Report of the Citizens Housing and Planning Council on Housing Development in Downtown Manhattan September 19, 2002
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Report of the Citizens Housing and Planning Council on Housing Development in Downtown Manhattan September 19, 2002 CHPC/Downtown Housing The Ad Hoc Committee on Downtown Housing Frank Anelante Robert Berne Shirley Bresler Howard Chin Bob Cook Sylvia Deutsch Mark Ginsberg Gale Kaufman Henry Lanier Sander Lehrer James Lipscomb Kenneth Lowenstein Marvin Markus John McCarthy Gerry Vasisko Mark Willis Barry Zelikson CHPC Staff Frank Braconi Martha Galvez Kimberly Miller Elaine Toribio Maps and Technical Assistance Terrace GIS Associates 1 CHPC/Downtown Housing Executive Summary The Citizens Housing and Planning Council of New York believes that the policy goal of encouraging a mixed-use, commercial/residential/cultural district in Lower Manhattan is even more imperative as the area seeks to recover and rebuild from the terrorist attack of September 11, 2001. This report explores the role of residential development in that recovery process and offers our recommendations regarding residential development in downtown’s mixed-use environment. Our principal findings and recommendations are: Lower Manhattan remains a critical generator of wealth and jobs for the region and housing development should not preempt that role. Of the approximately 100 million square feet of commercial space downtown, approximately 25 million square feet built before the Second World War is suitable for conversion to residential use. Given plausible forecasts of future office demand and construction in Lower Manhattan, about 3 million square feet of this older office space could be converted to residential use without impinging on job-creating commercial uses. The balance between commercial and residential reuse of older office buildings is effectively regulated by market mechanisms. Any intervention by public agencies should focus on facilitating the conversion of appropriate buildings in existing residential areas. The potential for further residential development downtown, including new construction and conversions, is between 4,000 and 8,000 dwelling units. Public agencies should create a commercial consolidation program aimed at helping companies relocate from buildings slated for conversion to other space downtown. New, unassisted housing development downtown remains economically viable given prevailing development costs and rents in Manhattan, but that housing will be accessible only to households earning $100,000 or more. The use of tax-exempt Liberty Bonds can reduce feasible rents by about 6 percent. Liberty Bonds should be used to fashion a more flexible model of mixed-income housing than that allowed through the use of conventional private activity bond financing. Public agencies should not impose restrictions on the use of Liberty Bonds that mimic existing restrictions on private activity bond financing. 2 CHPC/Downtown Housing Approximately $128 million of federal appropriations for downtown recovery, in conjunction with Liberty Bonds, should be used to create 1,500 apartments for middle-income households earning, on average, 150 percent of the area median income. Liberty Bonds, in conjunction with an amended 421-g tax incentive program, should be used to encourage mixed-use conversions where appropriate. Public agencies should encourage future conversions in specific areas where residential clusters already exist. If dispersed throughout downtown, the potential for additional housing development is not substantial enough to change the office district tempo of lower Manhattan. The neighborhoods identified in this study represent better opportunities for new housing than the former World Trade Center site. Although mixed-use redevelopment, including some residential, may be appropriate, new structures at the site should be primarily for commercial use. 3 CHPC/Downtown Housing I. Introduction: Downtown Development After 9/11 It has been the policy of several successive Mayoral administrations to encourage residential development in Lower Manhattan and to promote the evolution of the area into a diverse, mixed-use district that offers residential and commercial options, sight- seeing and recreation, dining and entertainment, and other activities that will contribute to the prosperity and appeal of the city. The terrorist attack of September 11, 2001 may have temporarily impeded the redevelopment of downtown Manhattan, but CHPC sees no reason why the fundamental goals of the city’s redevelopment policy should be altered or why they should be considered less feasible in the wake of the attacks. Indeed, the World Trade Center tragedy may have made a mixed-use development pattern even more imperative, insofar as the physical and economic damage to Lower Manhattan’s commercial base was severe and possibly long-lasting. Consequently, CHPC endorses the principles for action articulated in the LMDC’s Principles and Preliminary Blueprint for the Future of Lower Manhattan, which included among its goals to “Develop Lower Manhattan as a diverse, mixed-use magnet for the arts, culture, tourism, education, and recreation, complemented with residential, commercial, retail and neighborhood amenities.” From an urban development perspective, September 11 changed many things dramatically while leaving other realities undisturbed. It did alter the commercial market equilibrium between Lower Manhattan, Midtown Manhattan, and secondary centers like Long Island City and Jersey City. It remains to be seen what new equilibrium is established, but it is likely that Lower Manhattan’s commercial base has been permanently diminished relative to those alternative locations. A smaller office sector will mean higher vacancies and lower rental prices, especially in older buildings, making some of them more attractive conversion candidates than they were previously. Other 4 CHPC/Downtown Housing factors have not changed since September 2001. With the exception of the World Trade Center site itself, there remains very little vacant land on which to construct new residential or commercial buildings in Lower Manhattan. At the same time, the market’s voracious appetite for housing in Manhattan should not be quelled, and once the environmental conditions and transportation networks of downtown are restored, so should be the market demand for apartments there. This combination of new circumstances and old considerations will probably make the climate for residential conversions more favorable than it was during the period of peak office demand during the late 1990s. Another new factor is the availability of additional federal resources that have been provided to assist the city in its recovery from the attack. These resources include $8 billion in tax-exempt Liberty Bond authority, of which $1.6 billion can be used for housing finance, and nearly $3.5 billion in additional Community Development Block Grant (CDBG) funds. These resources are free of many of the restrictions that they usually carry, and can be utilized to accelerate the re-use of obsolete commercial buildings. While CHPC believes that there are persuasive planning reasons for encouraging as much affordable housing as is possible downtown, we do not believe that city agencies should impose on the use of those resources restrictions that mimic the usual federal requirements. The nature of downtown development promoted by government agencies should be determined according to what will facilitate the most attractive and sustainable development pattern there, not by the city’s overall needs for affordable housing or other facilities. In the long run we believe that a healthy and prosperous downtown district will best serve the city’s economic and social needs. 5 CHPC/Downtown Housing II: Downtown Office Needs and Residential Development The traditional clustering of financial services firms on and around Wall Street in Lower Manhattan represents one of New York’s most valuable economic resources. By mid- 2001, some 368,000 people worked in Lower Manhattan below Chambers Street, nearly half of whom worked directly in the Finance, Insurance and Real Estate (FIRE) sector and many others in service occupations supporting that sector. The FIRE sector, plus legal services which are often associated with it, account for 19 percent of the city’s private jobs and it has been estimated that they generate over one-quarter of the city’s entire economic output. In normal economic times, when the commercial and residential markets are in rough balance, residential developers cannot typically out-bid commercial developers for prime sites in midtown or downtown Manhattan. Moreover, as a matter of policy, CHPC does not believe that government programs should artificially tip that balance in favor of housing at the expense of jobs. Consequently, the potential for downtown residential development must be gauged against the space demands of commercial tenants and against the probable needs of financial and related industries that are concentrated in Lower Manhattan. With the city’s geographic expansion from its colonial nucleus, Lower Manhattan has had a continuously diminishing share of the city’s employment. That share fell particularly rapidly after the Second World War, when mid-town Manhattan emerged as a rival, and eventually, the larger locus of office development. By the 1990s, Manhattan’s “financial district” contained about 9 percent of the city’s private-sector jobs and, because of the many government agencies headquartered there, of a slightly larger share of the city’s overall employment. 6 CHPC/Downtown Housing