21st Century SROs: Can Small Housing Units Help Meet the Need for Affordable Housing in New York City? Eric Stern and Jessica Yager Feburary 20, 2018 furmancenter.org This research does not represent the institutional views (if any) of NYU, NYU School of Law, or the Wagner Graduate School of Public Service. 21st Century SROs: Can Small Housing Units Help Meet the Need for Affordable Housing in New York City? By Eric Stern and Jessica Yager1 Introduction Single-room occupancy housing (SROs) used to be a readily available affordable housing type in New York City. SRO units typically consisted of a private room with access to full bathroom and kitchen facilities that the renter shared with other building occupants. While this form of shared housing was common in New York for much of the city’s history, during the second half of the 20th century, most SROs came to serve as “housing of last resort—the safety net at the bottom of the market providing shelter for the poor and near-poor.”2 Criticism of SROs mounted and led to laws banning the construction and discouraging the operation of SROs.3 Many SROs were subsequently converted to other forms of housing, resulting in the loss of thousands of very low-rent units in the city. Today, the city faces a significant housing affordability crisis. In this context, it is worth considering whether the city needs an updated housing model that helps meet the need SROs filled in the last century. Here we analyze the benefits, risks, and challenges of reintroducing small housing units (self-contained micro units and efficiency units with shared facilities) in order to shed light on whether and how a new small-unit model could help meet the demand for affordable housing in the city today. Previous NYU Furman Center research examined the challenges to developing compact units (micro units and accessory dwelling units) in five cities: New York; Washington, D.C.; Austin; Denver; and Seattle.4 We found that regulatory challenges, such as density and parking regulations; financial challenges, including issues obtaining traditional financing; and community opposition all contribute to the difficulty of constructing these types of units. In this new report, we go further to consider the costs of building small units and the barriers that small units face in New York City, in order to answer the question whether small units can help to meet the needs of the city’s low-income, single-person households. In our first section below, we provide an overview of the potential demand for smaller, cheaper units, and describe the smaller, cheaper units currently in the housing stock in New York City. In our second section, we explore the economics of building smaller units. We compare the per-unit cost of building and operating micro units and efficiency units with shared facilities (which collectively we call “small units”) to the costs for traditional small studio apartments. To do this, we analyze three unit types: a 300 square 1 We are very grateful to Vicki Been, Mark Willis, Allex Desronvil, and Traci Sanders for their assistance with this project. We thank Winston Beekman, Amy DeHuff, Lila Nojima, and Caroline Peri for their excellent research assistance. We thank the J.P. Morgan Chase Foundation for its generous support of this research. The full list of experts with whom we consulted in conducting this research is in Appendix D. 2 Brian J. Sullivan & Jonathan Burke, Single-Room Occupancy Housing in New York City: The Origins and Dimensions of a Crisis, 17 CUNY L. Rev. 113, 117 (2013). 3 Id. at 122-23. 4 NYU FURMAN CENTER, COMPACT UNITS: DEMAND AND CHALLENGES (2014), http://furmancenter.org/files/NYUFurmanCenter_CompactUnitsResearchBrief_13AUG14.pdf; Vicki Been, Benjamin Gross & John Infranca, NYU Furman Center, Responding to Changing Households: Regulatory Challenges for Micro-Units and Accessory Dwelling Units (Working Paper, 2014), http://furmancenter.org/files/NYUFurmanCenter_RespondingtoChangingHouseholds_2014_1.pdf. 1 foot micro unit with a self-contained kitchen and bathroom; a 225 square foot efficiency unit with a private bathroom and shared kitchen; and a 160 square foot efficiency unit with a shared bathroom and a shared kitchen. We also explore the financing barriers that may limit the production of such apartments in New York City today. In the third section we document the major regulatory barriers to construction of small units. Finally, we conclude by considering what actions New York City might take to encourage the development of such units, if it determines that is a policy goal. I. The Case for Smaller Units If small units translate to cheaper units, they may be helpful in cities facing affordable housing crises. New York City has a large population of single person households, and many of them are paying unaffordable rents; some of these individuals may be interested in living in small units if rent levels were lower than what these individuals are paying for their current housing. There are also people who could benefit on a temporary basis from an increase in the supply of small (and more affordable) units. This population includes temporary workers, adults in a period of life transition (e.g., following a change in marital status), and new arrivals to New York City such as recent immigrants and recent college graduates. Finally, small units may also be a way to meet the needs of some New Yorkers currently in homeless shelters (more than 20,000 without children),5 living in illegal units (estimated at around 100,000 in 2008),6 or coming out of the criminal justice system.7 It is impossible to say, exactly, who in the city would be willing to live in a smaller, cheaper unit. In this section, we attempt to shed some light on the possible demand in the city for small units, and on the existing housing stock that helps meet this need. Ultimately, both analyses suggest that there may be unmet demand for small units if those units can provide well-maintained housing at relatively low rents. a. Many Single New Yorkers Struggle to Pay Their Rent. Over the past several years, the Citizens Housing and Planning Council (CHPC) has helped spark interest in creating smaller housing units for non-nuclear families. They found that in 2010, 47 percent of New 8 Yorkers over the age of 25 lived with neither a spouse nor a partner. More recent data show that as of 9 2015 there were approximately 1,012,000 single adult households in New York City (33% of 5 NYC DEPARTMENT OF HOMELESS SERVICES, DAILY REPORT (Dec. 15, 2017), https://www1.nyc.gov/assets/dhs/downloads/pdf/dailyreport.pdf. (On file with authors). 6 CHHAYA COMMUNITY DEVELOPMENT CORPORATION AND CITIZENS HOUSING AND PLANNING COUNCIL, ILLEGAL DWELLING UNITS: A POTENTIAL SOURCE OF AFFORDABLE HOUSING IN NEW YORK CITY (2008), http://chhayacdc.org/wp-content/uploads/2008/10/Illegal-Dwelling-Units-A-Potential-Source-of-Affordable- Housing-in-New-York-City.pdf. 7 In 2015, 5,720 people formerly living in New York City were released from the New York State Prison system. NEW YORK STATE CORRECTIONS AND COMMUNITY SUPERVISION, RELEASES AND DISCHARGES FROM INCARCERATION REPORT (2015), http://www.doccs.ny.gov/Research/Reports/2016/Statistical_Overview_2015_Discharges.pdf. 8 Citizens Housing and Planning Council, Carmel Place, New York’s First Modular Micro Building, Stacks First Unit (May 20, 2015), http://chpcny.org/2015/05/carmelplace. 9 Data cited as 2015 comes from the 2011-2015 American Community Survey or IPums. These data are period estimates and should be interpreted as a measure of the conditions during the whole range. 2 households),10 759,075 of which were renters.11 As of 2015, 58 percent of single-adult renter households (over 436,000 people) in New York City were rent burdened (paying over 30% of income on rent), six percentage points higher than the overall city average.12 Thirty-three percent, or over 250,000 people, were severely rent burdened (paying over 50% of income on rent).13 Figure 1 reports the income levels of rent-burdened New York City single-adult households in 2015. While some of these households had income in excess of area median income (AMI) in 2015, which was $60,400 per year, approximately 85 percent had income at or below 80 percent of AMI ($48,350 per year). Just under half of all rent-burdened single-person households had income less than 30 percent of AMI ($18,150 per year). For lower-income households, being rent-burdened can be particularly punishing because it means that a household has little money left over after paying rent for other life expenses, like food, clothing, and medical care. Thus, some rent-burdened low-income renters may be interested in living in a smaller unit if that would reduce their housing costs. 10 U.S. Census Bureau. Tenure by Household Type (Including Living Alone) and Age of Householder (B25011). 2011-2015 American Community Survey. Retrieved from http://factfinder.census.gov. 11 Sarah Flood, Miriam King, Steven Ruggles, and J. Robert Warren. Integrated Public Use Microdata Series, Current Population Survey: Version 5.0. Minneapolis: University of Minnesota, 2017. https://doi.org/10.18128/D030.V5.0. (Analysis on file with authors). 12 Maxwell Austensen, et al., State of New York City’s Housing & Neighborhoods in 2015, NYU FURMAN CENTER (May 9, 2016) http://furmancenter.org/files/sotc/NYUFurmanCenter_SOCin2015_9JUNE2016.pdf; Sarah Flood, Miriam King, Steven Ruggles, and J. Robert Warren. Integrated Public Use Microdata Series, Current Population Survey: Version 5.0. Minneapolis: University of Minnesota, 2017. https://doi.org/10.18128/D030.V5.0. (Analysis on file with authors). 13 Sarah Flood, Miriam King, Steven Ruggles, and J.