New York City has a housing emergency. If you have ever lived in the city, you know that rents are so high there is even a political party dedicated to making it more affordable!
But this emergency is nothing new. In 1962 the Local Emergency Housing Rent Control Act was enacted to protect New York State’s residents from…
“…exactions of unjust, unreasonable and oppressive rents and rental agreements and to forestall profiteering, speculation and other disruptive practices…”
Since the NYC mayoral elections are coming up this year, I figured I would throw my hat into the ring, too, and come up with a (partial) housing fix for New York City. I call it the 5 by 25 plan: a 5% vacancy rate by the year 2025.
The leading democratic mayoral candidate, City Council Speaker Christine Quinn, has already released a new housing proposal in her Report on the State of the City’s Middle Class. Speaker Quinn’s plan calls for the construction of 40,000 units of middle-income housing, for households earning 100%-300% of the area median income ($46,000-$139,400 for a single-person household) over the next 10 years. She recommends a special focus on middle-income co-ops and condos and a push for the renewal of landlord enrollment in the 421-a affordability program (also known as 80/20). It’s a good effort, but I don’t think it’s enough and I’ll tell you why…
Without discussing the details or merits of Speaker Quinn’s proposal, let’s look back to the 1962 Emergency Housing Act again.
The primary indicator utilized to enact the emergency statute was New York City’s rental vacancy rate. The vacancy rate should therefore be one of the tools to measure a program’s success at tackling the NYC housing emergency.
Q: So what’s the magic number which dictates “emergency levels”?
A 5% rental vacancy rate is generally considered the low-end of an area’s rental “health” because it provides a buffer against high rents, a lack of housing choices, and encourages a more flexible workforce. Existing landlords are the ones who tend to benefit the most from low vacancy rates since it keeps demand high.
New York City’s vacancy rate is currently a meager 3.12%, and is therefore one of the major factors which necessitates government intervention into the housing market. How do we help end New York City’s housing emergency? We must raise our rental vacancy rate to at least 5%.
But what does this actually look like? Well, let’s run the numbers…
There are between 3.37 and 3.35 million housing units in New York City according to the US Census and the city’s Housing Department (HPD), respectively (Most of the following numbers come from HPD).
2.17 million of these are rental units (65%), with the borough of Brooklyn claiming the greatest share of these at 30% and Staten Island the least at 5%. Of these rental units, 987,000, or about 45% of the city’s rental housing stock are rent-stabilized. But hecklers take note: less than 11% of these were built after 1947. Staten Island also has the highest vacancy rate (6.65%), followed by Queens (3.79%), the Bronx (3.23%), Brooklyn (2.61%) and Manhattan (2.8%).
Of interesting note is that there are also more than 160,000 vacant units in NYC which are unavailable for rent or sale. Forty percent of these units are not circulated in the housing market because they are held for occasional, seasonal, or recreational use (the highest since recording began), while an additional 30% are awaiting or undergoing renovations. These units are effectively removed from the market every year and further restrain the availability of housing in the market.
So what does the actual rental market look like with regard to vacancy rates and prices? Well, you guessed it, the less expensive the rental unit, the more in demand it was. Units renting at less than $800 per month had an astounding 1.10% vacancy rate. In contrast, rental units at the higher end of the spectrum charging more than $2,500 actually had a 5.26% vacancy rate, slightly higher than the “emergency level” in the Emergency Housing statute.
What the above chart shows us is that we may not really need a drastic increase of rental units charging more than $2,000 per month. Any affordable housing recommendations should therefore focus on increasing the number of units available in the lower price brackets.
5 by 25: Is it possible to create a 5% vacancy rate by 2025?
Now looking back to Speaker Quinn’s push to create 40,000 new units over the next 10 years, it just may not be enough. In fact, the gross loss of units in the NYC housing inventory is on average 14,000 per year. While we still have had a net average increase of more than 17,000 units per year since 2002, the last eight years have seen ahistorical growth, as compared to the 1980’s and 1990’s, where we only netted between 4,000-9,000 units per year.
The city will need to produce 168,000 units of housing over the next 12 years in order to just maintain existing housing stock through 2025. As well, the city’s population is projected to increase by an another 300,000 during the same time period. Assuming persons per household remains steady at 2.61, this population will require 115,000 new units of housing by 2025. But we need to meet more than demand, we must also increase the vacancy rate by at least 1.88% to meet that magical 5% threshold, which would necessitate an additional 3,500 new rental units yearly through 2025.
In order to meet that total demand, the city will need to create around 27,000 new rental units per year, for the next 12 years. Is this even possible?