A New New York: How the Pandemic Should Change Housing Policy
“Upzone wealthy neighborhoods!” “Fix the housing crisis!” One of the hottest topics in this mayoral race, as ever, is housing — its availability, its beneficiaries, and its affordability. But many candidates are still using pre-pandemic talking points, seemingly ignoring that the world has changed around them.
Politics — and the short-term financial stresses of the pandemic — aside, policy should be created based on an understanding of the situation today and what’s likely to happen tomorrow. And the situation is that the pandemic has changed everything, probably permanently, even as the long-term winners and losers are still shaking out. We dug into the underlying dynamics of NYC housing, so we could form a better perspective on how housing policy should be crafted to meet the city’s goals.
Update: In August, 2021, the 2020 Census results were released — showing a massive increase in NYC residents to 8.8m people. The Census Bureau’s own Population Estimates Program a few months earlier had estimated NYC’s July, 2020 population to be at 8.25m people, an enormous underrepresentation. The miscount led us to an improper understanding of the intensity of the housing crisis, but the fundamental policy prescriptions in our post below have only become more urgent:
- convert all underutilized office space to residential;
- upzone the urban burbs;
- reduce the cost of development by eliminating parking requirements and red tape;
- encourage development in heretofore underdeveloped neighborhoods that have as-of-right floor area aplenty, and (newly)
- relax zoning laws to allow ADUs, co-living, garage conversions, and other microunits to maximize residential use of the spaces we already have.
Current Housing Supply.
What’s the actual housing situation today? According to HPD, in 2017, there were about 3.47m housing units in NYC. ~63% of these were rentals, and ~1m, or ~30% of all units, were owned.
Three years later, using the Furman Center’s annual data on newly-approved residential units, and assuming only 10,000 new units for 2020 due to the pandemic slowdown, we estimate that the city added about 63,000 new units from 2018–2020, and now has roughly 3.53m housing units.
Current Demand.
What has happened to the population of NYC in recent years, and what’s likely to happen in the future? According to NYC Planning reports here and here, NYC population rose annually from 2010 through 2016, and then dropped starting in 2017. The cause for this is not perfectly clear, but it seems to be due at least in part to restrictive Trump immigration policy. We don’t yet have final population numbers for NYC 2020, but we know that the total NY State population declined by 126,335 from July 2019 to July 2020. As NYC comprises roughly 43% of the state’s population it’s likely to have lost at least 54,000 through July 2020. We’re using that number below, but anticipate further decline through Q4 2020. Ultimately, since its peak in 2017, the NYC population will have declined by ~380,000, roughly back to where it was in 2011.
Vacancy Rates.
NYC deems anything below 5% vacancy in rental units to be a housing emergency. The City has hovered between 2-4% vacancy for decades — a chronic crisis.
But by the end of 2020, NYC had the highest vacancy rate that it has had in decades. According to a survey taken by the Community Housing Improvement Program (CHIP) in November, 2020, Manhattan rental vacancies topped 13%. Interestingly, 7.6% of *rent regulated units* (~70,000) were vacant, since the top legal rates in some areas were close to November’s falling market rates. Landlords with these units were competing with market-rate landlords, but were reluctant to lower their rent out of fear of being locked into a lower basis for decades.
StreetEasy’s visualizations confirm our findings. 2020 saw the highest listed available inventory rate — for both sales and rentals — since they started measuring, even as inventory for both had dropped sharply as recently as 2019.
Envelope’s Vacancy Calculations.
With NYC currently at 2011 levels of population, we can now calculate the delta between supply and demand. According to CoreData NYC and Q2, 2020 data from NYC Planning, the housing supply (sales and rental units) has increased since 2011 by about 183,000 on top of the then-100,000 unit vacancy rate.
100,000 (vacant units in 2011) + 183,000 (new units built) = 283,000 excess units.
Over 3.53m total available units (283k/3.53m), we estimate that NYC has an 8% residential vacancy rate.
Of course, this number doesn’t include other kinds of abundant vacancies — in hotels, retail spaces, mostly-empty office buildings. Clearly, there is a very robust supply of housing, with a massive oversupply of space in general, which will almost certainly lead to continuing price reductions in the near-term.
The future.
For the first time in four decades, NYC has a crisis of demand rather than supply, although we don’t expect it to last more than a couple of years. President Biden will roll back restrictions on refugees and immigrants and welcome the foreign-born back to our shores. Federal infrastructure dollars and small business stimulus will create new jobs; college graduates and artists and ambitious professionals will venture back to the City, beckoned by more affordable rents. A pent up need to socialize, travel, dine out, and shop will bring life back to our commercial corridors. Quality-of-life improvements like outdoor dining, open streets, bike lanes, parks, and public transit will continue to appear. A year of pandemic life capping four years of political turmoil will almost certainly lead to the creation of great art & culture, further driving recovery.
With the expectation that in 3–5 years we’ll be back to a tighter housing market, we recommend looking at a range of sensible planning options now to increase housing supply for the future, using an effective master planning approach. The NYC Zoning Resolution lays out some of the criteria for that here.
Note: we are not directly addressing affordability here — we’ll do that in a future post — although we anticipate that a combination of market supply, government incentives for new development, and shifting values in new neighborhoods will aid in enabling a level of affordability that’s been missing in the city for decades.
If Envelope were mayor, we would:
Quickly adapt underutilized office buildings to residential. One of the core (climate- and Marie Kondo-friendly) concepts of the 15-minute city is to reuse high-quality buildings before building anew. As it is, there are over 500m square feet of office space in our Manhattan CBDs, much of which may never be used as office space again. These buildings need to be adapted to create their own mixed-use 15-minute neighborhood — bringing more residential, light manufacturing, R+D, schools, community facilities, shops, services, and other uses to the district. If, say, 25% of Manhattan’s office space were adapted to residential, we’d have 125m SF of new housing on hand in a central, incredibly transit-rich, iconic area. Loosely, this translates to about 125,000 new housing units.
Upzone low-density neighborhoods. We wrote about this in a previous post. Walkable, 15–minute neighborhoods need to be high-density in order to support enough commercial establishments, reduce per-capita emissions, and make community infrastructure more efficient — with a lower cost-per-resident of sanitation, schools, bus stops, fire stations, etc.. Upzoning only the R1 + R2 “urban burbs” in NYC could bring up to 300,000 new units of housing where density is desperately needed.
Reduce the cost of as-of-right development. In order to encourage more — and more affordable — residential development, the City can make building less onerous. According to the Citizens’ Budget Commission, parking requirements add enormous cost and risk to development. Envelope believes they should be eliminated altogether. Red tape should be reduced, where possible. Construction and building codes have failed to keep up with innovations in materials, process, and technology and should be reformed. Property taxes for owners are opaque, inequitable, and weighted in favor of single family homes and owner-occupied units, while multifamily rental buildings pay at a higher rate. These should be rebalanced to reflect efficiency, since single-family homes in low-density neighborhoods are far more climate-damaging, and more expensive to serve per capita.
Given the clear shift toward remote work, drawing focus away from the CBDs, developers will be able to cast a much wider geographic net to find pockets of future value. The good news is that NYC is nowhere near fully built to capacity. According to our own data, NYC has nearly 1.2b square feet of unused residential development rights in medium and high-density sites with 2.0 FAR+, translating into somewhere between 500k-1m new housing units (recognizing that some development rights will be constrained by contextual and historic districts, among other things). More about the surprising places where these opportunities may be found, here.
Taken together, the three recommendations could eventually yield more than a million new housing units, solving any future supply problem for years to come. Policymakers can now stop shouting about upzoning already-dense, historic inner neighborhoods to eke out a few extra units of housing; and work with developers and planners to ensure that previously-overlooked neighborhoods deeper in the boroughs have great schools, groceries, office space, parks, care facilities, and commercial corridors to sustain their local inhabitants. Now we just need to run for mayor, like everyone else…
