New York Times Magazine
Long before it became an archaic symbol of everything wrong with our broken cities, New York’s subway was a marvel. A public-works project of this scale had never before been undertaken in the United States, and even now, more than a century later, it is hard to fully appreciate what it did for the city and, really, the nation.
If the story of the subway is the story of density, it is also the story of land — and more to the point, the story of land value. Before the first tracks had even been laid, real estate speculators were gobbling up farmland and empty lots along the proposed route and then quickly flipping their parcels at huge premiums to builders. When the subway recovered from its last major crisis, it again began throwing off enormous returns for the owners of the land above it. From 1993 to 2013, the average price for a co-op or condo in TriBeCa rose from $182 per square foot to $1,569. In the process, prime real estate in Manhattan was transformed from a place where people lived and built businesses into a high-yield investment in which absentee owners parked their money and watched it grow.
In the words of Jed Walentas, the principal of the real estate development company Two Trees Management, it’s “insane” that so little of the wealth that the subway generates flows back into the system. In Hong Kong, the company that runs the subway also controls the property around it, earning huge amounts that it can then reinvest in service enhancements. The M.T.A., by contrast, is largely cut out of the land profiteering that it enables: Of the authority’s roughly $16 billion budget in 2017, about $460 million came from a tax on residential real estate transactions. An additional $520 million came from a tax on commercial sales. To put those numbers in perspective, several years ago, a group of economists calculated that the land in New York City — just the land, not the buildings on it — was worth about $2.5 trillion. One thing New York City has plenty of is money, and much of it is bound up in real estate, a kind of blank canvas with unlimited economic promise.
I asked Walentas a hypothetical question: What if the M.T.A. could offer the real estate community development rights as a kind of bargaining chip? Would it underwrite subway upgrades and expansions into underserved areas in exchange? “Oh, yeah,” he said without hesitating. “It’s just math. You can make the money come right out of the air with a pencil.”
The subway has made a lot of people very rich. The Fiscal Policy Institute, an economic think tank, reports that between 1980 and 2015, the share of the New York City’s income going to the wealthiest 1 percent increased from 10 percent to 22 percent.
Value capture financing is the most sensible and equitable way to fund needed subway expansion.