Protecting the public

Real Estate Weekly, August 2, 1995

I have often argued that the lack of growth in the New York City market is due to suffocating local regulation. No municipality in the world regulates real estate to the extent we do. Advocates incessantly argue that our web of regulation is necessary to "protect the public,a yet, somehow, every other municipality survives, and even thrives, without it.

This week's target is the 1961 Zoning Resolution. Drafted when growth in the city seemed limitless, it is now a millstone around the neck of a city that must bribe employers to remain here.

Prior to 1961, zoning was governed by the resolution of 1916. The entire document was only about 50 pages long. There were few rules because it relied on the judgement and discretion of the administrators. In some circles, a zoning resolution that relies on discretion is a formula for corruption and political favoritism, and that may be, in part, true. But the current resolution, which is several thousand pages long, with the ostensible objective of treating everyone equally, is no improvement. Corruption is still rampant, we just call it something else.

The current zoning resolution makes several fundamental assumptions. The most dubious is that the zoning specified for a neighborhood in 1961 is the correct zoning, and therefore the document makes any change very difficult, whether it is variance, zoning change, or special permit. The old resolution required the applicant to basically demonstrate that the requested change would not adversely affect any neighbor. Furthermore, that resolution made a distinction between use changes (where you were changing the nature of the use of the land) and bulk changes (where you were simply building more of what existed previously).

In the 1961 resolution there is no longer a distinction between use variances and bulk variances; all variances must satisfy the more stringent tests of a use variance. The concept that a variance cannot harm a neighbor is now the least important criterion. All applicants (even those that have community support) must demonstrate that the property is somehow unique, that the current zoning is a financial hardship. Progress, job creation and common sense are irrelevant. Furthermore, all changes require an environmental assessment that is an open-ended minefield, where any special interest group, no matter how small, can stop a change for virtually any reason, provided they are simply loud enough and have the requisite passion for their convictions.

That is why variances, even on small properties that have no other use, routinely cost $30,000, 15 months of valuable time, and they could still say "No!" This has the unintended effect of killing off any small project, regardless of the merits.

A perfect example is one from personal experience. I own a 4,000 square-foot lot with a 1,200 square-foot commercial building on the front of the lot. The property lies on a commercial strip on the main road in the community. However, the stores are too small to attract quality tenants. I would like to add a 1,200 square-foot extension on the landlocked rear yard of the lot. But due to the infinite wisdom of the 1961 Zoning Resolution, the whole area is zoned R6 without a commercial overlay. The cost of the extension might be $40,000, and at that price I can get an added rent that will make the investment worthwhile. But the cost of a variance (another $30,000) makes the project un-economic. Consequently, it won't get built. And more important to the economy of the city, the jobs it would create and the services many quality tenants would provide to the neighborhood won't happen either. But somehow the public has been "protected."

How often does this happen throughout this sprawling city with a inflexible zoning code that is 35 years old? Have our ponderous regulations made all small expansions such as this uneconomic, cutting off the ability of small business to grow? Perhaps it is no accident that small business nationwide accounts for the vast majority of job growth, but in New York City it is nothing more than a bit player.

Which leads me to another conclusion. If the zoning resolution has, in effect, made small project uneconomic, the only available avenue of economic growth is from the mega-project which can afford the costs of regulatory overhead. But invariably, megaprojects create other problems. Maybe they will over-tax the sewer system, or the roads, or the local train station, or maybe they will provide competition for the local, smaller store that can't expand because of the zoning code. Any public outcry invariably leads to the intrusion of politics.

Witness the most recent example of Pathmark in Springfield Gardens. The collegiality of the City Council dictated that the council would not support the special permit of Pathmark without the support of the local councilmember. After a loud and very public debate, Pathmark "persuaded" Councilwoman Juanita Watkins to support the project by providing $400,000 for a local community group to "mitigate impacts." Watkins responded to criticism that this is no different than other mitigation payments in other neighborhoods and the public must be "protected" (there's that word again).