Civic Report No. 25 February 2002 New York City’s Housing Gap Revisited Peter Salins Senior Fellow, The Manhattan Institute for Policy Research EXECUTIVE SUMMARY This study measures New York City’s housing gap—the difference between the net number of dwelling units added to the housing supply in a given time period, and the number needed to accommodate population change. The study finds that: New York City’s housing gap is large—about 140,000 units in 1999. The City’s housing gap is even larger—over 400,000 units—if one takes into account the need to replace older housing stock. Failure to replace these decaying structures is a major reason New York City has an older housing stock than any other major American city. Compared to other cities, housing in New York is not only scarce, but of low quality and highly priced. Only two cities—Boston and San Francisco—have higher median rent levels than New York. Although housing production in New York City has trended upward since 1994, gains in the housing stock have been offset by a dramatic rise in the city’s population. New York City and State have instituted policies that severely distort the dynamics of housing supply and demand. Only 30 percent of the city’s rental units, for instance, are subject to market prices. These distortions—coupled with Rube-Goldbergian environmental and zoning regulations—have denied New York the kind of healthy housing market enjoyed by most other major cities. The addition of more price-controlled housing—as proposed by most housing advocates, and by most candidates in the city’s recent electoral campaign—will only exacerbate the market-distortions which underlie the current housing shortage. If New Yorkers are to enjoy a vibrant and high quality housing market, building regulations must be streamlined to accord with those of other cities, and the proportion of market-priced housing must be expeditiously increased. The current crisis should energize the new city administration to tackle reform with renewed vigor. In the end, however, true reform will require policymakers to mobilize the city’s greatest strength, which has fortunately been everywhere in evidence since September 11: the good judgment, and enlightened self-interest, of New Yorkers themselves. ABOUT THE AUTHOR Peter D. Salins is Provost and Vice Chancellor for Academic Affairs of the State University of New York and Senior Fellow of the Manhattan Institute. A nationally recognized urban planner and housing expert, his publications on New York’s housing problems include “Reviving New York City’s Housing Market,” in Facing the Future: Housing and Community Development in New York City (SUNY Press, 1998), New York City’s Housing Gap (Manhattan Institute, 1996), Scarcity by Design (Harvard University Press, 1992), and The Ecology of Housing Destruction (New York University Press, 1980). A fellow of the American Institute of Certified Planners, Dr. Salins is also a Trustee of the Lavanburg Foundation and a Director of The Citizens Housing and Planning Council of New York. Introduction By September 2001 New York City had enjoyed a decade of spectacular resurgence. The city’s economy had added 300,000 jobs. Crime had fallen by more than 57 percent. The city’s population had grown by over 500,000, to an all time high of 8,008,300. Tourism and hotel occupancy were up, streets and sidewalks were cleaner, elegant stores and restaurants flourished, parks were refurbished and vibrant. Out-of-towners were saying extraordinarily complimentary things about New York. One heard far less often than formerly that familiar but tired phrase: “A nice place to visit, but I wouldn’t want to live there.” From all over the nation and the globe, people did want to live in New York: young professionals and empty-nesters from the suburbs, from upstate, and from other states; tens of thousands of immigrants who arrived each year; even retirees returned from Florida and other Sunbelt havens. There was just one problem facing all these new New Yorkers: finding a decent, affordable place to live. Amid the resurgence and revival, the one thing that hadn’t changed was the unsatisfactory condition of the city’s housing. For all but the very rich or the very lucky, an attractive, spacious, well-located apartment or house was hard to find—and, when found, outrageously expensive. The dearth of reasonably priced, good-quality housing had not extinguished the city’s economic and social revival. The scarcity of housing may even have perversely contributed to some of the city’s revitalization, by pushing New Yorkers into some of the city’s formerly most derelict neighborhoods, sparking their social and commercial revival. Nevertheless, housing scarcity, exorbitant apartment rents and house prices, and poor housing conditions are clearly not good things. Some observers, remarkably, see a silver lining in the clouds of the September 11 tragedy. Daily press-accounts of New Yorkers fleeing Manhattan—and expectations that immigration to the city’s other boroughs will be sharply curtailed—have sparked speculation that New York’s housing shortage will soon turn into a glut. Such hope, however, is premature. As documented in this report, the city’s housing shortage has become so severe that recent events will almost certainly not cure it. Although the post-disaster trauma may well soften demand for housing, it will constrict supply—by depressing housing construction and renovation—to an even greater degree. New York City’s housing shortage can only be overcome by removing its root cause: the panoply of housing policies, unique to the city, which have perniciously constricted supply, degraded quality, and inflated prices for many years. Attacking and repealing these outmoded policies will require courage and foresight from the city’s newly elected and appointed officials. True reform will require putting the city’s long-term health above short-term political pressure. But if public officials do take this path—and stick to it—they will unleash a revival more spectacular than the one which the city has recently seen. In the quality and affordability of its housing, New York City is closer to the bottom of U.S. cities than the top. It lags other American cities—and even its own suburbs—because its housing market has not been allowed to work. That was the thesis of “New York City’s Housing Gap,”1  a Manhattan Institute Civic Report I authored in 1996. Presented as the most concise indicator of the fundamental inadequacy of New York’s housing market, the housing gap was defined as the difference between the net number of dwelling units added to the housing supply in a given time period and the number needed to accommodate population change and improve housing quality. The report estimated that the housing gap in 1994—the simple difference between supply and demand—was nearly 17,000 dwelling units annually and, adjusted to foster quality enhancement, it rose to over 40,000.2   To place the city’s housing gap in a meaningful national context, the 1996 Civic Report compared New York’s rate of housing production, as well as housing conditions, with those in other large American cities. In that comparative analysis, New York did not show up especially well. Compared with nearly all of its erstwhile national peers, the city had anemic housing production rates and anything but anemic rents. This report revisits the issue of the housing gap, to see if conditions since 1994 (the data baseline for the 1996 report) have improved, stayed the same, or worsened. Using the same methodology and more recent data, the housing gap is calculated for the decade, and housing conditions are again compared to a panel of other large American cities. Then we will review the two factors, unique to New York’s housing market, that are very likely instrumental in creating the housing gap. One is the broad array of distinctive New York City and State policies regulating housing development and construction. The other is the extraordinary extent to which prices in the city’s housing market are set by governmental agencies, rather than through the interplay of supply and demand. While both the data and the analysis in this report pre-date the September 11 tragedy, the underlying supply-demand dynamics—and the public policy constraints on New York’s housing market—remain firmly in place. The Housing Gap Today Looking at the changes that have taken place since the last Civic Report, we must conclude that New York City’s housing gap is still larger than that of any other large American city. We must also conclude that New York still lags most of its big city competitors, especially the ones that are its true peers or rivals, in indicators of housing quality and affordability.3  Moving directly to the “bottom line,” housing production in New York City since 1994 has, encouragingly, trended upward slightly, and housing losses have declined—in fact, reversed—as more formerly abandoned or withdrawn dwellings have been “returned” to the housing stock in recent years than existing ones have been “lost.” The beneficial effects of these mildly positive trends have been largely offset, however, by a dramatic rise in the city’s population over the last decade. Indeed, New York’s recent population growth (erasing the huge population drop of the 1970s) was perhaps the most important evidence of the city’s social and economic revival. But even as New Yorkers have rightly celebrated the generally salutary implications of a demographic trend unmatched in any other older northeastern city, population growth poses a substantial additional challenge to a city housing market that could not even keep pace in the years when population change was sluggish or negative. Giving us a synoptic view of New York’s housing supply dynamics, Table 1 looks at the components of change in the city’s housing stock from 1991 through 1999. The table clearly shows a steady increase in additions to the housing supply over the decade due to increases in new housing production after 1993, and the impact of “returning losses.” The table also shows a modest reduction in the number of “vacant but unavailable” units—dwellings about to be abandoned or withdrawn from the stock for other reasons. The intersection of these supply components has allowed the available housing supply over the decade to grow from 2,886,000 units to 2,950,000, an increase of 64,000 or 2.2 percent. During this same period, however, as indicated in Table 2, the city’s population (interpolating from the 1990 and 2000 census data) rose from 7,358,000 to 7,890,000. The resulting growth in numbers of households, assuming household size factors grounded in historical trends (calculated separately for renters and owners), raised the number of housing units needed by over 217,000, an increase of over 7.0 percent. Table 1:   Components of Change in New York City Housing Stock (DU) Year Total Housing Housing Completions Net Housing Losses 1 Net Housing Increase Vacant/Not Available 2 Available Housing 1991 2,980,762 7,638 -9,863 -2,225 94,351 2,886,411 1992 2,978,537 7,900 -9,600 -1,700 102,695 2,875,842 1993 2,976,837 5,512 -2,059 3,453 111,038 2,865,799 1994 2,980,290 7,438 -1,291 6,147 110,722 2,869,568 1995 2,986,437 8,205 634 8,839 110,406 2,876,031 1996 2,995,276 7,540 3,075 10,615 110,090 2,885,186 1997 3,005,891 7,607 6,900 14,507 103,051 2,902,840 1998 3,020,398 11,432 6,967 18,399 96,012 2,924,386 1999 3,038,797 9,827 5,600 15,427 88,973 2,949,824 2000 3,054,224           Sources: NYC Department of Housing, Preservation and Development, 1996, 1999 Housing and Vacancy Surveys; NYC Department of City Planning, Certificates of Occupancy for Newly Constructed Buildings 1) Net housing losses equal new losses minus former losses returned to housing stock.  A positive number means returning losses exceed new losses. 2) Dwelling units (DU) are vacant/unavailable when they are uninhabitable or withdrawn from market by owner. Table 2:   Estimated Household Growth Year NYC Population 1 Annual Population Growth Household Size 2 Additional Households 1990 7,323,600       1991 7,357,800 34,200 2.58 13,300 1992 7,397,000 39,200 2.58 15,200 1993 7,442,000 45,000 2.58 17,400 1994 7,493,600 51,600 2.59 19,900 1995 7,552,800 59,200 2.60 22,800 1996 7,620,700 67,900 2.61 26,000 1997 7,698,600 77,900 2.62 29,700 1998 7,787,900 89,300 2.62 34,100 1999 7,890,400 102,500 2.63 39,000 2000 8,008,300 117,900 2.64 44,700 Source: US Bureau of the Census, Population Division 1) 1990 and 2000 based on actual Census count; 1991 to 1999 based on author’s interpolation 2) Based on recent NYC housing and population trends As Tables 1 and 3 show, net housing production (new construction minus housing losses)4  has risen substantially since 1994 from 6,000 to between 15,000 and 18,000 units per year. However, because the city’s household population has consistently outpaced housing production, the estimated basic housing gap has been remarkably stable at approximately 15,000 dwelling units per year. This gap calculation is predicated on building just enough housing to put a roof over the heads of the city’s new residents. Across the rest of the nation, however, enough housing is built each year to not only accommodate household growth but also to replace about 1 percent of the existing housing stock. Using that standard to calculate a “quality adjusted” housing gap,5  the city’s annual housing shortfall rises to about 44,000 units. In either case, an annual housing gap that persists year after year causes mounting hardship. The cumulative basic housing gap has grown by over 140,000 units since 1991; the quality adjusted gap has grown by a staggering 400,000 units.6  Table 3:   Estimated Annual Housing Gap Year Additional Households 1 Net Housing Increase Basic Annual Housing Gap Cumulative Housing Gap Quality Adjusted Annual Housing Gap 2 Cumulative Quality Adjusted Gap 1991 13,300 -2,200 15,500 15,500 44,500 44,500 1992 15,200 -1,700 16,900 32,400 45,900 90,400 1993 17,400 3,500 13,900 46,300 42,900 133,300 1994 19,900 6,100 13,800 60,100 42,800 176,100 1995 22,800 8,800 14,000 74,100 43,000 219,000 1996 26,000 10,600 15,400 89,500 44,400 263,500 1997 29,700 14,500 15,200 104,700 44,200 307,700 1998 34,100 18,400 15,700 120,400 44,700 352,400 1999 39,000 15,400 23,600 144,000 52,600 405,000 2000 44,700           1) Taken from Table 2 2) Including housing needed to replace 1.0 percent of NYC housing stock Fortunately, the news is not all bad. Some encouragement can be taken from the well-defined trend of improvement in housing supply growth over the decade. In addition, some of the basic housing gap has been met by the return of existing units to the rental market. As Table 1 shows, about 5,500 additional units have become available for use since 1991, slightly reducing the cumulative housing gap. Nevertheless, the task of adding an additional increment of 100,000 to 150,000 units to the stock over the next few years, while challenging, is not inconceivable; such an increase is well in line with rates of housing production in New York in earlier decades. Obviously, both the demographic and housing construction figures in this analysis will need to be reexamined over the next year or so, as the full impact of both the September shock and a declining national and regional economy is absorbed. Nevertheless, under any scenario—pre or post-September 11—New Yorkers should be concerned about the city’s poor overall housing quality, and the policies responsible for it. To put New York’s housing performance in a national context, it is instructive to look at housing production and conditions in other major U.S. cities. Comparing New York to Other Major Cities Compared to its major national peers, New York looks inferior both in the rate at which it builds new housing, and the resulting housing conditions. Table 4 compares the pace of housing construction over the last decade—as measured by the issuance of housing permits—in central cities of 13 of the largest  American metropolitan areas. The data show that, in 1999, only four cities had a lower rate of housing production than New York, three of them being cities whose population had declined over this period. Taking the interval from 1995 to 1999, only five cities fell below New York in housing volume, again with three cities in that group having a shrinking population. The two other cities whose housing production rates were below that of New York were Boston and Los Angeles. But Boston had a much lower rate of population growth rate over the decade than New York (27 percent of New York’s level) while still building 72 percent as much housing. Los Angeles’ lower rate of housing production in the latter 1990s followed a period of extraordinarily high production from 1990 to 1994. Table 4:   Comparative Housing Construction Rates—Large U.S. Cities City Housing Permits per 1000 DUs, 1999 Housing Permits per 1000 DUs, 1990–94 Housing Permits per 1000 DUs,1995–99 Percent Population Increase, 1990-99   San Antonio 32.41 47.17 108.19 22.3 Columbus 29.88 73.48 92.46 12.4 Atlanta 24.76 37.99 77.92 5.7 Indianapolis 19.23 60.19 82.77 6.7 Houston 14.02 27.99 73.22 19.8 San Francisco 8.78 15.12 28.14 7.3 Chicago 5.57 11.41 19.49 4.0 Boston 5.03 4.39 11.46 2.6 New York 4.33