The Plan to Save Public Housing
by Brendan O’Connor
On Tuesday, in a gymnasium at the Johnson Houses in East Harlem, Mayor Bill De Blasio announced a new plan to revitalize and expand New York City’s public housing stock. Currently, more than half a million New Yorkers live in housing run by the New York City Housing Authority — nearly four hundred thousand in the city’s three hundred and thirty-four public housing developments, and another two hundred and thirty-five thousand in Section 8 housing. Founded in 1934, during the depths of the Great Depression, NYCHA began a long, slow slide into insolvency in the late eighties, as the federal government began divesting from public housing across the country. According to the New York Times, had earlier funding patterns held, the Authority would have received over a billion dollars more in federal funding than it actually has since 2001. They didn’t and it hasn’t, so the city’s public housing program is falling apart. “This is, at this moment, the worst financial crisis in the history of NYCHA,” De Blasio told dozens of reporters and a handful of tenants. “Literally the worst.”
The Authority’s buildings, more than three-quarters of which are over forty years old, require approximately seventeen billion dollars in unmet capital needs. “All types of repairs need to be done for the long haul, and the resources have not been there,” the mayor said. Moreover, “NYCHA has approximately one month of surplus cash on hand — one month, and after that will go into deficit.” If nothing is done, the mayor said, the housing authority’s deficit will build to two-and-a-half billion dollars over the next decade.
De Blasio bracketed his presentation of the plan to save NYCHA — branded NextGeneration NYCHA — with calls for the federal government to re-invest itself in affordable housing and infrastructure. “The federal government has to be much more of a key contributor again,” the mayor said. In response to a question regarding how much time he’s been spending away from New York City, the mayor said, “If you wanted the federal government to get back in the affordable housing business, one of the only ways to get there is with a more progressive tax system.” Last week, De Blasio traveled to Washington, D.C. to present a federal policy agenda with Senator Elizabeth Warren, and then to California to speak at UC-Berkeley with former Secretary of Labor Robert Reich. “I hold out the hope if we do that well, and if we join with cities around the country that we might be able to get more of the resources we have long been waiting for,” he added. (Many of New York’s mayors find their office taking them outside of the city: Michael Bloomberg, for example, spent many weekends in Bermuda.)
However, NYCHA’s current crisis can’t entirely be attributed to federal divestment: In December, Comptroller Scott Stringer found that NYCHA had, due to what he called a “culture of incompetence,” failed to collect on nearly seven hundred million dollars in federal and state incentives and subsidies. “NYCHA never acknowledges any of our audits. Never acknowledges there’s a problem,” Stringer told the New York Observer in April. “They are an embarrassment to government.” The new state budget, passed in March, authorized a hundred million dollars in funding for the Authority; the state funding is supplemented with another audit. Stringer’s office declined to comment on NextGeneration NYCHA.
The De Blasio administration has already taken steps to ameliorate the situation, cancelling a thirty-million-dollar annual tax payment the authority has had to make to the city since 1949, and absolving the authority’s responsibility to pay the NYPD $72.5 million annually for policing public housing properties. In addition to saving the Authority $4.6 billion in capital needs over the next ten years, the mayor argued that NextGeneration NYCHA will also create new revenue streams, leading to a two-hundred-and-thirty-million-dollar surplus. Among other things, NextGen NYCHA will enable the authority to increase the rate at which it collects rent — currently about fifty-four thousand households are delinquent — at a gain of thirty million dollars annually. It will also start charging as much as a hundred and fifty dollars per month for parking.
The cornerstone of the NextGeneration NYCHA plan, though, is the leasing of public land to private developers. This is not a new idea — the current administration’s plan is reminiscent of a Bloomberg proposal that De Blasio killed shortly after taking office — but the mayor alleges it will be executed in a new and more equitable way than previously envisioned. The Bloomberg plan, initially put forward in 2006, would have authorized developers to construct buildings on public land with a ratio of eighty percent market-rate apartments to twenty percent affordable units. (In 2008, as Manhattan borough president, Scott Stringer issued a report critical of the Bloomberg plan. “NYCHA’s development rights are a precious publicly owned resource — perhaps the last large-scale stock of public property in the city that could be leveraged toward meeting New York’s affordable housing needs,” the report reads. “Once these development rights are sold, they are gone forever. We owe it to ourselves, and especially to the public housing community, to look carefully before we leap.”)
Under NextGeneration NYCHA, however, the privately developed rentals built on leased public land will be available at very different rates: The mayor’s plan will create ten thousand new units in buildings that will be a hundred percent affordable, and another thirty-five hundred affordable units in buildings that will be fifty percent percent market-rate housing and fifty percent affordable. These units will count towards the mayor’s grander plan to build or preserve two hundred thousand units of affordable housing over the next decade.
This part of the mayor’s plan — a combination of a hundred percent affordable buildings and these 50:50 buildings — is supposed to generate five hundred million dollars in revenue for the Authority over ten years. The locations chosen will be very important. According to a report published by NYU’s Furman Center earlier this month, not all mixed-income housing will generate the same amount of revenue:
In strong markets, such as Downtown Brooklyn, a high-rise building with 302 units could generate approximately $2.24 million annually for NYCHA while maintaining 20 percent of the units as affordable. If NYCHA chose to forego a ground lease payment and instead maximized the number of affordable units, 47.5 percent of the units in this new high-rise development could be affordable to low-income households without any additional subsidy. A compromise approach could result in an annual ground lease payment of $1.48 million to NYCHA with 30 percent of the units affordable to low-income households.
The capacity to lease NYCHA land to generate value in the form of affordable units or ground lease payments is much lower in parts of the city with lower rents. In an area with moderate rents, such as Astoria, a mid-rise development with 20 percent of the units affordable to low-income households would only generate an annual lease payment of $117,000 for NYCHA. Even with no lease payment, that development could only support making 26 percent of its units affordable to low-income households.
An earlier Furman Center study, from March, was specifically critical of the administration’s plans to facilitate affordable development in lower-rent areas like East New York and the Jerome Avenue corridor in the Bronx by allowing for zoning variances that would increase buildings’ height. The report argues that you can increase height — and therefore density — all you want, but in such areas, developers simply aren’t going to be able to charge enough in rent to cover the costs of construction. “If you’re in Union Square you can build anything you want because the rents pay for it,” David Kramer, a developer at Hudson Companies, which builds both affordable and market-rate housing, told the Wall Street Journal. “Then you go out to Astoria and you can’t be too fancy. Then you go to East New York and there’s no new construction of market-rate housing at all.” (The average rent for a one-bedroom apartment in Astoria in April was over two thousand dollars per month.)
This, then, is at least one argument in favor of renewing the 421a state tax abatement — which reduces property taxes for a set period of time (usually ten years) — that developers receive for building on underused or unused land: Without 421a, set to expire in June, some developers say they won’t be able to build affordable housing in lower-rent neighborhoods at all. But tax abatements for developers don’t really make the city a more affordable place to live in — they make the city a more affordable place to build in. Rents have continued to rise, and people continue to move further out from the city center. Unless, of course, the present abatements were revised to require that more housing in a given building was “affordable” in order to qualify for a tax break. Another solution would be to focus the search for underutilized NYCHA property in higher-rent neighborhoods, where the revenues from market-rate units in mixed-income buildings would be maximized; rising rents all over the city, but particularly in these neighborhoods, would allow developers to charge more for the market-rate units.
Of course, if rents weren’t rising so dramatically, the government wouldn’t need to subsidize private developers to build such highly sought-after affordable housing for the city’s increasingly overburdened working class in the first place.
Top photo by Edward Banks