offsetting costs

A government budgets' numbers may say a lot but they certainly don't say everything. It would be disingenuous to flout a lower budget number when the costs were simply offset onto other parties.

For example, there is a guy in my nabe who was in the process of developing a six-story condo building as of right, in an area thats a mix of homes and apartment buildings. Some of the neighbors complained loudly to the local council member and had the area downzoned within a matter of months. In the interim the developer of course tried as best as he could to get his project vested to protect his interests, and so he engaged in illegal construction practices by racing the clock (working over hours) to beat the new zoning changes. In the end he was able to pour his foundation before the zoning change was made, but at the cost of quality and having to pay through the nose for the labor.

During those frantic months, the neighbors were constantly complaining to the DOB, having inspectors constantly visit and hassle the construction teams all in an effort to stop the project from getting vested. At the end when the developer thought he was vested, the neighborhood alliance complained to the DOB and he ended up having to go before the BSA which is the last authority on zoning and variance grants, and they ruled against the developer saying that his foundation wasn't to the original approved architectural/engineering specifications it was thus incomplete and any project would be subject to the new downzoning, basically making his project financially impossible to complete.

Now get this; he presumingly paid for the land based upon the allowable development rights, the city changes that while he is already underway with approved plans (which can take months to get from the city!), and he went through the trouble of obtaining financing, paying labor, architects, inspectors, permits, etc.

Now here is the best part-- it's been almost two years since the city stalled him by making it impossible for him to develop his project-- now the neighbors are bitching about the vacant construction site! So the city is now ordering this victimized developer to clean up his site, repair the construction fence that vandals have been breaking, and who do you think is being coerced to pick up the tag? The victim of course.

Government budgets never tell you the whole story. It's the same with recycling; make your victims pick up the cost of sorting trash so your budget can be that much lower.

zoning for death

A NY Times editorial published today insinuates that the heady sin of avarice is alive and thriving in the real estate industry, to the detriment of public safety. The article speaks of various regulations that Department of Buildings has tried to implement in the wake of the tragedy at ground zero, among them the widening of and the increase of required staircases.

The main force against such safety precautions is said to be the real estate industry, who are stalwart against the maximization of 'dead weight', space which is neither rentable nor salable, and hence unable to be capitalized.

As usual, what we have here is a few bureaucrats attempting to supplant the will of the people, to try to overrule their desired level of safety, to force them to pay for more safety then what they are willing to voluntarily part for by themselves.

[Monetary] greed, the most maligned, misunderstood characteristic is bandied here as though it simply were a destructive life force of its own. Say what you will of morality in general, but scratch an avowed amoralist, and you should find his instinctual hatred for avarice right there for all to see. I certainly can recognize the presence of greed, but I try to avoid ascribing to it the power of causal explanation.

In this case, it would be far more fruitful to state that the prior intervention of zoning regulation has come at the expense of public safety. Zoning, by arbitrarily and artificially constraining the natural growth of the human habitat has upset the delicate balance of market preferences into favoring space-maximizing strategies at the cost of public safety. It is a safe bet to say that in the absence of such well-intentioned intervention, society will have a better chance at working to obtain an optimal admixture of safety, and pleasant cages than it would otherwise.

Instead of pettily focusing on the motive of greed, it would be more mature (and productive!) to recognize it as an immutable nature of what it means to be human, and to let institutions and relations develop anarchically around that natural formation how they will.

monolithesia

Not too long ago, the NY Daily News ran an article titled 'City neighborhoods losing character to condos, chain stores' bemoaning the fate of losing indigenous mom & pop stores to the faceless, sterile corporate chain stores which often replace them. To it's credit, the article is pretty neutral in that the author simply attributes the wide sweeping change to real estate pressures, and doesn't use the opportunity to clamor for violent resistance (to impose regulations, etc.)

While I can agree with that sentiment on an emotional level, I realize and accept the fact that my preferences are just that, and that it would be immoral to escalate any resistance above a completely bilateral voluntary nature.

It also helps me to understand that the monolithization of our neighborhoods is a direct result of codified violence (zoning laws, licensing, permits) which disrupts the realization of consumers' preferences into a bizarre spectacle of what seemingly is perceived as the 'free market'.

Radley Balko does a wonderful job explaining the process and the unintended consequences that follow.

"...zoning officials and regulators tend to overdo the regulating, then lapse into bureaucratic coma when local businesses try to navigate their way through City Hall. For example, if you want to do something as simple as change the lettering on or repaint the sign outside your business in Old Town, you both have to apply for and pay $50 to obtain a "ladder permit," and apply for and pay $55 for a "building permit." It can take more than two weeks to get the proper permits, even if all you want to do is replace the "e" on your "Ye Olde Sandwich Shoppe" sign.

While all of this is intended to promote architectural continuity and preserve Old Town's historical charm, like most regulations it tends to promote the opposite of what city planners intended...

I guess the question is, whether one ought to need to have a lawyer on retainer in order to open a business in Old Town. And if Old Town is going to make that a requirement--intentionally or not--what effect is that going to have on the boutiques, art galleries, and antique stores that make up the very atmosphere the regulations are trying to promote?

My hunch is that Old Town's expensive, meticulous zoning laws have made it too difficult for the mom-and-pop places to do business. ...Franchise operators can often tap the resources of the parent company, particularly when it comes to accessing on-staff lawyers with experience navigating through and working with local zoning laws and business regulations.

The same people who gripe about how Wal-Mart is pushing smaller, independent places out of business tend to be the people who support onerous regulatory structures. What they tend not to understand is that regulatory burdens hit the smaller, independent places hardest, because they're the places that have the smallest amount of discretionary cash to hire lawyers or a tighter budget and, therefore, a smaller margin of error when it comes to hassles like delaying an opening because some bureaucrat determined their signage is a couple of inches out of compliance."

extortion license

But master plumber Robert Mengler mentioned another disturbing wrinkle.

"Master plumbers are also allowed to self-certify their work," he wrote. "There are certain licensed plumbers that have made lots of money by renting out their licenses. . . . The chances of this work being inspected is very, very, very low." -Article Link

Obviously the solution to this problem is to remove the need for licensing altogether, that system which erects trade barriers for the sake of protecting the profits of plumbers, electricians and other contractors from excessive competition in a medieval guild-like fashion.

Unfortunately, the NY Daily News takes the irrational populist view that developers are out to destroy neighborhoods, kill little old ladies, and ruin our lives. How pathetic.

the housing that education built

Last week while exploring some city neighborhoods to gauge the current trends in rental and sales numbers, I was shocked into the realization of how much of a factor that free public education plays into the price of city housing.

Obviously, there is the well known rule that housing in districts known to have "good" public education is in higher demand relative to housing located in districts known to have inferior schools.

While that is certainly an important component of what "adds" value to housing, I was actually focusing more on the counterfactual speculation if public education in general leads to increases in the price of housing solely due to the effect that subsidized education leaving over increased funds available to bid up housing prices.

I find this train of thought interesting to one such as myself, living in a micro-neighborhood where a relatively higher number of students attend yeshiva, a form of private schooling. Looking forward at the prospect of shelling out 10K to send my son to kindergarten is a bit daunting in light that I would like to have a few more kids and not live in debt slavery.

What I realized that day while doing my market homework, when I saw lousy apartments in run-down neighborhoods were paying rents in the ballpark of what I'm paying in this more affluent manicured-front-lawn neighborhood made me think of the factors keeping prices lower around me and higher in those "good" public school neighborhoods are greatly affected in that the average joe around me share higher education expenditures and can't afford to spend as much for housing.

If effect this means that to some extent, the existence of free tuition is benefitting a class of building owners who reap the largess of the taxpayers who subsidize public education to their indirect benefit of increased housing prices.

The people who stand to lose from this proposition are the young professionals just out of school who have yet any substantial cash savings to speak of, nor any [grand-]children which could possibly benefit from this arrangement.

In a way, this also serves to keep the religious, private-school attending crowd living separate from those districts in which it is more common to utilize the public school system making adherence to the religious ghetto more rigid than it would be otherwise.

we-know-whats-good-for-you

In an affront to individual sensibilities, NYC has now decided to usurp your right to live in an "unlivable" city just as I have thought would eventually happen.

(Heh, that's almost as funny as asking for animals to be treated "humanely".)

"Mr. Washburn, 44, is charged with making sure the parks get the right amount of sun, buildings aren't too bulky, and the skyline stays coherent. He will act as Ms. Burden's eyes for the incredible number of projects now under way in the city"...

"Senator Moynihan believed that good design is not just about aesthetics, but that the look of a city expresses the values of the people who live in it," he said.

Now where exactly do these folks get off dictating the "values" that the city-people want? And in any case, to what relevancy does it matter what some third-party pretends to want for everyone's values?

"It's really the citizen that will be the measure of our success," Mr. Washburn said. "How do you make sure New York doesn't become dull, but has the greatest streetscape with the greatest variety and the greatest texture? To keep everything vibrant and authentic with new projects is really tough. You have to calibrate everything very finely. Every time you change something in the city, you affect another constituency."

Which is exactly why central planners should be kept as far as possible from urban development. I mean just look at Brasilia, or ask yourself why Robert Moses is one of the most despised man in NYC urban development history.

But the sheer amount of haughtiness and conceit is astounding considering all the misplaced faith put into the past anointed guardian saints for urban aesthetics. This should be a fine example to those planners of how aesthetic expectations are valued both ex ante and ex post, thus making the goal of aesthetic perfection for posterity at best a Sisyphean task.

On a positive note, most people who are concerned with urban aesthetics usually prostrate to the altar of the Jane Jacobs goddess and her seminal work The Death and Life of Great American Cities. Since Jacobs ideas were inspired in part by F.A. Hayek and his aversion to central planned economies, one has hope that they can transcend from the position of merely recognizing the beauty of unplanned, and 'chaotic' order, and to come to the realization that utilizing the violence of the state is the furthest thing from affecting the spontaneous communal life that they so very much desire.

fiction[-writer] versus [economic] reality

On a topic I hold dear, Mises blog authors discuss the economic and aesthetic repercussions when the real estate market is disrupted via the political process in an attempt to craft a city more to the liking of the planning czars.


Mises.org
Can We Trust the State with Preservation?

By Gene Callahan and Julius Blumfeld

"Harvard economist Edward Glaeser, commenting on the controversy surrounding 980 Madison, sensibly noted that blocking the construction of new Manhattan residential space will result in housing costs being higher than they would be if the apartments were built. Wolfe's response demonstrates his ignorance of the fact that his pet cause entails very real costs: "[The proposed 980 Madison Avenue project] certainly isn't going to help the housing situation. Just more people who have the money will be able to move in" (Gillette, 2007, p. 21).

Wolfe apparently has never considered the fact that, when very rich people move into those new apartments, that will ease the demand for the residences they would have occupied otherwise, allowing the slightly less wealthy to acquire those spots. That, in turn, will free up the housing those people would otherwise have chosen, making them available to yet others, and so on. An increase in the housing stock at any price level will tend to lower housing costs in general, although, of course, that effect might always be offset or even swamped by some other factor working in the opposite direction.

Wolfe, not content with this first display of economic naïveté, continues, "To take [Glaeser's] theory to its logical conclusion would be to develop Central Park." Here, he confuses the recognition that action X would act towards lowering the cost of good Y to imply that, therefore, X must be done! Without a doubt, filling Central Park with apartment buildings would lower New York City rents. Similarly, butchering all of the dogs and cats in the United States for food would lower meat prices. But that in no way implies that either course of action is indisputably recommended. People quite sensibly prefer not to eat their pets, even though doing so would reduce their meal expenditures, just as New York City residents might prefer a bucolic respite in the midst of their urban environment, even given the higher housing costs that entails.
Glaeser is doing nothing more than noting that the elementary principles of supply and demand apply even to virtuous causes, while Wolfe, by refusing to concede such a basic truth, raises the suspicion that his campaign may have more to do with his public image than with concern for the greater good."

I've argued this very same point in the past, as evidenced, here, here, and here that some people would like to have their cake and eat it too.

I guess it's just that some fiction writers have no grasp of reality.

styrofoam houses

Back in April, I blogged about the false assertion of market failure.

Monday, April 17, 2006

the free market fails to fail

One often hears of the term "market failure" as an excuse for unbridled statist aggression to rob, plunder and steal from her slaves unwilling servant class. It might be used to justify environmental policy; to fund canal digging; bridge, road, and railroad building; etc.

Alas, "there is no such thing as market failure - only lack of private property rights." Hence, externalities are the creature of the mixed markets, those in which government has preempted the common law of liability, with its own ineffective policies, in which some cases is a form of corporate welfare (logging industry, fishing rights, etc.)

Without delving further into the economics though, I'd like to state that such a claim is prima facie fallacious because the very notion that there exists an objective definition of what services and goods that billions of interacting individuals ought to offer one another is preposterous. If that weren't true, I humbly submit that there is a market failure to deliver styrofoam houses, bicycles made from gold, and teleportation machines.

Thus said, there is no market failure because one cannot argue that such goods or services ought to be provided by the market, only that they, strictly on a personal basis desire the provision to be made.

I thought it worthwhile to bring up again, because to my surprise I have learned that builders have found it economical to construct homes with styrofoam blocks, and poof! - there goes one ridiculous example of market failure!

More recently though, I came across Prof. Hans-Hermann Hoppe's analysis of public vs. private goods in which he thoroughly ridicules the conceptual distinction.

For one thing, to come to the conclusion that the state has to provide public goods that otherwise would not be produced, one must smuggle a norm into one’s chain of reasoning. Otherwise, from the statement that be cause of some special characteristics of theirs certain goods would not be produced, one could never reach the conclusion that these goods should be produced. But with a norm required to justify their conclusion, the public goods theorists clearly have left the bounds of economics as a positive, wertfrei science. Instead they have transgressed into the field of morals or ethics, and hence one would expect to be offered a theory of ethics as a cognitive discipline in order for them to legitimately do what they are doing and to justifiably derive the conclusion that they actually derive. But it can hardly be stressed enough that nowhere in the public goods theory literature can there be found anything that even faintly resembles such a cognitive theory of ethics. Thus it must be stated at the outset, that the public goods theorists are misusing whatever prestige they might have as positive economists for pronouncements on matters on which, as their own writings indicate, they have no authority whatsoever. Perhaps, though, they have stumbled on something correct by accident, without supporting it with an elaborate moral theory? It becomes apparent that nothing could be further from the truth as soon as one explicitly formulates the norm that would be needed to arrive at the above-mentioned conclusion about the state’s having to assist in the provision of public goods. The norm required to reach the above conclusion is this: whenever it can somehow be proven that the production of a particular good or service has a positive effect on someone but would not be produced at all, or would not be produced in a definite quantity or quality unless others participated in its financing, then the use of aggressive violence against these persons is allowed, either directly or indirectly with the help of the state, and these persons may be forced to share in the necessary financial burden. It does not need much comment to show that chaos would result from implementing this rule, as it amounts to saying that everyone can aggress against everyone else whenever he feels like it.

when logic need not apply

Some people just don't get it-- and this is not just anyone, it's a blog written by one of the most respected property appraisers in New York City, who you would think would know, well you know, about property values, and the formation of prices in general.

According to his foolish naïveté, it's the housing boom that drives the middle class out of the city, not misguided market intervention (which is a truely understandable conclusion for an empiracist who illogically correlates a boom in the housing supply with the exodus of middle class workers and deduces that an increased supply of a good = higher prices).

Go figure.

Below are the comments I left this wunderkind.

"This is one of the byproducts of the housing boom and revitalization of urban areas."

That dog won't hunt.

This is a direct product of people naively believing in the Central Planning Fairy.

The main reason why middle class incomed people are being priced out of the cities is tri-fold:

The primary problem is the irrational belief in the goodness of centrally planned zoning; that which dictates the density, dimensional proportion, usage type, etc. allowed. Of course planners are only human, so they cannot fully forsee all the long-ranging effects of their economic devestation and class-polarity housing policies.

The act of zoning is the grand pretense that experts have the right and privilege to tell you what is good for you, Citizen Joe, as though Joe would not have common sense enough to not live in unlivable living conditions.

It thus serves to stifle development of all kind, leaving unmet demand at all price levels, but most especially the middle and lower price ranges.

Think about it, because it's purely logical. If you restrict availablity of any given product, the price will rise as people will bid up prices. Those who cannot afford to bid higher must seek alternatives. Those alternatives include finding housing in less desired areas, and maybe even out of state.

Essentially, zoning thus serves to raise the price of housing by restricting competition. When private organizations engage in this activity, it is known as cartelization and angrily condemned. But when pretensious city planners do it, they are met with celebration as anybody can attest about the shameful participation and agitation by groups such as ACORN or the GVHPS.

Secondarily, the white collar workers are the direct victims of the price war, as they cannot bid away the same quality housing as the rich, and they must live in inferior housing, less choice neighborhoods, etc.

But tertiary, and most insultingly, the white collar workers are the ones subsidizing the lower classes, who thru the mechanizations of the city and state (such as Section 8, HUD, and rent control/stabilization, and IMD regulations*), end up bidding away the housing with the middle classes' money!

So in the end, the white collar worker are the rat which gets chopped from both ends-- the rich can afford the higher prices (and might even prefer the exclusivity the housing shortage provides), and the lower class uses the middle classes redistributed money to buy up the lower end product. It's no wonder the middle class are "fleeing", as they are not in any politicians grace to not be plundered.

The definition of insanity is to continue to act in a manner which is detrimental to your well being, because only the insane repeat the same actions and expect different and better results each time around.

Alternativly, we can pull our heads out of the sand and abandon these puerile fantasies of "smart", managed growth, and leave it to the wisdom of the common individual to decide how tall is too tall, how dense is too dense, etc.

* This was introduced into the blog post for the sake of clarity and does not appear in the original comment.

Suckers, Patsys, and Friars

Here is a real howler. Via The Real Deal, comes this article in the New York Observer's real estate section.

The article states:

The Landmarks Preservation Commission's Web site recently posted a study by the Independent Budget Office that analyzed residential property values in the city's various historic districts. The report is not new--it's dated 2003--but its conclusions seem to back up preservationists' claims that historic districts increase property values.

Oh they do, don't they?

On face value, this is supposed to be a positive phenomenon, showing that wowwee, government planning actually works!

The question remains, do rising values necessarily imply a positive outlook on the housing market?* Has that truly been beneficial to everyone? Could it be possible that it's beneficial only to a select few, those who already are comfortable in their purchased homes?

Alas, that question is never answered, but worse so, it is never even asked.

Coincidentally, just last week, I fired off an email to a dear Austriomentor™, asking him:

If a home or business is designated a landmark, the owner suffers a reduction in property value, both for their personal use and when the owner attempts to sell, it will fetch lower prices since there isn't much use the next owner can expect to get out of it. At the same time though, since there is an intervention causing artificial scarcity of land uses, it will drive up the price of housing/business for everybody in the market.

In hindsight it's not such an intellectual obstacle to overcome in this perhaps seemingly counterintuitive example, and shortly after I sent the email, I was kicking myself in the pants for not being thoroughly convinced of its truth sooner.

While I'm tempted now to reword that question, I think the point comes through clearly.

Anyway, I fired off a quick rebuttal on the NYO's blog, mocking them for being the Landmark Commissions patsy:

Well duh! If government intervenes in the market and restricts supply, ceteris paribus, prices will rise! (zoning, landmarking, and other land usage restrictions place artificial and arbitrary constraints on supply)

It doesn't require any empirical research to prove this a priori fact.

Secondly, and less well understood is the fact that the affected property owners suffer unquantifiable losses when restrictions are placed on their property. For example, they might have wanted to add a penthouse on their roof, or changed what they think is an ugly facade. This is even before you tack on the costs of compliance with the property owners having to go through yet another layer of bureaucracy to make alterations to property they own in a nominally 'free' country.

*I'm now thinking that this whole confusion only begins because some people can't distinguish between prices and values. Costs, for that matter too.

**Friar is Israeli slang for biatch when used in the sense of "sucker"

contextual stupidity

I've had it to here [motions with hand held perpendicular to neck] with the anti-development crowd in my great backyard of Brooklyn. Call me a crass, uber-vulgar libertarian if you'd like, but I'm sick and tired of playing the vertfrei [dilettante] economist who purports to walk the narrow line of disinterest when making observations about what happens when a landscape of contextual idiots decide to use the immoral power of government coercion to impose an irrational and meaningless "order" upon the spontaneous arrangement of housing and zoning.

So when I came home to read this pathetic rant, I was compelled to respond. (The excerpt blurbs from the rant are in red text)

I wrote:

Geez, "contextual development" is the dumbest non-sequitur invented by statists to date. My head is gonna go splody if someone says it again like it's self-explanatory, and somehow magically justifies government intervention to stop rightful property owners from making use of their property AS THEY SEE FIT.

"Developers, the majority of which do not live in the neighborhoods they prey upon"

You DON'T own your block/community, by the mere fact that you "live there", and it doesn't make a wad a difference if the developer is from intra-community or from Kalamazoo- what the hell does it matter where they reside? Community-ism, like Nationalism, is an irrational distinction where none should be made. Hence, you are not a higher-class member of a certain locale because your mothers' water broke in that district.

"nor stop their predominantly negative impact on the social, economic and architectural landscape of Brooklyn."

Nor Aaron or Mic seem to have a grasp of economics- for the simple reason that if the developers didn't think the market could bear the condo product, they wouldn't attempt to deliver it in the first place. And if ultimately the developers miscalculated and are wrong about it, the units will eventually clear at lower prices. So everyone wins. What the hell are they complaining about again?

Negative social and architectural impacts? First, how does one objectively determine what constitutes a "social cost", and secondly, architecture is a purely SUBJECTIVE discipline, hence there can be no legitimate comparison between styles in terms of "right" and "wrong".

"Our voices have been heard and the issues discussed ad nauseum, but is anyone really listening?"

A better question they should be asking themselves-- why do these punks think they're somehow entitled to decide how other people must deal with their property simply because they spoke up and made a stink of activism?

"Unholy development alliances have formed: Brooklyn mega-developer Isaac Katan teams with architect-of-ill-repute Henry Radusky of Bricolage Designs and demolition mogul Marie Grosso (MMG Designs). Real estate forecasters and consulting firm The Developers Group finds properties for “acquisition” in next year’s hot neighborhood, then links buyers with high-end architects and builders (how a produce purveyor can afford to build a Robert Scarano–designed five-story, 70-foot high, 35-unit luxury condo)."

I read this over carefully a few times, and I couldn't see how this is anything but progress. Used to be that if you wanted to build something you were all alone, and now the market has spontaneously arranged itself in a fashion which it can locate housing opportunities and link it up with all the appropriate people in a sort of production line in a factory. What do Aaron and Mic want, a return to the barter system?

"Such alliances are exploiting communities,"

Another stupid cliche and yet meaningless phrase- how does one exploit an aggregrate of homes?

"utilizing loop holes in zoning and the Department of Buildings (DOB) building codes"

That's great, and I encourage more of it. The DOB has no moral right to meddle in the first place- secondly it constitutes and unjust takings according to the U.S. Constitution's 5th amendment eminent domain clause when property owners are denied the fullest use of their properties according to you supporters of the 14th amendment's incorporation doctrine.

"working at a fast track pace that has created numerous dangerous job sites"

This sentence should continue as follows: "because developers who work hard and put a lot of money on the line are getting shafted by NIMBY statists who are quickly downzoning neighborhood after neighborhood". If it weren't for the recent rezonings, development would have likely continued at a safer, and slower pace.

"These violation-ridden sites not only jeopardize workers, adjacent properties and neighboring residents, but the community as a whole."

Workers, mind you, who CHOSE this dangerous line of work. You're not their grandmother, so stop pretending like you give a shit about their safety. Adjacent properties which suffer damages from improper construction should use the tort system to remedy their unfortunate situation, not some blanket zonings proposal which has diddly-squat to do with it. Communities as a whole!? Tell me, do you ever stop and think about what you wrote? This is as bad as your "exploiting communities" nonsense.

NYC's Housing Woes

And how to eliminate them.

By last counts, I read that some 750,000 people are seeking housing in NYC's market. Some of those will rent a basement, others a classy/posh/hip long-term rental unit. Greenback-endowed snobs will buy a coop in the snazzy new Astor Place (~$9k in maintenance fees, - forget about the mortgage!), and still others will drop $15+ million for a townhouse to hobnob with the elites on the WASPy Upper East Side.

What do all these people have in common? They are all negatively affected by the arcane, asinine, and the totally arbitrary zoning regulations which govern and actively stifle the ability of profiteers (read: developers) to provide housing at all income levels.

You see, we have a major problem in NYC, and it's price. The reason for the price? Supply and demand of course. The demand simply cannot be met in a satisfactory fashion for the bulk of the homeseekers in NYC. Surely, you realize that if a developer paid market price, for example $250 per buildable square foot, after his costs of demolition, construction (hard & soft), contingencies, financing fees, interest, legal, marketing, et al, he will have to sell it for at least $800-1,000 per square foot.*

Where does this leave affordable housing? Nowhere. All the developer did was alleviate demand by increasing supply of units that 90% of NY'ers can't even dream to afford. Not that there is anything wrong with that; any potential developer would have probably done the same, since that's where you have to be if you want the project to be profitable.

Does this mean that developers hate the poor and middle-class, and only want to sell expensive units to rich people? Hell no!

It would be silly to ignore the largest market of potential buyers. All you need is the right product at the right price. Developers should be fighting tooth-and-nail to build the most affordable housing of the highest quality standards to gain these customers, no? So why aren't they-- because the land is too damn expensive to build more affordable housing.

Sure, if you've got nothing better to do than stir a hornet's nest, go ahead and try building a Mitchell-Llama project, get yourself a modest tax-abatement, and prepare for the headache of dealing with 2,000 tenants in a rent-stabilized/controlled project, sit thru 400 community board meetings with hippies and self-appointed "contextual"-development utopians/authoritarians, who insist on how you build, where, when, and what amenities you have to offer to whom, renovate these 16 adjacent tenement buildings, and fix the local subway access while you are at it. By the time you are done with these board meetings, you have your hands tied behind your back, forcing you to give in so you can get your little concession: helping low-income people buy or rent affordable housing.

Well that's if you haven't defaulted on you 18-month construction loan, while visiting and revisiting the Landmarks Department for the 30th time. You might have already simply hung yourself from the ceiling fan, too.

The proper solution for all this is a re-instatement of property rights, to the hundredth degree. Have a disagreement with the hipster neighbors who hate your proposed glass curtain facade? Tell them to go f-k themselves at a nightclub on the LES. Same with those statist pigs who insist on "contextual" development. Tell them to go tear down their home immediately and replace it with the forest/farmland/cornfield which existed prior to their homes development.

Property rights mean that a developer can build as much or as little, as expensive or as frugal, etc as he desires. Want to put a skyscraper? Go ahead! A farmhouse? Sure thing. A strip mall? All yours. An apartment tower? Why not?

All of a sudden, something incredible will happen. That $250 per buildable square foot will be over-priced! If every property all of a sudden becomes capable of building to the-skys-the-limit, the amount of buildable square footage which was once in short supply becomes abundant, and hence, cheap, cheap, cheap!

Does that mean that unsustainable development will occur? The answer is no. A rational developer will know that there is no incentive to outbid others on what is no longer in limited supply; square footage becomes almost a commodity, and will probably constitute a minute fraction of their total project cost, as opposed to today.

More importantly, there will be no more incentive to only produce expensive units. The developers would probably than choose to compete on producing the market-determined amount of affordable units needed to supply the demand of the lower and middle classes. Developers would hence be cautious, not producing more units than needed, and therefore will limit themselves on the amount of projects and units they complete annually.

The fierce bidding wars will probably be a thing of the past. There is even a good deal for the hippies in this scenario; the profit margin for developers might dip low enough for them to ignore sensitive, battleground markets, such as the Village and the Lower East Side.

It will be good news for rich people too, unless they resent the idea that a significant portion of the middle class will now have access to comparable units of their own, at far lower prices.

This whole thought experiment ends here; because property owners are enjoying the lazy status quo. The current high prices, serve their needs. Selling a couple of high-priced condos per year is certainly much easier than building 5,000 affordable units in the same time frame. The elimination of zoning regulations will mean the lowering of their property's value, as the scarcity disappears and supply dramatically increases. They will fight to keep a lower-standard of property rights, even though one would think that they should want the right to determine what they want to do with their property, instead of groveling before the building department and other bureaucrats to beg permission to develop a project.

I know that this article may read like a missive from Nigerian scam artist, but its only because my writing skills are average, and secondly because it's way past my bedtime. Please feel free to comment on this thought experiment, and where you think the housing market would lead if all zoning laws were repealed.




*Land value should never exceed 25%-30% of the total development costs. Cost to build in NYC grew an average of 300% in 2004, leading to many a default. Of course this also means that it's an excellent time to be in the bridge-lending/mezzanine business, as yesterday's developments come today begging at the door for much-needed funds. The $800-1,000 per square foot of course is based on net, or sellable/rentable square footage, not including the gross square footage you had to build but have a loss factor of common areas, elevators, hallways, etc, which sometimes reaches an 18% ratio (considered high) or as low as 12% (considered incredible). Also, the price quoted will be an average blend; you expect the less desirable units to sell for $600-750 per square foot, while the penthouse, and better units to come in at the $1,200-1,500 range.