Real Affordability for All

The Mayor’s Housing Progress Shows Why Relying on Market Isn’t Enough

But is the Mayor listening? (propublica)

But is the Mayor listening? (propublica)

As Mayor de Blasio gears up for his re-election campaign, he has been touting his progress on his signature policy initiative, affordable housing.  In an Op-Ed for The Daily News last week, he highlights how his $41 billion plan to create or preserve 200,000 affordable housing units over 10 years is on budget and on schedule.  In the last fiscal year, nearly 24,00 such units have been allotted, the most in a single year since 1989 (for a total of 78,000 since 2014). 

The administration’s focus on affordable housing has been commendable and real progress has been made, but the larger picture is less sanguine.  The affordability crisis and the homelessness crisis in NYC (which the Mayor appears to treat as a separate issue here) will not be solved by market-based solutions alone. We need much deeper federal government intervention on a number of fronts.

The Mayor’s affordable housing plan relies on several key premises (which mirrors the national focus of the LIHTC). First, it calls for attracting private development to drive construction.  Second, it requires those developers to include a certain percentage of affordable housing units with each project.  Third, it incentivizes that private development with tax breaks. The second and third premises have been highly controversial, while the first one has not been as much. 

Starting with the second premise, in 2016, the Mayor passed his Mandatory Inclusionary Housing and Zoning for Quality and Affordability laws which require developers to set aside a percentage of units for “affordable housing” and continues a general trend to upzone new neighborhoods in the city.  These were both met with heavy resistance from neighborhood groups worried about displacement and new development, but ultimately passed the City Council.  That it takes so much political capital to create a basic environment for more development is disheartening and, despite his plan’s flaws, the Mayor deserves credit for recognizing this and following through.  However, it’s not surprising that residents would be wary of private development based on other experiences in the city.

The third premise has also run into controversy, though of the political variety.  The Mayor’s plan relies on tax incentives, notably the toxic 421a program. Governor Cuomo stunned many people when he allowed the program to expire and used it as a political football to undermine the mayor’s plan. The Governor claimed he had a better plan himself (which never really materialized) and the program has been rebranded as Affordable New York.  A recent article estimates that the subsidy costs NY taxpayers $400-600k per unit  - while not producing nearly enough units (or in some cases any affordable units, due to lax oversight). Somehow this is "just how it works."

This brings us back to the first premise, which is the original sin of all of these policies.  Relying exclusively on the private market to create (and to a lesser extent preserve) housing units is an expensive, inefficient, and inequitable way to create affordable housing.

To state the obvious, it is incredibly expensive to build in NYC.  Land, labor, materials, planning, and design – all of these things are expensive and, for the most part, there are no secret shortcuts around them.  The lack of productivity gains in the construction industry in recent decades is a fascinating sideshow to this larger conversation, but the important point is that these costs are largely fixed for any type of developer.

Once you accept this, the only way to really build cheaper is to have the federal government involved.  First, it can borrow money for a lot less than the private sector, which keeps costs down (we’re missing a golden opportunity to improve our infrastructure as a result). And second, it doesn’t have to turn a profit.  This means it can build the housing that NYC needs rather than what the market rewards. All of the tax incentives in the world will not cover the difference between what is good for the bottom line of a private company and what is good for the public interest in the housing market. 

Relying on the private sector also crowds out alternative models of housing and ownership. The Mayor isn’t staffing people with this experience, isn’t listening to housers with this experience, and isn’t drawing political contributions from people with this experience. Large-scale co-living spaces, community land trusts, or (heaven forbid) more public housing all get ignored as policy tools or goals when a market-based approach runs through planning. This is a missed opportunity to consider new ways to use existing funds and assets under city control.

A truly transformative housing approach would include market-based and non-market based solutions because the goal would be simply to lower the cost of shelter.  The goal for the mayor’s housing plan includes this, but also includes keeping powerful real estate developers happy and at least keeping neighborhood groups and homeowners from openly revolting politically.  It also internalizes a hostile Albany and an indifferent Washington.

I don’t envy the Mayor’s need to balance these political realities, but clearly a bolder vision is not only necessary, but could be very popular with voters, and serve as a rallying point to change the nature of housing policy in the US. 

Mayor de Blasio was elected on a progressive platform not seen in the city for 20 years, which remains popular (perhaps even more so after 2016). He doesn’t appear to have any major rivals despite constant badgering from the press (not entirely undeserved). And yet 27,000 arguably affordable units is the best we can get? It is under a market mindset. 

We have been tinkering with neoliberalism for the better part of 40 years at the national and local levels and it demonstrably isn’t working for 80% of the country.  Voters want new ideas.  Many technocrats want those new ideas to come from local city governments given the paralysis at the national level.  So far the Mayor has passed on matching his progressive rhetoric with progressive reforms in housing.

It’s a shame because there are lots of good ideas - some old, some new, but hardly any that are radical - that the mayor should be willing to explore. Many of them can be tried without Albany or Washington.

But the truth is the Mayor de Blasio needs the state and particularly the federal government to take on a larger role in the affordable housing crisis. There are too many macro economic forces at play with the affordable housing crisis, which is why over 99% of US counties are suffering from it. Only a stronger federal commitment to housing, to wealth equality, and to tax policy can make a difference on that level.

The Mayor can be more helpful in forcing Albany and Washington to change the status quo on housing.  NYC is the biggest city, the most powerful real estate center, with the largest public housing population in the country.  If you want to change the conversation on housing, NYC is the place to do it. That change must include thinking about housing outside of the narrow, flawed lens of the market.  The Mayor needs to think bigger and I think he would be rewarded for doing so.

The End of the Beginning: the Challenges Ahead for the Mayor's Housing Plan

Victory lap might be a short one for the Mayor (capitalnewyork via mayor's office)

Victory lap might be a short one for the Mayor (capitalnewyork via mayor's office)

Only a week has passed since the City Council approved Mayor de Blasio's ambitious housing plan, but already some observers have begun to discuss the many hurdles facing it that could spell trouble.  Though it will be years before anyone can assess the true scale and impact of these changes - and if they will deliver on the promise of more affordable housing - we can at least start to consider what this trouble could look like. Though there are a number of factors to consider, for this post, I will focus on three that seem particularly important to watch.

Governor Cuomo: Oh, yeah? (thewire.com)

Governor Cuomo: Oh, yeah? (thewire.com)

1.  Albany: 421a's & Heartbreak

The Mayor's plan has solidified political support in the city, but much of its success will depend on what transpires in Albany in the coming months and there are a lot of unknowns.  As I've outlined previously, Governor Cuomo has made his relationship with Mayor de Blasio something of a bloodsport; he has taken every chance to exert power over the city by withholding housing funds and creating excessive state oversight on projects wreaking havoc with city officials and developers alike.  It's not a stretch to see how much the governor would enjoy toying with the mayor over his signature policy achievement.

Perhaps no issue in Albany in the hands of the Governor could determine the fate of the housing plan more than the status of the expired 421a tax exemption.  I've gotten on my soapbox about 421a before, but the reality is that it was a major, if wildly flawed, tool for encouraging development of affordable housing.

Lawmakers, including officials from the de Blasio administration, had agreed on significant changes to the program when it came up for renewal in January, but the Governor surprised many and killed the talks by backing a call for developers to agree to new union contract stipulations to qualify.

As a result, 421a is off the books and many projects have been thrown into serious doubt while new projects will likely slow down as well.  There is no doubt that its previous form was a huge handout for high end developments that didn't come close to producing the needed affordable units, but simply killing it was political brinkmanship at its worst. Many people in real estate question if the mayor's plan can even work if 421a does not get extended.  Though the industry has a clear incentive to get 421a back as-is, the reality is tax policy is a major component of the mayor's plan and without buy-in from Albany, it's hard to see how the units get built.

Some of the Governor's political maneuvering might make more sense when he announces his own housing plan soon.  As I've speculated, if his plan greatly resembles the Mayor's but with more power and credit going to the Governor, it will be hard to defend.  If, on the other hand, it spells out a new direction in housing, and solves long lingering flaws in policy like 421a, then we might have something worthy of discussion. In either scenario, the Governor has made it clear that the Mayor's plan must go through Albany first and it remains hard to picture that being a pleasant journey.

CB15 (Sheepshead Bay) voting against the mayor's housing plan (sheepsheadbites)

CB15 (Sheepshead Bay) voting against the mayor's housing plan (sheepsheadbites)

2. Local Opposition: CB86'd

Though the City Council supported the plan by votes of 42-5 and 40-6 on the two major proposals, all but a handful of the city's 59 Community Boards rejected it.  CBs are made up of local residents and business owners and their votes are only recommendations, but their near-universal opposition was a chilling rebuttal to the Mayor and a potential sign of the pitched resistance these groups might undertake in the months and years ahead.

This opposition has practical implications because these same bodies review every development proposal in their districts under the city's ULURP land review process. Again, these votes are only recommendations and can be overcome through other city agency approval, but when time is money, opposition from a CB can delay and even derail projects.  If many residents have already opposed the plan overall, you can expect that this will continue with specific projects. For example, CB5, which includes East New York - singled out by the Mayor as a major focus of the plan- unanimously opposed the plan. It isn't likely that they will be open to the many projects already being discussed

The philosophical implications of local opposition are also important to consider. Though it is easy to dismiss some of these votes as naked NIMBYism, as the Mayor has unfortunately been close to doing, the issue is much more complicated.  No doubt, though, some of these positions are based on the more disappointing aspects of NIMBYism and resistance to the inevitability of a changing city.  

Preventing more density, more height, and more transit-focused development could have dire economic and environmental consequences for the city and the region, but it's hard for an individual to accept that when it means their trains or schools might get more crowded, their neighborhood might become a construction site and look very different at the end, and their parking could disappear. These are entirely understandable, if intractable, concerns.

However, it isn't just NIMBYism at play here, as many neighborhoods have built up mistrust towards the city over decades - whether it's from the scars of urban renewal projects, the slights of feeling overlooked by programs and services, or the perceptions of forced integration and change, community boards evolved from a resistance to top-down management and have long been wary of city-wide policies. New Yorkers have seen large scale, Big Idea type-plans before and are right to be wary of their true costs and benefits. 

It is up to the Mayor to outline these issues, outline the underlying causes, and explain why this plan is different and why it will be better for New York and for New Yorkers. There may well be many benefits in the housing plan for these communities, but there will also surely be trade-offs and negative consequences. The Mayor has obviously not done a good enough job of framing this discussion around those realities or to speak to the legitimate hopes and fears of New Yorkers regarding the plan.  For a Mayor who campaigned and won by recognizing the populist mood in the city, so far he has missed the opportunity to approach this plan through the same lens and vernacular.

The Mayor and his administration must do a better job of selling the tangible benefits of this plan while acknowledging the unavoidable pain of change.  Though the CBs are only advisory boards, their near-universal rejection of the plan could create havoc for his plan in the short term and greater consequences as the next election approaches in 2017. 

 

What (potentially) goes up, must (inevitably) come down (citylab)

What (potentially) goes up, must (inevitably) come down (citylab)

3. The Market: The Giveth and Taketh 

The real estate market is the easiest factor to overlook in all of these discussions, but ultimately it will have the final say in the future of the housing plan.  Many of the assumptions built into the plan, from the tax incentives available, to the expected population growth, are based on an ascendant market.  There are some early signs that the market may be headed for a correction or even something larger.  Given that the housing plan relies on the market to drive it, if the market tanks, it's unlikely that many units will be built, affordable or not.

Relying on the market has been a criticism voiced by many housing advocates as the Mayor's plan went under review, but given the power of the real estate industry and the construction unions in the city and the state, I don't think it would have been possible for the Mayor not to get their buy-in and still deliver a plan.  It might be incremental, but it is a necessary step in this political environment and the need demands that some action be taken right now.

The problem with a market-first approach, however, is relying on a market that is not healthy or functioning well to begin with.  Even what we talk about when we talk about 'the market' isn't terribly useful. It hides the fact that in reality, there are two markets in the city: the "asset" market and the "shelter" market.

The asset market has produced 432 Park on the high end and thousands of shiny doorman condos on the other end, many of which will sit empty for the majority of their ownership; this market has had severe ups and downs as would be expected when it is a function of the global economy, but it has created most of the new housing units in NYC over the last decade.  This operates more or less as a market should.

The shelter market is much larger but has not operated as a market should; it has had relentless pressure put on it without the necessary relief.  With the population of NYC expected to continue to rise, and the demand for all types of housing only increasing, a healthy market in theory should offer the incentive to produce a corresponding number of units.

The fact that this isn't happening owes to many complicated reasons, most of which we have discussed in this blog previously, but the main takeaway is that we're in a housing mess because the overall market is terribly distorted and there isn't much discussion about how to change it or even if it should be changed.  As a result, relying on said market, unaltered, to fix it is potentially a fool's errand. 

Much remains to be seen about the future of Mayor de Blasio's housing plan because so much of it falls outside of the Mayor's control, or anybody's for that matter.  The Mayor has much work to do in order to see the plan implemented and to see the types of benefits he, and many others, believes will result from it.  

The Senior Housing Crisis is Already Here

Mayor de Blasio discussing his plans for senior housing (mayor's office)

Mayor de Blasio discussing his plans for senior housing (mayor's office)

At the risk of beginning to sound like a broken record, this post will examine another clear and present danger within the affordable housing crisis: the lack of senior housing.  As the Baby Boomer generation passes 60 and begins to retire en masse, the numbers of seniors on fixed incomes will begin to rise dramatically and will put even greater pressure on housing needs across the nation.  With the increase in life expectancy (for some Americans anyway) this means that a lot of older people with specific housing needs will need them soon and for a very long time into the future. As is the case across the board, we are simply not creating enough housing to manage this issue.

The numbers in New York City are illustrative of the current problem and of the problems to come.  New Yorkers over 60 represent the fastest growing demographic in the city, at nearly 20% of the population - up from 12% in 2000.  Vicki Been, Mayor de Blasio's housing commissioner, told the City Council in February that the numbers of seniors in NYC could reach 1.8 million by 2040, which would double the number in 2000.

The big secondary problem with these numbers is the fact that 20% of current seniors in NYC,  including 40% of NYCHA residents, live in poverty ($11,170 a year). Of renter households headed by older residents, half are rent burdened, meaning they pay over a third of their monthly income on rent. And according to LiveOn NY, a senior citizen advocacy group, over 100,000 pay over 50% of their income to rent.  This makes older residents the most rent burdened demographic in the city and puts many at risk of losing their homes if costs keep climbing across the board.

For whom the bell tolls (nytimes/uni. of minnesota)

For whom the bell tolls (nytimes/uni. of minnesota)

Mayor de Blasio's housing plan, which is expected to pass the City Council soon, has been the most comprehensive attempt to address the crisis to date and has a number of good ideas. Specifically, his Zoning for Quality and Affordability proposal would allow taller and larger buildings with less parking closer to transit centers and reduce parking requirements for senior housing sites. This would allow more land and capital to go to building more units.

The housing plan would also increase the funding and support for the Senior Citizens Rent Increase Exemption (SCRIE) which currently freezes the rent for 53,000 seniors in NYC and covers the difference in cost for the landlord. The plan would try to cover the estimated 80,000 other seniors who qualify but are not currently enrolled.  This is a type of program that could spiral out of control if other measures are not taken to address housing costs, but it is working right now and needs to be expanded to the many seniors who can't enroll.

Finally, the plan indirectly attempts to support "aging in place" that allows seniors to remain in their homes for as long as possible and to maintain their dignity and quality of life.  The plan calls for a number of measure to preserve the existing stock of affordable housing including rent controlled and rent-stabilized apartments.  These measures have a significant impact on this issue because  65% of older New Yorkers live in these types of apartments.  Whether these residents are self-sustaining or paying through government programs, policies in Albany will have a major say in how long they are able to stay in their homes.

No plan is perfect and there are concerns that the measures won't do enough, for senior housing or for the overall affordability of the city. However, most of the outspoken critics, including Real Affordability for All,  have now endorsed the plan and it should become law.  

This type of buy-in important going forward because the plan will surely have to evolve as needs change and the proposals begin to show returns one way or the other.  Having as many stakeholders as possible involved in this process is the only way to ensure that we can make the types of policies that have a lasting affect - because many of us hope to age in place in NYC as well.