The BK Live segment on Mortgage Inequities in Brooklyn has been posted to the web. Mark Winston Griffith (Brooklyn Movement Center Executive Director), Alexis Iwaniszie (New Economy Project) and I discuss mortgage inequities and how they effect Brooklyn (and beyond). REFinblog.com gets a nice shout out from BK Live.
Tag Archives: New York City
Reiss on Mortgage Inequities
I will be appearing on a segment on BK Live on BRIC , the Brooklyn Public Network, about “Mortgage Inequities/Fair Housing in Brooklyn” on Thursday, February 13th at noon (running again at 2pm, 8pm, 9pm and 10pm (Cablevision Ch 69, Time Warner 56, RCN Ch 84, Verizon Ch 44 or online at: www.bkindiemedia.bricartsmedia.org).
I will be appearing with Mark Winston Griffith, Executive Director of the Brooklyn Movement Center, a community organizing group based in Bed-Stuy and Crown Heights, and Alexis Iwanisziw of the New Economy Project.
We will be discussing The New Economy Project’s recent study about inequities in mortgage lending based on race in NYC:
Mortgage lenders made markedly fewer conventional home mortgage loans in communities of color than in predominately white neighborhoods in New York City, according to a series of GIS maps published today.
The maps show unequal lending patterns based on the racial composition of communities in New York City, controlling for the number of owner-occupied units in each neighborhood. New Yorkers who live in predominantly white neighborhoods on average receive twice as many conventional home purchase loans as New Yorkers who live in predominantly black or Latino neighborhoods, for every 100 owner-occupied housing units in the neighborhood.
“The maps show that banks continue to redline communities of color across New York City,” said Monica M. Garcia, Community Education Coordinator at New Economy Project, which produced the maps. “For decades, banks have excluded neighborhoods of color from fair access to mortgage financing, allowing predatory lenders to flourish right up to the financial crisis. Now it’s déjà vu all over again, with banks failing adequately to provide conventional mortgages to people in predominantly black and Latino neighborhoods.”
“The maps highlight the profound and continued need for strong government action against banks that violate fair housing and fair lending laws,” said Sarah Ludwig, Co-Director of New Economy Project.
The series includes a map of New York City and borough-level maps of Brooklyn, Queens and Bronx.
To produce the maps, New Economy Project analyzed home mortgage lending data for 2012, the most recent year for which the data are publicly available. New Economy Project received partial funding to produce the maps from the U.S. Department of Housing and Urban Development’s Fair Housing Initiatives Program.
A Challenge To Lower the Cost of Affordable Housing
Minnesota Housing, the McKnight Foundation, the Urban Land Institute of Minnesota (ULI-MN), the Regional Council of Mayors (RCM) and Enterprise Community Partners have thrown down the gauntlet with the MN Challenge to Lower the Cost of Affordable Housing. The challenge builds on recent research from Enterprise and the ULI Terwilliger Center for Housing, Bending the Cost Curve: Solutions to Expand the Supply of Affordable Rentals.
The challenge is an idea competition intended to
support innovative problem solving from interdisciplinary teams of housing professionals resulting in a systematic concept that lowers the cost of developing affordable housing in Minnesota. Reducing both the hard and soft costs of rental housing will give the state and local communities additional options for providing a full range of housing choices for its low and moderate income residents.
The Challenge will
- Provide up to $100,000 for the development and implementation of ideas to lower the cost of affordable rental housing.
- Cultivate and collect innovative strategies and ideas for lowering the per unit cost of financing, developing, and building affordable multi-family housing (preserved or new).
By February 28, teams will submit short concept papers outlining their cost reduction ideas. Submissions will be reviewed by a selection panel made up of members from the sponsoring organizations and an inter-disciplinary team of stakeholders involved in the delivery of affordable housing. In March, the panel will select three proposals as finalists, and these teams will each be awarded up to $10,000 to do the research and development needed to demonstrate that their idea should be implemented. The finalists will present their work in May. In June, when the panel will select one idea and commit up to $70,000 for the winning team to implement their idea.
While this challenge obviously has a Minnesota focus, the ideas it generates will likely have wider applicability. Given Mayor De Blasio’s focus on affordable housing, I would assume that New York’s affordable housing professionals will follow this challenge carefully. And maybe they should come up with an affordable housing challenge of their own!
Reforming NYC’s Property Tax Regime
Andrew Hayashi has posted Property Taxes and Their Limits: Evidence from New York City to SSRN. There probably could not be a more obscure and dull topic than this to the general reader (and coming from me, as the author of this blog, that is saying something!). But for those of us who think about such things, this is an incredibly important topic that is at its heart fundamentally about fairness and treating like people alike.
Hayashi argues that
The property tax is the largest source of tax revenue for local governments. It is also an almost irresistible policy instrument for municipalities, which typically do not have control over any other tax with which to influence the urban landscape and the local distribution of income and wealth. The widespread use of the property tax for planning and redistribution means that virtually no jurisdiction straightforwardly calculates the tax liability for a property as a fixed percentage of its market value. Instead, property tax rates tend to vary with the use to which a property is put or the identity of its owner. As a consequence, many of the potential benefits of the property tax, such as ease of administration, transparency, the clear reflection of the costs and benefits of local services, and the intuitive fairness of imposing taxes in proportion to property wealth, are lost. (2, footnotes omitted)
He concludes
The property tax is a hated tax, but attempts to curtail its most offensive feature, the rapid increase in taxes that can accompany paper gains in property value, have had unintended distributional consequences that are hard to justify on policy grounds. In New York City, the caps are regressive and tend to benefit new homebuyers and sellers rather than current homeowners on fixed incomes. The caps should be replaced with a property tax circuit breaker [that limits increases for lower-income homeowners] or deferral system [that delays full payment until the property is conveyed]. (27)
This issue is even bigger than these selections suggest as there are big disparities in the tax burden among different types of property. For example similarly priced single family homes have a lower tax burden than coops or condos in multifamily properties. NYU’s Furman Center (with which Hayashi is affiliated) has studied these issues and, even better, has highlighted them as part of the De Blasio transition.
Property tax fairness is not a Republican or a Democratic issue — it is a good government issue. Hopefully, the De Blasio Department of Finance will take up this obscure but important issue. Fairness demands it.
Preserving Low-Income Housing
NYC Mayor De Blasio announced an aggressive goal of producing and preserving 200,000 units of affordable housing over the next ten years. New York City will need to be as creative as possible to achieve this goal and will need to look to all of the resources that it has at its disposal to achieve it. Enterprise Community Partners released Preserving Housing Credit Investment: The State of Housing Credit Properties and Lessons Learned for the Extended Use Period. This report looks at important component of a preservation agenda: Low-Income Housing Tax Credit buildings that “reach the end of their initial 15-year compliance period.” (4) The report presents data about LIHTC buildings during the 15-year “extended use period” that follow the compliance period
and shares how some state and local housing agencies around the country are addressing the post-Year 15 Housing Credit properties. While the condition of the Housing Credit portfolio at Year 15 is strong, as properties age into a second 15-year period of rent restrictions and beyond, the ability for some of those properties to be able to afford to make improvements while maintaining affordability is clearly a challenge. Some of these local best practices point to solutions demonstrating programmatic and regulatory flexibility, new resources as well as resyndication where appropriate. (4)
Across the nation, roughly 100,000 units of housing age out of the initial compliance period each year, so we are talking about a lot of housing. New York has a significant portion of that housing stock. While these properties are in pretty good condition overall, the report found that
very limited financing choices exist throughout the extended use period for properties with modest recapitalization or capital improvement needs. Currently, the best choice seems to be a resyndication with a new Housing Credit allocation. However, the use of Housing Credits to preserve and extend the affordability of existing affordable housing competes with other Housing Credit properties, including public housing revitalization and new projects (both as adaptive reuse of existing buildings and new construction). The Housing Credit was created to address affordable housing needs that the private market could not effectively serve. It incentivized a public-private partnership that includes affordability for 30 years. In order to preserve this inventory, more investment will be required. Ensuring the physical and economic stability of these assets through their extended use periods will require innovative uses of limited public subsidy by states and municipalities. (5)
New York City will certainly want to plan for the modest recapitalization of its LIHTC properties as part of its affordable housing strategy. And it will be better to plan for it now than pay too much for deferred maintenance down the line.
State of the Union’s Rental Housing
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The Joint Center for Housing Studies of Harvard University released its report, America’s Rental Housing: Evolving Markets and Needs. The report notes that
Rental housing has always provided a broad choice of homes for people at all phases of life. The recent economic turmoil underscored the many advantages of renting and raised the barriers to homeownership, sparking a surge in demand that has buoyed rental markets across the country. But significant erosion in renter incomes over the past decade has pushed the number of households paying excessive shares of income for housing to record levels. Assistance efforts have failed to keep pace with this escalating need, undermining the nation’s longstanding goal of ensuring decent and affordable housing for all. (1)
The report provides an excellent overview of the current state of the rental housing stock and households. Of particular interest to readers of this blog is how the report addresses the federal government’s role in the housing finance system. The report notes that
During the downturn, most credit sources dried up as property performance deteriorated and the risk of delinquencies mounted. Much as in the owner-occupied market, though, lending activity continued through government-backed channels, with Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) playing an important countercyclical role.
But as the health of the multifamily market improved, private lending revived. According to the Mortgage Bankers Association, banks and thrifts greatly expanded their multifamily lending in 2012, nearly matching the volume for Fannie and Freddie. Given fundamentally sound market conditions, multifamily lending activity should continue to increase. The experience of the last several years, however, clearly testifies to the importance of a government presence in a market that provides homes for millions of Americans, particularly during periods of economic stress. (5)
The report, to my mind, reflects a complacence about the federal role in housing finance:
Although some have called for winding down Fannie’s and Freddie’s multifamily activities and putting an end to federal backstops beyond FHA, most propose replacing the implicit guarantees of Fannie Mae and Freddie Mac with explicit guarantees for which the federal government would charge a fee. Proposals for a federal backstop differ, however, in whether they require a cap on the average per unit loan size or include an affordability requirement to ensure that credit is available to multifamily properties with lower rents or subsidies. While the details are clearly significant, what is most important is that reform efforts do not lose sight of the critical federal role in ensuring the availability of multifamily financing to help maintain rental affordability, as well as in supporting the market more broadly during economic downturns. (8)
The report gives very little attention to what the federal housing finance system should look like going forward, other than implying that change should be incremental:
To foster further increases in private participation, the Federal Housing Finance Agency (FHFA—the regulator and conservator of the GSEs) has signaled its intent to set a ceiling on the amount of multifamily lending that the GSEs can back in 2013. While the caps are fairly high—$30 billion for Fannie Mae and $26 billion for Freddie Mac—FHFA intends to further reduce GSE lending volumes over the next several years either by lowering these limits or by such actions as restricting loan products, requiring stricter underwriting, or increasing loan pricing. With lending by depository institutions and life insurance companies increasing, the market may well be able to adjust to these restrictions. The bigger question, however, is how the financial reforms now under debate will redefine the government’s role in backstopping the multifamily market. Recent experience clearly demonstrates the importance of federal support for multifamily lending when financial crises drive private lenders out of the market. (27)
I would have preferred to see a positive vision from the Center for how the federal government should go about ensuring liquidity in the market during future crises and how it should support an increase in the affordable housing stock. Perhaps that is asking too much of such a broad report, although the fact that Fannie and Freddie are members of the Center’s Policy Advisory Board which provided funding for the report may have played a role as well. [I might add that I found it odd that the members of the Policy Advisory Board were not listed in the report.]
I do not want to end on a negative note about such a helpful report. I would note that it takes seriously some controversial ideas about increasing the supply of affordable housing. The report advocates for the reduction of regulatory constraints on affordable rental housing construction. I interpret this as a version of the Glaeser and Gyourko critique of the impact of restrictive local land use regimes on housing affordability. As progressives like NYC’s new Mayor know, restrictive zoning and affordable housing construction are at cross purposes from each other.
Reiss on “Sexy Tax Breaks” for Luxury Housing
MainStreet.com quoted me in Luxury Real Estate with Sexy Tax Breaks. The story reads in part,
Buying a high end property doesn’t always cost a fortune for the wealthy especially if there are tax breaks attached.
Property tax deductions and even exemptions exist for buyers of luxury properties under special incentives, such as New York City’s J-51 and 421a program.
“A J-51 unit in a luxury building will likely sell for more than a comparable condo without a tax break, because monthly expenses are lower due to reduced property taxes. It’s a deal but not dollar for dollar, and that’s true everywhere you look for tax breaks in luxury properties,” said David Reiss, professor of real estate law at Brooklyn Law School.Benefits include no tax by reducing the assessed value of the property to the pre-renovated price and secondly by capping property taxes.
“These benefits phase out typically over a 14 year period for market rate properties,” Reiss told MainStreet.
Most J-51 buildings in the borough of Manhattan are above 110 Street due to state restrictions.
For example, for interested buyers there’s a two-bedroom J-51 condominum on West 140th Street available for $620,000 advertised on condo-living-west.com.
“The tax reduction will be priced into the cost of the home,” said Reiss.
A back end strategy would be to buy and sell early rather than buy early and sell late to make a profit after purchase.
“Because the closer you are to the 14 year phase out when you sell, the less of a benefit the tax break is to the owners’ sale price,” Reiss said.
The 421a program is another tax break available for new construction not rehabilitation or conversion of existing buildings in Manhattan.
For example, an owner in a $90 million duplex penthouse in Midtown Manhattan would normally pay $230,000 in taxes without an abatement and $20,000 in taxes under an abatement program.
About 150,000 units in New York City receive partial tax exemptions under 421a.
The downside is that taxes gradually go up as the abatement is phased out.
