Tag Archives: affordability

Location Affordability

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Following up on an earlier post on NYC’s (Affordable) Housing Crisis, I turn to the Citizen Budget Commission’s report on Housing Affordability Versus Location Affordability. The report opens,

How much more would you pay for an apartment just a short walk from your job than for an equivalent apartment that required an hour-long commute by car to work?

This question highlights two important points about the links between housing costs and transportation costs. First, transportation costs typically are a major component of household budgets, usually second only to housing. Second, a tradeoff between housing costs and transportation costs often exists, and taking both into account can provide a better measure of residential affordability in an area than only considering housing costs.

In recognition of these important points, the U.S. Department of Housing and Urban Development (HUD) has developed a Location Affordability Index (LAI) that measures an area’s affordability based on housing and transportation costs relative to income. This policy brief uses the HUD data to compare costs for a typical household in New York City to those in 21 other cities . . .. (1, footnote omitted)

The report finds that “Low transportation costs and high incomes make New York City relatively affordable: New York City is in third place in location affordability. Housing and transportation costs for the typical household are 32 percent of income in New York City, with lower ratios only in Washington, D.C. (29 percent) and San Francisco (31 percent). This is well within HUD’s 45 percent affordability threshold for combined costs as a percent of income.” (1)

This report makes a very important point about the cost of living in different cities. It should also reframe some of the national discussion about affordable housing policy. It would be great if there were a way to account for length of commute in the Location Affordability Index to make a better apples to apples comparison among cities when it comes to the housing choices that are available to households.

NYC’s (Affordable) Housing Crisis

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The Citizen’s Budget Commission is releasing a series of Policy Briefs on affordable housing in New York City. They raise interesting questions. The first policy brief, The Affordable Housing Crisis: How Bad Is It in New York City, compares the affordable housing situation in 22 large American cities and finds that NYC is not the worst, notwithstanding how many New Yorker’s feel about it. Some of the particular findings included,

  • New York City relies more heavily on rental, as opposed to owned, housing than all other large cities; more than two of every three occupied housing units are rental.
  • The increase in housing supply since 2000 was slower in New York City than in every other large city with population growth.
  • New York City does not have the highest average rents. New York City median rent ranks sixth most expensive among the 22 cities, slightly worse than 2000, when it ranked seventh.
  • New York City is not the most unaffordable: New York City ranks ninth worst in rental affordability, defined as the percent of households spending more than 30 percent of income on gross rent. This is slightly better than its eighth worst ranking in 2000, although the share of renters with burdensome rent increased from 41 percent to 51 percent.(1)

For me, the real story is the second bullet point.  New York City had the fourth slowest growth in the number of housing units out of the 22 cities, notwithstanding the fact that it has always had a limited supply and compounded by the fact that its population has been growing significantly for quite some time. It is depressing to learn that “the number of housing units in New York City increased” only 5.8 percent between 2000 and 2012. (2) This leaves New York City with a vacancy rate of 3.6 percent in 2012, which means that we are a long way off from making a serious dent in the affordability problem. The de Blasio administration has made affordable housing a centerpiece of its agenda. This report reminds us that part of the solution to the affordable housing puzzle is just building more housing overall. We have lots of pent up demand, we just don’t have the supply. That is one reason the rent is too damn high!

Real Affordability for All New Yorkers?

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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

  1. Use Subsidies More Wisely to Drive Real Affordability.
  2. Implement a New Low-Income Real Affordability Framework Across All Housing Programs.
  3. Enable Not-for-Profit Developers and Owners to Play a Strong and Active Role in the City’s Housing Agenda.
  4. Prioritize Permanent Affordability for All City-owned Land Dispositions.
  5. 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.
  6. Flip Tax.
  7. Non-Occupancy Tax.
  8. Water and Sewer Tax Reform
  9. Property Tax Overhaul.
  10. 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 . . ..

 

Affordable Flood Insurance in NYC

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The Rand Corporation has posted Flood Insurance in New York City Following Hurricane Sandy. The report has a chapter on affordability issues that is worth a read, particularly as the de Blasio Administration undertakes its ambitious affordable housing plan. The report notes that

many New Yorkers will face substantially higher flood insurance premiums moving forward. Many more structures will be in areas considered high-risk than in the past, and premiums for many structures already in high-risk areas will be based on considerably higher flood levels.

*     *    *

These substantial premium increases will reduce the disposable income or wealth (or both) of many households and may well be unaffordable for some. In the absence of intervention, the consequences may be foreclosures, turnover, and hardship for some of New York City’s more-vulnerable citizens.(63)

The book goes on to review a variety of approaches “for addressing the affordability issue.” (67) It reviews “tax credits, grants, and vouchers that could be applied toward the cost of flood insurance.” (63) It also notes that such interventions distort “the price signal that incentives property owners to invest in risk-mitigation measures in order to reduce premiums.” (67) It considers proposals to deal with such distortion, such as a means-tested voucher program that is coupled “with a requirement that mitigation measures be taken that make sense for the property.” (67) The book only scratches the surface of this topic, noting that more “information is needed to address the advantages and disadvantages of alternative strategies for addressing affordability.” (68)

As the de Blasio Administration considers the preservation portion of its affordable housing agenda, one could imagine that a concerted effort to incentivize risk mitigation while also promoting affordability could be a significant component of the final plan. Solutions could range from deferred payment, due on sale or refinance of a home, to outright subsidies as outlined by the Rand report. Whatever the ultimate solution is, the problem should be incorporated into the City’s planning now.

Housing Affordability in NYS

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The NYS Comptroller issued a report, Housing Affordability in New York State. The report finds that

The percentage of New York State households with housing costs above the affordability threshold, as defined by the U.S. Department of Housing and Urban Development (HUD), rose for both homeowners and renters from 2000 to 2012, according to U.S. Census Bureau data. As of 2012, more than 3 million households in the State paid housing costs that were at or above the affordability threshold of 30 percent of household income. Within that group, more than 1.5 million households paid half or more of their income in housing costs. Statewide, the estimated percentage of rental households with rents above the affordability level increased from 40.5 percent in 2000 to 50.6 percent in 2012. (1, footnote omitted)

The report suggest that “that many New Yorkers are feeling pressure from a combination of stagnant or declining real income and increasing housing costs. A combination of factors including comparatively slow economic growth over time, a rising real estate tax burden, and limited housing supply in many areas of the State contribute to the increasing challenge New Yorkers face in finding affordable housing.” (2)

A pretty consistent theme on this blog is that limits on housing production necessarily limit housing affordability. While this seems obvious to me (perhaps I hang around too many economists?!?), it certainly is not to other people. Many people with whom I discuss affordable housing policy acknowledge that in theory, limits on the supply of housing should effect the price of housing (they all took Econ 101 when they were in college). But they look around New York City, see new high rises going up while housing prices are going up at the same time. They then doubt that increasing the supply of housing will reduce the cost of housing. All I can say is who are you going to believe — your Econ 101 teacher or your own lyin’ eyes?

But of course that is not a compelling argument. So I tell my interlocutors that it is necessary to take into account the fact that NY is seeing a dramatic increase in demand. This demand comes from the increasing resident population as well as the inflow of the ultra rich who want a (fifth?) part-time home in NYC as well as a safe place to park some capital. This high demand masks a problem that NY has faced for decades — too little new housing construction to support the existing residents, let alone all of the new residents.

The de Blasio Administration has acknowledged the need for increased housing construction as part of its program to increase housing affordability in the five NYC counties. The Comptroller’s report acknowledges that a similar dynamic is occurring throughout New York State. Perhaps Governor Cuomo will identify ways in which the State government can take a leading role in encouraging housing construction in all 62 of New York State’s counties.

Reiss on Housing Affordability

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I will be speaking on the FHA and Housing Affordability on June 11th at the AALS Workshop on Poverty, Immigration and Property will be held June 10-12 in San Diego.

The workshop brings together three communities of scholars: poverty, immigration and property to address historical issues and recent developments in the intersection of these topics. The topics covered in this innovative workshop include plenary sessions on What Lies at the Intersection of Poverty, Property, and Immigration; After SB 1070: Exclusion, Inclusion, and Immigrants; Reconsidering State v. Shack; and Transnational Perspectives on Poverty, Immigration, and Property. A range of concurrent panels will be established based on proposed topics and a call for papers and presentations.

 I will be posting a version of my paper later this summer.