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February 20, 2008
Is the Creation of Affordable Housing in Jeopardy?
There have been a number of articles published recently that examine the future of affordable housing in the city, many of which zoom in on the problems developers are having (or are expected to start having) financing projects with affordable components. To summarize:
There’s less money for 80-20. The New York State Housing Finance Agency says there will be only $689 million available over the next three years for new 80-20 developments (whereby 80 percent of apartments in a building are market-rate and 20 percent are affordable), according to an article in Crain's. This means that only two or three of the 30 or so developers currently seeking tax-exempt 80-20 financing this year will get the dough they wanted. The Housing Financing Agency has determined that 80-20 doesn’t result in the most affordable housing bang for its tax-exempt bucks and is putting more financing into other programs. Regardless, the 80-20 clamp down is likely to affect projects in Manhattan more than those in Brooklyn and the other boroughs.
Low-Income Housing Tax Credits Are Vanishing. Per the Real Deal: “Affordable housing financiers—called syndicators—package…tax credits and sell them to firms that get a return on their investment and a reduction in taxes. Banks that buy the low-income credits also get favorable consideration for investing in underserved communities from regulators under the federal Community Reinvestment Act. But after the subprime crisis left balance sheets uneven, many investment firms have less need to shelter profits from taxes.” In response, developers of affordable housing are starting to consider building fewer units or trying to rustle up alternate sources of funding. "The government can put in more money, private capital funds could give more, or we could raise the rents some," says Martin Dunn, the president of Brooklyn-based affordable housing developer Dunn Development.
The City is Whittling Affordable Housing Projections. Although the Bloomberg administration still believes it will reach its target of creating 92,000 new affordable units by 2013, it is also scaling back the number of affordable units it expects to see created over the next year, according to an article in the Observer. HPD predicts that construction on 7,947 affordable units will take place over the next fiscal year (which begins in July); HPD previously reduced the number of affordable housing construction starts it expected to see happen over the coming fiscal year from 11,587 to 8,568.
Tax-Exempt Housing Funds are Drying Up [Crain's]
Financing for Affordable Housing Harder to Come By [The Real Deal]
Targets for Affordable Housing Drop, But City Says Its Plan Still On Track [Observer]
Photo by threecee.
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Comments
Eh, there was never any "Affordable Housing" Gabby! Remember 700k Condos and 2 million dollar Brownstones? Maybe the Housing Crash will make these places affordable. LLMFAO!!
The What
Someday this war is gonna end...
Posted by: guest at February 20, 2008 9:54 AM
Yes, the funding sources for affordable housing are drying up or tapped out, plus the cost of construction is still obscenely high. It'll be interesting to see if the newly bulked-up 421-a tax credit program helps get more affordable housing built.
But what's ultimately more alarming is that NYC is losing affordable housing much faster than the Bloomberg administration's plan could ever hope to get it built. You can thank vacancy decontrol for that. It's now so easy for landlords of rent stabilized apartments to hike rents over $2k a month that in much of NYC it's now like we don't have rent laws anymore. I think by now, after hundreds of thousands of affordable apartments have gone luxury, we can get over the myth that rent laws somehow keep rents high. Rent regulation is probably NY's most successful affordable housing program.
Posted by: guest at February 20, 2008 10:01 AM
I would like to see post-mayor Bloomberg put his considerable business ability and money into creating afforadable (and green?) housing. If anyone could create a replicable and sustainable model for the whole country, I think he could.
Posted by: guest at February 20, 2008 10:08 AM
Your conclusion doesn't follow. Yes, some previously regulated apartments have become market rate. This does not mean that rent regulation does not play a part in restricting the amount of available housing and thereby increasing rents.
Posted by: guest at February 20, 2008 10:27 AM
How exactly does rent regulation restrict the amount of available housing? Landlords are already kicking out all the second-homers and part-timers and pied-a-terre holders, because the rent laws and courts allow them to do that. Yes, some rent regulated empty nesters might have a spare bedroom or two, but so do a lot of people who own brownstones.
Posted by: guest at February 20, 2008 10:31 AM
You'll never win that one, 10:31, the standard counter is that there'd be more housing if there was no rent control, an unprovable but superficially very plausible argument.
Personally, I think if all housing were under rent control, there'd be more availiabily and stability (equally unprovable). I'd be for commercial rent control as well, so the constant churning of businesses decreases.
Posted by: cmu at February 20, 2008 10:43 AM
cmu
Have you really thought about this? If we were to implement your policies, it would lead to the total destruction of this city.
The evidence is quite clear. Where rent control exists, housing is scarce. Where rent control does not exist, housing is cheap and affordable in terms of average household income. You can prove this by comparing New York City to almost any other city in the country.
Think about it folks. Let's say you had $10,000,000 and you wanted to get a decent return on your investment. Would you A) built an apartment building in a city where people like cmu are the majority or B) invest someplace else where property rights are respected?
The reality is NYC is moving to a world exclusively of condo and co-op product because no one will ever bother to build apartment buildings. Why risk it? You never know when one day the rent control nuts will get there way.
As for commercial rent control - I don't even know what to say. This city is one of the world's premiere office locations. You want to kill it, go for it.
There are so many countries you can move to where everyone lives in government owned, barracks style housing. Why do people want to bring this horror to the US? Move to Cuba!
Posted by: Polemicist at February 20, 2008 10:59 AM
Econ 101, 10:31. ask any economist what how rent control and regulation work.
cmu, you don't have a clue.
Posted by: guest at February 20, 2008 11:00 AM
Actually (this is 10:31 again) I've carefully looked at studies by economists of this very question of whether rent regulation restricts housing production. In the 1980s the RAND corporation found that yes, strict rent control (the kind NYC no longer has) would likely put a long term damper on the production of new housing supply but that more moderate forms (like what we have now) would have a much smaller effect.
No policy is perfect, but we do have to ask ourselves whether building more housing at all costs is our objective. If so let's lift pesky zoning restrictions and other regulations that keep the free market from erecting high rises in brownstone Brooklyn. It's Economics 101: Think about how much the cost of housing would go down if we increased supply by getting rid of zoning height restrictions! We tend to have an extremely selective (and selfish) view of government intervention in the marketplace: look the other way when we personally benefit.
Rest assured Polemicist: soon Cuba will have plenty of condos, and slums too.
Posted by: guest at February 20, 2008 11:15 AM
i thought this was a website for historic brooklyn brownstones. Who gives a crap about affordable housing?
Posted by: guest at February 20, 2008 11:18 AM
"How exactly does rent regulation restrict the amount of available housing?"
People who can in reality afford to pay much higher rents hold onto apartments that would otherwise be in the public domain for generations. Rent regulation may have been put in place to assist the low-income reidents, but that's not the way things have turned out. Folks like Bianca Jagger and Robert Chambers' coke-fiend girlfriend are among those who have benefitted from this poorly conceived and even worse-run system. I wouldn't call them "low income."
Posted by: guest at February 20, 2008 11:24 AM
That's ridiculous, 11:24. Pick a position on anything and it is possible to find examples to illustrate. Bianca Jagger, et al, are hardly the majority of people in rent controlled apts. We are so Manhattan-centric that we see the entire rent situation in terms of what a couple of famous or infamous moochers have, that we can't see the forest for the trees. The majority of rent controlled apts in this city are in the Bronx, upper Manhattan, Bklyn and Queens, mostly in very un-chic areas, far surpassing in numbers, those on the Upper East, Upper West Sides and the downtown areas. Affordable units are disappearing every day, as Mitchell-Lama buildings go market rate, and as 10:01 said, and nothing is replacing them.
Who should care? We all should, as what happens to where people can live in this city does impact jobs, the quality of work and productivity produced by people who have longer and longer commutes, not to mention crimes against people and property as more people get desperate and angry. This increases the need for protection, the need for more jail space, the raising of insurance rates, raising of taxes to pay for all of this, and on and on. We are fools if we think what is affecting "them" does not affect the rest of us. More imortantly, on a human scale, we should at least be concerned about what is happening to our fellow New Yorkers. Have we risen so high that we cannot imagine what it would be like to choose between paying rent or having enough food, or having electricity?
I believe we keep repeating ourselves in history, the technology only improves. We are repeating the patterns of our Victorian forbearers who built some of our homes - where the poor deserve their station, and exist only to serve the rich, who spend so much time acquiring wealth that they can't see or empathise with the suffering beneath them. Haven't we learned anything in the last 150 years? Affordable housing, and some kind of rent relief, is a necessary component of a socially responsible society.
Sterling Silver
Posted by: guest at February 20, 2008 12:03 PM
"That's ridiculous, 11:24. Pick a position on anything and it is possible to find examples to illustrate. Bianca Jagger, et al, are hardly the majority of people in rent controlled apts."
I've encoutered many, many non-celebrity, "ordinary" New Yorkers who could afford to pay more but were and are living off the largesse of rent control. Such arranegments are legendary across NYC. I've worked with at least FOUR such individuals myself, one presently. Face it, the process is open to manipulation by people who have no need for any rent assistance or control.
"More imortantly, on a human scale, we should at least be concerned about what is happening to our fellow New Yorkers. Have we risen so high that we cannot imagine what it would be like to choose between paying rent or having enough food, or having electricity?"
What does this have to do with rent regulation? When I was poor, supporting a small family, working my way through school, I rented where I could AFFORD to and never once was fortunate enough to utilize rent control or regulation. I sacrificed and scraped by and made it. If I could do it, anyone else also has a chance. Simply put, there are affordable rental options in this city - they're just harder to find. What a surprise! Furthermore, even if rent control was abolished the market would create affordable opportunities, because it's inevitable that some areas will be more desireable - for a variety of reasons - than others. Plus, places like the Gateway complex in Spring Crrek remain under Mitchell-Lama and will continue to do so.. Rent control and regulation are more examples of areas in which the government is involved in issues the market itself should regulate.
Posted by: guest at February 20, 2008 12:16 PM
12:03 -- Actually, the Victorians are a superbly bad example... most of the housing that we're lucky enough to have now (and celebrated on this site, for that matter) is a Victorian product for the middle and working class.
I'm a perfect example of the rent control problem -- I'm rent-stabilized but not all that poor. While I'm not in the buying market, I could rent a nicer apartment without struggling. Instead, I stay where I live now -- why wouldn't I? It's a nice place and I'm guaranteed low hikes. I'll probably never move up to a more appropriate apartment.
(In a great rent stab story, my downstairs neighbor, who'd been paying no more than $900 a month for twenty years, bought a $450,000 condo in Williamsburg. This is the exception, not the rule, but smaller stories like mine can't be that rare.)
It also makes demolition harder, artificially aging the housing stock and limiting new construction.
Posted by: Zach at February 20, 2008 1:19 PM
Zach - are you for real boasting about your cheap regulated rent? don't you think there are people out there who deserve a place more than you just sitting comfortably in your place?
This is the problem with rent stabilization. Bianca Jagger can have an apartment. Zach has an apartment. It is not means tested. It is not going to the most worthy. It is not distributed fairly. It is a crazy, sometimes inherited, privilege.
Posted by: guest at February 20, 2008 1:38 PM
Rent control gives tenants property rights in their apartments. Rent stabilization gives them fewer.
Obviously if you give out property rights you are going to get undeserving people living in inappropriate spaces. Look at any population of property owners!
But that is the point of property rights: they allow people to live their lives even if someone else with more money would be willing to bid more than they can currently pay.
Why is it worse that Zach has a low rent apartment than that someone who bought a coop or house 3 years ago has a low cost apartment?
Posted by: guest at February 20, 2008 2:28 PM
"Why is it worse that Zach has a low rent apartment than that someone who bought a coop or house 3 years ago has a low cost apartment?"
Because the property rights that were "given" to Zach were TAKEN from the owner of the building.
Posted by: guest at February 20, 2008 2:32 PM
Rent control hasn't applied to new construction (or new tenants) for 40 years. Rent stabilization slows rent increases in periods of rapid market moves, but rent stabilized rents tend to converge to market rents pretty quickly.
The existing rent controlled stock reduces market rate supply and thus increases the value of free-market housing (coops, condos, houses, new construction rentals).
Econ 101: The effect of this system on the **production** of housing is to PROMOTE it, because it creates higher prices (therefore higher profits) for builders of new housing of every sort.
The effect on the **cost** of existing housing is to make free market housing somewhat more expensive.
All homeowners have a rent regulation **premium** built into the current value of their property. Hard to say whether that is balanced by the cheaper stabilized/controlled housing.
The effect on landlord investment in existing housing stock is hard to predict. Probably, in neighborhoods where there is a large gap between regulated and "free" rents, landlords over-invest (and lie about how much they invest) in order to take advantage of the rent stabilization system's extremely generous increases for capital improvements.
Posted by: guest at February 20, 2008 2:38 PM
"Why is it worse that Zach has a low rent apartment than that someone who bought a coop or house 3 years ago has a low cost apartment?"
Because Zach did not purchase his place. He's simply sitting on a very good deal courtesy of the city government. The property owner BOUGHT his/her property. If that owner benefits from relatively low "rents" (mortgage payment, actually), it's their privilege. They earned it buy making the financial commitment to buy. Why on earth should a tenant have "property rights" to a place they do not OWN? The protections afforded in any rental lease, particularly in NYC, are sufficient to protect tenants from being throqwn out into the street, as long as they pay rent.
Posted by: guest at February 20, 2008 2:43 PM
2:32: Possibly, if Zach's landlord is quite old. More likely, Zach's landlord bought the building with these property rights in place and paid a price that reflected the tenants' rights, just as it reflected zoning restrictions, neighborhood quality, fashions, and all the other elements that affect prices.
But in any event, why are Zach's landlord's property rights any more or less arbitrary and "sometimes inherited" privileges than Zach's property rights?
Posted by: guest at February 20, 2008 2:44 PM
"But in any event, why are Zach's landlord's property rights any more or less arbitrary and "sometimes inherited" privileges than Zach's property rights?"
OK, one more time:
* Zach is renting.
* The landlord BOUGHT the place.
Got it?
Posted by: guest at February 20, 2008 2:47 PM
"The existing rent controlled stock reduces market rate supply and thus increases the value of free-market housing (coops, condos, houses, new construction rentals)."
And also increases the PRICE of market-rate housing, including rentals. You conveniently "forget" to mention this.
Posted by: guest at February 20, 2008 2:51 PM
2:43: Zach's landlord has an excellent deal courtesy of the government and his neighbors, who together have made NYC an attractive place to live. Most likely, Zach contributed at least as much to that as Zach's landlord has.
What's the difference between Zach's privileges and the landlord's? It isn't that the landlord "OWNS" and he doesn't -- that's just a slogan. It isn't that the landlord "paid" -- the landlord may well have inherited, or paid 1/100th of current market value, and if the landlord bought recently, it paid a price based on the rights it was getting -- which include Zach's countervailing rights.
As for whether leases offer enough protection, the fact is that in NY, absent rent control, landlords that contribute nothing at all to the city would be allowed to tax their tenants for the privilege of living in NYC. What could be more arbitrary than that?
Posted by: guest at February 20, 2008 2:55 PM
2:51: In Econ 101, "value" and "price" are synonyms. Learn to read before you accuse people of bad faith.
Posted by: guest at February 20, 2008 2:58 PM
"place they do not OWN..."
"OK, one more time:
* Zach is renting.
* The landlord BOUGHT the place.
Got it?"
-- Ah, now I get it. The difference is that landlords are IN ALL CAPS.
Otherwise, all we are talking about is Zach's rights vs. his landlord's rights, both courtesy of the NY legislature, both incorporated into the current market value of their rights, each arbitrary and giving benefits to many people who don't deserve them and aren't particularly needy, and each defensible only to the extent they make the city a better place to live.
Posted by: guest at February 20, 2008 3:03 PM
No, property rights are not "granted" courtesy of the NY legislature. Property rights are also protected by the Constitution and federal government.
Posted by: guest at February 20, 2008 3:32 PM
"2:51: In Econ 101, "value" and "price" are synonyms. Learn to read before you accuse people of bad faith."
That's BS. No way they could or do mean the same thing. "Value" and "price" are quite different variables. Nice try.
Posted by: guest at February 20, 2008 3:46 PM
"What's the difference between Zach's privileges and the landlord's? It isn't that the landlord "OWNS" and he doesn't -- that's just a slogan."
Nope it's not "just a slogan." The landlord may have bought the place or inherited it, but still OWNS it. Zach rents. Period.
Posted by: guest at February 20, 2008 3:48 PM
"Otherwise, all we are talking about is Zach's rights vs. his landlord's rights, both courtesy of the NY legislature, both incorporated into the current market value of their rights, each arbitrary and giving benefits to many people who don't deserve them and aren't particularly needy, and each defensible only to the extent they make the city a better place to live."
Your point?
Posted by: guest at February 20, 2008 3:50 PM
3:32:
Zach's rights are protected by law to exactly the same extent as the landlord's.
Property rights are defined by state law. The NY and US constitutions (which are law, by the way) protect property rights but don't define them. Even if you put the landlord's rights in CAPS, they only extend as far as the rent regulations and hundreds of other regulations, limitations and explanations of what it means to OWN residential property in NYC. Period.
Posted by: guest at February 20, 2008 4:11 PM
The city and state cannot define property rights in such a way as to violate the US constitution's protection of property rights. That said, the "Kelo" court may not be likely to step in on behalf of property owners. These hundreds and hundreds of regulations can be challenged.
Defining rights is not the same thing as granting them, or revoking them for that matter. The govt. doesn't grant these rights, it's there to protect them, in the course of which it defines them. But WE are endowed with these rights.
Posted by: guest at February 20, 2008 4:24 PM
how about zero affordable units. it's such Bullshit that some people have to be responsible and work hard and others just get lucky and get rewarded for sucking.
no affordable units, no tax breaks, no rent control. it's ridiculous and it doesn't work.
Posted by: guest at February 20, 2008 4:45 PM
OK - so all us owners are going to give up our home mortgage interest tax deduction, yes? Because that would be the right thing to do. It's such Bullshit that some people have parents who can help them make a down payment on a brownstone and then get to write it off on their taxes, when people who are responsible and work hard but rent don't get anything.
Posted by: guest at February 20, 2008 5:36 PM
The mortgage tax deduction is one subsidy for us property owners. And there are others, all of which are conveniently forgotten when it comes to comparing "rights."
The thing is that you either feel a level of compassion for people who are less fortunate than you, or you think they deserve what they get, since you worked harder for your position. I'm of the former bent. And many here are not.
I believe I "owe" something to those who make less than me, and while affordable housing/rent control/what have you, may not be the best vehicle, and may be subject to many abuses, but it's better than nothing.
If all property had the same restrictions, it'd be a level playing field and none of these complaints would be valid. Since we live in a country that is incapable of nation-wide (or even state-wide) policy making, I agree that NYC housing might attract less investment due to rent control since it does not exist across the river. But it's still better than not having it, or else NYC would become even more of the rich person's playground than it is.
Posted by: cmu at February 20, 2008 6:21 PM
CMU: Rent regulation makes less regulated real estate, including all new construction, MORE profitable. How is that going to reduce investment?
The economic effect of rent regulation on pre-existing stock, which is what we have, is to (1) limit windfall profits for landlords who happen to be near improvements made by others (whether artists/hipsters making the neighborhood cool or developers adding upgraded housing stock), (2) to create opportunities for huge profits for landlords who improve regulated properties, (3) to make tenure in the stabilized sector more stable, and thus investments less risky, (4) to make demand, prices and rents in the unregulated sector higher than they would be otherwise, (5) as a result to give developers of new / improved property excess profits (6) thus to induce more investment, and more supply, in the unregulated sector until the excess profits are competed away.
The main beneficiaries are developers/investors in new/improved property, who earn excess returns due to scarcity. Landlords in the rent regulated sectors also clearly benefit, since they get a stability and predictability that is unheard of elsewhere along with the possibility of windfall profits if they improve or otherwise escape the rent regulation regime.
Tenants in regulated apartments enjoy tenure that makes them a source of neighborhood stability much as individual home ownership did in the days before no-money down "liars loans".
When neighborhoods improve, existing housing stock becomes more valuable, providing windfall returns to people who arrived before the improvements (and regardless of whether they contributed to or inhibited the improvements). With rent regulation, landlords are not fully able to seize these windfalls. Instead, rent regulated tenants with low rents in improving neighborhoods receive some part of the windfall.
Of course, neither tenants nor landlords have any particular moral or pre-legal claim to these windfalls, which are equally likely to be fair, unfair, deserved, economically useless, etc in either case. The people who deserve them are the people who made the neighborhood more desirable -- Jane Jacobs, the inventors of modern policing, the MTA, the arts community, Wall St and other job sources, landlords and tenants and shopkeepers and restauranteers who actually improved their properties, celebrities who moved in, etc. Those folks aren't going to get them in any consistent way with or without rent regulation. Probably the fairest thing to do would be to tax away the windfall capital gains at 100% and redistribute them to productive or deserving members of society.
Tenants and condo/coop/small house retail buyers in the unrent-regulated markets probably pay more due to their inability to bid up rents on regulated apartments, but may pay less due to the increased supply of new construction that rent-regulation induced excess profits create. Or they may pay more (or less) because the stability and economic diversity resulting from our combination of ownership and rent regulation makes neighborhoods more (or less) attractive. Or the effect of rent stabilization may be relatively small in the long term -- in most neighborhoods it mainly reduces the number of people caught in market swings such as the one we've had the last couple of years while not changing the long run picture that much.
Newcomers will pay for neighborhood improvements regardless of rent regulation. Rent regulation simply changes who they pay the premium to: more will go to developers of new or renovated housing, less to landlords who do not improve their buildings, and more (in the form of under-market rents) to regulated tenants.
Posted by: guest at February 21, 2008 9:40 AM
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