May 2, 2014
The Real Affordability for All campaign has issued An Affordable Housing Policy Platform for Mayor de Blasio. A stated goal of the campaign “is to ensure that Mayor de Blasio’s housing policies prioritize and deliver real affordability for the most economically vulnerable households” in the CIty. (1) As with many such studies (this one, for instance), it does a good job of identifying the problem — incomes are not sufficient to keep housing costs affordable — but its solutions do not match the identified problem.
I am not going to focus on all of the good things in the report (for instance, enhancing enforcement of housing laws to protect tenants), but on fundamental flaws in its proposal that the City implement a 50/50 model for increasing the supply of new affordable housing units. The report states that
Affordable housing developers, private sector developers and housing experts agree on two broad 50/50 scenarios that are viable and pragmatic, based on existing developments, current real-estate market assumptions, and the latest mathematical modeling:
1) For high-cost areas of the city (particularly Manhattan), depending on the level of up-zoning, new developments can ensure that 50 percent of the units are market rate and 50 percent are real affordable units targeted to low-income households: specifically, households of four earning 30-60 percent of Area Median Income.
2) For the outer boroughs, where land costs are lower, 100% of new developments can be affordable: 50 percent of the units can be for low-income households (those earning 30-60 percent of Area Median Income) and 50 percent for moderate income households (those earning up to 100 percent of Area Median Income). 100% real affordability can be achieved by increasing current per unit subsidies in the outer boroughs and applying those subsidies to real affordable housing units for low-and moderate-income households. (3)
The first fundamental flaw is an assumption that if the government requires something of developers, developers will do it. For-profit developers will only build if they can make a profit. Otherwise they will just not build. Given the low rates of new housing construction that we have seen in NYC over long periods of time, this is just a fact of life.
This leads to a second flaw — the proposal leaves fewer market rate units to cross-subsidize more affordable units. Given that the costs of development are relatively fixed, this proposal would have to come up with some real new cost-cutting measures for new developments or new sources of revenue to add to the existing subsidies. But the recommendations put forward by the report don’t really do either of those things. Their recommendations are
- Use Subsidies More Wisely to Drive Real Affordability.
- Implement a New Low-Income Real Affordability Framework Across All Housing Programs.
- Enable Not-for-Profit Developers and Owners to Play a Strong and Active Role in the City’s Housing Agenda.
- Prioritize Permanent Affordability for All City-owned Land Dispositions.
- Require that Developers and Investors Receiving Any Type of City Subsidy Provide a Reserve Fund that Creates a Safety Net for Excessively Rent-Burdened Tenants.
- Flip Tax.
- Non-Occupancy Tax.
- Water and Sewer Tax Reform
- Property Tax Overhaul.
- Density Bonuses.(4-5)
Many of these recommendations amount to moving things around, not to reducing costs or increasing subsidies. The ones that do raise revenues, raise relatively small amounts. For instance, the flip tax proposal is estimated to generate between $100 million and $150 million per year. Using a conservative cost estimate of $200,000 per unit of new housing, $150 million in new revenue would only produce 750 new units of real affordable housing per year, a drop in the bucket.
Many have been trying to shape the Mayor’s housing agenda in recent days (here for instance). But few have seriously faced the real market and political constraints that the City faces as it attempts to increase the supply of affordable housing. There is reason to think that the Mayor’s housing team will grapple with these issues seriously, so let’s wait patiently for their plan to be released . . ..