Introduction 714 I. Illegal Housing in New York 715 A. Legal Enforcement: Too Many to Fail 716 B. Legalization: Uncertain Effects 720 C. Challenges to Illegal Housing in New York City 724 1. Information Costs 724 2. Externality 724 3. Heterogeneity 725 II. Lessons from Shenzhen 726 A. Comparability 727 B. Optional Zoning 728 C. Practices in Shenzhen 732 1. Neither Legal Enforcement nor Legalization Works: The Limitation of Rule 1, Rule 3, and Rule 6 733 2. Too Expensive for the Government to Buy: The Limitation of Rule 4 and Rule 5 737 3. Optional Zoning That Works: Rule 2 738 Conclusion: Community-Based Zoning Options 739 INTRODUCTION
In New York City, owners violated zoning regulations and opened up their basements, garages, and other floors to rent to people (particularly low-income immigrants) priced out of the formal market. (1) The more than 100,000 illegal dwelling units in New York City (NYC) were referred to as "granny units," "illegal twos or threes," or "accessory units." (2) Due to the safety and habitability considerations of "alter[ing] or modif[ying] of an existing building to create an additional housing unit without first obtaining approval from the New York City Department of Buildings (DOB)," the City government devoted substantial resources to detecting and stopping such illegal conversion. (3) Recently, however, Mayor Bill de Blasio proposed to legalize such illegal dwelling units to increase the City's rent-regulated housing stock. (4) The question remains as to whether crackdown or legalization is the right policy.
Such illegal housing is not unique to NYC. Shenzhen, a city in south China that experienced a population explosion from 300,000 to over 10 million within three decades, faces the same problem as NYC: legal housing supply cannot catch up with the population growth, resulting in prevalent illegal housing supply. (5) Almost half of Shenzhen's buildings have been built illegally and now host over eight million migrant workers and low-income residents. (6) In the past three decades, the Shenzhen city government has swung between legalization and crackdown of such illegal buildings, neither of which has resolved the problem. (7) Due to the large number of illegal apartments, the "crackdown" option has proven to be impossible, while legalization has incurred huge information costs and encouraged more illegal constructions. In more recent years, though, the Shenzhen city government has discovered an effective policy: keeping the city government's zoning power intact while granting an option to owners of illegal housing to buy an exemption. (8) The lesson from Shenzhen is that options matter at least as much as the allocation of initial entitlements. In the case of prevalent zoning violations, these options should be granted to parties that have the best information to make decisions--the numerous individual owners rather than the government. I propose that this optional zoning approach should be taken in dealing with illegal housing in New York City.
Part I of this article details illegal housing in New York City, including the three main challenges, namely, information costs, externality, and heterogeneity in dealing with illegal housing. Part II discusses how Shenzhen dealt with illegal buildings with the same challenges. Part III concludes with a preliminary proposal of community-based zoning options for New York City.
ILLEGAL HOUSING IN NEW YORK
Overcrowding and undersupply of affordable housing have led to a surge in illegal apartments throughout NYC. (9) The typical migrant worker in Chinatown, Manhattan or Flushing, Queens is likely to live in an illegal location under the current NYC zoning law. (10) In Jackson Heights, Queens, or similar neighborhoods, houses originally designed for a nuclear family are being occupied by multiple extended families, including cousins, aunts, and uncles. (11) Resorting to illegal housing is a problem not limited to immigrants. Even in the Upper East Side of Manhattan, real estate brokers occasionally show young professionals suspiciously low priced units which turned out to be basements without independent mailboxes. (12) The Pratt Center for Community Development (Pratt Center) and Chhaya Community Development Corporation (Chhaya CDC) estimated that between 300,000 and 500,000 New Yorkers live in housing units that do not legally exist. (13) The Pratt Center report found that NYC gained 114,000 apartments not reflected in the official number of certificates of occupancy the City granted for new construction or renovation between 1990 and 2000. (14) Chhaya CDC also conducted a door-to-door survey in Jackson Heights and the Briarwood/Jamaica section of Queens and found that 35% of the total units examined (155 out of 446 homes) had separate secondary basement units. (15) The Citizens Housing and Planning Council estimated that nearly 42,000 new housing units in Queens, none of which were recorded in the official system, amounted to 73% of Queens' total housing growth from 1990 to 2000. (16)
According to the DOB, "an illegal conversion is an alteration or modification of an existing building to create an additional housing unit without first obtaining approval." (17) Examples of these illegal conversions include creating (without obtaining approval or permits from the DOB) an apartment in the basement, attic, or garage of a property zoned or designated for manufacturing or industrial use, or dividing an apartment into single room occupancies. (18) New York City has used ineffective law enforcement measures to combat the growing prevalence of illegal housing. (19) Although scholars and policy advocates suggest legalization as a solution to this problem, it remains unclear whether legalization is the best course of action either. (20) I examine both solutions in detail in the following sections.
Legal Enforcement: Too Many to Fail
The New York City government has strong incentive to take measures to enforce the zoning and building codes. The government has warned that illegal housing poses serious safety risks because noncompliance with Building and Fire Safety Codes creates potentially unsafe living conditions. (21) In addition, the overcrowding caused by illegal housing may overburden surrounding essential services, reducing a neighborhood's quality of life, and local businesses may suffer from further reduction of already-limited industrial and manufacturing space in NYC. (22)
It is possible to check the legal uses of a building by viewing the building's Certificate of Occupancy, which can be accessed through the DOB website's Buildings Information System. (23) However, current enforcement of zoning and building codes occurs through a complaint-based system where neighbors, tenants, and businesses offering services to remove the violations may report suspected illegal conversions by calling 3-1-1 and anonymously file complaints, prompting a Buildings Inspector to inspect the property. (24) Property owners that are found in violation of zoning and building codes are fined by the DOB. (25) Because enforcement of building and zoning codes substantially relies on neighbor and tenant complaints, the system can perpetuate tension and distrust within local communities. (26) This distrust may be particularly salient because the penalties for illegally converting a manufacturing or industrial space for residential use can be as high as $24,000 for the first offense. (27) Although NYC collects revenues from these fines, the revenue is unlikely to outweigh the costs of inspection, enforcement, housing court hearings, and other related costs. (28)
New York City has previously had minimal success in its attempts to combat its illegal housing. For example, in March 1997, NYC created a unit of thirteen Building Inspectors to ferret out illegal conversions in Queens--the borough with the most complaints of illegal conversions. (29) Between 1996 and 1998 the number of violation summonses issued across the city increased more than six-fold, from 637 to 4,094 respectively. (30) But increased vigilance has its own complications. The insufficiency of manpower, the DOB officials' lack of power to enter and vacate illegal buildings, and the absence of substitute housing all contributed to making serious enforcement difficult.
First, there is simply inadequate manpower for code enforcement. As revealed in the 2014 Queens Borough President Policy Statement:
Today, less than 300 inspectors are on staff citywide, with no staff increase projected. A majority of complaints become response delayed because of the inadequate number of inspectors. Because of these staffing shortfalls. The Department of Buildings and the Department of Housing Preservation and Development frequently have a backlog of thousands of complaints. Violations go uncorrected, which could lead to building collapse and injuries, and millions of dollars in fines go uncollected. Without robust enforcement, there is no deterrent to those involved in the illegal conversion of housing or the exploitation of those in need of affordable housing. (31) Second, enforcement officials cannot enter an apartment without a warrant. The Fourth Amendment of the U.S. Constitution protects housing owners and tenants from unreasonable searches. (32) In Camara v. Municipal Court, (33) the Supreme Court held that homeowners could refuse to allow housing inspectors access to their personal residences until they have obtained a search warrant. (34) This can apply to homeowners with potential accessory dwelling units in NYC. (35) The requirement of a warrant makes the verification of illegality difficult. However, when investigations do reveal illegal units, the government typically provides landlords with a "grace period" to correct violations, unless the housing conditions are dangerous or uninhabitable. (36) Thus, even when a violation of zoning and building codes is verified, the government can only vacate...