'Beyond Crisis Mode': NYC Housing Development Crippled By Red Tape And Political Backlash
Interest rates and recession talk are playing out in New York’s multifamily market, but residential real estate players say drawn-out approval processes and political infighting are still the top problems strangling housing production.
“We are beyond crisis mode. And a lot of developers like ourselves are moving on to other areas because we can't get the velocity we need in New York City,” BRP Cos. co-founder Meredith Marshall said at Bisnow’s New York State of the Market event last week. “I'm working on something that [Mayor] Bloomberg approved, I can't get it closed … it's another 500 units and I can't get it done.”
Rents in New York have rocketed back since the pandemic, making multifamily the most attractive asset for investors. Prices are still well above where they were a year ago — the median net effective rent in Manhattan was $3,964 last month — but are stabilizing. Even amid high returns on apartment buildings, panelists told the audience the policies, perception of crime and troubled parts of the city’s economic ecosystem are creating challenges in the building, renting and selling of homes in New York.
“The economy takes care of itself, interest rates are cyclical, but the health of our city and the quality of life in our city, to me, is the biggest challenge we have,” said Stephen Kliegerman, the president of Brown Harris Stevens Development Marketing. “We need smart government in every sector of our economy and of our city, both at the state and local levels, in order to accomplish the things that we need to accomplish.”
He said since the Affordable New York tax abatement ended earlier this year, housing starts are down dramatically, and there are fewer than 6,000 new for-sale market-rate residences in the entire city. That's less than a four-year supply of housing in the market-rate price range. “That impacts the affordable side tremendously as well,” Kliegerman said.
Throughout 2022, there have been nothing but worrying statistics about the availability of housing in the city, and little to suggest that it will improve anytime soon. The Real Estate Board of New York estimates the city needs 560,000 new units by 2030 to keep up with its predicted population and job growth. Meanwhile, the Department of Housing Preservation and Development financed the creation and preservation of 16,042 units in the fiscal year beginning July 1, 2021, marking a 45% drop from the previous year. All the while, rezonings have become increasingly contentious.
Marshall, whose portfolio includes one-third affordable housing, one-third mixed-income and one-third market-rate, said right now it is just taking too long for developments that will bring more housing to get the green light. He said areas outside New York are approving work much quicker. “I have one other site, I can’t mention where it is, but it's not New York City. I met with the IDA board two months ago. I'm taking the one site from 400 to 800 units, and it's getting approved tonight … New York City, it takes like seven years, right?”
Multiple rezonings for housing developments in the city have been met with community and political backlash, though there have been several projects to score the council’s seal of approval in recent months. Last week, a breakthrough was reached in the negotiations over a planned $2B development in Astoria, Queens. A mixed-income housing development, also in Astoria, with 1,340 units received support from local City Council Member Tiffany Cabán in September.
Last month, New York City Council Member Marjorie Velázquez said she has reached a deal with the developer seeking a rezoning to build a 339-unit, mixed-income housing development in the Throggs Neck area of the Bronx, clearing the way for its approval. However, developers planning to build a two-tower residential development, with 458 affordable units, withdrew their plans in May in light of the local member’s lack of support for the project.
"I think a lot of it is government inefficiency … Other cities are just eating our lunch because, you know, all the capital is going to go there,” said Woody Victor, a principal at lobbyist Capalino. “I think the whole process from soup to nuts just has to get streamlined. And Mayor Adams has said he wants to make New York City run better, run more efficiently – but that's the main barrier to any success.”
He added a lot of businesses are “blowing up” – with several deals falling over because they are no longer financially viable. The silver lining, he said, is there is money available for environmental improvements to fill holes in financing it as he considers a Band-Aid fix to a larger problem.
“I think you have to get people together in a room, you can start from the ground floor to help educate them to understand that this is why, you know, things don't improve,” Victor said on the panel. “There's just a misalignment of understanding, resources, expertise. You’ve just got to get people together in a room, especially the electeds.”
Many in real estate are expecting a better road ahead for the industry, now that Gov. Kathy Hochul has secured her place in Albany.The main focus is the Affordable New York tax abatement, which lapsed earlier this year with no replacement.
Mayor Eric Adams has made it clear he wants to spur development in the city, throwing his support behind several controversial rezoning applications and reportedly considering the removal of a requirement for environmental study in rezoning applications to speed construction.
Midwood Investments President John Usdan said there have been “polarized conversations” around the city’s rent-stabilized apartments, which continue to have a negative impact on the city’s housing stock.
“Costs have doubled, due to the pandemic, of renovating an apartment, maybe even more. And there just simply is no economic incentive for landlords to maintain their buildings, and that is a crisis that will grow exponentially each year,” he told the audience.
In 2019, rent reform legislation seriously curtailed landlords' ability to move stabilized apartments into the free market and pass the costs of renovating them.
“That, to me, is the real threat to the fundamental health, economic health of this city,” Usdan said.
Fears stretch beyond housing regulation. The return to the office has been sluggish in New York. Tech firms, which were the big drivers of the office market in recent years, have been reticent to call their workers back to the office. Facebook, which signed the biggest lease of 2020 by locking down the entire office portion of the Farley Building, this month laid off 11,000 workers.
“If 2008 was the real estate crisis, 2022 or 2023, is the crisis of white-collar, high-tech jobs,” Housie CEO Hemant Chavan said. “It affects the luxury rental market, and it's affecting the market trends … The other indicator that I think is concerning is Facebook backing out from their office leases.”
All the same, panelists remain optimistic about the city’s resilience and its ability to reinvent itself. “This is a great city, young kids still want to be here. But we have to meet them with opportunity,” Marshall said. “I think 2023 will be a better year. And I think we have to all chip in. We just can’t be Monday morning quarterbacks, right? We have to put our helmets on and get in the game.”