Tag Archives: subsidized housing

The Challenge of Rising Rents

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NYU’s Furman Center has issued a research brief, The Challenge of Rising Rents: Exploring Whether a New Tax Benefit Could Help Keep Unsubsidized Rental Units Affordable. The brief considers whether the creation of “a new property tax subsidy program aimed at maintaining affordability in buildings that currently provide affordable rents could be attractive to owners.” (1)

The brief concludes that

The bulk of New York City’s housing stock that is affordable to low-income households is in buildings that currently receive no government subsidy to maintain low rents. In a city where the real estate market is booming and the supply of housing is constrained, the upward pressure on these rents is likely to continue. However, our analysis here suggests that there are some markets in the city where an owner of an unsubsidized building would agree to restrict future rent increases in exchange for a tax benefit.

If owners think their building is in a neighborhood likely to experience rapid rent increases, they are not likely to participate in a program like the one we have outlined. But, owners who are less optimistic about rent growth in their neighborhood may be willing to sign up in exchange for the certainty of a 30-year tax break. Owners might be more likely to participate in this program than our modeling suggests if it were bundled with another benefit or if the regulatory requirements were less onerous. (11)

This is obviously a good exercise to undertake, but I wonder if most landlords believe that their buildings are like Lake Wobegon children — above average, one and all. So, if the success of this proposal rests on reaching pessimistic landlords, it may be relying on a very small pool of landlords indeed.

Affordable Housing for which Low-Income Households?

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The National Low Income Housing Coalition’s latest issue of Housing Spotlight provides its annual examination of “the availability of rental housing affordable to” extremely low income “and low income renter households . . ..” (1) It finds that

the gap between the number of ELI households and the number of rental homes that are both affordable and available to them has grown dramatically since the foreclosure crisis and recession. Despite this growing need, most new rental units being built are only affordable to households with incomes above 50% of AMI. At the same time, the existing stock of federally subsidized housing is shrinking through demolition and contract expirations, and waiting lists for housing assistance remain years long in many communities. Federal housing assistance is so limited that just one out of every four eligible households receives it. (1, emphasis in the original)
The article, “Affordable Housing is Nowhere to be Found for Millions,” describes the role of the National Housing Trust Fund, signed into law by the Housing and Economic Recovery Act of 2008, but only recently funded by Fannie Mae and Freddie Mac:
The NHTF is structured as a block grant to states, and at least 90% of all funding will be used to produce, preserve, rehabilitate and operate rental housing. Further, 75% of rental housing funding must benefit ELI. The funding of the NHTF will make a difference in the lives of many ELI renters by supporting the development and preservation of housing affordable to this income group. However, additional funding to the NHTF will be necessary to assure support to all income eligible households in need of housing. (1, footnote omitted)
The NLIHC’s key findings from this work include,
  • The number of ELI renter households rose from 9.6 million in 2009 to 10.3 million in 2013 and they made up 24% of all renter households in 2013.
  • There was a shortage of 7.1 million affordable rental units available to ELI renter households in 2013. Another way to express this gap is that there were just 31 affordable and available units per 100 ELI renter households. The data show no change from the analysis a year ago.
  • For the 4.1 million renter households DLI renter households in 2013, there was a shortage of 3.4 million affordable rental units available to them. There were just 17 affordable and available units per 100 DLI renter households.
  • Seventy-five percent of ELI renter households spent more than half of their income on rent and utilities; 90% of DLI renter households spent more than half of their income for rent and utilities.
  • In every state, at least 60% of ELI renters paid more than half of their income on rent and utilities. (1)

Given that housing affordability remained a problem during both boom times and bust and given that we should not expect another dramatic expansion of federal subsidies for rental housing, now might be a good time to ask what we can reasonably expect from the Housing Trust Fund. Should it be spread wide and thin, helping many a bit, or narrow and deep, helping a few a lot? No right answers here.

Friday’s Government Report Roundup

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Location, Location, Location of NYC Affordable Housing

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NYU’s Furman Center has released a white paper, Housing, Neighborhoods, and Opportunity: The Location of New York City’s Subsidized Affordable Housing. The report opens,

Rent burdens for low- and moderate-income renters continue to grow in New York City, inviting calls for more affordable housing. While the primary goal in developing affordable housing should arguably be to provide safe housing at a reasonable cost so that households have more residual income available for food, medicine, transportation, and other essential goods, housing programs also take people to particular neighborhoods. New York City neighborhoods provide widely varying access to services and opportunity. Thus, city policymakers need to pay attention not only to the number or quality of subsidized, affordable units produced, but also to the characteristics of the neighborhoods where those units are built. (1)

In order to provide some data about that, the paper examines where 235,000 units of subsidized rental housing are in New York City. Unsurprisingly, many of the units are in neighborhoods like Upper Manhattan, the South Bronx and Central Brooklyn where land costs were historically low.The paper studies important characteristics of neighborhoods where the subsidized housing stock is located: isolation from the rest of the City; student performance; public amenities like parks; public safety; poverty; and housing cost. It also looks at how these characteristics have changed in the 2000s.

One key finding from the report that will be of interest to those who think about how New York City is changing over time: tens of thousands of properties have opted out of affordability restrictions, particularly in more expensive neighborhoods like Manhattan below 96th Street, and it looks like tens of thousands more will opt out over the next decade.

As the Mayor’s team develops its affordable housing strategy of building and preserving 200,000 units of affordable housing, this report presents some sobering data on the affordable housing challenges that the City faces. My takeaway is that the City should be doing more to encourage housing construction more generally to increase the overall supply, in addition to subsidizing affordable housing directly. Subsidies will never create enough units on their own to house all of the people who call and want to call NYC “home.”

Housing Subsidies For Those Who Need Them

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The National Low Income Housing Coalition has posted Aligning Federal Low Income Housing Programs with Housing Need. The Executive Summary goes right to the heart of the matter:

The number of renters in the United States has steadily increased since 2006 and will continue to rise as new households form in the post-recession economy. In 2012, one out of four renter households had incomes at or below 30% of the area median income (AMI) for a total of 10.3 million households categorized as extremely low income (ELI). In the same year there were just 3.2 million units affordable and available to ELI households, creating a shortage of 7.1 million rental units affordable to these households.

Despite this evidence of a substantial need for deeply affordable rental housing, the low income housing resources that are provided by the federal government are only able to reach 23% of the eligible population. (iii)
This study looks at the extent to which the Low Income Housing Tax Credit (LIHTC), the HOME program and the Federal Home Loan Banks’ Affordable Housing Program (AHP) serve ELI households. It finds that in general, “these three programs do not serve ELI households on their own. Their ability to serve ELI households depends on the addition of one or more forms of subsidy, usually housing choice vouchers (HCV).” (iii)
The study identifies common themes from its research on this topic:
  • Developers layer multiple funding sources while adapting to rapidly changing political and fiscal environments. Many also rely on non-traditional resources, such as private donations, to fill funding gaps.
  • Reducing or eliminating mortgage debt is critical to be able to serve ELI households.
  • Cultivating strong local partnerships is a key factor affecting developers’ ability to serve ELI households. Often, local jurisdictions that have prioritized affordable housing are willing to donate land or property at a low cost.
  • Cross-subsidization is an important strategy used by many developers committed to inclusive properties that serve ELI households. This strategy incorporates units affordable to ELI households into projects containing other units occupied by households with a broader mix of incomes. The rents paid by higher income households supplement the overall operating expenses of the project, compensating for the lower rents that ELI households can afford.
  • While the case studies highlighted some very effective strategies for serving ELI households without the use of vouchers, there is not one model that can be easily replicated. (iii-iv)

None of this is particularly earth shattering, but it is useful to to look into this topic in a systematic way. The Coalition hopes that this report “will contribute to the broader conversation about simplifying the process of financing affordable housing developments, refining existing programs so that they incentivize developers to serve ELI households, and finding ways to fund the ongoing operating costs of units that do serve ELI renters.” (iv)

As an off-the-cuff response, I wonder if the nation’s affordable housing agenda is benefited from such a complex funding environment for housing for extremely low income households. Can it just be funded more comprehensively, acknowledging the reality that it requires deep subsidies from the get-go? What is the opportunity cost of requiring developers to devote so much time to creating such complicated deal structures? In the current political environment, I doubt that affordable housing advocates have the stomach to raise these questions, lest Congress decides to cut back affordable housing subsidies even further. But in the long term, these are questions worth asking.

A Resilient NYC

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NYU’s Furman Center released a report, The Price of Resilience: Can Multifamily Housing Afford to Adapt? It explains that storm-proofing New York City

poses several special challenges not shared by all coastal areas. First, New York City is largely built out, with much of its building stock long predating current flood-resistant design standards. Resilience in New York, then, primarily means retrofitting older buildings, not just strengthening building codes for new construction. Second, much of the official guidance about how to retrofit residential properties to reduce risk and lower insurance premiums is geared toward 1-4 family buildings, reflecting the national housing stock. In New York City, though, only one-third of the buildings thought to be vulnerable to flooding are1-4 family, detached homes. A much larger number of housing units vulnerable to future storms are located in roughly 4,500 multifamily buildings with five or more rental units. Finding ways to cost effectively retrofit these types of buildings to protect residents and reduce insurance premiums for owners needs to be central to New York City’s storm-preparedness efforts.

Finally, the extreme shortage of affordable housing in New York may make the direct and indirect costs of retrofitting particularly hard to bear. Based on current federal policy, increased flood risk requires for many buildings either investment in physical improvements or payment of higher insurance premiums. Without external funding or other relief, there is no clear avenue to enact these resilience improvements while maintaining affordability. Eliminating all units below the predicted flood level, for example, could result in the loss of thousands of indispensable housing units. Even if units are not lost, property owners may pass on the costs of retrofitting buildings to residents through a rent increase, reducing the supply of affordable units in New York City’s coastal areas. For buildings that are constrained in their ability to raise rents and raise funds for improvements, like many of the rent stabilized and subsidized buildings in the city, the financial burden of making costly retrofits might be overwhelming, leading to the conversion of those buildings to market rate (when permitted), unsustainable operating budgets that may require a bail-out, or a large number of buildings left unprepared for future storms. The costs of not retrofitting, however, may be even more burdensome: building owners may face skyrocketing flood insurance premiums if they do not retrofit their buildings.

While I am not so sure that storm-proofing will be what pushes New York City’s housing stock into the unaffordable column (I think the relentless increases in demand might just to the job for units that are not rent regulated), the Furman Center report reminds us that we have a lot to do to protect New York from the next big storm. The Bloomberg Administration did a lot in a short time to identify what the City can do to increase the City’s resiliency. Given the quality of his housing and economic development team, there is reason to hope that the de Blasio Administration will continue to tackle the threat of climate change in a productive way.

The Furman Center report provides three concrete recommendations to ensure that NYC’s large stock of multi-family housing in flood zones is protected from future storm events:

  1. The Federal Emergency Management Agency (FEMA) should modify the guidelines for its National Flood Insurance Program for coverage of existing multifamily buildings;
  2. New York City should expand its Flood Resilience Zoning Text Amendment to cover buildings in the 500-year floodplain; and
  3. The city should revisit its existing rehabilitation programs to ensure that resilience measures can be readily funded; and it should require that buildings in the 100-year and 500-year floodplains that receive city assistance have adequate emergency and resilience plans.

These all seem like reasonable policies that should be implemented asap.

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.