GOVERNMENT CREATED THE HOUSING CRISIS. GOVERNMENT CAN SOLVE IT: Suggestions from a New York real estate attorney.

• Author: Stein, Joshua
• Position: POLICY

FOR AN EXAMPLE of how the good intentions of big government can produce extremely bad results, one needn't look further than the rental housing market in New York City.

We have government-sponsored financing for low-cost housing. We have special housing bonds. We have public-private construction projects. We have government agencies to help the private sector and nonprofits produce lower-cost housing. We have inclusionary mandates. Yet rental housing in New York remains more expensive than practically anywhere else in the country and suffers from a perennial "crisis" of affordability.

Earlier this year, New York revived a variation on its previously expired 421a tax abatement, first enacted in the 1970s to encourage new rental housing construction. Today's version offers developers a tax break with a present value equal to one-half to two-thirds of the entire cost to build the project--assuming the developer jumps through some hoops that seek to help labor unions and deliver more "affordable" and rent-regulated housing.

Through these and other measures, officials claim to be trying to solve the problem of high rents. But the discussion always starts from the premise that government should do more. Rarely does anyone ask whether government should instead do less, even though decades of ill-considered policy caused the housing disaster that New York faces today.

Nonregulated rents in New York City are indeed extraordinary. Small one-bedroom apartments in Manhattan cost around $3,500 a month and generally rise over time, although a recent construction boom has led to a slight downward drift near the top of the market.

The culprit for high prices cannot be the free market, because New York hasn't seen a free market in rental housing since World War II. Instead, a panoply of laws, regulations, and programs create distortions, complicate development, and make it difficult to build new housing except at the very high end. If we're serious about making New York and other major cities more affordable for renters, here are a few things to reconsider.

ZONING: About 100 years ago, municipal officials decided to separate different uses of property from each other so we wouldn't end up with slaughterhouses next to nursery schools. From that small seed of good intentions has grown a massive forest of land use regulations that limit and delay development and constrict the housing market, driving up housing costs. In New York City, every discretionary...