The hamster wheel math of New York City apartment production
For every two steps forward on the path to more affordable housing, we keep taking one giant step back.
With limited land in New York City, low-income and luxury housing developers have no option but to raze and replace existing, undersized buildings — even when they contain dozens of affordable, sometimes rent-stabilized housing units. Since new housing is rarely built on undeveloped land, it necessitates removal of existing commercial and residential buildings. Where residential buildings are removed, the new replacements usually contain fewer units of any kind and far fewer affordable units. Inadequate financial, tax or zoning incentives, crippling zoning and building code constraints, and bureaucratic delay, as well as ever-rising construction, labor and borrowing costs, discourage and even prohibit the building of compact, truly affordable apartment units like the ones that were torn down. And so, the only way to meet the costs of development is to build luxuriously grand and amenity-packed towers. Otherwise, affordable housing developers must rely on government support in a heavily contested field.
Today, on one avenue block on Manhattan’s East Side, three apartment towers are rising, one rapidly filling up with new well-heeled residents and another just topping out. That’s great news for our local economy, as these new buildings spur significant job creation — economic activity that is necessary in this post-pandemic era — and upgrade neighborhood services. However, to clear the ground for these new 20- to 35-story buildings, to provide large enough floor plates to support a viable project and enough square footage to justify the expense of construction, not fewer than 15 four- to five-story buildings have been demolished, containing a total of approximately 72 modestly priced apartments.
The three towers now rising will introduce a total of 284 new units to the block, at least 86 of which will be condominiums. According to public records, two of these buildings will provide a total of 14 low-income rental units targeted to people with incomes in the 60-70% AMI (area median income as established by state and city guidelines), equal to a total of .05% of the total known new unit count. By providing low-income units, the developers receive an increase in floor area as partial compensation for the cost of developing the low-income apartments through the city’s Inclusionary Housing Credit Program, started in 1987 by Mayor Koch.
But the 15 buildings that were razed contained among their 72 units a mixture of studio, one-, two- three- and even four-bedroom apartments. The 14 new low-income apartments in the new buildings represent a staggering 80% decrease in the number of units that low- and moderate-income families can afford.
Some of these demolished buildings were too small to be subject to rent regulation, while other buildings contained at least a few rent-stabilized units. According to online apartment listings, rental prices for the units while they were still being marketed ranged from 90% to 130% of area median income, or approximately $4,000-$4,500 for a 3-bedroom, $2,700-$3,500 for a 2-bedroom and $2,500 for a 1-bedroom apartment.
The 15 buildings that were razed contained among their 72 units a mixture of studio, one-, two- three- and even four-bedroom apartments. The 14 new low-income apartments in the new buildings represent a staggering 80% decrease in the number of units that low- and moderate-income families can afford.
For the 50% or more of area residents whose combined family earnings are less than $113,000 for a family of four or $90,000 for a couple, these prices would be unmanageable. However, such rents do fall firmly, if tightly, within the range considered achievable for those with slightly higher, considered moderate incomes. Compare these prices to the new luxury 3-bedroom ($8,500), 2-bedroom ($6,500), and 1-bedroom ($4,500) rental units, and the unattainable reality of the typical sales price for a luxury 1-bedroom unit beginning at not less than $2.5 million.
Fortunately, Gov. Hochul and the New York State Legislature recognized this dilemma when they created the new 485-x tax incentive program — also known as Affordable Neighborhoods for New Yorkers or ANNY — for affordable housing in April. Section 10 of that law requires that when existing buildings containing affordable units are demolished to make way for new units that will benefit from long-term real estate tax abatements, any unit demolished must be replaced by an affordable unit in the new building.
Unfortunately, the construction calculus must provide for a better and financially viable affordability replacement. The cost to develop a low-income unit in a luxury building with desirable amenities carries the same $1 million (or more) construction price tag as the luxury unit does, and without government money, the number of luxury units needed to be built to cover the cost and maintenance of the affordable unit are multifold. With math like that, the development of enough affordable housing merely to replace what has been lost in the tear-down will never be achievable. One potential solution is low-density communities outside of Manhattan supporting Mayor Adams’ proposed density increases, allowing more of the focus on affordable housing production to shift to the outer boroughs where construction costs are lower.
The cost to develop a low-income unit in a luxury building with desirable amenities carries the same $1 million (or more) construction price tag as the luxury unit does.
In a city suffering from a severe lack of affordable housing, the math is not encouraging. Each year, the City publishes its newly constructed or preserved affordable housing completion targets. If Fiscal Year 2024 anticipates 15,000 such completions, it must weigh these against the daily affordable unit losses that are the result of private investment, that do not rely on government subsidies, and those that do.
The Inclusionary Housing program already allows off-site construction of affordable units in exchange for additional floor area, so there is no obligation to build the affordable units in the market-rate building seeking a bonus. However, current regulations require that the site be located within the same community district as, or within one-half mile of the beneficiary of the additional floor area. But site acquisition costs for off-site low-income housing development can be cost-prohibitive. Hence, low-income housing developers must pay the highest prices to acquire land in expensive neighborhoods for affordable housing. This cannot be accomplished without tapping into limited government subsidies.
New models — and a new approach — are desperately needed. To address the housing deficit and suppress the loss of affordable units resulting from site clearance, a broader replacement radius for affordable units must be considered. Every new building that removes residential units should be required to participate in the process and provide the lost units somewhere at affordable rents.
Without a concerted focus on this not-so-hidden reality, our steps forward will start leading us in the opposite direction.