August 13, 2019
Geeky Solutions for Affordable Housing
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December 22, 2015 11:00 PM
New York City is beset with challenges in its affordable-housing policy. Efforts to upzone neighborhoods and mandate affordable units in those areas have been met with skepticism as residents fear that gentrification will outweigh any increased odds of obtaining a low-cost apartment.
Compounding this is the potential shrinking of the city's allocation of tax-exempt bonds, and HUD rules scheduled to be enacted next year that will, in many neighborhoods, reduce the value of the low-income tax credit for building affordable dwellings. Both programs are central to the city's affordable-housing strategy, and, in the words of one observer, calamitous if they are not rectified.
While the politics and policies of these issues are worked through, there are other opportunities independent of these programs that can supplement the building of affordable housing. Low-interest rates, armies of small, low-cost builders, and a wide variety of residentially zoned vacant sites are all features of today's housing market. These can be coupled with a rich reservoir of public subsidies (typically in the form of 1% loans), plus real estate tax incentives (assuming the revised 421-a tax break is enacted without mandating artificially high construction wages) to create a broad menu to stimulate building.
Here are a few areas that might be explored:
Increase the use of private financing. Several projects in the pipeline expected to use bonding might work with conventional financing. Rates on midterm financing (10 to 15 years) are about 1.5% to 2% lower than the 30-year city or state tax-exempt housing bonds (about 6% cost to the project). The combination of lower conventional rates, lower closing and transactional costs, and 421-a tax incentives might make many of these projects suitable for private financing, thus freeing up some bond cap. The loss of the "4%" low-income tax credit proceeds, a component of the bonds, may be made up by using the city's low-interest loans (which are also used to supplement bond transactions).
Build on small sites. Many small sites now residentially zoned could, if developed, meet some affordable-housing needs and help loosen the city's housing market. Based on Department of Finance records, the Furman Center at NYU found about 500 vacant sites that have at least 6,000 square feet with a minimum of 60 feet of street frontage. These sites have an estimated potential buildable footage of 7 million to 10 million square feet. Underused institutional sites (religious properties, etc.) may substantially add to that inventory.
With ceilings on what the city would recognize as purchase prices, the city might offer an aggressive program combining low-interest loans and 421-a tax incentives with conventional funds to incentivize small, low-cost builders to develop these sites. Key to this would be creating a streamlined program accessible to small builders similar to the successful Koch-era vacant-building program. It could set affordability levels for initial renters and commit owners to keep all apartments in rent stabilization for the term of the subsidies: 30 years. The program must provide an opportunity for decent financial returns and not require overly restrictive regulatory agreements under the banner of permanent affordability.
Use publicly-owned sites. A variation on the above theme might be used in Housing Authority sites or other city-owned property. Here, by varying the purchase prices of small sites, a combination of incomes might be served. By selling a site (or an equivalent ground lease) for the development of moderate-income housing (say for households averaging 120% of the area median income), the proceeds of the sale could be used to subsidize a similar project serving households with lower incomes. Thus, a self-funding program of mixed-income housing can be created.
Leverage real estate values. The continuing increase in the value of many city locations may offer additional resources for affordable-housing development and other needed public goods. The recent sale of Peter Cooper and Stuyvesant Town for $5.3 billion arguably vastly increased the value of the development rights of nearby public land. What is the value of those unused rights of the Riis and Lillian Wald houses, located to the south of Stuy Town? Could they be monetized either through their use within their current zoning and/or in their transfer to eligible adjacent sites? Alternatively, could those rights be transferred to high-value receiving areas as is proposed in the Peter Cooper-Stuyvesant Town deal?
These approaches may increase the accessibility of affordable-housing programs to the broader real estate community as well as increase the resources available for such programs. This increased production capacity can be an important supplement to the current city and state efforts.
Michael Lappin is a partner at MLappin & Associates and was CEO of the Community Preservation Corp. from 1980 to 2011.
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