Tag Archives: market-rate

A Resilient NYC

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NYU’s Furman Center released a report, The Price of Resilience: Can Multifamily Housing Afford to Adapt? It explains that storm-proofing New York City

poses several special challenges not shared by all coastal areas. First, New York City is largely built out, with much of its building stock long predating current flood-resistant design standards. Resilience in New York, then, primarily means retrofitting older buildings, not just strengthening building codes for new construction. Second, much of the official guidance about how to retrofit residential properties to reduce risk and lower insurance premiums is geared toward 1-4 family buildings, reflecting the national housing stock. In New York City, though, only one-third of the buildings thought to be vulnerable to flooding are1-4 family, detached homes. A much larger number of housing units vulnerable to future storms are located in roughly 4,500 multifamily buildings with five or more rental units. Finding ways to cost effectively retrofit these types of buildings to protect residents and reduce insurance premiums for owners needs to be central to New York City’s storm-preparedness efforts.

Finally, the extreme shortage of affordable housing in New York may make the direct and indirect costs of retrofitting particularly hard to bear. Based on current federal policy, increased flood risk requires for many buildings either investment in physical improvements or payment of higher insurance premiums. Without external funding or other relief, there is no clear avenue to enact these resilience improvements while maintaining affordability. Eliminating all units below the predicted flood level, for example, could result in the loss of thousands of indispensable housing units. Even if units are not lost, property owners may pass on the costs of retrofitting buildings to residents through a rent increase, reducing the supply of affordable units in New York City’s coastal areas. For buildings that are constrained in their ability to raise rents and raise funds for improvements, like many of the rent stabilized and subsidized buildings in the city, the financial burden of making costly retrofits might be overwhelming, leading to the conversion of those buildings to market rate (when permitted), unsustainable operating budgets that may require a bail-out, or a large number of buildings left unprepared for future storms. The costs of not retrofitting, however, may be even more burdensome: building owners may face skyrocketing flood insurance premiums if they do not retrofit their buildings.

While I am not so sure that storm-proofing will be what pushes New York City’s housing stock into the unaffordable column (I think the relentless increases in demand might just to the job for units that are not rent regulated), the Furman Center report reminds us that we have a lot to do to protect New York from the next big storm. The Bloomberg Administration did a lot in a short time to identify what the City can do to increase the City’s resiliency. Given the quality of his housing and economic development team, there is reason to hope that the de Blasio Administration will continue to tackle the threat of climate change in a productive way.

The Furman Center report provides three concrete recommendations to ensure that NYC’s large stock of multi-family housing in flood zones is protected from future storm events:

  1. The Federal Emergency Management Agency (FEMA) should modify the guidelines for its National Flood Insurance Program for coverage of existing multifamily buildings;
  2. New York City should expand its Flood Resilience Zoning Text Amendment to cover buildings in the 500-year floodplain; and
  3. The city should revisit its existing rehabilitation programs to ensure that resilience measures can be readily funded; and it should require that buildings in the 100-year and 500-year floodplains that receive city assistance have adequate emergency and resilience plans.

These all seem like reasonable policies that should be implemented asap.

Rent Regulation and Housing Affordability

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NYU’s Furman Center issued a fact brief, Profile of Rent-Stabilized Units and Tenants in New York City, that provides context for the deliberations of the Rent Guidelines Board as it considers a rent freeze for NYC apartments subject to rent stabilization.

Rent regulated (rent stabilized and rent controlled) apartments clearly serve households that have lower incomes than households in market rate apartments. Median household income (fifty percent are below and fifty percent are above this number) is $37,600 for rent regulated and $52,260 for market rate households.Thus, market rate households have median incomes that are nearly 40% higher than rent regulated ones.

The median rent is $1,155 for rent regulated and $1,510 for market rate households.Thus, median rents are about 30% higher for market rate tenants.

Despite these differences, the number of households that are rent burdened (where rent is greater than 30% of income) is similar for the two groups: 58% for rent regulated and about 56% for market rate households. (4, Table D)

The Furman Center brief provides a useful context in which to consider NYC’s rental housing stock as well as the households that live in it. Given the nature of NYC households, however, I would have wished for a more finely detailed presentation of household incomes and rents.

NYC’s distribution of income is skewed toward the extremes — more low-income and high-income households and therefore fewer middle-income ones than the rest of the nation. Given this, it would have been helpful to have seen the range and distribution of incomes and rents, perhaps by deciles. The Furman Center brief indicates that updated data will be available next year, so that may provide an opportunity to give a more granular sense of dynamics of the NYC rental market.

Mayor de Blasio’s housing plan outlines his commitment to preserving affordable housing. One element of that commitment is to preserve rent regulated housing. Understanding that market sector and the households it serves is essential to meeting that commitment.

Inclusionary Housing and Stigma

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Hughen and Read have posted their abstract for Inclusionary Housing Policies, Stigma Effects and Strategic Production Decisions to SSRN (it is not available for download from there and must be purchased from the publisher one way or the other). The abstract reads,

Inclusionary housing policies enacted by municipal governments rely on a combination of legal mandates and economic incentives to encourage residential real estate developers to include affordable units in otherwise market-rate projects. These regulations provide a means of stimulating the production of mixed-income housing at a minimal cost to the public sector, but have been hypothesized to slow development and put upward pressure on housing prices. The results of the theoretical models presented in this paper suggest that inclusionary housing policies need not increase housing prices in all situations. However, any observed impact on housing prices may be mitigated by density effects and stigma effects that decrease demand for market-rate units. The results additionally suggest real estate developers are likely to respond to inclusionary housing policies by strategically altering production decisions.

The authors conclude that “Density bonuses can limit the upward pressure on housing prices in strong markets, but may prove much less effective in weak markets where developers have little incentive to increase production in response to this type of economic incentive.” (609)

As NYC Mayor de Blasio drafts his ambitious affordable housing plan, he needs to maintain flexibility in his inclusionary zoning initiative. I think the stigma effects discussed in the article are much less relevant in NYC than in many other jurisdictions because NYC has a long history of successful mixed-income housing projects. But I do think that the de Blasio Administration needs to ensure that its initiative is designed to work effectively during both strong and weak markets.  The administration will also need to ensure that it works well in the outer boroughs as well as in Manhattan’s red hot housing market.