No Room for Growth: Affordable Housing and
Economic Development in New York City
H. Carl McCall
Office of the State Deputy Comptroller for
the City of New York
I. Executive Summary
II. Housing Costs and Economic Development
A. Background: New York
B. Short Term Effect:
Depleting the New York City Workforce
III. Survey on Housing Costs and Economic
A. Survey Findings
B. Additional Evidence
of a Threat to New York City's Economic Growth
C. Comparative Housing
IV. New York City Struggles with New Housing
A. National Building
B. New York City's Existing
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
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
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
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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
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.
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
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
- An analysis of the short term and long term
impacts of housing affordability strain.
- Background on recent national and local housing
- 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.
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.
Fastest Growing Occupations and Median Wages
|Systems Analysts, Electronic Data Processing
|Personal and Home Care Aides
|Physical and Corrective Therapy Assistants and Aides
|Teachers, Special Education
|Human Services Workers
|Data Processing Equipment Repairers
|Engineering, Mathematical and Natural Sciences Managers
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.
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.
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
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
- 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.
- 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.
- Reflecting the national shift in business location priorities,
labor skills were most commonly cited as a significant factor
driving site selection.
- 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).
- 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
Housing Cost and Business Development Survey
|Is employee recruitment/retention difficult
because of housing?
|2. ECONOMIC DEVELOPMENT
|Does housing supply/cost of housing impair
NYC's ability to...
|...attract firms established elsewhere?
|...encourage expansion of existing firms?
|...retain existing firms?
|...develop new firms?
|3. MOST IMPORTANT SITE SELECTION FACTORS
|Business Climate of Area
|Land Lease Costs
|Taxes and Regulations
|4. IMPORTANCE OF HOUSING FACTORS IN
|Availability and Choice
|Proximity to Work
|5. OTHER AREAS
|Other areas in region more attractive than
NYC because of housing?
|Other regions in country more attractive than
NYC because of housing?
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
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.
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.
Housing Costs as a Percent of Income, 1998
Ranking (out of 75)
|New York City
Data Source: E&Y Kenneth Leventhal Real Estate
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.
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
- 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.
New Housing Supply and Demand
||Supply Less Demand
Surplus/Shortfall as a Percent
of New demand
|New York City
Data Source: Regional Finance Associates analyzing
Census Bureau Data.
- 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
- 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.
Change in New York City Housing Stock, 1960-1994
||Dwelling Unit Additions
||Dwelling Unit Losses
||Household Gain or Loss
||Net Housing Additions
Data Source: Salins (1999).
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.
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.
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
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.
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
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
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.
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:
- 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.
- New York City must re-evaluate its own housing priorities,
and consider expanding new uses of bond-financed subsidies for
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.
- 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.
- 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
- 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.
- 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.
- 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.
American Housing Survey
Percent of Households with Housing Cost
(Cities were surveyed in different years)
||Share of Income
Going Towards Housing
||Share of Income
Going Towards Housing
||Share of Income
Going Towards Housing
|New York City
Data Source: U.S. Census Bureau.
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
Labor costs Transportation
Labor skills Other
area infrastructure Housing
availability and choice
Land/Lease costs Taxes
Proximity to residence
Land/Space availability Other:__________________
Proximity to markets
b. Why do firms choose to locate or expand in New York City? (Please
c. What are the main reasons firms may choose not to locate or
expand in New York City?
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)
|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
c. Do you believe the housing supply or the cost of housing impairs
New York City's ability to pursue the following business development
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):
Culture and Media
b. Please list the three most common occupations of your employees,
and the income range for that occupational class at your company:
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
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,
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,
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
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,
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
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:
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
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
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.