Facing record housing shortage, New York Democrats finally take action

NEW YORK — New York City is staring down a housing affordability crisis of epic proportions. But for two years running, state lawmakers failed to do much of anything about it.

Now, they’re changing course — moving on a significant legislative package that signals growing political pressure to take on the issue.

Democratic Gov. Kathy Hochul and the state Legislature have reached a deal on a series of housing measures designed to spur residential construction amid a historic shortage in supply, while protecting tenants vulnerable to skyrocketing rents.

And almost no one is happy — a sign of the challenging political dynamics at play.

The issue has been at the forefront of state budget negotiations this legislative session, with lawmakers confronting a landscape where available rentals are exceedingly scarce, homelessness is at record highs and little housing is getting built.

Here are five takeaways from the deal:

1. Lawmakers felt the political weight of the growing crisis.

Rents surged beyond expectations as the city emerged from the pandemic in 2022 and demand for housing in New York once again outpaced supply. But state lawmakers failed to take meaningful action to address the issue that year or the following.

And with legislators up for reelection in June, some were skeptical they would have the appetite to approve controversial housing policies this session — even as Hochul named the issue a priority. But an increasingly dire picture of the crisis left them little choice.

“The fact that New York City’s vacancy rate is at 1.4 percent should be scaring the crap out of all of us,” Assembly Speaker Carl Heastie, a Democrat, told reporters this week.

He was citing a recent report that found the vacancy rate for rentals in the five boroughs is the lowest it's been in more than 50 years. Median rents continually reach new records, more New Yorkers are paying unsustainable shares of their income on housing, and the population in city homeless shelters — excluding the influx of recently arrived migrants — jumped by nearly 10 percent last year.

Meanwhile, new construction has slowed since mid-2022, when the Legislature declined to renew a tax break for multifamily housing that was decried on the political left as a giveaway to the real estate industry. A new version of this tax incentive is part of this year’s legislation — an acknowledgement of its importance on both sides of the debate.

“It’s pretty clear that over the past two years the city and the state have been moving backwards, largely, on the housing battle,” Alicia Glen, deputy mayor for housing under Mayor Bill de Blasio, said in praising the deal.

Recent polls show housing is a top issue for voters, second only to public safety. A Quinnipiac poll last December found 25 percent of New Yorkers consider affordable housing the most urgent issue facing the city — the same share of respondents that cited crime.

2. New York City’s trademark NIMBYism is waning.

Five years ago, New York’s real estate industry was cast as a boogeyman in Democratic circles.

With the progressive wing of the Democratic party ascendant, politicians were spurning real estate donations — particularly those worried about primary challenges from the left. Lawmakers were killing high-profile development projects like the planned Amazon headquarters in Queens. The sentiment culminated in the Legislature approving sweeping reforms for rent-stabilized renters over fierce objections from the real estate industry — a stunning show of its diminished influence in Albany.

All of that is now changing, and it’s become less politically tenable to pursue anti-development policies.

As one example, left-flank Democrats didn’t aggressively fight the return of the tax break for rental housing known as 421-a, focusing their efforts on other aspects of the deal.

“This has been, I think, the largest sea change in terms of discourse that I've seen in a while,” Deputy Mayor Maria Torres-Springer said on the politics of the tax incentive at a New York Law School event last week. “At the start of the administration, even last year, certain words were taboo.”

State legislators also agreed to lift a longstanding cap that limits the size of residential buildings in New York City — another sign of the political shift.

Pro-growth politicians have pushed that change for years — as recently as during the de Blasio administration — to no avail, stymied by a persistent distaste for high-rises in quaint pockets of Manhattan and Brooklyn and suburban-style parts of Queens.

“I’ve been discussing the [building size] cap for a decade,” said Rachel Fee, executive director of the New York Housing Conference, a research and advocacy group. Being opposed to development “feels like it’s not an acceptable position [for lawmakers] to hold on to — we have a housing shortage, rents keep going up, and I think people finally understand that relationship to lack of supply.”

3. Tenant activists still have power, even if they aren’t claiming a win.

The package came with a version of a tenant-friendly policy long sought by housing activists — and loathed by the real estate lobby — after the Legislature made clear they would not approve reforms to spur housing growth without it.

The inclusion of the “Good Cause” measure to effectively limit rent increases in market-rate housing and make it harder to evict tenants underscored the sustained power of tenant groups.

They are nevertheless unhappy with the final outcome, which includes several significant carve-outs negotiated by Hochul and the real estate industry, like a 30-year exemption for new buildings and another one for higher-rent apartments.

California and Oregon have enacted similar measures in recent years.

Cea Weaver, who led the tenant coalition, called the measure the “worst ‘Good Cause’ law in the country,” and slammed the fact that the deal also came with rent regulation changes sought by landlords (albeit more limited rollbacks than what they had pushed).

Weaver and others have raised concerns the new measure will be difficult, if not impossible, to enforce, and it remains to be seen how many tenants it will actually protect from high rent increases and evictions.

Nonetheless, the inclusion of the policy reflects movement on a top priority of many left-leaning lawmakers, and activists will likely return to Albany in future legislative sessions to strengthen and expand the law.

4. The package may not spur the building boom lawmakers are hoping for.

The new version of the 421-a incentive will come with bolstered wage standards won by construction trade unions and new affordable housing requirements.

While the duration of the tax exemption grew in the deal to up to 40 years, the real estate industry argues it will be more costly and won’t produce as much housing as its last iteration.

“It'll be at a slower rate than you would have seen five or six years ago. And, you know, everybody was admitting, in retrospect, that we weren't building enough five or six years ago,” said James Whelan, president of the Real Estate Board of New York. “So, it moves the needle, but how dramatically does it move the needle? We don't think in its totality it’ll be anywhere near what the city needs.”

Under the prior version of the tax break, the city was still producing less housing than what Hochul and Mayor Eric Adams say is necessary to address the shortage — in New York City, some 500,000 new homes over 10 years.

The construction market is challenged by high interest rates and rising costs, and the new incentive program — which will be around for a decade before it expires — could become more attractive as those broader economic factors change.

Other reforms, like lifting the building size cap and creating a new program for office-to-residential conversions, are expected to spur housing but are unlikely to yield massive increases in supply.

5. Housing advocates still want to force the suburbs to build more.

Last year, Hochul pushed an ambitious proposal to force localities, particularly the suburbs around New York City, to grow their housing stock.

The push drew swift and fierce pushback — with one Long Island politician warning of a “suburban uprising” if the plan went forward — and it was rejected by the Legislature.

Hochul dropped those mandates from her housing agenda this year — with an eye toward protecting Democrats running in suburban New York House races that will help decide control of the chamber. The final budget does include $650 million reserved for local governments who add housing, and new property tax incentives to encourage accessory dwelling units like backyard cottages and in-law suites.

But housing advocates say this package won’t be enough to solve the supply crisis and want Hochul and legislators to revisit housing mandates next year.

“It reinforces the statewide status quo that allows local governments to ban new homes,” said Annemarie Gray, executive director of the pro-growth advocacy group Open New York. “Even though we made a couple of positive steps in New York City, we did not see nearly enough movement [on a statewide approach].”

She and others don’t want lawmakers to walk away from this session considering the issue solved.

“New York’s housing shortage is so dire that we have to be talking about housing this year, next year and every year for the foreseeable future,” Gray said.