With the state legislature deadlocked with the governor and mayor on what to do about the city’s housing crisis, the consequences for renters and the economy is becoming clearer.
Rents on new leases in Manhattan and Brooklyn unexpectedly rose in February and are on track to set new records this summer as demand for apartments exceeds supply,
Construction of new apartments, especially in large buildings, has plunged following the expiration of the 421-a tax break for new rental buildings in New York City.
And construction employment in the city is dropping and remains well below pre-pandemic levels, a sign of how the lack of new projects is hurting the economy.
All this comes on the heels of the key Census Bureau tally, the Housing and Vacancy Survey, which showed just 1.4% of apartments were available for rent during the count last year.
Mayor Eric Adams’ deputy mayor in charge of housing and economic development, Maria Torres-Springer, says that the need for state cooperation as well as federal support is increasingly urgent.
“These new reports together with the latest findings of the Housing and Vacancy Survey all point in one direction: The necessary actions that city, state and federal partners have to take in order to bend the curve on the housing crisis,” said Torres-Springer, who is Adams’ point person on negotiations with the legislature and Gov. Kathy Hochul.
Last year, Hochul and Adams announced with great fanfare proposals to boost housing construction, which had fallen well below what is needed to keep pace with demand in both the city and the state. But the legislature failed to pass any housing measures amid a deadlock between real estate interests and tenant groups over tax breaks and new protections for renters.
The mayor began a campaign earlier this year for his proposals, which all require action from Albany. They include a new tax break for newly constructed rental buildings, flexibility to convert more office buildings to residential use, greater allowed density for residential buildings and legalizing basement apartments and other so-called accessory dwelling units.
The governor reiterated her support for that agenda. This week, the state Senate’s budget proposal included some elements of the Adams/Hochul vision, including a possible tax break for new rental units and conversions and permission from the state to allow higher density residential construction in the city. The Senate also proposed a “good cause” anti-eviction measure that would cap rent increases statewide — a persistent demand of tenant groups.
The Assembly did not include any specific housing measures in its budget proposal, in keeping with its practice of only dealing with financial issues in its so-called one-house budget.
New data shows the results of the Albany standoff.
Rents in Manhattan set a record for February, with the median new lease rising to $4,230, according to the monthly Elliman Report released Wednesday. Brooklyn saw the third increase in four months with a median rent of $3,329. While there is no comparable monthly data for the other boroughs, rents have risen throughout the city in the past two years.
The Manhattan number is only slightly below the record of $4,400 set in August, and Brooklyn is also down only modestly from the record $3,850.
Experts had expected rents to stabilize after a sharp run-up that began when the Federal Reserve began raising interest rates in early 2023, sending mortgage rates higher and New Yorkers who had been thinking about buying back into the rental market.
But with the city still adding jobs and the Fed delaying interest rate cuts until later this year, the likelihood is that new rent records will be set this summer, said Jonathan Miller, who has authored the Elliman report since 2008. Demand will be especially high for studio and one-bedrooms, which are the favored option for those who can’t buy due to high mortgage rates.
“We have noticed there has been an uptick in customer inventories and properties are moving quicker,” said Hal Gavzie, executive vice president of residential leasing at Elliman. “If renters who can’t buy renew their leases this spring, that will keep rents increasing.”
‘Worse Every Year’
The major problem remains that there are not enough apartments for rent.
“There is clear evidence that we are not building enough housing,” said Miller. “The problem is getting worse every year. It is New York City’s best interest to create housing for its workers and that just isn’t happening.”
Ever since the 421-a tax break expired in June 2022, new construction of apartments has plunged, according to data on how many new foundations are begun that is compiled by the Real Estate Board of New York.
The 421-a abatement, which forgives property taxes worth about $1.8 billion a year, provided a tax exemption for up to three decades and had required a third of the apartments be set aside at lower rents. It is designed to counter a property tax system that taxes rental units at several times the rate of homeowners, coops and condos.
Builders last year filed only 285 applications for foundations for multi-family buildings that would produce 9,909 apartments. In 2022, new foundation applications envisioned 45,593 new apartments, following a surge of filings before the tax abatement law expired.
The reason for the big decline is that most of the new projects are small. Only 28 applications last year were for projects with more than 100 units, a 78% plunge from 2022. New filings so far in 2024 have continued at a pace of about 30 a month, mostly for small projects.
Meanwhile, construction jobs are declining. The city counted only 139,000 construction jobs in December, according to revised data issued last week, a loss of about 4,000 last year. The city boasted 161,000 jobs in December 2019 before the pandemic.
The failure to agree on a 421-a replacement is what is causing the weakness in employment, said Carlo Scissura, president of the New York Building Congress.
“If the Senate, Assembly and governor would agree on a 421-a deal, you would see an immediate increase in jobs,” he said.
In addition to state action, Deputy Mayor Torres-Springer says, it will be crucial for the City Council to approve Adams’ ‘City of Yes’ housing zoning plan that would make it easier to build, and for the U.S. Senate to approve a House-passed measure that would expand the Low-Income Housing Tax Credit, a widely used subsidy for affordable apartments.
But the focus for the next few weeks will be on Albany and whether a deal can be reached as part of budget negotiations due to be completed by April 1.
Torres-Springer says she is optimistic about reaching a deal because of the provisions the state Senate included in its one-house bill and hints from the Assembly that its members are willing to tackle the issue.
“Hopefully lawmakers are hearing from all corners that we need to get to a housing package this year,” she added. “There is a lot at stake.”