The housing boom in the early 2000s led to construction and speculation in the real estate market at unprecedented levels. Williamsburg, located in northern Brooklyn, experienced some of the highest levels of building during this time. Today, the effects of the housing boom in Williamsburgi are still visible. Glass condo buildings wear banners advertising themselves as luxury rentals, while stalled construction sites of promised affordable housing sit behind them untouched except for growing amounts of graffiti. However, even with the burst of the housing bubble, a mix of rezoning initiatives and tight credit have allowed Williamsburg rents to increase at rates faster than the New York City average.
The booming construction in Brooklyn during the early 2000s was met with resistance from areas that wanted to control the rampant development in order to preserve the character of their neighborhoods. This resistance is what some housing experts called a “downzoning uprising.”1 While downzoning can help preserve the character of a neighborhood by restricting new development, downzoning also effectively reduces the supply of housing. This is problematic in a city whose population grew an astounding 2.8% (an increase of 230,704 people) from 2010 to 2013.2 The tension between an increasing population and decreasing supply of housing has created increasing rent prices and a decreasing amount of affordable housing.
Former New York Mayor, Michael Bloomberg, was happy to placate worried residents by approving massive rezonings throughout New York City. By the time the Bloomberg administration left office in 2013, it had approved 120 rezonings.3
The majority of Bloomberg’s rezoning initiatives took place from 2003-2007. During this time, the Bloomberg administration approved the rezoning of 18% of New York City’s land, or 188,000 lots. Land can be rezoned in three ways: downzoning, upzoning, and contextual-only rezoning. Downzoned land decreases the residential development capacity, while upzoned land increases the residential capacity. Contextual-only rezoning changes what the lot can be used for, but does not change its development capacity.4
Of the land rezoned between 2003 and 2007, 63% was subject to a contextual-only rezoning, 23% was downzoned, and only 14% was upzoned. As a result of these rezonings, the residential development capacity was estimated to have increased only 1.7%, which created enough space for approximately 200,000 new residents.ii The small net increase in residential capacity did not increase the housing supply enough to slow rising rent prices. Additionally, it created a rush of developers to the small amount of upzoned land.
The areas that were upzoned, which allowed for new housing development between 2003 and 2007, were those that tended to have a higher percentage of Hispanic and black residents and a lower median income than the city’s median, while downzoned tracts and tracts with contextual-only rezoning had a higher percentage of white residents than New York City and a higher median income than New York City.5 Although Williamsburg did not meet the criteria for more racial diversity, it did have a lower median income. In the year 2000, New York City’s median income was $38,293, while Williamsburg’s median income was $26,325.iii
Rezoning efforts in Williamsburg were led by developers, who saw potential in its neglected waterfront. Situated on the East River with clear views of downtown Manhattan, developers recognized the profitability of these lots and pushed for rezoning of the derelict waterfront lots to allow for new development. The developers were successful, as 18.6% of the land in Williamsburg was upzoned, increasing the residential capacity by 35%.6 In 2005, shortly after the rezoning, the City Council committee unanimously accepted the developers’ proposal to allow the development of multiple 40-story luxury condo buildings along Williamsburg’s waterfront, given the developers agreed to make at least 20% of the development affordable to lower and middle income New Yorkers.7
The number of units authorized by new building permits is a good indicator of the amount of construction that occurred during the housing boom. At its peak in 2008, building permits in Brooklyn accounted for 34.6% of all new building permits issued in New York City. Within Brooklyn, Williamsburg consistently accounted for the most new construction, and even had the 2nd most new building permits in all of New York City.8 Figure 1 shows the units authorized by new building permits in the Brooklyn community districts: Williamsburg/Greenpoint, Bedford Stuyvesant, Bushwick, and Crown Heights, from 2000 to 2012. While the other neighborhoods in Brooklyn experienced a similar trend, it is clear the 2005 rezonings in Williamsburg were a catalyst to the unparalleled levels of construction it experienced.
Williamsburg had 3,233 permits for new buildings in 2008. One year later, after the crash of the financial markets, only 112 permits for new buildings were issued. With the burst of the housing bubble also came the end of subprime mortgages.
Banks tightened their lending standards, making it nearly impossible for anyone to get credit to buy the newly constructed condos in Williamsburg. Development came to a standstill, leaving stalled construction sites and no start to the promised affordable housing. Developers were forced to rent the completed condos as ‘luxury rentals’.9
However, unlike other neighborhoods in Brooklyn, rents in Williamsburg did not decrease. The collapse of the housing and financial markets had two major effects on the real estate market in Williamsburg that caused rents to continue increasing. First, because credit is still as tight today as the days after the Lehman Brothers’ collapse, households are not being approved for the loans necessary to move. Therefore, households are not moving and developers are not building, which decreases the supply of available housing and increases prices. Secondly, there has been a change in the housing stock in Williamsburg. Because credit is too tight for most consumers to buy the condos built during the housing boom, developers have been forced to turn them into ‘luxury rentals’. Adding high cost rentals changes the distribution of the mix of product available to a more high-end mix, which makes prices in the aggregate market higher.iv
Figure 1. Units authorized by new bulding permits from 2000 to 2012. The data for this chart were compiled using New York University's Furman Center of Real Estate and Urband Policy's Data Search Tool, which can be accessed from: http://furmancenter.org/data/search.
The more expensive mix of apartments in Williamsburg is evident in the distribution of rentals available by price. In 2011, there was higher percentage of rental units in Williamsburg with a rent above $1,500 than in there was in New York City as a whole. The high percentage of rents above $1,500 in Williamsburg is reflected in the higher average rent reported. Figure 2 shows the median monthly rent for households who have moved into their unit within the last five years. Looking at rents charged to recent movers is helpful in examining marginal rent increases. It is clear that rents in Williamsburg continued to increase at a higher rate than both Brooklyn and New York City as a whole.10
Williamsburg has become unaffordable for many New Yorkers. The promise by developers to create affordable housing has been left unfulfilled. Further, the percentage of rent-regulated units, measured by the percentage of all rental units that are rent-controlled or rent-stabilized, decreased by 2.2% in Williamsburg between 2002 and 2005.11 Even as the economy begins to recover and the sales volume begins to increase again, the effects of the housing bubble are still evident. Stalled construction sites litter Williamsburg. In 2012 Brooklyn accounted for over half of the stalled construction sites in the city. Further, Williamsburg alone had 70 stalled construction sites in 2012, which was higher than any other neighborhood in New York City.12
The affordable housing that was promised by developers has still not been built. Initial rezonings and development plans from 2005 coupled with tight credit following the financial crisis have shifted the distribution of high-end products available in the market, causing average rent prices to rise. As a consequence, many people have been priced out of Williamsburg. Some New York City dwellers have chosen to move further East in Brooklyn or to move to Queens, while others chose to seek refuge from high rents in New Jersey. Brooklyn, and especially Williamsburg, are clearly no longer a cheaper alternative to Manhattan. Without an increase in the supply of affordable housing, New York City rents will continue to increase as the growing population and demand for housing increases.
Figure 2. Median monthly rent for new movers. The data for median rent were compiled from: State of New York City's Housing and Neighborhoods 2012. Pgs; 50, 72, 74. Furman Center for Real Estate and Urban Policy, New York University.
Footnotes
i Throughout the paper when referring to Williamsburg, I am looking at data for the Williamsburg/Greenpoint community district. This is due to the fact that the Furman Center for Real Estate and Public Policy had the easiest available data, which is organized by community district.
ii These approximations come from the policy brief "How Have Recent Rezonings Affected the City's Ability to Grow" Furman Center for Real Estate and Public Policy. March 2010. They note that these calculations are just "on paper" estimations, due to the fact they cannot adjust for every development and regulatory characteristic that may affect what can be built on each lot.
iii These values are not adjusted for inflation. Source: The State of New York City's Housing and Neighborhoods 2002. Furman Center for Real Estate and Public Policy.
iv Information in paragraph from interview with Jonathan Miller, CEO of Miller Samuel Inc. - Real Estate Appraisers and Consultants. Conducted March 13, 2014.
Endnotes
1 Scott, J. “In a Still-Growing City, Some Neighborhoods Say Slow Down” The New York Times. October 10, 2005. Accessed April 1, 2014. http://www.nytimes.com/2005/10/10/nyregion/10density.html?pagewanted=all....
2 Roberts, S. “Population Growth in New York City Is Reversing Decades-Old Trend, Estimates Show” The New York Times. March 27, 2014. Accessed September 25, 2014.
3 Laskow, S. “The Quiet, Massive Rezoning of New York” Capital New York. February 24, 2014. Accessed April 12, 2014. http://www.capitalnewyork.com/article/city-hall/2014/02/8540743/quiet-ma....
4 “How Have Recent Rezonings Affected the City’s Ability to Grow” Furman Center for Real Estate and Public Policy. March 2010.
5 “How Have Recent Rezonings Affected the City’s Ability to Grow” Furman Center for Real Estate and Public Policy. March 2010.
6 New York City’s Housing and Neighborhoods 2002. Furman Center for Real Estate and Public Policy.
7 State of New York City’s Housing And Neighborhoods 2009. Furman Center for Real Estate and Public Policy. 2009.
8 Cardwell, D. “City is Backing Makeover for Decaying Brooklyn Waterfront” The New York Times. May 3, 2005. Accessed April 13, 2014. http://www.nytimes.com/2005/05/03/nyregion/03brooklyn.html.
9 The State of New York City’s Housing and Neighborhoods 2008. Furman Center for Real Estate and Urban Policy.
10 Fahim, K. “Condo and Park Projects Feel the Pinch in Greenpoint” The New York Times. August 31, 2009. Accessed April 12, 2014. http://cityroom.blogs.nytimes.com/2009/08/31/condos-and-parks-on-hold-in....
11 State of New York City’s Housing and Neighborhoods 2012. Furman Center for Real Estate and Urban Policy, New York University.
12 Ibid.