Opinion: If Council Passes Homeless Set-Aside Law, De Blasio Should Veto It

Advocates and elected officials have been calling for a larger share of the city’s housing plan to be set aside for the homeless. Now the City Council Speaker has guaranteed that a bill requiring a 15 percent homeless set-aside on all affordable housing projects is going “to move.”

If the bill moves through the Council in that form, Mayor de Blasio should veto it.

The reality is that not every project that uses city subsidy can support the costs associated with a 15 percent homeless mandate. Less affordable housing will get built and preserved, and that means less homeless housing too.

Homelessness is one of the most urgent housing and humanitarian crises we face today. With more than 60,000 in shelters in New York City each night and thousands more living on the streets, you can’t blame the Speaker for his sense of urgency, and I fully support his desire to increase opportunities for homeless families to access safe, permanent, affordable housing. But that doesn’t make this legislation good housing policy.

It’s counterproductive to tie the hands of the city’s Department of Housing Preservation and Development (HPD), an agency already stretched to the limit as they attempt to deal with an affordable housing crisis that requires flexibility and creativity to meet the unique housing needs of our diverse communities.

Depending on the project, HPD often does require a higher percentage of homeless units to be set-aside as a condition for receiving subsidy. But in other cases, the basic economics of a project simply will not support it.

As a 45- year-old nonprofit housing finance company, at CPC we have worked with HPD for decades to help finance affordable housing in every borough, including housing for homeless individuals and families.

We support the aggressive use of HPD’s programs to increase housing opportunities that allow homeless families to regain their stability, to help students living in shelters get safe, permanent homes, and for individuals on the streets to move into supportive environments where they can get back on their feet.

But as the president of a housing lending institution and as a former HPD commissioner, I know what the financial realities are, and how hard it is to make affordable and homeless housing projects work.

The concept is fairly simple: the deeper the affordability, meaning the less rent a tenant pays, the more city subsidy is needed to make the finances work.

In a building where every unit is affordable to low-income tenants, rents held low enough to support a family with an income of $25,000 per year also means that there isn’t enough rental income to pay the basic maintenance and operating costs without also requiring a lot of additional money from the city.

Add a mandatory 15 percent homeless set-aside to that project, and the financing is impossible.

Why? Because homeless units bring in far less rent than regular low-income units. That building will need even more subsidy from the city just to keep the lights and heat on.

These subsidy resources aren’t unlimited. If you’ve got a mandate that requires more subsidy per project, the number of new projects and units you can build will go down. In this scenario, fewer affordable projects also means less homeless units.

Additionally, private building owners come to HPD to use smaller “light touch” subsidy programs that help pay for things like replacing a boiler. In exchange, they sign affordability agreements with the city that limit rents and put their apartments into rent stabilization.

If subsidy for a boiler or other maintenance project triggers a 15 percent set-aside, many owners would likely find other bank funding and stay market-rate. In fact, we’ve already seen some owners opt out of HPD programs, like the Participation Loan Program, when the homeless set-aside was too high to support the economics of the building.

That’s a big loss for the owner who needs a reliable funding resource to maintain the property, and an even bigger loss for the current tenants who miss an opportunity for guaranteed long-term affordability.

Administrations since Koch have taken a balanced approach to creating and preserving mixed-income housing. This model allows the rents from the higher-income units to help pay for the low-income units and homeless set asides—stretching city subsidy further to reach more New Yorkers.

In this model, more is more. Of the roughly 135,400 affordable homes financed to date under the mayor’s plan, 84 percent serve low-income New Yorkers.

And over 11,500 units have been set aside for homeless New Yorkers – a number that has grown year over year as the city has adjusted many programs to require at least 10 percent of units be set aside for homeless tenants, with some programs requiring 20, 30, and 60 percent for supportive housing developments.

The reality is that no jurisdiction in the country does more to address homelessness then New York City, and rest of the nation routinely looks to us for innovation in housing policy. There are absolutely more ideas we should be exploring, such as: relaxing the screening requirements to get homeless into affordable housing, creating incentive programs to encourage more building owners to accept formerly homeless, and increasing the amount of rental assistance vouchers.

I believe we should also examine the possibility of allowing the creation of more SROs, which when operated by responsible owners, have a history of serving the housing needs of those at very lowest incomes who wouldn’t otherwise have access to stable housing.

What we shouldn’t do is pass restrictive, inflexible legislation that takes away the city’s ability to create the sort of programs that respond to the unique housing needs of our diverse neighborhoods, the ebbs and flows of the market, and to the budget and political whims of our other government partners.

Finding new ways to create more housing for homeless families and individuals is good housing policy. Restrictive legislation that makes HPD’s already difficult job even harder, is not.

Rafael Cestero is the president and CEO of the Community Preservation Corporation, a nonprofit multifamily finance company, and former commissioner of the City’s Department of Housing Preservation and Development.