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Civic Report
No. 2  September 1996


New York City’s Housing Gap

Peter D. Salins
Professor of Urban Affairs and Planning
Hunter College and Senior Fellow, Center for Civic Innovation

New York City’s housing conditions, already inferior to those of most other American cities, are destined to get worse in the decades ahead because there are just not enough new homes or apartments being built to accommodate the housing needs of new families and offset the deterioration of existing housing units.  This is New York’s “housing gap” and it is growing.  According to the most recent report on New York City housing conditions, in a good year New York’s housing stock loses 14,000 to 19,000 dwelling units each year. At the same time, unlike other large eastern and midwestern cities, New York’s household population is actually growing—by 2,000 to 5,000 households per year or more. That means New York needs to add at least 20,000 dwellings to its housing stock each year just to stay even, and twice that number to actually improve housing conditions and reduce housing prices.  Any lower rate of housing development means existing housing will be more overcrowded, harder to find (which translates to higher rents) and will deteriorate more rapidly.  Yet, in 1994 just 4,010 private residential building permits were issued in New York City, a city with nearly three million dwelling units, and thirty percent of these permits were issued in Staten Island, New York’s smallest and most uncharacteristic borough.1  Even in the best years for residential construction and rehabilitation in the mid-1980s, only 12,000 to 15,000 dwellings were added, many of them developed and subsidized publicly.2   Factoring in normal population growth, that leaves an annual housing gap of 12,000 homes in the best of times, and at least 16,000 today.  Because New York has among the nation’s oldest and most deteriorated housing, to substantially upgrade its housing quality, assuming an average dwelling unit life of 65 years (the national average is 35 years), 1.5 percent of its stock should be retired each year.  Thus, New York’s current “quality-adjusted” housing gap—the difference between the amount of housing being built and what should be built to maintain New York’s housing conditions and prices in line with those of other contemporary American cities—rises to 40,000 per year. In a decade this shortfall amounts to 400,000 dwellings—more than the entire housing stock of Dallas, America’s seventh largest city.

Housing Construction in New York Lags Behind Other Major Cities

For a city not experiencing population decline, New York’s record of housing production and rehabilitation is abysmal, by any possible reckoning. In proportion to its population, economic importance and grandiose self-image, New York builds fewer housing units, rehabilitates fewer housing units, and maintains its existing housing stock more poorly than all but the most derelict of American cities. When New York is compared with the other central cities of America’s ten largest metropolitan areas, only three had a lower rate of new residential construction than New York, and every one of these places—unlike New York—had a declining rate of population growth in the last decade.3  The best explanation for New York’s poor showing is that the city is strangling its housing market in a web of regulation and government intervention unmatched in any other large city.

New York is one of only four large cities to retain rent regulation under rules initially imposed during World War II and never removed. In fact, the scope of regulation was significantly extended in 1969 and 1974. Even compared to the handful of other rent-regulated places, New York’s regulatory rules are more constraining, and more strictly applied than elsewhere. New York City’s Zoning Resolution, accruing special districts, special regulations, certifications, overlays, exceptions, bonuses, and housing quality standards continuously since its adoption in 1961, is the most complex and housing-unfriendly development ordinance of any large city.  Since 1975, New York has been the only major city to force most new development—housing and commercial—through a punishing gauntlet of procedural review.  Since 1977, New York has been the only place to apply a municipal environmental regulation more stringent than required by its state or the federal government.  Since 1985, New York has been the only American city whose government spends its own tax-levy resources to compete against the privately owned low-cost housing sector as developer and subsidizer. And since 1987, New York has been the only place to institutionalize a discriminatory property tax system that levies higher taxes on apartment houses than any other large American city.

Table 1

Housing Construction Rates, Ten Largest Metropolitan Central Cities
Housing Permits per 1,000 DU’s

City

1994

1990

1986

1982

1985-94

Dallas

 9.85

 5.91

27.79

26.47

129.99

Los Angeles

 1.78

9.10

19.88

4.40

98.27

Houston

7.66

2.97

17.70

22.44

92.39

San Francisco

2.89

3.28

6.21

3.70

40.18

Boston

1.04

1.11

10.00

1.61

38.55

Chicago

2.28

2.86

 3.09

3.82

24.75

New York

1.34

2.29

3.26

2.50

22.29

Philadelphia

0.64

1.11

3.05

2.33

15.46

Washington

 0.75

1.32

2.30

1.55

14.69

Detroit

0.94

1.54

0.50

2.58

9.09

Source:  U.S. Bureau of the Census: Housing Units Authorized by Building Permits, 1982-1994

Given the cascading set of new or stricter rules applying to the production or operation of housing in New York City since the 1960s, it should come as no surprise that New York’s housing gap has grown steadily over the last three decades. In the early 1960s New York’s private developers were building over 45,000 dwellings a year, more than enough to replace housing losses, accommodate population growth, and upgrade housing quality.  Thirty years later, housing development (including subsidized dwellings) has slowed down to an annual trickle of 7,500 units. Taking into account the flow of annual housing losses and modest population growth, the housing gap has gone from a negative 28,500 units in the early 1960s (meaning 28,500 more dwellings were built than needed for replacement and population growth) to nearly 17,000 in 1994.

Table 2

Annual Change in New York City Housing Stock (Housing Gap)

Year

Dwelling Unit Additions

Dwelling Unit Losses

Household Gain or Loss

Housing Gap (HG)1

Quality Adjusted HG2

1960-64

45,900

13,300

4,100

-28,500

200

1965-69

27,900

8,600

8,700

-10,600

22,800

1970-74

19,400

11,200

-19,000

-27,200

3,600

1975-79

16,500

27,000

-12,000

-1,500

13,500

1980-84

10,500

23,800

10,100

23,400

41,600

1985-89

11,600

14,800

9,100

12,300

39,500

1990-94

7,500

18,300

3,100

13,900

37,600

1994

4,000

18,300

2,500

16,800

40,500

Source:  Housing and Economic Reality, 1976, Housing in New York, 1984, Housing New York City, 1993
Notes:  
1) Housing Gap is housing needed to offset housing losses and household gains
2) Quality Adjusted Housing Gap adds housing needed to replace 1.5 percent of stock 

Why should New Yorkers care about the city’s housing gap?  Because its two most likely consequences are extremely harmful to New York’s livability and economic prospects. To the degree that New York’s households are captive, the failure to build and upgrade housing will make the city’s existing housing scarcer, more expensive and more deteriorated. On the other hand, if  New York’s households are able to move away, the city’s neighborhoods and economy will be further eroded.  While a city’s demand for housing is largely a product of its economic vitality, the reverse can also be true: a city’s economic vitality is enhanced when it possesses a high quality, reasonably priced housing stock.

Irrational Pricing Undermines Housing Market

The deficiencies of New York’s regulatory system and housing policies have long come under critical scrutiny.  What has not been sufficiently understood, however, is the way these regulations and policies interact and reinforce each other in a negative way to undermine that incredibly delicate and fragile system that is the New York City housing market.  And that—not regulatory nuisances per se—is what New Yorkers are up against: the inexorable decline of the vitality of their city’s housing market.

Housing markets are generally metropolitan in scope. When the housing market is thwarted in one metropolitan jurisdiction, housing demand and supply is simply displaced to neighboring jurisdictions.  When the housing market is inhibited in the central city, housing activity is displaced to the suburbs.  In many American metropolitan areas central city housing market demand is weak because of declining population and economic activity.  New York, however, is a city still experiencing some population growth, and many of its neighborhoods, both in Manhattan and the outer boroughs, are desirable enough to sustain a flourishing housing market if they were permitted to. But because of New York City’s regulatory barriers, almost all of the New York region’s new housing is built in its suburbs.

A housing market is not just a collection of residential buildings; it is a hugely complex process.  In a properly functioning urban housing market the rational economic behavior of housing suppliers and consumers operates to assure:

  • a continuous stream of additions to the housing stock numerous enough to accommodate new household formation and to replace obsolete or deteriorated dwellings (in New York City, that would mean building about 40,000 new units a year),
  • continuous movement of households through the housing stock as their needs, desires and pocketbooks may dictate,
  • continuous investment in maintaining or enhancing the quality of the existing stock,
  • a continuous process to remove (or renovate) the deteriorated and obsolete housing stock.

Above all, a well-functioning housing market depends on the correct pricing of the housing stock, from the top of the market to the bottom, to send the right signals to all housing market actors: both suppliers and consumers, to make sure that their individual economic rationality is congruent with housing market vitality.

New York’s rent, zoning, development and environmental regulations, and its other housing policies, hobble all four components of a vital housing market—they keep new housing from being built, they provide disincentives to maintenance and reinvestment, they freeze much of the household population in place, and they keep obsolete housing from being removed. The primary mechanism by which public sector intervention curtails the normal operation of the housing market is the aggressive mispricing of much of the housing stock.  Out of three million dwellings in New York’s housing stock, 54 percent have their prices and operations determined by one or another public agency; and by far the largest component of this publicly priced stock (37 percent) is the 1.1 million apartments subject to rent regulation.  The rest is comprised of 175,000 New York City Housing Authority apartments, 295,000 shallow subsidy units, and 36,000 apartments operated by the city after tax foreclosure.4 

In spite of all the government-managed price-fixing, New York’s housing is no bargain, especially for the poor and near poor.  The most recent survey of New York’s housing reveals that only traditional public housing is cheap.  The poorest rent-controlled tenants pay 57 percent of their income in rent, other rent-regulated (i.e., rent-stabilized) poor tenants pay 84 percent, and even tenants in city-owned tax-foreclosed apartments pay 72 percent.  In fact, overall, the 28 percent of all renters not protected by one or another format of public sector rent-setting devote exactly the same share of their income to pay for housing as the 72 percent who do benefit: 31 percent.5   Nevertheless, even absent any aggregate benefit, government intervention in pricing the housing stock causes major distortions in the housing market at the level of individual apartments, buildings and neighborhoods, creating a random and perverse distribution of household windfalls and hardships.

The best metaphor to characterize a housing market is to liken it to a vast game of musical chairs.  Housing developers are the people supplying the chairs; housing consumers occupy the chairs, and housing prices are akin to the musical signals that make people change seats.  New York City’s regulatory and other housing policies spoil New York’s housing musical chairs game by keeping chairs from being added, chairs from being taken away, and not allowing the music to play often enough for people to change their seats.

Rent Regulation Shrinks Housing Supply

The granddaddy and archvillain of New York’s regulatory ensemble is rent regulation; but not for the reasons most people usually cite.  Rent regulation’s problem is not that it causes landlords to lose money; maybe it does sometimes, but if most landlords lost too much money, there would be no housing.  To the degree that New York’s public officials worry about rent regulation at all, it is to make property owners whole (with, for example capital-improvement rent increases, annual guidelines reflecting the cost of housing operation etc.); but that does not get to the heart of rent regulation’s negative impacts on the housing market.  The real damage of rent regulation is done by the very features that are the most popular; that are, in fact, the entire rationale for having rent regulation at all:  keeping the price of rental housing below market levels; and allowing tenants to remain in their apartments as long as they like, regardless of their landlord’s wishes.

Keeping prices as low as possible doesn’t—in the case of rent stabilization—even result in very low prices; New York’s stabilized rents are higher than most cities’ unregulated ones.  But stabilized prices are almost always the wrong prices, prices different from what an unregulated housing market would charge; and rent regulation has its most egregious impact on the middle and upper end of the market, where the price differential between market and regulated rents is greatest. This has two undesirable effects: it reduces the demand for new housing, and it misallocates the existing housing stock.  If regulated tenants in Manhattan, Riverdale or Forest Hills moved to newer, better apartments—or bought them—the increment of additional rent or carrying costs they would have to pay would far exceed the increment of housing improvement. This demand factor is more important than the prospect of future regulated rents in discouraging construction of new middle and high priced housing. At the same time the cessation of movement among the musical chairs exacerbates shortages in the low end of the stock, shortages that cannot be responded to by private housing suppliers because of the costs of regulation, and the incomes of the low-end tenants.

The other housing market destroying feature of rent regulation is its stringent tenure protection.  Tenants have every economic incentive to stay put, and very little incentive to move. Any move by a regulated tenant, even to a smaller or less desirable apartment in the city, will probably result in a higher rent.  The longer a tenant has lived in a particular apartment, the more likely this is to be the case.  This, as much as below-market rents, keeps housing turnover low. This, as much as below-market rents gives landlords a disincentive to maintain their properties at optimal levels.  And this feature, tenure protection, makes it impossible to remove dwellings from the housing stock after they have lost most or all of their value.

Table 3

Housing Characteristics by City, 1991

City

Med. Rent 2 BR Apt. ($)

Med. Apt. Age (yrs)

Med. Tenure (yrs.)

New York

563

48

5

Los Angeles (1989)

  651

31

4

Chicago

538

43

2

Atlanta

539

19

1

Houston

475

15

1

Source:  U.S. Dept. of Housing and Urban Development: American Housing Survey:
New York, Chicago, Atlanta, Houston,1991; Los Angeles: 1989.

Strict Zoning Laws Severely Limit Potential Housing Sites

But even if the state of New York ended “rent regulation as we know it,” the rest of New York’s regulatory apparatus would come into play.  Opponents of rent regulation hope that absent its debilitating impact, more housing would be built, but their optimism may not be warranted. Unless they are reformed, other New York housing interventions might cancel much of the salutary impact of rent deregulation.

There are only three possible places where new housing can be built: on vacant or underutilized land, in established neighborhoods by infill or replacing existing structures, or in areas where obsolete housing is removed. Before building can take place on underutilized manufacturing sites each manufacturing area where new housing might be developed has to be rezoned for residential development, because New York is one of the few places in the country that reserves manufacturing zones exclusively for industry.  The city’s planning leadership today actually wants to do this.  But it is no easy task. To begin with, each affected area needs a separate environmental impact assessment, a costly proposition in these fiscally constrained times. Sometimes such assessments are paid for by potential developers, but only in contemplation of the most desirable sites. Then the proposed rezoning must wend its way through New York’s ULURP (Uniform Land Use Review Process) where it is almost certain to trigger objections by development opponents. In the unlikely event that the rezoning emerges unscathed from ULURP, and doesn’t become bogged down in court challenges (usually justified by some defect in the environmental and ULURP protocols), each change must be approved by the Planning Commission and the City Council where political mobilization can derail the proposal. The present planning administration has, with dogged persistence, managed to rezone five districts from manufacturing or restrictive mixed-use to residential or commercial (which allows for residential); two in Manhattan, and one each in Brooklyn, Queens and Staten Island. Each rezoning took more than two years and millions of taxpayer and developer dollars to consummate.6  Although the city’s planners are continuing their piecemeal rezoning efforts, wresting housing sites wholesale from New York’s obsolete industrial landscape would be an enormously costly and time-consuming undertaking.

There are also substantial obstacles to housing development in established neighborhoods. There is a better than even chance that any potential site is in one of the city’s 38 special zoning districts, or in one of the city’s 44 historic districts, or near a wetland (New York has 580 miles of shoreline, not to mention countless streams, ponds, marshes, and springs) or on a brownfield (in addition to industrial areas this can apply to any former gas station site or dry cleaning establishment), or on a lot with one or another restrictive quirk.  Even when it lies in Staten Island, that quintessentially suburban part of New York, the place where a third of all private housing was built last year, a housing site may need a “school seat certification,” a requirement in South Richmond that makes developers prove that the schools have enough room for the additional students that new housing might bring.  In almost any New York neighborhood, developers have to negotiate with city officials and the site-specific opponent du jour on a site-by-site basis.  Like rezoning, each development proposal, even after negotiation, needs an environmental assessment and has to undergo review in the Uniform Land Use Review Process.  Obviously housing development does take place—4,000 dwellings worth in 1994—but only by the hardiest of developers, pitching to the most affluent of market segments.  Given the obstacles, the pace of development quickens only in the most robust of economic times.

The City Prevents the Private Sector from Renovating and Replacing Tax-Foreclosed Properties

Some of the most obvious and desirable of potential housing development sites are in the wastelands of housing devastation, where the city has acquired thousands of structures on hundreds of acres through tax foreclosure: the locations of the city’s voluminous In Rem portfolio, now comprising nearly 5,000 buildings and 40,000 apartments.  As things stand, private market-priced developers often find it harder to build there than in established neighborhoods, because the city refuses to sell its abandoned properties, as it once did, in an open auction.  In some places buildings are still partially occupied and the tenants cannot be made to move because of tenure protection.  Where sites are vacant, private development is discouraged because these areas, largely under city control, are set aside as “community” housing resources. In the short run the city spends hundreds of millions of dollars each year to operate In Rem housing at a loss. In the long run the city only permits the wastelands to be redeveloped for housing under city or subsidized non-profit auspices, with apartments offered to eligible tenants at below-market rents.

The thousands of dwellings already developed under this program have unquestionably revitalized sections of East New York, the South Bronx and Harlem.  But even this impressive accomplishment further destabilizes New York’s housing market because the new housing raises the “wrong price” problem again. Subsidized development competes with and undermines low-end private apartment buildings, hastening their demise.  The city can, of course, then add this new increment of failed housing to its costly development portfolio, but if someday the city tires of or can no longer afford this role, it will once again face housing wastelands orphaned by both the private and public sectors.  In any case, experience shows that the kind of subsidies New York uses to underwrite redeveloped In Rem housing are unsustainable over the long haul, making it likely that much of this redeveloped stock will also fail.

Outdated and Overly Strict Building Codes Boost Costs

In addition to the housing development hurdles posed by New York’s zoning, environmental, procedural and public development policies, prospective developers of new housing continue to face construction costs as much as ten percent  higher than elsewhere in the region, imposed by outdated building codes or codes updated with seismic provisions and disabled access features, and costly sewer and water hookup requirements. Prospective developers, landlords, even home-owners who propose to renovate the older stock, continue to face the prospect of complying with punishing asbestos and lead paint abatement requirements, and a whopping increase in their property taxes. Owners of unprofitable rental buildings who think they can save them by selling their apartments as co-ops or condos continue to face a restrictive New York State co-op and condominium conversion law.

An Unfair Tax System Punishes Apartments and Benefits Single-Family Homes

Those developers undaunted by the city’s regulatory exactions must market their newly constructed dwellings burdened by a property tax system that discriminates against co-ops, condos and new owner-occupied housing, and even more, against rental housing, regardless of vintage, as well as exorbitant water/sewer assessments.  While the effective property tax rate for older one- and two-family homes in New York is under one percent of their market value, the rate for newer homes approaches two percent (the average suburban rate), the rate for co-ops and condos is around four percent, and the effective tax rate for multi-family rental properties is five percent.  By comparison, apartments in Chicago pay property taxes under three percent of their market value, apartments in Houston, Washington, Seattle, Dallas and Boston pay around 1.5 percent, and taxes on apartments in California cities are under one percent.7 

As things stand, rational housing actors in the city’s housing market find themselves trapped in a regulatory and policy maze where every contemplated avenue of escape leads to a dead end or subjects them to another economic penalty.  In the end, however, the system harms New York’s residents more than its property owners and developers.  Rent regulation induces owners of existing rental housing to undermaintain or abandon their properties, and developers of new housing to build in other places.  Other costly and time-consuming regulations and high property taxes only make these problems worse.  This causes a housing shortage which makes ending rent regulation unthinkable, and tempts the municipal government to become the houser of last resort. As the city goes into the housing business, more private competitors abandon their buildings, more residential property stays off the tax rolls, and low-income tenants not lucky enough to qualify for a subsidized apartment face a tighter and costlier housing market, which reinforces the cycle of public intervention. 

Government Policies Must Change to Close Housing Gap

How did New York ever build so much housing in the past, when the city added anywhere from 20,000 to 100,000 dwellings a year to the stock? The city certainly didn’t accumulate three million housing units, by building 4,000 units a year. Much of the present stock, of course, was publicly developed or subsidized, more than anywhere else in America.  But the private sector had a much easier time not so long ago. Rent regulation may date back to the Second World War, but its scope was substantially expanded in the 1970s. The city’s environmental rubric is just a few decades old, and is more strictly interpreted now than originally. The zoning ordinance keeps adding districts, and conditions, to the fairly basic 1961 resolution. Landmark districts have been added over the years. ULURP is a product of a 1975 Charter revision.  The city’s In Rem housing policies, and capital program, are only a decade old.

Table 4  Selected Landmarks of New York Housing Market Intervention.

Year

Policy

1942

 Rent Control introduced as part of U.S. Emergency Price Control Act

1947

 National rent controls lifted—New York’s retained for all apartments occupied before 1947

1961

 Passage of major revision to the 1916 Zoning Resolution

1965

 Creation of Landmarks Preservation Commission with power to designate historic districts

1967

 Introduction of first special zoning district

1969

 Rent Stabilization introduced to regulate rents on all apartments not under Rent Control

1971

 New York State legislates “vacancy decontrol” for all controlled and stabilized apartments

1971

 National wage, price and rent controls imposed under President Nixon

1974

 Emergency Tenant Protection Act repeals vacancy decontrol

1975

 1975 Charter Reform mandates Uniform Land Use Review Process (ULURP)

1976

 Passage of (New York) State Environmental Quality Review Act (SEQRA) mandating environmental review of all discretionary zoning changes

1976

 Introduction of New York City Housing Quality Program setting housing design standards

1977

 City Environmental Quality Review (CEQR) introduced by mayoral executive order

1981

 Introduction of zoning rules for residential loft conversions

1985

 Koch Administration introduces “Housing New York” plan to rehabilitate In Rem housing 

1987

 Assessment Act of 1987 introduces property tax classification system

1987

 New York City Local Law 58 mandates apartment design standards for the disabled

1993

 New York State passage of “luxury decontrol” for apartments with rents exceeding $2,000 and tenant incomes exceeding $250,000

The time has come for New Yorkers to revive their housing market by ending this counterproductive set of interlocking regulations and policies, an imperative if they want New York to retain its place as America’s premier metropolis. To do so they must embrace at least five fundamental changes in the city’s housing regulations and related policies.

  • First and foremost, deregulate all rents.  A half century of rent regulation is more than enough. The transition might be managed most painlessly through a policy of vacancy decontrol plus.  The plus describes provisos that immediately deregulate all luxury apartments, “luxury” encompassing much lower rents and incomes than the current luxury decontrol policy; that transitional regulatory protection be restricted to current leaseholders with absolutely no succession rights, even for close relatives; that no apartments retain regulatory protection after ten years.  Rent deregulation by itself may not be enough to revive New York’s housing market, but it will go a long way toward making the revival possible.  Deregulation will stimulate new housing demand and competition among housing suppliers, triggering enhanced maintenance, lower rents, and rising vacancy rates.  An open, market-priced rental housing stock would also obviate the need for another market-inhibiting regulation, the restriction on co-op and condo conversion, and might increase the appeal of ownership tenure generally.
  • Second, scale back the procedural gauntlets through which much new housing development—especially new development involving large or unusually configured projects—must navigate to get approval. A good place to begin would be to scrap the city’s own environmental regulation overlay, CEQR (City Environmental Quality Review) which is both redundant with, and more restrictive than, the state’s environmental review procedure, SEQRA (State Environmental Quality Review Act), especially since CEQR is legitimated only by mayoral order. Just as CEQR magnifies and exceeds the development obstacles of state environmental rules, so do the city’s building codes; and the city’s disabled access requirements are more unreasonable than recently enacted federal ones.  As a general policy, New York City should eliminate all housing regulations that go beyond state and federal standards that are more than adequate to protect New Yorkers.  That still leaves ULURP, another unique New York City development hurdle. Because it is embedded in the charter, its elimination cannot be envisioned any time soon. But ULURP only affects projects that require special permits because they depart from the regular terms of the zoning resolution; the easiest way to end ULURP’s jurisdiction is to liberalize the city’s zoning.  Therefore, New York should:
  • Third, comprehensively rezone.  The best place to begin would be to rezone for residential development all appropriately situated manufacturing areas free of serious environmental hazards. Many manufacturing zones are unlikely to attract residential development, but waterfront areas in and around Manhattan would be appealing, along with large open, but underutilized, tracts in the further reaches of the other boroughs. In existing residential zones, density and other restrictions should be replaced with simple aesthetic standards (like height restrictions) that protect neighborhood scale and character. Most special district designations and rules should be eliminated, especially when they constrain new housing development as in Manhattan’s East Side and Staten Island’s South Richmond.  Whatever the details, the objectives of rezoning should be to make more sites available for residential development, and to make most residential development “as-of-right.”
  • Fourth, get the city out of the real estate business.  All new tax-foreclosed properties should be auctioned, or their tax liens sold; all existing In Rem properties should be transferred to private ownership—with few if any strings—as expeditiously as possible. With the elimination of rent regulation, purchasers of structures—even partially occupied ones—could tear them down and build new housing (as well  as commercial structures) in their place. With the city no longer offering subsidized low-rent apartments in competition with privately owned ones next door, and with the demise of rent regulation leaving private landlords free to choose their tenants and charge market rents (but also feeling real competition from other nearby private housing entrepreneurs) many of New York’s badly run-down neighborhoods might be revived. 
  • Fifth, end property tax discrimination.  The system of property classification that discriminates against multi-family housing should be scrapped, and all properties made subject to the same effective tax rate.  Given current property values and revenues, that would require a uniform rate of around two percent of market value. The greatest winners would be commercial properties in Manhattan (which might stimulate the commercial office market, and the economy generally), but right behind them would be multi-family residential properties, both owner-occupied and rental. This would, in conjunction with the other proposed policy changes, stimulate a housing boom in the city’s more attractive apartment house precincts.  (Lower tax rates on new luxury apartments would also make tax abatements unnecessary; abatements represent another kind of tax discrimination, and they expire after a decade, making tax-abated apartments less marketable over time).  In the city’s poorer neighborhoods, lower property taxes would make economically marginal properties more viable, reduce abandonment, and make redevelopment of already abandoned properties more attractive.  The losers, obviously, would be owners of existing one to three family houses in the outer boroughs. But even they may gain in the long run.  The city’s liberalized regulatory environment should loosen the housing market across the board, offering present and potential homeowners wider selection and higher quality, perhaps even lower prices in some cases.  And by ending the long-running contract between the city and its homeowners whereby the city stints on municipal services in exchange for letting homeowners stint on property taxes, homeowners might demand—and get—decent schools and other services for their appreciated tax dollars.

New York City today is at a critical housing policy crossroads.  For the first time in decades, an agenda of comprehensive reform might actually be feasible because of fresh political and economic forces in play in New York and elsewhere in the United States.  Reform-minded administrations now govern City Hall and Albany; there is a new appreciation of free markets and governmental reinvention from coast to coast; and New Yorkers might be ready to take drastic measures to revive their city’s stagnant economy.  But housing reform cannot be enacted piecemeal. The city cannot end rent regulation until developers build more new housing.  Developers will not build more new housing until the city ends rent regulation, lowers property taxes and changes its zoning laws. The city will not lower property taxes until its tax base grows, and cannot change the zoning laws until it changes its environmental laws.  It cannot change the environmental laws without angering environmental advocates. At the end of the housing market day it doesn’t really pay to change anything at all unless everything changes. The alternative to changing everything is to change nothing. And if nothing changes, the city government of New York is left with the punishingly costly role of being the developer and housing subsidizer of last resort, and the people of New York are left living in America’s oldest and shabbiest housing.

Notes:

1 U.S. Department of Commerce, Bureau of the Census, Housing Units Authorized by Building Permits,  1982-1994.
2 Anthony J. Blackburn, Housing New York City, 1993, (New York: The City of New York, Department of Housing Preservation and Development, 1995).
3 Ibid., and U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States, 1995.
4 Ibid.
5 Ibid.
6 Information supplied by New York City Department of City Planning.
7 Gerard C. S. Mildner, “New York’s Most Unjust Tax,” NY: The City Journal, Vol. 1, No. 4, Summer 1991.

 


Center for Civic Innovation.

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SUMMARY:
New York City’s housing conditions, already inferior to those of most other American cities, are destined to get worse in the decades ahead because there are just not enough new homes or apartments being built to accommodate the housing needs of new families and offset the deterioration of existing housing units.

TABLE OF CONTENTS:

Housing Construction in New York Lags Behind Other Major Cities

Table 1: Housing Construction Rates, Ten Largest Metropolitan Central Cities

Table 2: Annual Change in New York City Housing Stock (Housing Gap)

Irrational Pricing Undermines Housing Market

Rent Regulation Shrinks Housing Supply

Table 3: Housing Characteristics by City, 1991

Strict Zoning Laws Severely Limit Potential Housing Sites

The City Prevents the Private Sector from Renovating and Replacing Tax-Foreclosed Properties

Outdated and Overly Strict Building Codes Boost Costs

An Unfair Tax System Punishes Apartments and Benefits Single-Family Homes

Government Policies Must Change to Close Housing Gap

Table 4: Selected Landmarks of New York Housing Market Intervention.

Notes

 


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