Building for Growth: A Development Strategy for New York City's Long-Term Prosperity

New York City's Earlier Development Needs Persist

New York City's Earlier Development Needs Persist

The intense concern over rebuilding Lower Manhattan may presently overshadow but does not obliterate the long-term development needs that were facing New York City during its boom years of the 1990’s and also during the previous boom of the 1980’s.

Through both strong periods, the growth in jobs and population and the strengthened real estate leasing market fully stretched the capacity of the City’s housing and commercial office space. The widespread congestion on both the public and private transportation systems is symptomatic of the City’s overstressed infrastructure systems.

While beginning the massive rebuilding phase in Lower Manhattan, and bringing the City into vigorous economic recovery from the current recession, New York City must also face issues of growth and development in the following critical areas.

Developing the Waterfront Compared to other North American or world cities, New
York City has made little progress in redeveloping its waterfront for commercial, residential or recreational uses.

The City prepared a Comprehensive Waterfront Plan in 1992, and a companion Borough Waterfront Plan in 1993-94, both of which expressed the City’s long range goals for a 21st Century waterfront. However, little has happened in waterfront development for NYC in the past ten years, or effectively during the 1980’s. Battery Park City remains the sole achievement of waterfront development on either of Manhattan’s rivers during the
past forty years.

The large development project proposed for Queens West has languished in the planning stage for over 15 years; the Citicorp Tower in Long Island City, completed in the early 1980’s, remains the singular high-rise office building in that district.

Years of squabbling have prevented any development along the largely abandoned Brooklyn Heights waterfront, although some preliminary agreement was finally reached at the end of the 1990’s on a proposed recreational and commercial park district. While Governor Pataki included a substantial capital allotment to the proposed Brooklyn Bridge Park Project in his budget proposal for 2001, it is notable that no site in Brooklyn is included in any of the State’s designated 52 ‘Empire Zones’.

Without doubt, the long and costly battle with environmental groups over the future of Westway contributed to what has been described as the ” ideological paralysis” in planning and decision-making for the City’s vast waterfront areas.

Meeting Increased Competition from the New Jersey Waterfront
Development along the New Jersey waterfront, which includes housing, hotel, retail and marina complexes in addition to office construction, first began in a burst of construction
during the 1980’s, and has advanced significantly during the 1990’s, following the setbacks of the early 1990’s recession.

By the late 1990’s, rising costs and scarcity of prepared sites for development in the Manhattan CBD became a major issue for private developers. With no readied sites for development in the boroughs, such significant New York City firms as Goldman Sachs, JPMorgan Chase, John Wiley and Sons, and Paine Webber announced plans to construct new office space along the New Jersey side of the Hudson River waterfront.

In response to this renewed competition and to offer some balance to the incentives offered for new office development on the New Jersey waterfront, in July 2000 New York City tripled the tax credits available under the NYC Relocation and Employment Assistance Program (REAP) to $3,000 per job. If fully used, these credits, which are available as of right on any building qualifying under the City’s Industrial Commercial Incentive Program (ICIP) in designated revitalization areas, would effectively lower rent on a 500,000 square foot office building by $15 per sq.ft.

However, the fact remains that in the aftermath of September 11, when the need for office space for displaced firms was greatest, substantial volumes of sublet space were immediately available on the New Jersey waterfront and in Midtown Manhattan, but no office space was available in Brooklyn or Queens, at any price or quality.

Providing Sufficient Housing
By the late 1990’s, housing pressures in NYC had once again intensified, similar to the patterns experienced during the mid-1980’s. The causes, and consequences, are readily apparent.

• Lack of Supply
  During the first five years of the 1990’s, only 35,000 housing units were built in New York City, the lowest of any period since WWII, according to the Citizens Housing and Planning Council (CHPC). The volume of construction picked up somewhat during the next five years, with some 60,000 units built by 2000, but for the entire decade, less than 100,000 units of housing were built in NYC.
  
• Increasing Demand
  Meanwhile, the City’s population grew by 685,000 during the 1990’s, and the number of households increased by more than 200,000. While some of this increase likely occurred during the previous decade and has been captured by better enumeration methods for the 2000 Census, this still indicates exceptionally strong growth in population and households during the 1990’s.Also, average household size, after falling for the previous four decades, increased to 2.59 by 2000, a turnaround that is indicative of the intense pressure on scarce housing capacity.
  
• Backlog of Demand
  The market forces during the 1990’s added pressure to an existing backlog of housing demand, estimated by the CHPC to be a shortfall of 225,000 units. This estimate includes accommodations for the homeless and for those families living together, as well as replacement of seriously deteriorated stock.This volume of housing completions would also provide enough capacity to yield a vacancy rate of 5 percent, a rate that is considered necessary for maintaining a normal market situation. Notably, the vacancy rate for New York City in 1999 was estimated by the Housing and Vacancy Survey (HVS) to be only 2.7 percent.
  
• Rising Prices
  By the spring of 2000, the average cost of a condominium apartment in Manhattan broke through the $700,000 threshold, an increase in price of 24 percent in just one year. Increases for renters, who form the bulk of households in NYC, have also been reported as substantial in those higher priced apartment units that have moved out of rent stabilization and into full market pricing. For the overall renting population, despite the prevalence of rent stabilization, the HVS found that in 1999 one fourth of all renters were paying one-half of their incomes on rent.
  
• Disappearance of Most Government Programs for Housing
  During the 1990’s, the volume of City, State, or Federal funds for either housing construction or housing subsidies fell dramatically. The only notable effort was made by the City, through its program to return In-Rem housing units back to private or non-profit owners under agreements to rehabilitate deteriorated stock.

Office Development
Despite an increase of over 450,000 jobs, there was less office construction in Manhattan during the 1990’s than in any decade in the last half of the 20th century. Only 14.5 million square feet of new office space was completed, a sharply reduced volume from the over 45 million square feet completed in the 1980’s. Seven years elapsed during the 1990’s when no new office building was completed. This occurred despite the boom time prosperity of the decade and the substantial growth in office-based jobs, largely because the severe recession at the beginning of the 1990’s left a substantial overhang of new and sublet space in the office market.

The concern underlying the report issued in June of 2001 by the Group of 35 was “not that new employment growth might wane in the short term – it is that there is not enough new office space to support future employment growth”.1

And while the current recession has temporarily increased the availability of office space in Manhattan, the basic long-term situation has not measurably changed: additional new space is needed to retain those displaced firms in the City, as well as to provide for future growth.

Some of the key reasons why office development in Manhattan has been hampered during the boom years, as advanced by the Group of 35 and by experts interviewed for this report, follow.

• Finding More Space for Development Within the Manhattan CBD
  Despite the density of land use in Manhattan, a considerable amount of land exists for development. There are large sites of abandoned and dilapidated land, and extensive sections of deteriorated waterfront on the Hudson, the Harlem and East Rivers that could be made ready for intensive mixed use and recreational development.
  
  In addition, there are numerous smaller parcels of land throughout Manhattan where re-zoning, assemblage, or enabling transportation could provide significant volumes of space for further development. In almost all cases, the public sector role is essential before private development could occur.
• Pursuing Office Development in the Four Boroughs and Upper Manhattan
  While there has been significant private sector renovation and development of residential and commercial projects throughout New York City during the 1990’s, there has been a notable scarcity of public sector planning and programs from the City, State or Federal governments that could stimulate large-scale office and commercial development outside of Manhattan’s central business district.
  
  New York City’s capital expenditures on economic development in the boroughs during the 1990’s have been meager. (The exception would be the City’s construction of two minor league baseball stadiums, in Staten Island and in Coney Island, at an estimated total cost of over $110 million.)
  
  Most of Brooklyn’s Metrotech development took place in the 1980’s, and only Renaissance Plaza, which includes the new Marriott Hotel, opened during the 1990’s. The Queens West project in Long Island City has been stalled for several years, and there has been no effective development anywhere along the Brooklyn or Queens waterfront. Similarly, there have been few significant large-scale developments in either the Bronx, Staten Island, or in Upper Manhattan during this past decade.
  
  The major public development thrust in Queens has been led by The Port Authority of New York & New Jersey in its redevelopment programs at both JFK (including construction of AirTrain) and La Guardia Airports, and by the individual air carriers at their respective terminal buildings.