Tag Archives: NYC

Preserving Low-Income Housing

Posted on by

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

Image

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

Posted on by

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.

The Future of Affordable Housing in NYC

Posted on by

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.