Affordable Housing Development Will Never Die In NYC. Here's Why.
Affordable housing development has never been easy, but now—with rising land prices, increasing resistance to gentrification and the government struggling to provide incentives—it’s a bigger headache than ever.
But, according to some of the panelists of Bisnow’s New York Affordable Housing event, which will be held at Howl at the Moon on Sept. 8, this doesn’t mean we’ve reached a wall.
The biggest cloud hanging overhead has been the lack of the 421-a tax abatement, leaving many developments to stagnate and causing new project filings to drop off a cliff.
With multifamily investors, developers and owners finding it more difficult to pencil out new developments, Ariel Property Advisors EVP Victor Sozio says they’re looking for stable, longer-term investments with little downside and can still generate a solid revenue through market volatility. Thus, many are adding existing Section 8 or Low Income Housing Tax Credit properties to their portfolios.
“They’ve inadvertently created a larger buyer and financing pool that, in turn, creates more competition between bond operators and owners who conventionally finance their properties,” he told Bisnow.
Victor insisted the 421-a was of “paramount importance and needs to be addressed immediately,” but CohnReznick partner Winell Belfonte (left, speaking at a Bisnow event in DC) says we're still evaluating the impact the 421-a’s loss had on housing starts.
KeyBank Real Estate Capital VP John Gilmore also wasn’t as negative, saying 421-a was more important to market-rate and mixed-income developments, while affordable housing tends to use LIHTC and 420-C.
“But anything that can encourage development is a boon for the industry,” he said.
Gov. Andrew Cuomo has taken steps to bring back the abatement with his new proposal. The panelists were hesitant to talk about it—the details are still vague—but were happy about the restart of discussions.
The panelists were also mixed on the success of Mayor Bill de Blasio's initiative to preserve or create 200,000 affordable housing units. John and Joy Construction director of development Eli Weiss believe the mayor did the best he could with a tough market, rising land prices, few buildable sites, jittery capital markets and conservative banks.
Victor agreed the mayor was well-intentioned and had made a significant net positive for the city, but said de Blasio's goal may be too high to achieve pragmatically.
One of the main reasons de Blasio has struggled, Victor says, is the tendency for both developers and the city government to “paint with a broad brush,” treating all NYC communities as the same and not doing anything to preserve each one's unique character.
John agrees, saying the 60% of average median income threshold for affordable housing residents is detrimental. Wage growth hasn’t matched median income growth, which has only shifted due to the top of the curve making more money.
“The 60% AMI can be $10k or $20k more than existing residents can afford,” he says.
Eli says there will always be resistance, but developers and government workers must educate people on what an affordable property is and what it will accomplish. He sympathizes with residents, explaining how one mixed-income project met some resistance because the large development site temporarily displaced a few parking spots.
“You’d think it’s small in the grand scheme of things,” he says, “but these are people’s lives we’re dealing with here. We need to remember people are actually living in here and design for that.”
Proper communication, John (left) says, is essential to adding density to create a positive social impact.
While affordable housing is down, Eli’s confident it’ll never be out. With more than 100,000 new residents coming to NYC every year, simple supply/demand dynamics will always make affordable housing demand insatiable.
“We’re currently at the population levels we had predicted for 2020,” he said.
And, affordable housing is just good business, he adds. Many of the city's biggest developers, such as Related, got their start in affordable housing development and they’re still there for a reason.
Still, there are several things that can be tweaked to further kick-start development. While Victor argued for the refinement of the Article 11 shelter tax program—which taxes based on the percentage of revenue—Winell advised affordable housing developers and owners to have accurate, timely systems for creating reports for investors, which can boost confidence and build good faith for future projects.