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A Self-Created Bind

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eye on the news

A Self-Created Bind

The New York Times reports a crisis: scarce Manhattan building sites are being “squandered” for large luxury condos. But these sites don’t need to be scarce. October 6, 2022
New York
Economy, finance, and budgets

People who work at New York City’s Department of City Planning (DCP), as I once did, know a funny little secret: the city’s Planning Commission (CPC) is a bit like the Federal Reserve. The Fed prints money. The CPC makes zoning—which is to say, it confers valuable development rights on property owners. When the economy is distressed, and the Fed starts up its money printer, interest rates fall, and the economy expands. When housing (or any other type of built space) gets scarce and expensive in New York City, the CPC can rev up its zoning machine and create enough zoned capacity to spur the production of much-needed new housing. In doing so, it creates construction jobs and tax revenue and facilitates the growth of other types of jobs by providing housing for the city’s expanding labor force.

That this amazing device has largely been neglected by New York City’s political establishment and media, and allowed to decay, is unfortunate. The latest indication is a recent article in the New York Times that reports on a handful of new apartment buildings recently constructed in Manhattan that have very large average unit sizes—that is, luxury condominiums catering to wealthy buyers who want large apartments. According to the sub-headline, “New boutique condo towers, some with fewer apartments than the buildings they replace, are squandering high-density sites in Manhattan, urban planners say.”

The reporter, Stefanos Chen, has gone to the trouble of learning about the obscure zoning regulation that governs the maximum number of units that can be built in a new building with a given amount of floor area. He supplies arithmetic calculations showing that the developers could have built many more units but chose not to.

But the article mistakenly implies that the supply of building sites in Manhattan is limited, and that the potential number of units needs to be maximized every time a new building is built. That view has several problems.

First—and I say this as one of the leaders of the DCP project team who successfully amended the Zoning Resolution in 2016 to increase the maximum housing-unit density in new high-rise residential buildings—the drafters of that rule never expected that every new building would build the maximum number of units. Developers will select a mix of unit sizes that responds to market demand. The environmental-impact study for the 2016 amendment, called “Zoning for Quality and Affordability,” states, “Most buildings [will] continue to provide residential units that are, on average, larger than currently required and it would only be in limited instances that buildings in high-density districts would utilize the greater flexibility afforded by this proposed change.”

Second, it’s a good thing that the market demand for very large units is being satisfied via new construction. The wealthy households that buy these units have the resources to get what they want, and their demand would otherwise be satisfied by combining units in existing buildings. The Times article links to DCP data indicating that from 2010 to 2020, 1,200 housing units were eliminated through alterations (changes within existing buildings) in Manhattan Community District 7, the Upper West Side. Community District 8, the Upper East Side, saw a loss of 488 units through alteration. The problem is not that these households get the housing they want, but that others can’t. New York rents are high and rising, and vacancy rates are the lowest of any large city.

This leads us to the third problem with the article’s perspective: its premise that zoning floor area is a scarce resource that needs to be conserved for those with the greatest need. It’s scarce only if the city’s politicians choose to keep it that way—which they do. From 2001 to 2010, Manhattan averaged about 6,000 new building permits a year, according to data published by the U.S. Department of Housing and Urban Development. From 2011 to 2020, the average dropped to about 4,800. In 2021, there were 3,165; in the first seven months of 2022, 2,069.

It’s no mystery why permit counts are dropping as market demand is rising. Manhattan is very restrictively zoned, and building sites are in short supply and expensive. A panoply of devices, both zoning-related and non-zoning-related, prevent the land use from changing, despite super-strong market signals that land needs to be used more intensively. This includes the widespread mapping of “contextual” (height-limited) zoning, as well as historic districts where the Landmarks Preservation Commission often won’t permit the achievement of theoretically permissible zoning densities. More esoteric “tower-on-a-base” zoning in Community District 8 combines with rent stabilization protections to preserve nineteenth-century tenements where the city’s own zoning plan calls for high-rises.

Well-funded preservationist groups will fight fiercely any attempt to change these arrangements. Former mayor Bill de Blasio’s administration in principle won a battle against those groups in late 2021, when Soho and Noho were rezoned for more residential growth. That zoning change, however, imposed requirements for high levels of below-market-rent units in new buildings, called “Mandatory Inclusionary Housing.” To be profitable, even in such affluent neighborhoods, new mixed-income buildings need to receive tax exemptions through a program, called Section 421a, that the state legislature let expire this past June. More housing in Manhattan has been thwarted once again.

Manhattan state senator Brad Hoylman promptly responded to the Times article by introducing legislation that would require new apartment buildings to replace the number of units they demolish. This wouldn’t solve anything, since the market demand for large units would simply translate into more unit losses within existing buildings. Until New York’s political establishment accepts the one solution that would help—to revive the City Planning Commission’s zoning floor-area machine, creating much more capacity to build housing but without imposing additional conditions that make that capacity unusable—the crisis will only get worse.

Photo by Spencer Platt/Getty Images

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