A Plan To Fix New York City's Housing
This was originally written for a policy challenge. Little did I know, it was way too long.
Some background for this post: the UChicago Institute of Politics is doing a policy challenge in which we’re supposed to pick a city in the US, and try to solve its housing crisis from the perspective of the US congress. Personally I think that framing is kind of stupid - the problems that prevent housing in cities across the US are essentially the same, and so “picking one city” just creates a bunch of ways for some geographies to get angry about special treatment. Also hilariously, the size limit for this document was supposed to be two pages. I… didn’t know that, so this document at submission was 14 pages. I have to rewrite the submission, but despite all my problems with the prompt this felt worth posting. Thanks to Sanjay [anonymous] and Hugh [@hughberious on twitter] for their contributions to this project.
On a blog-wide level, this (and economics class) is why I haven’t been posting on substack anymore, so regularly scheduled programming should return soon.
New York is not only America’s largest city, it also features America’s longest running and one of its worst housing crises. Most papers estimating the quantity of units short end up in the hundreds of thousands. Up Growth finds 340,000, Gov. Hochul’s office thinks the city will need 800k units to meet current demand. That’s roughly the order of magnitude that most studies find the scale of the housing crisis to be.
These studies usually make the mistake of holding population, or population growth constant. In reality, New Yorkers aren’t just competing with New Yorkers for new housing built in New York. Instead, there exists a large contingent of people outside of New York who can’t move there because they’re priced out. These people are also potential bidders, and might move into new housing if it is built, preventing prices from instantly coming down.
Zipf’s Law
One of the most basic (and relatively) durable to measure this “ideal size”, which includes everyone who wants to move in, is Zipf’s law. The basic model is that in a given country, the second largest city will be half the size of the largest city, the third largest will be one third the size, etc. In a 1999 paper by Gabix at the MIT department of economics, this relationship holds across most countries, through the majority of history that tracked population statistics.
In 1960, one year before NYC’s first major zoning law passed, its population was 7.7 million, with a metro area population of 14 million. Second was Chicago (3.5m and 6.2m), third LA (2.4m, 6.2m), fourth Philadelphia (2.0m, 4.3m), and fifth Detroit (1.6m, 3.5m). In other words, city and regional populations roughly followed Zipf’s law (LA was in the process of overtaking Chicago as America’s Second City), with a total national population of 126 million. Today, the US urban population is 276 million, so proportional scaling under Zipf’s law suggests New York City should have 16.8 million people in a metro area of 30.7 million. That’s compared to current real figures of 7.8 million and 20.1 million.
(Credit to macrotrends and wikipedia for census data)
In other words, New York City isn’t short by a few hundred thousand units of housing, it’s missing housing for Ten Million People. At the current household size of 2.42, that means approximately four million new units of housing, a full order of magnitude more than most studies predict.
This is a very large amount of housing. So large, in fact, that if the government were to attempt to build it at $1 million per unit, the project cost would consume the entire federal tax base. In other words, it is a scale which overwhelms the government’s ability to pay for a solution, let alone build it. Instead, the constraints which have caused the market to fail so egregiously must be systemically removed, with some further help to the transit network that facilitates the new housing.
Successive Downzonings
The first major downzoning of New York City occurred in 1961. There had been earlier regulations mandating setbacks to preserve light in the streets, but this was a relatively mild constraint. With the 1961 rezoning, maximum legal built capacity dropped from 55 million to 11 million, slashing the city’s unused zoned capacity by a factor of 14. While minor changes have been made since then, the zoned capacity is within a million units of what it was 60 years ago in 1963. The current map looks like (figure left). Since lots of New York City is old building stock, there are actually several buildings which would be illegal under today’s zoning. The map of these “overbuilt” buildings looks like (figure right).
Adding onto the problem and invisible from the zoning maps are “Historic Districts”. The New York City Landmarks Preservation Commission was founded in 1963. While we may assume the LPC’s primary mission is to protect landmarks - ie, specific buildings - they also have the power to designate whole neighborhoods as historic. When that happens, no building in the designated zone can be torn down and replaced - redevelopment is effectively banned. Even renovation is subject to an unpredictable case-by-case review that adds huge costs to any upgrades.
To be clear, the preservation of important historical landmarks is important. New York has plenty of instances of single buildings which add immense value to both the city’s culture and its tourist draw. However, the median building in a historic district is not unique, and does not add significant historic value. While preserving a single building from unique historic eras creates value for historians, the 1,000th or 10,000th building adds essentially none. At the same time, the burden of 10,000 preserved buildings is inordinately high.
The result here is that new housing cannot be built in neighborhoods that were built as low-density a long time ago, but have more recently become attractive. While many suburbs weaponize historic designation to prevent high rise construction, the most obviously damaging historic districts are in or near New York City. The worst offender is Hell’s Kitchen (top). Suburbs and outlying cities have copied this structure; as Jersey City densifies its own historic district (Paulus Hook, bottom) is becoming similarly egregious.
So put simply, one big and easy step towards building those ten million units is to upzone New York City dramatically and prevent Historic Preservation commissions in the region from pouring amber on whole neighborhoods.
Construction Litigation Delays
Say you’re a New York City developer with a plot of land. You manage to not get hit by a Historic Preservation Missile, and you also manage to luck into a plot with permissive zoning and with air rights attached. As of 2017, construction costs for a residential building would set you back $354 per square foot, 50% higher than the national average of $237/sq ft. There are a myriad of reasons for this discrepancy, but the most egregious is that New York City simply has different building rules from everywhere else in the country.
The set of rules which determines building requirements - for fire safety, health, or other reasons, is called a Building Code. The International Code Council, per the name, is responsible for writing building codes for most American cities (one more entry into the “World Series” folder). The ICC writes new codes each year, but usually cities don’t update their codes immediately, leading to varying fire codes around the country. New York adopts some of these rules, but it has also deemed itself large enough to write some of their building codes themselves. The result is a bespoke building code which is much stricter than in the rest of America.
The biggest and most egregious difference is that New York City flatly bans all wood-frame residential construction. This is in contrast to the rest of America, where the most common type of building is the five-over-one. Named for its building material codes, a five over one consists of a concrete (type 1) podium with several floors of stick-frame (type 5) construction on top of it. This type of housing was legalized in the 2000 International Building Code and now constitutes most of America’s apartment construction because of its low cost. It remains illegal in New York City.
An even more significant potential advance is fast approaching with Mass Timber. Mass Timber is large sections of wood which are constructed with glue from smaller, thin sheets of wood and treated for fire resistance. The 2021 IBC allows mass timber construction of up to 18 stories. Some cities have granted limited exceptions to allow even further heights, the tallest of which in Milwaukee stretches up to 25 floors. In addition to being much better for the environment, Mass Timber is also easier to work with, improving construction times by up to 25%.
Discretion
In addition to all the things that New York makes strictly illegal, there are also plenty of de-jure legal but de-facto illegal pitfalls one can fall into when building new housing in New York City. Once a project clears zoning and air rights, the next landmine is design review. In order to legally secure a construction loan, a project must first undergo six months of design consultation, before proceeding to design review and environmental review. In the opening of their 75 page document explaining the design guidelines, the city’s Housing Preservation and Development office makes this long timeline extremely clear, with the help of a nice graphic:
The big problem with this process is that it is extremely uncertain. Part of the reason the process is so long is that the rules for what falls foul of design and environmental guidelines are not strict nor concise. It will take months to hone in on a design which satisfies all of the rules, often subtracting lots of buildable area in the process. Environmental review is much the same way, and sufficient compliance with standards is subjective and up to the discretion of the HPD board. Because the process is long and uncertain, very few projects can afford to start it and know that they will finish it. The result, of course, is less housing.
The most maddening part about all of this is that most of the rules which cause all the snags are hard to pin down unless by lawsuit but have a fairly trivial impact on the actual project. In practice, this means that legal housing projects get caught up in long and expensive legal delays. Since defense is easier than offense, it’s possible for project opponents to abandon legal new housing projects by threatening indefinite litigation at relatively low cost. This is not a system which will ever output the ten million new housing units that NYC needs.
Successful Case Study: West Loop, Chicago
Breaking housing construction down to the zip code level, there are roughly two kinds of places: The first is ultra high-demand metro areas, which can legalize tall buildings in a tiny corner of the city, and immediately see a huge amount of housing construction (NYC, DC, Seattle). The second is low cost-of-living areas that can legalize medium-size buildings on single family housing with backyards (Nashville, Atlanta, Houston). One zip code in the top fifteen, however, is neither. Chicago sticks out like a sore thumb. It’s a relatively built-up city, so it has no supply-side cost advantage. Nor is it a high demand metro area - rents average $27 compared to NYC’s $77, meaning that completed housing generates just over 1/3 the revenue that it does in NYC.
How, then, do developers manage to build low-cost market-rate housing in Chicago that simply doesn’t work everywhere else?
The answer is that they have effectively solved all of the bottlenecks that plague housing developers in New York City. In 2016, Chicago enlarged their downtown zone, expanding the area in which zoning permitted tall residential buildings. At the same time, Chicago made a significant improvement to their zoning system - instead of hard limits to building heights, buildings above a certain height simply had to pay into a neighborhood development fund for the privilege of building taller.
While Chicago didn’t completely eliminate discretionary permitting in the area, a variety of circumstantial improvements allow the area to approach by-right efficiency. First, the Neighborhood Opportunity Fund means that city councilors from poorer areas are incentivized to support rather than oppose new housing everywhere else, because it can bring funding to their districts. In addition, Chicago is a city with a fiscal crisis that is dependent on property taxes, so more conservative members are also likely to support new housing. Combining these factors means that developers have to make few concessions in the environmental review stage (unlike in New York) and councilors are unlikely to demand significant redesigns (also unlike New York).
When all of these factors are rolled together, they lead more housing to begin construction in the West Loop than in all of the rest of Chicago last year. With rents in the low $2,000s, these buildings are making money (and incentivizing more) at prices which would likely cause a New York City developer to go bankrupt. By adopting best practices demonstrated by Chicago, New York could unlock the same development intensity that Chicago has - and to solve its housing crisis, it needs to.
Land Access
Of course, one of the biggest reasons that building new housing in New York is so expensive is that there are very few easy construction locations there. Despite all of the ways in which New York shoots itself in the foot, it is also true that the places building the most housing - Chicago, DC, Dallas, Houston, Atlanta, etc, have easily accessible near-vacant land. In all of those cities, rail-based rapid transit reaches either single-family suburbia or even better, green fields. Unfortunately for New York, there aren’t any more subway-adjacent green fields to put its new buildings in.
Unlike those places, however, the New York Area does host three of the top three most ridden commuter railroads in the country. It’s not even close either - the least ridden of the three, New Jersey Transit, netted almost double the ridership of fourth (Chicago’s Metra) in 2022. In fact, commuter rail in New York carried more riders than any rapid transit network in the US outside of New York. While New York may not have subway trains to green fields, it certainly does have trains to easy development sites - and since commuter trains are over twice as fast as the subway, these aren’t infeasible commutes either. (The most recent comprehensive study found 17.4mph scheduled average speed on the subway, vs Connecticut government studies which show 34mph for Metro North locals and 41 for express trains).
Unfortunately, New York is not even close to capitalizing on these advantages. Off peak, commuter trains are unusably infrequent; typically every hour or two (at best, the New Haven Line has a train every 30 minutes). At peak times, New York’s commuter trains have inconsistent stopping patterns. The result is that lines which see a train every three minutes only serve outlying stations every 30 minutes. These trains then proceed to trip over each other frequently, and cause congestion which results in heavy schedule padding, by which extra runtime is added into the schedule to ensure the train arrives on time. Transit researcher and NYU fellow Alon Levy has calculated how much faster these trains can be, and has found that up to 40% of the runtime can be saved simply through cleaner operations, with another 5-10 minutes saveable using new rolling stock.
Time from New York: Current Station/Station with Levy Timetable
30 Minutes: Pelham (15.1 mi)/Mamaroneck (20.5 mi)
45 Minutes: Harrison (22.2 mi)/Cos Cob (29.6 mi)
60 Minutes: Cos Cob (29.6 mi)/Rowayton (39.2 mi)
Some examples from the Levy timetable on the New Haven Line
The subway, while closer to its maximum possible speed, still has plenty of schedule padding and inconsistency. For example, the complex merging patterns between the B, D, N, Q, and R trains at Dekalb Ave junction in Brooklyn make N and Q trains 4-5 minutes slower than they should be. With both the commuter railroads and (especially) the subway, New York can unlock more land by upgrading signals on busy routes, providing much-needed additional trains on currently overcrowded lines and in turn allowing more space for more residents. New York already has plans to carry out subway signal upgrades, and efforts to accelerate them will help if paired with the reforms discussed above.
New Jersey and Transit
On the other side of the Hudson, there is also plenty of space where transit access can be improved. Jersey City has recently approved a large amount of housing, mostly near PATH stations. However, extensions to the city’s Light Rail network will allow stronger connections, and remove commuters from extensive Port Authority Bus Terminal congestion. In particular, the extension to the Hackensack riverfront will unlock more space for housing, and leaves the possibility for connections to Newark in the future.
Moving up in scale, New Jersey Transit also has a role to play in unlocking more developable land. Under the status quo, several lines have limited service to Penn Station at rush hour, and three lines have no service at all. The Gateway tunnel, which connects New York to New Jersey, will double rail capacity to New York City at rush hour from 24 trains per hour to 48. The project, which recently earned enough federal funding to solve any future funding woes, will fix this problem. Once the tunnel gets built in 2035, New Jersey Transit should use the new tunnel to achieve frequent service to Midtown on all lines, unlocking more land which can help fill the ten million unit target.
Metro North’s 30 minute all-day service has been exemplary on this front. Weekend ridership from 1988 to 2019 increased 100% off peak, and is now above pre pandemic levels. LIRR and New Jersey Transit should seek to replicate this kind of consistently frequent service.
In order to facilitate that level of frequent service across multiple lines, Penn Station has to be redesigned. The current Penn Station features narrow platforms which make boarding times prohibitively long and also incompatible with functional frequencies across multiple lines all day, let alone at rush hour. Current plans involve new stub-end tracks but no platform widening and will not facilitate the frequent operations the region needs. When the federal government grants funding for rebuilding Penn Station (which New York is trying to acquire), it should condition the funding on an approach which allows the new tunnel to be used for more frequent trains.
Federal Role
Now that all of these problems are laid out, it’s time to step back and figure out what the federal government can do. After all, the federal government for the most part did not cause these problems, and if there were an easily accessible lever labeled “fix New York housing”, it would have been pulled by now. Any solution proposed has to avoid the red lines of the many actors which can play a role in reaching a solution.
Obviously the first and most desirable policy here is to simply override New York City’s current zoning. That is difficult - to both left and right it creates an unconscionable infringement on local control, and progressives will complain that suburbs will not be compelled to contribute their fair share to the solution. They would be right - the discretionary environmental and design reviews discussed above are even more strict in the suburbs, and cause even more supply constriction. But attempts to veto suburban control caused Hochul’s recent budget to fail in the state house, so especially if the senate is to pass a bipartisan package, suburban zoning is a red line.
One of the easiest ways to get suburbs on board any housing supply package is to speed up commute times. Therefore, a cornerstone of any New York City housing improvement plan should be significant funding for commuter rail speedups. Importantly, this funding should be explicitly attached to a promised new timetable. The specific timetable target is important, because in both Main Line additional track and Grand Central Madison, the LIRR has attracted billions of dollars in funding for projects which did not deliver on their vague-but-intuitive promises for faster trains and more service.
In addition to promised timetables, the federal government should require transit funds to be spent where there is zoning that permits more housing. For example, the Long Island Railroad recently spent $2.6 billion dollars to build a third track and increase capacity for more train service. However, because the project was not tied to any up zoning requirements, the new train capacity will not unlock any more housing capacity. To make the carrot stronger, if all stations in a proposed project area allow dense housing (eg, 6.0 floor-area ratio with no parking requirements), the federal government should fund 100% of the project to remove temptations of avoidance.
School Funding
School funding drives suburban politics. When parents move to the suburbs, their choice of town is often based on the quality of the school district, and the NBER has found that school funding is strongly tied to property values, creating a double-incentive for voters. The federal government provided an average of 10% of K-12 school funding in 2023, and based on the large education budget size, it’s possible to use education as a carrot for housing construction in both New York City and its suburbs. For both the city and the suburbs, federal funding for school districts should be tied to fixes in the housing production pipeline. While funding is currently calculated on a per-student basis, this formula should be moved to fund based on potential legal units. This way, suburban areas where more housing could be built in the future would get more school funding right now, which would encourage upzoning. While we recognize that wealthy suburbs might not be compelled by the possibility of this funding, we also know that housing is too expensive everywhere, not just in these wealthy suburbs.
Between faster commutes and better schools, an omnibus package attempting to fix the housing crisis would earn the support of suburban democrats and exurban Republicans, which allows it to impose stricter requirements on New York City itself. Housing politics in New York City faces a strong intra-progressive battle, where young and affluent voters want new housing so they can continue living in the city they like, while progressives from poor areas oppose neighborhood change.
To assuage the concerns of lower-income progressives, a first right of offer (ROFO) policy may be implemented. Under such an agreement, developers building a project that replaces existing housing must offer to let previous residents purchase or rent an apartment in the new building. By pairing such agreements with affordable housing mandates, these agreements can ensure that residents can participate in the future neighborhood.
However, any such policy must be deployed extremely carefully. Affordable housing requirements make new developments less profitable, leading to fewer units and more expensive overall housing. For this reason, affordable housing rates must be a fixed ratio of units (not negotiated project-by-project) and should not exceed 10% of new units. (Since new developments usually feature significantly more density than the buildings they replace, old tenants who want to stay will be able to).
Between ROFO in NYC, faster trains, and more school funding, the strongest concerns of groups hostile to potential housing have been addressed. That means that an omnibus bill which features a zoning override could still pass, attached to all other policies. A zoning override should be extremely permissive, featuring only one nonpolluting (ie, residential, office, and consumer-oriented commercial) zone. At any location where the others are currently legal today, all should be legal at any density in the override. As part of such a zoning override, the Federal Government should also allow any building legal in the 2023 IBC to be built in the new non-polluting zone, which also fixes the issue of nonstandard construction in New York City.
Since suburban schools get funding bonuses for increased legal density, it should follow that NYC public schools also should get a proportionate increase in funding per student, because the bonus formula otherwise would break in the case of unlimited legal housing.
Community Block Grants
One major source of federal funding to NYC remains unpolled: community block grants. These funds are currently distributed to cities to make targeted investments in neglected areas. New York attracts a significant amount of this funding - peaking at over a billion dollars in 2018. An omnibus package fixing housing in NYC would feature these too, most obviously to help fix the $78 billion NYCHA maintenance backlog, which the city cannot do by itself. With substantial leverage, the federal government should also require the cessation of all environmental review on infill development (if a building already exists, a replacement building’s environmental impact will be negligible), all design review, and the reform of historic districts (in which landmarks, of course, should still be protected).
When rolled all together, this plan
-speeds up environmentally friendly railroad commutes
-improves education funding in both suburban and urban funding
-ends housing-hostile zoning restrictions in NYC and eases them in the suburbs
-standardizes NYC fire codes with the rest of the nation, and
-speeds up housing construction and lowers barriers of entry, enabling more units to be built,
All while funding the NYCHA and preserving the construction of affordable units.
Importantly, this plan addresses concerns from:
-suburban democrats
-suburban republicans
-urban affluent progressives
-urban low-income progressives
Lots of these fixes wouldn’t be possible without access to federal funding. However, with both a will to build and access to the federal budget, it is possible to build the ten million units that New York City needs.
Really good stuff
Do this in NYC