The developer will be losing money on 540 out of 1,240 units in “Gotham West”
Reading about a new ultra-luxury Far West Side rental project going up where over 40% of the apartments are going to have controlled rents (“affordable housing”), I’d like to pose a question to supporters of affordable housing mandates in the planning blogosphere (which includes pretty much the whole planning blogosphere): How high is too high?
I’d also be interested to know why exactly the developers included so much affordable housing. I’m pretty sure there’s no program that requires that much affordable housing (the 80/20 state program obviously only requires 20%), but I think commenter Alon Levy is probably right when he suggests that various subjective review processes pressure developers into including more subsidized units than the government officially asks for.
Tom Duane, a State Senator, has some testimony up on his website about the project that gives us a look into the mind of what seems to be a typical (at least for New York City) affordable housing-type NIMBY. Back in 2009, when he gave the testimony, the plan was for 50% of the 1,200 units to be kept at below-market rents “permanently,” but even that wasn’t enough for Duane. He was upset that “only” 40% of those units will have two or more bedrooms, and also wanted the amount of commercial space scaled back from two floors (i.e., an FAR of 2.0) to just one (1.0 FAR). Oh yeah, and he doesn’t like the 31-story tower and he wants the developer to really promise not to transfer the unused development rights elsewhere.
Obviously, I oppose setting aside this much of new developments for affordable housing. People tend to think of different segments of the real estate market as distinct – how on earth could limiting the number of rich people on Far West Side make prices rise in Bed-Stuy? – but they are inextricably linked. You might not shed a tear for the 20-something banker who won’t get his Hudson River view, but when he then decides to buy in, say, Brooklyn Heights, the higher housing prices are going to have a ripple effect throughout the borough, pushing the envelope of gentrification further and further, until finally the knock-on effects reach places that the Far West Side 2o-something banker who got priced out of the Far West Side would never dream of living.
I know most of the planning blogosphere disagrees with my analysis, so my challenge to you is this: How high can you go with affordable housing mandates until the effect they have on market-rate rentals is no longer worth it? Does this 40%+ project seem like too much to you, or do you think NYC should go even higher? And do you think the city should set a limit and stick with it, or is it right to let whoever reviews these projects to use their discretionary power to nudge developers into including more than is required by statute?
(Also interesting to note: The 10th Ave. & 41st St. 7 train stop nearby, which was cancelled, was estimated to cost $500 million. The net present value of the hit that the developers are taking on these of these subsidized units must be close to $1 million each. At 540 subsidized apartments, it seems that the money spent on affordable housing in this one project could have covered the entire cost of the extra station at 10th Ave., or at least a significant chunk of it.)
Seems pretty dumb to put poor people in what will be Hudson River View housing.
Better to simply let the developer maximize income stream and tax ’em.
Crazy.
And who even knows if they’ll be poor…a lot of these programs seem to allow middle-class people to participate, as well.
I can’t decide which is worse…putting a poor person in a Far West Side ultra-luxury condo, or putting a middle-class person in one.
The next time an official like Duane wonders where New York’s middle class has gone, one could helpfully point out this project (and hundreds just like it).
For starters, no developer will build something that he doesn’t expect to make money on. So, for this project, this amount of affordable housing (and we have no details on what that means 80% AMI? 120% 30%?) is not too much. Too much is when requirements have the effect of stopping building.
Planners thinking that they know best where people should live is the worst.
So you’d be happy had the planners squeezed a little more out of them?
This mindset is like the abusive husband who claims, “I gave her just the
right amount of stranglin’. Enough to get the obedience I wanted, but not
so much to make her leave me.”
But some developers don’t want to enter an abusive relationship and no
housing gets built on their site…
Tell me, why is it only the providers of housing who you want to squeeze
every possible drop out of? Why don’t you advocate forcing, say, your local
neighbor/grocer/pastor/dentist to provide below market housing to strangers?
Developers working at that scale in places like NYC or Boston know full well what they’re getting into when they start the permitting process. Speaking for Boston, it is true that a couple big deals fell through because the public process dragged out until the market crashed and the developers couldn’t get financing. But the big players accept that risk as part of the business, and they still manage to do very, very well for themselves. I agree the process isn’t perfect but comparing these guys to a battered housewife? That’s way below the usual quality of discourse that I come to expect from this blog.
Yes, those who have deep enough pockets, political connections, and elastic
moral character are happy to play the game and be very well compensated for
doing business in an industry with such high barriers to entry.
Hold enough money in front of them, and some developer will be willing to be
the battered wife. I’m not defending the developers who play that game
either – it doesn’t say much for the developer if he gets himself into that
type of relationship.
Adam
But, I really want to understand your moral standpoint: Would you advocate
forcing your local neighbor/grocer/pastor/dentist to provide below market
housing to strangers? Or just the providers of housing? And why?
Adam
Increasing rules, regulation, and the difficulty of the process raises the barrier to entry and pushes the market away from competitive to oligopoly and monopoly.
As a market moves towards monopoly quantity falls and prices rise and the remaining oligopolists are able to receive increasing excess profit.
Affordable housing requirements further raise the barrier to entry while extracting some of the excess profit from the remaining oligopolists.
People who manage to get the right to run Govt. granted monopolies or oligopolies are of course going to do well, which is then why it becomes possible to extract so much of the monopoly profit and still have some building occur.
As to affordable housing requirements…
The question here is how much harm to the City of New York are you willing to cause by lowering the total amount of housing and increasing market prices by moving the market to monopoly/oligopoly in order to get more “affordable” housing.
Or I guess more simply, the question is…..
Accepting the fact that affordable housing requirements lowers total quantity of housing and raises its market price. At what percentage requirement do you think the tradeoff between lower market quantity and higher market price vs. more “affordable” units balances out?
The above piece seems to discuss a standard tax credit project. These projects are dictated by section 42 of the federal tax code. Through this law a developer must choose from the following elections(form 8609): 20 (% of occupants)-50(>%AMI), 40-60, 25-60 (unique to NYC). As far as the splits go, the multiple levels of elections depend on the financing and will dictate the amount of tax credits as well as real estate tax abatement. When people refer to 80/20, it means 80% market rate and 20% affordable which is actually the 20-50 election. Project specifications are also dictated by the regulatory agreement between the developer and the housing agency that allocated the tax credits, which is a matter of public record. In terms of how much affordable housing is necessary- that is a question that is not easily answered but at least you understand that there are multiple elections and the more affordable housing the larger the pot of tax credits and larger the real estate tax breaks.
Exactly. It might be hard to feel sorry for the bankers that are displaced from this development, but it’s much easier to feel sorry for middle class people who can no longer afford to live anywhere in Manhattan, in part because of these policies.
I’d say the 20% amount is on the mark, but even that should be based on the market: put the rate at 75% of market, rather than an arbitrary number. Rent increases at the rate of wage inflation until the occupant moves; the rent can then jump up to 75% of market again. After the tenant occupying the apartment 8 years after construction leaves, the rent can jump to full market. It gives developers a long-term return on investment and keeps an income mix.
That said, how does it work for suburban developers? I suspect they don’t typically have price controls.
Suburban developers of condos/apartment buildings/townhouses are often subject to affordable housing requirements (and in California, even some suburban developments), but obviously you can’t put an “affordable mandate” on a single house, which I suspect is how the majority of suburban development happens nowadays. Yet another reason I oppose the schemes outright – it’s a burden that suburban developers are often not subject to, which raises the cost of dense living compared to sprawl.
That was my other thought; my views on affordable housing are very much in flux, but they’re tied into transfering the booming success of sprawl development into a booming success for walkable development. The thing I hear most from people who don’t want to live in the city is that living there involves cramming one’s family into a tiny box of an apartment. Making urban, walkable, and affordable single-family apartments should be a policy goal. That good must be balanced somehow against the other and oppositional good of mixed incomes. That should be the conversation. (Why mixed incomes is a good… that’s a blog post I can’t get into.)
“Too much is when requirements have the effect of stopping building.”
But in Manhattan, there is practically no upper limit to rents – not while there is an endless supply of people arriving here from all over the world who are willing and able to pay. In such an environment, “affordable housing” is little more than another feel-good policy which looks great on a politician’s resume but has little measurable impact in the end. Worse, it’s a solution in search of a problem – no person of any income has a moral “right” to live in any specific location in preference to another who wants to live there at a fair market price which is not distorted by political favors. Yeah, Manhattan is turning into a boring high-income suburb, but I am a Market Urbanist. I don’t lobby for favors, I find what I want somewhere else. When I got priced out of a trendy Manhattan neighborhood a few years ago, I was crushed at first but somehow I wound up in an untrendy corner of Brooklyn that turns out to be closer to the “New York” I was looking for all along, and I’ve been happy ever since. Except the commute kind of sucks.