Tag Archives: residential development

Vacant Land in NYC

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photo by Eric Fischer

NYC Comptroller Stringer has released an Audit Report on the Development of City-Owned Vacant Lots by the New York City Department of Housing Preservation and Development. Stringer has  taken some cheap shots on Mayor DeBlasio’s housing plans before (here for instance). This report amounts to another one. The Audit Findings and Conclusion read,

Our audit found that the City owns over a thousand vacant lots that could be developed under existing urban renewal programs, but many of these lots have been allowed to languish and remain undeveloped for up to 50 years or longer.  While HPD contends that over the years it has disposed of most of the lots it has been responsible for, we found that as of September 18, 2015, HPD listed 1,131 vacant lots under its jurisdiction.  Further, we found that although HPD solicits developers to build on these properties, it has not established plans with realistic time schedules to actually transfer City-owned vacant properties to developers.

Pursuant to General Municipal Law § 502, HPD has devised urban renewal plans for areas that include its vacant properties.  However, we found that the projected schedules are often pushed to a later date and sometimes no date is specified at all, notwithstanding the fact that the law requires “a proposed time schedule for the effectuation of such plan.”  Accordingly, it appears that schedules with adequate procedures to enable the transfer of City-owned properties to developers in accordance with those schedules have not been consistently formulated.  Finally, we identified an additional 340 City-owned vacant lots under the jurisdiction of other City agencies that could be considered to be used for residential construction. (2)

Even the language of this summary reveals the Comptroller’s spin. It is laughable to say that the City has allowed vacant land “to languish and remain undeveloped  for up to 50 years or longer.” The fact is that the City took ownership of much of this land during the ’60s and ’70s because it was abandoned by the owners who did not pay their property taxes. Much of the land had absolutely no value for decades.

This has certainly changed in the last 20 years or so, so it is worth evaluating whether the City should be taking more aggressive steps to get this land developed. Certainly one would think that this Mayor would want to do just that. And indeed, the Comptroller’s report shows that the Mayor has slated over half of those parcels for development over the next few years. The City’s response to the Audit indicates that many of the remaining parcels pose development challenges for residential development.

My take (having written extensively about abandoned land in NYC, here for instance) is that Stringer is making a mountain out a molehill. Every mayor from Koch through De Blasio has attempted to develop or sell much of the vacant land owned by the City. This audit fails to demonstrate that the City has a serious problem on this count.

Affordable Enough for NYC?

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Real Affordability for All has released a report, Real Affordable Communities: Mayor Bill De Blasio and the Future of New York City. The report opens,

Across the five boroughs, the affordability crisis is growing every day. Today, low- and moderate-income New Yorkers continue to be priced out of their neighborhoods. The incomes of countless New Yorkers are not increasing while rents keep rising. The growing gap between lower incomes and higher rents is making New York City increasingly unaffordable.

Indeed, a recent study released by StreetEasy, The High Burden of Low Wages: How Renting Affordably in NYC is Impossible on Minimum Wage, found that a New Yorker earning $15 an hour could afford just one neighborhood: Throgs Neck in the Bronx.

“The extent to which rent growth has outpaced income growth in New York City means low-wage workers face three options: find several roommates to lower their personal rent burden, take on more than one job, or move out of New York City,” the study finds.

According to a close analysis of the most recent Census data, Bloomberg’s housing efforts generated a shortage of more than 400,000 affordable units for low-income New Yorkers. Low-income here is defined as a household earning less than 50% of Area Median Income (AMI). For a household of four, that means an approximate annual income of less than $42,000. (In 2012 New York City area median income was $83,600 for a family of four; the 2015 New York City area median income for a family of four is $86,300).

Overall, utilizing the 2012 census data, more than 700,000 low-income New Yorkers were left behind by Bloomberg’s housing plan. To tackle the affordability crisis, Mayor de Blasio has proposed preserving or creating 200,000 units of affordable housing. He wants to achieve that goal through mandatory inclusionary zoning and dense new residential development in various neighborhoods.

To succeed, de Blasio will need to avoid repeating the mistakes of Bloomberg’s housing agenda, and ensure that real affordable housing is created for the huge number of low-income New Yorkers who were not served by the previous administration and still struggle to survive. (1-2)

The Real Affordability for All advocates that “Low-income neighborhoods like East New York and the South Bronx will be empowered to offer a ‘density bonus’ to developers in exchange for real affordable housing below 50 % of AMI and for career-oriented union construction jobs for local residents at new development sites.” (7)

The report provides an example pro forma for one building to demonstrate that this plan is do-able. The report does not, however, indicate where the De Blasio Administration would find the $15 million in additional subsidies it would take for this one building to be built according to the Real Affordability for All guidelines.

At this point, the plan is more of a wish list than a serious proposal, but it does make clear that there is a deep need for deep housing subsidies among low- and moderate-income households.

Wednesday’s Academic Roundup

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NYC’s 421-Abyss

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Andrew_Cuomo_by_Pat_Arnow_cropped

New York City’s 421-a tax exemption has lapsed as of yesterday because of disagreements at the state level (NYS has a lot of control over NYC’s laws and policies, for those of you who don’t follow the topic closely). 421-a subsidizes a range of residential development from affordable to luxury. In the main, though, it subsidizes market-rate units.

This subsidy for residential development is heavily supported by the real estate industry. Many others think that the program provides an inefficient tax subsidy for residential development, particularly affordable housing development.

I fall into the latter camp. I would note, however, that NYC’s dysfunctional property tax system is highly inequitable because it taxes different types of housing units (single family, coop and condo, rental) so very differently.

With that in mind, let me turn to a policy brief from the Community Service Society, Why We Need to End New York City’s Most Expensive Housing Program. The reports key conclusions are,

At $1.07 billion a year, 421-a is the largest single housing expenditure that the city undertakes, larger than the city’s annual contribution of funds for Mayor de Blasio’s Housing New York plan.

The annual cost of 421-a to the city exploded during the recent housing boom as a result of market changes, not because of any intentional policy decision to increase the amount of tax incentives for housing construction.

Half of the total 421-a expenditure is devoted to Manhattan.

The 421-a tax exemption is a general investment subsidy that has been only superficially modified to contribute to affordability goals.

The 421-a tax exemption is extremely inefficient as an affordable housing program, costing the city well over a million dollars per affordable housing unit created.

The reforms made to 421-a in 2006 and 2007 have not resulted in a significant improvement of 421-a’s efficiency as an affordable housing program.

A large share of buildings that receive 421-a and include affordable housing also receive other subsidies, such as tax-exempt bond financing. Affordable units in these buildings cannot be credited entirely to the 421-a program.

The great majority of the tax revenue forgone through 421-a is subsidizing buildings that would have been developed without the tax exemption. (3-4)

The brief argues that 421-a should be allowed to expire and be replaced “with a targeted tax credit or other new incentive that is structured to provide benefits only in proportion with a building’s contribution to the affordable housing supply.” (4)

I don’t have any real disagreement with the thrust of this brief. I would just add that the fight over 421-should be expanded to include an overhaul of the City’s property tax regime. It is unclear, of course, whether Governor Cuomo and NYS legislators have the stomach for a battle so large.

Regulation and Housing Supply

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Gyourko and Molloy have posted Regulation and Housing Supply to SSRN.  Unfortunately, it is behind a paywall (although it is also available at NBER if your library has access and an earlier draft can be found here). The abstract of this book chapter states that it reviews the scholarly literature on the causes and effects of local government regulation that “influences the amount, location, and shape of residential development.” The abstract continues,

We begin with a discussion of how researchers measure regulation empirically, which highlights the variety of methods that are used to constrain development. Many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning. As for the effects of regulation, most studies have found substantial effects on the housing market. In particular, regulation appears to raise house prices, reduce construction, reduce the elasticity of housing supply, and alter urban form. Other research has found that regulation influences local labor markets, and household sorting across communities. Finally, we discuss the welfare implications of regulation. Although the large positive externalities of some specific rules are clear, the benefits of more general forms of regulation are very difficult to quantify. On balance, a few recent studies suggest that the overall efficiency losses from binding constraints on residential development could be quite large.
Land use geeks are familiar with Gyourko’s analysis of land use regulation, but many non-economists are not.  Even if they are, they often give it short shrift. I found the extension of their analysis beyond the borders of the U.S. interesting:
In theory, the availability of buildable land might not constrain the supply of housing units if housing could be constructed as densely as necessary to meet demand. But in most places in the U.S.—and indeed around the world—local land use policy imposes limits on residential development that restrict the size and type of housing units that can be built on a given amount of land. These restrictions add extra costs to a construction project, creating a wedge between the sales price of a house and the cost of buying the land and building the structure. (3)
As communities struggle with housing affordability, the link between land use regulation and housing costs is one that should not be ignored.

Reiss on NYC Development Rules

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Law 360 quoted me in Looser Rules Pave Way For NYC Affordable Housing Projects (behind a paywall). It opens,

The commissioner of New York City’s Department of Housing Preservation and Development detailed Wednesday how the agency will streamline the development process for affordable housing projects, allowing developers faced with new mandatory inclusionary zoning rules to breathe easier.

Since Mayor Bill de Blasio announced his ambitious plan to create or preserve 200,000 units of affordable housing in the city over the next 10 years, developers and their attorneys have been cautiously optimistic.

Many have seen the positive side of residential projects being allowed in places where they would not have been previously, thanks to planned zoning changes. But with those zoning changes comes a mandate to build an affordable component with any new development, and the administration has been adamant that there will be few — if any — new monetary incentives.

So when HPD Commissioner Vicki Been told attendees at a Citizens Budget Commission event Wednesday that sweeping changes are coming to the way the agency does business that will cut a lot of red tape and speed up the process, many developers and their attorneys were pleased.

“It was great to hear,” said John Kelly, an affordable housing expert and partner at Nixon Peabody LLP. “I think it’s the right first step, and it’s necessary if they’re really going to carry out the plan they want to do.”

Included in that first step will be significant changes to the two elements of the development process that experts say create the biggest bottlenecks: design review and clearance.

The design and architecture review will likely be completely overhauled, Been told the attendants at Wednesday’s meeting, and the HPD will shift to the self-certification system backed up by random audits that has seen success elsewhere in city government, including at the Department of Buildings.

These changes are expected to cut down on the waiting time that many developers often suffer through as they try to get a project off the ground, adding unnecessary costs and — perhaps most importantly for Been’s purposes — dissuading some from seeking out affordable housing opportunities.

HPD staff will still have a hand in reviewing projects, but the changes — which Been said will be explained in more detail soon — are expected to be significant.

“It’s exciting to start to see specifics of the plan, we’ve all been kind of waiting for that,” said Jennifer Dickson, senior planning and development specialist at Herrick Feinstein LLP.

But she noted that the process, even with the proposed tweaks, is extremely complex. As the city attempts to make affordable housing development more attractive and expand inclusionary zoning districts, a growing number of architects and developers with little experience in this arena will be joining the fray.

“I think they will be looking to the city agencies to continue to guide them,” Dickson said.

The specific extent to which HPD officials will remain involved in the process is one of many questions that remain unanswered. Another is exactly how the agency will ensure compliance with a new self-certification process, outside of random audits.

“The risk of self-certification is: What if people don’t certify well? There’s always a balance of government regulation between reducing red tape on one hand, and assuring people live up to the appropriate standards on the other,” said David Reiss, a real estate professor at Brooklyn Law School.

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.