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No Room for Growth: Affordable Housing and Economic Development in New York City

October 1999


H. Carl McCall

State Comptroller

Office of the State Deputy Comptroller for the City of New York

Report 8-2000


I. Executive Summary

II. Housing Costs and Economic Development

     A. Background: New York City Housing

     B. Short Term Effect: Depleting the New York City Workforce

III. Survey on Housing Costs and Economic Development

     A. Survey Findings

     B. Additional Evidence of a Threat to New York City's Economic Growth

     C. Comparative Housing Costs

IV. New York City Struggles with New Housing Development

     A. National Building Trends

     B. New York City's Existing Supply Gap

     C. Factors Limiting the Supply of New Housing in New York City

V. Public Policy and New York City Housing

     A. Federal, State, and City Efforts in Middle Class Housing

     B. Proposed Remedies to NYC's Middle Class Housing Affordability Problems

     C. Preliminary Recommendations

Appendix A - American Housing Survey

Appendix B - Housing Cost and Business Development Survey

I. Executive Summary

In an effort to address employment growth and other areas of weakness, economic development policymakers have struggled to strengthen the economy from many angles. A major strategic link to economic development, however, remains largely neglected--housing. In the long term, the high cost of housing may well have negative implications both for job growth and for the quality of the workforce that is essential to attracting firms to New York City. Our research strongly suggests that New York City's inadequate supply of quality affordable housing serves to limit the City's prospects for long-term economic growth.

This report provides an understanding of how housing costs affect economic development, encouraging a renewed discussion about the challenges of providing middle income housing. Although the focus here is on housing programs and policies that address the needs of New Yorkers in the middle income range, the housing problem for the City's lower income population also needs attention. Programs that have traditionally addressed the issue of lower income housing in New York City need a fresh commitment. This need is emphasized in two reports recently released by the State Comptroller on the deterioration of public housing and on funds available for the repair and restoration of this vital public asset.(1)

Strong indicators of unmet housing demand for both rental and home owner units are visible throughout the City and region. The City has low vacancy rates for both rental (4.01 percent) and home owner (2.75 percent) units. Sales prices have surged throughout Manhattan, and in 1998 sales prices for single family homes rose in all 130 outer-borough zip code areas. The New York City area is ranked the most unaffordable rental housing market for middle income earners in the country, and it is the second-least affordable place to purchase a single family home, surpassed only by San Francisco.

With an inadequate supply of quality housing affordable to middle income households, New York City is gradually losing this base of its workforce. Many people believe this out-migration has a particularly harsh effect on young families. The popular desire for home ownership is difficult to satisfy, given the existing housing stock, and housing affordability problems are threatening the area's economic stability.

Survey Shows Economic Growth Is Linked to Housing Affordability

To further understand how housing issues affect firms considering a move to, or expansion in, New York City, we conducted a survey of the area's largest employers, fastest-growing companies, and leading business development organizations. National research has documented the increasing importance of housing and other quality-of-life factors to firms evaluating decisions related to business development, particularly in such information, service-oriented economies as that of New York City.

Our survey revealed a striking sensitivity on the part of the region's business community to housing factors, especially as they relate to the availability of labor. Respondents noted that while the retention and expansion of existing firms may be difficult yet possible under some circumstances, the current housing situation severely limits New York City's ability to expand its economic base by attracting new and relocating industries and firms. Eighty-six percent of those surveyed stated that the supply and cost of housing impairs New York City's ability to attract firms established elsewhere, and 78.6 percent reported that housing problems stunt the development of new firms in the area.

The survey also found that housing costs and housing availability make New York City less attractive than other areas in the region, and other regions in the country. Our findings raise serious concerns about the ability of New York City--and by extension, New York State--to realize long term economic growth given the existing housing situation.

Public Policy Fails to Address Housing Needs

As a result of declining rates of new housing production and gradual population growth, New York City has actually experienced a net loss of housing stock in recent decades, suffering an estimated net loss of 49,600 units between 1980 and 1994. The metropolitan area currently ranks at the bottom among major cities in the United States in providing an adequate new supply of housing, with less than half of new demand being satisfied by new construction. Experts note that a range of factors limit and shape the supply of new housing in New York City. There is broad consensus that development is more expensive and difficult because of the scarcity of land, land use regulations, costs associated with quality labor in the construction industry, and various constraints on access to financial resources. With high development costs limiting the supply of housing, New York City has historically required a public sector boost to stimulate new building.

In the past, public policies initiated at all levels of government have driven patterns of residential development in New York City, most prominently the Mitchell-Lama Program, which spurred the creation of approximately 150,000 apartments affordable to middle income households. Today's housing production programs, however, operate on a much smaller scale, and home ownership programs favor areas outside New York City. One promising home ownership program coordinated by the Affordable Housing Corporation, for example, has seen its funding increase only once since its inception 13 years ago.

The City made important gains during the past decade in rehabilitating existing residential buildings, primarily for occupancy by lower and moderate income families. Between 1986 and 1996, the Koch 10-Year Plan injected $4.2 billion from the City's capital budget into housing efforts. Much of this work has been conducted in partnership with non-profit groups, such as the New York City Housing Partnership, which have replaced the diminishing commitment of the federal government and have used housing improvements to leverage broader community development. The City and State have also subsidized, through the "80-20" program, construction of a sizable number of new residential buildings that reserve a certain number of units for low income households. Such programs, although popular with developers and investors, do little to relieve the strain felt by New York City's middle class residents as they seek affordable housing.

Preliminary Policy Recommendations to Spur Residential Development

Recognizing the success of previous production programs, such as Mitchell-Lama, the City and State must now deal with the current situation facing middle income residents. Over the course of the past year, a number of public and private groups--including the Task Force on Middle-Income Housing, the New York City Council, and members of the New York State Assembly Housing Committee--have called for a renewed commitment and have proposed remedies to the problem of making affordable middle class housing available in New York City. Most of these proposals rely on an assumption that modest mortgage assistance is not enough to spur new residential development; some form of additional subsidy is also necessary. Building on such suggestions and on some promising modest programs conceived in recent years--and in light of our own research--we propose the following recommendations:

  1. New York State should recognize that the crisis of affordable housing in the downstate region is an important issue for the State's overall economic health; it should commit additional funds and provide incentives for middle income housing.   The problem will continue to have a strong impact on the entire State because commercial and industrial firms relocating to New York City's suburbs often look next to move outside the region and the State.  To secure the economic future of all of its residents, New York State must dedicate more attention and resources to initiatives that address the growing needs of middle income families in New York City.
  1. New York City must re-evaluate its own housing priorities and consider expanding new uses of bond-financed subsidies for housing production. The City should develop more efficient policies so that it is able to generate the maximum number of units for the greatest number of residents in need. The Housing Development Corporation's New Housing Opportunity Program has provided a strong alternative model for new housing development assistance. The City should extend its commitment to such programs, and it should consider additional capital expenditures comparable to previous investments.
  1. New York City should examine the extent to which its building codes, zoning regulations, and housing subsidy policies exhibit a Manhattan-bias, and thus serve to limit housing production in other boroughs. Many housing-related policies targeting luxury development in Manhattan do little to encourage new housing construction for middle class residents throughout the City. In addition, smaller developers, who are more numerous outside Manhattan, are often less able to access complex public subsidy programs because of problems associated with coordinating various sources of finance and regulatory approval.
  1. The City and State should explore ways to make housing more attractive to the investment community in New York City. A great potential exists for more innovative partnering of public and private investment in housing that is affordable to a broader band of incomes. For example, the private sector could be involved in creating a housing trust fund. To further enable private investment to develop more housing options, we also need to consider how such programs as tax credits influence the type of housing that is built in New York City.
  1. To secure the existing housing stock, the City and State should continue to develop innovative and diverse partnerships that encourage rehabilitation. Although some initiatives designed to return the City's in rem housing stock to productive use have proven successful, both the City and State must do more to encourage regular investment of capital in older properties. The creation of new housing will be most effective if rehabilitation policies provide an incentive to maintain older units, allowing New York City to prevent costly deterioration in dis-invested neighborhoods. Such efforts will provide more quality housing choices for people in all income groups.
  1. The City and State should work together to make programs as clear to understand and as easy to access as possible for all communities, residents, and not-for-profit and for-profit developers of all sizes. An expedited process, better coordination among various housing agencies, and improved public disclosure would allow public investments to stretch further, providing a more permanent solution to the problem. In addition, it should be possible to integrate middle income programs into broader strategies for community housing, supporting previous investments in low and moderate income units.
  1. New York City and New York State must seriously consider reforms proposed by public and private groups. Subsidies for the development of middle income housing are widely recognized as efficient uses of public funds, and added investment along these lines is urgently needed. Such subsidies should supplement programs designed to address the problem of lower income housing affordability; the subsidies should be designed to provide additional affordable housing options for residents and workers in New York City.

The economic well-being of New York City--and, by extension, New York State--depends on a renewed commitment to the region's housing infrastructure. Certainly, the added cost of a more comprehensive housing investment policy must be carefully considered, but the City and State have played more active roles in housing production in the past, with considerable success. The benefits from public investments in housing are varied and rich, and the cost of failing to act now--while positive conditions exist for expanding the City's housing opportunities--is a cost that New York cannot afford.

II. Housing Costs and Economic Development

Over the last several years New York City's economy has grown at a rapid pace, adding more jobs last year than in any year since 1958, and fueling growth statewide. The City has recovered almost 97 percent of the jobs lost in the last recession. Yet the City is by no means a model economy in every respect. Job growth in recent years has lagged the nation and the City's unemployment rate continues to be among the highest of any city in the United States.(2) Unemployment and under-employment are particularly acute problems in the boroughs of Brooklyn and the Bronx.

This report documents the housing affordability crisis that threatens New York City's long term economic growth, assessing the problem and describing potential remedies. The purpose of the report is to provide an understanding of the impact of housing costs on economic development and to contribute to a renewed discussion on the challenges of middle income housing. The analysis focuses on middle class housing, both rental and home owner, and will cover the following:

  • An analysis of the short term and long term impacts of housing affordability strain.
  • Background on recent national and local housing trends.
  • A discussion of New York City's inadequate housing supply.
  • Policies that have affected middle income housing affordability, remedies proposed by other groups, and our own preliminary recommendations.

Substantial housing investments in the past have addressed the needs of middle and moderate income residents. The City and State must now follow up with new investment, and better coordination among housing agencies. Some recent experiments have proven successful, suggesting the time is ripe for expansion and further innovation. Ongoing housing development is key to continued modernization of an aging city such as New York, a commercial center the health of which has serious implications for the larger region and state.

A. Background: New York City Housing

At heart, it is labor that drives the economy. New York City's workforce is strong--educated, innovative, and remarkably diverse--but the depth of this rich labor supply is increasingly threatened by housing affordability issues. Housing is perhaps the most critical quality of life factor needed to attract and retain a workforce, and New York City's weakness in the area does serious damage. In fact, in recent years the City has been entirely absent from Fortune magazine's survey of the best cities for business largely because of steep housing and other cost of living factors. Deficiencies in this quality of life determinant canceled out New York City's positive evaluation for business-related rankings.(3)

In the long run, particularly as telecommunications become more efficient, businesses are likely to move more jobs outside the region. Unfortunately, the jobs that are likely to be relocated are those that pay relatively well, thus further exacerbating the uneven distribution of income in the local economy. In general, even for two income households, the wages of the fastest growing occupations in the U.S. economy (presented in Table 1) are too low to be able to provide housing access in the New York City region. In order to attract workers in industries with high demand, businesses in the region must pay more than their counterparts outside.

New York is not the only city facing the problems of worker and job hemorrhaging. The Council for Urban Economic Development notes that while cities across the country are doing more to attract and retain businesses, much of their effort is being confounded by a draining of the skilled, middle class workforce, a loss which serves to encourage employment decentralization.(4) Unlike that of many other cities, New York's population is growing at a modest but accelerating pace, as immigration and births have offset the City's million person population loss of the past decade. These recent arrivals have joined native New Yorkers and the growing number of young professionals relocating to the area from other parts of the country, accelerating the ongoing housing crunch.

Table 1

Fastest Growing Occupations and Median Wages

Computer Engineers $ 56,000
Systems Analysts, Electronic Data Processing $ 45,800
Personal and Home Care Aides $ 13,500
Physical and Corrective Therapy Assistants and Aides $ 20,800
Medical Assistants $ 19,300
Paralegal Personnel $ 29,900
Teachers, Special Education $ 35,800
Human Services Workers $ 19,900
Data Processing Equipment Repairers $ 27,300
Dental Hygienists $ 42,300
Physician's Assistants $ 36,000
Engineering, Mathematical and Natural Sciences Managers $ 69,000
Data source: Bureau of Labor Statistics.

A sizable unmet demand for quality affordable housing is reflected in the following trends:

  • Small, moderately priced units in Manhattan are scarce: Real estate professionals report that within Manhattan, smaller and moderate cost apartments are in the shortest supply. They also observe that many prospective tenants are forced to purchase a cooperative or condominium unit simply to avoid the high cost rental market. Throughout the City, the 1980s wave of coop and condo conversions has provided residents with valuable home ownership opportunities, but at the expense of further restricting the supply of rental units. In other words, the limited housing stock has narrowed the range of available and affordable housing options.
  • Middle income earners are fleeing Manhattan, pushing up prices in other boroughs: Manhattan's tight residential real estate market is spreading. In 1998, single family home sales prices rose in all of the 130 outer borough zip code areas, suggesting that New York City residents are willing to move throughout the City to find a home.(5) With bidding wars and increasingly exclusionary required income guidelines, many people are finding Manhattan housing out of reach. The accelerated flight of those leaving Manhattan is driving up housing costs in many prime outer borough areas, which in turn impacts prices in neighboring communities. Although comprehensive data on the most current cost escalations are not yet available, the overwhelming consensus is that the affordability problem has worsened in the past two years.
  • Publicly subsidized programs are filled to capacity: The overwhelming popularity of past and current initiatives designed to develop housing for New York's middle and moderate income populations further points to unmet demand. Wait lists for admission to Mitchell-Lama developments are routinely closed, and a new program coordinated by the New York City Housing Development Corporation has seen its middle income units filled.
  • The pent up demand is visible for both owner and rental units: New York City's unmet home ownership demand is indicated by a miniscule owner unit vacancy rate of 2.75 percent, a strong indication of an inadequate supply.(6) An additional signal of the rental housing shortage is the City's well known overcrowding, affecting many groups but especially common among immigrants and young native New Yorkers living with families well into their adult years.

B. Short Term Effect: Depleting the New York City Workforce

With an inadequate supply of quality housing affordable to middle income residents, New York City is gradually losing this base of its workforce. In search of better housing options, these residents move to the immediate suburbs, the outer suburbs, or out of the region altogether, leaving neighborhoods without an important resource, and forcing City employers to pay higher salaries to entice skilled workers to commute to the rich job base.

The trend of the shrinking middle class has been amply documented by the New York City Council in a report tracking the group's expansion during most of the 1980's, and its decline over the past decade.(7) In a follow up report, the Council also found that the current economic expansion has produced a smaller share of middle class families than have previous expansion periods.(8) Indicative of New York City as a whole, the existing middle class is notably diverse. Although close to a million people have left the City in the past decade, the overall population has increased modestly because of births and a large influx of immigrants, some of whom have achieved middle class status remarkably fast.

Most measurements of the middle class involve a certain range (typically 85 percent-200 percent) of size-adjusted local or area median income.(9) It is difficult to pinpoint exactly what part of the New York City workforce this income range represents, because it could be a household with two workers each earning wages of $30,000, or a single-income household earning $60,000 a year. Typically, though, these households have at least one member working in Manhattan and are either interested in living in quality, affordable rental units, or are looking to purchase a home. Both of these alternatives are currently in short supply in New York City.

The drainage of middle income New Yorkers is partially offset by an influx of young singles, some of whom may intend to settle in the City. Many of these recent arrivals initially endure the affordability strain because they view it as temporary, believing their income will soon rise enough for them to live more comfortably. Often, however, that does not occur, and they too leave the City in search of affordable housing, weakening New York's workforce and neighborhoods.

  • New York City's housing costs force residents deeper into the outer suburbs: Among others, the City Council has noted that many are pushed to reside in the outer suburbs, as the immediate suburbs are not accessible due to high costs. The median price of a detached single family home in Westchester was $320,000 in 1998, and recent sales data show a soaring 94.8 percent growth in sales volume last year farther west, in Rockland County. The strong demand for homes in Nassau County has resulted in a 37% decline in the number of houses available for sale in the past year. Real estate professionals note that people moving from New York City are responsible for dramatic housing sales growth in suburban counties in recent years, growth that is prominent in areas that have not experienced a comparable rise in demand in past vigorous markets.(10) A visible result of this residential decentralization is the migration of New York City firms from downtown towards midtown, where they are closer to the increasingly crowded regional rail lines that carry commuters into the City.
  • The inadequate supply of middle income housing impacts NYC neighborhoods: With the middle class fleeing the housing crunch, neighborhoods are weakened by the City's income inequality. These New Yorkers take with them social capital that could help anchor socially and economically divested neighborhoods.(11) Whether renters or home owners, middle income families enhance the stability of neighborhoods. Furthermore, maintaining a presence of middle income residents in neighborhoods across New York allows the City to realize the full benefits of previous investments in lower and moderate income housing, as a broader range of family incomes helps to solidify communities, preventing future decay.

Lower income New Yorkers are also hurt by the inadequate housing stock. Unable to afford the luxury units being created primarily in Manhattan, New York's middle class households sometimes settle for affordable housing units that could be made available to lower income groups. If the housing market provided them with more reasonable options, they would free up more units affordable to low and moderate income households. Additional middle income multifamily units could also be utilized by empty nesters looking to move out of their single family homes, making these larger units available for growing families.

  • Sluggish housing production leverages fewer jobs for New York City residents: There are other negative effects of the lagging new housing production for middle income families. For example the City's construction industry is less active, and fewer jobs are created as a result. Housing development is known to leverage a broad range of economic benefits, many of which are directly tied to job creation.(12) In addition, New York City loses out as many of its jobs are held by non-residents, who spend a smaller share of their income within the City. And obviously, the loss of middle income residents serves to erode New York City's tax base, providing less revenue for City resident services and capital improvements.
  • Housing costs affect New York City employers: In order to entice employees to accept or remain in New York City jobs, firms must pay a premium for the region's higher cost of living. Workers must be compensated for the added cost of residing in the area, and commuters require compensation for the added cost associated with additional travel. At times, employers actually provide a direct subsidy to cover the expensive rents of higher level employees. Some have noted that New York City's higher wages are in part offset by greater productivity, but the discrepancy still affects the City's competitiveness, particularly when it must compete for firms in industries where skilled workers are in demand. While other components of cost of living calculations are more expensive in New York City as well, housing costs are by far the strongest determinant of the City's overall un-affordability. One cost of living index evaluated Manhattan housing four times as expensive as the typical United States metropolitan area.(13) Clearly, this dubious distinction is not helping New York City attract or retain employers.
  • Continued residential decentralization will eventually leave the City with a less competitive workforce: As the affordability problems in the immediate suburbs worsen, people are forced to settle deeper into the outer suburbs. With time, the workers in these households have less desire to commute into New York City, and firms of all sizes look to settle elsewhere in order to reach the relocated labor pools. In the end, jobs, the engine of economic growth, will leave New York City, following the households that fled the housing crisis.

Some reports indicate that this process is already in motion. The Regional Plan Association's survey of firms in eight industries found that a limited ability to attract and retain creative talent--talent deterred by housing affordability strain--threatens the region's competitiveness.(14) RPA's Competitive Region Initiative also noted that "poor housing opportunities" have impacted the region's ability to attract and retain firms.

III. Survey on Housing Costs and Economic Development

National research has documented the increasing importance of housing and other quality of life factors to firms evaluating decisions related to business development. As the economy's industrial structure continues to move away from manufacturing and towards information services, businesses are more motivated to locate where skilled labor is most abundant. Availability of skilled labor and quality of life are routinely singled out as the primary factors driving site selection decisions by trade publications such as Area Development magazine.(15) A broad and sweeping category, quality of life can contain such items as climate and cultural activities, and almost always includes factors such as housing costs, quality and availability.

In an effort to further understand how housing specifically impacts firms considering a decision to move to or expand in New York City, we conducted our own survey of the area's largest employers and fastest growing companies. We also sought out responses from a number of business development organizations and industry associations, groups that have contact with many types of firms in the area.

Our survey was largely modeled after a national survey conducted by the Berkeley Center for Real Estate and Urban Economics (CRUE), which found that housing costs were the number one site selection decision factor among firms that were seeking to attract employees or expand the workforce, and that housing factors were a particular concern for larger firms, high technology companies, and businesses with a higher share of employees classified as professionals and executives.(16) Not surprisingly, the CRUE survey also found that firms located in or near more expensive housing markets were most sensitive to housing cost and availability factors.

A. Survey Findings

In general, our findings were dramatic and consistent with the national research. Housing conditions appear to be a major concern for businesses in a variety of industries, and organizations that provide support and assistance to firms in the area are equally sensitive to the issue. More specific results of the survey are as follows:

  1. More than three out of five respondents indicated that the recruitment and retention of employees was difficult because of housing conditions in New York City. Respondents noted that the problem was particularly acute for middle level staff.
  1. While the retention and expansion of existing firms may be possible under some circumstances (particularly for the regional economy's key industries), the current housing situation severely limits New York City's ability to expand its economic base by attracting new and relocating industries and firms. A whopping 86 percent observed that housing affordability impairs the City's ability to attract firms located elsewhere.
  1. Reflecting the national shift in business location priorities, labor skills were most commonly cited as a significant factor driving site selection.
  1. All four housing-related factors--costs, quality, availability and choice, and proximity to work--rated as very or somewhat important by at least nine out of ten respondents. Most critical were housing costs (rated important by 96 percent of respondents), and housing availability and choice (listed as important by all).
  1. Serving as a warning for the future, respondents overwhelmingly observed that both other areas in the region, and other regions in the country, seem more attractive than New York City because of more favorable housing conditions. Responses suggested that firms will only choose to locate in New York by absolute necessity.

On a more positive note the survey revealed that firms are attracted to New York City because of easy access to global markets and other firms, the visibility and prestige of the area, and a concentration of diverse labor pools. Unfortunately the tenuous housing situation holds the potential to undermine the unique strengths of the City, if one of its most valued draws, its workforce, continues to be drained.

Table 2

Housing Cost and Business Development Survey Results(17)




Is employee recruitment/retention difficult because of housing?



Does housing supply/cost of housing impair NYC's ability to...
...attract firms established elsewhere? 86.2% 13.8%
...encourage expansion of existing firms? 41.4 58.6
...retain existing firms?



...develop new firms? 78.6 21.4
Labor Skills 70%


Business Climate of Area 67    
Land Lease Costs 53    
Taxes and Regulations 53    
Labor Costs 50    


  Very Imp. Somewhat Not Imp.
Costs 40.0% 56.7% 3.3%
Quality 26.7 63.3 10.0
Availability and Choice 36.7 63.3 0.0
Proximity to Work 31.0 62.1 6.9
Other areas in region more attractive than NYC because of housing? 70.8% 29.2%
Other regions in country more attractive than NYC because of housing? 75.0 25.0

B. Additional Evidence of a Threat to New York City's Economic Growth

A glimpse at recent events in commercial development around the region reveals that the migration of firms from New York City is already occurring, and may be accelerating in the current tight real estate market. Some may argue that movement from New York City is to be expected, and is acceptable because those firms that leave are likely to end up in other parts of the State. While this may sound logical, it appears that more firms are bypassing the suburban counties of New York, opting instead to locate in other states in the region where housing affordability is not as great a factor. White Plains, for example, had an office vacancy rate of 30 percent last year, about three time the rate in places like Bergen County, New Jersey and Fairfield County, Connecticut (an area that has been attracting a sizable number of finance firms in recent years).(18) The differential is accounted for by business cost factors including the high cost of housing. Other New Jersey regions with significant growth are Morris County, the area along Route 1 surrounding Princeton, and most recently, downtown Newark.(19)

  • The most immediate competition New York City faces is from across the Hudson, where an unusual amount of commercial development has been recently completed or is underway: Residential and commercial buildings are sprouting up in Jersey City and Hoboken, two areas with rents and development costs lower than Manhattan. Some of these new projects have been in the development stage for years, such as the $10 billion apartment and office complex being built by the LeFrak Organization, which is now in its twelfth year of construction.(20) Others have been inspired more recently by the booming real estate market, and announcements by large New York firms that they would be willing to consider moving to New Jersey.(21) In the absence of a regional economic development strategy designed to benefit the entire area, these developments can be regarded as losses for New York City's economy.
  • To offset these attractive alternatives to the City, New York has developed costly retention incentive packages for firms already established here(22):The New York City Economic Development Corporation has focused its recruitment energies on five industries, which it believes are most likely to be attracted to the City. One of the main targets of this strategy is the high technology/new media sector, often touted as the engine for future job growth.(23) While computer services has contributed disproportionately to recent job growth in the City, the Federal Reserve notes that the growth of the various sectors within the new media industry in New York City is comparable to national figures, and that much of the dramatic growth that has occurred in the field of technology has developed in conjunction with the City's existing, traditional media industry.(24) Thus, while hopeful in many ways, the technology industry alone can not be expected to create jobs and fuel the City's future economy. Furthermore, the industry's recent growth may not be sustainable, as representatives from new media groups have noted the housing affordability problems within the City. At an event organized by the New York New Media Association last year, panelists discussed that while New York City is a prime location to start a technology firm, growing firms most often look elsewhere to expand.
  • Movement to other areas in the region can hurt New York City, but perhaps an even greater source of competition comes from other regions in the country: Our survey respondents noted that more favorable housing conditions make areas such as the Southeast, the Southwest, and the Midwest, more attractive to firms than New York. This is nothing new, but with advances in communications and transportation technology, it could very well be a stronger threat. Even NYC's remarkable ability to attract international firms may be at risk, as other coastal cities with strong ties to foreign markets benefit from the City's unbearable housing strain.

C. Comparative Housing Costs

            1. Nationaland Regional Sales Trends

  • The current economic expansion has brought rapid growth in the nation's housing market: 1998 was a record year for new home sales. Last November, sales of new homes reached a record high, while sales of existing homes recorded a new seasonally-adjusted peak in December. In addition to record volumes of home sale transactions, national sales have also achieved rapid price growth in recent years. Though the rapid growth is expected to slow somewhat later this year or early next year, many of the economic and demographic trends fueling the booming housing market are expected to continue.
  • Regional sales have also been strong: According to data compiled by the New York State Association of Realtors, 1998 set a record in sales of existing single family homes, exceeding the previous record year of 1996 by 14.3 percent. The median prices of such homes in the State also rose in 1998, reaching $151,600 and reversing a 1990's trend of weak statewide house prices, though upstate prices continue to lag growth nationwide.(25)
  • The strong sales growth, a general indicator of national and regional housing markets, has been attributed to a variety of favorable fundamentals: Economic conditions such as job growth, wage gains, and strong stock prices have all aided the rapid pace of home sales. Demand has also been driven by demographic factors, as members of the baby boomer generation enter their peak home purchase age, and immigration expands the pool of potential home owners. Perhaps the most important driver of growth in recent years is the consistently low mortgage rates that have made home ownership more affordable.

           2. New York City Housing Costs in a Comparative Analysis

Against this backdrop of a booming housing market that seems to be creating opportunities for many across the country, New York City residents face increasing housing affordability strain. Certainly, cost burdens affect other areas across the country, but New York City's affordability problem is among the worst, particularly for renters who comprise a greater proportion of the total market than in any other major city--70 percent of the City's housing units are rentals. It takes increasingly greater financial resources to purchase a home in New York City, and rental units are difficult to obtain and afford.

  • The City has an increasingly high incidence of housing cost burdens: Generally, a housing cost burden exists when more than 30 percent of income is directed towards housing costs, and a severe cost burden is indicated where housing costs are in excess of 50 percent of income. With barely more than half of its residents living in affordable housing, New York City has more residents with housing cost burdens than many U.S. cities, and has an unusually high rate of severe housing cost burdens. Nearly one out of four (24.8 percent) households allocate greater than 50 percent of their gross income for housing.(26) Moreover, housing costs in New York City have become more of a burden over time, a fact captured in part by available Census data, but illustrated most intensely by more recent indicators of housing cost trends.

Severe housing burdens disproportionately plague low income New Yorkers, but moderate and middle income residents also commonly experience affordability problems. According to the most recent Census data, more than one out of every four households in the metropolitan area earning between $40,000 and $59,000 reserves over 30 percent of income for housing. The same can be said for more than one out of every ten households with annual income in the $80-100,000 range. Apparently, middle class status in New York does not shield households from housing affordability strain.

  • Unusually severe housing affordability problems plague owners and renters: Home-owners are affected by rapidly escalating home sales prices and mortgage payments that are higher relative to income than in any other major metropolitan area market,(27) while New York City's infamous rents push the area to the top of the list of most unaffordable rental markets in the country. Another data source indicates that New York City renters face the highest housing cost burdens relative to income in the country.
  • NYC ranked least affordable housing market for middle income earners: The E&Y Kenneth Leventhal Real Estate Group looks at housing costs faced by a middle management professional, computing housing cost to income ratios for 75 urban areas.(28) As Table 4 indicates, New York is currently rated the most expensive overall. Like other expensive cities (such as Boston, Los Angeles, and San Francisco), New York City currently has higher housing cost burdens for owners of single family homes than for renters. Still, the reason New York City is now rated the most unaffordable is its unrivaled rental housing costs. San Francisco has slightly higher home ownership cost burdens, but New York City's rents push its composite value to the top, earning it the worst ranking in the country. In the current tight market, housing costs for owners and renters are rising even higher throughout New York City.

Table 3

Housing Costs as a Percent of Income, 1998

Ranking (out of 75)

Single Family Home Rental Composite 1998 1997 1996
Houston 17.3 21.8 19.6 8 5 6
Dallas 17.8 21.7 19.7 10 8 11
Denver 18.3 23.5 20.9 20 6 4
Atlanta 20.0 22.5 21.3 23 17 18
Washington DC 20.6 22.0 21.3 24 32 28
Seattle 28.7 23.1 25.9 59 57 50
Philadelphia 25.5 29.8 27.6 62 61 61
Chicago 31.5 25.4 28.4 63 64 67
Miami 29.8 33.8 31.8 68 71 70
Boston 38.4 35.3 36.9 72 70 68
Los Angeles 38.7 35.7 37.2 73 73 72
San Francisco 45.5 38.8 42.2 74 75 74
New York City 45.3 41.8 43.5 75 74 75
Data Source: E&Y Kenneth Leventhal Real Estate Group.

IV. NYC Struggles with New Housing Development

A brief overview of national development trends puts the New York housing issue in perspective. Overall, the trends discussed below suggest that New York's performance is incongruent with national and regional trends, and given the composition of its housing stock, detrimental to housing access in New York. New York lags in production of new housing, and the housing stock deficit exceeds that of most cities. A number of factors unique to New York explain these trends, including the cost of land and labor, and government regulations.

A. National Building Trends

Nationwide, the real estate market is responding with new construction. In recent years the number of building permits, housing starts, and completions have all been on the rise. Following a year-long building boom in 1998, home construction starts reached a twelve-year high in January. But the trend is not occurring evenly across regions and types of housing, as single family homes and Southern regional building have dominated, while multifamily housing and construction in the Northeast have fallen behind.

  • For years, new construction of single family homes has dwarfed starts of multifamily homes: Multifamily units now represent a much smaller share of new construction than in the past, a trend largely linked to 1986 federal tax reforms that eliminated incentives to build multifamily housing, but also tied to shifts in national demand. Multi-family housing has declined from a peak in 1985 when this type of con-struction accounted for 38 percent of the nation's new housing, reaching a low of thirteen percent in 1993. In the past few years multifamily construction has started to rebound. Metropolitan areas in the Western United States lead the nation in new multifamily construction,(29) although multifamily and rental housing has started to pick up in local areas such as New Jersey, where demand for such units is changing traditional single family-dominated residential development patterns.
  • New construction is not occurring evenly across the country: Overall, the South has been dominating residential construction throughout the 1990s, reflecting an actual and anticipated shift in the location of housing demand. The area also has a greater availability of land, enabling the construction of popular lower density, single family housing. But the bulk of the new multifamily housing development is occurring in the South as well; 55 percent of the rental apartment units completed during 1998 were in the South, while the Northeast's share was a mere five percent.(30)
  • New York City historically lags behind national growth: Over the years New York City has exhibited one of the lowest construction rates of any United States city. Between 1985 and 1994, the City's construction rate was lower than that of every other large city with a growing population, and even lagged behind Boston and Chicago, two cities with declining populations.(31) Regional Finance Associates has evaluated metropolitan area housing markets over a three year period, and the data indicate that Los Angeles, San Francisco, and New York City are the farthest behind in new construction, with slightly less than half of New York City's new demand being satisfied.(32) Moreover, with the exception of Los Angeles, other cities with larger new demand than New York (Dallas, Chicago, Houston, and Washington DC) are managing to come much closer to providing a sufficient new supply.

Table 4

New Housing Supply and Demand

Metropolitan Area Supply Demand Supply Less Demand

Surplus/Shortfall as a Percent of New demand

Philadelphia 16,800 12,700 4,100 32.28
Hartford 3,900 3,200 700 21.88
Atlanta 54,800 48,000 6,800 14.17
Denver 19,400 19,000 400 2.11
Washington DC 34,700 35,400 -700 -1.98
Dallas 34,100 38,100 -4,000 -10.50
Chicago 35,100 39,300 -4,200 -10.69
Seattle 18,600 22,100 -3,500 -15.84
Miami 10,900 14,400 -3,500 -24.31
Houston 28,000 38,500 -10,500 -27.27
Boston 22,400 32,800 -10,400 -31.71
New York City 15,500 34,300 -18,800 -54.81
San Francisco 4,000 9,100 -5,100 -56.04
Los Angeles 11,300 41,700 -30,400 -72.90
Data Source: Regional Finance Associates analyzing Census Bureau Data.

B. New York City's Existing Supply Gap

  • For years, the supply of new housing in New York City has been insufficient both to meet the expanding demand, and to replace the aging and deteriorating housing stock: In particular, over the past two decades the City has produced far fewer units than in the middle of the century, when annual construc-tion rates were com-monly in the 35,000 range. Certainly, the number of construc-tion permit issuances and completions has fallen since the late 1980's. Although there has been some improvement over the past few years, the gains during the current economic recovery have not returned the City's housing development to its previous level.

According to the New York City Department of Buildings, 4,011 new building permits were issued last year, and January of this year saw a 34 percent jump in issuances, with construction distributed throughout the City. Building permits are a barometer of future construction plans, and while this recent growth represents improvement, it has still not reached a level sufficient to make up for years of decline.

  • Between 1980 and 1994, NYC actually experienced a net housing stock loss: During this time the new supply of housing was inadequate to offset the loss in the existing stock and the incremental population gains. Since 1994, a series of public and private revitalization initiatives have likely curtailed the number of dwelling unit losses, but the cumulative effects of the 49,600 unit loss between 1980 and 1994 still plague the City, and housing experts estimate tens of thousands of units are still in jeopardy of being dissolved from the housing stock.

Table 5

Change in New York City Housing Stock, 1960-1994

Year Dwelling Unit Additions Dwelling Unit Losses Household Gain or Loss Net Housing Additions
1960-1964 45,900



1965-1969 27,900



1970-1974 19,400



1975-1979 16,500



1980-1984 10,500



1985-1989 11,600 14,800


1990-1994 7,500



Data Source: Salins (1999).

C. Factors Limiting the Supply of New Housing in New York City

The economic recovery of the past five years has brought escalating housing costs, without triggering a comparable expansion in building. Our discussions with a range of experts in the field of housing and real estate suggest a consensus on the key factors limiting the supply of new housing in New York City.

The cost and availability of land(33): Particularly prohibitive in prime areas, the high cost of land is a direct result of the limited space available for new housing construction. Open space is one of New York City's scarcest resources, and its limited availability pushes total project costs up, driving developers to favor the construction of luxury residential buildings which are more likely to garner the required return on investment.

Land use regulations: Tied to the issue of land costs are the City's zoning regulations, a complicated and highly politicized matter. Community groups have opposed previous proposals for zoning reform because of concerns that opening the door to zoning regulatory change could result in uncontrolled development. New Jersey and other suburban areas therefore win out, because they routinely transform industrial or commercial space to build affordable market rate housing developments. In addition, given the high cost and limited availability of land in New York City, builders have an interest in maximizing the density on any development site, which can infuriate community groups concerned about sudden disruptions to the balance of neighborhood life. Absent a comprehensive reform of zoning regulations, builders have been successful at re-shaping New York City's zoning regulations in a piecemeal fashion, with a particular focus on waterfront areas.

Labor and materials: Though rarely identified as the sole impediment to development, costs associated with construction industry union labor are comparatively high, and the majority of housing developed in New York City is built with non-union labor. Although union labor costs are higher, most acknowledge that the quality of non-union work is generally lower, and costly corrections are not unusual upon completion of projects. Materials are another cost factor,(34) and overall, construction is hampered by the City's comprehensive building code regulations, which collectively increase the cost of production and often retard the progress of projects, posing threats to already-secured financing.(35)

Finance: Over the past decade, housing development in New York City has been severely constrained by limited access to financial resources. As mentioned previously, federal tax policy reforms enacted in 1986 removed incentives to invest in the construction of multifamily housing, and many in the finance community suffered from the plunging real estate market of the late 1980s and early 1990s. In the past few years, with the market rebounding strongly, banks and other financial institutions have started to re-enter the realm of housing finance, but builders note that banks are still extremely cautious in financing development loans, and developers appear to have common unmet equity needs. Uncertainty over finance is a particular problem for smaller developers, who often find it difficult to coordinate available finance with necessary regulatory approvals, especially when the pressure to build in time to capture the prime market is so great.

V. Public Policy and New York City Housing

With high development costs limiting the supply of housing, New York City has historically required a public sector boost to temper housing cost problems and stimulate new building. Below is a summary of the major public policies and government programs that have affected housing production and affordability for middle income earners in New York City. There are several distinct trends that can be observed to some degree on each level of government. One major thrust has been the devolution and privatization of public sector housing programs. Another trend has been a tightening focus of efforts on the areas of home ownership and low income needs.

A. Federal, State, and City Efforts in Middle Class Housing

            1. Federal Policy

Overall, federal housing policy emphasizes home ownership initiatives (with a renewed effort to support low and moderate income home ownership), and historically has also been concerned with low income rental housing. With a few exceptions, federal housing programs tend to favor demand side initiatives, exemplified most clearly by the home ownership incentive programs. The most expansive nationwide housing policy by far is the provision of federal home ownership incentives provided through the tax code. Tax incentives such as the mortgage interest tax deduction amount to over a hundred billion dollars in indirect federal expenditures each year, providing constant support for the demand for home ownership.(36) Home purchasing is further encouraged by the vast system of federally insured mortgage lending and the mortgage backed security market that channels private capital into the housing market by packaging loans that are sold as securities, most of them tax-exempt. The guidelines for federally insured lending programs have been liberalized in recent years, and upper sales price limits are now approaching $200,000, though even with modification the limits render many New York City area households and homes ineligible for participation.

A secondary area is programmatic and block grants to states and localities. New York City is also the beneficiary of federal assistance for public housing, and the City's Housing Authority administers federally funded Section 8 vouchers.(37) Both of these rental housing supports are in short supply, with waiting lists of around eight years. Congress recently authorized 90,000 additional Section 8 vouchers nationwide, though it is unclear how many will be allocated to New York City. Housing experts note that the federal government's commitment to housing development is both limited and waning, a serious problem for New York City given its dependence on funding through programs such as Community Development Block Grants (CDBG) and HOME.(38)

Another low income program, the Low-Income Housing Tax Credit (LIHTC) is one of the few supply side federal housing initiatives. Established in 1986, the tax credit program encourages investment in the construction and rehabilitation of housing units for tenants earning less than 50 or 60 percent of area median income. Though popular with corporations (especially those which purchase the credits through syndication) and low income advocates, the tax credits have been threatened by some vocal opponents.

While federal housing policies address important areas, the needs of middle income groups in high cost areas are often neglected. New York City is disadvantaged by the largest federal housing assistance tool (mortgage interest rate deductions) because its housing market is uniquely dominated by rental, not home owner units. Moreover, while public investment is desperately needed, the concentration of direct outlays exclusively on low income programs is short sighted given the private market's inability to provide adequate levels of middle income housing in places like New York.

            2. State Policy

In addition to its historic commitment to the construction of public housing, in the past New York State has had extensive involvement in private housing construction. By far, the largest such initiative was the Mitchell-Lama Program, enacted in 1955. Offering developers low-interest loans and property tax exemptions, the program was responsible for the creation of approximately 150,000 apartments throughout New York State. At present approximately 125,000 rental and co-op units in New York City remain in the program. As part of the arrangement, landlords were required to hold down rents and restrict admission to moderate to middle income households for at least 20 years.

Twenty-one years after the last Mitchell-Lama building was constructed, nearly all of the developments are now eligible to prepay their mortgages and "buy out" of the program. The future of the units is unclear; members of the State Assembly have proposed legislation that would delay the buyouts, securing the homes of the largely moderate income residents. Although audits by the State Comptroller have called into question some of the financial and management practices of the private companies that own the developments,(39) the production program is highly regarded as an efficient initiative that created urgently needed housing for middle class residents, who have served as a stabilizing force in numerous communities.

Since the end of the Mitchell-Lama construction era, New York State has been involved in housing programs on a much smaller scale. The Division of Housing and Community Renewal (DHCR) offers minor housing assistance programs, largely targeted to homeowners and the elderly. The State also coordinates its own discounted mortgage lending programs through the State of New York Mortgage Agency (SONYMA). DHCR currently has a housing development initiative designed to encourage the construction of low income units. The agency is also responsible for administering the State's rent regulation policies.

A subsidiary of the State Housing Finance Authority, the Affordable Housing Corporation has a program which works with local governments and non-profits to provide home ownership acquisition assistance to middle income residents. Although the rules are flexible, the program's use has been limited to 1-4 family homes, and it has not supported multifamily home ownership through co-op and condo purchases. Moreover, until this year the program's funding level had been held constant at $25 million, unchanged since its inception 13 years ago.(40) Though small, the program is a good model that could be expanded to meet growing needs across the State.

In general, housing has not been a top priority under the current administration. The Governor's most recent "State of the State" address was almost entirely silent on the issue, with the only housing reference pertaining to property tax cuts which aimed at reducing local school funding burdens. Statewide property tax reductions are a popular measure, though they have a limited capacity to impact the housing supply in the New York City area. Moreover, a 1997 audit observed that the current process of selecting housing-related projects in New York does not prioritize those that address the most serious housing needs of the State.(41)

            3. New York City Policy

In recent years, New York City's investment in housing has been significant. The Koch 10 Year Plan, which spanned the years 1986 to 1995, injected $4.2 billion from the City's capital budget into housing efforts that were coordinated through intermediaries. As a percent of the City's capital budget, housing allocations rose from two percent 1986 to 16 percent in 1991-1992. However, capital expenditures have declined since then, and no such comprehensive plan has been enacted to follow up the previous investment.(42) Still, New York City has successfully transformed some dilapidated and abandoned buildings into viable housing, urgently needed by low and moderate income residents.

Helping to spearhead a national trend, New York City has also developed an increasing reliance on public-private partnerships, which are driven by the unusual concentration of sophisticated non-profit organizations in the City. Both tied to specific communities and functioning citywide, these groups have brought vision and cooperation, replacing the dissipating commitment of the federal government and using housing improvements to leverage broader community economic growth. During the 1990's these partnerships have also driven New York City's shift in focus from rental to home ownership programs, frequently in conjunction with City efforts to reduce in rem housing stock holdings.(43)

Despite the success of many rehabilitation and low density new construction programs, the gradual erosion of New York City's housing stock has necessitated the enactment of policy designed to leverage private investment in higher density multifamily housing. In the 1990's, a primary vehicle for such development has been the packaging of tax credits, property tax abatements, and tax-exempt development mortgage finance assistance. Typically, the buildings developed with such subsidies follow the "80-20" model, where 20 percent of the units are reserved for low income tenants while the remaining 80 percent are rented at market rate.(44)

While the 80-20 developments allow NYC developers to build a modest number of low income units with the aid of federal incentives, the program has been criticized because the bulk of the housing created is high priced, luxury rental units that are overwhelmingly concentrated in Manhattan's prime areas. Moreover, the low income units are temporary; the program only requires the developers to provide 15 years of occupancy for eligible tenants. Additional critiques of the tax credit program have noted other inefficiencies, as roughly half of the tax credits are absorbed by transaction costs and investor profit.(45) Perhaps most importantly, the structure of the 80-20 program is not conducive to housing development outside Manhattan, where market rate rents are insufficient to support the subsidization of low income units.

In the past two years the New York City Housing Development Corporation (HDC) has experimented with a new approach to boosting multifamily housing. Known as the New Housing Opportunity Program (New HOP), the initiative provides a shallow subsidy in the form of a low-interest second mortgage for the development of new middle income housing. The primarily rental units are made available to households earning up to 250 percent of area median income (in 1998, a maximum of $124,500), though HDC reports that most tenants have incomes in the $50,000 to $70,000 range.

The scope of the program is small; a little over a thousand units have been completed or are in some stage of development. HDC hopes to moderately expand the program in coming years, as the relatively rapid lease-up rate of the completed projects suggests a pent up demand for such units. Several important factors constrain further growth of the initiative, not the least of which is the availability of reasonably priced land for development. Equity requirements also appear to limit the pool of potential developers. Still, the program is a positive alternative to the still dominant policies that pair low income and luxury housing development, and it has been successful in creating new housing throughout the City.

B. Proposed Remedies to New York City's Middle Class Housing Affordability Problems

Citing the economic development concerns and public policy shortcomings outlined above, several groups have proposed thoughtful remedies to New York's problems of housing supply and affordability for middle income earners. Some of these ideas have been introduced in published reports, while others have been suggested to us during interviews with experts in the field of housing, and additional approaches come from initiatives that have been introduced in other parts of the country. Most of them are tied to an assumption that modest mortgage assistance is not enough to spur development; some form of subsidy is also necessary.

            1. The Task Force on Middle-Income Housing

Formed as a joint effort of the New York Housing Conference and the Citizens Housing and Planning Council and comprised of experts in the fields of policy, finance, and construction, the Task Force recently unveiled a powerful proposal for the creation of a State-wide middle income housing program.(46) Largely resembling HDC's New HOP initiative, the Task Force program would have the State provide a shallow subsidy to trigger new housing development in high cost areas, specifically in the downstate region. While the group applauds innovative programs that target low income populations and initiatives that strive to build low density home owner housing for moderate income residents, they perceive a great need for higher density housing (both rental and home owner) attractive to households earning up to 250 percent of area median income.

The fundamental idea of the program is to stimulate private sector development in a cost-effective way. New York State, acting through state or local housing development agencies, would help close the cost of development by "bridging the gap" between the costs of development and that which middle income households can reasonably pay in the current market. Subsidies would be in the form of capital grants or low-interest loans, financed through a combination of taxable and tax-exempt bonds, and would be granted to for-profit and not-for-profit corporations that agree to create housing in accordance with the terms of the program.

The program would allow for considerable flexibility for local housing agencies (though the subsidies would not be usable for the section of Manhattan below 96th Street in most cases), and would set an income eligibility limit at seven times the rent. According to this schedule, a two bedroom unit renting at $1,200 a month would be available for households with an annual income up to $100,800. Home owner units would also be subject to a subsidy recapture provision.

            2. The New York City Council

The Council's proposal has grown out of its recent work on the shrinkage of New York City's middle class. Detailed in press releases and its 1999 Legislative Agenda issued earlier this year, the Council plan would create a Housing Trust Fund for Middle and Moderate Income Housing Construction, with debt backed by tax revenue generated from the proposed privatization of the World Trade Center.(47) The fund would use the City's expected real estate tax revenue to spur the development of 15,000 middle income and 5,000 moderate income housing (primarily rental) units in five years.

Again, the fund would follow the model established by the HDC middle income program, expanding it on a much larger scale. The State Legislature would create a local public benefit corporation within the City, designed to make capital grants or low interest loans to encourage new housing construction, with preference going to non-profit developers. The total cost of the subsidies would be in the $625 million to $1,075 million range, or $125 million to $215 million a year over a five year period.

As added support, the Council proposed a series of programs designed to support first-time home buyers with the use of tax incentives, including a phasing-out of the city and state mortgage recording tax for condominiums and 1-3 family homes valued at $350,000 or less. Other proposals are to establish tax incentives to encourage home ownership savings accounts, and to provide first-time home buyers with one year of real estate tax exemption.

            3. The New York State Assembly

Chaired by Assemblyman Vito Lopez, the New York State Assembly Housing Committee has included several initiatives in support of middle income housing in its "Build New York" proposal, including the commitment of additional funds for the Affordable Housing Corporation's Home Ownership Development Program(48) and several other home ownership and community based programs. Last March Assemblyman Scott Stringer, a member of the Committee, introduced his own plan for affordable housing development, proposing that New York State authorize a bond act to finance $1.5 billion in new housing construction and rehabilitation programs over ten years. As an additional source of affordable housing funds, Stringer's plan would also spur private investment through a program that would apply Community Reinvestment Act-inspired requirements to the New York State insurance industry. According to Stringer's report, a similar initiative in California channeled $44 million into housing and community development projects in 1997, its first year of existence.

            4. Other Proposals

Others have proposed similar subsidies to boost middle income housing production, but with different sources of financing. For example, the New York Housing Conference has called on the State to direct a portion of its current budget surplus toward investment in affordable housing programs.

believe the State can do more to aid home buyers with targeted mortgage assistance. New York is among the many states that provides low-interest mortgage assistance to qualified buyers similar to federal loan programs. Recognizing the strain faced by residents in less affordable areas, the New York State Mortgage Agency (SONYMA) has significantly higher purchase price limits for New York City and other downstate regions. Still, other states have gone further to make such assistance accessible to potential home owners in high cost areas. As part of its "high-cost area" strategy, California's Housing Finance Authority offers loans to residents earning up to $108,080 (for a three person family), with eligible purchase prices much higher than the maximum allowed in New York.(49) And while New York State's purchase price limits have been raised in recent years, they continue to be too low to qualify for the purchase of many NYC homes. Moreover, the maximum allowable income for eligible home owners in the City is $75,040; Westchester residents are permitted to have incomes as high as $111,860 in some cases.

One innovative suggestion is for the City to capitalize a trust fund with concessions from other market rate developers who negotiate with the City over zoning and building code regulations. Currently, concessions for such exceptions often come in the form of a dedicated public space adjacent to the new development. Another proposal is to fund housing development programs in conjunction with a gradual phasing out of rent stabilization and Mitchell Lama rent restrictions. Both of these ideas are tied to the belief that freeing up the market will relieve housing affordability strain, but only if a new construction boost is added to encourage the development of quality housing for a broader range of incomes.

Developers could also be encouraged to build new housing with assistance such as sales tax exemptions on materials to prime the private construction pump. Similar exemptions have been used by federal, state, and local governments interested in job creation and economic development. A tax-free zone program was recently developed in Pennsylvania which will use these types of incentives to boost residential development, as well as industrial and commercial growth in targeted areas.(50)

Others firmly state that public subsidies, in whatever form, will be used inefficiently unless the City undergoes a comprehensive revamping of zoning and building codes.(51) Noting that other cities have been more flexible in allowing more classes of cost-effective structures, developers and other groups point out that City and State restrictions are often redundant. These issues have been vigorously debated for years, and may continue to be a matter of contention for many more. Still, the recent affordability crunch should lead all New Yorkers to think seriously about how the City can build housing for its residents in a way that builders and community residents can agree upon.

C. Preliminary Recommendations

The time to consider the relative merits of proposed solutions is now; New York City is not likely to have a more favorable window of opportunity for quite a while. Positive conditions for expanding the City's housing opportunities include the region's relatively strong job market, low interest rates, and a variety of other economic and demographic factors spurring demand. In addition, a series of public and private investments in many neighborhoods have enhanced the overall attractiveness of multiple areas throughout the City. Targeted housing investments would reap great benefits, adding to other revitalization efforts already underway.

Certainly, the cost of a more comprehensive housing investment policy is a real deterrent, but the City and State have played more active roles in housing production in the past, with considerable success. Added investment is also justified by the vast level of public resources dedicated for other economic development efforts. Middle income housing warrants more careful attention. A modest number of low income units are currently produced with the aid of tax credits (and with the expertise of sophisticated intermediaries who guide projects through the complex regulatory system), and luxury units are produced because developers are enticed by the potential for great returns. Middle income development, especially in the boroughs outside Manhattan, is trapped in between these two extremes.(52) Given this framework, our recommendations are as follows:

  1. New York State should recognize that the crisis of downstate housing affordability is an important issue for the State's overall economic health, and commit additional funds and provide incentives for middle income housing.

The problem will continue to impact the entire State, as commercial and industrial firms relocating to New York City's suburbs often look next to move outside the region and the State. New York State must increase funding for its middle income programs, such as the Affordable Housing Corporation's Home Ownership Development Program, and restructure SONYMA's income and sales price guidelines to reflect the high cost of housing in all downstate regions. Residential development incentives may also include breaks in sales taxes for building materials. Additionally, statewide policies, whether targeting home owners or renters, must be designed to accommodate New York City's dominant multifamily housing market. Overall, New York should develop a more coherent housing policy which targets the needs of low and middle income families throughout the State, in conjunction with local programs that attempt to address similar issues.

  1. New York City must re-evaluate its own housing priorities, and consider expanding new uses of bond-financed subsidies for housing production.

The City should develop more efficient policies, so that it is able to generate the maximum number of units for the greatest number of residents in need of affordability assistance. The Housing Development Corporation's New HOP initiative has provided a strong alternative model for new housing development assistance. The City should extend its commitment to such programs, and consider additional capital expenditures comparable to previous investments. In addition, the City should view housing as an economic development issue, and examine other economic development expenditures in light of evidence suggesting that the tight housing market is a significant force limiting New York's ability to pursue economic growth strategies. Unlike many other economic development expenditures, investment in housing benefits firms of all sizes, and supports industries at all stages of growth.

  1. New York City should examine the extent to which its building codes, zoning regulations, and housing subsidy policies exhibit a Manhattan-bias, and serve to limit housing production in other boroughs.

Two examples of public policies that temper Manhattan's housing cost problems at the expense of the boroughs are the 80-20 incentive program, which has almost exclusively aided Manhattan development, and the City's coop/condo tax abatement reforms.(53) Ultimately, Manhattan can realistically become only so densely populated. The intensity of struggles over the development of what open space still remains suggests that this part of the City may be approaching its maximum residential capacity. Eventually, borough development must happen. As part of this process, the City should also explore how smaller builders are disadvantaged by factors such as the difficulties associated with coordinating various sources of finance, lengthy regulatory approval processes, and complex public subsidy programs. These smaller developers are more numerous outside Manhattan, are eager to participate in the creation of affordable housing, and should be enabled to play a larger role.

  1. New York should explore ways to make housing more attractive to the New York City investment community.

There is a great potential for more innovative partnering of public and private investments. Partnerships could be established to encourage more creative developments of equity pools. The private sector could be involved in the creation of a housing trust fund.(54) A more comprehensive infusion of public resources would be most effective if linked to private efforts designed to catalyze housing creation. Private housing finance has also been deeply affected by federal tax reform. In light of recent development trends in New York City, we need to re-examine how the 1986 federal tax reform that removed incentives to invest in multifamily housing skews the mix of housing developed in favor of urgently needed low income housing, but at the expense of middle income housing. Overall, tax credits must be utilized in the most efficient and effective manner possible.

  1. In order to secure the existing housing stock, New York should continue to develop innovative and diverse partnerships that encourage rehabilitation.

Although some initiatives designed to return the City's in rem housing stock to productive use have proven successful, both the City and State must do more to encourage regular investment of capital in older properties. If this area is neglected, these structures will deteriorate further, and future rehabilitation projects will be more costly. One approach to this problem would be to identify common investment needs of older buildings, such as plumbing and electrical wiring, and develop a comprehensive city-wide initiative to address the problem. Owners of rental and coop/condo buildings urgently need assistance to structure and coordinate rehabilitation projects. The creation of new housing will be most effective if rehabilitation policies provide an incentive to maintain older units, allowing New York to prevent costly deterioration in dis-invested neighborhoods and provide more quality housing choices for all.

  1. The City and State should work together to make programs as clear and accessible as possible to all communities, residents, and not-for-profit and for profit developers of all sizes.

Through devolution and privatization, housing policy implementation in New York City has been decentralized. Unfortunately, one result of this gradual policy shift has been less clarity of mission and outcomes for the City and State's overall housing program. In general, an expedited process, better coordination among various housing agencies, and improved public disclosure would allow public investments to stretch farther, providing a more permanent solution to the problem. Regulatory barriers must be tempered. In addition, middle income programs should be able to be integrated into broader community housing strategies, supporting previous investments in low and moderate income units. As an example, some of the new housing built through HDC's New HOP could be targeted specifically for development in mixed income communities. Wherever new housing is built, public agencies need to pay careful attention to how the development will impact existing physical, social, and economic life in the area.

  1. Overall, New York City and New York State must seriously consider reforms proposed by public and private groups.

As part of this effort, all housing programs should be subject to closer monitoring of policy quality. Middle income housing development subsidies are recognized as efficient uses of public funds, and added investment is urgently needed. These subsidies should supplement programs designed to relieve lower income housing affordability stress, and should be designed to provide additional affordable housing options for New York City residents and workers.

Appendix A

American Housing Survey

Percent of Households with Housing Cost Burdens 1985-1996

(Cities were surveyed in different years)


1989-1991 1985-1987
Share of Income Going Towards Housing Share of Income Going Towards Housing Share of Income Going Towards Housing
0-29% 30-49% 50% & Up MEDIAN 0-29% 30-49% 50% & Up MEDIAN 0-29% 30-49% 50% & Up MEDIAN
Atlanta 57.0 24.5 18.5 26 60.9


16.6 26 58.6 22.4 19.0 26
Boston 51.8 25.1 23.0 29 54.6 24.5 20.9 28 61.0 22.2 16.8 26
Chicago 59.9 22.6 17.5 26 58.8 21.2 20.0 26 56.6 22.5 21.0 27
Dallas 67.8 20.6 11.5 23 68.6 18.1 13.3 22 64.8 24.0 11.2 23
Denver 71.0 18.8 10.2 23 64.8 20.4 14.8 24 66.4 20.1 13.5 23
Hartford 51.8 24.6 23.6 29 48.6 23.7 27.6 31 46.2 23.3 30.5 29
Los Angeles 47.2 26.8 26.0 32 55.1 23.6 21.3 28 57.8 23.1 19.1 26
New York City 53.3 21.9 24.8 28 58.5 22.6 18.9 26 58.3 22.1 19.7 26
Philadelphia 60.2 19.0 20.7 25 66.9 16.8 16.3 20 67.6 16.5 15.9 22
San Francisco 51.5 26.8 21.7 29 50.7 25.1 24.2 30 59.7 23.8 16.5 26
Seattle 62.3 18.8 18.9 25 69.4 18.1 12.5 23 64.1 22.4 13.5 24

Washington DC

62.5 21.5 16.0 26 62.0 22.2 15.8 25 66.0 20.3 13.7 24
Data Source: U.S. Census Bureau.

Appendix B

Housing Cost and Business Development Survey

NAME OF PERSON COMPLETING SURVEY_______________________________


1. Site Selection Factors

a. Please indicate the FIVE factors you regard as most significant for your business in evaluating a decision to locate or expand in a given area (circle and rank your top five choices):


Business climate of area          Image or prestige of area       Housing costs

Labor costs                              Transportation network          Housing quality

Labor skills                              Other area infrastructure        Housing availability and choice

Land/Lease costs                      Taxes and regulations             Proximity to residence

Land/Space availability                                                           Other:__________________

Proximity to markets

b. Why do firms choose to locate or expand in New York City? (Please explain)



c. What are the main reasons firms may choose not to locate or expand in New York City?



2. Housing

a. How important are the following housing factors in your firm's decision to locate in a given area? (Please rate each factor by checking one of the three choices)

Very Important Somewhat Important Not Important
Availability and Choice
Proximity to Work


b. Do you have difficulty recruiting or retaining certain types of employees because of housing conditions in New York City? YES   NO

Please explain:_____________________________________________________________

c. Do you believe the housing supply or the cost of housing impairs New York City's ability to pursue the following business development strategies?

YES   NO    Attraction of firms established elsewhere        YES NO Expansion of existing firms

YES   NO    Retention of existing firms                                YES NO Development of new firms

d. Are there other areas in the region that seem more attractive than New York City because of more favorable housing conditions?   YES NO   Please list and explain:



e. Are there other regions in the country that seem more attractive than New York City because of more favorable housing conditions?   YES NO   Please list and explain:__________________________________________________________________


3. Company Information

a. Please indicate the major industrial areas of your company (circle each category that applies):

Export                                             Local                                         Government

Securities                                        Health Services                        Government

Hotels                                              Social Services

Banking                                           Construction/Mining

Other Finance                                  Retail Trade

Business Services                           Wholesale Trade

Professional Services                     Transportation

Culture and Media                          Other Services



b. Please list the three most common occupations of your employees, and the income range for that occupational class at your company:

                    OCCUPATION                                      INCOME RANGE

1. _______________________________   ________________________________

2. _______________________________   ________________________________

3. _______________________________   ________________________________

1. Report No. 2-2000, Deterioration of Public Housing in the State and City Projects Operated by the New York City Housing Authority and Report No. 8-99, Public Housing at the Crossroads.

2. See our Report Nos. 6-99, New York City's Economy Booming, But Weaknesses Lie Ahead; 9-99, Review of the New York City Financial Plan for Fiscal Years 1999 Through 2003 ; and 10-99, Recent Trends in the New York City Economy, for a more detailed economic overview.

3. The 1996 survey results appeared in the November 11, 1996 issue of Fortune, and were discussed in Daniel Gross's article, "How Fortune Magazine Blew Its Ratings of Best Business Cities," Home Economics: Monthly Observations from the Partnership Policy Center, December 1996. Results for 1998 appeared in the November 23, 1998 issue, which stressed the attractiveness of more affordable, Western cities with technology-driven economies.

4. Council for Urban Economic Development, "Rising Economic Tide Isn't Lifting All Boats: Cities Not Necessarily Feeling Benefits of Strong Times," Economic Developments, Volume XXIII, No. 22, 1998.

5. Data compiled by Case, Shiller, and Weiss.

6. Michael H. Schill and B. P. Scafidi, "Housing Conditions and Problems in New York City," in Schill (Ed.), Housing and Community Development in New York City: Facing the Future, Albany: SUNY Press, 1999.

7. New York City Council, Hollow in the Middle: The Rise and Fall of New York City's Middle Class, December 1997.

8. New York City Council, New York City's Middle Class: The Need for a New Urban Agenda, December 1998.

9. In 1998, the area median household income for New York City was $49,800.

10. Mary McAleer Vizard, "In the Region: Westchester and Putnam Post Record Housing Sales," The New York Times, February 14, 1999; Dennis Hevesi, "In the Suburbs, the Only Direction Is Up," The New York Times, March 21, 1999; Lisa Prevost, "Choosing the House Over the Address," The New York Times, May 9, 1999.

11. The following articles further develop the concept of "social capital" in this context: Susan Saegert and Gary Winkel, "Social Capital and the Revitalization of New York City's Distressed Inner-City Housing," Housing Policy Debate, Volume 9, Issue 1, 1998; Roberto G. Quercia and George C. Galster, "Threshold Effects and the Expected Benefits of Attracting Middle-Income Households to the Central City," Housing Policy Debate, Volume 8, Issue 2, 1997; Peter Rossi and Eleanor Weber, "The Social Benefits of Homeownership: Empirical Evidence from National Surveys," Housing Policy Debate, Volume 7, Issue 1, 1996.

12. Alex Schwartz, Bill Traylor, and Michael Bornheimer, At the Crossroads: The Economic Impact of New York City's Housing Investments, a Report by the Local Initiatives Support Corporation and the Community Development Research Center, 1997. Also see: Kathryn Wylde's article "The Contributions of Public-Private Partnerships to New York's Assisted Housing Industry," in Schill, supra note 6.

13. American Chambers of Commerce Research Association, "ACCRA Cost of Living Index," 1998.

14. Regional Plan Association, A Region at Risk: The Third Regional Plan for the New York-New Jersey-Connecticut Metropolitan Area, 1996.

15. Area Development, "1998 Annual Corporate Survey", December 1998. A recent study conducted by Indiana University's Real Estate Research Institute also found that firms extremely dependent on a skilled labor force will increasingly view housing quality, access, and affordability as important factors: Strategy, Location, and the Changing Corporation: How Information-Age Companies Make Site Selection Decisions, 1997.

16. Center for Real Estate and Urban Economics, "Housing Prices, Other Real Estate Factors, and the Location Choice of Firms," Quarterly Report, 1993 (3).

17. The survey, which is presented in Appendix B, was conducted in the fall of 1998.

18. Mary McAleer Vizard, "Commercial Property: Big Corporate Shifts Raise Office Vacancies to 18%," The New York Times, January 3, 1999.

19. Rachelle Garbadine, "In Downtown Newark, Hopeful Signs," The New York Times, December 20, 1998. Also: "New Jersey: After a Lull, a Comeback for Morris County Offices," February 14, 1999.

20. John Holusha, "On the Hudson's West Bank, Optimistic Developers," The New York Times, October 11, 1998. Also: Randy Kennedy, "The LeFrak Legacy: In New Complex, Builder Seeks Status as Visionary," The New York Times, December 31, 1998.

21. Lore Croghan, "Merill Eyes NJ Deal: Broker Will Move Workers from City, Jersey Locations to New Office Tower on Banks of Hudson River," Crain's New York Business, December 14-20.

22. The New York Times reports that 43 companies have received $1.5 billion in tax breaks, cash, and subsidized electricity in retention deals brokered by the New York City Economic Development Corporation under the Giuliani administration. See: "CBS Gets New $10 Million Tax Cut to Stay in New York," January 29, 1999.

23. The other four industries EDC has targeted for firm recruitment are Professional Services, Media/ Entertainment, Biotechnology, and Finance/Insurance/Real Estate.

24. The Federal Reserve Bank of New York, "New York City's New-Media Boom: Real or Virtual?," Current Issues in Economics and Finance, October 1998. Technology growth has also been tied to the City's FIRE industry. Clearly, other cities are generating "high tech" jobs as well. Newsweek's recent listing of "Hot New Tech Cities" didn't even mention New York.

25. Federal Reserve Bank of New York, "Second District House Prices: Why So Weak in the 1990's?" Current Issues in Economics and Finance, Second District Highlights, January 1999.

26. See Appendix A for comparative data from the Census Bureau's American Housing Survey.

27. According to survey and Census data compiled by Chicago Title and Trust, the average mortgage payment for buyers in the New York City metropolitan area was 38 percent of after-tax income in 1998. The average for first time buyers was even higher (39.8 percent of after-tax income).

28. Using income data from HUD, home ownership cost data from Coldwell Banker, and rental housing cost data from CB Richard Ellis, E&Y evaluates the ability of a person earning an area median income to afford a standard single family home of a certain size and an apartment with certain amenities.

29. According to U.S. Housing Markets, both the Dallas and Houston metropolitan areas issued permits for over 21,000 multifamily units each during 1998. During the same period, the New York City-Long Island area issued 11,031 permits.

30. U.S. Census Bureau, Survey of Market Absorption, 1998. The Northeast has a slightly larger share of new condominium apartment completions, but this category represents a small share of the total new multifamily housing units.

31. Peter D. Salins, "Reviving New York City's Housing Market," Chapter 2 in Schill, supra note 6.

32. The group estimates demand to be net household formation, building for second homes, and the loss of existing housing stock. Supply is equal to new unit completions and mobile home shipments. Supply and demand have been evaluated over a three year period using Census data.

33. For a more thorough discussion of this and other development cost factors, see "Reducing the Cost of New Housing Construction in New York City," A Report to the New York City Partnership and the New York City Department of Housing Preservation and Development, prepared by Jerry J. Salama, Michael H. Schill and Martha E. Stark, 1999.

34. The current regional building expansion may have worsened the situation, as shortages of materials have reportedly raised costs even further. See Dennis Hevesi, "Shortages are Slowing Construction of Homes," The New York Times, September 26, 1999.

35. The recent debate over mandating the installation of sprinklers in new multifamily buildings illustrates the tension between well-intentioned safety measures and significant incremental increases to the cost of production. Amidst heated controversy, the bill was passed by the City Council in March, 1999.

36. See "Tax Expenditures," in Van Vliet (Ed.), The Encyclopedia of Housing, Thousand Oaks: Sage, 1998.

37. For additional information on public housing see Report No. 2-2000, Deterioration of Public Housing in the State and City Projects Operated by the New York City Housing Authority, and Report No. 8-99, Public Housing at the Crossroads: Bricks, Mortar, and Public Policy at the New York City Housing Authority.

38. Victor Bach, "The Future of HUD-Subsidized Housing: The New York City Case," and Alex F. Schwartz & Avis Vidal, "Between a Rock and a Hard Place: The Impact of Federal and State Policy Changes on Housing in New York City," Chapters 6 and 9 in Schill, supra note 6.

39. See audit report 97-F-1, "New York City Department of Housing Preservation and Development: Oversight of Mitchell-Lama Housing Development Reserve Accounts"; No. A-9-94, "Oversight of Mitchell-Lama Housing Developments Needs to be Strengthened to Ensure That Reserve Accounts Meet Future Needs"; and No. 92-S-86, "Division of Housing and Community Renewal: Oversight of Mitchell-Lama Housing Replacement Reserves."

40. Recognizing the success of the program, State legislators authorized the first expansion in funding for the 1999-2000 budget. The Program's funding was increased $3.5 million to a level of $28.5 million.

41. Office of the State Comptroller Report No. 95-S-119, New York State Division of Housing and Community Renewal: Selecting Housing Projects for Funding, 1997.

42. Scwartz & Vidal in Schill, supra note 6.

43. Schill estimates that 225 community based organizations own and manage housing units in NYC. For additional information on the City's in rem policies, see Frank P. Braconi, "In Re In Rem: Innovation and Expediency in New York's Housing Policy," Chapter 4 in Schill, supra note 6.

44. Not all tax credits are used to finance 80-20 developments. Through syndication, credits are also used by non-profits to produce housing developments with more units reserved for low income households. Through the Section 421a tax certificate program, low income builders can also sell tax abatement benefits.

45. Office of the State Comptroller Report No. 95-D-29, Division of Housing and Community Renewal: Study on the Low Income Housing Tax Credit Program, 1996.

46. Report of the Task Force on Middle-Income Housing, September 1998.

47. New York City Council, 1999 New York State Legislative Agenda. See also, Daniel Kruger, "N.Y.C. Council May Ease Housing Needs with New Agency," The Bond Buyer, January 13, 1999.

48. The proposal calls for an increase in funding from $25 to $60 million.

49. California Housing Finance Agency, "Single Family Programs for Homeownership." The Agency also provides high cost areas an extra boost by providing eligible home owners with lower interest rates.

50. Dan Hardy, "Tax-free Zone Program Inaugurated in PA," The Philadelphia Inquirer, February 26, 1999.

51. The report to the New York City Partnership and the Department of Housing Preservation and Development includes detailed recommendations and lists them by implementing body.

52. There is obviously still a great need for improved public policy that addresses the housing situation facing lower income groups, particularly in light of recent developments in welfare and public housing reform.

53. New York City Independent Budget Office, The Coop/Condo Abatement and Residential Property Tax Reform in New York City, December 1998.

54. California has been successful in encouraging the private sector to help aid housing affordability strain, as companies and individuals in the Silicon Valley region have capitalized a private Housing Trust Fund.