It’s no secret housing costs are high and going higher in major US cities like NYC, San Francisco, etc. I was just tweeting with someone this week who moved back from Park Slope, Brooklyn to Indianapolis because her rent was being raised by over 50% (possibly that’s a cumulative increase over time – not sure).
Most of the urbanist discussion tends to focus around zoning as the reason prices are high. That’s certainly an important factor. But there are also other things driving up costs and rents. The NYT highlighted one of them last Sunday, namely the permit expediter tax:
When Mark Brotter dies, the inscription on his tombstone will read simply: “Thank God – no more plumbing Schedule B.”
Mr. Brotter, 55, is an expediter, an imprecise term that is used to describe the men and women whose workdays are spent queuing up at the Manhattan branch of the New York City Department of Buildings to file the documents and pull the permits that allow construction projects – your kitchen renovation and the high-rise next door – to go forward. “I’m basically a middleman,” he said. For its part, the Buildings Department insists on the title “filing representative.”
Others are employed by large firms that do nothing but expediting, or are on the staffs of architectural or engineering firms. In the early 1990s, expediters numbered 300 to 400; today there are more than 8,300. (Filing representatives must register with the Buildings Department and pay a $50 annual fee for the right to stand on lines at department offices.)
The expediter’s fee varies depending on the outlay of time and the complexity of a job. The charge for securing a permit for a contractor ranges from $200 to $400; for filing a project, $1,500 to $3,500. Plans that must go before the Landmarks Commission are a more costly proposition, as are projects that involve the conversion of a commercial space to a residence.
Now these prices aren’t ridiculous in the grand scheme of things for New York City real estate. But the idea that there are 8,300 people making a living standing in line to file permits for people points to the entire structure of how development gets done in big cities (NYC is hardly alone in this particular industry) in ways that continually raise costs. This is beyond the cost of delays that a baroque permitting process introduces.
Particularly when you are trying to build lower rent buildings, all of the fixed costs you have to incur to built anything (land, permits, expediters, etc.) have to be recovered and amortized across the units. When you have a hyper-complex development environment, these fixed costs raise the minimum viable rent threshold and thus push the cost of construction towards the higher end of the market that is already being served.
To bring the cost of housing down, cities should be working on all fronts, not just zoning to make it happen.
This particular case is instructive regarding barriers to reform, however. If the city made it easy enough to file plans and get permits in ways that didn’t require an expediter industry, 8,300 people would be out of work. Presumably they would squawk about it. I’m sure I would if I were in their shoes As with many regulatory reforms, the benefits are diffuse and hard to see, whereas the costs are concentrated and obvious.
Also, just one reform in and of itself is unlikely to produce immediate substantive change. Broad based reform in many areas is needed, then there will be a lag as investors adjust to and take advantage of the new environment. This may involve shorter term pain for longer term gain, much like disruptive technical innovation.
That’s not a formula politicians like. It’s one reason Japanese Prime Minister Abe’s “third arrow” of structural reform remains mostly in its quiver. Too many interest groups face immediate pain from reform, but the payoff is raising the economic potential of Japan and creating conditions in which future growth can occur, the exact nature of which can’t be predicted. That’s a hard sell to make, which is one reason politicians tend to focus on things that have immediate benefits to at least some people, such as tax cuts or spending programs.
Regardless, beyond just changes in zoning or this or that process or regulation, there needs to be a mindset shift in how these cities approach development to bring about a broad based change in housing affordability.