The Joint Legislative Public Hearing on Fiscal Year 2023-2024 Executive Budget Proposal Topic: Housing

Basha Gerhards

Senior Vice President of Planning

February 28, 2023

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The Real Estate Board of New York (REBNY) is the City’s leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate.

New York City does not produce enough housing for our job and population growth. According to a study by AKRF, New York City needs to produce 560,000 housing units by 2030 to keep pace with demand, with an immediate need of 277,000 units. However, over the past decade NYC only produced 23 units per 1,000 residents annually.

By the end of 2020, the housing pipeline stood at just 79,500 units. Unfortunately, that number has only gotten lower. The lapse of 421a has undoubtedly stalled the already low rate of housing production. According to REBNY’s Foundation report, there was a 58% decline overall in the second half of 2022 in initial foundation application filings (for buildings 4 units or more), which was a 90% decline from December 2021. For buildings with 100 units or more, there was a 56% decline in filings from the first half of 2022 to the second half of 2022, following the lapse of 421a. Furthermore, an estimated 33,000 units in projects that have already begun foundation work are at risk of not moving forward at all as they will not be able to be completed due to the June 2026 completion date under the expired 421a program.

New York City needs more housing, but we also need to be smart about ensuring a fair share of the production by working across community boards, across the five boroughs, across the region, and across the state. Our housing construction has been unevenly distributed over the last decade, with Brooklyn and Queens leading in residential development and the city responsible for most of the multi-family production in the region. Manhattan accounted for the fewest filings of any borough in Q4 2022. City Planning reported that the Upper East Side added less new housing over the past decade than 57 of NYC’s other 58 Community Districts. Additionally, the four highest-growth Community Districts (CDs), Manhattan 4, Queens 1, Brooklyn 1 and 2, were responsible for nearly a third of New York City’s total housing additions, after each had manufacturing areas rezoned to residential use.

To address this challenge, the Governor has set a goal of building 800,000 new units over the next decade. This target is ambitious yet necessary and will not be achieved without changes to City and State policy, including by adopting proposals put forward in the Executive Budget to allow planned projects to move forward, help ease restrictive zoning, and remove the cap on the floor-area-ratio in residential buildings. Informed by the need for housing, including affordable housing in both New York City and the metropolitan region, comments about several of the specific proposals in the Executive Budget follow.

Office Conversions (Part K and Part P - ELFA)

This budget proposal permits buildings constructed before 1990 to convert to residential use and provides regulatory relief, including a seven-year State override for buildings to convert, without waiting for City zoning changes to go into effect. In addition, the budget proposes a new tax incentive to support the creation of permanently affordable units and requires prevailing wage for building service jobs.

This proposal is an important starting point to address the number of obstacles to conversions that State and local policy will need to address, including changes to the Multiple Dwelling Law, local zoning relief, and the need for a financial tool to support the inclusion of affordable housing in these projects.

It is clear that many older office buildings are struggling in the wake of the pandemic. Working with HR+A Advisors and REBNY’s leading commercial brokerage firms, analysis of CoStar data reveals a divide between Class A and Class B/C occupancy levels, leasing, and vacancy rates. Supporting this finding, REBNY recently released an analysis of location data from the firm Placer.ai, finding that Class A+ and A properties had a higher visitation rate than Class B properties in 2022.

We have seen this trend in numbers during other challenging times, particularly in Lower Manhattan. But this time, due to the COVID-19 pandemic and the ongoing adjustment with balancing where we live and work, this market shock and its adverse impacts to Class B and C commercial offices are not contained to just one neighborhood.

Fortunately, the Governor’s Executive Budget on conversions addresses these challenges by proposing to amend the state multiple dwelling law so that buildings built before 1990 can convert to residential use and to create a tax incentive so that affordability can be financially feasible in complicated and costly conversions. While not all Class B and C office buildings are candidates for conversion, the Governor’s proposal to amend the Multiple Dwelling Law will permit the City to implement the recommendations put forth by the New York City Office Adaptive Reuse Taskforce Study and benefit from these opportunities.

The budget proposals advance several important policy goals and are based on prior success in Lower Manhattan, which demonstrate how the ability to convert obsolete office buildings to residential use can build a more dynamic and vibrant community. While Lower Manhattan starts 2023 with challenges in office occupancy and leasing, its retail market did better than Midtown over the last several years because it has a significant share of residential units.
Further, the challenges in the office market today represents an opportunity to address the housing crisis and the lack of housing production occurring in high-income areas, particularly in Manhattan below 96th Street.

Converting obsolete office buildings in Manhattan to mixed income, affordable housing represents an opportunity to relieve housing pressure in other parts of the City, provide great access to jobs and transit, and ensure Manhattan does its fair share in providing affordable housing in high cost, high-opportunity neighborhoods.

Amendment of the 12 Floor Area Ratio (FAR) Cap (Part L- ELFA)

This proposal would authorize the City, through zoning, or the State, through a general project plan, to allow residential buildings to exceed 12 FAR. This change would subsequently allow for new residential construction subject to the City’s Mandatory Inclusionary Housing (MIH) program to occur in those neighborhoods deemed appropriate for additional density above the current cap.

Originally implemented in Albany in 1961, the cap mandates that a residential building cannot have 12 times more square footage than the lot on which it is built. This antiquated regulation greatly reduces the ability to create more housing by artificially capping residential density regardless of rational land use principles such as adjacency to transit, the City’s obligations under fair housing to create access to housing in neighborhoods of opportunity, and significant changes in residential construction technology.

Of note, any change to a neighborhood’s density would be subject to local public land use and environmental review and would include final adoption by the New York City Council.

421a Completion Deadline Extension (Part R- ELFA)

This proposal extends the completion deadline for projects already eligible and vested for a 421a benefit by four years. Currently, projects vested for a 421a benefit before the program’s expiration in June 2022 must complete construction by June 2026. The proposal extends the deadline from June 15, 2026, to June 15, 2030.

According to REBNY’s member survey, 33,000 units are in jeopardy of not being built or completed in time due to the current 421a completion deadline. Over 8,200 of these surveyed units are affordable, with many under the Mandatory Inclusionary Housing (MIH) program and therefore permanently affordable. These include projects in the Gowanus Neighborhood Rezoning. Projects that are unable to be built by the 2026 deadline will likely never be built at all, resulting in the loss of thousands of planned apartments amid a housing supply crisis and the loss of many planned construction and building service jobs.

Given that the expiration of the 421a program has dramatically reduced our housing pipeline, ensuring these 33,000 units are built should be of paramount importance.

Encourage Transit-Oriented Housing Development (Part G- ELFA)

This proposal establishes a framework to encourage the development of dense housing near mass transit, with the highest density minimums required within New York City and near the five boroughs. The proposal includes a builder’s remedy to appeal if an application is denied by a locality.

Transit-oriented development is needed to address the New York City metropolitan region’s housing shortage and encourage the use of mass transit to further reduce carbon emissions. With an urgent need to reduce carbon emissions, encouraging greater development near mass transit is a win-win as it will create housing, increase reliance on mass transit, and reduce carbon emissions from private vehicle travel. Vancouver recently proposed similar policies, encouraging single-family lots to increase density allowing for 1.0 FAR. Otherwise known as “gentle densification,” this policy allows for increased and diverse housing and improved accessibility while avoiding putting too much pressure on existing infrastructure. They found that housing prices would drop in half with the provision for extra density.

As this provision is considered, we would encourage a careful evaluation of the terminology and definitions to ensure usability across municipalities and local codes and to clarify that rulemaking will be necessary to implement. For example, New York City does not deal in dwelling units per acre, but in floor area and floor area ratios.

Local Growth Targets and Fast Track Approvals (Part F- ELFA)

This proposal will subject all municipalities to targets for new home creation every three years. The MTA region, including New York City, will have a target of increasing the number of new homes by three percent over three years. Localities that do not meet their targets will be subject to a new mechanism to help fast-track mixed-income, multifamily projects.

According to a recent NYU Furman Center report, “New York stands nearly alone among its peer states in permitting its suburbs to restrict growth without regard for regional housing needs. The cost has been immeasurable: a housing affordability crisis affecting the entire region, levels of racial segregation among the worst in the country, billions of dollars lost for the regional and national economies, and a missed opportunity to build a lower-carbon, transit-oriented region.”

While New York City certainly needs more rental housing, that does not eliminate the need for the region overall to carry its fair share of meeting the regions’ job growth and related housing demand. The Governor’s Executive Budget proposes to make $250 million infrastructure fund available and $20 million planning fund to support new housing production statewide is appropriate to support this work.

J-51 Replacement (Part M- ELFA)

This proposal would reinstate and reform the J-51 tax abatement program through 2025 to support capital improvements to affordable rental and certain owner-occupied buildings. Buildings benefiting from the program are required to have 50% of the building income restricted at 30-80% AMI, with those units also stabilized.

Preservation tools are important to the City and its housing agency as it seeks to encourage long-term affordability. This program will pair well with existing programs at the local level to preserve and maintain income-restricted homes. However, we are concerned that the proposal is inadequate to provide support to the full range of residential buildings that need investment.

Statewide Housing Production Database (Part H- ELFA)

This proposal would require DHCR to collect from localities and publish data on new construction, conversions, alterations, demolition, consolidation of housing sites within their jurisdiction, and zoning changes. This proposal would allow DHCR to better track how localities are meeting the prescribed housing targets.

While REBNY supports increased transparency and access to data, we urge the legislature to include the ability to track and publish data on stabilized housing. Currently, there is no publicly available, easily accessible data regarding stabilized housing across the state. REBNY believes adding this category for localities to track and publish would provide better insight into which jurisdictions are contributing to increasing affordable housing in New York.

Housing Voucher Expansion

The Governor’s Budget did not include an expansion in the voucher’s program. However, as part of final budget considerations for this year, REBNY encourages the adoption of the Housing Access Voucher Program (HAVP) (S568/A4021), a permanent, statewide Section 8-like rental assistance program as part of the state budget. As designed, a minimum of fifty percent of HAVP's resources will be dedicated to help homeless New Yorkers across the state find stable housing, while the remainder will go toward eviction prevention for households at risk of becoming homeless. Direct rental assistance is a proven cost-effective method of ensuring people can stay in their homes and access new ones if so preferred. Enabling additional and more effective use of rental assistance, especially in high-amenity areas, will expand housing choice for New Yorkers across neighborhoods.

Topics Covered

  • Housing