_Housing affordability in the city: New York

The problem is driven by the city’s own success, people are arriving faster than the bricks can be laid. Between 2000 and 2016, the population of New York rose by 11%, while its housing stock grew by 8%. This is a principle driver for affordability pressures, although it has been compounded by property prices and rental values.

Less than a half of the city's rental stock is unregulated. Blockchain technology is enabling a new model of ownership

A political priority

Mayor Bill de Blasio has made affordable housing one of his administration’s top priorities. He has committed to “build or preserve” 300,000 affordable units by 2026 and to help both tenants and small landlords preserve the quality and affordability of their homes.

In New York, many new developments are subject to inclusionary zoning; they must include a portion of social or affordable housing in order to be given the green light. If the demand is clear, a new development that includes 100 subsidised apartments, may receive up to 90,000 applications.  

 In an attempt to boost the availability of affordable housing, de Blasio has embarked on a rezoning process, which is revitalising areas like East Harlem and Far Rockaway.

The administration has also committed US$250 million to help shore up the Mitchell-Lama programme. This 65-year-old scheme, helped to create new buildings using low-interest mortgages and tax breaks in exchange for low rental prices in perpetuity. Some 15,000 Mitchell-Lama units will be repaired and renovated.

 The de Blasio administration has also created two initiatives that will help New Yorkers own their home. One scheme, Open Door, aims to boost construction on apartments for families earning between US$69,000 and US$112,000 per year. A second, HomeFix, will provide low-interest loans for residents seeking to renovate dilapidated housing. 

Rent control

An often-cited way to address affordability is to introduce rent control, which has been implemented in New York, San Francisco and Berlin among other places. 

Indeed, the 2017 New York City Housing and Vacancy Survey found that, of the 2,183,064 occupied and vacant rental units, less than half (42.9%) were unregulated, or “free market” with the remaining units rent-regulated in some way.

In New York, rent control generally applies when a tenant has been living continuously in their apartment since 1 July 1971 in a building constructed before 1947.

Overall rent control numbers are declining because when a rent-controlled apartment becomes vacant, it either becomes rent-stabilised, or, if it is in a building with less than six units, typically removed from regulation altogether.

Rent-stabilised apartments mean that rent can only be increased by a percentage determined by the Rent Guidelines Board. For renewals after 1 October 2018 this has been set at 1.5% for one-year leases and 2.5% for two-year leases.

Rent control has benefits to current tenants, providing insurance against increases and potentially limiting displacement. However, according to economists Diamond, Quade and Qian at Stanford University, it may decrease affordability and create negative spillovers on the surrounding neighbourhood in the long run.

Rent controlled apartments incentivise tenants to remain in their homes, despite a change in their housing needs, which limits the efficient allocation of housing.

Controls also reduce the quality of housing as landlords are not incentivised to invest, and with values artificially divorced from market reality, development values are reduced. Rent controls tend to aid a group of fixed existing tenants to the detriment of new households.

Revolutionising fractional ownership

A new ownership model is helping New Yorkers to get on the housing ladder. Property investment start-up Meridio, founded by Mohammad Shaikh, turns any property type into ‘units’ that represent a share of the building, which can be purchased by tenants and investors alike.

Currently they are offering private placements to accredited investors, but plan to scale to public offerings next year. This fractional ownership model will allow anyone to get into real estate, even on a relatively small budget. It also helps tenants to invest in their home on a shared ownership basis, and much like shares they will receive dividends on their investment, ending the ‘empty money’ of rent. 

“It should be as easy to invest in a property you pass on the street as it is to buy stocks and shares,” said Shaikh. “We can use this model for any kind of property, from multifamily housing to retail, office, or student accommodation.” It makes the rental process more rewarding as you can receive dividends from the shares you hold.

Meridio uses Blockchain technology to power the model, creating a clear ledger for ownership and ensuring the asset remains liquid and easily tradable.

Meridio’s proof of concept project was unveiled in Brooklyn and is currently focused on the US, but Shaikh is partnering with investment organisations in London and Germany who are keen to trial the initiative in Europe.

The Knight Frank Affordable Housing team works on behalf of developers, Local Authorities, Registered Providers and private landowners in all aspects of Affordable Housing.