Housing: The Next Generation / Housing Next

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1. New Waterfront Vistas: How’s the View?

Put on a pair of old shoes and go find derelict waterfront land. It won’t be too tough–there are plenty of rotting piers and abandoned junkyards to choose from. Check out the East River in Greenpoint, or the Bronx Kill in Port Morris.

Close your eyes. Imagine housing can be built here. Suppose there’s plenty of money. What vision do you have?

Mayor Michael Bloomberg has a vision. In a closely watched December 10 address, he announced a $3 billion plan to build and preserve housing. His wide-ranging proposal, met with great admiration by supporters and skeptics alike, reached a visionary peak when the mayor suggested that the city’s housing future would be found at the water’s edge.

From Morrisania to Long Island City to Williamsburg, the Bloomberg administration plans political and legal reforms that, combined with a modest contribution of city money, will prompt private housing developers to step in, clean up the blighted waterfront and build tens of thousands of new apartments.

Mayor Bloomberg’s housing plan comes at a key moment for the forces devoted to building and maintaining housing for New York’s neighborhoods. The past 30 years have seen the birth and maturation of a professional housing movement. It started when daring activists went from building to building, begging and borrowing what they needed to reclaim entire streets abandoned by their inhabitants, by banks and by the city itself.

Those pioneers succeeded more than they failed, and soon, powerful forces jumped on board. Beginning in 1987, under Mayor Ed Koch’s 10-Year Plan, the city invested $5 billion to support the neighborhood organizations that were proving that even the toughest parts of town were worth living in. For-profit companies and banks saw a business model that worked, and soon joined the fight to make the city’s neighborhoods once again a place people wanted to be.

The neighborhood housing movement succeeded partly because the critical resources for success–buildings and land–were cheap or even free, given away by the city Department of Housing Preservation and Development for rebuilding. “In our community, one of the only reasons we’ve been able to make housing affordable is we got land for $1,” admits Sheena Wright, President and CEO of the Abyssinian Development Corporation, which has built or rehabilitated more than 1,000 apartments in Harlem since 1989.

But today, with 87,000 formerly city-owned apartments fixed up and returned to private ownership and 16,800 new apartments and homes built on land the city used to own, the roots of triumph have become a potential source of tremendous change–and failure. The city government’s own stock of vacant land and repossessed apartment buildings is nearly depleted. At the same time, the price of vacant land and property that can be rehabilitated for housing is at an all-time high.

“We’re victims of our own success,” says Joe Weisbord, staff director of Housing First!, a coalition of financial institutions and community organizations, labor unions and other groups seeking to promote investment in creating affordable housing in New York. “Today there are surging housing markets in neighborhoods that were left for dead even just 10 years ago.”

Enter the mayor’s housing plan–and its focus on rezoning neglected neighborhoods to spur waterfront housing. The mayor’s plan is still mostly just a proposal on paper, but essentially, the administration hopes that if it opens up new land, makes it easier to get permits and approvals, and supplies $500 million in modest loan subsidies in exchange for some apartments that will rent or sell for less than market rate, private developers will build new housing.

The administration’s most ambitious proposal is a call for rezoning waterfront neighborhoods previously designated as sites for industry and manufacturing, making them fit for housing and retail.

Waterfront land is certainly attractive to housing developers, but nowhere in the mayor’s plan is it clear what kind of housing he wants built there–and in that vacuum looms a problem. If the mayor’s plan relies on the incentives currently in place, say advocates for affordable housing, then New York’s waterfront housing development will likely end up as a giant missed opportunity. While developers will have access to sources of subsidy like the low-income housing tax credit (for households making below $37,680 a year), there are no guarantees in the mayor’s plan that apartments affordable to families of modest means will get built. It’s those families who most desperately need new affordable spaces to live–not just the record 38,400 homeless who clogged the city’s homeless shelter system in January, but also the estimated half million families who spend more than half their incomes on rent and utilities.

Mayor Bloomberg’s vision doesn’t have much room for poor families, period. Eighty-one percent of the new rental and co-op apartments to be financed with city assistance are slated to be built for households earning more than $50,240 a year, equivalent to 80 percent of the New York area’s median income, according to the city’s Independent Budget Office (IBO). That’s in striking contrast to the Koch plan, under which nearly 90 percent of units ultimately went to families earning below 80 percent of median income. (It’s worth noting that it took a coalition of groups, led by then-Manhattan Borough President David Dinkins, to pressure Koch to focus his housing dollars on the poor.)

When it comes to the waterfront plan, the city’s new commitments to the poor are even softer. So far, the administration has rejected a series of policy suggestions from City Council members and affordable housing advocates that could provide aggressive incentives for developers to build affordable housing in the rezoned neighborhoods.

Instead, city officials who have testified at recent public hearings say that the incentives currently in place are enough. They point to programs like the city’s 421-a tax break, which has helped build 87,000 apartments in the city since 1971, according to the IBO. Under 421-a, builders of new multifamily housing in the outer boroughs automatically receive property tax exemptions for up to 25 years.

Apartments subsidized by the 421-a tax breaks outside of Manhattan do not have to be affordable, but developers are required to set rents that match the local market. An IBO analysis suggests this requirement has hardly resulted in affordability: In Brooklyn, for example, that translates into an average one-bedroom rent of $2,077 in the new buildings.

City officials also point to several recent housing developments, both on former Brooklyn breweries–the Rheingold site in Bushwick and the Schaefer site on the Williamsburg waterfront–as examples of new development at or near the waterfront that includes affordable apartments. But in both of those cases, HPD gave the land for free to nonprofit developers.

Land giveaways won’t be possible under the mayor’s new waterfront housing push. Virtually all the property to be rezoned for housing is privately owned, and selling these days, in neighborhoods like Williamsburg and Gowanus, for top dollar.

So a coalition has begun forming recently to call for new programs that try and make waterfront housing more affordable. Its most vocal champion is City Councilmember David Yassky, who told a State Assembly housing hearing in February that while he welcomes the mayor’s plan, “it would be terrible if the people who live in Greenpoint and Williamsburg today can’t live in the housing to be built on the waterfront.”

Yassky and others are floating a range of policy proposals that could make waterfront housing more affordable. One possibility is called “inclusionary zoning.” If the builders of a new development include low-income units in the deal, they would have the right to increase the legally permitted height and bulk of the building. Basically, inclusionary zoning rewards developers who agree to mix in some affordable housing by letting them construct bigger buildings than they could otherwise build. It’s not a new idea: Across the country, from California to Maryland to New Jersey, such incentives have resulted in thousands of new affordable units.

Alternatively, developers along the waterfront could be required to contribute to a fund that will help finance another developer building affordable housing elsewhere. That concept is called “linkage,” and it’s in place in Boston, among other cities.

Sources close to the council say that inclusionary zoning has the stronger chance. But supporters of the concept haven’t yet resolved a politically loaded question: Should developers who use the incentive have to build affordable housing on site, or would elsewhere suffice?

The arguments for integrating low-income housing on site are strong, observes Michael Schill, director of the Center for Real Estate and Urban Policy at New York University, but it might not be the most productive use of resources: If waterfront market-rate housing ends up subsidizing affordable housing in a part of the city where property is less expensive, more housing could be built overall. “Then the question is: How much do you value mixed-income communities, as opposed to as much housing as possible for low-income people?” wonders Schill.

Ultimately, the possibilities for affordable housing in waterfront areas rest with the City Council, which has the power to approve or reject the ambitious rezoning proposals advanced by Mayor Bloomberg. The council has demonstrated some willingness to take on the mayor over high-impact issues, such as when it overrode the mayor’s veto of its bill prohibiting the city from doing business with predatory home lenders. Now we’ll find out if building affordable housing is politically important enough to sway Speaker Gifford Miller and the constituencies with big pull in the council, like unions and Democratic Party donors.

Asks one housing advocate who requested not to be named, “Will individual council members be willing to invest political capital to hold these rezoning proposals hostage until they extract those kinds of policy?”


2. The End of the Movement–and the Opening of a Market

During Mayor Bloomberg’s December housing speech, he never once mentioned community development corporations or nonprofit housing groups. However, he referred to “private investment” no fewer than 10 times. That rhetoric, plus the actual details of the mayor’s plan, is leading housing professionals to quietly (and largely anonymously) suggest that the mayor’s plan hangs nonprofit housing groups out to dry.

Even the title of the plan, “The New Marketplace,” suggests to many that Bloomberg and Deputy Mayor Dan Doctoroff hope that by making it easier–and cheaper–for developers to build in the city, new housing will sprout up without the carefully packaged government-run programs that enabled nonprofits to build so much housing in the past few decades.

It’s a noticeable shift away from Mayor Koch’s approach. During the 10-Year Plan, HPD programs gave nonprofits the money, buildings and land that they needed for rehab and new construction. The Local Initiatives Support Corporation and Enterprise Foundation created the New York Equity Fund, which helped nonprofit developers access federal tax credit dollars designated for the construction of affordable housing.

But in the new paradigm, the city is looking to stretch its dollars as far as it can, and community development corporations, or CDCs, will have to compete directly with for-profit developers for public and private financing. “The place we’ve been is one where the city basically gives you land and the tools,” says Brad Lander, executive director of the Fifth Avenue Committee, which builds and manages supportive and affordable housing in Park Slope and Red Hook. Now, he says, “developers need to go out, acquire property and assemble financing on their own.”

HPD agrees. “We’re expecting people to be nimble and entrepreneurial and be able to negotiate things instead of having pre-packaged deals,” says First Deputy Commissioner of Housing Operations John Warren, who supervises all of the agency’s programs.

Many nonprofits have jumped headfirst into this new housing environment, creatively assembling complex financing deals. Some of the tools they use are by now familiar: tax breaks from the city, low-income housing tax credits from the feds and state, and bond financing from agencies like the city Housing Development Corporation and the state Housing Finance Agency.

That’s not the end of it. The savviest developers then leverage several of those pieces to raise more cash. For example, a nonprofit developer can actually sell its property tax breaks to developers of luxury housing to raise additional money. The layering of financing can seem absurd: One recent project in Denver used 23 different funding sources.

One group that’s juggling complex deals is Hope Community, in East Harlem. Hope’s president, Mark Alexander, has done the kind of projects that most other nonprofits are still getting used to–partnering with for-profit developers to build middle-income housing. Now, Alexander thinks he may have hit on a brand-new funding source: unused reserve funds that were built into the tax credit projects that Hope, and many other CDCs, have been doing for years. Those projects are required to maintain large operating reserve funds in case large new maintenance expenses arise.

But for groups that have managed to pay for upkeep without dipping into backup funds, those dollars are a tantalizing source of potential capital. “Some portion of those funds could be redirected to develop affordable housing projects,” predicts Alexander. “There’s no reason from a policy point of view why they shouldn’t.”

There will certainly be more partnerships with for-profit developers too. “It will become the PC thing to do,” says Denise Scott, managing director of New York Local Initiative Support Corporation (LISC), which provides CDCs with loans, grants and investments for neighborhood redevelopment.

For-profit developers also have something to gain from these partnerships. In their applications for housing tax credits from the state Division of Housing and Community Renewal, builders get extra points for working with nonprofits, and those points can make all the difference between whether they get the deal or not.

Will all the groups currently developing housing remain relevant in an increasingly complex financing environment? Most observers don’t think so. “There will be some nonprofits that won’t make it,” says Naomi Bayer, the director of the New York office of the housing finance institution Fannie Mae.

“There will be a natural evolution,” adds Alexander. “The strongest will survive, and thrive, and the groups that are doing very poorly, doing bad work, will be closed down.”

Some CDC executives anticipate a sort of merger and acquisition flurry. If a nonprofit not only can’t handle new deals, but has trouble running its current properties, there are likely to be coordinated efforts to transfer badly managed properties to nonprofits with solid records of running low-income housing–much like what happened when Banana Kelly fell apart in the Bronx. But it’s worth noting that even the worst-run nonprofits have their champions–in their neighborhoods, and more importantly, among elected officials, whose dollars help keep the groups’ services and jobs going.

Consolidation also raises the specter of supergroups: large CDCs that operate in entire boroughs, or even more than one borough. But when a CDC loses its neighborhood base, it also loses an important piece of what makes it different from any other real estate developer. For years, CDCs were the only entities willing to invest in preserving and building in poor neighborhoods. Now the ones intent on surviving in the housing business must answer a tough question: Since for-profit developers are prepared to build affordable housing at rock-bottom cost, why should precious government subsidy dollars still go to nonprofit groups?

While no one knows for sure that nonprofit construction costs more, affordable housing developers generally suspect that’s true. For one thing, nonprofits have to pay a middleman–a contractor. Most for-profit developers act as their own contractor. Nonprofits probably don’t want to hear it, but they’re also not always the easiest entities to work with. Some private contractors say they try to avoid CDCs, because they are very slow to make key decisions, which adds not just time but money to projects. “Many have become their own bureaucracies,” says one developer who asked not to be named.

Advocates for CDCs argue that the housing they build and preserve is best for their neighborhoods, even if it does cost a little bit more. Academic research, however, hasn’t really been able to prove that. “The question of the roles and outcomes of for-profit and nonprofit developers in housing is one no one has answered,” observes Schill. “It’s also not clear that anyone wants to know the answer.”

If CDCs are going to convince the Bloomberg administration that they matter, here are a few talking points they could use. It’s easier for nonprofits to befriend institutions like community boards when projects require community approval, and to avoid costly court challenges from angry neighborhood interests, who can–and do–sue to stop virtually any new development.

CDCs can guarantee long-term affordability in a way that for-profit developers can’t. Many of the subsidies that pay for affordable housing typically run out after 15, 20 or 25 years, and private developers are more likely than mission-driven nonprofits to take advantage of future opportunities to raise rents.

Nonprofits also say they’re preferable because of their neighborhood roots–they have a better sense of what kinds of housing community residents want. CDCs are also more likely to integrate needed services into housing, like community centers that offer tutoring, or referrals to organizations that can help with welfare and health benefits.

“It’s hard to quantify,” says Bayer. “But I think CDCs are looking at the whole–the health of their community. It’s not just housing as buildings, but how it impacts the whole health of the organism.”


3. Vacant Lots, Brownfields and Other Ex-wastelands

Even if nonprofits are able to put together money to develop affordable housing, one key question remains: Where will they build it? Between 1986 and today, HPD gave away land that produced 16,800 new homes. Projects like the Nehemiah homes in east Brooklyn and the South Bronx, and the New York City Housing Partnership’s New Homes scattered throughout the city, were possible only because HPD gave developers large tracts of foreclosed vacant land.

That land is almost gone. As the pipeline runs dry, developers are eyeing two tantalizing, but problematic, possibilities: small vacant lots, of which there are roughly 35,000 currently zoned for housing in the city, and polluted lands formerly used for industry, known as “brownfields.”

In terms of vacant land, what’s left is scattered lots, most of them blocks apart from one another. Constructing a single building between preexisting structures–what’s called “infill”–is just too expensive to result in affordable housing.

But where just a few lots are joined, or where there are several scattered within a block or two, developers have recently been finding ways to make infill work. “You just can’t do one 25-foot wide lot,” says Jerry Salama, a former HPD deputy commissioner who now does new construction as a private developer. “But if there are three or four others nearby, yes, it’s still more expensive, but you can throw them all in and average it out and make the numbers come out.”

That’s exactly what the city is doing with its New Foundations homeownership program, through which HPD is offering to give away geographically clustered plots of city-owned land to developers interested in building infill. The homes sell at market rates. “To ask for a lower income target is not really feasible,” says Deputy Commissioner Warren.

A market approach will work for nonprofits, like Abyssinian and Hope Community, that are interested in bringing in wealthier homeowners. Both groups contend that Harlem already has plenty of low-income renters, and that as CDCs, part of their mission is to promote varied-income neighborhoods by building homes for professional families.

But can infill work for anything but market rate housing? Some developers are eyeing modular construction as one solution–buildings that are largely assembled in factories off site, and then trucked in. But until less expensive technologies come on the market, modular construction is only about 10 percent cheaper than normal construction, says one developer who asked not to be named–not enough of a savings to make infill affordable.

The laws of the market are not the only forces keeping new affordable housing from rising on vacant land. For several years running, the New York State legislature has failed to agree on a law that would spur the cleanup and development of brownfields–sites that were previously used for possibly toxic industrial purposes.

Current state law holds property owners responsible for pollution, even if the contamination happened decades before they bought the property. It’s a huge barrier to any developer: To invest in a piece of land that might someday generate costly lawsuits is a risk few will take. Also, there are no clear guidelines about how pristine a cleaned-up brownfield actually has to be–currently a developer has to negotiate individually with state environmental officials before cleanup begins, an extremely time-consuming process.

The lack of brownfields legislation routinely prevents developers from moving forward, including, recently, one of the city’s biggest builders of housing for the homeless. HELP USA President Richard Motta says that he was eyeing a large plot of land in East New York, near other HELP projects, for a day care center. But then he found out there used to be a gas station on the site, and Motta decided that without being able to guarantee what his cleanup costs would be, the risk was too great: “I can’t bid on it, because I don’t know if I’m going to spend $100,000 to clean it up–or $1 million.”

If a brownfields bill did pass, it would also create a fund to help developers pay for precisely those costs–assessment and cleanup. With no legislation on the horizon, New York is way behind other states: at least 40 others have laws and funding programs on the books. In New Jersey, a 1993 law is spurring projects like a proposed $1 billion, 1,200-acre redevelopment in Rutherford, just across the Hudson River. There, old city dumps are slated for four golf courses, two hotels, six office buildings and 1,500 units of housing.

Given the impossibility of predicting when Albany will act on anything, the affordable housing community is starting on its own. “In the best of all worlds, they will, and if they won’t, we’ll move forward anyway,” says Denise Scott of LISC. With its banking and foundation partners, LISC is discussing creating its own site assessment fund of at least $50 to $100 million. “It may be the philanthropic community will bring dollars to deal with risk assessment and site assessment,” Scott says.

The New York City Housing Partnership is also moving forward on a brownfields initiative: It’s working with a Denver company called Brownfields Capital, an investment fund that helps pay for assessment and cleanup in exchange for a portion of the profits that arise from development. “They essentially absorb some of the costs,” says Kathryn Wylde, CEO of the Partnership, which runs the housing program.

The mayor’s plan could also help ease the land crunch. HPD is charged with spending $200 million on “predevelopment” costs, from land purchase to clean-up, to help builders get projects underway.

Each of these proposals is mired in uncertainty. Will there ever be enough subsidies to build affordable housing on small lots? Will Albany ever pass a brownfields law? Will the mayor’s paper plans ever bear fruit? In the meantime, CDCs are looking to the funders with the deepest pockets, like LISC, Enterprise, the Partnership, Fannie Mae and the foundations, to help them buy land. The good news is that those entities, although reluctant to tell City Limits exactly what their role will be, all say they’re poised to do just that.

“We’ve been working with our various partners to create a specific program to help CDCs,” says the Enterprise Foundation’s Rafael Cestero. Adds Wylde: “Putting together complicated predevelopment packages–that’s the future.”


4. For Sale:Homeownership

In his inimitable way, President George W. Bush, in a speech last October at George Washington University, launched his administration’s drive to add 5.5 million minority American homeowners. “All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners,” Bush told the Conference on Minority Homeownership. “Owning something is freedom, as far as I’m concerned. It’s part of a free society. And ownership of a home helps bring stability to neighborhoods.”

The President is putting his money where his mouth is. His administration is proposing a $2.4 billion tax credit for lower-income first-time buyers, and a $200 million fund to help pay down payments for prospective poor homeowners. And Fannie Mae and Freddie Mac, the federally chartered home financing corporations, have committed to loan another $440 billion to minority families over the next nine years.

President Bush is not alone in promoting homeownership as a panacea for ills like poverty and crime. Support for homeownership has virtually become a religion in modern American politics, with Democrats and Republicans in lockstep, even in New York City, where 67 percent of households are renters.

Homeownership is central to Bloomberg’s housing plan, which envisions at least 4,000 new condos and creates a $25 million fund to help moderate-income families cover down payments and closing costs. There’s also a $12 million pilot program to help formerly homeless families buy homes. Finally, the administration will pay up to $10,000 toward down payments and closing costs for prospective homeowners, as long as their employers chip in an equal amount.

Compelling economic arguments back these policy pushes. Mortgages are often cheaper than rent because of tax breaks. A household’s costs over time are predictable, so a family can make more secure decisions about job and income choices. Most notably, since most homes increase in value, homeowners build wealth that they can access by selling their homes and borrowing against equity, as well as pass on to their children.

But each of these benefits is much less likely to help poor or even moderate-income homeowners–and the potential negative consequences of homeownership are highest for them too, according to a 2001 review of the homeownership literature by the Research Institute for Housing America, a think tank funded by the Mortgage Bankers Association of America. Such research raises questions about the unified push for homeownership that government and financial institutions are barely grappling with, even as they race to add millions of new homeowners.

“The United States has created a housing finance system that makes the direct benefits of owning a home most favorable for high income families and least favorable for low-income families,” writes the Research Institute’s director, Steven Hornburg. The homes purchased by the poor tend to have the highest maintenance costs. Housing values in poor neighborhoods are the most volatile, meaning that appreciation and wealth-building are no guarantee. Transactional costs–like closing fees and interest rates–are highest for poor borrowers. Lastly, poor families don’t tend to make enough money to reap the considerable benefits of the mortgage tax deduction.

The Institute’s study doesn’t even account for what could be the biggest risk of homeownership for poor families: predatory loans and mortgage foreclosures. It’s not just an academic worry in New York, where 13 percent of all homeowners with federally insured mortgages were late on their payments at the end of last year, according to the Mortgage Bankers Association. In neighborhoods like Bedford-Stuyvesant, where foreclosures are rampant, 336 homeowners lost their homes in 2000.

“Predatory lending is a huge issue in Bed-Stuy,” says Colvin Grannum, president of the Bedford Stuyvesant Restoration Corp., which develops homes for sale. “We have to also focus on the preservation of homeownership, to make sure that their equity is not stripped out by unscrupulous practices.”

When a homeowner does lose his or her home, it’s a big economic blow. One Minnesota study found that the instant dollar loss for a family averaged $7,200. The longer-term impact of having a terrible credit rating after foreclosure adds thousands more.

Maybe not every homeowning family will build wealth, but at least they make better neighbors and citizens, right? Proponents of homeownership often argue that there are a range of social benefits that go beyond dollars and cents. They point to studies showing that homeowners are more likely than tenants to belong to civic and political organizations, to know the name of their member of Congress and to go to church. And, most importantly, the children of homeowners do better in school.

However, those same studies conclude that such positive impacts are largely tied to the fact that homeowners live in one place longer than most renters. It’s not that homeowners are better citizens because they have an investment to protect. Rather, when that family can count on staying in one place, and isn’t at the whim of a landlord, it can invest time and energy in building civic life. “A lot of it boils down to residential stability,” says Ingrid Gould Ellen, a professor of public policy and urban planning at NYU’s Robert F. Wagner Graduate School of Public Service. “In that regard, rent control can be just as good for families.” More than a million New York City households benefit from rent regulation. But these people aren’t the stuff of presidential conferences; no politician talks of promoting rent regulation to strengthen neighborhoods.

Of course, any given family can gain greatly from owning a home, if it’s fortunate to take out a fair loan and keep up on mortgage payments. But, as the Research Institute report dryly concludes, “Those involved in promoting homeownership should be careful not to oversell homeownership, particularly among those who are less likely to be successful homeowners.”


5. And Hold On Tight

Building new housing is critical, but so is hanging on to homes that are already here. Multiple threats to preserving affordable apartments lurk not-so-stealthily on the horizon. Already, thousands of apartments leave the rolls each year. Thousands more, built in the 1960s and 1970s with government subsidies, are now in danger of having their rents suddenly shoot up.

Two big affordable housing programs are currently under threat.

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