The Guru Is In
The forgotten housing experiment
By David A. Smith
5 min read
We will never have to worry about Communism or Fascism, or any other “ism” for that matter, with a reasonable program of public housing for low-income households, and a decently housed middle-income citizenry. – Developer Paul Tishman, January 27, 1953
When, in the 1960’s, Lyndon Johnson launched the federal government into the regulated public- private partnership era of affordable housing delivery, the initiative drew on two decades of multifamily rental experience, about which until very recently I knew nothing – the benevolent insurance-company as workforce housing investor/developer. Why and how insurers invented the business, and why and how their involvement ended, provide distant mirrors on the urgent unsolved problem of creating a workforce housing industry now.
The story is engagingly and judiciously chronicled in a terrific working paper, Fiduciary Landlords: Life Insurers and Large Scale Housing in New York City, by newly-minted Harvard PhD Adam Tanaka, from which I will liberally quote. “For a brief window between the late 1930s and the late 1940s, life insurance companies built approximately 50,000 middle-income rental apartments across the United States.”
The timing was right. For the first quarter of the 20th century, the only affordable housing produced was philanthropic, often by civically-minded industrialists, many of them self-made, who sponsored model tenements they supported directly with subsidy or indirectly with concessionary capital (what today we call Program Related Investments or PRI’s) from their rich friends. When the Depression hit, Franklin Roosevelt moved the federal government into housing as a public works project, creating pure public housing via authorities that persist today. But with the coming of World War II and the acceleration of urban industrialization it brought out, first cracks and then fissures appeared in the housing delivery continuum. Market rents rose rapidly, much faster than supply could adjust, and public housing, expensive and slow to create, was by then full. “Concerns mounted over how to accommodate those who earned too much to qualify for public housing, but not enough to afford up-to-date private housing – a relatively broad swathe of [New York] city’s lower-middle class, including union members with political clout.”
As America recovered from the Depression, “When it came to middle-income urban housing, the 1940s represented a moment of unusual convergence between corporate need and municipal interest.” Businesses wanted housing for their workers, insurers had become yield-hungry, cities had slums they wanted to clear – and, with the 1936 Supreme Court decision in New York City Housing Authority v. Muller, slum clearance and public housing had been adjudicated “public use,” authorizing eminent domain for condemnation, demolition and parcel aggregation.
At the 1939 World’s Fair, Metropolitan Life (then the nation’s largest insurance company, with a headquarters workforce of 15,000 in Midtown alone, making it Gotham’s biggest private employer) announced its intention to develop Parkchester, a “new town” (white-only) greenfield development of 12,272 apartments over a fifth of a Bronx square mile. It opened in 1941.
To make the business work, “Mother Met” relied on what today we would call industrial building technology: “roads and sewers were laid out by Metropolitan at faster pace and lower cost [than the city could]. Standardized building types and interior layouts also cut costs and accelerated assembly.” Any of its redevelopment/slum clearance properties, including the postwar Stuyvesant Town, also secured large real estate tax abatements.
Despite the snobbish carping of Lewis Mumford, these properties proved immensely popular both with residents and with elected officials, and Metropolitan gained spinoff benefits. “Mixed-use and transit-oriented decades before the terms gained currency,” this form of workforce housing “shored up property values in a part of the city where Metropolitan had significant real estate and mortgage holdings. Stuyvesant Town’s proximity to the company’s lavish headquarters on 23rd Street meant it could also serve as low-rent housing for its workforce,” a useful boost to employee loyalty, and “better housing, many [Met executives] believed, also meant longer lives and stronger business.” Mayor Fiorello LaGuardia chided other insurers for not following Metropolitan’s lead and the insurer’s chairman and housing champion, Frederick Ecker, “commented on the ‘general goodwill’ that such projects engendered and ‘placed specific companies’ names before the public in an advantageous manner.”
The war’s end only increased the pressure for more workforce housing development, with “the moral urgency of the veterans’ housing crisis: New York was flooded by over 750,000 returning veterans, many of whom had to make do in converted military barracks, trailer parks and Quonset huts rapidly erected on empty land.” The market’s inability to keep up as fast as the surging demand changed the political climate, and that in turn roiled first Parkchester’s economics, then its ownership, then its viability:
- In 1947 New York City enacted peacetime rent control, and “the operation of existing developments also became a challenge, as escalating maintenance costs clashed with the city’s increasingly stringent rent-control laws.”
- In 1968, Metropolitan sold Parkchester “to a syndicate of investors headed by Harry Helmsley [who] had become increasingly enamored with the idea of converting rent-regulated properties into condominiums, and selling off apartments by the hundreds.”
- During the early 1970s Helmsley pursued this vision at precisely the wrong time. Among white flight, urban decay and spiking utility costs, only half the homes were bought, leading to the worst management and ownership nightmare, the retail tenants fled, and property fell into financial distress, disrepair, neglect and dangerous living, which persisted for two decades.
- In 1998, Parkchester was rescued by New York City nonprofit Community Preservation Corporation (CPC), which in partnership with a for-profit mission-oriented developer/manager bought the 6,382 unsold condominiums, and over six years invested $250 million to turn the property around – with success enduring two decades so far.
From this tale, lessons abound. Those who rediscover the forgotten past can avoid the condemnation of repeating it by drawing the appropriate conclusions and adapting those lessons to the current environment, and by reading next month’s Guru, where All Will Be Revealed.
