The New York City Council recently passed the City of Yes for Housing Opportunity. The plan is anticipated to create over 80,000 new homes over the next 15 years, or about 5,000 per year. The Council also approved the expenditure of an additional $5 billion on affordable housing and infrastructure projects.
The City of Yes as a solution to NYC’s housing crisis has both good and bad news.
It is good news that 3-5 story apartment buildings of 50 units or less are allowed in low-density areas on streets with commercial zoning or somewhat higher density streets near transit, both with no affordability overlay. The bad news is that larger apartment buildings are allowed only if 20% of the units are affordable at 80% of Area Median Income (AMI). Research on all sides of the policy spectrum have found that this type of provision, called inclusionary zoning, is self-defeating, as it constrains more supply, than adds. As Charles Marohn, founder of Strongtowns has noted: "We have to move beyond the narrow, almost futile task of making affordable housing [through subsidies] and start working on the broader and more meaningful effort of making housing affordable.”
More good news is that a variety of Accessory Dwelling Units (ADUs) are allowed on a broad range of lots zoned for 1 and 2 family homes. The bad news is that the homeowner is required to live on the property to have an ADU. This is unworkable, as it makes getting financing for an ADU virtually impossible. Who would lend on the value an ADU adds to a home if owner-occupancy, an event you cannot control, is a requirement?
And, more good news. In medium to high density districts, more building area per parcel is allowed. However, this good news is cancelled out by a requirement that to qualify, 80% of this “bonus” building area must meet an 80% AMI requirement and 20% must meet, under certain circumstances, a deep affordability requirement of less than 40% of AMI. Also good news--rules were changed to allow underutilized offices and non-residential space to be converted to housing. The bad news is that many of these conversions won’t pencil out in terms of profitability.
In addition, three zones were created to reduce the level of mandated parking and this is a step in the right direction.
Finally, while $2 billion of the additional funding is for infrastructure projects, the really bad news is that the remaining $3 billion would go to fund a plethora of housing subsidies. Housing subsidy programs all suffer from the 5 Cs: Crowding Out, Cost, Complexity, Corruption, and Cartel.
More subsidies, inclusionary zoning, and regulatory complexity cannot solve NYC’s housing crisis. NYC needs to follow the AEI Housing Abundance Success Sequence. First, go further in enabling by-right zoning to allow greater density in lots of areas, particularly around walkable- and amenity-rich areas. Second, follow the KISS (Keep it Simple Stupid) principle--instead of micromanaging the process with complex regulations and inclusionary zoning. Next, broadly define core commercial and industrial areas as Livable Urban Villages, where higher density apartments and townhomes would be allowed by-right. Finally, follow Philadelphia’s creative use of real estate tax abatement in 1997 called “turning on the lights on upstairs” . It was by right and quickly and successfully converted underutilized offices and non-residential space to homes by allowing them to pencil out.
Implementing the Housing Abundance Success Sequence could yield over 19,000 additional homes annually, all without subsidies and all generating substantial additional revenue to NYC. This total includes about 6,000 additional homes annually from light-touch density infill with the tear down of an existing single-family detached home and over 13,000 additional homes annually from Livable Urban Village core areas. While a small percentage of these homes would also result from the City of Yes, the vast majority would be new additions and require no subsidies.
In addition to creating more homes, the Housing Abundance Success Sequence improves neighborhoods and communities by getting the incentives right. Instead of a few rental buildings subsidized by tax increases, it would create over 190,000 more naturally affordable homes for families and individuals to rent and own. Because these efforts would be undertaken with private funding, these will be state-of-the-art homes that add to the character and value of their neighborhoods. By requiring less land and providing smaller, family-sized homes, it makes both new and existing housing affordable to a broader range of middle-class families.
It offers a better path by unleashing market forces to create abundant housing for a broad range of income levels. Rather than relying on subsidies and quotas, it restores property rights and allows organic growth in the places that make sense: commercial corridors and their surrounding neighborhoods, along with parcels that could benefit from modest up zoning to allow a higher and better use.
New Yorker's would see abundant naturally affordable housing, revitalized commercial areas, and enriched communities– all without raising taxes, providing subsidies, or creating new bureaucracies.
