New York City is facing a severe housing shortage, with the lowest vacancy rate since 1968 and rents on the rise. The demand for housing is outstripping supply, leading to escalating free market rents. While New York City saw a 5.4% year-over-year rent increase in February, other cities that are building new housing, such as Austin, experienced a decline in rents. The Regional Plan Association projects that New York City will need nearly 500,000 more units of housing by 2032, but the City is not keeping up with demand, only completing 11,000 residential units in 2023.
Mayor Eric Adams has recognized the housing shortage issue and supports development incentives such as office-to-residential conversions, eliminating parking mandates in new housing complexes, allowing accessory dwelling units, and changing zoning requirements to encourage the construction of new housing. One key program that has been instrumental in encouraging housing development is the 421a tax abatement program, which expired in 2022 and has not been renewed. The lack of this tax incentive, along with rising construction costs, has stalled rental development in recent years, leading to a decline in land transactions in 2023.
Governor Kathy Hochul has proposed a successor to the 421a program in her FY 2025 Executive Budget, which aims to extend the completion deadline for vested projects, increase floor area ratio (FAR), provide incentives for office-to-residential conversions, and authorize the creation of basement apartments. However, the New York State Senate has proposed a One-House Budget Resolution, which includes extending the construction completion deadline for vested projects, creating a tax exempt program to replace the expired 421a program, and introducing more tenant protections, including universal rent control for free market units.
The consequences of housing regulations, such as the Housing Stability and Tenant Protection Act (HSTPA) of 2019, have had unintended consequences, including discouraging investment in maintaining existing housing and developing new rental units. Owners of rent-stabilized housing and tenants have suffered as a result of these regulations, with some rent stabilized buildings seeing a decrease in value and financial institutions being impacted. The push for more incentives and less regulation in the development of housing is seen as a way to address the housing shortage problem in New York City.
Developers and investors require incentives to make profits with less risk when considering developing new housing. The focus should be on creating more housing or expanding vouchers rather than imposing more regulations on owners, which have wide-ranging unintended consequences. Initiatives such as tax abatements, zoning bonuses, and affordable housing plans could help address the shortage of housing in the city. It is crucial for these initiatives to be clear, massive, and as of right, to provide developers with an immediate action plan and enable them to start building without delays.