Downtown Brooklyn's Residential Growth, 2018-2022

DOWNTOWN BROOKLYN’S RESIDENTIAL GROWTH

A FIVE-YEAR REVIEW 2018-2022

Downtown Brooklyn has undergone significant growth over the past twenty years, providing a place to call home for tens of thousands of residents. This growth has been fueled by the combination of rich transit access, the adoption of the Downtown Brooklyn Development Plan and area-wide rezoning in 2004, and the 421-a Affordable NY incentive program. The combination of policies and infrastructure enabled the delivery of over 20,500 new housing units across more than 100 buildings since 2004. The past five years alone (20182022) have accounted for nearly 40% of this growth.1

The success of Downtown Brooklyn as a high-density, mixed-use neighborhood is emblematic of sustainable and equitable land use planning and addresses the dire need for more housing near employment centers.The combination of excellent transit access, proximity to employment, and cultural and recreational opportunities have made Downtown Brooklyn a desirable place to live, and the growing population is evidence of this.

KEY FINDINGS

Despite the thousands of new units delivered in recent years, rental demand in Downtown Brooklyn is outpacing supply. Addressing the issue of the current housing shortage across all income ranges has become increasingly important. The 421-a incentive program has been a critical tool in addressing this shortage by helping to make 83% of all new rental housing development financially feasible in Downtown Brooklyn in the past 5 years. Without this program, housing production will not be able to keep pace with the growing demand for both market-rate and affordable housing.

This report analyzes Downtown Brooklyn’s2 residential growth, drawing on data from city agencies, census reports, real estate databases, and interviews with developers. This report explores:

• Recent housing production and performance;

• The state of the residential market and factors driving demand; and

• The future of residential growth in the neighborhood.

Nearly 40% of all new housing supply in Downtown Brooklyn has been built in the last 5 years. 38% of new housing (7,800+ units) created since 2004 was delivered between 2018 and 2022.

The 421-a incentive was an essential tool for residential development. 421-a was used for almost all rental buildings built from 2018 to 2022, accounting for 4,169 units, which represents 83% of all rental units built within this timeframe.

Downtown Brooklyn attracts a growing concentration of residents. Downtown Brooklyn has become a magnet for a diverse range of residents with a population growth rate of 16% since 2018 - 3x the rate of New York City.

Rental demand is outpacing supply, despite new construction. Despite thousands of new units delivered in recent years, vacancy rates remain below 5% and renewal rates are strong.

HOUSING PRODUCTION + SUPPLY

Downtown Brooklyn has experienced unprecedented levels of residential growth since the 2004 rezoning, with over 20,500 new housing units (including over 4,100 affordable units) delivered across more than 100 buildings. Nearly forty percent (38%) of new residential supply has been completed in the past five years alone, with more than 7,800 new housing units delivered between 2018 and 2022. Crucially, the 421-a incentive program has played a vital role in addressing the housing shortage. Of all new rental units (market-rate and affordable) built since 2018, 83% were developed using the 421-a program.

Downtown Brooklyn’s success in developing into a robust residential community coincides with the population and economic growth across all of Brooklyn. Between 2018 and 2022, Downtown Brooklyn housing deliveries comprised 17% of the borough’s new units.3

While Downtown Brooklyn’s remarkable transformation has helped alleviate the city’s housing shortage, New York City’s overall housing growth has not kept pace with its incredibly strong job growth. In the past decade, the city created nearly a million new jobs while only building 282,000 new homes. 4 This mismatch between job creation and low production of housing poses significant economic and social costs to the city. Continued housing production near jobs and transit, such as seen in Downtown Brooklyn, is critical for the city’s economic health.

in Downtown Brooklyn’s Housing Supply, 2018-2022

3 NYC Department of City Planning (DCP), NYC Department of Buildings (DOB) Housing Database.

Housing production data from NYC Department of City Planning. Jobs data from NYS Department of Labor.

HOUSING MARKET TRENDS

IN DOWNTOWN BROOKLYN

Affordable Housing

The scale of housing production in Downtown Brooklyn has allowed for thousands of income-restricted affordable homes to be built. Affordable housing makes up 4,190 of the 20,653 new units built since 2004, representing 20% of all new units since the rezoning, almost half (46%) of which were built in the past five years. According to developers with newly constructed affordable housing units in Downtown Brooklyn, demand has been extremely high for affordable units. One owner reported having over 80 applications for every affordable apartment, demonstrating the dire need to continue developing affordable units. As of the end of 2022, more than 2,400 additional affordable units were under construction and planned.5

The 421-a program was the primary tool that enabled 1,098 units of the 1,863 affordable housing units built in Downtown Brooklyn in the past five years. Other affordable buildings built during this time at 90 Sands, 50 Nevins and 112 St. Edwards received other state and federally subsidies. The expiration of 421-a in June 2022 resulted in a number of projects filing for building permits in order to qualify for the incentive. This was particularly evident in Downtown Brooklyn, where ten residential projects (totaling over 4,371 total units, of which 1,344 are affordable) broke ground in the sixthmonth period before 421-a’s expiration.6

Market Performance

The housing market over the past five years has seen extremely high demand, as evidenced by rising rents, low occupancy rates and high renewals. Since 2018, the market has outperformed projections, and even broken records, according to real estate professionals.

Beginning with the COVID-19 pandemic, the market experienced a 12-month disruption. Local short-term shifts included: a 135% increase in the number of available apartments, a 17% decline in median rental prices, and changing preferences in the types and sizes of housing units sought in Downtown Brooklyn.7 In Spring 2021 the pandemic slowed and people began to move back to New York City, Downtown Brooklyn’s housing market quickly bounced back. Median rental prices increased by 50% from pandemic lows and the number of available apartments dropped by as much as 50%. 8 By late 2022, median rents had risen by 22% and the availability of rental apartments had decreased by 8%, from pre-pandemic levels in 2019.9

Lease-Up Periods

Rental building owners reported very strong demand, overall, for newly-constructed housing units. These new buildings generally achieved full lease-up between 5 and 12 months after entering the market. During 2021 and 2022, 5,000 new units entered the market, benefiting from the demand upswing. During peak leasing periods, some buildings reported up to 60 units leased per month. All developers interviewed greatly exceeded their underwriting projections. One property owner noted that their lease-up period for a particular building in Downtown Brooklyn was record setting for their entire New York City portfolio.

Occupancy + Renewals

Housing occupancy in Downtown Brooklyn rental buildings remains consistent with pre-pandemic levels at 95%, according to Census data and confirmed by real estate professionals interviewed. Property managers also reported seeing strong renewals between 50% to 90%, despite renewal rent increases ranging from 4% to 8%. Low vacancy rates of 5% are an indicator of a continued gap in housing supply, and high renewal rates mean few units re-enter the market.

5,6 Downtown Brooklyn Partnership (DBP), Downtown Brooklyn Development Matrix, 2022

7 Department of Housing Preservation and Development (HPD): Affordable Housing Product by Project 8-10 StreetEasy, Data Dashboard

HOUSING MARKET TRENDS IN DOWNTOWN BROOKLYN

Pricing, Concessions + Inventory

According to StreetEasy, the median monthly asking rent in Downtown Brooklyn rose from $3,300 in 2018 to $4,200 in 2022 – a dramatic 26% increase. In fact, median rents increased more in Downtown Brooklyn than in Manhattan overall, which saw median rents rise 22% from $3,260 to $4,000 during the same time period.10 “The phenomenon of rising rents is partially attributable to the quality of housing stock seeing significant improvement over time,” notes Jonathan Miller, President and CEO of real estate appraisal and consulting firm, Miller Samuel.

Also influencing rent increases was a pandemic-induced shift in housing preferences that favored Brooklyn over Manhattan. Real estate professionals noted that as residents transitioned to remote/hybrid work and sought out more space, Downtown Brooklyn became a desirable destination for residents seeking better housing options, while still providing easy access to core business districts. There were also 20% fewer units being offered with concessions in 2022 compared to 2018.11 Several building owners noted that overwhelming demand rendered concessions unnecessary. The number of rental listings available at any point has declined by 17% since 2018, despite steadily high occupancy rates.12 This means that while there are more apartments in the neighborhood, the demand for rental housing has outpaced the rate of new supply, leading to fewer units available for rent.

Tenant Mix + Demographics

The popularity of Downtown Brooklyn as a residential neighborhood of choice can be measured through its change over time. The population of Downtown Brooklyn has more than doubled since the 2004 rezoning to roughly 65,000 residents, almost 10x the population growth rate of New York City. Population growth in Downtown Brooklyn has grown 16% since 2018, triple that of New York City.13

Building owners cite many factors that make Downtown Brooklyn favorably positioned for continued growth. Downtown Brooklyn’s foundation is excellent transit access from over a dozen subway lines and the Long Island Rail Road. Factors that make Downtown Brooklyn an attractive place to live include its cultural and retail assets, walkability to surrounding brownstone neighborhoods, and new construction with highly-

amenitized offerings. Interviews with real estate teams confirmed this demand dynamic; new residential buildings in Downtown Brooklyn served the best of both worlds by offering new construction and amenityrich product within walking distance to the waterfront, world-class parks, and many popular neighborhoods like DUMBO, Cobble Hill and Fort Greene.

Landlords indicated that a large share of residents work in occupations such as finance and tech in Manhattan. Based on pre-pandemic Census data, almost twothirds of all employed residents work in Manhattan, with roughly 17% working in Brooklyn and 7% working from home. Of these workers, over 85% commuted to work by public transit, walking or biking. Since the pandemic, 2021 Census data shows that almost one-quarter (22%) of residents now work from home now, with 70% now commuting to work by public transit, walking or biking.14 This data also correlates with observations shared by several property managers who estimate 20-30% of their residents work from home based on usage of coworking lounges and rush hour foot traffic. Some buildings are adding coworking lounges for residents because of changing lifestyle needs and preferences.

Looking Ahead

High occupancy levels, short absorption timelines, and rising rents indicate that demand has outpaced new housing supply over the past five years. There is still a shortage of housing across all income ranges. Fortunately, as of the end of 2022, the next five years are expected to continue the growth trends of the previous five years by delivering over 7,500 additional housing units. Based on our calculations, due to continued demand and construction, the population is forecasted to grow by an estimated 13,500 people by 2027.15

Despite this anticipated growth, many of the projects under construction are in jeopardy of not being built or completed in time for the June 2026 deadline to receive 421-a benefits. Based on a REBNY survey, approximately 16,000 units across Brooklyn are struggling to move forward.16 Given the strong and growing demand for housing in Downtown Brooklyn, future housing developments will continue to help address the housing crisis by delivering critical supply near desirable neighborhoods, mass transit and job centers.

APPENDIX

Downtown Brooklyn Housing Deliveries, 2018-2022

APPENDIX

Sources

Citizens Budget Commission. (2020, August). Strategies to Boost Housing Production in New York City Met ropolitan Area. Retrieved from https://cbcny.org/sites/default/files/media/files/CBC_NYC-Hous ing-Production_08262020_0.pdf

New York Administration, Emergency Tenant Protection Act (ETPA) of 1974. Retrieved from https://hcr. ny.gov/system/files/documents/2022/09/fact-sheet-08-09-2022.pdf

New York City Housing and Vacancy Survey. (2021). Retrieved from https://www.nyc.gov/assets/hpd/ downloads/pdfs/services/2021-nychvs-selected-initial-findings.pdf

New York City Housing and Vacancy Survey. (2021). Retrieved from https://www.nyc.gov/assets/hpd/ downloads/pdfs/services/2021-nychvs-selected-initial-findings.pdf

NYC Department of City Planning: Housing Database. Retrieved from https://www.nyc.gov/site/ planning/data-maps/open-data/dwn-housing-database.page#housingdevelopmentproject

NYC Department of Housing Preservation and Development (HPD): Affordable Housing Production by Project. Retrieved from https://data.cityofnewyork.us/Housing-Development/Affordable-Hous ing-Production-by-Project/hq68-rnsi

NYU Furman Center (2022). The Role of 421-a during a Decade of Market Rate and Afford able Housing Development. Retrieved from https://furmancenter.org/files/publica tions/The_Role_of_421-a_Final.pdf

NYU Furman Center. (2018, August 20). Supply Skepticism: Housing Supply and Affordability. Retrieved from https://furmancenter.org/files/Supply_Skepticism_-_Final.pdf

Real Estate Board of New York (REBNY): 421a Member Survey 2023. retreived from https://assets.ctfassets. net/6zi14rd5umxw/64ybrtsCFo2bFbnRCk94BS/08ca648b5c5d8065fbff03e5e1c836be/421a_mem ber_survey_updated_January_4_2023.pdf

Social Explorer Tables (SE). Census 2000, 2010, ACS 2019, 2020, ACS 2021, U.S. Census Bureau, Social Explorer. Retreived from https://www.socialexplorer.com/explore-maps

StreetEasy, StreetEasy Data Dashboard. (2022). StreetEasy Data Dashboard. Retrieved from https://streeteasy.com/blog/data-dashboard/?agg=Total&metric=Invento ry&type=Sales&bedrooms=Any%20Bedrooms&property=Any%20Property%20 Type&minDate=2010-01-01&maxDate=2022-09-01&area=Flatiron,Brooklyn%20