Tag Archives: NYC

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 . . ..

 

The Ghosts of the Housing Bubble

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NYC Councilmember Daniel Garodnick has released a report, The Ghosts of the Housing Bubble: How Debt, Deterioration, and Foreclosure Continue to Haunt New York after the Crash. The report opens,

New York continues to have the highest rents in the country and a housing crisis that has lasted for decades. Many residential rents are below market value – a result of the myriad of state and local laws that have been implemented to protect working and middle class tenants from being forced out of their homes. This gap between the current affordable rent and potential fair market value can fuel the imaginations of investors and owners who dream of squeezing out the unrealized value hidden in these properties. This leads some developers to make riskier and riskier decisions following visions of real estate fortune, only to find themselves tilting at windmills, stuck with unpayable mortgages and escalating maintenance costs. (1)

The report proposes a number of interesting solutions to the problems it identifies, all of which should be looked into further. I am particularly intrigued by the proposal that Community Reinvestment Act exams should include a review of “the quality of the investments being made, measuring if banks are lending mortgages to landlords with portfolios of distressed housing. Were their bad loans to be reflected in their CRA ratings, banks might change their behavior.” (8)

But as with a similar ANHD report, the magnitude of the proposed solutions does not seem to match that of the identified problems. Market forces are extraordinarily powerful in NYC right now. It is unclear whether initiatives such as the “First Look Program,” which gives “good developers the first opportunity to buy” properties in foreclosure, can do anything when valuations are so frothy and predatory equity is on the prowl. (1)

That being said, the report is still quite valuable for shining light once again on the problem of owners who seek to illegally force rent regulated tenants out of their homes.

 

Reiss on Housing Shortgage

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MainStreet.com quoted me in Housing Shortage Presents Challenges for Buyers. It reads in part,

While the housing demand continues to outpace supply in various urban pockets around the U.S., potential homeowners are faced with competing bids from other buyers.

The pent-up demand has created bidding wars from New York to San Francisco, putting additional pressure on homebuyers, many who are buying their first home in an unprecedented climate.

Despite weaker job growth, there remains a shortage in housing supply to satisfy current demand, said Jeff Meyers, president of Meyers Research, a Beverly Hills, Calif. data provider for real estate. Job growth is expected to pick up throughout this year, which will only increase demand. Unemployment will finish at 6.4% in 2014, which will be its fourth consecutive year of improvement, according to a forecast from Zonda, a mobile application for the residential homebuilding industry.

While all local markets experience their own dynamics and quirks, areas such as San Mateo county in California have more demand for housing because of a strong job market and limited development activity compared to weak demand in Wayne County in Michigan due to poor labor market conditions and an embattled housing market, he said.

Consumers with extra cash have the upper hand in trying to win a bid, especially in markets such as Manhattan where demand for a two-to-three bedroom apartment has pushed prices up to the $1.5 million to $3 million range, said Kinnaird Fox, director of development at Fenwick Keats Real Estate in New York which specializes in residential properties.

“This fierce competition created bidding wars with nearly every new listing since the beginning of 2014,” she said. “Cash rules for obvious reasons in a market like this.”

The bidding war frenzy has turned off many qualified buyers who are wary of the increase in prices, Fox said.

“Despite what seems like a booming sellers’ market, many qualified buyers may be looking, but choose not to jump in,” she said. “With buyers losing out on their bids, buyer fatigue sets in and some withdraw from the market. One could say the lack of inventory masks the actual demand.”

While some cities have a weak demand for housing, many have an even weaker supply, which yields in a housing shortage, said David Reiss, professor of law at Brooklyn Law School in New York.

“Some communities place severe restrictions on new housing construction so even modest upticks in demand can push rents and prices higher,” he said.

Buyers should not forget the fundamental rule of real estate. Location can have far reaching effects, especially if you are moving a significant distance, said Reiss.

“Perhaps first and foremost, ask whether the house you are considering is the right one for your family,” he said. “If the answer is yes, then you are probably on the right track because a house is first and foremost a home and secondly an investment.”

Affordable Housing and Air Rights in NYC

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NYU’s Furman Center released a report, Unlocking the Right to Build: Designing a More Flexible System for Transferring Development Rights. While its title does not reflect it, the report is really about increasing the supply of affordable housing in New York City. It opens,

New York City faces a severe shortage of affordable housing.  . . . Addressing this shortage of affordable housing is one of the biggest challenges facing the new de Blasio administration. The city’s affordable housing policy will undoubtedly require many strategies, from preserving the existing stock of affordable units to encouraging the construction of new affordable units. Over the past decades, the city has managed to subsidize the development of new affordable units in part by providing developers with land the city had acquired when owners abandoned properties or lost them through tax foreclosures during the fiscal crisis of the 1970s. Almost none of that land remains available, and the high cost of privately owned land poses significant barriers to the production of new affordable housing.

In this brief, we explore the potential of one strategy the city could use to encourage the production of affordable housing despite the high cost of land: allowing the transfer of unused development rights. As we describe in further detail below, the city’s zoning ordinance currently allows owners of buildings that are underbuilt to transfer their unused development capacity (often referred to as transferable development rights or TDRs) to another lot in certain circumstances. (1-2, footnotes omitted)

The report estimates that buildings below 59th Street in Manhattan that cannot use all of their development rights because of landmark restrictions could generate sufficient TDRs to produce about 7,000 affordable housing units. That number would be a significant step toward Mayor de Blasio’s goal of producing or preserving 200,000 units of affordable housing, so there is no doubt that this policy is worth a look. And the fact that one of the authors of the report, Vicki Been, is now the Commissioner of NYC’s Department of Housing Preservation and Development will ensure that it does get such a look!

The report acknowledges that loosening the restrictions on TDRs has downsides as well, such as the possible construction of big buildings that are out context of neighboring properties. But the report is intended as a “first step” in the exploration of an innovative land use policy. (19) And it certainly is a step in the right direction.

Reiss on NYC Development

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Law360 quoted me in Domino Deal Shows De Blasio Can Play Nice With RE Cos. (behind a paywall). The story reads in part,

New York City Mayor Bill de Blasio’s affordable housing deal with the developer of the Domino Sugar factory, despite being for a unique project, may be a harbinger of how the mayor will implement his affordable housing goals without hampering the market, experts say.

When De Blasio first took office, many in the real estate community, and their attorneys,were concerned that the new mayor’s “tale of two cities” approach to governing might elevate the development of affordable housing to the detriment of other types of projects.

While his administration is still young and the Domino Sugar project is a unique one that had previously been approved in a different form under former Mayor Michael Bloomberg, experts say the way De Blasio handled negotiations that led to the project’s City Planning Commission approval on Wednesday may be a positive sign for the future.

*     *     *

But the mayor’s willingness to reach out directly to a developer and negotiate for terms that fit his goals — De Blasio wants to add or retain 200,000 affordable units over the next 10 years — without harming the deal will be noted by developers.

“One data point does not make a trend, but as a symbol at the beginning of the administration, I think it’s a pretty powerful one,” said David Reiss, a real estate professor at Brooklyn Law School.

Community Preservation Corp. and Kattan Group LLC had originally planned to build a $2.2 billion, 2,200-unit residential project in place of the Domino Sugar factory, but the plan stalled in 2012, and the partners began looking for a new buyer.

When Two Trees Management Co. was chosen in June 2012, the developer purchased the property for $185 million after a long court battle with Katan. The approvals process then began anew, and Two Trees’ revised plan — for 2.3 million square feet of residential space, plus office and retail components — was certified for review in November.

This week, as the City Planning Commission was poised to cast its vote on Two Trees’ plan, De Blasio stepped in to ask for a larger affordable housing component. The project called for about 660 units, but the mayor wanted about 60 more in exchange for zoning changes Two Trees would need to construct the development.

Two Trees Principal Jed Walentas told the New York Times that the mayor’s request was “not workable,” and onlookers worried that the mayor’s relationship with the real estate industry, which had thawed after a Real Estate Board of New York speech in which he assured developers that he wanted them to “build aggressively,” might again be chilling.

But the fears were premature; the mayor and developer reached a deal late Monday that would yield an additional 110,000 square feet of affordable housing at the development.

In connection with the deal, Two Trees agreed to construct 700 permanently affordable units ranging in size to accommodate small and large families that will be integrated throughout the complex.

“This agreement is a win for all sides, and it shows that we can ensure the public’s needs are met, while also being responsive to the private sector’s objectives,” Deputy Mayor of Housing and Economic Development Alicia Glen said in a statement.

That balance will not be lost in the city’s development community, even if another project of this size and complexity doesn’t come around any time soon, experts say. There are many developers looking to do deals in the city, and many of them may now feel at least a bit more comfortable that their needs will be understood by a mayor with an ambitious affordable housing plan.

“He took a line and stuck to it and got what he wanted, without killing the deal,” Reiss said. “That’s a good thing from the development perspective.”

A Challenge To Lower the Cost of Affordable Housing

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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

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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.