Affordable housing, with less subsidy
Over the summer, New York City crossed the three-quarters mark on the way to Mayor Michael Bloomberg’s goal of churning out 165,000 units of affordable housing by 2014. In his announcement of the milestone, the mayor boasted that the number of New Yorkers ultimately benefiting from the plan will exceed the total population of Miami.
Of course, Bloomberg has never been short of lofty ambitions. But he picked a challenging time to wager a piece of his legacy on real estate development.
In the midst of the financial turmoil over the past few years, few construction projects have made it off the ground. Bloomberg’s proposal, dubbed the New Housing Marketplace Plan, was launched in 2003 to spur the development and preservation of subsidized housing for low- to middle-income New Yorkers through a variety of funding programs and tax incentives. But it has already been altered to remain viable in today’s climate.
Since the onset of the recession, the program’s focus has shifted from building expensive new-construction units to preserving the existing affordable housing stock, including the many aging Mitchell-Lama apartment buildings scattered throughout the city. Meanwhile, the program’s homeownership component was virtually eliminated in favor of restricted-income rentals, and its original deadline was extended by a year.
Now, severe budget cuts and the looming threat of a double-dip recession are making those last 40,000 units look especially difficult to produce. Most recently, the mayor’s capital budget for 2011 through 2014 slashed its allocation to the Department of Housing Preservation and Development by $70 million.
“Resources have been more constrained than originally hoped for,” said Lisa Gomez, executive vice president of development at L+M Development Partners, which currently has some 1,000 new-construction affordable housing units in the pipeline, plus 1,000 to 2,000 additional units slated for preservation. “There were large cuts.”
Luckily, though, developers have access to a variety of funding sources “that are not all capital-budget-dependent,” noted Gomez, who is also a former senior vice president of development at the city’s Housing Development Corporation, where she worked as part of Bloomberg’s original New Housing Marketplace team.
Indeed, an alphabet soup of state and federal programs help finance affordable housing development in New York City, including the state’s Housing Trust Fund (HTF), and the federal HOME grants and Low-Income Housing Tax Credit (LIHTC) programs, to name just a few. And, the administration is confident that it will be able to meet its housing goals despite cuts to its capital budget. Developers say that in some ways, building affordable housing is easier now than it was during the real estate boom. Still, new threats to federal funding sources have the affordable housing industry worried.
With the debt-ceiling debate finally over, Congress has moved on to its next battle: figuring out how to slash the federal deficit by $1.2 trillion over the next decade. Programs like HOME and the LIHTC are on the table.
Wendell Walters, assistant commissioner for new construction at HPD, said the department uses HOME to fund a variety of programs, and is “bracing” for possible cuts.
“Depending on the level of the cuts,” he said, “we may have to make some adjustments, once we understand what the impact is going to be to the agency.”
The department doesn’t foresee the budget for HOME being trimmed “to a level that would impede our goals for the [mayor’s] housing plan,” Walters said, but the “cuts currently under discussion would force us to make some very tough decisions for the years following the plan.”
The LIHTC program — which allocates around $35 million to New York per year in credits for the rehabilitation or construction of rental housing for the poor — is particularly crucial, housing advocates say. Alison Badgett, executive director for the New York State Association for Affordable Housing, an industry trade organization, said eliminating the program would result in a “severe decline” in affordable housing development.
Most affordable housing veterans are confident that LIHTC isn’t going anywhere, despite the talk. But in today’s climate, “we can’t take anything for granted,” Badgett said.
And should the program be curtailed, the effects would be far-reaching. “Detrimental is an understatement,” said Aaron Koffman, director of affordable housing at the Hudson Companies. Hudson projects such as Gateway Elton Street I, the 197-unit low-income rental development currently underway in East New York, would not have happened without it, he added.
In the meantime, though, the Bloomberg administration is sticking with its 2014 deadline, and hoping that preservation projects and some of the large-scale developments already getting off the ground will help it achieve the 165,000-unit goal.
Eric Enderlin, assistant commissioner for preservation finance at HPD, said the mayor’s plan is on track, and there are no plans to reduce the overall pipeline of affordable housing projects. That pipeline includes thousands of units at Gotham West in Midtown, Hunters Point South in Long Island City, CAMBA Gardens in Flatbush, the Domino Sugar Factory in Williamsburg, West Farms Road in the Bronx, and many more. (See chart on page 51 for some of the city’s largest upcoming affordable housing stock projects.)
And while there are fewer subsidies available now, developers say that in some ways, the current environment is more favorable for restricted-income projects than during the boom.
“It was becoming increasingly harder for the affordable housing industry to compete in 2007 and 2008, when every site was a condo site,” said David Kramer, a principal at the Hudson Companies. “Land and construction costs had gone up to the point where affordable housing just didn’t pencil out.”
Now that those costs have dropped, there is “a more level playing field, where affordable housing can get initiated outside city-owned sites,” Kramer said.
Plus, construction financing is currently easier to obtain for affordable housing than for market-rate development, especially since banks are required by the federal Community Reinvestment Act to lend, invest and provide services in poor communities.
“While we are definitely starting to see construction financing come back across all areas, it’s much more robust in affordable housing, as lenders seek to mitigate risk and obtain CRA credit from their regulators,” Gomez said.
Over the next few years, Gomez added, affordable housing development “will be challenging, but I do think that affordable will probably be easier to get done than straight-up market-rate development.”
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