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No More Delay: Proven Policy Solutions for New York City
San Francisco, CA: Strengthening Inclusionary Zoning
The Problem: New luxury housing developments in traditionally low- and middle-income neighborhoods have made housing less affordable in these areas and led to the displacement of long-time residents.
New York City is in the midst of a severe housing shortage, as evidenced by its 2.8 percent rental vacancy rate.While 315,000 new housing units have been added to the city’s housing stock in the past 25 years, many more units are needed to meet current demand. The city estimates that we must add at least 265,000 new housing units to the city’s supply by 2030.
The city’s housing shortage has led to an increasingly expensive housing market. Over 500,000 households in the city spend more than half of their income on rent.30 According to the city’s PlaNYC 2030 document, “By 2030, we expect 900,000 more people to arrive. If supply is not created as fast as people arrive, affordability could suffer further.”
In order to address New York’s need for new housing development, the city is in the process of identifying areas that could potentially absorb some of this new growth and rezoning them for increased density and new housing development. These recent rezonings have resulted in thousands of new housing units. However, very few of these units are affordable for low, moderate, and middle income households.
In fact, despite the assumption that increased supply will lower prices, home purchase prices and rents in these neighborhoods have actually increased. Developers are focusing on building luxury housing units that are affordable to only those individuals with the highest incomes or speculators hoping to make a quick profit. This has led to the displacement of long-time neighborhood residents as new developments attract those with higher incomes, putting upward pressure on rents in the entire neighborhood.
For example, the neighborhoods of Greenpoint and Williamsburg experienced tremendous growth and witnessed the construction of new high-rise residential developments. However, the median price for a housing unit increased 140 percent between 2000 and 2007, while the median price in the city as a whole increased at the lesser rate of 87 percent.
Even though there is tremendous demand for middle-income units in New York City, most developers choose not to build for this segment of the market. Luxury apartments are only slightly more expensive to build than affordable units, but the purchase or rental price of luxury housing is significantly higher than affordable units. Developers also take on a sizable risk when constructing new multi-unit housing, as do the banks that provide the construction loans. Large projects will have several lenders, each expecting a sizable return on theirinvestment that will justify the risk.
If the city is going to take steps to create value for real estate developers, such as large neighborhood rezonings, we should ensure that current residents also benefit from these changes. Long-time neighborhood residents are rightfully suspicious of rezonings. Without finding a way to preserve economic integration, the city will face increasing opposition to future neighborhood rezonings.
The Solution: Mandatory Inclusionary Zoning
In order to encourage the development of affordable units alongside the development of luxury and market rate units, many cities have turned towards inclusionary zoning. Inclusionary zoning is the requirement that developers set aside a certain percentage of the units in a new development as affordable units. Sometimes developers are given “density bonuses,” or the right to build at higher densities, in exchange for including affordable units. Since the inclusion of affordable units decreases the amount of profit that a developer can make on a certain project, density bonuses are designed to offset any negative impact affordable units will have on a project’s bottom line.
In 2002, San Francisco adopted a mandatory inclusionary zoning policy.
The Eastern Neighborhoods plan includes more stringent inclusionary zoning requirements than San Francisco’s citywide policy. The citywide requirements still apply, but the city added special mandates for housing developments that are on previously industrial land.
The Eastern Neighborhoods plan also has a “middle-income alternative” where the units must be affordable to households whose income is between 120 and 150 percent of local median income.
Impact
San Francisco is a relatively small city, with a population of 764,000. However, since 2004 San Francisco has produced 1,045 units of affordable housing through its inclusionary zoning policy. This represents one-tenth of the total number of new units completed in San Francisco over the same time period. Through inclusionary zoning, San Francisco was able to increase the number of affordable units in the city without having to provide a subsidy to renters or landlords.
Studies have found that mandatory inclusionary zoning policies, such as the one in San Francisco, produce more affordable units than voluntary policies. Other research suggests that inclusionary zoning policies that are more flexible and offer developers more options, such as payments in-lieu of affordable units, produce more affordable housing.
Developers may argue that by implementing mandatory inclusionary zoning, the rate of housing production will fall and the price of market-rate units will increase. Research from the Furman Center for Real Estate and Urban Policy suggests inclusionary zoning policies have had no effect on the rate of housing production in the San Francisco Bay Area. However, these policies were shown to increase housing prices somewhat during times of housing appreciation, and to have a downward effect on prices during times of housing depreciation.
No studies have been conducted on the effect of inclusionary zoning on the displacement of low-income and moderate-income residents in San Francisco neighborhoods. However, in neighborhoods where new market rate housing development is taking place, we know that at least 15 percent of the new units will be affordable. Without inclusionary zoning, it is likely that there would be many fewer new affordable units in these neighborhoods.
Implications for New York
New York City has had some experience using inclusionary zoning and the city has identified inclusionary zoning (New York City calls these policies “inclusionary housing”) as one way to “expand targeted affordability.” The city’s policy is a voluntary program, in which developers can receive density bonuses in exchange for constructing affordable units. In fact, the city included voluntary inclusionary zoning provisions in the Williamsburg/Greenpoint rezoning.
The city has had modest success with its current inclusionary zoning policies; approximately 3,300 affordable units have been produced since 1997, according to the Department of Housing Preservation and Development. However, by strengthening its inclusionary zoning policy so that it is mandatory, the city could produce far more units. If New York City’s inclusionary zoning policy produced new units at the same rate as San Francisco’s, the city would have produced 5,800 affordable units since 2005, more than the total number of inclusionary units produced in New York City since 1997.
Inclusionary zoning does not represent a complete affordable housing strategy. Rather, it is a tool for keeping neighborhoods economically and socially integrated. It is a means for long-time neighborhood residents to reap some benefits from new housing development and neighborhood change. By finding a way for all residents to benefit from the development of luxury housing, inclusionary zoning can help secure neighborhood “buy-in” for higher density development.
Research suggests that inclusionary zoning will not slow the rate of housing production to any significant degree. In fact, by including sufficient density bonuses, inclusionary zoning can increase the number of units that are produced on a parcel of land.
San Francisco, CA: Strengthening Inclusionary Zoning
The Problem: New luxury housing developments in traditionally low- and middle-income neighborhoods have made housing less affordable in these areas and led to the displacement of long-time residents.
__________________________________
New York City is in the midst of a severe housing shortage, as evidenced by its 2.8 percent rental vacancy rate.While 315,000 new housing units have been added to the city’s housing stock in the past 25 years, many more units are needed to meet current demand. The city estimates that we must add at least 265,000 new housing units to the city’s supply by 2030.
The city’s housing shortage has led to an increasingly expensive housing market. Over 500,000 households in the city spend more than half of their income on rent.30 According to the city’s PlaNYC 2030 document, “By 2030, we expect 900,000 more people to arrive. If supply is not created as fast as people arrive, affordability could suffer further.”
In order to address New York’s need for new housing development, the city is in the process of identifying areas that could potentially absorb some of this new growth and rezoning them for increased density and new housing development. These recent rezonings have resulted in thousands of new housing units. However, very few of these units are affordable for low, moderate, and middle income households.
In fact, despite the assumption that increased supply will lower prices, home purchase prices and rents in these neighborhoods have actually increased. Developers are focusing on building luxury housing units that are affordable to only those individuals with the highest incomes or speculators hoping to make a quick profit. This has led to the displacement of long-time neighborhood residents as new developments attract those with higher incomes, putting upward pressure on rents in the entire neighborhood.
For example, the neighborhoods of Greenpoint and Williamsburg experienced tremendous growth and witnessed the construction of new high-rise residential developments. However, the median price for a housing unit increased 140 percent between 2000 and 2007, while the median price in the city as a whole increased at the lesser rate of 87 percent.
Even though there is tremendous demand for middle-income units in New York City, most developers choose not to build for this segment of the market. Luxury apartments are only slightly more expensive to build than affordable units, but the purchase or rental price of luxury housing is significantly higher than affordable units. Developers also take on a sizable risk when constructing new multi-unit housing, as do the banks that provide the construction loans. Large projects will have several lenders, each expecting a sizable return on theirinvestment that will justify the risk.
If the city is going to take steps to create value for real estate developers, such as large neighborhood rezonings, we should ensure that current residents also benefit from these changes. Long-time neighborhood residents are rightfully suspicious of rezonings. Without finding a way to preserve economic integration, the city will face increasing opposition to future neighborhood rezonings.
The Solution: Mandatory Inclusionary Zoning
In order to encourage the development of affordable units alongside the development of luxury and market rate units, many cities have turned towards inclusionary zoning. Inclusionary zoning is the requirement that developers set aside a certain percentage of the units in a new development as affordable units. Sometimes developers are given “density bonuses,” or the right to build at higher densities, in exchange for including affordable units. Since the inclusion of affordable units decreases the amount of profit that a developer can make on a certain project, density bonuses are designed to offset any negative impact affordable units will have on a project’s bottom line.
In 2002, San Francisco adopted a mandatory inclusionary zoning policy.
- All new residential developments over 10 units must set aside 10 percent of the units as affordable.
- San Francisco defines affordability using Area Median Income for San Francisco, Marin, and San Mateo counties. Affordable units under the inclusionary zoning program must be affordable to households making less than 60 percent of Area Median Income.
- In 2006, the city strengthened the law so that all developments over 5 units must include 15 percent affordable units.
- Developers may choose to produce affordable housing off-site, but the required percentage of affordable units increases to 20 percent and the affordable units must be within one mile of the market rate units.
- Alternatively, developers may choose to either pay a fee, which is used for the construction of affordable units, or to provide land for affordable housing development if they do not want to construct the affordable units themselves.
The Eastern Neighborhoods plan includes more stringent inclusionary zoning requirements than San Francisco’s citywide policy. The citywide requirements still apply, but the city added special mandates for housing developments that are on previously industrial land.
The Eastern Neighborhoods plan also has a “middle-income alternative” where the units must be affordable to households whose income is between 120 and 150 percent of local median income.
Impact
San Francisco is a relatively small city, with a population of 764,000. However, since 2004 San Francisco has produced 1,045 units of affordable housing through its inclusionary zoning policy. This represents one-tenth of the total number of new units completed in San Francisco over the same time period. Through inclusionary zoning, San Francisco was able to increase the number of affordable units in the city without having to provide a subsidy to renters or landlords.
Studies have found that mandatory inclusionary zoning policies, such as the one in San Francisco, produce more affordable units than voluntary policies. Other research suggests that inclusionary zoning policies that are more flexible and offer developers more options, such as payments in-lieu of affordable units, produce more affordable housing.
Developers may argue that by implementing mandatory inclusionary zoning, the rate of housing production will fall and the price of market-rate units will increase. Research from the Furman Center for Real Estate and Urban Policy suggests inclusionary zoning policies have had no effect on the rate of housing production in the San Francisco Bay Area. However, these policies were shown to increase housing prices somewhat during times of housing appreciation, and to have a downward effect on prices during times of housing depreciation.
No studies have been conducted on the effect of inclusionary zoning on the displacement of low-income and moderate-income residents in San Francisco neighborhoods. However, in neighborhoods where new market rate housing development is taking place, we know that at least 15 percent of the new units will be affordable. Without inclusionary zoning, it is likely that there would be many fewer new affordable units in these neighborhoods.
Implications for New York
New York City has had some experience using inclusionary zoning and the city has identified inclusionary zoning (New York City calls these policies “inclusionary housing”) as one way to “expand targeted affordability.” The city’s policy is a voluntary program, in which developers can receive density bonuses in exchange for constructing affordable units. In fact, the city included voluntary inclusionary zoning provisions in the Williamsburg/Greenpoint rezoning.
The city has had modest success with its current inclusionary zoning policies; approximately 3,300 affordable units have been produced since 1997, according to the Department of Housing Preservation and Development. However, by strengthening its inclusionary zoning policy so that it is mandatory, the city could produce far more units. If New York City’s inclusionary zoning policy produced new units at the same rate as San Francisco’s, the city would have produced 5,800 affordable units since 2005, more than the total number of inclusionary units produced in New York City since 1997.
Inclusionary zoning does not represent a complete affordable housing strategy. Rather, it is a tool for keeping neighborhoods economically and socially integrated. It is a means for long-time neighborhood residents to reap some benefits from new housing development and neighborhood change. By finding a way for all residents to benefit from the development of luxury housing, inclusionary zoning can help secure neighborhood “buy-in” for higher density development.
Research suggests that inclusionary zoning will not slow the rate of housing production to any significant degree. In fact, by including sufficient density bonuses, inclusionary zoning can increase the number of units that are produced on a parcel of land.