Gregory Heller

Clearing the Way for Redevelopment of the Lower East Side

Disinvestment of the LES began in the 1960s in response to the stagnating incomes and rising poverty caused by the city's loss of 438,000 manufacturing jobs between 1959 and 1975 (Fitch, 1993, p. 106). As blue collar jobs left the city, Puerto Rican residents of the LES and other "slums" who filled these jobs were less able to pay the high rents commanded by landlords. The government-sponsored urban renewal and slum clearance of the 1930s through late 1960s demolished entire neighborhoods, reducing the city-wide stock of low-rent housing units. This government-induced decrease in supply coincided with an increase in demand due to immigration. The combined effect was an increase in market rents. In addition, Piven and Cloward observe that, “Slum profits have depended on collusion between city agencies and landlords: In return for non-enforcement of the codes, the slumlord takes the blame for the slum and enables the city to evade the political ire of the ghetto� (1972, p. 158). This symbiotic relationship combined with the scarcity of units permitted landlords to profit on slums without maintaining the quality of the housing stock. Increasing unemployment and poverty resulting in rent delinquency combined with the unavoidable expense of rapidly deteriorating buildings, caused the profitability of the slum to disappear in the late 1960s. Landlords responded by halting reinvestment in their buildings to maintain profits.

Redlining and the decline of essential services such as garbage collection, and police and fire protection were among other factors that lead to the abandonment of the LES. Jacobs wrote, “The Lower East Side of New York, an area of great potential….was doomed by black listing [alternately called redlining].� (1961, p. 302) This process of disinvestment is caused when banks deny mortgages and insurance companies deny coverage to real estate owners within a specific geographic area. Economists and urban geographers often site redlining as one of the first steps of disinvestment. These factors resulted in a general quid-pro-quo policy of “planned shrinkage� (Van Kleunan, 1994, p. 298-9; Harris, 1991, p.140).

Like others in the South Bronx, Harlem, and Brooklyn, this district was generating very little tax revenue while costing the city great expenses for social services. These neighborhoods were an economic drain on the financially troubled city. Planned shrinkage, a policy conceived by Roger Starr in 1966 and officially implemented during his tenure as Commissioner of Housing Preservation and Development under Mayor Abe Beame in 1976, was a way to expedite the “death� of these troubled neighborhoods to make way for their eventual redevelopment (Wallace and Wallace, 1998, p. 18-19, 24-25). All those with the means to relocate did, while those without often fell victim to forced displacement and relocations. or rampant inner-city crime.

Urban geographers such as Neil Smith, Peter Marcuse, and Peter Salins explain in great detail how landlords milk the financial viability from buildings through disinvestment (Smith, Duncan and Reid, 1994; Smith, 1996; Marcuse, 1984; Salins, 1981 and 1980, p. 99-115; Jacobs, p. 316). According to Salins’ theory, “Graduated disinvestment involves the deliberate shedding of one or another owner responsibility vis-a-vis the property in order to reduce expenses, or increase rental income, in the full knowledge that this will render it worthless.� These responsibilities include the payment of debt service (especially mortgages), the payment of property taxes, upkeep expenses, the careful selection of tenants, and adherence to the law (1980, p. 100). After this first stage of disinvestment, speculative investors can then make money on these properties by purchasing them with low down payments. Through another round of aggressive rent collection, tax and mortgage delinquency, shirking of maintenance responsibilities, writing off unpaid rent, and depreciating the property’s asset value these investors can earn a short-term profit (p. 14). Salins writes “that with each turnover in ownership, purchase is predicated increasingly on a risk-taking strategy of short-term rental income exploitation, and less on a conservative strategy of long-term asset value maintenance� (p. 103). After all the short turn profits are squeezed from these properties, eventually neighborhoods face the final stage of disinvestment, permanent owner abandonment.

Smith developed a rent-gap theory that recognizes a point “whereby the actual capitalized ground rent (or land value) under the present use is substantially lower than the potential ground rent that could be appropriated at that location under a higher and better use� (Smith, et al, p. 150). These circumstances are integral precursors to longer-term reinvestment in slum neighborhoods. When disinvestment and abandonment have sufficiently devalued property, there is an economic incentive for reinvestment. By this theory, disinvestment and abandonment are integral parts of the reinvestment and gentrification process. Anthony Downs stated it more bluntly in 1982 when he wrote, “A certain amount of neighborhood deterioration is an essential part of urban redevelopment� (1982).

After landlords abandoned them in the late 1970s, the city took title to over 500 properties through tax foreclosure known as in rem proceedings (Abu-Lughod, 1994, p. 2). Before 1978, the city did not begin in rem proceeding until a property fell more than twelve quarters in arrears. A 1978 law originally introduced by Mayor Beame reduced the threshold to four quarters in an attempt to increase tax payments. There are two ways to explain the change in the threshold. The first is that the Beame administration assumed landlords faced with the shorter grace period would pay back-taxes to protect their investment. The other possibility is that the city wanted to expedite tax foreclosure on the more than 1,000 LES buildings in chronic tax arrears in 1978, and by doing so expedite Starr’s slum clearance through his “planned shrinkage� strategy (Smith, et al, p. 160). In essence, tax foreclosure became a critical tool to clear slum neighborhoods and assemble property for future development after the city lost the explicit, legislated power and federal funds to do so in 1973, when the federal government terminated the Title I Urban Renewal Program.

The city proceeded with land assemblage in slum neighborhoods using the new tax arrears threshold. As Salins notes, this practice ushered in “the preliminary stage to their [the buildings’] imminent disappearance from the housing stock� (p. 111). Since many of these properties were occupied at the time of foreclosure, the result was reduction of the available housing stock for residents of the LES.

In addition to lost housing through tax foreclosure, many of the properties in the LES were burned in the final stage of landlord abandonment—arson for insurance. Sociologist Mercer Sullivan writes:

During the 1970s…large areas of New York City burned, especially poor neighborhoods in which disinvestment in housing took many forms…It is probable that arson was responsible for much of the burning of…the Lower East Side…Arson represents the most extreme and criminal form of disinvestment…. The historic pattern of fires in the city shows quite dramatic rises from about 60,000 reported fires in 1960 to rates of over 120,000 per year throughout most of the 1970s, peaking in 1980. In 1981 the fires began to decrease…at the same time that the real estate values began to sky rocket (Sullivan, 1991, p. 233).

Epidemiologist Rodrick Wallace and ecologist Deborah Wallace show in their 1998 book, A Plague on Your Houses: How New York Was Burned Down and National Public Health Crumbled, how this widespread arson was a product of fire-service cuts resulting from planned shrinkage. Arson served both the landlords through insurance pay-outs as well as the city through slum clearance.

Non-tax generating properties were an additional economic burden to the beleaguered city government during the fiscal crisis of the mid 1970s. The city essentially abandoned some of the worst buildings, relocating tenants to other sites to maximize occupancy. Then these emptied buildings, some 3,400 units on the LES, were demolished to reduce maintenance costs (Schmelzkopf, 1995, p. 366). As the economy rebounded and reinvestment began towards the end of the 1970s, the city began to transfer properties to developers. The city’s large portfolio of vacant property and selective enforcement of the shorter tax arrears threshold helped assemble attractive sites and allowed for creative payment plans that stimulated reinvestment and development. In some cases, the city sold properties to real estate investors for the back taxes owed (Smith, et al, p. 154-5). Over the next two decades, except for the recession in the late 1980s and early 1990s, the sale of these properties became a source of capital for the city.

To raise revenue in the 1980s, the Koch Administration made many properties on the LES available for the middle- and high-income redevelopment that politicians and planners have favored for the district since the 1920s. The Dinkins and Giuliani administrations followed suit, with the Giuliani administration essentially halting all in rem proceedings and adopting a policy of selling all city-owned, tax-foreclosed property (Zielbauer, 1999).

Planned shrinkage through abandonment and tax foreclosure was a strategy for implementing spatial deconcentration. It reduced and displaced the low-income population through the demolition of housing and then redistribution of land. A generation earlier, Title I urban renewal programs had the same effect in the southern and eastern portions of the district. Both urban renewal and planned shrinkage helped to clear a path for future reinvestment and redevelopment that occurred in 1930s through 1950s, 1980s and 1990s.

Although the housing projects of the 1930s and 1940s did provide a mix of middle- and low-income housing, they also had an effect on the political activity of their residents. A system of rules stifled political organizing and activism of public housing tenants. Piven and Cloward believe that public housing tenants’ behavior is influenced by their dependant relationship on the government for housing. They write:

What concessions the unorganized poor did get actually inhibited their capacity for political action. This is especially true of public-welfare and public-housing programs in which benefits are made conditional on compliant behavior by recipients. The poor, dealt with as supplicants by functionaries who can evict them or cut off their checks at will, are rendered more helpless in exchange for the benefits they receive (Cloward and Piven, 1972, p. 260).

The Housing Authority went so far as to ban organizing and certain other political meetings in housing projects’ communal spaces. In the 1970s and early 1980s, the city exerted similar control over other communities through the co-optation of self-help housing and neighborhood improvement movements.