Affordable Housing Builders Face Daunting Task Of Pitching Development To Communities
Affordable housing developers are bracing for a tough few years in New York City as uncertainty around government incentives and increasing community aversion to development threaten to derail projects.
The key is continuing to push growth in a way that benefits all New Yorkers, panelists said at Bisnow’s New York multifamily and affordable housing summit last week, but views on how to do that are becoming increasingly disparate.
The city’s years-long affordability crisis has only been worsened by the coronavirus, which has killed tens of thousands and pushed unemployment up over 10%. Continuing to build is crucial, they say, but working to achieve community buy-in is more important than ever before.
“At some point, we have to find a leveling ground in the city particularly around development because the economy has changed, the impact on communities has changed. Development means jobs,” said Rafael Cestero, the CEO of nonprofit affordable housing and community revitalization finance company Community Preservation Corp.
"We need to be doing it in an equitable and inclusive way, but we need to find a way to agree that growth and development activity is a positive thing for the city and it is a positive [for] neighborhoods and a positive thing for the people," he said. "If we can’t do that, we are in for a very long period of challenge in New York City.”
It is certainly a daunting task. Communities in New York City that have seen major rent hikes and vast displacement have become increasingly anxious about development in recent years. Amazon’s decision not to build in Long Island City and the failed rezoning of Industry City are both considered examples of the result of anti-development sentiment — and many in the real estate community are anxious over state and city policies they think will hold development back.
BFC Partners Managing Principal Donald Capoccia, who focuses on development of affordable housing in emerging neighborhoods, said there is no doubt the sector is facing major headwinds from a financing and regulatory standpoint.
“These are going to be a challenging two years,” he said during the summit. “The cost of construction in New York now makes it almost inconceivable that the rental market could survive without 421a. It just can’t be done. Certainly, I would hope that it’s going to be extended, but we have a unique legislative body at this point. It’s definitely a new world there.”
That tax abatement, which has been used by developers in New York for years, is up for renewal next year, and there are already bills proposed to repeal it. Real estate players say the uncertainty is affecting negotiating and pricing on development, and while its critics say it is ineffective and a waste of money, many developers argue killing it off would stop development in its tracks.
“One of our primary goals over the next year or two is to restabilize our rental portfolios, get our families back working and back paying rent and bringing rents up to where they were,” Capoccia added. "If there is a package out there to create the investment and subsidy needed to do this kind of work, then that will be a major factor for all of us in that world to keep busy and keep producing the desperately needed housing."
Panelists said working families and communities of color were hit the hardest by the pandemic, which is showing up in rent shortfalls across their portfolios. Overall, the state is facing a $15B budget deficit, while the city’s 2022 budget expects property tax revenue to be $2.5B less than it had once projected.
The Real Estate Board of New York estimates that the city lost more than $1.6B in revenue from lost real estate transactions as a result of the coronavirus pandemic in 2020.
President Joe Biden’s $1.9 trillion stimulus package includes $25B in rental assistance for low- and moderate-income households, but the aid package is still yet to pass the Senate. Wednesday, Biden agreed to narrow the eligibility requirements for the next round of stimulus checks. Still, panelists are buoyed by the fact that New York Sen. Chuck Schumer now leads the Senate and will be sympathetic to the city’s financial woes.
"Hopefully when the [stimulus] funds do come in, they are committed to affordable housing. I expect they will be," said JPMorgan Chase Managing Director David Walsh, who runs the bank's affordable housing development lending platform. "We've got a senior senator from New York who is spearheading a lot of this ... I would expect we will see more resources."
While federal funding remains a key issue, real estate players are increasingly focused on local politics, with the mayoral race this year. How property taxes will be handled, approaches to zoning and affordable housing policies are all front and center for developers, landlords, renters and community advocates alike.
“This is the most consequential election in New York City history, as they have to deal with the crime, the fiscal deficit and the shortage of affordable housing,” said Keith Gordon, the managing partner of NCV Capital Partners.
Shaun Donovan, a secretary of Housing and Urban Development under President Barack Obama and former housing commissioner under Mayor Michael Bloomberg, is one of the 30 people running for mayor right now, and he told the virtual audience he has seen New York City come back from crisis after crisis.
“We recovered in the 1970s because everyone stepped up ... There are always going to be NIMBYs who say we shouldn’t [push forward with development] … [but] I don’t think anyone could argue that our status quo is OK right now in New York," he said. “Minneapolis just made a huge change to its zoning code to create more density, that was led by a group of primarily Black and Brown activists who felt like they needed more affordable housing, and also the private sector coming together.”
Those are the kinds of coalitions that need to be taking place in New York City, Donovan added, before touting his deep relationships in the federal government.
“We need to get the help we deserve from Washington, D.C. Every year, New York sends $23B more to D.C. than we get back in services," he said. "That needs to change. I’m the only person in this race that actually knows where the bodies are buried in D.C."