New Yorkers living in 55 new affordable apartments built as part of a luxurydevelopment in Manhattan will have to enter their homes through the so-called "poor door," a different entrance from the one richer tenants will use. The homes are being erected under inclusive zoning laws which let developers construct affordable units in exchange for tax breaks and an exemption that allows them to build 33 percent more square feet than otherwise permitted.
Understandably, the "poor door" has raised a fair bit of fury. Lucy Westcott of Newsweekcalls it "Dickensian." Stephen L. Carter of Bloomberg Viewcalls it "a little outrageous."
And New York mayor Bill de Blasio says enough is enough. His administration intends to enact changes to the zoning codes later this year to avoid separate entrances, as well as restricted access to facilities such as gyms, pools, and playrooms for children. The changes will be a part of his larger $41.1 billion, 10-year affordable housing program announced in May that will build 80,000 homes and preserve another 120,000, many of them part of luxury developments. The biggest change of all is that he wants to make inclusionary zoning mandatory. Everyone who builds in New York will have to turn 20 percent of their building into affordable units.
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The "poor door" may be a novelty to New Yorkers, but across the Atlantic separated entrances in developments are commonplace. The Guardian explains why: "As the London housing market has boomed the expectations of some of the capital's wealthiest homebuyers have grown and many properties now have communal areas akin to those in some of the world's best hotels."
And paradoxically, the poor door actually helps poorer tenants avoid inflated service charges paid by the wealthy for luxury accommodation: "Service charges to maintain these are high, and a separate entrance means housing associations and their tenants do not face these extra costs. However, as in New York, there are concerns that it is leading to increasingly divided communities."
The bigger issue, though, is whether tacking affordable housing onto luxury developments is really an efficient use of taxpayer's money, and an effective way of providing affordable housing to poor and middle income people. And it does cost money — inclusive zoning mandates are a quid pro quo for tax abatements for real estate developer, and in New York that cost the city $2.9 billion in 2012.
Business Insider's former politics editor Josh Barro offered a compelling analogy last year to explain why this is a crazy strategy:
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Imagine if the federal government abolished food stamps and replaced them with need-based price mandates on supermarkets.
That is, supermarkets would be required to make a percentage of their sales at regulated "affordable" prices to needy families. The regulated prices would often be below cost, so supermarkets would raise prices on everybody else to make up for the loss.
Since we don't want any "classist" dietary divisions, the regulated products would span the range of tastes and prices: if rich people are buying lobster, so must poor people, even if that means the program can feed fewer people overall. [Business Insider]
And that's the rub: giving real estate developers tax breaks in exchange for a few luxury apartments at below-market prices turns affordable housing into a lottery. A few families will get a really nice apartment in a luxury development — subsidized to the tune of up to $90,000 per year, enough for several families in middle-class neighborhoods. But that's not going to actually solve the underlying problem, the lack of affordable housing. A few lower-income families living in luxury apartments isn't going to help the legions of those who don't win the affordable housing lottery (and it is, literally, a lottery). Few new affordable homes have been built. Barro adds that "inclusionary zoning generated fewer than 3,000 new affordable units from 2005 to mid-2013."
Instead of giving out billions of dollars per year of tax breaks like candy to developers as a quid pro quo for a few reduced-cost luxury apartments, the city should let developers build whatever they like so that housing supply can rise to meet demand. And then the city needs to stop the tax breaks, using the raised proceeds to build more housing stock and offer housing vouchers to lower-income individuals and families. A couple of billion dollars a year can build a substantial quantity of housing, even in New York. (And these recommendations are doubly true for London, which is in the grip of a severe house price boom due to an equally severe housing shortage resulting from restrictive planning laws).
Now, many will worry that that will kill affordable housing. After all, won't developers just build luxury real developments, as they seem to want to do nowadays? No. Today's sprawl luxury developments are a result of restrictive zoning laws that incentivize building only the most profitable projects. Let developers build higher and faster and they'll exhaust the demand for luxury housing. The rest of the market will then follow.
Banning "poor doors" won't solve the problem. "Poor doors" are just a cosmetic symptom of a much deeper problem.
John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.
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