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    It Was the Housing Crisis Epicenter. Now the Sun Belt Is an Inflation Vanguard.

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    A.J. Frank watched the Phoenix real estate market and its entire economy implode as he was graduating from high school in 2009, a scarring experience that has made him a cautious saver. He is again living through a major economic upheaval as the cost of living climbs sharply.Phoenix — among the hardest-hit cities during the housing crisis — is now on the leading edge of another painful economic trend as the United States faces the most rapid inflation in 40 years. The city is experiencing some of the fastest price increases in the nation, something Mr. Frank has felt firsthand.His landlord tried to raise his rent nearly 30 percent this year, prompting him to move. Mr. Frank, a 31-year-old engineer, is still paying $250 a month more than he was previously, and rising grocery and gas bills have reduced his disposable income.“It’s always traditionally been a pretty affordable city to live in, but it’s getting more expensive,” Mr. Frank said of Phoenix.While inflation has been rising quickly across the country, it is especially intense in Sun Belt cities like Phoenix, Atlanta, Miami and Tampa, which have experienced price increases well above 10 percent this year, much higher than the national rate of 8.5 percent in July. Prices in the Southern United States have risen 9.4 percent over the past year, the fastest pace of any large region in the nation and more rapid than in the Northeast, where prices are up 7.3 percent.Inflation Is Fastest in the SouthPrices have been increasing rapidly in cities including Atlanta, Tampa and Miami, even as Northeastern inflation has been more moderate.

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    Price Increase from Year Earlier
    Source: Bureau of Labor StatisticsBy The New York TimesPart of the divide can be traced to fuel and electricity costs, which surged earlier this year. Because many Sun Belt cities depend on cars and air-conditioning, those purchases make up a larger percentage of consumer budgets in the region. And, just as it did in 2008, housing is playing a crucial role — this time, through the rental market, which is a major contributor to overall inflation. In Phoenix, rents are up 21 percent from a year ago, and in Miami, they are up about 14 percent. For urban dwellers nationally, rent is up only about half as much, 6.3 percent.The Sun Belt’s intense bout of inflation matters for several reasons. While inflation is painful everywhere, it is having a disproportionate impact on families in cities like Tampa Bay, where prices have shot up faster than in areas like New York City. Demand at food banks and for eviction counselors has jumped across the region, providers said, as signs of that distress manifest.And as in 2008, the Sun Belt could serve as a sort of bellwether. Inflation is showing early signs of moderating nationwide, with price increases slowing to 8.5 percent in the year through July, from 9.1 percent the previous month. Still, the same forces that are now causing prices to surge across the South could keep inflation elevated for a longer period.That’s because a less-intense version of the rent surge that is pushing inflation higher across cities in the American south is beginning to play out in bigger cities in the Northeast and on the West Coast. Real-time market rent trackers that reported prices shooting up in Sun Belt cities last year are now showing bigger increases in places like New York, San Jose and Seattle.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

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    The Summer of NIMBY in Silicon Valley’s Poshest Town

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    Moguls and investors from the tech industry, which endorses housing relief, banded together to object to a plan for multifamily homes near their estates in Atherton, Calif.SAN FRANCISCO — Tech industry titans have navigated a lot to get where they are today — the dot-com bust, the 2008 recession, a backlash against tech power, the pandemic. They have overcome boardroom showdowns, investor power struggles and regulatory land mines.But this summer, some of them encountered their most threatening opponent yet: multifamily townhouses.Their battle took place in one of Silicon Valley’s most exclusive and wealthiest towns: Atherton, Calif., a 4.9-square-mile enclave just north of Stanford University with a population of 7,500. There, tech chief executives and venture capitalists banded together over the specter that more than one home could exist on a single acre of land in the general vicinity of their estates.Their weapon? Strongly worded letters.Faced with the possibility of new construction, Rachel Whetstone, Netflix’s chief communications officer and an Atherton resident, wrote to the City Council and mayor that she was “very concerned” about traffic, tree removal, light and noise pollution, and school resources.Another local, Anthony Noto, chief executive of the financial technology company SoFi, and his wife, Kristin, wrote that robberies and larceny had already become so bad that many families, including his, had employed private security.Their neighbors Bruce Dunlevie, a founding partner at the investment firm Benchmark, and his wife, Elizabeth, said the developments were in conflict with Atherton’s Heritage Tree Ordinance, which regulates tree removal, and would create “a town that is no longer suburban in nature but urban, which is not why its residents moved there.”Other residents also objected: Andrew Wilson, chief executive of the video game maker Electronic Arts; Nikesh Arora, chief executive of Palo Alto Networks, a cybersecurity company; Ron Johnson, a former top executive at Apple; Omid Kordestani, a former top executive at Google; and Marc Andreessen, a prominent investor.All of them were fighting a plan to help Atherton comply with state requirements for housing. Every eight years, California cities must show state regulators that they have planned for new housing to meet the growth of their community. Atherton is on the hook to add 348 units.Many California towns, particularly ones with rich people, have fought higher-density housing plans in recent years, a trend that has become known as NIMBYism for “not in my backyard.” But Atherton’s situation stands out because of the extreme wealth of its denizens — the average home sale in 2020 was $7.9 million — and because tech leaders who live there have championed housing causes.The companies that made Atherton’s residents rich have donated huge sums to nonprofits to offset their impact on the local economy, including driving housing costs up. Some of the letter writers have even sat on the boards of charities aimed at addressing the region’s poverty and housing problems.Atherton residents have raised objections to the developments even though the town’s housing density is extremely low, housing advocates said.“Atherton talks about multifamily housing as if it was a Martian invasion or something,” said Jeremy Levine, a policy manager at the Housing Leadership Council of San Mateo County, a nonprofit that expressed support for the multifamily townhouse proposal.Read More About AppleSustained Growth: The tech giant reported a rise in sales of 2 percent for the three months that ended in June, though the company’s profits fell 10.6 percent.The End of a Partnership: Three years after Apple promised to continue working with Jony Ive, its former design leader, the two parties appear to be through. Here is what the change could mean for Apple.Union Effort: Apple employees at a Baltimore-area store voted to unionize, making it the first of the company’s 270-plus stores in the United States to do so.Upgrading: At its annual developer conference in June, Apple unveiled a range of new software features that expand the iPhone’s utility and add more opportunities for personalization.Atherton, which is a part of San Mateo County, has long been known for shying away from development. The town previously sued the state to stop a high-speed rail line from running through it and voted to shutter a train station.Its zoning rules do not allow for multifamily homes. But in June, the City Council proposed an “overlay” designating areas where nine townhouse developments could be built. The majority of the sites would have five or six units, with the largest having 40 units on five acres.That was when the outcry began. Some objectors offered creative ways to comply with the state’s requirements without building new housing. One technology executive suggested in his letter that Atherton try counting all the pool houses.Others spoke directly about their home values. Mr. Andreessen, the venture capitalist, and his wife, Laura Arrillaga-Andreessen, a scion of the real estate developer John Arrillaga, warned in a letter in June that more than one residence on a single acre of land “will MASSIVELY decrease our home values, the quality of life of ourselves and our neighbors and IMMENSELY increase the noise pollution and traffic.” The couple signed the letter with their address and an apparent reference to four properties they own on Atherton’s Tuscaloosa Avenue.The Atlantic reported earlier on the Andreessens’ letter.Mr. Andreessen has been a vocal proponent of building all kinds of things, including housing in the Bay Area. In a 2020 essay, he bemoaned the lack of housing built in the United States, calling out San Francisco’s “crazily skyrocketing housing prices.”“We should have gleaming skyscrapers and spectacular living environments in all our best cities,” he wrote. “Where are they?”Other venture capital investors who live in Atherton and oppose the townhouses include Aydin Senkut, an investor with Felicis Ventures; Gary Swart, an investor at Polaris Partners; Norm Fogelsong, an investor at IVP; Greg Stanger, an investor at Iconiq; and Tim Draper, an investor at Draper Associates.The mayor of Atherton said the townhouse plan wouldn’t have met California’s definition of affordable housing.Jim Wilson/The New York TimesMany of the largest tech companies have donated money toward addressing the Bay Area’s housing crisis in recent years. Meta, the company formerly known as Facebook, where Mr. Andreessen is a member of the board of directors, has committed $1 billion toward the problem. Google pledged $1 billion. Apple topped them both with a $2.5 billion pledge. Netflix made grants to Enterprise Community Partners, a housing nonprofit. Mr. Arora of Palo Alto Networks was on the board of Tipping Point, a nonprofit focused on fighting poverty in the Bay Area.Mr. Senkut said he was upset because he felt that Atherton’s townhouses proposal had been done in a sneaky way without input from the community. He said the potential for increased traffic had made him concerned about the safety of his children.“If you’re going to have to do something, ask the neighborhood what they want,” he said.Mr. Draper, Mr. Johnson and representatives for Mr. Andreessen, Mr. Arora and Mr. Wilson of Electronic Arts declined to comment. The other letter writers did not respond to requests for comment.The volume of responses led Atherton’s City Council to remove the townhouse portion from its plan in July. On Aug. 2, it instead proposed a program to encourage residents to rent out accessory dwelling units on their properties, to allow people to subdivide properties and to potentially build housing for teachers on school property.“Atherton is indeed different,” the proposal declared. Despite the town’s “perceived affluent nature,” the plan said, it is a “cash-poor” town with few people who are considered at risk for housing.Rick DeGolia, Atherton’s mayor, said the issue with the townhouses was that they would not have fit the state’s definition of affordable housing, since land in Atherton costs $8 million an acre. One developer told him that the units could go for at least $4 million each.“Everybody who buys into Atherton spent a huge amount of money to get in,” he said. “They’re very concerned about their privacy — that’s for sure. But there’s a different focus to get affordable housing, and that’s what I’m focused on.”Atherton’s new plan needs approval by California’s Department of Housing and Community Development. Cities that don’t comply with the state’s requirements for new housing to meet community growth face fines, or California could usurp local land-use authority.Ralph Robinson, an assistant planner at Good City, the consulting firm that Atherton hired to create the housing proposal, said the state had rejected the vast majority of initial proposals in recent times.“We’re very aware of that,” he said. “We’re aware we’ll get this feedback, and we may have to revisit some things in the fall.”Mr. Robinson has seen similar situations play out across Northern California. The key difference with Atherton, though, is its wealth, which attracts attention and interest, not all of it positive.“People are less sympathetic,” he said. More

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    In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later

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    For Theresa Clarke, a retiree in New Canaan, Conn., the rising cost of living means not buying Goldfish crackers for her disabled daughter because a carton costs $11.99 at her local Stop & Shop. It means showering at the YMCA to save on her hot water bill. And it means watching her bank account dwindle to $50 because, as someone on a fixed income who never made much money to start with, there aren’t many other places she can trim her spending as prices rise.“There is nothing to cut back on,” she said.Jordan Trevino, 28, who recently took a better paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways — ordering a cheaper entree when out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.And David Schoenfeld, who made about $250,000 in retirement income and consulting fees last year and has about $5 million in savings, hasn’t pared back his spending. He has just returned from a vacation in Greece, with his daughter and two of his grandchildren.“People in our group are not seeing this as a period of sacrifice,” said Mr. Schoenfeld, who lives in Sharon, Mass., and is a member of a group called Responsible Wealth, a network of rich people focused on inequality that pushes for higher taxes, among other stances. “We notice it’s expensive, but it’s kind of like: I don’t really care.”Higher-income households built up savings and wealth during the early stages of the pandemic as they stayed at home and their stocks, houses and other assets rose in value. Between those stockpiles and solid wage growth, many have been able to keep spending even as costs climb. But data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation.That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signs that poorer families are cutting back. If richer families don’t pull back as much — if they keep going on vacations, dining out and buying new cars and second homes — many prices could keep rising. The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown.In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow.“That’s the perfect storm, if unemployment increases,” said Mark Brown, chief executive of West Houston Assistance Ministries, which provides food, rental assistance and other forms of aid to people in need. “So many folks are so very close to the edge.”America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.But while lower-income families spend more of each dollar they earn, the rich and middle classes have so much more money that they account for a much bigger share of spending in the overall economy: The top two-fifths of the income distribution account for about 60 percent of spending in the economy, the bottom two-fifths about 22 percent. That means the rich can continue to fuel the economy even as the poor pull back, a potential difficulty for policymakers.The Federal Reserve has been lifting interest rates rapidly since March to try to slow consumer spending and raise the cost of borrowing for companies, which will in turn lead to fewer business expansions, less hiring and slower wage growth. The goal is to slow the economy enough to lower inflation but not so much that it causes a painful recession.Officials at West Houston Assistance Ministries said its food bank served 200 households on Friday.Meridith Kohut for The New York TimesBut job growth accelerated unexpectedly in July, with wages climbing rapidly. Consumer spending, adjusted for inflation, has cooled, but Americans continue to open their wallets for vacations, restaurant meals and other services. If solid demand and tight labor market conditions continue, they could help to keep inflation rapid and make it more difficult for the Fed to cool the economy without continuing its string of quick rate increases. That could make widespread layoffs more likely.“The one, singular worry is the jobs market — if demand is constrained to the point that companies have to start laying off workers, that’s what hits Main Street,” said Nela Richardson, chief economist at the job market data provider ADP. “That’s what hits low-income workers.”8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Relief Eludes Many Renters as Fed Raises Interest Rates

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    As the central bank sharply increases borrowing costs, it could lock would-be home buyers into rentals and keep a hot market under pressure.Rents have been rising swiftly across America for much of the pandemic era, and housing experts are warning that they could now receive a boost from an unlikely source: the Federal Reserve.As the central bank raises interest rates to cool down the economy and contain rapid inflation, it is also pushing up mortgage costs, putting home purchases out of reach for many first-time buyers. If people who would have otherwise bought a home remain waylaid in apartments and rented houses, it could compound already-booming demand — keeping pressure on rental prices.While it is tough to predict how big or how lasting that Fed-induced bump in rental demand might prove, it could ironically make it more difficult for the central bank to wrestle inflation lower in the near term. Rent-related costs make up nearly a third of the closely tracked Consumer Price Index inflation measure, so anything that helps to keep them climbing at an unusually brisk pace is likely to perpetuate rapid inflation.Rents on new leases climbed by 14.1 percent in the year through June, according to Apartment List, an apartment listing service. While that is slightly less than the 17.5 percent increase over the course of 2021, it is still an unusually rapid pace of growth. Before the pandemic, a 2 to 3 percent pace of annual increase was normal. The recent quick market rent increases have been slowly spilling over to official inflation data, which track both new and existing leases.“A lot of folks are seeing now as they go to re-sign their lease that it’s hundreds more dollars than last month, thousands more dollars than last month,” said Nicole Bachaud, an economist at the housing website Zillow, whose own rent tracker is running fast. “We’re going to continue to see pressure in rent prices; to what extent is to be seen.”Gail Linsenbard lectures on philosophy at a college in Boulder, Colo., but housing in the area has gotten so pricey that she has been teaching remotely — recently from a friend’s house in Cincinnati, now from a friend’s place in New York — to make ends meet.“The rents in Boulder have just skyrocketed, so I could no longer afford to live there,” said Dr. Linsenbard, a 62-year-old ethicist, who said that the $36,000 she earns lecturing four classes per semester had always been tight, but was increasingly failing to keep up with inflation. While she can rely on a national network of friends, the situation has disrupted her life.“I’d so prefer my own place,” she said.Besides burdening millions of families across America, rising rents have emerged as a particularly thorny issue for the Fed. While coronavirus-related supply disruptions have fueled price increases in products like cars and couches, the recent surge in rents relates to longer-running fundamentals. America has for years failed to build enough housing, and as members of the massive millennial generation grow older and move away from their parents and roommates, the need for apartments and leased homes has grown.The pandemic took that demographic trend and sped it up. After being cooped up during quarantines, people looked for their own places — and apartment construction could not keep pace.Builders were completing units at an unusually rapid 349,000-per-year rate in early 2022, about 1.2 times the prepandemic pace, based on estimates in a report from the Joint Center for Housing Studies at Harvard. But the number of occupied apartments was rising more than twice as quickly.Rents on new leases climbed by 14.1 percent across the country in the year through June, based on Apartment List data.Anna Watts for The New York TimesAmerica’s rental vacancy rate slumped as apartment supply struggled to keep pace with soaring demand, and was lingering at levels last seen in the 1980s through the start of 2022.The resulting run-up in market rents, which began in earnest last summer, has slowly trickled into official inflation data as people renew their leases. A category in the Consumer Price Index that measures rent of primary residence surged by 5.2 percent in the year through May, and fresh data will be released this week.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Treasury Shifts Cash Among States as Pandemic Housing Aid Dries Up

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    The Biden administration pulled back the aid from states and counties with unspent funds and diverted it to four states pressing for more: California, New York, New Jersey and Illinois.WASHINGTON — The Biden administration has clawed back $377 million in federal emergency housing aid from states and counties, most of them controlled by Republicans, and redirected the cash to states that have been clamoring for more help, including New York, California and New Jersey.The $46 billion Emergency Rental Assistance Program, first enacted by Congress in 2020, succeeded in preventing a wave of evictions stemming from the downturn caused by the pandemic. But Treasury Department officials, increasingly concerned that evictions might rise after the program winds down, have tried to ensure that none of the remaining funding goes unspent while pushing states to find other funding sources to assist poor tenants.In recent months, White House officials have pressured governors in states with unspent funds to turn over the money to local governments within their states. Now they are going one step further, pulling back cash from states with relatively few tenants — like Montana, Nebraska, South Dakota and Wyoming — or localities that failed to efficiently distribute the aid, including Alabama, Arkansas and several counties in Texas.The money, in turn, is being diverted to four states that burned through their allotted amounts — with $136 million in additional aid headed to California, $119 million to New York, $47 million to New Jersey and $15 million to Illinois, according to a spreadsheet provided by a senior administration official. North Carolina, Washington and other localities will be receiving smaller amounts.New York officials were happy with their windfall but said it fell far short of the $1.6 billion in additional aid requested by the state.“This is better,” said Representative Ritchie Torres, a Democrat whose district includes the South Bronx, which has some of the highest eviction and poverty rates in the country. “But it’s a pitiful drop in the bucket compared to what we need.”The four states, home to roughly a third of the nation’s low-income renters, have already spent billions in emergency aid paying back rent for tenants at risk of eviction, and they have requested more funding, citing affordable housing shortages and rising rents. In January, their governors — Gavin Newsom of California, Kathy Hochul of New York, Philip D. Murphy of New Jersey and J.B. Pritzker of Illinois, all Democrats — called on Treasury Secretary Janet L. Yellen to shift cash from low-spending states into their accounts, saying that tenants were “facing an immediate need now.”Treasury officials responded with the reallocation — but made it clear the well was running dry, and states would soon have to make hard choices by using their own revenues, or other federal pandemic relief funding, to bankroll anti-eviction initiatives that might have been buoyed by President Biden’s stalled social spending bill.“The emergency rental program has helped keep millions of families in their homes, reducing the economic costs of the pandemic, and built a nationwide system for eviction prevention that didn’t exist before,” the deputy Treasury secretary, Wally Adeyemo, who has overseen the implementation of the program, said in an interview.“As these funds run out, Treasury is encouraging state and local governments to invest in long-term strategies to prevent evictions and build affordable housing, using other resources,” he added.The program, initiated under the Trump administration and ramped up by Mr. Biden’s team, got off to a sluggish start, as state governments struggled to create new systems to process applications, determine eligibility and distribute the cash.But by late 2021, most local systems were up and running, thanks in part to White House guidelines relaxing verification requirements.The enormous infusion of cash, coupled with federal and local eviction bans, helped prevent or delay about 1.35 million evictions in 2021, according to an analysis published last week by Princeton’s Eviction Lab. Evictions have risen in recent months in some cities but remain below the levels predicted when the pandemic first struck.Most of the aid that the Treasury Department is clawing back comes from states in the West, Midwest and New England with relatively high per capita incomes and low percentages of renters per capita. But part of the money is being pulled out of some of the country’s poorest states, where local officials were unable, for various political and logistical reasons, to disburse the funds.Alabama, for instance, is losing $42 million from a total allocation of about $263 million. A spokesman for the state’s housing agency provided a memo from state housing officials claiming that the Treasury Department “did not consider that Alabama has a lower proportion of renters to homeowners” in making its aid decisions, and that an overall lack of need put “downward pressure” on applications.But applicants and housing groups have complained that the state has made accessing the money difficult, and that a company hired to run the program rejected a large percentage of low-income tenants.West Virginia, which has been slow to distribute a range of federal food, housing and anti-poverty aid during the pandemic, was forced to return $39 million despite recent efforts by state officials to encourage more renters to apply. A spokesman for Gov. Jim Justice of West Virginia, a Republican, said the state was “simply not a renter state,” adding that the program “was clearly designed with Manhattan in mind — not rural America.”And Arkansas, which took months to organize its effort, is giving back $9 million, according to the tally provided by the senior administration official.The Biden administration had hoped to avoid shifting funding across state lines, opting instead to negotiate with governors to send unspent aid to counties and cities in their own states. Late last year, the White House persuaded Arizona, Georgia, Louisiana, Wisconsin and other states to voluntarily shift about $875 million to the cities and counties in their states that needed the money most.Yet administration officials are less concerned about offending state officials that have lost funding than tamping down the expectations of Democratic governors who want them to claw back even more.Gene Sperling, who oversees the Biden administration’s pandemic relief programs, said that the program was on track to help around five million renters, and that the largest complaint now was that “the funds are moving out so swiftly that there is very little left to be reallocated.” More

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    It’s Been a Home for Decades, but Legal Only a Few Months

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    On paper, the converted garage behind the Martinez family home in the Boyle Heights section of Los Angeles is a brand-new unit of housing, the product of statewide legislation that is encouraging homeowners to put small rental homes on their property and help California backfill its decades-old housing shortage. Two stories tall with 1,100 square feet of living space that is wrapped in a curved exterior wall, adorned with pops of pink around the windows and decorative white squares, it looms over the squat main house as a statement of something different behind a chain-link fence.The inside tells a longer story. For years the unit was illegal, built clandestinely in the mid-1990s by Bernardo and Tomasa Martinez as part of a $2,000 project that turned the garage into a cold but habitable unit with a bed and bathroom. The family rented it for $300 to a friend, then $500 to Bernardo Martinez’s brother, using the money to offset their mortgage and weather unemployment during the Great Recession.Eventually the unit housed their son, Luis, who lived there several years later while he was getting a master’s degree in architecture. Luis Martinez designed the latest conversion and, during an interview on the driveway, noted that the garage may have become a legal residence in 2020, but it has long been someone’s home.“The city rules are finally catching up to how these places are being utilized,” Luis Martinez said.Until last year’s renovation, the Martinez family’s backyard home belonged to the shadow inventory of unpermitted housing that has swelled across Los Angeles and other high-priced cities as affordable housing shriveled. Amateur developers build them for profit. Homeowners build them for family or to help with the mortgage.Mr. Martinez, right, an architectural designer and a co-owner of Studioo15, with his parents, Tomasa and Bernardo Martinez, at their home in Los Angeles.Philip Cheung for The New York TimesIn a tight and expensive housing market, where homes are desperately needed but also hard to build, people of every income level have decided to simply build themselves. The result is a vast informal housing market that accounts for millions of units nationwide, especially at the lower end.“This is one of the most significant sources of affordable housing in the country,” said Vinit Mukhija, an urban planning professor at University of California, Los Angeles.Over the past two years of the pandemic, as policymakers have struggled to contain the spread of disease in overcrowded housing and prevent widespread evictions among vulnerable tenants, Covid-19 has laid bare how precarious — and poorly understood — the United States housing market has become. A little over 100 million people live in rental housing across the U.S., but nobody knows exactly how many people are at risk of eviction, how many lose their housing without a formal notice, or even much about pricing trends.Almost nowhere is this disconnect greater than with informal units, which cities tacitly accept as a crucial part of their housing supply but don’t exactly condone and often empty or demolish if someone complains. This practice creates a kind of legal gray area in which tenants and owners don’t want to be found out and can both find it difficult to access tenant protections or financial aid, such as the $46 billion in pandemic rental assistance created by federal stimulus programs.Surveying the surrounding neighborhood from the roof deck of his old garage home, Luis Martinez counted off a few of nearby informal units: A corrugated steel addition that consumed the yard of a house a few lots away; a roll-up garage door that hides an unpermitted home down the street; the remnants of a shower that was once inside a backyard unit, demolished after city inspectors discovered it.Los Angeles County, home of 10 million people, has at least 200,000 informal units, according to researchers at University of California, Los Angeles. That’s more than than the entire housing stock of Minneapolis.‘Horizontal density’An uncompleted accessory dwelling unit, center, in the backyard of a home in the Boyle Heights neighborhood of Los Angeles.Philip Cheung for The New York TimesSome are rudimentary structures that lack plumbing. Some are two-story pool houses that rent for several thousand dollars a month. Off-the-books housing shows up in rich neighborhoods and poor neighborhoods, everywhere it is needed.Which in California — home of the $800,000 median home price and sprawling, roadside homeless camps — can seem like it is everywhere. Over the past decade, the state has added a little over three times as many people as housing units and is far below the national average in housing units per capita, according to a recent analysis from the Public Policy Institute of California. Population growth has slowed and even fell last year, but the supply of homes is so low and the demand so great that prices only continue to rise.Looking to add units, the state legislature has spent the past five years passing a flurry of new laws designed to increase density and speed the pace of new construction. They’ve vastly lowered regulatory barriers that prevented backyard homes and essentially ended single-family zoning with legislation that allows duplexes in most neighborhoods across the state. A byproduct of these laws is that there is now a path for existing units to get legalized, a process that can require heavy renovations and tens of thousands of dollars. Cities including Los Angeles and Long Beach have also created new ordinances that clear the way to legalize unpermitted units in apartment buildings.As a designer who specializes in residential structures, Luis Martinez has lived this at home, and has now made it his career. His design business, Studioo15, has surged over the past two years as residents across Los Angeles have used the new state laws to add thousands of backyard units. Yet about half of his clients, he said, are people like his parents who want to have existing units legalized.Bernardo and Tomasa Martinez, both in their early 60s, immigrated to Los Angeles from Mexico in 1989. Working in the low-wage service sector — she was a waitress; he worked as a laborer loading a truck — they settled in a two-bedroom house in South Los Angeles that had four families and 16 people. Luis Martinez, who crossed the border as a child, was surrounded by love and family, in a house where money was tight and privacy nonexistent.Eventually the family was able to buy a small three-bedroom in Boyle Heights, on the east side of Los Angeles. It sits on a block of fading homes that have chain link fences in the front and a detached garage out back. To supplement the family income, the Martinezes converted the garage into a rental unit without a permit. Bernardo Martinez and a group of local handymen raised the floor and installed plumbing that fed into the main house, while Luis helped with painting.Luis remembers that nobody complained, probably because the neighbors were doing the same thing. “It was normal,” he said, “like, ‘I live in the garage’ and some garages were nicer than others.”Mr. Martinez went to East Los Angeles College after high school, then transferred to the University of California, Berkeley, where he got an architecture degree in 2005. In the years after graduation, when the Great Recession struck, his father lost his job and, after a spell of unemployment, took a minimum wage job mowing the lawn at a golf course. To help with bills, they rented the garage unit to Bernardo Martinez’s brother for $500 a month. “With the minimum wage, you can’t afford to pay a mortgage and food for everybody,” Tomasa Martinez said.‘Home Sweet Legal Home’The point of informal housing is that it’s hard to see — it is built to elude zoning authorities or anyone else who might notice from the street.Jake Wegmann, a professor of urban planning at the University of Texas at Austin, describes this as “horizontal density,” by which he means additions that make use of driveways and yard space, instead of going up a second or third floor. Because both the tenants and owners of these units don’t want to be discovered, there is essentially no advocacy on behalf of illegal housing dwellers, even though the number of tenants easily goes into the millions nationwide.Their presence is often logged in the form of proxy complaints about city services. “We talk about there not being any parking on the street, we talk about sewer pipes deteriorating, we talk about there being overcrowded schools, but oftentimes unpermitted housing is underlying all this,” Dr. Wegmann said in an interview.Ira Belgrade lives about ten miles west of the Martinezes in a Mid-Wilshire ZIP code where the typical home is worth $2 million (in Mr. Martinez’s neighborhood, it’s less than $600,000). His economic calculus was still the same.Behind his house sits a two-story office and entertainment room that has three pairs of French doors and is flanked by rows of ficus trees that wrap the yard in shade. Mr. Belgrade and his wife used to run a talent management business from the building, and never considered renting it.Then, Mr. Belgrade’s wife died in April 2009 after a long illness. Business started declining and the mortgage on his house became a struggle. “My life was like a wreck and I thought ‘Well, you know, if I can make this into a full apartment I could just rent the thing and I could chill out,” he said. “The city said ‘No you can’t have it’ so I said ‘Screw it’ and did it anyway.”Ira Belgrade in front of the accessory dwelling unit behind his home.Philip Cheung for The New York TimesHe hired a contractor to install a full kitchen and rented it for $3,650. Nobody noticed for four years. Then came an anonymous complaint, and he got tagged with a code enforcement violation.Mr. Belgrade said he spent three years struggling to get the unit legalized. At one point, he walked around his neighborhood taking pictures of 28 backyard homes that he believed were also not on the city’s books, in preparation for a mass complaint.“My argument was, ‘If you shut me down, you have to shut down these other 28 homes,’” he said. “It was total self-preservation.”Mr. Belgrade held out long enough to get the unit legally converted under the state’s new backyard unit laws. Along the way, he learned so much about city and state housing law that he acquired a new career. Instead of managing actors or casting movies like Army of Darkness, Mr. Belgrade now runs a consultancy called YIMBY LA, for “Yes In My Back Yard Los Angeles,” which advises people building new backyard units and also helps get permits for people who had them on the sly. The company’s tagline: “Home Sweet Legal Home.”When cities pay attentionThrough ten years as a code compliance officer for the County of Los Angeles, Jonathan Pacheco Bell estimates that he entered about 1,000 different homes, most of them in the unincorporated areas around South Los Angeles. He handed out violation notices and watched illegal housing get destroyed or vacated.But, after a decade of enforcement work, he said he came to accept that zoning codes become something of a fiction in the face of an affordable housing crisis. Many informal units are substandard or unsafe. But most, he said, are not. And until recently, the county’s policy of removing them was, in his view, creating more problems than it solved.Mr. Pacheco Bell is now a consultant who gives frequent talks at planning conferences. In those presentations, he tells the story of a family he cited in 2016, just as the state laws on accessory dwellings were changing. The family patriarch had died in a bus crash in 2009 and, to supplement her income, the widow hired a neighbor to build a backyard home. It cost $16,000 to build and she was able to rent it for $500, providing years of income for her family and one unit of affordable housing in a region that badly needed it.Mr. Pacheco Bell showed up after an anonymous complaint. The unit had plumbing and a kitchen. There was a crucifix on the front door, magnetic letters on the refrigerator and a child’s homework assignments taped to the wall. The home was usable and well-maintained, but was in violation of zoning codes because it was too close to a fence. Mr. Pacheco Bell wrote the unit up and returned a few months later to confirm it had been demolished. Walking around the backyard, and seeing the outline of the home and the rubble, made him question the job he was doing.“And as a planner I had a crisis of consciousness, like ‘How many people have I made homeless?” he said.Los Angeles has extended many tenant protections to residents of illegal units, but advocates for tenants say most renters aren’t aware of them. Landlords say they live in fear of being outed by tenants who can decline to pay rent until they get the unit permitted, a process that can take months.It all creates a market in which relationships are central to its function and proximity to each other can cut both ways. Sometimes tenants are treated as roommates or extended family, trading favors with their landlords and paying a low monthly rent. Other times, they live with abusive landlords who can steal food from refrigerators or expect them to do unpaid chores, threatening eviction when they don’t comply.“Renters have to make a choice: Are you going to live in a place that costs more? Or do you put yourself in a situation where you’re likely to have overcrowding and you might have restrictions over things like having guests over?” said Silvia González, director of research at the Latino Policy and Politics Initiative at UCLA.Dr. González is unusually close to her research: She grew up in Pacoima, a neighborhood of working-class Latino families in the San Fernando Valley, and spent much of her childhood living in an unpermitted home behind an aunt’s house.In a study for the nonprofit Pacoima Beautiful, she and other researchers found that these units can act as a bulwark against gentrification because they create low-cost housing and allow families to pool resources, as the Martinez family did. The benefits of legalizing them are clear enough: Units become safer, value is added to homes and tenants get the security of a sanctioned unit.Now that the law has changed, however, upstart developers are rushing to build new units and are bidding up parcels where they can be developed. This has caused fears that the once-illegal housing density serving as a source of last-resort shelter in many neighborhoods could become an engine of displacement. To head that off, Pacoima Beautiful recommended that cities and the state create low-cost financing mechanisms to encourage homeowners to get permitted.It took the Martinez family a decade to dig out from the Great Recession, but over time Bernardo Martinez worked his way back into the logistics industry and now runs an import/export business that moves clothes, toys and other merchandise between Los Angeles and Mexico. The family built back their savings, and was able to finance the $200,000 backyard unit.Boyle Heights remains an epicenter of L.A.’s gentrification battles, and Luis Martinez has found himself embroiled in them. In 2017, he purchased a duplex close to his parents and commenced an owner move-in eviction so he could live in one of the units. During the dispute, protesters marched outside his parents’ house and both the tenant who left and the one who remained sued him, alleging the duplex was uninhabitable and that he refused to fix it. Mr. Martinez disputed the allegations and settled earlier this year.The newly legalized unit behind his parents’ house is unlikely to assuage any gentrification fears. The building’s wavy surface looks like it landed in Boyle Heights after taking the wrong exit, and inside there are marble counters and a wine fridge.It sits empty now, but Mr. Martinez said his family plans to rent it out someday — he guesses they could get $2,500 in monthly rent — so his parents can retire and let the yard work for them. More

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    Funding Fight Threatens Plan to Pump Billions Into Affordable Housing

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    A federal voucher program is at risk of being sharply scaled back as the White House seeks to slash its social policy package to appease two centrist senators.SAN FRANCISCO — Audrey Sylve, a retired bus driver, has spent 13 agonizing years on a waiting list for a federal voucher that would help cover rent for an apartment in one of America’s most expensive housing markets.This summer it seemed that help was finally on the way.In late July, congressional Democrats introduced a $322 billion plan to bolster low-income housing programs as part of the $3.5 trillion social spending plan embraced by President Biden. At its center is a $200 billion infusion of aid for the country’s poorest tenants, which would allow another 750,000 households to participate in a program that currently serves two million families.Affordable-housing advocates saw it as a once-in-a-generation windfall that would allow local governments to move thousands of low-income tenants like Ms. Sylve, 72, off waiting lists and to expand aid to families at the highest risk of homelessness.But optimism has given way to anxiety. Low-income housing, and the voucher program in particular, are among those most at risk of being sharply scaled back as the White House seeks to slash the package to accommodate the demands of two centrist Democrats, Senators Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona, according to several people involved in the talks.Congressional negotiators are seeking to cut the overall size of the 10-year package, in coordination with the White House, to between $1.9 trillion and $2.3 trillion. Housing is just one of several high-price priorities on the chopping block in the negotiations.Yet proponents say no other proposal is likely to have as immediate an effect on the lives of the country’s most vulnerable as the increase in rental assistance because it addresses a foundational problem: securing an affordable place to live when rents everywhere are outpacing earnings.“I’m all for funding early childhood education, child care and the expansion of health care with education, but we cannot be successful with any of that unless people have safe and secure housing,” said Representative Maxine Waters, a California Democrat who leads the House Financial Services Committee, which drafted the original plan.Supporters of the expansion say every penny is required to begin addressing a crisis that threatens to undermine recent gains in the fight to reduce poverty. They fear it will be elbowed aside by other programs, such as universal child care, that enjoy broader political support because they benefit middle-class, and not just poor, people.“Better health care or increased educational access doesn’t do much for families sleeping in their car or under a bridge, or for the millions more on the verge,” said Diane Yentel, president of the National Low Income Housing Coalition, which is pressuring the White House to fund the program as it was drafted. “There are no ‘savings’ to be had here.”The financial services industry, which puts together the complex public-private financing packages used to build most affordable developments, has already factored in a significantly scaled-back congressional compromise.“Much of the proposed $400 billion in housing-related grants and tax subsidies is likely to be cut from the reconciliation bill,” analysts from Goldman Sachs wrote in an email last week. That figure bundled the $332 billion package, which also includes increases for public housing authorities and an affordable housing construction fund, with a smaller package of tax breaks in the bill.White House officials say they have made no decisions. Ms Waters and her counterpart in the Senate, Sherrod Brown, a Democrat of Ohio, said they would not accept any deal that cut the housing plan more than any other proposal.“We’re not going to scale back. We’re not going to lose our way on this,” Mr. Brown, chairman of the Banking Committee, said in an interview. “And we’re not going to compromise the mission of transforming the fight on poverty.”The White House is looking for ways to win support for its package from Senators Kyrsten Sinema and Joe Manchin III.Stefani Reynolds for The New York TimesOver the past two decades, the federal government has stopped bankrolling construction of government-run public housing projects. Instead, it has shifted resources to voucher programs, which bridge the financial gap between what a poor tenant can afford to pay and what a landlord might reasonably expect to get on the open market.Demand far outstrips supply: One recent study found that the federal government has provided funding for only a quarter of the vouchers needed to help house eligible families — and many housing authorities have simply stopped taking names to avoid leaving tenants in the lurch.Even if the voucher increase somehow makes it past Mr. Manchin and Ms. Sinema, it would represent only a down payment on an enormous unmet need for housing aid exacerbated by rocketing real estate values in most major cities.California’s estimated share of the new aid would bankroll only a fraction of the new vouchers needed to meet the demand, said Matthew Schwartz, president of the California Housing Partnership, a nonprofit that works with community groups to finance low-income housing projects.But it would be a significant improvement, Mr. Schwartz said, particularly on top of a $22 billion affordable-housing plan that Gov. Gavin Newsom signed into law this summer.Joseph Villarreal, executive director of the housing authority of Contra Costa County, outside San Francisco, is less concerned about the future than fulfilling the promises he has made in the past. He saw the new cash in personal terms, as a way to fulfill a commitment more than a decade in arrears.“It would be horrible if any, much less the majority, if this voucher money gets cut from the proposal,” he said.Mr. Villarreal’s organization, which serves as a pass-through for federal funding, maintains 51 separate waiting lists for the vouchers — some for specific developments, others for targeted demographic groups, with 47,000 families in limbo. “It weighs on me,” he said of the lists.Ms. Sylve, who said she was scraping by on a small pension and Social Security, was one of 6,000 chosen from 40,000 qualified Contra Costa County applicants in a lottery to be added to the slow-moving queue for the program, which is still known by its historical name, Section 8.A few years ago she was told that a voucher was about to become available, but that fell through, and she has spent much of the past 13 years hopping from apartment to apartment. Last spring, Ms. Sylve moved in with her daughter across the bay in San Francisco, because the neighborhood around her apartment had become too dangerous.“They give you hope, and that’s the hardest part,” Ms. Sylve said. “But you keep hoping, year after year after year.”A survey of 44 large housing authorities across the country conducted by the Center on Budget and Policy Priorities, a left-leaning Washington think tank, painted a grim picture of the voucher program. A total of 737,000 people were on waiting lists, and 32 of the authorities are refusing to take new applications, with a few exceptions for particularly vulnerable populations.The situation on the West Coast was especially dire, with eight times as many people lingering on waiting lists as receiving aid in San Diego, where the list has topped 108,000. Long waiting lists are also a staple in Washington, Philadelphia, Houston, Honolulu, Little Rock, Ark., and New York, which closed its list years ago.Will Fischer, director for housing policy for the center, said bolstering the voucher program was the most important single move the federal government could make to address the homelessness crisis.“Look, the public housing money is urgently needed — but it would be for existing units, for families who already have a place to live,” he said. “And most of the other funding in the proposal actually serves people a little bit higher up the income scale.”Representative Ritchie Torres, a Bronx Democrat whose district is among the poorest in the country, said housing always seemed to be listed as the third, fourth or fifth priority of many liberal lawmakers.When House Democrats peppered Mr. Biden with questions about the social spending package at a meeting in the Capitol this month, Mr. Torres — a former chairman of the New York City Council housing committee — was stunned when he realized no one had asked the president about rental aid, and spoke up.Mr. Biden responded by promising he would “protect” housing, without elaborating, Mr. Torres said. 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    What Will Happen to All the Empty Office Buildings and Hotels?

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    Commercial real estate has been hit hard by the pandemic, but there are plans to convert some of the now empty spaces into apartment buildings. Dark windows. Quiet lobbies. Hushed halls.Many of New York’s hotels and office buildings have been empty for more than a year now as the pandemic continues to keep tourists and workers out of the city.And some of those properties may never recover. An effort is afoot to take these eerily empty commercial structures and convert them to housing of some kind and perhaps other uses as well, potentially spurring a number of building conversions not seen since the crash of the late-1980s.But in the development world, top-to-bottom makeovers can take years, and a robust recovery could make landlords think twice about reinventions. Space and safety requirements could also complicate some conversions, real estate executives say.Still, with some companies allowing employees to permanently work from home, and officials bracing for tourism to not fully recover for years, there is support across the city for breathing new life into struggling buildings.“Covid has expedited the ultimate repurposings,” said Nathan Berman, the managing principal of Metroloft Management, a developer in the process of buying two large office buildings in Lower Manhattan that have been hammered by the pandemic.These shell-of-their-former-selves buildings, which Mr. Berman declined to name while negotiations continue, would become market-rate rentals. “They are perfect targets,” he said.From corporate high-rises in the financial district to boutique lodgings near Central Park to mid-market accommodations in Midtown, real estate players are redeveloping or canvassing dozens of sites, according to those involved.So far, most of the attention has been trained on Manhattan, home to the city’s largest business and tourism districts, and where the pandemic has dealt the harshest blows. But hotels in Brooklyn, where prices for buildings are generally lower, are also getting a look.The conversions seem to fall into three categories: offices to housing, hotels to housing, and hotels turning into offices, though not for long stays but short-term sessions.“It’s definitely all happening, for sure,” said Eric Anton, an agent with the firm Marcus and Millichap who specializes in selling buildings. Of the seven hotels in New York he currently represents, three will likely become senior housing, one will become market-rate apartments, and the balance will stay hotels.“But a lot of the conversations revolve around whether the conversions can happen efficiently,” Mr. Anton said.An alcove studio at 20 Broad Street, which was an office building until 2018. Conversions of office buildings often result in unusual layouts with long halls and windowless sleeping areas.Katherine Marks for The New York TimesBoardrooms to BedroomsSome buildings, of course, can be converted more easily than others.Decades ago, prewar office buildings were all the rage for reinvention. In the financial district, which became hollowed out after insurance companies and investment banks moved uptown, developers grabbed up limestone and granite former headquarters and sliced them up into apartments.But there aren’t many of those grand old buildings left, at least downtown, forcing developers to consider newer structures, like glassy mid-20th-century office towers, which in some cases have become obsolete as fancier offerings have risen around them.In March, more than 17 percent of Manhattan’s office space was vacant or soon to be, with a slightly higher rate downtown, according to CBRE, the real estate firm. Few of those spaces have been so empty since the early 1990s.Though many landlords are long-term investors who don’t panic in tumultuous times, the ghost-town vibe may be at least causing jitters. Since the pandemic began a year ago, city projections suggest that Manhattan office towers are worth 25 percent less.Mr. Berman, who for years converted mostly prewar properties, like 67 Wall Street, 84 William Street and 20 Exchange Place, has lately gone Modernist himself. The two office buildings he is now in talks to buy went up in the postwar period, he said, adding that they are also of the “Class B” variety, industry-speak for “a bit drab.”“It’s too expensive to upgrade those kinds of buildings, so a change of use is really the optimum path,” said Mr. Berman, adding that they also aren’t usually landmarks, which reduces the number of necessary permits.But how easily can structures where people once pecked at computers and huddled in conference rooms become places to live?John Cetra, a co-founder of the firm CetraRuddy Architecture, on the roof of 20 Broad Street, a 1950s office building he helped convert to luxury housing.Katherine Marks for The New York TimesIt really depends, said the architect John Cetra, a co-founder of the firm CetraRuddy, which has made bedrooms out of boardrooms at several Manhattan addresses.One major factor is the distance between the facade and the elevators, otherwise known as a “lease span.” When it comes to creating housing, the smaller the lease span, the better, according to Mr. Cetra.A span of 30 feet is ideal, said Mr. Cetra, as he recently led a tour of 20 Broad Street, a 1957 former office building next to the New York Stock Exchange that in 2018 swapped its stockbrokers for residents. (Its thick-doored bank vault remains in the basement though, and now serves as a lounge.)At 20 Broad, a CetraRuddy project, the lease span measures 45 feet, which is close to the outer limit of what can work, he explained, adding that anything greater “just becomes too awkward,” because apartments would likely have to have large windowless spaces and other hard-to-adapt spaces.The facade of 20 Broad Street in the financial district, which was once an office building and is now a luxury apartment building. The next wave of conversions is expected to target similar structures.Katherine Marks for The New York TimesBut recently constructed office buildings often have lease spans of 50 feet or more, Mr. Cetra said, suggesting that laying out conventional apartments in them could be difficult.Focusing on the floor plans at 20 Broad, which has 533 rental units across 30 stories, then, can be instructive. Reaching the living room in No. 721, an alcove studio on the seventh floor, for instance, requires navigating a long gangplank-like hall. But what could have been a void between the front door and a couch has been filled creatively — with a closet, a washer and dryer and the alcove, which can fit a bed but has no windows. Also squeezed in, along one wall, in what might be called a half-galley-style, is a kitchen. Mr. Cetra is the first to admit that the quirks, which in No. 721 includes an off-center window, are unavoidable when tackling a commercial conversion. But on the plus side, no two units seem the same. “You’re not doing cookie-cutter apartments,” he said. “You get so much more variety.”The studio, with about 500 square feet, is listed at $3,760 per month. But to help fill the building, which is grappling with a 40 percent Covid-related vacancy rate, its landlord, Metroloft, is dangling four months of free rent, so renters would essentially pay $2,600 a month.The Holiday Inn FiDi, a large hotel in Lower Manhattan, is now in foreclosure after defaulting on its loans. Some developers are pushing to convert struggling hotels like this one to affordable housing.Katherine Marks for The New York TimesNo More Room ServiceIt’s a hard time to be a hotelier. Facing a drought of tourists and business travelers, about 200 of the city’s 700 hotels have closed since Covid hit, and many of those closures are expected to be permanent, especially as debts mount.There are also many soured loans. Since fall, hotels in the New York City area have led the country in terms of delinquencies, according to the analytics firm Trepp, which tracks securitized mortgages. In April, New York hotels accounted for $1.8 billion in unpaid balances, far outpacing second-place Chicago with about $1 billion past due.Even though the construction of new hotel rooms does continue in the city, there have been casualties, both big and small. Hilton Times Square, a 476-room hotel, shuttered last fall, and after months when the owner, Sunstone Hotel Investors, failed to make loan payments, wound up this winter in the hands of a lender with an uncertain fate.Similarly, the Holiday Inn FiDi, a soaring 50-story, 492-room high-rise near the National Sept. 11 Memorial and Museum, is now in foreclosure because of its three troubled loans, according to Trepp. But relatively small properties are in tight spots as well, like the 72-room Hotel Giraffe on Park Avenue South, which has fallen more than three months behind with its mortgage checks.What’s still up and running is often not being run as a typical hotel. Starting a year ago, in an effort to stop the spread of Covid in often cramped shelters, more than 60 city hotels became shelters for 9,500 homeless people, an arrangement that continues at many addresses. The Watson Hotel at 440 West 57th Street in Midtown Manhattan. The two-towered hotel, which has served as a homeless shelter during the pandemic, recently sold to a developer that may convert one tower into market-rate housing.Katherine Marks for The New York TimesBut developers are starting to consider struggling hotels as potential investments. This month, Yellowstone Real Estate Investments plunked down $175 million for the 600-room Watson Hotel in Midtown that in many ways is an emblem of the embattled hospitality sector.Long a Holiday Inn, the West 57th Street property was reinvented as a boutique getaway in 2017 by a new owner, BD Hotels, whose portfolio includes downtown hot spots like the Mercer, the Bowery and the Jane. But then Covid hit, and BD defaulted, despite turning much of the Watson Hotel into a homeless shelter, for which the city reimbursed it.For the 1964 building’s newest chapter, Yellowstone will turn one of the hotel’s two towers into market-rate apartments, according to sources familiar with the deal, while leaving the other tower as a hotel. Isaac Hera, the firm’s chief executive, said in an email that plans were not set yet, but added that “having the flexibility of implementing different uses and different business plans is a very attractive proposition.”City and state officials have pushed for the conversion of hotels into affordable housing, but developers note that building codes could make that difficult.For starters, apartments must be at least 150 square feet, while hotel rooms are allowed to be smaller. And apartments require kitchens, though in some affordable-housing complexes, tenants can share kitchen facilities, said Mark Ginsberg, a principal at Curtis + Ginsberg Architects, which has designed affordable projects.Adding kitchens and enlarging rooms to meet codes could also ultimately reduce the number of beds, a counterproductive move, Mr. Ginsberg said. It could also balloon costs, turning a standard hotel makeover with $3 million in cosmetic changes into a $30 million overhaul.The process seems so daunting that an investor interested in converting a struggling 60-room hotel on the Lower East Side is getting cold feet, said Mr. Ginsberg, who is assessing the site for the investor.Since last spring, Mr. Ginsberg has looked at about a half dozen other hotel sites for similar clients. “With the destruction of the tourism industry, this is the time to act,” he said.Ted Houghton, an affordable-housing developer, says that hotels in industrial zones will likely be conversion targets.Katherine Marks for The New York TimesIt can also be tricky to identify ideal sites, said Ted Houghton, the head of Gateway Housing, an affordable-housing developer that creates what is known as supportive housing, which provides some social services on-site.Hotels in industrial areas seem to be low-hanging fruit, said Mr. Houghton, who began his career in the late 1980s, during another housing crash, by helping create supportive housing in the crumbling Times Square Hotel on West 43rd Street.Many neighbors don’t approve of hotels in industrial zones because they take land away from true manufacturers, he said. About 250 of New York’s 700 hotels are in such zones, though you wouldn’t always know an industrial zone when you see one. The Mercer, in ritzy SoHo, for example, is in one, as is the line of hotels along Wythe Avenue in Williamsburg, Brooklyn — though converting those locations to affordable housing could also stir controversy.“No hotel has a for-sale sign on it, but every hotel could be for sale,” Mr. Houghton said.Streamlining the redesign process so that old hotels can become affordable housing is a priority of State Senator Brian Kavanaugh, a Democrat who represents parts of Brooklyn and the Lower East Side. He is sponsoring a bill that would allow developers to convert hotels into affordable housing without having to get the kinds of building permits required for new residential properties. Also, the law would apply only to hotels in industrial zones within about a block of residential neighborhoods.“You don’t want to be dropping affordable housing into the middle of a desert,” said Mr. Kavanaugh, who added that offices would be much harder to convert. “It would be too expensive, even with subsidies. That would probably happen only with market-rate apartments.”Similarly, a bill from Michael Gianaris, a State Senator from Queens, would give the state power to buy distressed hotels and office buildings, and redevelop them into housing for low-income and homeless tenants, though most Manhattan addresses would be excluded. Gov. Andrew M. Cuomo has also discussed similar goals.The state budget passed this month allocates $100 million to reinvent hotels as affordable housing. Plus, $270 million in the federal American Rescue Plan is designated for the homeless in New York, and those funds could potentially help finance conversions as well. “There is a sense of a real opportunity here,” Mr. Kavanaugh said.20 Broad Street, a converted office building in the financial district that once housed stockbrokers, has transformed a former vault into a lounge.Katherine Marks for The New York TimesComing Full CircleIn a city where renewal takes odd turns — churches have morphed into nightclubs, factories into fashion shops, and post offices into train stations — it should come as no surprise that some buildings can revert to their original purpose years later.That’s what’s happening at 960 Sixth Avenue, a 16-story limestone edifice at West 35th Street that began life as an office building, had a brief turn as a hotel, and is now set to welcome workers again in May.Opening in 1930, the building housed fabric textile showrooms and yarn firms for much of the 20th century, before Atlantic Bank of New York took it over for its headquarters. In the late 2000s, an attempt by the Statuto Group, an Italian firm, to recast the building with a mix of creative tenants fell flat because of the Great Recession, and a foreclosure followed. The next owner, the developer Hidrock Properties, then created a 167-key outpost of Courtyard by Marriott. But after eight years in operation, the coronavirus put the hotel out of business last year.A hotel room at a former Courtyard by Marriott has been converted to a co-working space at 960 Sixth Avenue.Katherine Marks for The New York TimesThe latest location of the Yard, a co-working provider, is in a former hotel at 960 Sixth Avenue that was originally an office building.Katherine Marks for The New York TimesNow, the building, which also goes by 8 Herald Square, is transforming itself into a co-working hub from the Yard, a Brooklyn-based company. In a third-floor area that used to welcome tourists, the Yard has removed the reception desk and couches, and replaced them with conference rooms, phone booths and a kitchen. And in hotel rooms above, the Yard has replaced beds with desks — sometimes four to a room — while installing fake plants in shower stalls to make them less hotel-like.Desks rent for about $500 a month, in leases as short as 30 days, said Richard Beyda, a Yard co-founder, who looked at several other shuttered lodgings before landing there.“It felt like a hotel until we did our usual aesthetics,” said Mr. Beyda of his first hotel-to-office job. And while some may look around at all the empty office buildings and grimace, Mr. Beyda sees an ecosystem that’s adapting.Workers who no longer want to punch in for a nine-to-five experience might come around eventually, warming to his firm’s more flexible workplace strategy. “It might be the only silver lining of the pandemic,” he said.And at least one landlord is considering the ultimate repurposing: demolition.Vornado Realty Trust announced plans this month to raze the Hotel Pennsylvania, a 1,700-room building across from Madison Square Garden that opened in 1919, but has been shuttered for more than a year, and replace it with an office tower layered with outdoor gardens.The Hotel Pennsylvania “is decades past its glory and sell-by date,” said Steven Roth, Vornado’s chairman, in a letter to shareholders. But he also suggested that there were fundamental problems with the city’s hospitality industry that predate the pandemic.“The hotel math has deteriorated significantly over the last five years,” Mr. Roth wrote, “a victim of oversupply, relentlessly rising costs and taxes, and an aging physical plant.”For weekly email updates on residential real estate news, sign up here. Follow us on Twitter: @nytrealestate. More