Building Affordable Housing In New York Keeps Getting Harder
Housing cost and housing supply are two of the biggest issues facing New York. One of the city's most prominent affordable housing developers and owners says there is no consensus on how much affordable housing the city actually needs, but he has an estimate.
"I do not believe anybody has actually stated how many affordable housing units are needed in New York City," said Jonathan Rose, the CEO and founder of his eponymous firm. "My guess is about 800,000."
Most of the numbers surrounding the idea of meeting affordable housing needs in New York are astronomical. The city has added about 50,000 jobs every year since the Great Recession, driving up demand for market-rate units even in the outer boroughs. Construction costs are higher in New York than just about any city in the world, which makes it impossible to build new affordable buildings without heaps of government subsidies.
Perhaps nowhere is the gap between the supply and demand for affordable places to live more visible than in the lotteries for new, affordable units when they hit the market. At the Essex Crossing megaproject on the Lower East Side, the developers recently launched a lottery for 104 units, and received 93,000 applications. That is an acceptance rate of 0.1%. Harvard University, by comparison, accepted 5.2% of its 40,000 applicants for the upcoming school year.
Getting to 800,000 affordable units "will take a long time, so I’m calling for a 2050 affordable housing strategy, knowing it will take decades to do," Rose said. "It would be really interesting if consensus could be developed about what is needed. I think it’d be really useful for that number to be known so we could track how well we are doing in achieving it."
Rose is doing his part. His company just completed a $233M funding round, raising capital from investors to acquire and preserve affordable housing nationwide, including in New York. That would add to the company's portfolio of 15,000 affordable housing units and well over $1B in the pipeline.
L+M Development Partners Development Director Isaac Henderson is leading the building of Essex Crossing. Despite the fact that the project will bring hundreds of new, affordable apartments to the area, he said it has faced opposition because the term "affordable housing," while a comfortable catch-all, means many things to many different people.
There are developments for the formerly homeless, developments for low-income residents, who make less than 30% of the area median income, moderate-income and even up to housing designated for people earning 130% of area median income.
"This whole discussion is about 'affordable for whom?' It used to be a narrow discussion, but right now, you talk to anybody in New York, at any income group, and they’re saying ‘this is not affordable for me,'" Henderson said. "It’s crazy. It's everyone. Nobody feels sympathy for the other group."
At Essex Crossing, with scale, L+M can offer units at almost every income level, Henderson said. But L+M has a near-term pipeline of well over 5,000 units across New York and New Jersey, and not all of its projects can offer such diversity.
The diversity of unit type is nothing compared to the diversity of funding sources developers and landlords must use to cover the cost of construction and upkeep. With multiple city and state agencies, federal funding programs and tax credits and different types of loans banks can offer, it takes a village to fund a project that requires ongoing funding just to stay in the black.
"When you factor in the cost of construction in New York City and you model out for affordable housing, it pencils out in the red," Ariel Property Advisors Executive Vice President Victor Sozio said. "The only way to do it is to get subsidies, to get bonds or tax credit equity or a cocktail of subsidies."
Mayor Bill de Blasio, who seems well on his way to a second term in Gracie Mansion, is a major proponent of subsidizing affordable housing, and has set, and met, ambitious goals of building more. His foil, Gov. Andrew Cuomo, also has robust programs targeting the issue. But the Department of Housing and Urban Development, which funds Section 8 vouchers and presides over the crucial Low Income Housing Tax Credit program, is a current source of consternation.
HUD Secretary Ben Carson's leadership at the multibillion-dollar department is reportedly a mix of absenteeism and nepotism, but Rose thinks concerns about massive cuts from the executive branch have been overstated.
"It’s something I’m deeply concerned about, but there is a huge gap between the Trump administration’s objectives and what the Congress is going to do," he said.
But Sozio, who brokers investment sales, many of which involve affordable apartment buildings changing hands, said the discourse around HUD has colored conversations on the ground in New York, even though it is such a strong local priority.
"It has played into the overall psyche of the affordable community to have this chatter about cutting subsidies and taking a hard look at how things work and making cuts," he said. "I’m certain that almost any federal, state or city agency has the ability to trim the fat and get rid of systems that no longer work. I just don’t think it’s realistic to cut back or take away subsidies that not only families around the country depend on, but the landlords that serve them depend on in order to house them. It would have an extremely negative impact that would snowball."
With construction costs, wage stagnation, land inflation and HUD consternation, the affordable housing industry is in the familiar situation of facing heaps of questions without any good answers.
"There's no simple answer to all this stuff," Sozio said.
When told of the latest affordable housing lottery numbers and the rate of acceptance, he mustered a "wow," before summarizing the issue the industry faces.
"It exemplifies how severe the affordable housing crisis is becoming in New York and the need for affordable housing for a lot of our residents."
Rose, Sozio and Henderson will all be speaking at Bisnow's NY Affordable Housing event Sept. 19 at Signature Theatre in Midtown. Sign up here.