NEW YORK CITY MAYORAL POLICY AGENDA

Transcription

1 2013 NEW YORK CITY MAYORAL POLICY AGENDA Recommendations for sound affordable housing and community development policy for the next New York City mayoral administration. 242 W. 36 Street, 3 floor, New York, NY 10018

2 N Y C M A Y O R A L P O L I C Y A G E N D A In November 2013, New York City will elect a new mayor. The choices made by this new chief executive will impact the city s communities and residents for decades to come. The recommendations contained in this report offer a blueprint for sound affordable housing and community development policy in New York City during the next mayoral administration. Martin Dunn Co-Chair, Mayoral Agenda Committee Kirk Goodrich Co-Chair, Mayoral Agenda Committee Donald Capoccia Board President Alison Badgett Executive Director Alexandra Hanson NYC Policy Director ABOUT NYSAFAH Formed in 1998, NYSAFAH is the trade association for New York s affordable housing industry statewide. Our 300 members include for-profit and nonprofit developers, lenders, investors, attorneys, architects and others active in the financing, construction, and operation of affordable housing. 1

3 EXECUTIVE SUMMARY 1. New Construction: Promote new construction to support New York City s growth and neighborhood development a. Catalyze development in underserved neighborhoods through the creation of new affordable mixed-use and mixed-income housing b. Provide targeted funds to subsidize ground floor retail and community facility spaces in affordable housing projects where local market rents cannot support new construction of retail and community facility uses c. Enable mixed income developments that will serve a broader population of New York City residents and allow buildings to be more self-sustaining d. Create jobs and grow New York City s economy by supporting the construction of affordable housing e. Address the needs of New York City s aging population through the targeted creation of new senior housing f. Maximize opportunities to develop new affordable housing within NYCHA s existing portfolio 2. Preservation: Enhance New York City s affordable housing stock through preservation a. Allow buildings financed under affordable housing programs to become moderate or mixed income over time to create sustainable affordable units without continued need for government subsidy b. Incentivize good asset management practices and enforce regulatory mechanisms to minimize future expense of Year 15 and other preservation deals c. Update the J-51 Program to reflect current real costs of renovations d. Reform Article 8A guidelines to better support the needs of Year 15 deals e. Ensure that underwriting standards meet the long term operating and maintenance needs of affordable buildings by creating more consistency in underwriting Year 15 and other preservation projects 3. Land Use Policy: Adopt policies to support affordable housing development a. Review and revise the Zoning Code to provide increased opportunities for affordable housing development and more flexible housing production b. Develop a public inventory of city-owned land across all agencies to inform and facilitate the development of affordable housing c. Reduce or eliminate parking requirements for affordable housing development d. Facilitate expanded housing options and reduce costs by supporting new types of housing development and revising occupancy requirements to meet contemporary housing needs 2

4 4. Funding: Increase financial support for affordable housing a. Clear the current backlog of affordable housing projects by providing an immediate one-time shot of capital subsidy b. Allocate $8 billion to affordable housing production and preservation over the next eight years to develop and preserve 150,000 units c. Create a new dedicated funding source to support the production and preservation of affordable housing d. Strategically use Project Based Section 8 vouchers to facilitate preservation and new construction of affordable housing, including for seniors e. Maximize off-budget production of affordable housing f. Develop a coordinated effort to advocate at the state and federal level for affordable housing resources g. Conduct an ongoing assessment of rebuilding needs and advocate for rebuilding and resiliency resources in the wake of Superstorm Sandy 5. Maximize Existing Resources: Maximize limited public resources by promoting efficient interdepartmental coordination and controlling construction costs a. Develop programs to support MWBEs in the affordable housing industry b. Facilitate interdepartmental coordination to ensure efficient production and preservation of affordable housing c. Promote industry construction cost containment standards to maximize housing resources d. Oppose prevailing wage mandates for affordable housing to ensure responsible use of public subsidy e. Make strategic reforms to NYCHA over-housing policy to increase effectiveness 3

5 NYSAFAH MAYORAL AGENDA INTRODUCTION Stable, safe affordable housing is shown to have a profound effect on childhood development, school performance, and health outcomes for families and individuals. Just as significant is the impact of affordable housing on economic development, neighborhood revitalization, and job creation in New York City. Affordable housing developers work in close coordination with local city officials, community groups and businesses to develop projects that meet local housing and neighborhood needs and advance redevelopment goals. Government funders, banks and private equity investors ensure projects not only meet current housing needs, but are fiscally sound, sustainable developments, as evidenced by appraisals, project reserves, annual audits and other compliance monitoring. As a result, the production of affordable housing not only stabilizes the immediate area with safe residential options for the community, but also serves to catalyze long term revitalization of the surrounding neighborhood. According to a 2012 report by HR&A Advisors, every public dollar invested in affordable housing generates over a dollar in private investment. i Annually, affordable housing in New York State leverages $1.3 billion in public affordable housing resources into an additional $1.5 billion in private sources. With its high density and intense need for affordable housing, New York City accounts for 80% of the affordable housing units developed in New York State. On average, affordable housing development in New York City generates 15,526 affordable housing units annually, including new construction, rehabilitation and preservation. These units support 26,900 jobs during construction and 4,800 permanent jobs, amounting to $1.5 billion in compensation and $2.3 billion in economic spinoff activity during construction, and $200 million in compensation and $550 million in economic spending annually thereafter. ii The Center for Housing Policy ranks New York City 21 out of the 25 major US metro areas in housing affordability. iii The state of New York City s housing market has left many low and middle income households unable to find safe, quality housing that they can afford. The 2011 New York City Housing Vacancy Survey (HVS) conducted by the U.S. Census Bureau revealed that over half of New York City renter households spend more than 30% of their gross income on rent, the acceptable standard for affordability. Nearly 30% of New York City s renter households spend over half of their income on rent, signifying that almost three in ten renter households are severely rent burdened. With rental housing comprising 65% of New York City s housing stock, over half a million city households are struggling with severe rent burdens. For households earning less than 30% of median income, 75% spend more than half of their income on rent. For households earning between 31% and 50% of median income, 41% spend more than half of their income on rent. These severe rent burdens particularly affect economic activity in low income neighborhoods, impeding local buying power and hampering neighborhood development. 4

6 The current low housing vacancy rate only exacerbates the problem. The 2011 HVS reported a net rental vacancy rate of 3.12% in New York City. These findings are almost two percentage points below the 5% rental vacancy rate threshold that constitutes a housing emergency by state and local laws. The lack of available housing drives up marketrate housing rents, placing even more pressure on the regulated affordable market: in 2012, average rents in Manhattan set record highs. iv The housing vacancy rate is especially bleak for low and middle income households. Whereas units over $2,500 a month had a vacancy rate of 5.26%, units with monthly rents of less than $800 had a vacancy rate of just 1.1%. Vacancy rates for units from $800 to $2,499 varied from 2.58% to 4.32%. v In addition, the increasing prosperity of New York City and its attractiveness as a place to live is significantly driving up not only rents, but also the cost of land for new affordable housing. Superstorm Sandy has aggravated the city s housing emergency with thousands of residents displaced from homes that were damaged or destroyed by the storm s impact. Affordable housing remains one of New York City s most pressing issues. It is imperative the next mayor make a strong commitment to supporting the production and preservation of affordable housing as the city continues to grow over the coming decade. However, it is not enough to simply invest more resources. The urgency of housing needs in New York City requires that we pursue smarter more effective policies that maximize every public dollar invested in affordable housing. NYSAFAH urges New York City s next mayor to embrace a visionary platform to develop and preserve affordable housing within the five boroughs. The recommendations outlined in this policy agenda offer this bold vision, underpinned with practical solutions for addressing the city s pressing housing needs. NYSAFAH s Mayoral Agenda outlines housing platform recommendations in five categories: new construction, preservation, land use policy, funding and maximizing existing resources. By adopting these recommendations the next mayor will establish a legacy championing housing for low and middle income New Yorkers, and the community and economic development that results. 1. NEW CONSTRUCTION: PROMOTE NEW CONSTRUCTION TO SUPPORT NEW YORK CITY S GROWTH AND NEIGHBORHOOD DEVELOPMENT New York City is projected to gain one million new residents between 2005 and vi In order to alleviate the pressure these new residents will place on New York City s already strained housing stock, the city s current sustainable growth plan, PlaNYC2030, emphasizes the importance of new construction. To meet the growing demand for safe, affordable housing, New York City s next mayor must adopt an aggressive plan to develop new affordable housing within the five boroughs through targeted investments in economically struggling neighborhoods. A strong commitment to new affordable housing construction is essential to ensuring New York City s continued vibrancy, economic competitiveness, and quality of life for its residents. 5

7 a. Catalyze development in economically distressed neighborhoods through the creation of new affordable mixed-use and mixed-income housing Developing new mixed-income affordable housing in areas that currently have large lowincome concentrations will diversify the economic base of these neighborhoods, supporting new businesses and services for the surrounding community, while still providing housing affordable to existing residents. Economically distressed neighborhoods are characterized by high concentrations of poverty, greater rent burdens, a lack of educational and employment opportunities, higher unemployment rates, scarcity of community facilities, and higher crime rates when compared to the city overall. vii They also often suffer from poor quality housing stock: households in high poverty areas of Upper Manhattan, the South Bronx and Central and East Brooklyn report the highest rates of multiple maintenance deficiencies. viii Economically distressed areas of the city often struggle to attract private investment. While affordable housing is needed throughout New York City, the mayor should prioritize housing resource investment in economically distressed communities. These areas will experience the greatest catalytic benefit from an infusion of affordable housing dollars, creating one-time construction-related jobs and spurring ongoing commercial and other economic activity to support new residents. In addition, residents in the lowest cost neighborhoods often have the highest rent burdens. Targeting the city s affordable housing investments to these areas will put affordable housing where it is needed most. In this way, affordable housing investment will not only provide safe, decent homes for lower income families, but will also aid in revitalizing struggling neighborhoods while helping to ensure that existing residents are not displaced. The redevelopment of 148 th Street in the Bradhurst neighborhood in Upper Harlem, profiled in the 2012 HR&A Advisors economic impact report, is just one example of how mixed-use affordable housing development can catalyze economic revitalization in New York City s economically distressed neighborhoods. After suffering major disinvestment beginning in the 1970s, Bradhurst experienced a renaissance spurred in part by investments made in affordable housing. Between 1990 and 2009 median household income increased 200% to $32,000, households in poverty decreased 20%, and homeownership rates increased from less than 1% to 10%. The development of affordable units created housing where there was none, so the influx of moderate income households did not result in displacement of existing households. This included four mixed income affordable housing projects with 315 housing units that were developed between 2003 and 2006 in Bradhurst on 148th Street. This $57 million investment in housing generated $26 million in economic spinoff spending and 400 jobs during construction. Years of planning and extensive partnerships between city agencies, the private sector, and neighborhood organizations were among the critical drivers behind Bradhurst s transformation. ix 6

8 b. Provide targeted funds to support ground floor retail and community facility spaces in affordable housing projects where local market rents cannot support retail and community facility uses Mixed use development, which includes both residential units and commercial or community facilities, is critical to revitalizing neighborhoods and building strong, thriving communities. However, current subsidy programs do not adequately support the nonresidential component of mixed use affordable housing projects in many communities, relying on the market to support retail and community facility development in emerging neighborhoods that often do not possess the adequate economic foundation. Important neighborhood services such as day care centers, senior centers, and job training programs cannot afford market rate rents. The result is affordable residential development without ground floor retail or community facilities in neighborhoods that need commercial corridors to provide jobs, reduce crime, and service residents. The mayor should better connect the city s affordable housing production with other neighborhood needs by providing targeted funds to support commercial and community facility development. This will ensure that new affordable housing developments in emerging neighborhoods are able to provide these vital commercial and community facility services. c. Enable mixed income developments that will serve a broader number of New York City residents and allow buildings to support themselves The majority of new affordable units currently being produced target a very narrow income band of 55%-60% of area median income (AMI). 60% of AMI is the highest bracket that qualifies for Federal Low Income Housing Tax Credits (LIHTC); units at this income level require less subsidy than units at both lower and higher AMI bands. Exceeding 60% reduces the yield from tax credits, which must be borne by higher rents or other capital subsidies, while units significantly below 55% AMI require additional subsidy because rental income to support the building is reduced. The existing tax credit AMI restrictions coupled with limited subsidy result in affordable housing development primarily serving a narrow income band. As a result, too many low and middle-income New Yorkers do not qualify. With significant needs at lower and higher AMIs, new construction should serve a wider range of residents. Even without LIHTC reform, existing subsidies can serve a wider income range. In 9% tax credit projects, with excess eligible basis, broader income bands both higher and lower can be served without additional subsidy. Though exceeding the 60% cap will reduce the tax credits a project receives, including moderate or middle income units will support increased mortgage debt that will offset the loss of the federal tax credits. Because extending affordability to higher AMIs will increase revenue streams to affordable housing developments, this policy will enable buildings to better support themselves financially in the long term, freeing up future public resources for additional affordable housing development. In addition, the rental income from units with higher AMIs will help cross subsidize units serving a very low income population, which is currently experiencing the most severe rent burden. 7

9 d. Create jobs and grow New York City s economy by supporting the development of affordable housing Affordable housing is an important driver of economic activity and job creation in New York City. A recent report released by HR&A Advisors shows that the affordable housing industry generates an average of over 15,000 affordable housing units annually in New York City, through new construction, rehabilitation, and preservation. x During construction, this annual development generates: 26,900 jobs; $1.5 billion in compensation; and $2.3 billion in economic spinoff activity. After construction, these 15,000 units support: 4,800 permanent jobs and $200 million in compensation to support new resident spending and building maintenance; as well as $550 million in economic spinoff activity annually. A strong commitment to affordable housing is essential to maintaining the economic benefits the industry provides. e. Address the needs of New York City s aging population through the targeted creation of new senior housing New York City is home to over one million residents over the age of 60. This number is anticipated to grow by 50% over the next two decades. xi As New York City s population ages, it will become increasingly important to provide safe housing affordable to older New Yorkers on fixed incomes. Rental subsidies are essential to the city s ability to serve very low income seniors. Enabling seniors to stay independently housed is critical to preventing far more expensive institutional care. With the federal HUD 202 program significantly cut back, city initiatives will be even more important to ensuring seniors can remain in independent living situations. Age-Friendly NYC, the city s current plan to address an aging population, recognizes affordable housing as an essential component of supporting seniors. Age-Friendly NYC recommendations include targeting housing funds to new construction and rehabilitation of affordable senior housing, amending the Zoning Code to facilitate senior housing development, and promoting new housing models for aging in place. However, the city has yet to integrate these recommendations into its general housing policy. The next mayor should ensure their full incorporation into the city s housing plan. f. Maximize opportunities to develop new affordable housing within NYCHA s existing portfolio Leveraging the New York City Housing Authority s (NYCHA) portfolio of underutilized land offers a significant opportunity to grow New York City s affordable housing stock while simultaneously providing financial support for NYCHA. NYCHA s extensive inventory of underdeveloped land could be sold for a reasonable price to developers to site new affordable housing development using traditional affordable housing finance tools such as LIHTC and tax exempt bond financing. To facilitate efficient affordable housing construction by private developers on NYCHA land, the mayor should work with NYCHA to develop policies that would better coordinate oversight between Department of Housing Preservation and Development (HPD) and NYCHA, as well as within NYCHA. Lack of 8

10 coordination between the agencies, as well as between NYCHA s board and its staff, duplicates staff roles and slows development. These inefficiencies increase costs and inhibit NYCHA and HPD s ability to maximize their resources. Where HPD funding programs are being used to finance affordable housing development on land being sold by NYCHA, NYCHA should delegate all development functions to HPD to reduce staffing costs, increase efficiency and reduce development timelines. 2. PRESERVATION: ENHANCE NEW YORK CITY S AFFORDABLE HOUSING STOCK THROUGH PRESERVATION While developing new affordable housing is essential, the next mayor must also prioritize preservation of the city s existing affordable housing stock. Without preservation, even the most aggressive new construction efforts will be unable to meet the housing needs of low and middle income New Yorkers. New York City s next mayor should adopt a plan to preserve existing affordable housing. The mayor should work with the Department of Housing Preservation and Development (HPD) and the Housing Development Corporation (HDC) to protect affordable housing through the innovative use of existing financing tools, incentivizing good asset management practices, and promoting tax incentives that support preservation. a. Allow buildings financed under affordable housing programs to become moderate or mixed income over time to create sustainable affordable units without continued need for government subsidy The next mayoral administration should adopt a policy that allows affordable buildings to become moderate or mixed income over time. Units serving higher income bands or aging out of affordability requirements will effectively cross-subsidize the remaining affordable units, enabling the building to become financially sustainable without continued need for government subsidy. This will allow for greater flexibility in the use of future affordable housing resources, while maintaining affordability in moderate or mixed income buildings. The economic diversity of these buildings and neighborhoods will attract retail and services benefiting the entire community. b. Incentivize good asset management practices and enforce regulatory mechanisms to minimize future expense of Year 15 and other preservation deals Incentivizing good asset management practices is critical to preserving New York City s affordable housing stock, as well as efficiently using the city s affordable housing dollars. Significant resources are needed to maintain mismanaged buildings as affordable at Year 15, diverting these funds from growing the city s affordable housing supply. Over time, the cost of addressing deferred maintenance balloons. As these buildings reach the end of their regulatory agreements, the city must sink significant subsidy into capital repairs in order to keep the buildings habitable or face the prospect of losing these affordable units to disrepair. 9

11 Intervention prior to Year 15 will help cut down costs in the long run. HPD should review management reports and perform building reviews midway through the building s regulatory agreement to identify problem buildings. Repairs should be made expediently before they turn into more costly issues. If problems persist, HPD should take actions against owners and managers that are unable to keep their buildings in good repair: poorly performing property managers should have their contracts terminated by HPD and moved to companies with proven track records of good building management. HPD should enforce mortgages and regulatory agreements as necessary to hold building owners accountable to quality housing standards. Management and ownership partnerships between non-profits and for-profits should be encouraged. c. Update the J-51 Program to reflect current real costs of renovations J-51 is an important program to support the rehabilitation of New York City s affordable housing. The program alleviates some of the the cost burden associated with rehabilitation of multifamily buildings by providing tax abatements and exemptions for qualified projects. However, the cost schedule that determines reimbursement rates for qualified renovations is outdated and does not reflect their current real costs. This weakens J-51 effectiveness as a preservation tool. HPD should therefore update the J-51 certified reasonable cost (CRC) schedule to reflect current construction costs for renovation items in order to add value to the J-51 program and strengthen its ability to preserve New York City s affordable housing stock. In addition, HPD should change the definition of completion from receipt of a Permanent Certificate of Occupancy (PCO) to a Temporary Certificate of Occupancy (TCO) for compliance with the statutory required periods to complete work. There are many reasons beyond the reasonable control of a developer for why a PCO can be delayed. TCO is used in the 421-a program and it reflects the Department of Building s sign-off on a building as suitable for occupancy. d. Reform Article 8A guidelines to better support the needs of Year 15 deals The Article 8A loan program is a valuable tool for preserving New York City s affordable housing stock. Many Year 15 workouts that do not require re-syndication use HPD Article 8A loan funds for capital improvements. However, the current 8A process should be improved to better serve the immediate capital and long term maintenance needs of buildings. Under the 8A guidelines, HPD is responsible for preparing the scope of work, unlike most projects in which it is prepared by an architect or engineer. With current pressures to maximize limited subsidy dollars, there is often an emphasis on limiting the amount of subsidy required by the 8A scope of work. This can come at the expense of proper, long-term capital planning. While it is important to minimize resources required for preservation in order to use affordable housing dollars as efficiently as possible, this should not be done at the expense of buildings. Necessary renovations should be adequately funded and done properly the first time around to avoid an ongoing drain on resources. Coupled with incentivizing good asset management practices, adequate funding for preservation workouts through the 8A loan program will help New York City maintain high quality affordable housing stock while maximizing affordable housing dollars over the 10

12 long term. In addition, the 8A payment schedule should be expedited. It can currently take up to 60days to receive monthly construction payments under the 8A program, which has a significant impact on job performance and schedules. e. Ensure that underwriting standards meet the long term operating and maintenance needs of affordable buildings by creating more consistency in underwriting Year 15 and other preservation projects The next mayoral administration should work to create more consistency in underwriting Year 15 and other preservation projects among city agencies. Accurately projecting operating and maintenance expenses and requiring appropriate levels of capital reserves are critical to the long term financial stability and quality of New York City s affordable housing stock. When the balance between the preservation scope of work, level of projected operating expenses and necessary capital reserves underestimates the true needs of a building, it can run into significant problems within only a few years. Over time, small problems are compounded into much costlier issues that jeopardize housing quality and drain subsidy that could otherwise go to providing new affordable units. Currently, the operating expense standards used by HPD are generally lower than those used by HDC. They also differ from standards used by private lenders. The next mayoral administration should work to bring agency underwriting standards more closely in line, ensuring that they accurately reflect realities of each preservation project as well as long term building needs. 3. LAND USE POLICY: ADOPT LAND USE POLICIES TO SUPPORT AFFORDABLE HOUSING DEVELOPMENT In addition to adequate resources, the next mayoral administration should identify opportunities to support affordable housing development through New York City land use policy. a. Review and revise the Zoning Code to provide increased opportunities for affordable housing development The next mayor should work with the Department of City Planning (DCP) to ensure a full review of the Zoning Code that will culminate in a set of proposed changes to enhance opportunities for affordable housing production. These initiatives should include: Increasing FAR across zoning districts for affordable housing similar to the higher FAR in many zoning districts for residences for the elderly. This would stimulate development by reducing per unit land costs for affordable housing and helping affordable housing developers compete for private land. Exploring opportunities for additional upzonings in areas with good access to mass transit, with a particular focus on economically distressed neighborhoods where it will help facilitate needed affordable and mixed income housing developments. 11

13 Amending the zoning resolution regarding elderly housing to expand the benefits beyond just non-profit housing. By opening the program to a wider range of stakeholders in the affordable housing development community, the city can maximize opportunities to provide affordable independent living for seniors. b. Develop a public inventory of city-owned land to inform and facilitate the development of affordable housing The next mayoral administration should develop the inventory of city-owned land across all agencies called for in PlaNYC This inventory will be an important tool for identifying opportunities to use publicly owned land for the purpose of producing affordable housing, either through direct transfer and development or by raising capital through the sale of parcels or air rights. This information should be publicly available so that housing advocates and the development community can work with city officials to maximize opportunities for affordable housing development. c. Reduce or eliminate parking requirements for affordable housing development Parking requirements should be significantly reduced or eliminated for affordable housing developments, enabling a more efficient use of limited subsidy dollars. The requirement to provide parking is a major financial drag on many affordable housing projects. High density districts (R5-R10) often require 25 to 70 new parking spaces for every 100 affordable units, while in low density districts (R1-R5A) that ratio is 80 spaces for every 100 affordable units. xii Often these spaces go unused by affordable housing tenants, among whom car ownership rates are extremely low, tying up funding that could otherwise be used to generate additional housing. Reducing or eliminating parking requirements for affordable housing projects would help facilitate new construction by alleviating the disproportionate financial burden they place on affordable housing development, where rents cannot be increased to support the development of parking. When parking is located within or below buildings as is often required, it is extremely expensive to develop, while parking located outside of buildings detracts from gardens, children s play areas and other recreation and green spaces. In addition, affordable housing residents in many areas throughout the five boroughs have access to the city s rich public transit network. Reducing or eliminating requirements, especially in areas with access to mass transit, will promote greater sustainability and mass transit usage. d. Facilitate expanded housing options and reduce costs by supporting new types of housing development and revising occupancy requirements to meet contemporary housing needs New York City is known for its diversity, and the city s households are no different in that respect. The next mayoral administration should adopt policies that reflect the diverse housing needs of New York City residents. The Citizens Housing & Planning Council (CPHC) 12

14 Making Room initiative highlights how the city s current housing stock as well as housing policy does not meet contemporary housing needs for many households. xiii Though much of New York City s development has focused on the needs of traditional nuclear families, only 18% of New York City households are two-parent families with at least one child under 25. At the same time, a third of New York City s households are made up of single people living alone, while another 23% are composed of unrelated roommates or adult relatives. The remaining households are made up of couples with no children and single parents. The next mayoral administration should pursue policies that support a more flexible housing stock that meets the diverse needs of 21 st century households. This should include an examination of the New York City Building Code for opportunities to serve more single person households with smaller units and larger proportions of studios and one bedroom units in new developments. In addition, the city should revise the Housing Maintenance Code to allow for households with more than three unrelated adults. Renter households that contain roommates or lodgers have the lowest rate of severe rent burdens of all household types. 4. FUNDING: INCREASE FINANCIAL SUPPORT FOR AFFORDABLE HOUSING While a vision for developing and preserving affordable housing and improved implementation of programs are essential, adequate resources to execute that vision will ultimately determine its success. The demand for affordable housing in New York City far outstrips the available stock. The next mayor should allocate sufficient resources to cut through the backlog of new development projects waiting for funding awards, and raise funding levels to maintain a strong production program going forward. This public investment will leverage private dollars to create not only housing, but also jobs and billions of dollars in economic activity for New York City. a. Clear the current backlog of affordable housing projects by providing an immediate one-time shot of capital subsidy The pipeline for New York City affordable housing projects is currently backlogged two to three years. However, the true extent of this backlog is unknown, as some developers have chosen to wait rather than submit their projects for consideration due to the substantial number of projects waiting for available funding. The next mayor should commit to providing an immediate one-time shot of capital subsidy to clear the current backlog of affordable housing projects within one fiscal year. b. Allocate $8 billion to affordable housing production and preservation over the next eight years to develop and preserve 150,000 units 13

15 In order to meet the housing needs of New York City s growing population, the next mayor should allocate $8 billion in city and federal resources over the next eight years to develop and preserve 150,000 units. The city s $8 billion public investment will leverage $9.2 billion in private investment. In addition to providing much-needed housing, this investment will generate 262,500 jobs and $21.2 billion in economic spinoff activity during construction over eight years. On a permanent basis, these 150,000 units will sustain 30,000 jobs, $2 billion in annual compensation, and $6.2 billion in ongoing economic activity annually. xiv c. Create a new dedicated funding source to support the production and preservation of affordable housing A new Housing Trust Fund should be established to provide a dedicated public funding stream, which the city can leverage to generate private investment in affordable housing. The next mayor should examine funding source options, such as the sale of unused air rights on city-owned sites such as schools, parks, etc. or a dedicated allocation of a portion of an existing tax such as mortgage recording or real estate transfer taxes. It is important the new mayor safeguard against using this new fund to offset and reduce Capital Budget resources allocated to housing, as has occurred in the past. d. Strategically use Project Based Section 8 vouchers to facilitate preservation and new construction of affordable housing, including for seniors By committing Project Based Section 8 vouchers to affordable housing developments, the next mayoral administration can facilitate both preservation and new construction of affordable housing. The mayor should work with NYCHA and HPD to develop a more efficient system to track and use Section 8 vouchers by identifying the available inventory and number of vouchers held by different agencies, and developing a coordinated plan for voucher distribution. A portion of available Section 8 vouchers should be designated as Project Based and used to develop affordable housing. Project Based vouchers result in the creation of a new affordable units and ensure that units remain affordable. Project Based Section 8 also allows projects to serve extremely low income households that likely would not otherwise be served. In particular, Project Based Section 8 vouchers will be an important tool to enable very low fixed income seniors in need of rental subsidies to remain independently housed, instead of requiring more costly institutional housing. Tying Project Based Section 8 vouchers to funding awarded by HPD will help maximize affordable housing resources. Predictability in the number of Project Based Section 8 vouchers available from year to year and clear guidelines for competitively obtaining them will help the development community advance proposals to fully leverage their use. e. Maximize off-budget production of affordable housing In addition to funds drawn directly from New York City s Capital Budget, tax credits, tax exempt bonds and other existing government resources, off-budget creation of affordable housing should be facilitated whenever possible. For example, when a special zoning 14

16 change is granted for market rate housing in exchange for affordable housing production, the increased land value, not government subsidies, should subsidize the affordable unit development. Similarly, buildings with market rate units can cross subsidize affordable units within the building without drawing on public subsidy. These strategies will ensure that affordable housing subsidy is used where it is most needed. f. Develop a coordinated effort to advocate at the state and federal level for affordable housing resources Many of the funding and policy decisions that affect New York City s ability to serve the housing needs of its low and middle income residents are made at the state and federal level. A coordinated effort to advocate for state and federal funding and policies that meet New York City s unique housing landscape is essential. At the state level, advocacy should include: an increase in volume cap dedicated to affordable housing; an allocation of excess Mortgage Insurance Fund (MIF) reserves to fund affordable housing; and an additional dedicated mortgage recording fee, among other potential sources. The next mayoral administration should support changes to 421-a to encourage production of affordable housing within primarily market rate deals without using limited public subsidies. 421-a tax benefits should be awarded to projects where 15% of the units are affordable, while prohibiting the use of public subsidy, such as tax exempt bonds, tax credits, or loans on projects where less than 25-30% of units are affordable. While the affordable requirement for 421-a tax benefits would drop from 20% to 15%, this policy would enable a more efficient use of New York City s affordable housing resources. Volume cap that would otherwise be used to subsidize 20% affordable projects could be allocated to projects with a much larger percentage of affordable units, often in neighborhoods where the per-unit cost is far less. Currently, an 80/20 project using tax exempt bonds might use $2 million in volume cap per affordable unit, 10 to 20 times the amount of volume cap in a predominantly affordable project. Volume cap should be prioritized for affordable developments where it goes much further. Advocacy at the federal level should focus on: restoring cuts to HOME; continuing support for the Low Income Housing Tax Credit Program (LIHTC); and securing revisions to LIHTC allowing for income averaging of household units in order to serve a broader range of household incomes, including those significantly below 60% AMI. g. Conduct an ongoing assessment of rebuilding needs and advocate for rebuilding and resiliency resources in the wake of Superstorm Sandy The next mayoral administration should conduct an ongoing assessment of rebuilding efforts and the need for resources to strengthen New York City s housing stock. The administration should advocate for additional federal resources as needed to address rebuilding needs that have not been met by the existing recovery package. The 15

17 administration should also adopt policies that make buildings more resilient, such as allowing mechanical rooms to be deducted from FAR, and encouraging moving utilities such as boilers out of building basements and above the flood plain. 5. MAXIMIZE EXISTING RESOURCES: MAXIMIZE LIMITED PUBLIC RESOURCES BY PROMOTING EFFICIENT INTERDEPARTMENTAL COORDINATION AND CONTROLLING CONSTRUCTION COSTS Funding for affordable housing in New York City has decreased significantly in recent years, resulting not only in capital cuts, but also steep administrative staff reductions at HPD. Over the course of the New Housing Marketplace Plan, HPD lost over $400 million from the department s Capital and Expense Budgets. The majority of HPD s funding comes from Washington, including LIHTC, and HUD program funding. Given increased scrutiny of public resource productivity and the potential for additional funding cuts, it is essential New York City ensure reasonable affordable housing construction and per unit costs. In addition, the next mayoral administration should develop programs to support locally based small businesses and MWBEs, which are an invaluable resource to New York City. These businesses support economic activity and provide jobs to in the communities where affordable housing is being built. a. Develop programs to support MWBEs in the affordable housing industry The next mayoral administration should develop a strategy to support Minority and Women-Owned Business Enterprises (MWBE) in the affordable housing industry. While participation targets are laudable, there is much more that New York City can do to improve opportunities for its MWBE entrepreneurs. The city should pursue specific programs to reach and exceed its specified MWBE participation goals. The affordable housing industry has a solid history of hiring MWBE firms from the local community. The next mayor should work with HPD and affordable housing developers to expand upon past successes, maximizing the ability of the industry to support locally based businesses, providing construction jobs to community residents. These strategies should include support for emerging MWBE developers through the creation of a credit enhancement fund. Among the largest barriers to entry into the affordable housing industry is capital, as even a limited at-risk joint venture role requires a MWBE firm to bring equity to a project. This fund would support emerging undercapitalized MWBE development firms by providing credit enhancement and access to predevelopment equity, enabling them to joint venture with established developers and grow their businesses. The next mayor should also build on the success of the affordable housing industry in hiring local MWBE subcontractors on construction projects, supporting policies that enable the industry to continue growing its MWBE contractor and subcontractor base. To this end, it is critical that local laws and policies be reviewed for any unintended negative 16

18 consequences they may have on the ability of MWBEs and small businesses to participate and compete in the affordable housing industry. b. Facilitate interdepartmental coordination to ensure efficient production and preservation of affordable housing The next mayoral administration should work to facilitate communication and coordination among city agencies, including New York City s Office of Management and Budget, Department of Buildings, Department of Housing Preservation and Development, Department of Environmental Protection, Fire Department, and Department of Parks and Recreation, to support affordable housing development. Lack of coordination can slow projects, adding cost and delaying the production of much needed affordable housing. The next mayor should convene a quarterly interdepartmental working group with private stakeholders in the affordable housing industry to identify and resolve areas of conflict. In addition, the next mayoral administration should support legislation in the City Council that would require any proposed regulation or legislation pertaining to affordable housing to include a cost impact analysis. While many proposals are well intentioned, the ongoing layering of new requirements has added significant costs to the construction of affordable housing over time, detracting from the number of units that can be produced or preserved. In 2012, the City Council passed Intro 730-A, now Local Law 44, imposing massive wage reporting requirements on developers, contractors, subcontractors, subs of subs and vendors working on affordable housing projects. The total cost to implement the requirements is estimated at $40 million, reflecting a per project cost of $200,000 for 200 projects. Per project, this includes $50,000 for an accounting staff person inclusive of benefits for a general contractor, plus $5,000 for each of 30 subcontractors on a project for bookkeeping support. As affordable units by definition have a strict ceiling imposed on rents to ensure they remain affordable, fewer units are built when costs rise. The city should evaluate the cost impact of each new requirement, weighing its merits against the impact it will have on affordable housing production. c. Promote industry construction cost containment standards to maximize housing resources Negative press surrounding inefficient use of HUD HOME program funding led to the program s dramatic funding reduction. Looking forward, the nation s largest housing program, LIHTC, will be under particular scrutiny as Congress considers reducing or eliminating tax expenditure programs through comprehensive tax reform. While much affordable housing is developed cost effectively in New York City, HPD continues to fund projects with unnecessarily high development costs. Exorbitant project costs, driven by unnecessary amenities, overdesign, ineffective implementation or site conditions not conducive to development, put the LIHTC program in particular jeopardy and reduce the quantity of affordable housing being produced. An August 2010 report by Senators Coburn and McCain identified several high cost affordable housing projects, including in New York, as illustrative of runaway publicly-funded projects. With tax reform impending, the 17

19 National Council of State Housing Agencies, as well as other industry groups, are advocating that state and local government housing agencies adopt cost containment guidelines for allocating LIHTC. NYSAFAH strongly supports incentivizing cost containment and urges the next mayor to work with industry professionals to identify and adopt best practices. d. Oppose prevailing wage mandates for affordable housing to ensure responsible use of public subsidy There is no greater threat to affordable housing production than the imposition of prevailing wage mandates. Prevailing wage rates are between 23% and 55% above the mean market wage rate. Fringe benefits (not included in the mean wage) bring prevailing wage rates to two to three times the mean wage. While many workers on affordable housing projects receive benefits, the high prevailing wage benefit rates together with the increased hourly wages make prevailing wage mandates untenable for affordable housing projects. According to the New York State Department of Labor, the mean and prevailing wage rates for New York City are: ACTUAL MEAN WAGE VERSUS PREVAILING WAGE RATE COMPARISON NYC Mean Wage Prevailing Wage Salary Prevailing Wage Benefits Prevailing Wage Salary & Benefits Carpenter $62, (30.23/hr) $95, (46.15/hr) $80, (38.50/hr) $176, (84.65/hr) Electrician $85, (39.69/hr) $101, (49.00/hr) $83, (40.16/hr) $185, (89.16/hr) Plumber $68, (32.90/hr) $106, (51.11/hr) $76, (36.84/hr) $182, (87.95/hr) *Occupational wage statistics provided by NYSDOL website. Annual prevailing wage and benefit earnings calculated by multiplying hourly wage and benefit payment required by 2080 (40 hours/week x 52 weeks) Affordable housing cannot absorb prevailing wage rates. Labor accounts for approximately 55% of a project s construction costs. A 2008 report by the Citizens Housing & Planning Council (CHPC) estimates that prevailing wages result in approximately 75% higher labor costs. xv Prevailing wage rates would therefore increase a typical $200,000 per unit construction cost to $282,500 per unit. xvi Currently, New York City provides an average of between $40,000 and $60,000 per affordable unit in subsidy; the rest of a project s financing comes from LIHTC, state subsidy, or private loans or investments. Increasing rents is not allowable under state and federal programs, so the cost burden would fall entirely on the city. In order to make up for the $82,500 per unit gap in funding, New York City would have to double the public subsidy to maintain production levels, or alternatively, cut production in half. 18