Finally a deal has been reached to restore the controversial 421-a tax break (excuse me, it is now known as the Affordable New York Housing Program), and the expectation is that it will ignite a boom in residential construction. Well, maybe.
At first glance the numbers support the idea that developers have been in a holding pattern since the tax break expired in late 2015. As the graph shows, building permits accelerated during the recovery from the financial crisis and then soared in 2015 as builders rushed to get approvals before the tax break lapsed. Last year permits fell by 70%, and so far this year we are on pace to issue about 20,000. The city needs more housing than that.
The common theme seems to be that builders have misjudged the incomes of the millennials who have flooded to big cities for jobs in the so-called creative economy. These young people simply can't afford the rents, and the impact is spreading from New York to other thriving cities. San Francisco rents have dropped 5% in the past nine months. Vacancy rates are rising even in Denver and other booming cities. Because development of an apartment building takes several years, a big jump in supply is coming in New York and around the country—further pressuring rents.
Beyond the immediate crunch, demographers are beginning to question how long millennial commitment to city living will last.
A survey released this year showed that young people still want to move to the suburbs. I know two such people (yes, they are journalists) who each plan eventually to leave Brooklyn for a single-family house in a suburb with good schools. One is staying for now because universal prekindergarten is cheaper than preschool in Westchester, but she's still checking the Westchester houses for sale and saving her money.