Thinking about Markets and the Mayor's Affordable Housing Plans

The Manhattan Institute’s
Center for Rethinking Development
Ideas that shape the city’s planning, housing, and development
A Monthly Newsletter by Julia Vitullo-Martin, MI Senior Fellow

Thinking about Markets and the Mayor's Affordable Housing Plans

Julia Vitullo-Martin, June 2004

Choose the one that doesn't fit among these three Bloomberg Administration promises to:

1. produce 65,000 units of affordable housing by building 27,000 new units and preserving 38,000 units

2. cure chronic homelessness once and for all

3. end overdevelopment in Staten Island, Queens, Brooklyn, and the Bronx

If the mayor really fulfills his third promise, to end overdevelopment, he's going to blunt any chance for success with his first two promises. What he calls "overdevelopment" is in fact the most direct route to affordable housing. For the truth is that the vast majority of "affordable" housing in New York always has been - and probably always will be - built by the private sector. Most of the housing in the boroughs that the mayor has reviled as "overdevelopment" is simply privately built affordable housing. In other words the townhouses selling for $250,000-400,000 and apartments renting for $1500 and below are targeted at households earning $50,000 to $85,000 - the households the mayor proposes to help with his $3 billion program called, without irony, "The New Marketplace."


Political difficulties arise - and voters become agitated - because this new housing is often cheaper and denser than what the neighborhood had before. But then that's the essence of "affordable" - the moderate-income household buys a smaller, more austere residence than preceding wealthier households. But it gets a residence that is usually better than the one it just left. Yet even as buyers have been snapping up the townhouses, the mayor has been denouncing them and proposing to have them outlawed through downzoning. "Each of these homes, they're probably 15 feet, 14 feet wide, they're going to sell for $400,000, people are going to be on top of each other," he said at a political rally in Staten Island last year. Well, yes, because the small townhouse is what moderate-income households can afford right now.

The mayor's top planners see the contradictions. City Planning Commission chair Amanda Burden noted at a public hearing in Staten Island, for example, that downzoning would conflict with the mayor's simultaneous push to create affordable housing. And don't we want these home owners to stay in New York, and therefore don't we want this housing? Otherwise the cops and teachers and firefighters who would buy these townhouses are going to cross the Goethals Bridge and just keep going to New Jersey.

THE HIGH COSTS OF BUILDING

The private sector contribution gets lost in today's acrimonious debates in part because the term "affordable" has become the handy euphemism for subsidized, non-market rate housing. But why should we relegate affordable housing to government? The private sector has always hugely outstripped the public sector in building and managing housing, including housing for moderate-income households. City government should only be turning to public funds as a last resort, when the private sector has failed. But the opposite is happening in booming New York: the private sector is succeeding wildly, building on every vacant and underused lot it can find in the five boroughs. We don't need the government building housing these days, when the private sector is doing such a good job.


But we do have a problem - which is that the costs of building in New York are about a third higher than in other cities, including high-cost cities like Boston and Los Angeles. The elevated costs of development may not matter so much for, say, luxury housing in Manhattan, but they make all the difference at the lower end of the market. The first step in making housing affordable is to bring down artificially high costs. Here the Bloomberg administration has been admirable, proposing extensive rezoning to permit residential development in formerly industrial areas, encouraging live-work development in blighted areas, analyzing and restructuring the building codes, and opposing the many destructive laws, such as the lead paint abatement law, coming out of the City Council. The administration is also aggressively using a revitalized Housing Development Corporation to attract private developers with low-cost financing. It is offering low-cost loans for renovating long-vacant apartments and is setting up a tax credit for building new housing in poor neighborhoods. But the administration will undermine these efforts if it insists on combating what it calls overdevelopment, which amounts to combating affordable housing. The mayor’s excellent programs will not work well unless they also bring down costs and encourage new construction.

THE EVEN HIGHER COSTS OF SHELTERING HOMELESS HOUSEHOLDS

As expensive as it is to build in New York, building government-sponsored new units is - as the mayor sees - the only solution (though a flawed one) to the city's ludicrously expensive system for housing homeless households. The city now pays $100 a night or $3000 per household per month for what is nearly always derelict housing. On virtually his first day in office, Mayor Bloomberg did the math and wondered why the city wasn't just building new housing rather than throwing money out the window in rent.


The numbers astonish. Over the last decade, the city spent $4.6 billion - or 10% of its entire fiscal 2005 operating budget - on building and maintaining shelters. The budget for the Department of Homeless Services alone exceeds $700 million, a 75% increase over 2000, according to the mayor. Despite the mayor's efforts, during his tenure the homeless population has increased by 27%,according to the Coalition for the Homeless.

He vowed this month to make "the condition of chronic homelessness effectively extinct in New York." His five-year plan is intended to decrease the roughly 38,000-person homeless population by two-thirds, build 12,000 units of supportive housing, and greatly reduce the time and number of people living in the shelter system. Taking his cue from the NYPD's successful crime-fighting system, the mayor intends to reconfigure outreach social services, tailor strategies to particular neighborhoods, and monitor progress neighborhood by neighborhood, so that trouble spots are identified early.

Surely the mayor is correct in assailing the city's reliance on shelters as its principal strategy for homelessness. The temporary safety net has become both expensive and semi-permanent, with a typical family spending 11 months in a shelter. And he is also surely correct in recognizing that the thousands of chronically homeless people who are substance abusers or mentally ill or both are not going to be able to live on their own in private housing. They need supportive services, which the mayor intends to continue with the many excellent agencies now working with the city.


But what about the other households? The mayor has several ideas for reducing both expenditures and homelessness. The city will work with landlords, tenant associations, and community groups to keep people from losing their homes in the first place by emphasizing mediation to stave off at least some evictions. Every household that can be kept in regular housing is a household not draining the city of $3000 per month for temporary shelter. The city will also work with government agencies to figure out non-shelter housing for former prisoners, probationers, substance abusers, mentally ill patients, and youngsters who have aged out of foster care. It's possible that intense management focus on individual problems will reduce the shelter population somewhat.

Reducing expenditures will require the Bloomberg administration to continue what's it's already been doing quietly: looking very closely at every applicant, and disqualifying as many as possible. The city shouldn't be in this business to begin with and certainly shouldn't be financially accountable for housing everyone who comes to New York. At least one in six families seeking housing is a recent arrival from elsewhere - out of town, out of state, or out of the country. The so-called "right to shelter" was established in a series of court rulings and unfortunate consent degrees in the Koch administration, making the city of New York uniquely responsible for anyone and everyone's homelessness. A household that has been in New York for 24 hours can insist that the city find them a place to sleep by midnight of the day they arrive at the intake center.

The Bloomberg administration needs to go back to court and get this destructive right-to-shelter rescinded. The city has spent billions of taxpayer dollars and tried many different approaches over 25 years. None has worked in the past, and we have no reason to think that billions of dollars more will work in the future. New York City needs to get itself out of the shelter business.

It also needs to normalize its housing markets, as scholar Peter Salins has been arguing for years. Mayor Bloomberg, a former businessman, well understands this. No one knows for sure how much of the homeless problem is attributable to non-housing problems like mental illness and substance abuse, but certainly at least one-third. But some important portion of the homeless problem is attributable to malfunctioning housing markets, which the administration is trying to address in several productive ways, including new construction.

WHAT’S NEXT


The Bloomberg administration has thrown down the gauntlet with its June 24 plan to end homelessness as we know it in New York. It has allocated $12 million to pay for tenant counseling and eviction prevention services in six targeted neighborhoods over the next year. It plans to pay for the rest of the plan by using savings achieved from reducing the shelter population.

Meanwhile, the Department of City Planning has been wrestling with the details of implementing the mayor's attack on overdevelopment. The signs are good so far. City Planning has been judicious in Staten Island, for example, suggesting some sensible reforms on parking and sidewalks without proposing anything too deleterious. But as the 2005 mayoral campaign heats up, the mayor will have to resolve the contradictions in his three promises. Let's hope he isn't swayed by his own rhetoric to halt housing construction in the boroughs.

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