Unlocking New York’s Housing Potential: NYC Housing Shortages & Affording Housing Initiatives

Unlocking New York’s Housing Potential: NYC Housing Shortages & Affording Housing Initiatives


New York City's rapid job growth and shifting demographics have led to a housing crisis, with skyrocketing rents and inadequate housing supply. As many renters struggle to afford their monthly payments, the need for affordable housing has reached a critical point. 

This blog sheds light on New York's housing condition, the expiry of the 421a Tax Break, its impact on housing supply & rent, and solutions to grow NYC’s housing stock. 


NY housing condition & the Expiry of the 421a Tax Break


According to a study conducted by the consulting firm AKRF commissioned by the Real Estate Board of New York, New York needs 560,000 new units of housing by 2030 to accommodate the population and job growth. Recent statistics reveal that permits for residential units have averaged just over 20,000 per year in the last 2 years.

Deep needs for new housing remain, as the expiration of the 421a affordable housing incentive program has cast uncertainty over housing production. The subsidy is a generous property tax break, which subsidized the construction of hundreds of thousands of affordable and market-rate apartments across the city.

Projects that rely on the 421a affordable housing incentive program made up fully half of the new construction units financed in 2022. Without tax incentives like 421a, developers lose the incentive to build, resulting in insufficient housing supply while driving rents up. The pipeline of new developments could be depleted within the next couple of years, further worsening the housing crisis.


421a_Affordable Housing_NYC



For months, the governor sought Democratic Party support for renewal, but progressive members in Albany and NYC raised concerns, as they believed the program favored luxury towers over affordable homes — Units labeled affordable often exceeded local median income and market rate apartment prices.

Proponents of real estate incentives, such as the 421a tax break, put forth 2 key arguments: 

  1. Property taxes on urban rental units account for approximately 30% of their income. Given the substantial burden of property taxes, a tax break like 421-a becomes crucial to alleviate this financial strain on both renters and developers.
  2. Any development operating under the 421a provision is required to allocate 30% of its units for rentals below the market rate, with the goal of promoting affordable housing. 

While acknowledging that 421a might not represent the perfect solution, it could presently be the sole mechanism that renders new construction economically viable. The need for a new tax incentive program to provide affordable homes to New Yorkers is becoming more and more evident.


High Rent & Its Contributing Factors


Despite New York City's population still lagging behind its pre-pandemic figures, its economic rebound has been comparatively slower than that of the rest of the nation. Nonetheless, rental rates in Manhattan and Brooklyn continue to achieve unprecedented highs, even as rental prices in other parts of the country stabilize or even decrease.

Right before the pandemic hit, the average new lease price for a Manhattan apartment had climbed to $4,385, according to the monthly Elliman Report. While the average had dipped by slightly more than 15% to $3,650 within a year, new lease rates have since continued to ascend. In June 2023, the average new lease cost surged to $5,470 per month, an astonishing 30% increase compared to the levels seen in February 2020. What are the contributing factors to high rent?



There are multiple factors at play, mainly caused by increased demand for housing & limited supply of units: 


  1. Rising Interest Rates: To curb inflation, The Federal Reserve Board has raised interest rates significantly (Mortgage rates have doubled from less than 3% to above 7%).  This has pushed home buyers to the rental market due to affordability reasons, adding more pressure to the supply of rental apartments and rent prices.
  2. Landlords Capitalize on Rent Increases amidst Times of Crisis: The interplay between the exodus from and return to the city disrupted the usual patterns, granting landlords an advantage in determining prices. Tenants either had to accept the large increase in rent, or re-enter the housing market filled with competition against returning New Yorkers.
  3. Warehoused units: A significant number of rent-stabilized units are being warehoused, which refers to the shelving of empty apartments, as landlords claim it would cost too much to make them rentable again. The presence of Airbnb and rent-regulated apartments left vacant by landlords has resulted in 65,000 units or more being taken offline, drastically limiting supply.
  4. Remote Work: The work-from-home trend and the influx of digital nomads who selected New York as their remote work hub further strained the city's rental availability. For instance, Google's NYC headcount surged by over 1,000 in 2022 as it required employees to declare a home base. These people are likely able to afford higher rents since finance and tech, the strongest sectors in the recovery, offer top salaries.
  5. More Housing Per Household: Remote work has also increased the demand for larger apartments as individuals are seeking more space to accommodate home office setups. Also, over the past decade, New York City's average household size decreased from 2.57 to 2.55, as reported by the Department of City Planning, which translates to 70,000 additional people needing housing within the current housing stock.


The Current Housing Landscape & Elimination of Apartments through Conversions


The increase in housing stock has been inadequate, with only a 4% rise since 2010, despite a 22% job growth during the same period. Comparisons to other cities highlight the disparity, as New York permitted far fewer homes per resident than Boston, Washington, D.C., and Seattle. 

New York's various agencies enforce stringent zoning, code, and other related regulations, making the legal and administrative process of securing City approvals prior to construction long, expensive, and overall challenging. This may be one of the contributing factors to the state's ranking as the fifth highest in terms of homelessness rates nationwide. This issue is particularly severe within New York City, where 73 out of every 10,000 individuals find themselves without stable housing.

Numerous studies corroborate that the lack of new housing contributed to rent growth and homelessness:


The housing crisis is not solely about insufficient construction; the conversion of multifamily homes into single-family dwellings is also causing a substantial loss of housing units. Over the decades, the city has lost around 104,000 apartments, primarily in Brooklyn and Manhattan, as multifamily units are transformed into single-family residences. This trend has been fueled by wealthy buyers merging multiple townhouses into lavish megamansions, notably prevalent in the West Village.

This issue is compounded by the demolition of smaller buildings to erect high-rise towers with fewer units, leading to a reduction in housing availability. For instance, A 19-story tower at 14-16 Fifth Avenue will feature 20 apartments, almost one per floor. In contrast, the demolished townhouses, which made room for the tower, had 18 units. Among them, around half were rent-stabilized, with the remaining market-rate units catering to professional-class renters at modest affordability levels.


AffordableHousing_NYC_Mayor Adams


Unlike the challenges associated with creating new units, the elimination of apartments through conversions often bypasses public scrutiny and opposition. The result is that residents with significant financial means are replacing middle-class renters, further deepening housing disparities.


Propelling New York's Housing Resilience


New York's affordable housing crisis demands multifaceted solutions and collaboration. While the challenges are immense, the progress made and the commitment shown offer hope for a brighter future: The "City of Yes Housing Opportunity" proposal by the Mayor’s Office and other efforts are crucial steps toward connecting New Yorkers with safe, affordable homes and fostering vibrant communities that thrive.

In another light, the absence of housing programs like 421a has led to a drastic reduction in the commencement of new rental housing projects, intensifying the city's housing supply crisis. While there is widespread consensus regarding the need for programs to invigorate rental housing production, the responsibility of addressing this escalating crisis ultimately rests with the state legislature and their decision to take action or not.


Architecture's Role in Meeting NYC's Housing Demand


Architectural firms wield significant influence in cost-effective affordable housing endeavors, with a multifaceted approach to cost reduction which in turn can support the creation of more affordable units. Firstly, architects can expedite the commencement of construction by streamlining the approval process, and navigating regulatory complexities efficiently, thus saving precious time and financial resources.

Furthermore, architects' commitment to efficient design can yield substantial savings. By standardizing layouts, materials, and systems, they minimize waste and maximize resource utilization, resulting in lowered construction expenses.

Moreover, architects' active involvement in optimized construction administration is crucial. Through close collaboration with general contractors, they ensure seamless project execution, enabling construction timelines to be shortened. This not only reduces financing costs but also accelerates the income-generating phase of the project, rendering it financially sustainable sooner.

By embracing these methodologies and fostering a culture of innovation, architects play a pivotal role in advancing the feasibility of affordable housing, even in times of challenging market conditions such as a high-interest-rate environment.

This sentiment is embodied in TWA's collaborative efforts with contractors, exemplified by the Mount Hope Place project, a 10-story, 55-apartment affordable housing project. It was completed within just 12 months of breaking ground, with an additional 2 months of administrative work to secure the Certificate of Occupancy. These endeavors exemplify TWA's commitment to fostering quality and efficiency within the constraints of NYC's unique and challenging construction environment.