City of Yes Plan Approved, Offering Development Stimulus for NYC

Like most of the U.S., New York City is in the middle of a housing shortage that has resulted in rapidly rising housing costs, a widespread lack of affordable housing, and outmigration that is potentially costing the city as much as $1.9 billion per year in lost tax revenue. While the lack of affordable housing (housing costing 30% or less than a household’s pre-tax gross income) affects people throughout New York City, it disproportionately burdens those in the low-income bracket, who are at a higher risk of homelessness. 

As many as half of all New Yorkers are rent burdened (paying rents above that 30% of household income threshold), while a third of renters are severely rent burdened, spending more than half of their income on housing. This negatively affects not only these struggling families, but also the rest of the city. Lack of affordable housing drives down the city’s productivity, as people move further away and commute longer distances; it also increases the city’s expenses related to social support services. In fact, productivity losses caused by outmigration from major cities like New York reduce the GDP of the entire U.S. by as much as 2%.

City planners believe that New York City needs 473,000 new housing units by 2032 to keep up with demand caused by an unsustainably low 1.4% vacancy rate and the fact that job growth is increasing much more quickly than home development in the city. In an effort to address this situation, New York City Mayor Eric Adams introduced the City of Yes Housing Opportunity plan in early 2024. While the plan originally appeared to be stalled, it passed an important subcommittee amendment process in fall 2024 and was put to a vote at a city council meeting on December 5.

City of Yes Passes City Council Vote

The New York City Council voted 31-20 to approve the City of Yes rezoning plan, which will allow for the development of more than 80,000 new apartments. Specifically, it rezones a number of districts where households make 60% or less than the area median income. The rezoning will make it easier for developers to pursue new projects that could result in the construction of tens of thousands of residences.

The amended and passed plan will also provide $5 billion in development and infrastructure funding over the next 15 years, provided by New York City ($4 billion) and New York State ($1 billion). These funds have been earmarked for infrastructure development ($2 billion), housing capital ($2 billion), and a variety of programs that will benefit neighborhoods and tenants ($1 billion).

The City of Yes plan also eases parking requirements in certain neighborhoods, allowing for developers to build denser neighborhoods. In addition, it grants permission to some homeowners to add backyard cottages and basement apartments to their properties, which will result in additional rental units being available throughout the city.

Perhaps counterintuitively, the additional housing units facilitated by the new plan are expected to benefit the city’s real estate market and actually increase real estate values. Some developers could see their buildable square footage increase by as much as 20%, while one location in East New York could see a 70% expansion in its ability to develop.

The stimulus provided by the City of Yes plan comes on the heels of a new housing policy introduced by New York Governor Kathy Hochul in June, which delayed the expiration of a tax abatement program until 2031 and created tax exemptions for the construction of residential units and conversion of office spaces into dwellings. 

The past year has seen an uptick in real estate market activity in New York City, with development sales volume increasing 25% compared to the previous year. A third of transactions has involved office-to-residential conversions, suggesting that Governor Hochul’s mid-year stimulus may have had an effect. It is expected that this initiative, when combined with the new City of Yes plan, will have a sustained upward effect on the rate of development in the city, hopefully helping move numbers toward the projected requirement by 2032. 

It is important to note that New York City is already suffering from a major ongoing undersupply issue, due to lack of housing construction over the past decade. As part of the projected 473,000 new housing units that are needed within the next seven years, it’s estimated that 227,000 units are needed immediately to make up for recent underdevelopment and meet demand right now. In other words, while the passage of the City of Yes Housing Opportunity plan by the New York City Council seems to be a step in the right direction toward more housing, there is still a lot that must be done and a long way to go before the city’s housing shortage has been solved.