Gentrification and the City - The Challenges for Affordable Housing Production in New York City

Complaining about housing cost in New York City is about as common as complaining about subway service or humidity in August – everyone does it.

While the trains and the weather affect everyone, the consequences of changing housing costs can vary widely for different socio-economic groups. Poorer people risk being priced out and are replaced by the ones better of – a process known as gentrification. For the displaced, this may have dramatic consequences – worse access to jobs and services and the stratification of inequality.[i] Bill de Blasio’s landslide mayoral election victory, in November 2013, was to a large degree driven by real or perceived housing affordability crisis in New York City and reflected the worries of many New Yorkers.[ii]

New York City’s own gentrification debate focuses on neighborhoods particularly in Manhattan, northwestern Brooklyn and western Queens which have seen rapid redevelopment since the early 2000s, only briefly slowed down by the economic crisis of 2008. A random collection of newspaper headlines illustrates the urgency of the issue: The New York Post noted “City Renters Rocked as Avg. Hits $3,000” (July 11, 2013), the same day the Wall Street Journal made it clear that buyers are not any better off: “Brooklyn, Queens Spurt – Buyers Are Eager to Close Deals Before Rates Rise”. In May of 2013, the New York Times reported on the proliferation of luxury condominiums: “Sky High and Going Up Fast: Luxury Towers Take New York” (May18, 2013), and are part of a continuous discourse about gentrification in the media, community groups, blogs, and political circles.

The question, however, is if these changes that are taking place can be summarized under “gentrification” or other processes.

For the purposes of this paper, a rather simplistic definition of gentrification will be applied, as the main thrust is not to analyze the process itself but rather to determine if the process has been and still is taking place.

Therefore, gentrification will be quite simply understood as a process of population growth in which poorer residents of a defined area are at least partially replaced by socio-economically better-off populations because of a shrinking supply of affordable housing. In contrast to that, growth is simply defined as a process where population is added but no significant socio-demographic change is taking place, i.e. the newcomers have a similar socio-economic and ethnic background.

This will be examined on two levels – on the regional level, the analysis focuses on New York City – the five boroughs of Manhattan, Brooklyn, Queens, the Bronx and Staten Island – as a whole, and the region, represented by the two counties of Westchester and Nassau to the north and east of New York City as necessary points of comparison[iii]. The neighborhood-level study will focus on three Community Districts (CDs) in Brooklyn, Greenpoint-Williamsburg (CD 1), Bedford-Stuyvesant (CD 3) and East New York (CD 5). Community Districts were chosen because they are defined political and administrative units for which statistical data is available – in contrast to not clearly delineated neighborhoods.

The Regional Context

New York City is regularly cited as one of the most, if not the most, expensive cities in the U.S. in which to live. Based on information from the real estate website Zillow.com for July 2013, housing values are indeed higher in New York City ($458,900) than in suburban Nassau County ($404,000) but still lower than in equally suburban Westchester County ($491,700). Of course, these numbers do not take housing type (apartment compared to a single family home, for example) or unit size into account. But if local taxes, in particular property tax, are taken into account, the city is even more competitive than the suburbs. In 2010, median property taxes in Queens were $265 per month, compared to $774 in Nassau and $829 in Westchester.[iv]

It is important to note, however, that most New Yorkers are renters; only 30 percent of New York City households actually own their residence[v] versus 82 percent percent in Nassau and 62 percent Westchester[vi].

Rental levels, therefore, are a more important gauge for measuring the financial strains housing puts on New Yorkers. Surprisingly, though, median rents in New York City are significantly lower ($2,038), than in both Nassau ($2,615) or Westchester ($2,700) counties, also according to Zillow.com. This partially reflects potentially larger rental properties – houses versus apartments – in the suburbs, but also hints at different levels of government intervention in regulating the housing market. In New York City, only slightly more than one third (39.3 percent)[vii] of all rental units are market rate rentals. All others are subjected to various forms of rent regulation.

This regulation can take different forms and is strictest in New York City’s public housing, that is housing directly owned by the City, New York State or the federal government, which is a significant part of New York City’s housing stock. New York City’s Housing Authority (NYCHA) is the City’s largest landlord with 179,484 units, accommodating roughly 400,000 New Yorkers or almost five percent of the City’s population. The federal Section 8 program, administered by NYCHA, provides vouchers to renters in privately owned properties which cover the difference in the residents’ actual rent payment and what the landlord charges. There are more than 92,000 units administered under Section 8, housing an additional 225,000 New Yorkers. In public housing and housing governed by the Section 8 program, rent payments are generally capped at 30 percent of household income, but strict income limits apply. Therefore, the average income of households living in NYCHA-administered units is only about a quarter of the city average[viii].

Subsidized housing is another tool in New York City’s housing policy. Subsidies are granted in the form of tax abatements such as the 421a program or other programs. The benefit determines the level of affordability and the duration for which the housing units must be kept affordable. Affordability levels are determined for certain income bands based on the Area Median Income (AMI), which is calculated by the federal Department of Housing and Urban Development (HUD) and New York State, and was $85,900 in 2013 for a family of four[ix]. As for public housing, rents are equal to roughly 30 percent of household income, but programs apply to higher income levels than public housing, ranging from 30 percent of the AMI for very low-income households to 175 percent for moderate-income households[x].

Rent-stabilized apartments are dwelling units for which the rent-increase is not determined by the landlords, but by the Rent Guidelines Board. The Board was established under state and local law, representing tenants and landlords. Based on an annual assessment of incomes and operating costs for rental properties, the Board determines the increases for all apartments that are rent stabilized, which are 45 percent of all rental units or 29 percent of the City’s total housing stock[xi]. In contrast to public and subsidized housing, there are no income limits for rent-stabilized units, it is only the rent increase that is capped.

In recent years discussion about affordability has increasingly focused not just on housing, but also on the combined burden of housing and transportation cost. In this respect, too, New York City is more competitive than the suburbs. In New York City, car ownership is for many an unnecessary luxury while owning one or multiple cars is a necessity for residents of the suburbs for their everyday work and errands. An unlimited monthly transit pass for New York City’s transit system is $112 per person per month, while car ownership on average, according to a New York Times survey, is more than $900 per car per month[xii]. Corrected for commuting patterns – some New York City residents use cars while some suburbanites use transit – transportation cost per month for NYC households is less than half that in Westchester and Nassau counties at $1,044 vs. $2,223 and $2,202 respectively[xiii]. Not surprisingly, HUD’s “Location Affordability Index”[xiv] which shows combined housing and transportation cost as a percentage of monthly household income, shows New York City as an island of relative affordability in a sea of oftentimes unaffordable suburbs.

All in all, New York City has a fairly comprehensive tool kit targeted at the needs of low to medium income segments of the housing market. Due to those tools, lower property taxes and lower transportation cost because of the availability of transit, housing especially for renters is more affordable than in the suburbs to the east and north.

Neighborhood-Level Analysis

Of course the regional level analysis says little about individual neighborhoods where long-term residents are replaced by more affluent newcomers and mom-and-pop stores by boutiques and coffee shops. To get a better idea of neighborhood level effects, three Community Districts in Brooklyn were chosen: Greenpoint-Williamsburg (Brooklyn CD 1), Bedford-Stuyvesant (CD 3) and East New York (CD 5). All three Districts have between 150,000 and 180,000 residents[xv] but can be characterized by their varying levels of gentrification, with Greenpoint-Williamsburg being the most and East New York the least gentrified.

Greenpoint-Williamsburg is located in northwest Brooklyn, across the East River from Manhattan’s Lower East Side, and has in recent years been synonymous with gentrification and hipsterism, but also contains a large (and growing) enclave of orthodox Jews. Notable for CD 1 is a big rezoning that took place in 2005 that allows for the residential redevelopment on former industrial areas along the East River waterfront.[xvi]

Bedford-Stuyvesant, located in north central Brooklyn and bordering on Greenpoint-Williamsburg, is characterized by historic brownstone rowhouses and is still a majority African-American community. Since 1990, the area has seen a massive influx of white population, which grew by a staggering 1,200 percent, although from a very low base.

East New York is located in northeast Brooklyn, bordering on Queens, and is a low-income, majority African-American and Hispanic community and one of the few communities in New York City where the black population has actually increased since the 2000 census – overall, the African-American population in New York City declined by eleven percent between 1990 and 2010.

All three community districts saw significant population growth between 1990 and 2010. All grew faster than Brooklyn as a whole, which grew by nine percent, but only East New York grew faster than New York City as a whole (13 percent vs. 12 percent). Despite the changes in Greenpoint-Williamsburg and Bedford-Stuyvesant, the median household income in all three Districts is still lower than in Brooklyn ($43,342) and NYC ($50,130) as a whole, the lowest being East New York ($32,463), and the highest Greenpoint-Williamsburg ($43,070).[xvii]

The number of housing units grew significantly more in all three districts than the population. Greenpoint-Williamsburg added almost three times more units than residents (11 percent population growth between 1990 and 2010, and 30 percent more units), and even in Bedford-Stuyvesant and East New York, housing production significantly outpaced population growth. In CD 3 the population grew by 10 percent while the housing stock increased by 23 percent, and in CD 5, the population increased by 13 percent and housing by 27 percent.[xviii] This means that many of the newcomers were probably absorbed not simply by replacing long-time residents but were accommodated in housing that previously did not exist.

But was the new housing only market-rate housing, either for ownership or rental, or was there also additional affordable, i.e. rent-controlled or rent-stabilized, housing created? The somewhat surprising answer is that in all three Community Districts, the absolute number of affordable units increased between 2000 and 2010. In both Bedford-Stuyvesant and East New York, also the share of rent-controlled and stabilized units grew significantly during the same period.[xix]

The increase in affordable units in all three community Districts can most likely be attributed to the City’s New Marketplace Housing Program that produced or preserved almost 160,000 affordable housing units between 2002 and 2013 across New York City.[xx] Paradoxically, or contrary to public perception, rapidly growing neighborhoods, including gentrifying neighborhoods, seem to be quite successful in the production of affordable housing. The growing neighborhood of East New York was more successful in adding affordable units, but even the gentrifying neighborhood of Greenpoint Williamsburg saw an increase in the absolute number of affordable housing units, even as the share of affordable units dropped amid strong market rate development.

Gentrification in New York City: Everything under Control?

The data presented thus far seems to suggest that both gentrifying neighborhoods – i.e. neighborhoods where the ethnic and socio-economic makeup is changing, and growing neighborhoods, where population of similar ethnic or socio-economic strata are added – are quite successful in producing affordable housing under current housing policies.

Unfortunately, the picture is more mixed. The relatively lower housing and transportation costs in New York City are offset by a significantly lower median income in the City than in the suburbs. While Nassau and Westchester counties have median household incomes of $95,823 and $80,725, respectively, it is only $51,270 in New York City, according to the U.S. Census Bureau[xxi]. What is particularly worrisome is that incomes in New York City have in recent years at best stayed flat, and, adjusted for inflation, have even been declining. Even though the New Marketplace Housing Program has produced a significant number of new affordable units or preserved already existing affordable units, the City as a whole lost more than 200,000 rent-controlled or stabilized units between 2000 and 2010[xxii], meaning a net loss of 40,000 units while the overall population increased.

The loss of affordable units was due to the expiration of subsidies, or rent-stabilized units falling out of the program once the rent for new tenants reached the threshold defined by law. A comparatively new program, the Inclusionary Housing Program, is an incentive programs that creates permanently affordable housing units by giving developers a density bonus if they provide a percentage of their housing affordably to certain income bands, but this program has so far only yielded about 15,000 units.[xxiii]

Also, while certain parts of the city like Greenpoint-Williamsburg, Bedford-Stuyvesant and East New York have seen a housing production greatly exceeding population growth, housing production in the city as a whole grew only marginally faster than the population (13 percent vs. 12 percent). If one takes into consideration that the population is probably undercounted – due to undocumented residents living in illegal and overcrowded apartments – and that household sizes continue to shrink, the already scarce supply of housing is becoming even tighter.

Another fairly recent issue is that services such as AirB’n’B and other booking sites take a significant number of permanent housing off the market by making them available only for short-term rental by tourists, because this is significantly more lucrative than long-term rentals.[xxiv] Additionally, short-term stresses like Hurricane Sandy, which had damaged about 70,000 units to varying degrees, aggravate the housing shortage.[xxv]

Affordable housing programs in New York City, therefore, have to contend with two major issues: The constant loss of affordable housing due to expiration of subsidy programs and protection mechanisms, and a still-growing population, increasing the demand for housing.

In addition to the sheer number of people moving to the City, their demographic and socio-economic composition is changing as well. While New York City’s population growth since the fiscal crisis in the 1970s was mainly driven by relatively poor immigrants from abroad, whose numbers have dwindled during the recession starting in 2008, more and more relatively affluent people with more disposable income from other parts of the U.S. have been flocking to the City in recent years[xxvi], increasing the pressures on the local real estate market.

Another challenge is that land for building new housing is increasingly becoming scarce. While land was always of short supply (and expensive) in Manhattan, the City in the last few decades benefitted from being able to redevelop land formerly occupied by now defunct industries along the waterfront and land it acquired cheaply in the 1960s and 1970s when their owners fled the city in droves. But today, even areas like Melrose in the Bronx, long synonymous with blight and urban decay, have mostly been rebuilt with (mostly affordable) housing, exhausting the supply of cheap land. Densification as a strategy increasingly reaches its limits with a transit system being (and often times already exceeding) capacity. Investments in expanding the transit network at the same time have been insufficient – the extension of the 7 line adds only one station to make the Hudson Yards development accessible which will most likely increase rather than decrease usage of this already heavily used line, and the Second Avenue subway, the first phase of which is slated to open in 2016, only reaches a small section of the Upper East Side in this initial stage, but none reach rapidly developing areas in western Brooklyn and Queens.

While the new administration’s housing plans – which propose to preserve or add 200,000 affordable housing units in ten years[xxvii] and are more aggressive than the housing policies of previous administrations – are certainly commendable, affordable housing production in the New York City faces tremendous challenges if current demographic and socio-economic trends continue and no new policies and tools are developed.

[i] David Leonhardt, “In Climbing Income Ladder, Location Matters”, The New York Times (July 22, 2013).

[ii] Michael Barbaro and David W. Chen, “De Blasio Is Elected New York City Mayor in Landslide”, The New York Times (November 5, 2013).

[iii] The New York City Metropolitan Region of course larger than just the City and Westchester and Nassau counties, and includes 31 counties in New York Sate, New Jersey and the Connecticut, according to the definition of the Regional Plan Association.

[iv] Property tax information: Median property tax by county from 2010, based on the Tax Foundation “Property Tax Data by County” database For New York City, the numbers for Queens County were used, as an approximation for the city, as data is only available by county.

[v] New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2011, p. 48.

[vi] U.S. Census Bureau website “American Community Survey 2007-2011 5-year-estimates”

[vii] New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2011.

[viii] New York City Housing Authority Website “About NYCHA – Factsheet”, retrieved March 4, 2014.

[ix] New York City Housing Development Corporation website “Income Eligibility”, retrieved March 4, 2014.

[x] Ibid.

[xi] New York City Rent Guidelines Board, 2013 Housing Supply Report (May 30, 2013).

[xii] Car ownership cost in New York State in 2008 was $56,147 over a five year period in 2008, according to Daniel McDermon, “Cost of Ownership Across 50 States”, The New York Times Wheel Blog (February 21, 2008).This cost includes gasoline, insurance, financing and maintenance but not the purchase price. A combined total cost of $82,000 was assumed for purchase and other cost of car ownership.

[xiii] Monthly cost per car (see previous note) were multiplied with U.S. 2010 Census car ownership per household numbers (0.6 in New York City, and 1.6 each in Nassau and Westchester counties); added to transportation cost were costs of two 30 day Metrocards ($112 each) per household for New York City, and the monthly rail pass cost for Long Island Railroad and Metro North Railroad, multiplied by Census 2010 data for train ridership.

[xiv] U.S. Department of Housing and Urban Development, U.S. Department of Transportation “Location Affordability Portal”, retrieved March 4, 2014.

[xv] New York City Department of City Planning website “Brooklyn Community District 1 Profile”, “Brooklyn Community District 3 Profile” and “Brooklyn Community District 5 Profile”, all retrieved March 6, 2014.

[xvi] New York City Department of City Planning website, “Greenpoint-Williamsburg”, retrieved March 6, 2014.

[xvii] New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2011, pp. 70, 72, 74.

[xviii] New York City Department of City Planning website “Brooklyn Community District 1 Profile”, “Brooklyn Community District 3 Profile” and “Brooklyn Community District 5 Profile”, all retrieved March 6, 2014.

[xix] New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2002, p. 21, and New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2011, pp. 70, 72, 74.

[xx] New York City Department of Housing Preservation and Development website, “The New Housing Market Place Plan (NHMP) By the Numbers”, retrieved March 6, 2014.

[xxi] U.S. Census Bureau: American Community Survey 2007-2011 5-year-estimates.

[xxii] New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2002, p. 21, and New York University Furman Center for Real Estate and Urban Policy, State of New York City’s Housing and Neighborhoods 2011, p. 48.

[xxiii] New York City Department of City Planning website “Inclusionary Housing Designated Areas – Production, 2005-2013”, retrieved March 6, 2014.

[xxiv] Elizabeth A. Harris: “The Airbnb Economy in New York: Lucrative but Often Illegal”, The New York Times (November 4, 2013).

[xxv] The City of New York, A Stronger, More Resilient New York (June 2013), p. 14.

[xxvi] New York City Department of City Planning: The Newest New Yorkers – Characteristics of the City’s foreign-born Population, 2013 Edition, p. 5.

[xxvii] Bill de Blasio for Mayor website, “One New York, Rising Together”, retrieved March 10, 2014.