New York Gov. Kathy Hochul signed into law a bill to make it easier to convert underused hotels in the state into affordable housing, the latest part of a nationwide effort to address a tight market that pushed up residential property prices and rents.
The new law allows properties ranked as Class B hotels within residential zoning districts or within 400 feet of those districts to operate as permanent residential spaces. States and cities across the nation have been trying to create more housing.
“As we envision the post-pandemic world, we have an opportunity to rethink everything from work life, education, telehealth services, all the way to housing,” Hochul’s office said Tuesday in a statement. “With hotels hit so hard by the pandemic, many of them never reopened, an opportunity has arisen to use vacant hotels. ... These hotels need to be reimagined. … We’re going to make the rules more flexible, making it easier to convert underused properties into residential space.”
The legislation comes as the pandemic has dealt a heavy blow to New York’s hospitality market. While the city’s lodging demand has improved — its April occupancy rate increased to 78.7%, above the U.S. average of 65.5% — 20 hotels, totaling 4,000 rooms, have closed permanently since the outbreak of COVID-19, according to a CoStar report.
Meanwhile, more distressed hotel sales are coming to the market, with 51 properties having debt undergoing special servicing and 27 on watchlists, with most concentrated in Manhattan’s Midtown South and Midtown West/Times Square markets, the report said.
Despite perceptions that New York City experienced a “building boom” in recent years, the city issued fewer permits for new housing units in the 2010s than in the 2000s, according to the Citizens Budget Commission. The nonprofit city and state financial watchdog also said the annualized growth rate of housing stock has remained relatively flat since the 1990s despite accelerating job and population growth.
For instance, between 2010 and 2018, the number of jobs in New York City increased 22%, while the housing stock increased 4%, resulting in only 0.19 housing units being added for every net new job created, CBC said in a study published in 2020. The result was that a “wider gulf” was created between job and housing growth than in any city except San Francisco, according to CBC.
Hotels, Offices Targeted
The bill signing followed Hochul’s State of the State address in January that targeted the creation or preservation of 100,000 affordable homes in urban and rural areas across New York. As the pandemic has emptied out hotels and offices, Hochul at the time called for more flexible zoning rules that would make it easier for commercial spaces to be turned into residential ones.
“The governor and the Legislature are cutting through 93-year-old red tape,” James Lloyd, director of policy for the New York State Association for Affordable Housing, an industry trade group, said in the statement.
But there are various challenges to relieving the U.S. housing shortage by converting hotels, real estate executives and analysts have pointed out, such as installing gas hookups for kitchens and adding other residential features.
There also may be community backlash. New York City’s effort in 2020 to house homeless men, including some reportedly being treated for drug abuse, in the Lucerne Hotel on the Upper West Side during the pandemic was said to have brought complaints from local residents and area businesses.
Even so, New York City issued fewer housing unit permits on a per capita basis than nearly every other large city, including not only fast-growing Seattle, Washington, and Austin, Texas, but also cities that face similar constraints to development. For instance, New York City issued permits for 40% fewer units per capita than San Francisco, half as many as Boston, and nearly two-thirds fewer than Washington, D.C., according to CBC.
New York isn’t the only state that’s looking at turning hotels into permanent housing.
California, for instance, has a program called Homekey to convert hotels and other commercial properties and existing buildings to permanent or interim housing for homeless people or those at risk of becoming homeless. Oregon offers Project Turnkey, a statewide hotel-to-housing plan that aims to create 800 to 1,000 housing units in 18 to 20 properties, according to a July report from the National Alliance to End Homelessness.