The Folly Of "Affordable Housing" In Manhattan Marches On
/Early in the history of this blog (September 2013), I nominated affordable housing in Manhattan as the "worst possible public policy." I mean, creating subsidized housing that by its nature traps people in poverty for life is pretty bad for starters; but doing it on the most expensive real estate in the country and at the highest possible cost per subsidized family -- could anything be stupider? Of course I naively thought that people would read my post, get dazzled by its brilliance, and shortly start to unwind the vast empire of subsidized housing that looms over Manhattan. Or, whatever might be done with the existing subsidized housing in Manhattan, at least we wouldn't go on creating more and more of it at astounding cost. Hah!
The voters taught me my lesson by promptly electing Bill de Blasio as the new mayor in November 2013. At the top of his announced policy agenda was lots more subsidized "affordable" housing, and of course much of that would have to be in Manhattan. Both the Wall Street Journal and New York Times have had updates in the past couple of days.
The December 15 report from Josh Barbanel in the Journal focuses on 456 Washington Street, a brand-new top-end rental project in the Tribeca neighborhood, about to open with spectacular waterfront views over the Hudson River. Here is a picture:
456 Washington Street, Tribeca, Manhattan
Barbanel reports that the market-rate rentals in this building will be offered at up to $50,000 per month. Meanwhile, the building contains 22 so-called "affordable" apartments, to be allocated by a lottery, going for as little as $800 per month. For comparable size apartments, market rate two bedrooms "start" at $9995 per month, while the "affordable" two bedrooms will go for about $1041 per month (for a family size of four and an income between the precise levels of $37,132 and $51,780 -- it's exquisitely perfected fairness!). A little arithmetic and we know that each such non-poor family will get an annual subsidy of well over $100,000, not just this year and next year, but year after year for as long as they don't move out. It's a handout worth at least $2 million per family, although impossible to turn into cash. Oh, and meanwhile the City gives up $837,000 of annual real estate taxes through its so-called 421-a program; the state issues $7.5 million of tax-exempt bonds to support the project; the developers become eligible for federal tax credits (Barbanel does not specify the amount); and the building gets a zoning bonus to increase its size. All so we can give handouts of $2+ million each to 22 non-poor families? How can this possibly make sense?
Barbanel at least shows a modicum of skepticism:
The estimate [of $16.7 million foregone real estate taxes over 20 years], prepared at the request of The Wall Street Journal, found that was enough money to finance the construction of 93 apartments in the Bronx through a cash grant.
Or probably more like 250 apartments in Detroit. But hey, we have infinite money here, so what's to worry?
Meanwhile, don't expect any skepticism from the New York Times. Their article by Charles Bagli today has the headline "Sale Keeps 975 Rents Affordable In Harlem." This one concerns the Riverton Houses in Harlem, not exactly the most beautiful buildings in the City, but long home to some of Harlem's gentry. (Among notable residents have been former Mayor David Dinkins and former HUD Secretary Samuel Pierce.) Here is a picture (sorry it's so small, but you can click to enlarge):
Riverton Houses, Harlem, Manhattan
In the Times's narrative, Riverton "fell victim to speculators" in the run-up to the financial crisis. The lenders took over, and they are now selling the buildings to new buyers. Of course the buyers might have the crazy idea of trying to maximize the rents they will get in the buildings. Well, we can't have that, so the City has swooped in with a 30-year tax abatement quantified by the Times as worth about $100 million. Here is de Blasio:
“It’s been our mission to keep tenants in their homes and keep Riverton affordable for the next generation,” Mr. de Blasio said in a statement. “This is preservation on a grand scale, and it is going to protect the kind of economic diversity that’s always been part of Harlem.”
In return for the $100 million the developers must protect the "affordability" for tenants earning up to $97,125. (Once again, that exquisite fairness! Don't try earning $97,126, or you're out!)
Well, considering it's affordable housing in Manhattan, $100 million might sound ridiculously cheap for almost 1000 apartments -- it's only about $100,000 per apartment. But don't let yourself be fooled; this is just the Times's complete lack of skepticism. In fact the suppression of the rents will in turn suppress the market value of the buildings, and thus the taxable value. The City will easily lose multiple hundreds of millions more on the deal. Handouts per family will not be in the same range as the Tribeca building, but only because market rents in Harlem have not yet reached the stratospheric levels of Tribeca. A good estimate would be $1 million per family instead of $2 million. And remember, these are not poor people.
With a few chirping little voices like my own continuing to point out the massive costs and tiny benefits of these programs, the development community has lined up to protect its bread and butter in the tax breaks. Crain's New York Business today has an interview with Lisa Gomez of L+M Equities, a rental developer. Ms. Gomez does her best to defend the tax breaks, arguing that without them developers just can't make new projects work at today's land prices:
It’s all about land price. We have a scarcity of land. . . . In strong neighborhoods, you can afford to make it work, but in weaker neighborhoods, I don’t know. I don’t know how that happens at all without 421-a, or some other replacement tax abatement.
Of course Ms. Gomez has it exactly backwards. The tax breaks are precisely the cause of the inflated land prices. The most likely effect of the expiration of the tax breaks would be for land values to fall back down and development to resume after some period of adjustment. Of course, developers who had bought land speculatively at the current inflated prices would lose a bundle of money. You can bet that plenty of cash is getting sprinkled around the legislature to prevent that from happening. Affordable housing in Manhattan marches on!