Affordable Homeownership And The '$1 Billion Promise'

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Producing affordable housing

One year ago, city officials made a promise to Harlem residents during the process of rezoning 125th Street: That in the near future, measures to encourage affordable homeownership would be implemented. While the rezoning included features to create more affordable housing, those units came with the limitation of being rental only.

This February, the city Department of Housing Preservation and Development and the Department of City Planning made good on that promise by starting the public review of an amendment to the inclusionary housing program that provides an affordable homeownership option.

The inclusionary program gives developers increased height and floor area ratio – FAR, or the ratio of floor area to the size of the lot – in return for the creation or preservation of affordable housing. These incentives help create affordable units in otherwise market-rate developments, recruiting private developers to help reach the Bloomberg administration's goal of generating 165,000 units of affordable housing.

City Planning Commissioner Amanda Burden said in a public statement, “We will be offering new opportunities for New Yorkers who want to invest in their neighborhoods to earn a safe and significant return at an affordable price.”

Officials from HPD and DCP have been making the rounds to community board meetings to explain these changes as part of the amendment’s public review process. (Comments may be mailed to the City Planning Commission, Calendar Information Office – Room 2E, 22 Reade Street, New York, N.Y. 10007, or faxed to (212) 720-3219 by Monday, April 27.) At a meeting of Brooklyn CB1 on March 17 at a Greenpoint seniors center, the idea was received positively, though there were some concerns over the technicalities of the plan.

The recently approved East Village/Lower East Side rezoning and the ongoing Greenpoint/Williamsburg contextual rezoning offer inclusionary bonuses that would be altered under the new zoning amendment, creating new opportunities for middle- and lower-income individuals to become homeowners in their own neighborhoods.

One limitation of the inclusionary program is that it is subject to overall market conditions. Taking advantage of it effectively requires a larger investment into a larger building and as such, fewer developers may utilize it until the housing market stabilizes and new construction picks up again. But “We’re implementing the framework now for when the market comes back,” HPD Deputy Commissioner for Development Holly Leicht said in an interview.

Brad Lander, a senior fellow at the Pratt Center for Community Development (he stepped down from the director position recently to focus on his run for City Council), said that while current market conditions may not be conducive to the aims of the inclusionary program, he thinks expanding it is a “good strategy” for affordable homeownership. Despite his concerns about the present, Lander said, “This is a program that’s going to have value over the next several decades.”

HPD plans to ensure affordability over the long term by limiting the sales price appreciation of affordable homes to a maximum of 5 percent per year, with a chance to revise this limit every two years for inflation and other factors. For the first sale, the base income eligibility for buying an affordable unit is set at 80 percent of the Area Median Income (AMI).

At resale, the new buyer is qualified by measuring the monthly costs of the property. Assuming a 10 percent down payment, mortgage costs plus maintenance and taxes are calculated to determine the month-to-month expense. Potential buyers must be spending roughly 30 percent of their income on the month-to-month expenses to qualify.

The sales price limit coupled with initial income requirement creates a smooth curve of eligibility because income averages for New York also tend to increase at a little less than five percent per year. According to HPD’s projections, 15 years later, the eligibility limit would only move up to 81 percent AMI. And even after 100 years of similar increase the unit would not reach the maximum eligibility of 125 percent AMI.

Susan Albrecht, co-chair of the board of directors for Neighbors Allied for Good Growth, a community group in Brooklyn’s CB1, said she liked the proposal's model for long-term affordability, but didn’t think the math added up for developers. “They talk about a family of four earning $54,000, paying $1,300 a month, and that adds up to an apartment of $150,000. You can’t build a [two-bedroom] apartment for $150,000,” Albrecht said.

However, the amendment is also easing cost requirements by revising debt restrictions on the affordable units, allowing the developer to still have construction loans on the unit while marketing it. And under the updated rules for R10 zonings, developers can now opt for government subsidies to help cover costs in exchange for a reduced bonus (1.25 extra square feet for every square foot of affordable housing.)

Leicht from HPD acknowledged that the current credit crisis would have an effect, at least for the time being. In discussing the homeownership option, Leicht said, “general bank reticence may not make it the most utilized portion of the program.”

Although the financial crisis has thrown a wrench in the plans of housing developers, HPD says its precautions in dealing with buyers have largely insulated it from the fallout of the mortgage crisis. Miriam Col

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