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Can New York Become a City of Yes?

Jason Barr

April 17, 2024

How the Adams administration could make pro-housing policies more popular

How the Adams administration could make pro-housing policies more popular

After months of anticipation, Gov. Kathy Hochul and legislative leaders in Albany have announced the framework of a deal on housing — intended both to protect existing tenants and increase incentives for the production of new units. The compromise is underwhelming, falling far short of hopes both among advocates who want to build many more apartments and others who want to make it harder for landlords to raise rents.

Those of us who think the biggest problem in housing is a lack of adequate supply want to see bigger ideas and more effective ways to create broader coalitions. New York, which has struggled with rising rents that have rendered the city increasingly unaffordable for millions, needs to produce much more housing, and it needs to do it soon.

Mayor Eric Adams says he wants to make Gotham a “City of Yes” when it comes to housing construction. He wants to see 500,000 new units built within the next decade. The Big Apple needed 23 years to build its last half a million units. Thus, Adams’ aim is to more than double the current rate.

If the City (as in city government) and the city are going to come close to achieving this objective, those who want more housing are going to have to get much more effective at convincing those who don’t, and that means we have to think smartly about how to realign incentives. 

New York — yes, even this most dense of American cities — has a vast trove of underutilized land. Outside of Manhattan, 92% of buildings within one kilometer (0.62 miles) of a subway stop are three stories or less. The city has 10 square miles of vacant lots zoned for residential use. If developed at the same density as the Park Slope neighborhood in Brooklyn (Community District 6), this land could yield at least 340,000 units.

Furthermore, the Big Apple has over half a million one- and two-family homes. As a thought experiment, if each added an accessory dwelling unit — a “granny flat” or converted garage — or created a new unit through subdivision, the Adams administration could achieve its objective without displacing a single tenant.

To their credit, both Adams and Hochul have been talking about reforms, but they are running into the same resistance that has plagued New York’s housing policy for decades. Residents in single-family home districts who want to preserve their property values have made common cause with renters who see high-rise towers as driving gentrification and unaffordability.

Overcoming these roadblocks is vital because creating more units will not only improve affordability but will also help the economy in many other ways. The high cost of housing pushes out residents while preventing others from moving in, hindering economic growth. One way to reduce New York’s empty office problem, for example, is to allow the city’s labor force to increase. Given hybrid work patterns, office building owners would benefit from a substantial increase in the workforce, many of whom would require some office space during the workweek.

New York — yes, even this most dense of American cities — has a vast trove of underutilized land.

Gotham needs a suite of new policies that motivate residents to get on board by making clear that it will be in their self-interest to do so. Hochul’s attempt to promote upzoning near transit lines last year was welcomed by housing advocates but was rejected by suburban communities who felt that the state was forcing housing down their throats

Getting to “yes” will require two types of adjustments. The first is to address the fear of change. Households and property owners who reject new initiatives often fear that new construction will alter their neighborhoods and property values and have little confidence that the government will provide additional services. The second is to increase the incentives for property owners citywide to use their property more effectively to create desperately needed housing. Here are some strategies the City should consider:

The Land Value Tax. New York City’s real estate tax system remains a source of controversy. A recent lawsuit attacked the inequities that favor wealthier homeowners whose properties are assessed at a lower rate than those in lower-income areas. More broadly, New York’s real estate tax system taxes both the structure and the land’s value. When a property owner builds a taller building or adds more units, the tax bill rises, penalizing densification.

Moving to a Land Value Tax (LVT), where a single citywide tax rate is applied to only the land values, while the structure’s value is not taxed at all, can help solve several problems at once. Since land values are determined by the general characteristics of the neighborhood, such as access to public transportation or retail, and average income levels, taxing the land would make the system fairer. Taxes would fall for those living in lower-income areas with apartment buildings relative to those in the suburbs, with large lots used for backyards and driveways. 

Conversion to an LVT will also mean that property owners with large, undeveloped lots will see their tax bills increase. Thus, an LVT would incentivize them to build housing to generate revenue to reduce the tax burden. It would also encourage accessory dwelling units and subdivisions in suburban areas. For example, a homeowner is incentivized to convert a garage to a small apartment because property taxes won't change, but the property's income will rise. In short, an LVT would drive New York’s housing supply to expand.

The Land Value Tax is not a new idea; it was proposed in 1879 by the economist Henry George. Despite widespread support among economists today, New York has resisted it, largely out of inertia. Based on my calculations, an LVT tax would be revenue-neutral for the City’s budget. However, in order to work, a Land Value Tax must be paired with a land value insurance program.

Land value insurance. Since neighborhood characteristics determine land values, which can change when there is redevelopment, property owners should be allowed to buy land value insurance that pays out if they sell their property and the land values are lower than the purchase price. Such a product does not currently exist; however, it would be easy to prototype in various communities before going citywide.

Gotham can motivate residents to get on board by making clear that it will be in their self-interest to do so.

Just as unemployment insurance helps workers who lose their jobs through no fault of their own, land value insurance can help those hurt by changes around them. Insurance will help reduce NIMBYism, particularly in communities with many one- and two-family homes. 

Switching to the LVT would be more palatable if property owners know that its impact will be minimized in the short term. When those with underutilized lots see their property taxes rise and their property values fall, land value insurance would ensure they don’t lose their initial investments. As they densify their lots, their tax bills will become more affordable, and as New York grows, so will the tax base, moderating future property tax increases.

Vacancy targeting. The government cannot turn up the heat, so to speak, without also upzoning or relaxing building regulations. Today, almost 40% of New York residential properties are at or above the maximum allowable floor area ratio (FAR) — the maximum permitted floor area per square foot of lot size for new construction — while nearly two out of three are above the FAR limit or within 25% of it, making densification impractical. If the Adams administration is serious about adding housing, it must lift the virtual dome suffocating the housing market. 

The current movement to raise the FAR cap, while welcome, is for central city areas only. If implemented, it will not change people’s perceptions about gentrification or affordability because even taller, higher-income towers will be constructed. Again, the real problem is citywide, and rezoning policies must recognize that. 

To make rezonings more palatable, the Adams administration should create a policy that automatically triggers neighborhood upzonings by, say, 30%, on average, when local housing vacancy falls below 5%, with higher upzonings near transit lines. Recent research on upzonings around the world shows that at least 30% is needed to induce a substantial increase in housing. Upzoning in the outer boroughs means going from two- or three-story buildings to five- or six-story ones. Massive Manhattan-style towers are not necessary to solve the affordability problem if every neighborhood contributes its fair share of new units.

While more housing will bring people into a neighborhood, vacancy is the key metric to measure affordability. When the vacancy rates shoot up, rents will remain reasonable because landlords will have less pricing power. Tokyo is an example of a city that builds rapidly to keep up with demand, even as its population grows, and as a result, it is one of the world’s more affordable large cities.

Upzonings must also be tied to specific plans to add more schools and local services to the neighborhood as housing comes online. 

City as land-leaser. Many people worry that new housing will be less affordable or that landlords cannot be fully trusted to provide low-income units. This perception would change if citywide vacancy were closer to 10%, not the nearly-unheard-of current rate of 1.4%. However, an additional step is for the City to enter the housing market directly. One way to do this is for the government to create a new authority similar in spirit to the Battery Park City Authority, which owns the land that comprises Battery Park City.

If the Adams administration is serious about adding housing, it must lift the virtual dome suffocating the housing market.

This new authority would buy up underutilized or vacant lots throughout the five boroughs, assemble and clear them, and then sell ground leases to developers who can build housing according to specifications outlined in the lease, including provisions for low-income units. The authority could even produce new land adjacent to the shorelines to help protect the coastlines while ensuring new housing is built. 

With this new land, the government can ensure that affordable housing is going where needed while earning back the cost of buying the land through the ground leases. The leases can require developers to build new schools, community centers or healthcare facilities to ensure residents are being served. 

Renters' savings accounts. In Gotham, even though two-thirds of residents are renters, one- and two-family homes use about half the city’s residential land. If there were less pressure to reserve a vast part of the city for owner-occupied housing, New York would find it easier to add housing in these neighborhoods. 

One way to incentivize the demand for renting relative to owning is by creating tax-free renters' savings accounts. The idea is that renters could contribute, say, 2-3% of their rent bill to an investment savings account (the payment is embedded directly in the rent bill). Thus, renters could accrue “equity” in a similar spirit as homeowners. The money could be used to help pay for college tuition or for covering the rent in case of a temporary job loss (thus also reducing homelessness). The account would be portable if renters moved to another rental unit. As “nudge” literature shows, if the default option is to contribute, few people are likely to opt out. 

The Rewards

Getting to the City of Yes requires that leaders build coalitions where individuals within them see a personal benefit to change. Further, policies need to be implemented as a suite to make the adjustments smoother and less burdensome. And, when policies are designed citywide it will be seen as fairer. 

Today’s piecemeal policies are simply not up to the task of helping, and they further entrench the belief that government is unable to solve the housing problem. My ideas are designed to move households toward the goal of abundant housing by showing them it will be in their self-interest. However, once there Gotham — collectively — can reap the rewards.