The Housing CrunchWhy New York City has something for everyone, except somewhere to live.
What It Takes to Build N.Y.C. Apartments: Money, Politics and Time
When a lot of people compete for a small number of apartments, landlords often raise the rent — someone is almost always willing to pay more. This is the law of supply and demand in action. That is one reason rents are so high in New York City, where just 1.4 percent of apartments were available last year. But there is another reason for the high prices: It has become quite difficult, time-consuming and expensive to build and maintain apartment buildings here. The costs are passed on to renters. To help explain why, let's put you in the shoes of a real estate firm. Imagine you want to build a large apartment building that has both affordable and market-rate units. The LocationFirst, you need land. You may not have as many options as you would think. You probably want your apartment building to be close to a subway station, and it would be great if it was in or near Manhattan, where most jobs are. Prospective renters will also want to be close to parks, restaurants, grocery stores and schools. These spots can be quite scarce. That means they are more expensive than other places in the nation, according to some estimates. And there's not much empty buildable space left in Manhattan, a relatively small island. As a result, there's probably already something on your ideal lot. You'll have to tear it down before you can build, which will take more time and money. Developers like you rarely have the money on hand to buy the land outright, so you'll need to take out a loan and pay interest on it as the rest of the process plays out. The ZoningEven if you find a lot, there's a good chance you will run into problems with the zoning code. Zoning is the set of rules politicians and planners create for what can be built where. Think of it as an invisible map laid over the city. Zoning tells us things like whether a parcel of land can hold apartments or warehouses. It dictates how wide or how tall a building can be. It requires buildings to have affordable housing in some areas and parking spots in others. You probably won't find a place where the zoning already allows you to build the kind of bigger apartment building you want (known as "as of right" development). Only 10 percent of the land that is zoned residential — as opposed to commercial or industrial — allows for high- or moderate-density buildings, according to an analysis by the Citizens Budget Commission, a nonprofit fiscal watchdog. If you want to build a large building, you will probably need to get the zoning changed. And that means engaging in a bureaucratic process with a funny-sounding name: ULURP (pronounced "you-lurp"), which stands for Uniform Land Use Review Procedure. Over the course of months, if not years, you'll need to hire architects, engineers and consultants to analyze all of the ways your project could affect the environment and the surrounding neighborhood. You'll need to make your case to the local community board and borough president, as well as other officials and civic leaders at public hearings. Then you'll need the city's Planning Commission to approve. The Citizens Budget Commission estimated that this process increases the cost of a project by between 11 and 16 percent. But the person you'll most need to win over? The City Council member who represents the neighborhood where you want to build. An unwritten rule known as "member deference" governs development in New York City: The City Council, which has the most important say on zoning changes, almost always follows the wishes of the local member. Developers like you typically win over council members by including more affordable housing, which is politically popular and in demand, as well as parks, playgrounds and other features that might appeal to local residents. But that most likely means you will make less money. There's no science here, and the process can be very unpredictable.
The BuildingYou've talked with the local City Council member and think you can get a zoning change approved. Now, let's talk about the actual development process. Before construction starts, you'll have to secure building permits, pay advertising and legal fees and put together structural blueprints. You'll need to hire lawyers and accountants. You already have a loan for the land, and now you'll need one for construction. While it is expensive to build in many places, one global survey found that it is most expensive in New York City. That is partly because of the rules and regulations that govern building here. Unlike most other cities, New York requires metal piping instead of cheaper plastic piping in mid- and high-rise apartment buildings. Elevators also can be four or five times costlier to build in the United States than in several European countries. "All of those regulations and protocols cost something," said Kirk Goodrich, the president of Monadnock Development. "When you add them together, they add time, not only immediate cost." Monadnock is developing a 95-unit affordable housing project in the Bronx. The construction alone takes up two-thirds of the overall $42 million budget. And Monadnock needed to take on debt, which costs almost $600,000 a year to pay back with interest, equivalent to more than 40 percent of the expected annual rental income. The MaintenanceThe cost of running your building — also known as maintenance and operation — includes things like keeping the temperature reasonable: Landlords must heat an apartment in the winter, and there is a push to mandate cooling in the summer. You have to pay for cleaning, repairs, water and sewer service, property insurance and most likely a superintendent. These types of expenses are estimated to cost about $7,500 per unit per year in the Monadnock development, for example. That equates to roughly half of the rental income (in addition to the debt costs). Of course, there are also property taxes, and apartment buildings like yours are taxed at relatively high rates compared with condominiums or single-family homes. One recent analysis by Rosenberg and Estis, a New York law firm that focuses on real estate, found that the property tax per square foot in New York City was about $13.53 for multifamily properties in 2023. In San Francisco, which has its own housing crisis, it was about $13.34. In Atlanta, Chicago, Houston, Nashville, Miami and Washington, property taxes were all lower than $5 per square foot. Zooming OutHousing in America is mostly built and run by the private sector, like it or not. That is very unlikely to change any time soon. If developers and owners can't cover their costs with income generated from rents and sales — and make a profit — they won't build anything at all. This can make it hard to keep rents affordable. "It's not about, 'We just want to make more money,'" Goodrich said. "It's about, 'Are we operating in a way that is in agreement with our lenders and investors?'" Building housing is all about how to strike the right balance in these calculations. For example, you might find cheaper land farther away from Manhattan and transit. But the rent you could charge for an apartment there, with lower demand, might not be enough to turn a profit. Or you want to use union workers to build your apartments, but that increases labor costs. Maybe you want to use premium materials, but they are more expensive. You can either cut costs on the front end or charge higher rents. That means that often, building apartments affordable to low- and middle-income New Yorkers is possible only with public help — tax breaks, subsidies and vouchers — that defray some of the costs that would otherwise be recouped through higher rents. But there is only so much money to go around.
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Borough Bio: BrooklynBrooklyn is New York City's most populous borough, with more than 2.5 million residents, according to the U.S. Census Bureau. The median rent in 2023 was about $1,750, up from almost $1,200 in 2013. The borough's median income last year was almost $77,000, and the median home value was roughly $880,000. Brooklyn has about 1.1 million housing units, or roughly 30 percent of the city's total. About a third of the units are studios and one-bedroom apartments, another third are two-bedrooms and the rest are bigger places with three or more bedrooms, according to a city housing survey. In 2023, 38 percent of the population identified as white, 27 percent as Black and 12 percent as Asian, according to the Census Bureau. Almost a fifth of the population also identifies as Hispanic or Latino. Antonio Reynoso, the borough president, has over the past year been vocal about making it easier to build housing across the city. "Planning for housing must consider not just zoning, not just production, but preservation of existing affordable housing and strong tenant protections as well," he said at a City Council hearing last month.
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N.Y. Today: The high cost of building apartments
November 15, 2024
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