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Can New York Fix Its Housing Crisis?

The New York City Council passed a number of measures meant to ease the city's housing crisis. Will they work?
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(Photo: Keystone/Getty Images)

(Photo: Keystone/Getty Images)

Last week, the New York City Council passed a number of changes to the city's zoning code, including a mandatory inclusionary housing provision that will require new private housing developments built in the city to permanently include units for low-income renters. The changes were proposed by Mayor Bill de Blasio as part of his administration's affordable housing initiative, and are intended to ease the city's affordable housing crisis. The administration describes the housing plan as "a pioneering initiative to make affordable housing mandatory and permanent wherever new housing capacity is approved through land use actions," and touts it as "the strongest and most flexible policy of its kind in the country."

There's no doubt that housing costs are out of control in New York City and in other cities around the country. A report released last fall by the Joint Center for Housing Studies at Harvard University found that, in 2013, almost half of all renters in the United States were "cost-burdened" (meaning they devote over 30 percent of their income to rent), and over 25 percent were severely cost-burdened (which the report defined as "paying more than 50 percent of income for housing"). And it's no longer just the poorest of the poor who are struggling to pay their rent—the trend is increasingly affecting moderate-income households as well.

This can have unfortunate effects on those families: "Much to their detriment, cost-burdened households are forced to cut back on food, healthcare, and other critical expenses," the report concludes. "Affordable housing thus means a dramatic improvement in quality of life for households able to obtain it, but federal assistance lags far behind need."

The U.S. currently spends about $46 billion a year on affordable housing programs, the largest of which is the Section 8 housing voucher program, which provides renters with vouchers that can be used to rent private apartments, and the Low Income Housing Tax Credit program, which provides subsidies to private developers to build affordable housing. Many advocates for the poor argue that these programs don't do enough to create equal housing (waitlists for housing vouchers are years long in some places), and point out that the $195 billion worth of mortgage interest tax deductions that middle-class and wealthy families currently receive might be better directed to poor families. For the lucky families who make the cut, public-housing assistance undoubtedly eases the financial burden of housing costs, which is in itself a desirable outcome.

The major federal housing-assistance programs haven't done much to change the neighborhoods the recipients live in.

But should federal housing policy seek to do more than that? It's become increasingly clear that children who grow up in very poor, highly segregated neighborhoods don't have much of a shot at moving up the income ladder. In research I've referenced before, the economist Raj Chetty (along with a number of co-authors) found that the neighborhood a child grows up in has a strong causal effect on their upward mobility, and that neighborhoods with less segregated income levels and fewer racial barriers offer kids a better shot at upward mobility. If federal housing policies and programs could be designed to reduce segregation or give poor families a chance to live in better neighborhoods, low-income children could see huge benefits.

For decades, beginning with the Great Depression-era Housing Act of 1937, federal housing assistance took the form of large public-housing developments funded by the federal government and operated by local housing authorities. The initial developments were meant to both boost employment and reduce the number of "slums" in American cities. But due to provisions in the program that allowed local jurisdictions to refuse to house the projects, the developments were frequently built in poor, minority-dominated neighborhoods. After the post-World War II suburban white flight, these developments were increasingly inhabited by primarily poor, minority residents. As anyone who ever visited Chicago during the 1980s or early '90s can attest, many of these public-housing projects ultimately turned into exactly the kinds of crime- and drug-ridden slums they were meant to replace.

In the face of the failure of the public-housing experiment, the government mostly gave up on such developments, concentrating its efforts instead on "market-oriented" solutions like Section 8 vouchers and the LIHTC. Today, the major federal housing-assistance programs help six million families, almost 75 percent of whom reside in privately owned housing, according to a National Bureau of Economics review.

But these programs haven't done much to change the neighborhoods the recipients live in. Many of the private housing developments subsidized by the LIHTC consisted of exclusively low-income units (as opposed to mixed-income units) and were built in exactly the kinds of poor, segregated neighborhoods that public-housing developments were located in. Meanwhile, Section 8 voucher holders often find it difficult to secure housing in lower-poverty areas—both due to landlord discrimination against voucher holders, and to the financial constraints of the vouchers, which frequently don't cover the costs of units in better neighborhoods—and many simply end up living in the same sort of high-poverty neighborhoods they started out in. The NBER report concludes that, while the housing voucher program and the LIHTC program improve housing conditions, they "do not seem to do much to change the neighborhood environments in which children are living."

It is, however, possible to design housing-assistance programs that do change the neighborhoods in which children are living. In 1994, the Department of Housing and Urban Development sponsored a randomized voucher experiment called Moving to Opportunity, where 4,600 families living in public housing were randomly assigned to one of three groups: families in the control group received no vouchers, families in the second group received standard Section 8 vouchers, and families in the third group received an experimental voucher which required them to move to a low-poverty area (along with mobility counseling). In initial evaluations, researchers found that adults who received the experimental vouchers experienced improved physical and mental health and well-being.

And in a forthcoming paper in American Economic Review, Chetty, Nathaniel Hendren, and Lawrence Katz found that children whose families received the low poverty area vouchers when they were still young (under the age of 13) had higher college attendance rates, higher earnings, lived in better neighborhoods as adults, and were less likely to become single parents. The earnings increases were particularly impressive: Children in the experimental voucher group had annual incomes that were 31 percent higher by their mid-20s than children in the control group.

"The findings imply that offering vouchers to move to lower-poverty neighborhoods to families with young children who are living in high-poverty housing projects may reduce the intergenerational persistence of poverty and ultimately generate positive returns for taxpayers," the authors conclude.

It's far too early to predict how the changes that de Blasio lobbied for in New York City will play out. In the past, mixed-income housing developments have often shortchanged low-income residents, a precedent the city is trying to avoid with its strict requirements. Though it's unlikely the newly built low-income units will come close to meeting the demand for affordable housing, de Blasio's focus on providing low-income families with housing in good neighborhoods, with higher-income neighbors, certainly has potential.