Many communities in the region are grappling with a rapidly changing housing market, a shortage of affordable housing, and the threat of gentrification and displacement. In Kingston these issues have been thrown into sharp relief by a project now before the city Planning Board. The proposed Kingstonian project includes 131 luxury apartments and 32 boutique hotel rooms, along with retail space and a parking garage.
Meanwhile the city is holding a series of hearings on housing that have revealed the deplorable condition of much of the existing rental housing, the failure of city inspectors to adequately ensure safe and healthy conditions, and the continuous insecurity that many city residents live with as a result. A 2006 Three-County Regional Housing Needs Assessment found that Kingston would need to add 1005 new affordable up apartments by 2020. 55 have been built since then. It’s clear that building more affordable housing, improving the conditions of existing housing, and preventing displacement of longtime residents are important priorities for the health of the whole community economy.
I don’t plan to comment in these pages about the Kingstonian project itself. It seems to me that the project has a number of pluses and minuses that deserve serious consideration. But I do want to comment here — as an economist focused on local economic development — on a couple of arguments I’ve heard put forward in comments at the April 10 public hearing, and in letters to the editor regarding the project.
Affordable housing advocates have voiced the concern that a large, high-rent development like the Kingstonian will lead to rent increases across town, furthering displacement pressures. Several project supporters have dismissed these concerns by invoking supply and demand. The argument is that building 100+ new apartments adds to the supply of housing, which should, under the well known economic model of perfect competition, make the price realized in the market go down, not up.
This sounds so clear and obvious. Are they right? Are those raising the concern that the Kingstonian will drive up rents everywhere in town just ignorant of basic economics?
The simple supply and demand model works best for markets where all the goods available are identical — like bushels of corn, or No. 2 pencils — so that buyers are indifferent to everything except the lowest price, and sellers have to accept what the price-driven market will bear. But of course the housing market is the opposite. Every home is different. Housing prices are driven by the perception of value, on the part of both buyer and seller — what sellers believe they can charge and what buyers are both willing and able to pay.
We all know the saying about real estate: location, location, location. A development like the Kingstonian is large enough to fundamentally change the location itself, shifting the perception of value for all real estate in the vicinity. The neighborhood is perceived as more desirable. It attracts a different income level of renter (and shopper). And landlords near the project compare their rents to those in the Kingstonian and figure they have some room to move them up. Prospective tenants grudgingly admit that the higher rents are still a bargain compared to the bar set by the Kingstonian. Once rents in Uptown rise, the same effect pulls up rents — though likely to a lesser extent — throughout the city.
And insofar as the Kingstonian attracts new transplants to the region — something that supporters of the project appear ambivalent about, with some describing local empty nesters and entrepreneurial millennials moving in, while others cite the projected economic impact of the dollars spent by all the new residents — they will change the economics of the market from the demand side, especially if they bring income levels and perceptions of value from higher cost-of-living regions. This acceleration of the influx of people with money and willingness to spend on housing may be the biggest impact on the market of a development like the Kingstonian.
Given all the dynamics of the complex housing market, no one can predict for sure what the net effects on rents — especially in other parts of town — will be. But certainly concerns that the Kingstonian would raise rents should not be dismissed as ignorant. The forces pushing rents up could well turn out to be at least as high as those pushing them down.
At the April 10 hearing, I heard another view expressed by handful of project supporters that I found both saddening and misguided. One supporter suggested that the proposed project was a rare “generational” opportunity that we had better jump on while we could and not let it get away. “How long has it been since a project like this came to Kingston?” asked another, as if the developers were a Prince Charming who had finally come along to save us, and we’d better not do anything to frighten him.
This kind of thinking – that we must attract deep-pocketed investors to rescue us by spending on whatever they see fit — has been pursued with limited success by cities around the country. It may have seemed during the years of Kingston’s post-IBM slump, when little or no major investment was occurring, that we had better take whatever we could get, and not be too choosy in the process.
But the truth is the other way around. Investors did not come before because there was insufficient economic activity to suggest that an investment would be profitable. Now that economic activity has picked up – thanks to the efforts and investments of community members and organizations across the city – outside investors are being attracted to the city in droves, buying up buildings and proposing several new projects. Even if this particular Developer Charming were to walk away, there would be others.
But more deeply than that, the thinking that we must rely on wealthy investors to drive economic development, encourage (and sometimes subsidize) them to build whatever they think will be profitable, and hope that the community will benefit as a byproduct of their profit-seeking is the foundation that our old industrial growth economy is based on. The goal of Commonwealth Hudson Valley is to foster a shift in both mindset and practice to a development approach that is driven bottom-up by community priorities, and over time increasingly democratically financed, owned, and governed.
Of course, a project the size of the Kingstonian requires a significant amount of financing. The investor-driven model remains for now the fastest way to get something that large built. But without policy interventions like strong planning that defines what the community wants and needs, community benefits agreements that spell out what the community is getting in exchange for public monies put in, and affordable housing requirements (like those for the Kingston Mixed Use Overlay District, which are apparently being waived or disregarded for this project), investor-driven development won’t lead to community priorities and needs being met.
To accomplish truly sustainable economic development that benefits all city residents requires a thoughtful process of evaluating what the city really needs and what the likely impact of each project might be in the context of that bigger picture. And the best way to ensure that all perspectives are taken into account and the best solutions arrived are at is through a bottom-up, transparent public process that engages all of the city. I hope that the city will engage in a more thorough and intentional public process around around the costs and benefits of this project and around the broader needs that the Council has begun exploring through its housing hearings.