Tag Archives: affordable housing

Reducing The Cost of Affordable Housing Development: Lessons for NYC?

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Enterprise and the Urban Land Institute have issued a report, Bending the Cost Curve on Affordable Rental Development: Understanding the Drivers of Cost, that identifies affordable housing development’s “most commonly cited cost drivers, provides a brief overview of their impact and applicability, and includes high-level recommendations to promote a more efficient delivery system.” (4). As the report notes,

Affordable housing delivery is shaped by a number of procedures, regulations, and policies instituted at all levels of the system—each with associated costs. Development costs may be dictated by site constraints, design elements, local land use and zoning restrictions, building codes, delays in the development process, efforts to reduce long-term operating costs, and the affordable housing finance system. Most affordable developments rely on multiple funding streams, both equity and debt, each of which carries its own set of requirements and compliance costs. While there may be some alignment of affordable housing land use regulations, financing tools, or programs, far too often developers must seek a complex series of approvals or obtain waivers to bring a project to fruition. This process alone can introduce costs through delays to the development timeline as well as introduce additional uncertainty and risk, which, in addition to regulatory barriers, can also increase costs. (3)

While the report offers no shocking insights into affordable housing’s cost drivers, it does provide a good overview. It also brings to mind research that NYU’s Furman Center did some years ago about the drivers of the high cost of housing construction in New York City.

Given that Mayor-Elect de Blasio has put affordable housing at the center of his campaign, his team should focus on reducing these costs as part of his overall affordable housing strategy. Mayors Bloomberg and Giuliani were not able to make any significant progress on this issue, even though doing so would be quite consistent with their approach to governance. Perhaps that makes it even more of a compelling goal for the de Blasio Administration.

3 Housing Riddles For De Blasio

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I wrote an op ed for Law360,com that was posted today. While it is behind a paywall on Law360, it reads in full as follows:

3 Housing Riddles For De Blasio

As Mayor-Elect Bill de Blasio is making the transition from campaigning to governing New York City, it is worth contemplating some of the fundamental riddles that perplex those who spend their time thinking about the city’s housing policy. I address three of the most perplexing below.

The Riddle of Mandatory But Not Sufficient

The housing policy centerpiece of the de Blasio campaign is to require developers to build some affordable housing units when they build on lots that have been upzoned, a policy known as mandatory inclusionary zoning. The campaign website states that this policy will create 50,000 new units of housing.

Let’s put aside the fact that this number appears to be very aggressive given the lack of significant upzonings on the horizon (see second riddle below). Just because the city mandates that affordable housing be part of any new construction, it cannot mandate that developers build any housing at all if the deal does not make economic sense for them.

The de Blasio administration will need to carefully calibrate the mandatory inclusionary zoning rules to ensure that builders are sufficiently incentivized to build in the first place. This may limit the amount of affordable housing that can be mandated as part of that new construction.

One key aspect of this policy is whether the mandatory affordable housing will be required to be on-site or if the developer can build it off-site. If it is the former, it will help achieve the progressive goal of increasing socio-economic diversity in a city that is rapidly losing it.

But each unit of on-site housing would likely be more expensive to construct than off-site affordable units. And the opposite is true if the mandatory affordable units are allowed to be off-site; they will be likely cheaper to construct and thus more housing could be built. But it would not work toward increasing socio-economic diversity in the city.

And thus, the riddle of mandatory but not sufficient poses two challenges to the administration. Can it incentivize the creation of a meaningful number of units? And should it favor socio-economic diversity or the maximum production of affordable units? No easy answers here.

The Riddle of Now Versus Later

Can you increase the supply of housing to address the needs of a growing population while also downzoning large swaths of the city to respond to the preferences of the city’s current residents?

The Michael Bloomberg administration wanted to have this both ways, but that can’t work. The Bloomberg administration had planned on an increase in population of roughly another million people by 2030 while at the same time downzoning a large swath of the city (and, to be fair, upzoning some other portions).

This downzoning made current residents happy as it kept big, modern, out-of-context buildings from popping up near their homes. But it also limited the opportunities for increasing the housing stock, particularly near transit hubs. This is the basis of the second riddle — what is seen as bad by current residents may be good for future residents.

It is a fundamental economic truth that if more and more people are flocking to New York City, housing costs will rise unless supply increases. But for city residents, there is a paradox. New Yorkers see gleaming towers rise in their neighborhoods along with the rents for their nearby apartments. There are two explanations for this paradox.

First, the supply of new housing may be increasing without keeping pace with rising demand. Historically, New York City has not had many new units of housing built each year, maybe 20,000 units or so in a good year. This modest increase in supply has been overwhelmed by the increase in population of a million people in the last 20 or so years. This disparity goes a long way to explain the high rents and the miniscule vacancy rates that are seen throughout the city.

Second, new housing in one community (Williamsburg, for example) may be causing or be part of a wave of local gentrification in the existing housing stock. So, even if the new housing is having a tendency to decrease housing costs in the city overall because it increases the supply, it can also be pushing rents higher in the communities in which it is situated.

Increasing the supply of housing has to be a key component of providing “safe affordable homes for all New Yorkers,” as de Blasio calls for on his campaign website. This has to mean zoning significantly more land for high-rise residential construction as well as incentivizing the construction of affordable housing units in that new construction.

At the same time, de Blasio must attend to the concerns of those negatively impacted by the new construction. Hence, the riddle of now versus later.

The Riddle of the Few Versus the Many

The de Blasio campaign website calls for “tighter standards that ensure subsidies meet the needs of lower-income families and are distributed equitably throughout the five boroughs.” Distributing affordable housing subsidies equitably throughout the city is important, but there is another equity issue — should the city heavily subsidize affordable housing for a small portion of those who are eligible or should it distribute resources more broadly and thinly among everyone who is eligible?

Fewer than 8 percent of low- and middle-income households receive a direct or indirect subsidy for an apartment (excluding public housing) while more than 20 percent live below the poverty line of $23,283 annually for a family of four.

Should the city’s limited resources be used to create a relatively small number of new affordable units or should some of them be used in ways that benefit a broader swath of low- and moderate-income New Yorkers, albeit more modestly?

Certain policies can address the needs of many, many more low- and moderate-income households than does heavily subsidized new construction that houses perhaps a few thousand low- and moderate-income households each year.

Examples of such policies include tax credits for low- and moderate-income households that put money in their pockets and increased enforcement directed against landlords who try to illegally drive their tenants out of rent-regulated units. On the other hand, without an affordable apartment, staying in NYC can just be untenable no matter what additional benefits the government may be able to provide through more broadly available programs.

Thus, the third riddle is — do you give a lot of help to a few or do you give a little help to the many? It’s like choosing between the rock and the hard place for policymakers and New Yorkers alike.

Mayor-Elect de Blasio and his team will have to struggle with these riddles, and more. The only thing that is clear is that there are no right answers and no easy answers when it comes to housing policy in New York City.

—By David Reiss, Brooklyn Law School

David Reiss is a professor of law at Brooklyn Law School. He concentrates on real estate finance and community development and writes about housing policy.

Reiss on Mayor De Blasio’s Plans for Mandatory Inclusionary Zoning

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Law360.com interviewed me about Mayor-Elect de Blasio’s plans for mandatory inclusionary zoning in NYC Real Estate Faces Less Friendly Market Under De Blasio (behind a paywall). It reads in part:

One of the biggest and most controversial pieces of de Blasio’s affordable housing platform is a plan to mandate inclusionary zoning — requiring developers to build affordable housing as part of their market-rate multifamily projects — when developments are being constructed in areas rezoned by the city.

Mandatory inclusionary zoning is meant to be a “hard-and-fast rule” to replace the incentives de Blasio plans to end for big developers, and he predicted on his campaign website that the strategy would create up to 50,000 new affordable housing units during the next 10 years.

But “mandatory” anything is considered an added cost when developers are weighing their options in deciding where to build, and requiring that residential developments include affordable housing could push some developers elsewhere, experts say.

“The devil is in the details,” said Brooklyn Law School professor David Reiss, noting that the way the de Blasio administration writes and implements the rule will make a big difference, either encouraging more development of affordable housing or shutting down the market to new developers.

And while de Blasio has emphasized that inclusionary zoning would only be mandatory for projects taking place in areas specifically rezoned for new development, Learner points out that the Bloomberg administration rezoned more than 30 percent of the city, so the new rule could likely affect many developers.

“When the program is designed, a lot of thought needs to go into what impact mandatory inclusionary zoning will have on the bottom line of developers,” Reiss said. “If it’s too significant of an impact, a less than optimal amount of housing will be built.”

The Future of Affordable Housing in NYC

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Yesterday, NYU’s Furman Center started a great series, #NYChousing: 10 Issues for NYC’s Next Mayor:

Over each of the next 10 days, #NYChousing will release an issue brief that presents a housing policy question that will confront the next mayor of NYC. The #NYChousing briefs do not provide policy recommendations, but instead provide the background facts, point out potential trade-offs, and pose questions to be considered in order for the candidates and the public to make informed decisions about competing policy proposals.

The first two issues are:

1. HOUSING BUDGET:  Should the next mayor commit to build or rehabilitate more units of affordable housing than the Bloomberg Administration has financed?

2. PERMANENT AFFORDABILITY:  Should the next mayor require developers to permanently maintain the affordability of units developed with public subsidies?

There are Twitter chats about both of these issues, with eight more to come. Tomorrow’s topic is

3. MANDATORY INCLUSIONARY ZONING: Should the next mayor adopt a mandatory inclusionary zoning program that requires developers to build or preserve affordable housing whenever they build market-rate housing?

The Center provides the following guidance for its Twitter chat:

 Throughout the #NYChousing series, the Furman Center will host a series of Twitter chats to discuss each of these policy questions. Each one-hour Twitter chat will start at 11:00am ET and will focus on that day’s policy question. We encourage and welcome your participation.

What’s a Twitter chat? It’s an interactive Twitter conversation spanning a specific period of time. The Furman Center (@FurmanCenterNYU) will pose a handful questions about that day’s #NYChousing policy question. Participants will follow the conversation and tag their responses with the hashtag #NYChousing.

How do you participate? If there’s a question you want to answer or a point you want to make, simply chime in with your insight, a link to a blog post you’ve written-whatever you’d like to add to the conversation. There’s no pressure to follow along for the entire hour or to answer every single question. Be sure to include the hashtag–#NYChousing-in your response.

I will be giving my own two cents as this chat progresses.

Fannie, Freddie & Affordable Housing

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I was quoted in a Law360.com story, Affordable Housing May Trip Up Fannie, Freddie Fixes (behind a paywall).  It reads in part,

While the debate over housing finance reform in Washington has focused on the government’s role as market backstop, analysts say questions about federal funding for affordable housing add another potential pitfall for lawmakers looking to dismantle and replace Fannie Mae and Freddie Mac.

Fannie and Freddie long have been part of a broader government program to add to the country’s affordable housing stock. Republicans have been critical of that mission and targeted it as something that should be abolished along with the two mortgage giants, while Democrats want to keep programs promoting affordable housing in any reform of the housing finance system.

As the U.S. House of Representatives and Senate move forward with their own visions of a new system for financing home purchases, it is likely that those two perspectives on affordable housing promotion will clash, said Rick Lazio, a former four-term Republican member of Congress from New York.

“That will be a significant obstacle to getting an agreement,” said Lazio, now the chairman of Jones Walker LLP’s housing and housing finance industry team.

One of the main issues lawmakers will have to confront will be what to do with the National Housing Trust Fund, a program created by the 2008 Housing and Economic Recovery Act.

HERA required Fannie Mae and Freddie Mac to transfer a small percentage of the money from new business to the fund, which would then be used to subsidize the construction of rental housing for low-income families.

The fund’s inclusion in HERA was seen as a major victory for affordable housing advocates, but the benefits never materialized.

Soon after HERA passed, Fannie and Freddie were placed into conservatorship after mounting losses from exposure to subprime mortgages, and the two companies took a combined $187 billion bailout. The Federal Housing Finance Agency canceled all contributions to the fund.

Several housing advocacy groups have sued the FHFA to force the agency to allow Fannie Mae and Freddie Mac to resume their contributions now that the entities are generating profits and repaying the bailout money.

What seems more likely than getting the money the two companies were supposed to pay out is that the funds allocated to affordable housing will be shrunk under a new system, as envisioned by a Senate bill, or eliminated altogether, as proposed by a bill introduced by House Republicans.

“If it’s included at all, it will be smaller,” Brooklyn Law School professor David Reiss said of affordable housing money.