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Let the Market Do the Zoning

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Let the Market Do the Zoning

The future growth of Soho and Noho should be determined by demand, not intricate machinations among planners, activists, and politicians. December 14, 2021
New York
Economy, finance, and budgets
Politics and law

Last week, a city council committee approved modifications to Mayor Bill de Blasio’s proposed rezoning of Soho and Noho. The whole council will almost certainly ratify the changes this week. Hounded by fierce opposition from well-financed groups that want no development at all but embarrassed by past failures to enact zoning changes in high-opportunity neighborhoods, the council pared back the plan approved by the City Planning Commission. The council likely hopes to allow the least amount of change possible while still achieving the goal of new mixed-income housing, but the outcome is likely to be disappointing.

I’ve written twice before about this controversy, defining in November 2020 four goals that any rezoning of this small area—well-served by transit but hitherto restrictively regulated—should achieve. Seen in this light, the council’s changes are a series of missed opportunities.

First, any zoning change needs to extricate the city from artists-only zoning, enacted in the 1970s and nonsensical today. A straightforward way to do this would be to declare that anyone can live in any housing unit in the area. However, the City Planning Commission, concerned that someone, somewhere, might be getting away with something, didn’t opt for this approach; instead, it approved zoning that requires payment into an “arts fund” before a unit can be liberated from artist-only occupancy. And the council didn’t improve on this proposal. Rather than paying this fee, many units will likely remain in an ambiguous status, occupied by non-artists. The council committee’s approval of legislation increasing fines for such illegal occupancies worsens the problem. As has been the case for decades, the city winks at non-artist residents but pointlessly preserves the threat of arbitrary enforcement.

A second goal should be to recognize the retail character of the ground-floor spaces in Soho and Noho. The Planning Commission’s proposal did this, but the council’s modification limits the size of new stores. This probably won’t prevent the ground floors from being tenanted, but it will constrain retail choices for residents, workers, and visitors.

A third goal: accommodate the growth of large institutions that flank Soho and Noho. Here the council gave a flat no: colleges and universities, including classrooms, labs and dormitories, won’t be allowed. This is a missed chance to reduce conflicts between New York University and its residential neighbors by letting the university expand in relatively less dense Noho.

A fourth goal is to allow housing to be built in the rezoned area. Packed with historic districts, the neighborhood doesn’t have many development sites. As approved by the City Planning Commission, the rezoning was projected to produce about 1,800 new housing units, probably concentrated in Noho and two small enclaves in the southeast and southwest corners of Soho. This figure was likely over-optimistic, because all new housing would be subject to Mayor de Blasio’s Mandatory Inclusionary Housing (MIH) program, which requires that a percentage of units be provided for low-income households. Because MIH is effectively a tax on housing, no private property owner will use it without compensation. State legislation, fortunately, makes long-term tax exemptions available on all the units, both market-rate and below-market, in a rental building participating in MIH. In very strong housing markets such as Soho/Noho, the value of these tax exemptions more than offsets the cost of the low-income housing, creating, in principle, a feasible private investment.

A number of issues remain, however. One is that the tax-exemption program expires next year. If it’s not renewed in a viable form, no more mixed-income rental housing will be built in Soho/Noho. Another issue is that mixed-income rental housing needs to compete successfully against alternative uses of the land, including existing uses (for example, public parking) and any nonresidential uses. While alternative uses are rather limited in Soho and Noho, and the council further cut them back, office buildings and certain types of community facilities are permitted.

Unfortunately, the council took steps to make mixed-income housing less competitive. First, it cut back on the permitted residential floor area in much of Noho, though the largest development sites were unchanged. Second, it required that mixed-income buildings use an MIH option in which 25 percent of new units must be made affordable to low-income households at rents ranging from $956 a month for a studio to $1,437 for a two-bedroom apartment. The council eliminated another option approved by the Planning Commission, which allowed higher rents but required 30 percent of units to be below-market.

At the rents approved by the council, below-market units can’t support mortgage debt, placing a greater financial burden on the market-rate rental units. Effectively 75 percent of the building must support the cost of building the other 25 percent. Commercial buildings, or mixed commercial and community facility buildings, may not be allowed as much floor space, but all that space may be rented out at market rents, or sold as commercial condominiums at market prices. As an investment proposition, the differences in return may not be large.

That the exhausting and awful public process for the Soho/Noho rezoning—in which city officials endured being berated at public meetings and fought back against incessant disinformation—may not in the end produce even the modest amount of housing projected by the city is indicative of the limits of de Blasio’s approach to land use. Soho/Noho is the best this approach could offer, but the plan is ultimately trying to force a mixed-income residential outcome by denying reasonable alternative uses of property and then exempting some of the most valuable property in the city from taxes for decades.

New York City needs housing, jobs, and institutions worthy of its greatness. The future growth of Soho and Noho should be determined by market forces, not intricate machinations among planners, activists, and politicians.

Photo by Spencer Platt/Getty Images

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