same time pockets of low-income areas are experiencing violence at
an all-time highs

16
 Economic Challenges and Trends
80% of low income renters pay more than 30% of their income on rent

Source: New York City Housing and Vacancy Survey and

HPD Housing Policy Research & Program Evaluation
17
 Income Disparity
Median household income has not kept pace with rent increases since 2008

Source: American Community Survey and

HPD Housing Policy Research & Program Evaluation
18
 Economic Inequality

Source: Credit Suisse Research Institute, Global Wealth Report, October 2010. - See more at:
http://inequality.org/global-inequality/#sthash.1At1MEmH.dpuf

19
Economic Inequality

20
 Economic Inequality in NYC
• New York City has the highest income disparity in the US.
• Manhattan’s income disparity for the median top 20% ($390,000)
and low 20% ($9,630) is 40x. The top 5% come in at $800,000.
– The New York Times recently noted that: “In a breakdown of New York City
neighborhoods, the biggest income gap is in Morningside Heights-Hamilton
Heights, Manhattan. The median household income for the area is $207,053 for
those in the highest one-fifth of the population compared with $6, 073 for those
in the lowest one-fifth.”
– This neighborhood includes Columbia University and borders on one of the
case study areas that we will review.
– It also demonstrates that housing for low income people often borders housing
for much wealthier people.

Source: American Community Survey, Fiscal Policy Institute, “Pulling Apart ,,,”; and New York Times, “Income
Disparity is Greatest in: New York, Census Finds”, 10/27/2011
21
 Policy Tools
o Most mainstream observers agree that community improvement is a good thing,
but that municipal policies should seek to mitigate secondary displacement.
(Freeman and Braconi, 2002)
o How can government invest in neighborhoods without creating displacement?
Demand-Side
 Help low- or moderate-income households pay for units that they select in their local
housing market
 Primary federal tools Section 8 vouchers (tenant-based) & Section 8 contracts (project-
based, subsidy to landlord)
Supply-Side
 Lower the cost of creating and maintaining new housing units so that they are affordable
to low- or moderate-income households
 Primary federal tools Public Housing Authorities (“PHA’s”), Low-Income Housing
Tax Credit program (“LIHTC”), & Tax-Exempt Bonds
22
 Policy Tools
o Role of Inclusionary and affordable housing programs are efforts to
increase the availability of low and moderate income housing.
o Channel growth to include affordable options
o Use disposition of land or direct subsidies to offset market changes to
ensure a level of affordability
o Consider increases in density or transfer of development rights as a
way to increase affordability without affecting the City’s budget
o Harness changes planned or ongoing in neighborhoods for benefit of
both current and future residents
• Think ahead, develop tools before you need them

23
 Tax Policy
o High real estate taxes in NYC can encourage developers to seek tax
abatements that either require affordability, stabilization or income
targeting for some or all units.
o Government can address the maxim that taxes rise in conjunction
with increased property values to preserve stability.
o Localities can provide tax abatements to long-term low income homeowners so
that they will not be displaced in communities with rising home values.
o Other programs can be used to reduce tax burdens on low income
homeowners generally.
o Address other aspects of income disparity by encouraging higher
wages through tax incentives for businesses hiring local workers
o Increase economic opportunity in low income neighborhoods with job training
and directing certain tax benefits and government-owned land disposition
24
 Rent Regulation Rules
o The Basics of Rent Stabilization in NYC:
• Price controls were put in during WWII and then extended
• Rent increases are approved by the Rent Guidelines Board for one and two-
year lease renewals based on a survey of operating costs
• Control over this program resides with the State legislature which gives
landlords more lobbying power because statute has to be reauthorized
• Applies to units built before 1974 and newer units that have received
government subsidy or tax abatements
• Two kinds of decontrol (return to market)
o Vacancy decontrol if the monthly rent is above $2,700 after a stabilized
tenant leaves
o Luxury Decontrol when income of residents is above $200,000 for two
years and rent exceeds $2,700/month
25
 Roles of Rent Regulation
Positives
• Rent regulation plays an important
role to stabilize neighborhoods and
prevent rapid displacement of low
and moderate income people
particularly in improving
neighborhoods
• Stable, diverse neighborhoods are
attractive and positive for the city
• Without rent regulation there
would be swift demographic
changes that would cause many
current residents to relocate
Negatives
• Disincentive to invest in upkeep
• Reduces creation of new housing
• Not a means-based subsidy
• People who have a good deal never
leave and often are larger
consumers of housing
• Market rate rents are very high
because of scarcity and demand
• Provides a deep subsidy to those
living in high cost neighborhoods
while having little effect in low-rent
areas
26
 2011 Legislative Changes and the Stabilized Stock
Estimated Loss (2008 through 2019)*

2008

2009

2011

2012

2014

2015

2016

2017

2018

2019
2010

2013
50,000

-50,000

-100,000
-119,332
Units

-150,000
-159,516

-200,000

-244,529
-250,000

-300,000

Previous $2000 Threshold

Current $2500 Threshold, if Implemented Mid-2011
Estimated Units Decontrolled Accounting for NHMP Additions

Source: DHCR Apartment Registrations (1993-2008) and HPD Housing Policy Research & Program Evaluation.
*The number of units estimated to decontrol and NHMP additions are based on HPD projections. 27
 NYC Housing Emergency
Since 1974, NYC has had a net rental vacancy rate of less than 5%,
6
the legal definition of a housing emergency.
5.26
5
Net Rental Vacancy Rate(a)

4 4.32
4.14
3.83
3.61
3

2.58
2

1
1.10

0
<$800 $800-999 $1,000- $1,250- $1,500- $2,000- $2,500 and
1,249 1,499 1,999 2,499 (c) more

Monthly Rent Level (b)

Source: U.S. Census Bureau and HPD Housing Policy Research & Program Evaluation .
See 2011 Housing and Vacancy Survey Initial Findings, Table 7
The vacancy rate is calculated by dividing vacant available for rent units that are not dilapidated by the sum of
vacant available for rent units that are not dilapidated plus renter-occupied units (dilapidated and not
dilapidated). 28
NYC Subsidized Housing Stock:
~450,000 households

Source: 2011 Housing and Vacancy Survey (U.S. Census) and

HPD Housing Policy Research & Program Evaluation

29
 NHMP Units
43,714
85,726
Financed
34%
66%
FY04-FY12
39,749
73,836
35%
65%

NHMP Units Financed FY04 Through FY12, By Affordability Level

Units Started Units Completed

Affordability Level n % n %
Low-Income Units (<80% AMI) 106,105 82% 84,748 75%
Moderate-Income Units (81-120% AMI) 8,580 7% 10,580 9%
Middle-Income Units (121-180% AMI) 10,829 8% 10,464 9%
Other Units 3,926 3% 7,793 7%
Total Units 129,440 100% 113,585 100%

NHMP Units Financed FY04 Through FY12, By Construction Type

Units Started Units Completed

Construction Type n % n %
New Construction 43,714 34% 39,749 35%
Preservation 85,726 66% 73,836 65%
Total Units 129,440 100% 113,585 100%

Source: HPD Performance Analysis Group.

Data as of December 31, 2011 (including HDC, HPD, MAP, Extended Affordability, and Down payment
Assistance)
30
 Housing Trade-Offs
Despite the fact that housing conditions are the best on record,
many households face trade-offs between cost (left) and quality (right).

Source: U.S. Census Bureau and

HPD Housing Policy Research & Program Evaluation 31
 Case Studies: 3 Places Along the Spectrum

o Households seeking affordable housing make trade-offs among housing

cost, housing quality, and neighborhood location. This is true in both the
private market and in affordable housing
o Different types of households seek housing in certain areas, suggesting that
we need to produce a wide range of sites in different neighborhoods to
accommodate differential demand
 Chelsea  Gentrified. Once a mostly low income neighborhood that saw large-scale
urban renewal in the 60s but is now a mostly affluent neighborhood

 Harlem  Gentrifying. Badly decaying during the 60s and 70s but has revitalized
with major influx of government spending. But long-term residents fear
displacement as new residents follow improvements and prices continue to rise

 South Bronx  Rebuilding/Stabilizing. The most decimated region in the City

during the 70s has now been mostly re-built but as the home of the larges portion of
low income residents in NYC greater affordability is needed

32
Chelsea  Gentrified

33
 Chelsea  Gentrified
o Chelsea has become one of the
priciest neighborhoods in NYC.
o New flats are sold for $2M to
$15M (median sales price is
$1.3M)
o Rents in doorman buildings range
from $3,000 for studios to $7,000
for 2 br apartments but the median
rent is $2,500 per month
o New attractions like the High Line
Park, Chelsea Piers, Chelsea
Market, numerous art galleries,
hip restaurants and the Hudson
River Park all draw tourists and
affluent to the area
34
 Chelsea  Gentrified
o Gentrified does not mean that
there is no affordable housing
o Public housing and existing
affordable housing have been
preserved.
o In addition, new market rate
housing has been built with 20%
set asides for people making 40-
50% of area median income
o Rent restrictions cover over 40%
of the units protect current
tenants but those units could
become market rate over time

35
Chelsea  Gentrified
o This map demonstrates the
government supported investment
in Chelsea and areas directly north
of Chelsea over the last 15 years.
o Most of the investment is for tax
exempt bonds, inclusionary zoning
bonuses and tax abatements.
o The high cost of City property
taxes encourages developers to
build housing with at least some
affordable units (usually 20%)
o There has been a wide dispersion
of projects built in this area but
there are few remaining un-
developed plots of land other than
that surrounding Hudson Yards
(recently re-zoned).
36
Harlem  Gentrifying

37
 Harlem  Gentrifying
o Significant government investment preceded the changes
o Empowerment Zone created under US special law in 1995
o Population increasing in step with City growth but is becoming
more wealthy and less reliant on subsidies and assistance
o Commercial development led by public subsidies has catalyzed
private investment along major residential corridors
o Economic activity has led to job growth and more retail choice
o Highly impacted by credit crisis
o Land values plummeted and several large developments were foreclosed as
owners’ rosy assumptions were dashed
o Bubble may be re-inflating, home prices now at a record high but still a
value in comparison to NYC median prices
38
 Harlem  Gentrifying
o Rents are increasing for market rate
units to $2,000 t0 $4,500 but the
median rent is approximately $1,500
o Home ownership is rising over the
last 10 years (from 6% to 15%) and is
more expensive (up to $600k from
$250k)
o But there are large amounts of
affordable housing from prior
initiatives that have been preserved
o NYCHA, ML, Federally subsidized
housing stock are all very important
sources and continue to provide long
term affordability. Almost half of all
rental units are in this category

39
Harlem Results

Source: HPD Photo Archive 40

Harlem  Gentrifying
o NYC took ownership of the
majority of all housing in Harlem
in the 80s
o Almost all previously City-held
housing and land in Harlem (other
than public housing has been sold
to either existing residents,
developers or not-for=profits
o This chart shows the enormous
investment by the City agencies in
this area during the last 12 years.
o Most of the investment is meant to
provide affordability at lower rent
levels than in Chelsea.
o There are fewer 80/20 market rate
developments and market rents are
much lower than in Chelsea
41
Harlem Results

Source: HPD Photo Archive 42

South Bronx  Stabilizing

43
 South Bronx  Stabilizing
o The Bronx is NYC’s poorest borough
o Median income is $31,000/household ($23,000 less than NYC average).
o The Bronx experienced the greatest drop in population in the City during the 1970s
(over 20%) and has not fully recovered but has grown close to peak
o Bronx Community Boards 1 and 3 lost half of their population during the 70s
o The Bronx has the highest percentage of public housing, rent regulated and
subsidized housing in NYC and the lowest percentage of home ownership.
o The poorest area in NYC is the congressional district of Jose Serrano (comprising
most of Bronx CB1 and CB3) and it is the poorest district in the US with more than
38% of the population living below the poverty line in 2010.
o Even with the large government investment in the Bronx, the high poverty leads to
the highest rent burdens in NYC coupled with the lowest average rents in NYC

44
South Bronx  Stabilizing
o The South Bronx has the largest
percentage of rent regulated units in
the City but that does not mitigate the
housing affordability pressure on low
income residents.
o Rents are increasing for market rate
units ranging to $1,000 to $2,500 but
the median rent is approximately
$1,100
o Home ownership percentage has
stayed steady as the supply of rental
housing has risen from the City’s
affordable housing programs.
o A high concentration of affordable
housing from prior initiatives that
have been preserved
45
South Bronx  Stabilizing

46
 South Bronx  Stabilizing
o NYC invested more in South Bronx housing over the last 12 years than any
other region of the City, building or preserving almost 55,000 units of
affordable housing. Increased supply has coincided with increased demand
o NYC owned more development sites in the South Bronx than in the rest of the City.
Overall cheaper land prices makes it easier to fund affordable housing more inexpensively

o Both the average rents and rent burden have increased over the last 10
years as income growth has lagged rent increases
o Housing investment has been mostly targeted to create and preserve units at
60% of the City’s average median income (much higher than the Bronx
median income) and could be seen as a gentrifying force
o Other efforts have been used to bring in more middle income workers into
the Bronx by targeting affordability at 80% of AMI, creating greater income
diversity and stronger retail markets.
o Attempting to counter prior programs that concentrated poverty in the Bronx.

47
 South Bronx Results
Melrose Avenue, The Bronx (1989)

Source: HPD Photo Archive 48

 South Bronx Results
Melrose Avenue, The Bronx (2005)

Source: HPD Photo Archive 49

 South Bronx Results
2241 Webster Avenue, The Bronx (2004 to 2005)

Source: HPD Photo Archive 50

 South Bronx Results
East 148th Street, The Bronx (2006)

Source: HPD Photo Archive 51

 South Bronx Results
Partners:
East 148th Street, The Bronx (2010) NYCHPD (HOME and HOPWA)
190-unit Formerly Homeless/Special Needs Bronx Borough President’s Office
Total Development Costs: $43,275,653 NYS Housing Finance Agency
Bank of America & JP Morgan
NYS Homeless Housing Assistance
FHLB Affordable Housing
Common Ground

Source: HPD Photo Archive 52

 Data from individuals
seeking housing across NYC:

Source: HPD Housing Policy Research & Program Evaluation

53
 Data from individuals
seeking housing across NYC:

Source: HPD Housing Policy Research & Program Evaluation

54
 Data from individuals
seeking housing across NYC:

Source: HPD Housing Policy Research & Program Evaluation

55
 Resources
• http://www.nyc.gov/html/hpd/html/home/home.shtml

• http://furmancenter.org/thestoop/entry/a-truly-affordable-nyc-apartment-falling-homeownership-
rates-reclaiming-gen

• http://furmancenter.org/thestoop/entry/gentrification-a-good-thing-de-blasios-ambitious-housing-
plan-metro-north-c

• http://www.urbancentre.utoronto.ca/pdfs/researchbulletins/CUCSRB31-NewmanWyly.pdf

• http://furmancenter.org/thestoop/c/housing-starts

• http://www2.maxwell.syr.edu/plegal/save2/asherwq1.html

• http://depthome.brooklyn.cuny.edu/sociology/brooklynlinks.html

• http://furmancenter.org/files/publications/Impactofsubsidizedhousingcombined0602_001.pdf

• http://furmancenter.org/research/sonychan

• http://www.manhattan-institute.org/email/crd_newsletter02-06.html

• http://fiscalpolicy.org/wp-content/uploads/2012/11/FPI-Pulling-Apart-Nov-15-20121.pdf

• http://www.demographia.com/db-sbrx-txt.htm

56