Why De Blasio’s ‘affordable housing’ proposal won over developers
Mayor Bill de Blasio on Thursday proposed a plan he said would reform a key tax-abatement program for developers, requiring any company that takes the subsidy to set aside 25 percent to 30 percent of its apartments as “affordable.”
The mayor was blunt in his assessment: “No more tax breaks without building affordable housing in return,” he said in a statement. “Period.”
But de Blasio’s proposal for the 421-a program is not as simple as he lets on. Developers would be given a “menu of options,” including one that would allow them to lease “affordable” apartments at rents that exceed the current market rate in many neighborhoods. Currently, the program only requires affordable housing in Manhattan and parts of Brooklyn and Queens, about a sixth of the city. There, 20 percent of projects must be set aside at low rents.
Under the mayor’s plan, the program would allow a project to set aside 30 percent of its units at rents affordable to New Yorkers earning up to 130 percent of the area median income—currently, about $112,000 for a family of four. That would mean a rent of around $2,800 per month. Only the city’s hottest neighborhoods have average rents that are much higher and many other areas are right at that level.
“That’s what’s built anyway,” said Moses Gates, the director of planning and community development at Association for Neighborhood and Housing Development. “And that’s using a tax abatement to subsidize market housing.”
The option is meant for middle-market neighborhoods, said Vicki Been, the city’s housing commissioner. There are also options designed for strong and struggling markets, she said, but indicated it would be entirely up to the developer to choose the right formula.
“We’re trying to not draw lines and draw boundaries and draw categories,” Been said, saying they want the subsidy to “fit” the neighborhood. “We’re trying to draw this menu so it can adjust to market cycles. It can adjust to changes in each market.”
She admits the first option is indeed no more affordable than the current market-rate rents in the neighborhoods for which it is designed. Those areas include Queens neighborhoods like Astoria, parts of Flushing and parts of Jamaica. There, market-rate rent are still affordable to a good number of New Yorkers, Been said. At the same time, housing can be built there with no direct city subsidy, which would be prohibited for developers choosing the middle option.
In struggling neighborhoods, which Been said includes soon-to-be-rezoned East New York, developers might choose an option that would also require a 30-percent set aside but at a range of different affordability levels. In that case, 10 percent of a project would have to be affordable to a family of four earning $60,400 per year today, or 70 percent of A.M.I. The remaining 20 percent could be leased at the same middle-market level, meaning developers wouldn’t even be able to command the maximum rents. Developers would also be able to seek direct subsidy from the city, which could allow for deeper affordability or more units being preserved.
The third option is designed for projects in strong markets, like most of Manhattan and gentrified Brooklyn. Under that scenario, developers would only need to set aside 25 percent of a project as affordable, but at deeper levels. They would need to make 10 percent of the units affordable to a family of four earning just $34,500 per year today, or 40 percent of the A.M.I. That’s a rent of about $865 per month. Another 10 percent would be for families making $51,800 per year, or 60 percent of A.M.I. The remaining 5 percent would go to that six-figure salary category of 130 percent A.M.I. There would be no direct subsidy available, but developers could seek bonds and some low-income tax credits.
Given how much of the required “affordable housing” would be leased at market rate, what is the point of setting affordability requirements? Been said these are essentially caps—hedges against future market growth. Under the mayor’s plan, the tax abatement period would be extended from the current 25 years to 35 years—a plus for developers but also a guarantee that those rents will remain stable for more than three decades.
“Once the market reaches that you’d still have that protection,” Been said, also noting that the median income would likely increase with time as well.
Perhaps tellingly, de Blasio’s plan drew immediate support from an unlikely ally: The powerful Real Estate Board of New York, defender of multi-millionaire developers. Despite all the seemingly bad things for its members—the expanded affordability requirements, a ban on giving the abatements to condos and a new mansion tax on homes sold for more than $1.75 million—REBNY said it would back the plan and had already called lawmakers in Albany to say they should approve it.
“I think you have to look at the entire benefit program,” Steven Spinola, the group’s outgoing president, said Thursday. “It’s 25 years. That’s 25 years of no taxes.”
That may seem like a long way out. But to the builders of rental housing, the change could make projects viable. The current 421-a abatements start phasing out after 15 years, and that would be pushed to 25 under de Blasio’s pitch. That gives extra time to pay off debt and allow market-rate rents to rise.
Spinola, who has been negotiating with the mayor’s office for quite some time, also said the law itself had been cleaned up to make it easier to understand. He said the affordability levels were not necessarily oppressive, and he did not believe imposing an affordability requirement in lower-rent neighborhoods would stunt growth given the availability of direct subsidy. And the ban on condos is not that big of a deal, he said, because changes to the law in 2008 had already made it difficult for many ultra-luxury builders to obtain the abatement.
“We can live with more affordable housing if the program provides appropriate benefits to help cover the costs of that benefit.,” Spinola said. “We believe this program does.”
For de Blasio, who is positioning himself as a national voice for the progressive cause, the politics on this proposal are flipped upside down. Some in his liberal base, including tenant advocacy groups and labor unions, say he did not dig deep enough to provide affordable housing. Many of them say the program shouldn’t even exist, arguing it is inefficient and that there are no changes that will fix that.
City officials said they actually did find ways to improve the efficiency of 421-a. Under the mayor’s ask, the cost per unit would fall from an average of $573,000 to $391,000. The approach would double the number of units produced per decade from 12,400 to 25,000. And it would reach tenants at lower income, driving as deep as $31,000 for a family of three from the current $46,600.
Still, tenant groups argue a direct subsidy would be better. The Department of Housing Preservation and Development estimates its cost per unit with direct subsidy is just $115,000—way below even the new 421-a proposal. That, however, assumes the city can give developers land, which can account for half the cost of some rental housing projects today.
The Alliance for Tenant power, a major coalition of affordable housing groups, blasted the mayor’s plan. They said they like the mansion tax and a change that would end the so-called poor doors, and little else.
“The facts are clear: 421-a carries a huge price tag of $1 billion a year, and the program primarily funds luxury housing for the wealthy elite while fueling gentrification and displacement,” Delsenia Glover, the group’s campaign manager, said in a strongly-worded statement. “It yields little actual affordable housing and does more harm than good. A better program would invest directly in the creation of more affordable housing for low-income and moderate-income New Yorkers.”
Construction labor unions were also displeased. A coalition called Up4NYC, which this week launched a seven-figure advertising campaign on the subject, said it was disappointed the mayor did not see fit to add a prevailing wage requirement—or some guarantee of better pay for construction workers.
“The mayor’s plan will not provide middle class wages to the workers employed on what will remain mostly taxpayer subsidized luxury housing, and it will not significantly increase affordable housing production for New Yorkers who need it most,” Pat Purcell, the executive director of Greater NY Laborers-Employers Cooperation & Education Trust with the Laborers, said in a statement. “There are over one hundred fifty agencies throughout New York that require prevailing wages for workers on their projects. Why should a public subsidy of this magnitude be any different?”
The politics in Albany are unclear, given the legal turmoil of the past week. Ironically for a Democratic mayor, de Blasio’s likely ally in Albany for this 421-a package will be the Republicans in the state Senate. But there leader, Dean Skelos, was just charged with corruption and there is a movement to oust him.
Leaderships in the Democratic-led Assembly could certainly support the measures, and would ordinarily back the mayor, but they also intend to get a rent reform package through. Both 421-a and rent laws expire in June. Governor Andrew Cuomo, a moderate Democrat, is also a wildcard. He occasionally tweaks de Blasio on certain issues, and he also has indicated that the climate in Albany may not be the best one for making major changes to programs.
If there’s a political win for de Blasio, at this point at least, it’s that he’s managed to please the development community. Many had said they were unsure of the mayor’s intentions.
“It’s a pretty big deal for the mayor,” said an executive for one developer who had expressed skepticism about de Blasio and his housing plan. “I think it’s the second major instance where he or his administration has demonstrated that they were wiling to do things that are politically unpopular to do things that will create affordable housing.”
The other, the executive said, is when he has indicated that city needs to get denser. But this step threatens to annoy not just voters in general, but his base.
“It’s a kind of a friendly rebuke to all of his allies on the left who thought you could get a much bigger bite of the apple, or do away with the program entirely,” the executive said.
CORRECTION: The original version of this story quoted Steve Spinola as saying the plan involved 35 years of no taxes. Spinola said 25 years.