Almost two years into the pandemic, we are starting to understand its effects on our housing market. What has become clear is that while the pandemic triggered temporary changes in preferences, it has not altered the underlying fundamentals. Rather, the pandemic exposed the underlying housing scarcity that has been growing worse for decades.
These events are also a reminder that for many this type of housing market translates to insecurity, less opportunity, and limited options for improving the well-being of their communities. Respondents to RPA’s Metro Area Issues Survey consistently brought up cost of living and housing affordability as threats to the region. To change this long-standing market failure, the State legislatures and local governments in our region need to step in and adopt the necessary policies that can alleviate this situation in the long term.
The tri-state metropolitan region’s population has increased by 6% in the last decade while its housing stock has only increased by approximately 3.5%.
Fortunately, we are seeing progress on this front. New York Governor Kathy Hochul’s proposed budget includes critical reforms, and other initiatives are moving ahead in Connecticut and New Jersey. These efforts include land use reforms and programs that would legalize and encourage new accessory dwelling units, incentivize new transit-oriented development, allow for an increase in residential density within the urban core, and support the conversion of commercial uses and hotels into housing, RPA recommended many of these important initiatives and others in our Fourth Regional Plan. We must advance these proposed reforms if we are going to address the underlying problem of housing scarcity in the region.
Pre & Post-Pandemic Housing Trends
Pre-pandemic, a common perception was that housing scarcity and the resulting skyrocketing costs were largely a New York City problem. This is likely because housing prices increased far more in New York City than in its suburbs during most of the past decade. Now that is clearly no longer the case. In a reversal of trends, post-pandemic home appreciation rates have been correlated with greater distances to the region’s inner core.
Almost two years into the pandemic, the value of a typical house in the outer-ring suburbs of the region has dramatically increased. For example, in the case of Ulster County, New York, it took almost ten years (pre-pandemic) for a home to increase its value by 10%. But in less than two years (post-pandemic), the typical home in the same county appreciated by 45%. Similar trends have been evolving in other outer-ring counties: Sullivan, Orange and Dutchess in New York, Ocean and Monmouth in New Jersey, and Litchfield in Connecticut.
A somewhat different trend has been happening with market rents. The market-rate rents in the metro area quickly rebounded after a steep decline in 2020 and have been increasing at an even higher pace than before, following the national trend. This rebound largely coincided with the roll-out of vaccination programs. Market rentals lagged in Manhattan by several months, but prices and the number of new leases has largely recovered back to pre-pandemic levels.
There are some signs that the market is starting to recalibrate. Appreciation rates in the outer rings are flattening and increasing faster in the urban core (based on the last quarter of 2021). The typical seasonal variations in the rental market are returning after being absent during the holiday and vacation stretch in 2020. There are also more homebuyers beginning to push back against surging prices. The possibility that the Federal Reserve will raise interest rates to tamp down inflation would also have the effect of softening the home buying market.
Supply Constraints During the Last Decade
But the underlying problem remains: the region is simply not building enough homes. The region as a whole has only increased its housing stock by approximately 3.5% over the last decade, despite the region’s population having increased by almost 6%. Given that the majority of new construction has happened in the region’s core, the recent growing demand in some outer counties has exacerbated the growth in housing costs.
Over the past decade, the urban core of the tri-state area (including New York City plus inner New Jersey) provided the bulk of new housing production for the entire region. And while more than 572,000 new housing permits were issued from 2010 to 2020, the number of units actually constructed within that same period is probably closer to 360,000 units - more than one third less.
New York City accounted for the vast majority of new housing, approximately 42% of permits and 57% of total added units. Northern New Jersey counties accounted for 31% of permits and 24% of actual new units. In contrast, housing development in Long Island, Connecticut, and the Hudson Valley subregions - all combined - accounted for just 17% of permits and 19% of new units. In Suffolk and Nassau, this translates to only seven permitted units for every 1,000 residents, while in Manhattan and Brooklyn that same metric is 31 units, almost five times over. Hudson County New Jersey permitted the most units in the region - 65 for every 1,000 residents.
Most new homes were built in large apartment buildings (ten or more units), with the vast majority of these located in New York City. These large New York City buildings represented approximately 60% of the total new homes in the region overall. There was modest growth in single-family and two-family homes (representing roughly 16% of the net gain), but the stock of middle-density housing in 3-9 unit buildings has decreased almost everywhere in the region besides a slight gain in New Jersey. Regionwide, approximately 26,000 units in these middle-density buildings have been lost, part of a longer trend experienced across the rest of the country as well. This decline is particularly concerning given that this “missing middle” type of housing is critical to addressing our overall environmental sustainability.
Our years of under-building has had the effect of lowering vacancy rates for both rentals and houses for sale. After some gains in 2016, region-wide vacancies trended downwards by the end of the decade, right before the pandemic, resulting in the effects that rippled across the housing market.
Relative Small Changes in “Closing” Trends Disrupted the Market in a Big Way
Starting in the summer of 2020, the metro area saw a temporary increase in the number of homeownership closing sales. Because of the limited amount of inventory, this uptick meant the market shifted heavily to become more expensive. By the end of 2020 at the beginning of the pandemic the number of newly pending listings - a good proxy for closing sales and demand - peaked by 33% more when compared to previous years. Housing sales accelerated sharply, prices were higher, and inventory was down year-on-year.
In addition to low vacancies and an increase in sales, especially in the suburban counties, other factors compounded and further accelerated these shifts. These included low mortgage rates and a significant demographic wave of first-time millennial homebuyers entering the market.
It is important to note that these shifts in closings trends, and the effects they had over the housing market, did not require a major change in outmigration patterns which, despite speculation, did not substantially increase either in the region or in New York City. Increased second home ownership from both increased demand and the relative income stability among high-income earners during the pandemic also likely played a role.
Long Term Solutions Depend on Statewide Land Use Reforms
Prior to the pandemic, housing insecurity was already evident across the entire region. In New York State alone and prior to the pandemic, more than 1,000,000 owner-occupied households (28% of all owners) were paying more than a third of their monthly income towards mortgages and/or maintenance costs. New York State renters are in worse condition. Approximately 1,600,000 renter households (52% of all renters) meet the same definition of being housing cost-burdened. But the market trends described above have worsened conditions even further for households across all three states.
To address insecurity and constraints in housing supply over the long term, statewide land use reforms will be key. Currently, there are important policy choices facing all three states legislatures. Here is a summary of existing proposals.
New York
Proposed in the Executive Budget by Governor Kathy Hochul
Legalizing and encouraging new accessory dwelling units. Modeled after the New York State Accessory Homes Act (S4547, A4854) as championed by NY Senator Peter Harchkam and NY Assemblyman Harvey Epstein
Bolstering transit-oriented development (TOD) by requiring zoning to allow 25 units per acre in places already served by transportation infrastructure (within 1/2 mile of a rail station or major bus station - defined as having dedicated parking - within 60 miles of NYC, and all rail stations on LIRR)
Increasing the allowable residential density within the urban core by enabling New York City to lift the 12 FAR cap
Supporting the conversion of underutilized commercial uses and hotels into housing
The proposed Five Year Housing Plan adopts the main policy recommendation coming from the New York Housing Conference. In RPA’s Fourth Regional Plan we called for spurring innovation in affordable housing, which is echoed in her proposals to create more competition in the housing industry and jump-start new technologies. RPA also called for improving fair housing protections, which the Governor addresses by improving protections for renters providing legal assistance for tenants facing eviction beyond New York City.
Other proposed legislation
A proposed bill that would ease the approval process for affordable housing developments in municipalities that do not already have enough affordable housing available. Modeled after Massachusetts’s “40B” law and sponsored by State Senator Rachel May (S7635)
Bill proposing to end exclusionary zoning by requiring localities to allow up to four units per lot. The bill would also bar local governments from imposing parking minimums and setting onerous minimum lot sizes. Sponsored by State Senator Brad Hoylman (S7574)
Connecticut
Recently enacted
- The recent passage of HB 6107 (introduced as HB6107) demonstrates the growing recognition of the need to incentivize more housing choices in Connecticut. The new law mandates that municipal regulations must allow ADUs and sets flexible criteria for dimensions, occupancy, and parking requirements. However, municipalities may opt-out of this provision by requiring a two-thirds vote of both the zoning commission and legislative body before January 1, 2023.
Other proposals for the 2022 legislative session by Desegregate Connecticut and partner organizations
Allowing mixed-income homes around train stations. Proposal to allow as-of-right housing within a 10-minute walk from train or CTfastrak stations, at an overall average of 15 homes/acre (matching Massachusetts’ new law), with a 10% minimum affordability requirement and no onerous parking mandates.
Creating more sensible lot sizes by reducing lot size mandates to a 1/8 acre anywhere there is sewer and water infrastructure (similar to bipartisan legislation in Vermont, which protects 1/8-acre lots).
Simplifying zoning bureaucracy by empowering towns to merge their planning/zoning commissions and zoning boards of appeals, at their option.
New Jersey
Proposed legislation
Legislation has been introduced in both chambers of the state legislature that would require municipalities to allow ADUs on single-family lots and establish flexible dimensional and occupancy criteria. However, the governing body of a municipality may opt-out of the requirement, provided it holds a public hearing, publishes its reasons for opting out in the newspaper, and passes the measure by a two-thirds vote of the full legislative body. Additionally, the legislation would require municipal master plan housing elements to contain a consideration of lands and existing structures appropriate for the development of ADUs. Proposed by State Senator Troy Singleton (S345) and Assemblyman Raj Mukherji (A1987).
The “Desegregate New Jersey Act” has also been introduced in the State Assembly, which would promote equitable residential development and ADUs throughout the State by requiring municipalities to allow the construction of ADUs on single-family lots and to allow, without requiring a use variance or parking minimum, the development of mixed-use development along defined “main street corridors” and around transit stations. The bill also requires any development with 10 or more dwelling units enabled under the measure to reserve at least one out of every 10 units to meet the municipality’s affordable housing obligations. There is no opt-out clause in this legislation. Proposed by Assemblyman Raj Mukherji (A1985).
Except for Connecticut’s HB 6107, all of these proposals have yet to be passed into law and will face hurdles during the legislative process. Yet as exclusionary land use policies continue to foster housing scarcity, insecurity and segregation, we cannot afford not to act.