The city of New York (NYC) has unveiled plans to provide 300,000 rent-controlled homes to meet Mayor Bill de Blasio’s ambitious targets for affordable housing in NYC. However, critics of the project suggest that government incentives may not go far enough to ensure the involvement of the private sector in construction drives.
“Current incentives are not robust enough to create the number of affordable housing units the city needs to meet current needs,” says Bob Knakal, chairman of investment sales in JLL’s capital markets division in NYC.
“That in turn causes the government, through rent regulation reform, to increase the burden on the private sector to provide the affordable housing stock the city needs, but those reforms have missed the mark of achieving their objectives.”
Yet the case for affordable housing in NYC is perhaps stronger than ever. The Coalition for Homelessness reports that some 63,000 people lack a roof over their heads, while at least 44% of the city’s population are in the low-income bracket and thus in need of subsidised housing.
A government U-turn in the 1970s paused the construction of new public housing across the country and slashed state-funding for its provision, while changes in tenancy law disincentivised the individual upkeep and maintenance of public homes.
Compounding this issue is the fact that 88% of the residents of affordable housing in NYC are black, Hispanic, or Latino, compared to 53% for the city as a whole, muting the political impetus for reform.
Lawyer Daniel Bernstein of Rosenberg & Estis works with private sector developers who are involved in building affordable housing in NYC. According to Bernstein, “the city cannot build all of the housing it needs and must effectively incentivise private capital”. There are currently three ways of doing this: property tax incentives, handing out zoning benefits such as additional development rights; and offering financing at below market-rate terms.
Bernstein argues that the city is using these tools to essentially “incentivise” affordable housing units in mixed-income projects, where these incentives are intended to be combined with rents from market rate apartments sufficiently robust to “cross-subsidise” the lower rents in the affordable housing units. “But this may not always work,” he notes.
“The market rents may not be substantial enough to subsidise the affordable housing, plus, not all projects make sense as mixed-income projects.”
Surveys show that renters paying market rates have mixed feelings about sharing apartment blocks with highly subsidised tenants. But projects with separate entrances for different residents or reduced amenity usage risk creating apartment apartheid.
“Nevertheless, a range of private sector developers are evaluating if it makes sense for them to get involved,” Bernstein explains. “These range from traditional developers who want to take advantage of incentive programmes, and those that have been dedicating themselves to affordable housing for some time.”
Burgeoning PropTech solutions may yet be part of the next frontier of affordable housing in NYC. Co-Living concepts for the private sector are on the rise in high-density cities, rendered popular for their smart use of space and shared facilities, coordinated by state-of-the-art technology. Their popularity also reflects a rise in the developed world of single-person households. For both of these reasons, Co-Living has the potential to provide solutions in the affordable housing arena, Bernstein says.
“The city has put out a request for the development of Co-Living projects as part of a raft of affordable housing solutions. Affordable housing has to make sense economically for private developers, but the combination of smaller housing units and the right services for residents is attractive. The city is also providing a programme for seniors that would have a shared component, so PropTech is definitely an interesting part of the path forward.“
In Brooklyn, star architect Daniel Libeskind has been commissioned to design a 10-storey senior housing development within the New York City Housing Authority’s (NYCHA) Sumner Houses, in collaboration with Selfhelp Community Services. Pensioners with an annual income up to around $40,000 will be able to apply. Devised to prioritise light, mobility and connection, the scheme is part of a wider brief to address the fact that some 2 million pensioners will be living in NYC by 2040.
The project underlines the fact that effective affordable housing in NYC can best be achieved with attractive, commercially viable projects which also tackle the city’s affordability crisis.
“There are fewer and fewer pieces of vacant land in the city, so any development that happens is constrained,” Bernstein notes. “Architects know that the projects they design will only get built if they make sense economically.”
Happily, new drives for affordable housing in NYC can count on an almost unparalleled heritage of public city stock compared to the rest of the country. Many cities have demolished former social housing schemes, while NYCHA today still houses some 400,000 people in 326 developments from districts as varied as the Upper East Side to Williamsburg. Plans to expand this provision rely ultimately on wedding public sector targets with private sector goals.
“People can see that this mayor is sincere about wanting to meet the city’s housing needs,” Bernstein concludes. “But that might not be enough to convince stakeholders in the city’s real estate business. In fact, recent changes in tenancy laws and rents have placed the burden on the private sector to find solutions.”
“Public sector officials don’t speak to the private sector enough to understand what will motivate them,” Knakal warns. However, there is hope, he suggests. “Municipalities are more concerned with tax revenues per tax lot, while real estate players care about taxes per square foot. If incentives include an increase in density, that could be one solution for meeting the goals of both.”
