Academic journal article Fordham Urban Law Journal

Dealing with Illegal Housing: What Can New York City Learn from Shenzhen?

Academic journal article Fordham Urban Law Journal

Dealing with Illegal Housing: What Can New York City Learn from Shenzhen?

Article excerpt

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. …

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