What is efficiency? said jesting Pilate: Part 3, The judgment

February 8, 2017 | Affordability, Apartments, Condominiums, Development, Housing, Incentives, New York City, Real estate taxes, Section 421-a, Speculation, Subsidy, Tax abatement, US News | No comments 35 views


By: David A. Smith


[Continued from yesterday’s Part 2 and the preceding Part 1.]


As we’ve seen in Parts 1 and 2 of this surprisingly long post, seeking to reach a conclusion on the public-policy merits of New York’s section 421a tax abatement program, when applied to large condominium developments, Section 421a produces roughly 53-67% as much boost in development value as it gives up in foregone real estate tax revenue.



One side goes down by 100%, the other side goes up by 53% to 67%



Sources used in this post


Crain’s New York (30 January 2017)

NYC Independent Budget Office report dated January 30, 2017 (pdf; green Georgia font),


 Though not the best statistic to confront, having the public benefit be a 33-47% less than the subsidy cost isn’t by itself conclusive – there’s outsourcing of the activity (hence much lower administrative costs), risk transfer, and potential additionality. 



4. Does the program favor one form of tenure over another?


The focus of this study is strictly on the retail market for condos. In contrast, questions about land use and developer bidding behavior are related to the market for land and can only be answered using a different research strategy and data than IBO employs for this analysis.


Just as every drug has side effects, every subsidy, be it charity or incentive, distorts the ‘natural economic’ market to some degree.  (That is, after all, its purpose.)  Some of these are beneficial, some harmful.


That’s what happens when you give a market steroids


The program may also change the incentive to build one form of housing over another—rentals rather than condos, for instance. 


For what it’s worth, there’s no evidence presented to suggest the market is being deflected toward rentals, and in any case New York City has too little rental, too much ownership. 


Property tax subsidies are a solution when the policy goal is to encourage development of one form of housing over another (such as making rental housing a more attractive investment than condo development) even if the subsidy contributes to a general price increase for all real estate.


Like San Francisco, New York City can thank rent control for much of that.  The potential tenure deflection we can safely ignore –




– but there’s another feature we need to consider more closely.



5. Does 421a as applied to condominiums benefit the whole city? 

The answer is clear – so clear, in fact, that IBO author Geoffrey Propheter puts it in a complete throwaway line:


So cool I can make big points in small words


Manhattan condo sales comprise almost three-quarters of the sample.


At 1.6 million people, Manhattan is the third most populous borough (behind Brooklyn and Queens), home to a little over 19% of all New Yorkers – yet it consumes nearly 75% of the 421a abatements, which means that the rate of 421a abatement utilization in Manhattan is nearly thirteen times higher than the other boroughs [ (75%/ 19%) ¸ (25%/81%) = 12.75 ].


Forget everything else about the quantitative analysis – this figure alone is damning, for it reveals so much. Section 421a condo abatements are being successfully pursued predominantly in the most expensive borough, and the new condos going up are (by the laws of new supply) generally coming in at the highest end of the range.  Nor is the abatement needed to stimulate a lagging Manhattan condo market:


With the exception of mid-2014 through 2015, the market for Manhattan condos tended to clear more rapidly than other markets for residential properties.


Queens (in green) generally takes longest to clear)


Aside from the impressive fact that condos in all three boroughs clear fairly quickly, averaging 4-6 months – so much for the woe-is-me stories of a few years ago about softness in New York City’s condo market – Manhattan is the strongest market of the three.



6. Is the converted-cash reconverted back into additional affordability?


Here’s the big weakness in the IBO report – not what it investigated and found but what it did not investigate and did not remember to explain as important.


Remember, boosting the value of developers’ market condos doesn’t by itself create any affordability – affordability happens only if that boost in development value is converted into a commensurate amount of below-market prices or rents.  Further, Section 421a is a developer-driven program, meaning the developers decide when they buy a property and when they pursue a new development, condo or otherwise. That gives them control over the timing, and they would be fools to do development when the decreased affordable-housing sale price or value exactly equals the market value increase. 


More likely, developers are trading increased condo sales price into decreased affordable housing price at a ratio of (say) 80%, which means the effective discount is higher, as follows:



Section 421a’s multiplicative entropy

Converting density into affordability


+ 100% of lost revenue to the city

x 53-67% increased condo price to developers

x 80% of that increased price converted into

= 42-53% actual realized affordability



I just made up the 80% number, so readers shouldn’t rely on it (though I do have those four decades of experience with developers that I carry so lightly) – but if it’s even halfway close to being right (that is, a 20% discount), the subsidy entropy loss is significantly higher than even the IBO estimated.  Converting non-monetary foregone future taxes into present cash, the reconverting them back into potential foregone future rental or sales revenue from the resulting affordable apartments, puts the government’s efficiency in the hands of two external counterparties: the people who buy the condos, who care not a white about affordability, and the condo developer, who cares about profitability first and foremost.


“I don’t fare what you think about me.  I don’t think about you at all.” – Coco Chanel



7. What is waste, and who decides?


As New York policy makers look to revive 421a (or a similar variant), giving greater attention to the program’s benefit levels so as not to oversupply tax subsidies would help make better use of scarce public resources.


Any use of government incentives to privatize a socially beneficial function entails a balancing act:


It all depends on how the incentives are balanced


The government wants efficiency (high conversion of its resources into benefits) and it wants targeting/ impact (high value for the resources so converted).  It is never possible to do this perfectly so it’s essential to allow oneself some margin of error – which the subsequent analysts, from the safety of their desks and the convenience of retrospective certainty, may choose to call ‘waste’:


Based on this study, over the last 11 years a third to a half of the 421a tax expenditure committed to condos in Manhattan and about two-thirds awarded in the rest of the city is waste, or a total of $2.5 billion to $2.8 billion depending on the discount rate assumed. 


I chafe at the word ‘waste’, which connotes inattention at best and profligacy at worst – and having thrown down the W word the IBO then backpedals and explains that the word doesn’t mean what you think it means:


It represents wasted dollars because buyers are receiving more in benefits than they pay for


The issue isn’t that the buyers get some net positive, but how much net positive.


and the excess does not incentivize development, which is the program’s policy goal. 


Sorry, this is an invisible goalpost-move.  The assertion of no development incentivization is a hypothesis not grounded in any evidence in the report.  And this is a tautology:


The program’s inefficiency stems from its benefits being too generous.


Yes, if a program is too generous it is inefficient, and if it is inefficient it is too generous, but to reach that conclusion you make a subjective judgment: namely, that monetizing the benefit at roughly 55-65% of notional government NPV cost is more than is either good value for government or justified to make the market move.


While I happen to agree with the IBO’s conclusion, its logic is weak, so allow me to conclude this post with some stronger logic.


Your logic is so so weak you’ve lost your N



8. On balance, is this a good use of taxpayers’ money?


As I’ve previously posted, I’m not offended by the cleverly labeled ‘poor door’ discrimination (because that concession increases the number of affordable apartments built with the same quantum of 421a).  My evaluation of 421a for large high-end condominiums rests on the numbers and their impact:


A. Its monetization-reconversion loses a lot of value along the way.  Section 421a turns $1.00 of net-present-value foregone real estate tax revenue into roughly $0.60 of boosted condo price, and we presume it then reconverts that into perhaps $0.45 of reduced-rent/ sale price on the affordable apartments.  To me that’s a terrible conversion ratio – the Low Income Housing Tax Credit, by contrast, loses perhaps 10-15% of value along the way, in part because the market is national and LIHTC has additionality in that it monetizes the CRA investment-test benefit.


B. It stimulates production only in one submarket – Manhattan.  As I previously showed, Section 421a is 75-80% used in Manhattan, meaning it’s used about 13x as much per-capita as the other four boroughs.  And the Manhattan properties on which it is used are high-end.  To the extent the program is seeking to generate more housing supply, putting it into Manhattan will do little for spillover affordability, whereas market housing produced in Brooklyn or Queens would be inherently more ‘affordable’ (because less expensive) than Manhattan Upper East or West Sides.


C. Some of the higher value may be flowing back into higher land prices (in Manhattan), which would be pure deadweight.  If raising the price of Manhattan land is indeed a side effect of the program, that’s really bad additionality, because it’s contributing to the unaffordability that the subsidy was intended to address.


Advocates argue the program is necessary to make housing more affordable but the program itself likely contributes to higher land prices, therefore making housing more expensive.


From what I know of developer and land seller behavior, especially in supply-restricted environments, supply-side incentives absolutely monetize into land value at warp speed.  I’ve seen this directly with LIHTC properties in targeted census tracts, where developers would bid against each other for the vacant parcel that happened to be in the state allocating agency’s erogenous zone.


The tax incentive is thus contributing to its own existence.


This is really bad, and it’s an inherent weakness in the program, one that cannot be remedied because that would require suspending the law of economic pressure.



Section 421a’s multiplicative entropy

Converting density into affordability


+ 100% of lost revenue to the city

x 53-67% increased condo price to developers

x 80% of that increased price converted into

= 42-53% actual realized affordability



D. On balance, Section 421a isn’t good enough, better uses for that money can be devised.  Thus, if called upon to adjudicate the two key questions, I decide as follows:


1.     Was the subsidy converted into cash at a good rate?  No.  Not well enough.

2.     Was the extra cash realized from the subsidy converted back into additional housing affordability?  Not covered by the IBO study but on inference, only at some further leakage of efficiency.


When 421a expired, I thought to myself that the development community, advocacy community and organized-labor community had combined to do the worst thing possible for all three of them, because ponce a program is dead its revival is difficult.


Section 421a is mostly dead


Gov. Andrew Cuomo is working to revive the 421a tax break in Albany. While the current vision for the program only applies to developers of rental buildings and very small condo projects, a handful of Albany legislators are pushing for larger condo buildings to be eligible for the tax break.


Section 421a for condominiums is too expensive, too diffuse in its benefits.  That $1.4 billion could be better and more efficiently spent, even as a foregone-tax-revenue non-cash expenditure. 


I doubt it will come back, and at this point I hope it doesn’t. 


What is efficiency? said jesting Pilate: Part 2, The analysis

February 7, 2017 | Affordability, Apartments, Condominiums, Development, Housing, Incentives, New York City, Real estate taxes, Section 421-a, Speculation, Subsidy, Tax abatement, US News | No comments 31 views


By: David A. Smith


[Continued from yesterday’s Part 1.]


After all the paired comparisons and the careful quantitative analysis, is Section 421a for condominiums a good program for New York City?


We’re actually twins by different parents


Yesterday’s Part 1, scrutinizing paired-comparison of condo sales throughout New York City over the last decade, established that (as would be expected) the favorable tax abatement under section 421a capitalizes into a higher price for condominiums.



Sources used in this post


Crain’s New York (30 January 2017)

NYC Independent Budget Office report dated January 30, 2017 (pdf; green Georgia font),



To what purpose?  And with what effect?  With the factual data in hand, we can do what the IBO quite properly declined to do – evaluate the numbers and reach a judgment.


1. What was Section 421a designed to do?


Section 421a was designed to incentivize developers of high-value high-density properties to include some affordable housing within the development by spreading the abatement across the whole property and then concentrating its benefits in a subset of apartments.  If the cumulative net present value of the tax savings was (say) $50,000 per apartment, and the capital cost buydown needed to make an apartment affordable was (say) $400,000, then for every eight market apartments the City would have one apartment made affordable.


Now, once the apartments are in fact produced as affordable, new issues arise:


1.     Who gets these apartments?

2.     Must they be identical to the market apartments?

3.     Must they be sprinkled in with the market apartments?


What an outrage


These issues have little to do with economics and everything to do with politics and perception, and thus it is inevitable that they generated millions of pixels in the blame-developers vein (about which I posted my own analytical and unsympathetic views two and a half years ago) –


Summer is when GAIA stories most commonly bloom


– whereas the crucial issues of cost-effectiveness get relegated to the financial press and are greeted with ho-hum.


God, numbers, how boring


Likewise, as I reported in the previous part of this post, the City’s investment in 421a has an annual cost equal to its (failing) investment in anti-homelessness initiatives ($1.6 billion to $1.4 billion for 421a), so Mr. Propheter and his colleagues at the IBO deserve much greater recognition than they have.  Instead they are reduced initially to explaining the ABC’s of incentives to conclusion-jumpers:


Ignore that ‘warthog-faced baboon” part, all right?


When economic incidence diverges further from statutory incidence, development tax incentives increasingly stray from their stated purposes.  



Or, to put it in the language of Prince Humperdinck, When the condo buyer is visibly receiving the savings but the condo developer is gaining the subsidy benefit, elected officials can easily lose sight of the over-subsidy. 


The faster the divergence occurs, the more quickly policymakers must respond to modify program eligibility criteria and benefit levels to ensure the program is achieving its goal at the lowest cost.


For Prince Humperdinck, that previous sentence means The quicker developers figure out the game, the more important it is to recalibrate the benefits to reduce over-subsidy.  And this is hard:


Identifying the level at which benefits must be set so that a subsidy accrues entirely to the intended beneficiaries is challenging because developer behavior changes faster than policymakers’ adjustments of program benefits and eligibility criteria.


Not the last time I’ll have to use small words

2. Is the cash conversion rate reasonable?


Unlike many government programs, which give out cash up front in anticipation of benefits to be received over time, Section 421a reverses the time sequence: It collects cash (from condo buyers via the intermediary of condo developers), and it pays out benefits (in the form of foregone real estate tax revenues) over the ensuing 25 years.  Equating the stream of payments (revenue losses) with the up-front cash requires assessing (a) the time value of money and (b) the value of risk transfer. 


The IBO addressed that:


It is common to assume a discount rate between 4.0% and 7.0% in residential real estate research.


I am sure Mr. Propheter and his colleagues are right in this, but if I were discounting future streams from real estate, I’d use a higher discount rate (less present value from future benefits) because I’d regard the cash flows as risky. 


In certain extreme instances we may also find that property owners discount the future less than 3.0%. Therefore, we estimate future tax savings using three rates—2.5%, 4.0%, and 7.0%to gauge how sensitive our estimates and conclusions are to the discount rate assumed.


Today’s twenty-year Treasury is 2.80%, and no plausible discount rate could be lower than that.  Hence I would discard the 2.5%.  Further, any political benefit faces ‘discontinuous tail risk’, which is my own portmanteau construction: Tail risk meaning low-probability events (say, the election of Donald Trump as President) that occur beyond our perception horizon, and discontinuous meaning that the change could be abrupt (say, a Trump executive order with unexpected wording and consequences), and it’s a fundamental principle with me that discontinuous tail risk should be costly to take, because it cannot be hedged and it can seldom be anticipated early enough to avoid it.


Still, let’s ride along with the IBO analysis a little further:


You seeing the same statistics I’m seeing?


At all three rates we find that the 421a benefit is partially capitalized into sales prices on average, but the estimated degree of capitalization displays some sensitivity to the assumed discount rate. At a discount rate of 2.5%, condo buyers in Manhattan on average pay 53% of their 421a benefit to the seller upfront. At the 7.0% rate, the upfront payment for Manhattan averages 61%.  Based on these two extremes, it is reasonable to conclude that in Manhattan the average condo buyer pays anywhere from 53% to 61% of their future 421a tax benefits up front through the greater selling price.


Although as I said I’d disregard 2.5% as unrealistic, the relatively narrow band of value – 8% increase in ratio for a change of 4.5% in interest rate – suggests that even if we were to use a higher discount rate that I might choose, say 10%, the effective monetization rate would rise no higher than 65-67%, meaning that 33-35% of the NPV benefit. 



3. Does 421a contribute to higher New York City land prices?


Just as every drug has side effects, every subsidy, be it charity or incentive, distorts the ‘natural economic’ market to some degree.  (That is, after all, its purpose.)  Some of these are beneficial, some harmful.


That’s what happens when you give a market steroids


The side effects of reducing real estate taxation for certain post-development uses are easy to foresee:


While this study is not an analysis of 421a’s effect on land prices, the findings of partial capitalization in condo sales prices suggests that condo developers pay more for the land than they would if the tax exemption did not exist.


We know that the value of urban land is a residual – the leftover value of new development after subtracting the cost and risk of that development – and we know that in general (though New York City, with its anti-development mania, may be a counterexample) housing is less valuable than other forms of urban land use – so the attempt to push a subsidy into a supply-side intervention (boosting the number and affordability of actual homes, rather than increasing the home-buying power of targeted customers as would be done on a demand-side intervention) must inevitably spill over into pushing up land values.


A 421a benefit that increases condo prices would encourage developers to pay more for land, possibly leading to a general increase in land prices.


While not a statistician, I’ve had four decades’ experience with developers.  With my eyes shut I can tell you that absolutely, the residual benefit of the tax abatement will be priced into land values at some conversion factor.


Yes … yes, it is priced in


For this reason, owners of potential sites for 421a condo developments could be major beneficiaries of the 421a program.


They are.  Indeed, the biggest beneficiaries of all of New York City’s neck-tourniquet development policies are people and entities that own land in New York, particularly in Manhattan.


The tax incentive is thus contributing to its own existence.  It can be viewed as a problem or a solution, and depending on the policy question it can be both.


That leads to the idea New York City should raise its real estate tax rates, or have a significant property rate surcharge to be dedicated into a fund for affordable housing.



[Continued tomorrow in Part 3.]


What is efficiency? said jesting Pilate: Part 1, The evidence

February 6, 2017 | Affordability, Apartments, Condominiums, Development, Housing, Incentives, New York City, Real estate taxes, Section 421-a, Speculation, Subsidy, Tax abatement, US News | No comments 71 views


By: David A. Smith


Sources used in this post


Crain’s New York (30 January 2017)

NYC Independent Budget Office report dated January 30, 2017 (pdf; green Georgia font),


For governments, subsidies exist for only two purposes: charity or incentive. 


The 421a program is intended to spur new construction. It is not intended to serve as tax relief like many of the city’s other programs are designed to do, such as the senior citizen and veteran exemptions. 


Either we are trying to help those in need who cannot help themselves by themselves, or we are trying to reshape the private markets for greater public benefit.


[Acquisitions – purchases by government of goods and services – aren’t subsidy, because the government is transacting in the marketplace like any other participant.  When the government hires a construction company to build a bridge, that expenditure isn’t a subsidy, because the government gets value for its money – namely, the bridge.  Having built the bridge, if the government then makes it a free bridge rather than a toll bridge, the free transit is a per-use non-cash subsidy transfer back to the driver – who, we presume and hope, is a law-abiding taxpayer who’s bought his subsidy rights through his taxes.  That, at any rate, is the theory.  – Ed.]


This is a subsidy


This isn’t


In development-constipated environments such as blue cities, where inescapable land-use economic pressure militates against affordable housing, many a state or local government uses its power to tax to motivate development of affordable housing, and nowhere more so than my favorite housing innovations laboratory, New York City, where has seldom met a procedural obstacle it won’t cheerfully erect or a tax incentive it won’t selectively create – and when a government does this, the question naturally arises, Are we getting good value for money?  Is this an efficient use of taxpayer funds?


The 421a program is the city’s largest property tax expenditure, reaching $1.4 billion in fiscal year 2017. 


That’s almost as much as the city spends to try (and fail) to reduce homelessness, so we’re obviously dealing with serious money here.


Despite the program’s size, empirical evidence providing insight on how the housing market responds to the incentive is limited.


The answer can be murky, as reported in Crain’s New York (30 January 2017):


A controversial property tax break designed to encourage housing development also funneled an ‘extra’ $3 billion worth of benefits to condo buyers, according to a report released Monday.


At even this seemingly innocuous phrasing I have to smile, because Crain’s made the same mistake others do, confusing ‘economic incidence’ with ‘statutory incidence,’ as carefully and clearly explained by IBO analyst Geoffrey Propheter:


Our intuition confuses statutory incidence (i.e. who receives the tax reduction) with economic incidence (i.e. who benefits from the tax reduction).


A propheter with honor in his own city?


Condo owners may appear to be the sole benefactor of the tax break since the exemption appears on their tax bill in the form of reduced taxable assessed value –


In this case, though the condo owner receives the tax saving, the owner has paid for the privilege in a higher condominium price:


The now-defunct 421a program was designed to lower developers’ costs to help make more new apartment projects feasible in the city.


When I bought this condo, I thought I was saving money on my taxes


but because the owner had to pay a higher price for the 421a apartment than what they would have paid for a similar non-421a apartment, the benefit appearing on tax bills overstates the benefit actually enjoyed.


Although the Crain’s story initially drew me in to the topic, for this post I’ll mainly use Independent Budget Office report dated January 30, 2017 (pdf; green Georgia font), because by comparison with Crain’s quick summary, the report itself did a public service.  To begin with, it is written clearly, an increasingly scarce virtue in these auto-correct-Microsoft times, and before plunging into analysis it compactly but not condescendingly explains critical concepts:


Property tax exemptions lower the cost of ownership, increasing prospective buyers’ purchasing power, and as a consequence their willingness to pay for housing.


All other things equal, then, we should expect an increase in demand (technically the quantity demanded) for condos with a 421a exemption, and by extension a price premium for such housing.


When the value of an asset varies by its tax liability the tax is said to be capitalized.


Second, the report did a nice clear job of explicating its exploration of economic efficiency, and a commendable restraint in not leaping its conclusions beyond their evidentiary foundation.


A tax break can help condo developers by allowing them to sell an apartment for more money than the market would normally allow, since buyers would be willing to pay extra knowing their tax bill would be zero for decades.


Actually, when it comes to 421a, the question of efficiency is actually twofold:


You have to ask your policy markers two questions


1.     Was the subsidy converted into cash at a good rate?

2.     Was the extra cash realized from the subsidy converted back into additional housing affordability


Though the second question is neither answered nor raised in the IBO report (and completely overlooked in the Crain’s story), we’ll defer it until Part 2 of this post and instead concentrate on the quantitative analysis of the cash-conversion rate. 


If 421a were ‘perfectly calibrated,’ a buyer who would be exempted from $50,000 in [Net present value of, clarification added – Ed.] property taxes over 25 years, for example, would pay $50,000 more for the apartment.


This too is inaccurate:


So it’s inaccurate, it looks good, doesn’t it?


If the benefits’ net present value (NPV) exactly matched the up-front cash, the buyer would be swapping cash today for an unreliable illiquid cash stream in the future, and nobody would tie up their money that way.  The IBO report quite properly anticipated this:


Perfect economic efficiency is a moving target, and as such an entirely waste-free program is likely an impractical and cost-prohibitive policy goal. 


Allowing that some favorable arbitrage will be required, even at a reasonable discount rate (about which more below), one can assess the program’s relative efficiency only by some quantitative analysis, which the IBO undertook:


On average, buyers in Manhattan pay 0.43% of the sales price for each additional year of 421a benefit; in all other boroughs the size of the effect is 0.40%.


For the benefit of readers to whom the precision of that estimate may seem fanciful, I will allow author Propheter to explain just how much big data the IBO gargled to derive the estimate:


Can you say ‘repeat sales regression’ without spitting up?


We employed a repeat-sales regression, a statistical technique that reveals how two variables relate when holding other factors constant. In this case, we sought to explain the relationship between changes in condo sales prices and changes in the number of years remaining in the 421a benefit period for each apartment as of the year of sale while simultaneously accounting for other differences between condos that might influence changes in sales price.


To do this, the authors sifted a mountain of data – every condominium sale for the last ten years:


The data were drawn from the universe of 101,477 condo sales from 2005 through 2015 based on sales records maintained by the Department of Finance.


1.       Some transactions involved multiple properties [where] there is no way to know the sales price of each tax lot in the bundle. This step dropped 8,365 sales.

2.       The unit must be greater than or equal to 200 square feet and less than or equal to 10,500 square feet, the latter being the largest known condo on the market recently. This step dropped 800 sales.

3.       Sales where the inflation-adjusted price was less than $80,000 were dropped [assuming that these] were not arm’s-length transactions or non-residential transfers such as parking spaces. This step dropped 26,744 sales.

4.       Sales over $5 million were also dropped so as not to allow the few hyper-luxury condos receiving the abatement from skewing the estimated average price response. This step resulted in 780 fewer sales pairs. Thus, the final sample contains 17,717 sales pairs.


Such attention to detail is worthy of applause. 



Not only did Mr. Propheter and his team recognize they might be dealing with bad data, they adopted sensible rules to eliminate data that might be corrupted (bad entry), unreliable (non arm’s-length), or unreasonably skewing (buyers with other motivations, like live-in safety deposit boxes).  And they stat5ed their algorithmic adjustments and the impact on the data set.  That, gentle readers, is statistical science – open source, rules-based, verifiable.  Good work.


 With that hard work done, the rest was arithmetic:



At average sales prices and average years of exemption remaining, these estimates imply the average 421a Manhattan condo purchaser pays $35,500 more than the buyer of an otherwise similar, non- 421a Manhattan condo while the average 421a condo owner in all other boroughs pays $31,200 more.


With respect to the second question, IBO estimates Manhattan condo buyers spend on average $0.53 to $0.61 of every $1 in tax savings appearing on a tax bill in order to receive the remaining $0.47 to $0.39 over the rest of the tax benefit period. 


Outside Manhattan, our estimate is $0.42 to $0.50 of each benefit dollar is paid upfront at the point of sale.


While not versed in statistical methods, I am inclined to accept not only the veracity of Mr. Propheter’s reporting but the caliber of his analysis, because he quite plainly knows what he is talking about.


When your IQ rises to 28, sell!


There’s the evidence. What is our judgment?


Opinions first, then evidence!


[Continued tomorrow in Part 2.]


The homeless magnet: Part 9, Families have to play a role

February 2, 2017 | Apartments, de Blasio, Development, Ecosystem, Homelessness, Housing, Incentives, Mobility, New York City, NIMBY, Politics, Poverty, Rental, Vouchers | No comments 32 views


[Continued from the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, and Part 8.]


By: David A. Smith


After eight parts with no answer, we come to life’s full irony:


“By picking you, Steve, I expect NYC Legal Aid to get off my ass”

“Mr. Mayor, prepare to be disappointed.”



8. The ironic life journey of Steven Banks


If anyone in this story has a literary forebear, it must be Steven Banks:


As record numbers of homeless people crowded New York City’s shelters in December, Mayor Bill de Blasio put Steven Banks in charge.


Mayor de Blasio’s very own Jacob Marley wears in his second life legal chains he forged in his first one:


Mr. Banks, 59, was in his 20s when he began waging a legal fight to force the city to uphold a “right to shelter” under the State Constitution, obligating New York to provide temporary housing to anyone who entered an intake center and asked for it. It is an entitlement that puts extraordinary pressure on the shelter system he now oversees.


Steven Banks, the commissioner of the Department of Social Services, oversees both homeless services and the Human Resources Administration. Since the shake-up that put Mr. Banks at the helm of the city’s efforts to combat a rise in homelessness, the shelter population has continued to climb. Credit John Taggart for The New York Times


So it is that Mr. Banks, who was a needle in the city’s side for years on the issue of homelessness, must now adhere to rules he helped shape from the outside, while facing criticism he might once have directed at others.


“If only those idiots would listen to us, none of this would be necessary.”

“But what if they put you in charge?”


Mr. Banks had joined the de Blasio administration after a lifetime of advocating and agitating for the poor. He was seen as the person who could head off a crisis that was becoming emblematic of the mayor’s struggle to address income inequality.


Character, I think, is demonstrated by what you have done, because in the doing are the choices of actions, not choices of words.  Mr. Banks seems an incredibly decent man who must from time to time rue his prior certainties, regret his prior impetuosity.



Sources used in this post


New York Times, July 28, 2009; Seaweed font

New York Daily News, March 4, 2011

New York Times, May 31, 2011; Emerald font

New York Times, February 8, 2012; Kelly green font

Wall Street Journal, March 4, 2013: Sapphire font

Wall Street Journal, March 8, 2013: Azure font

AHI blog: New York’s self-reinforcing homeless system, October 21-25, 2013

Gotham Gazette, April 4, 2014; Caramel font

New York Times, July 25, 2014; Crimson font

New York Post, November 1, 2015; Turquoise font

New York Times, October 25, 2016; Forest green font

New York Daily News, October 28, 2016; Indigo font

Wall Street Journal, November 20, 2016: Siena font

New York Daily News, December 1, 2016; Garnet font

WNYC, December 5, 2016: pink font (AHI rough transcript)

Coalition for the Homeless web site, accessed January 1, 2017, gray font



Thirty years ago, you see, Mr. Banks was quite sure about rights and wrongs:


The administration of Mayor Rudolph W. Giuliani, a Republican, also used hotels as shelters in the 1990s.


To ‘crack down on homelessness.’


At the time, Mr. Banks was among those who joined an outcry against the practice. He said then that “the folly of the administration’s policy is that it is spending $3,000 a month on places like the Kennedy Inn when it could redirect the funds to permanent housing.”


No longer mayor but no shortage of opinionated


Now Mr. Banks admits he did not back then know how hard it would be to create new affordable housing, or to renovate existing housing.


“It’s one of those things,” he said in an interview this month. “If you do home repair and you rip open the walls, you discover other problems that you didn’t anticipate.” 


Mr. Banks should have thought of that when he was told it by landlords and opponents of the right to shelter.  Back them he didn’t believe it.  Now that he does, it’s too late: his former self has inflicted the damage on his present self.


Of the challenge involved in reforming the homeless services agency, he added, “We’ve proceeded to address a lot of longstanding problems at the same time, which leaves us open for criticism if everything isn’t fixed at once.”


Despite this, as recently as a year before Mr. Banks was reaffirming his prior view:


Steve Banks, attorney-in-chief at the Legal Aid Society, a non-profit, said lifting these orders would “turn back the clock 30 years.” He said the petitioners would have to argue “there is no longer a need to keep women and men and children from freezing to death on our streets.”


Evidently gaining a change of view requires for Mr. Banks a change of scenery:


Since the shake-up that put Mr. Banks at the helm of the city’s efforts to combat a rise in homelessness, the shelter population has continued to climb. He has been criticized not only by those predictably opposed to plans for new shelters, but also by onetime colleagues whom he still courts as allies.


Nowhere is the contradiction between Mr. Banks’s past and present more apparent than in the city’s growing use of budget hotels to house homeless people, a practice city officials say they would like to end. There are now 6,100 homeless people living in hotels, up from 2,600 in February.


Needs must when the devil drives.


I’m anaspeptic, phrasmotic, even compunctuous to have caused you such pericombobulation


For decades, using hotels as shelters has been widely seen as a desperate, sometimes dangerous, stopgap: It is expensive, and the hotels are neither designed to function as shelters nor have adequate security to protect residents. In February, a 26-year-old homeless woman and two of her three children were fatally stabbed while staying at a Ramada Inn on Staten Island where the city had placed them. Her boyfriend was charged with three counts of murder; he has pleaded not guilty.


The city began moving homeless families into the defunct Pan American Hotel in Elmhurst, Queens, in early June, prompting a series of protests, including one on Tuesday [July, 2014] that drew about 500 people. Credit Yana Paskova for The New York Times


Facing such catastrophes, Mr. Banks did what once he would have categorically condemned: he proposed converting hotels to permanent housing for the homeless, like the defunct Pan-American Hotel in Elmhust:


While local residents often object when the city opens a homeless shelter in their midst, the vitriol in Elmhurst since the city began moving families into the hotel in early June has shocked New York officials. Because many of those opposed to using the hotel as a shelter are Chinese immigrants, the conflict has also produced discomfiting images of immigrant families and the mostly black and Latino homeless families shouting insults at one another. A local civic group, Communities of Maspeth and Elmhurst Together, has organized a series of protests, including one in late June in which some of the protesters yelled at the shelter residents to “Get a job!” The homeless families responded that their opponents should “go back to China.”


Beyond the obvious differences of ethnicity and culture, there’s the understandable resentment of those immigrants who have been successful of benefits being given to those who haven’t been, and whom they see as undeserving of the help..


Resistance to the idea grew heated. Mr. Banks received a phone call at his home about the plan that he felt was so threatening he reported it to the police. He was also booed at packed community meetings where audience members turned their backs on him.


 If necessity can be the mother of invention, then desperation may be the mother of ultimate creativity, and Mr. Banks has come upon something worth its own section, an idea so simple it’s brilliant:



9. The discovery of a new magnetic force


In December, Mr. Banks launched a small ‘Home for the Holidays’ campaign :


The city is offering to pay friends and family members of homeless shelter residents to take in their less fortunate loved ones for up to a year as part of a new program timed to the holidays.


This is such genius I cannot believe no one has tried this before. 


The “Home for the Holidays” program launched this week, and is being offered to 5,000 families who have been living in shelters for at least 90 days.


If it works, the program will reverse some of the inflow into New York City, because the homeless family ‘goes home’.


Depending on the size of the family they take in, the host families will receive $1,200, $1,500 and $1,800 a month for up to a year.


Then too, it addresses the supply blockage: the housing into which the homeless family will move exists already, and the homeless are being dispersed, not concentrated, and reintegrated with an extended family with multiple better role models.


Residents of a homeless shelter at the defunct Pan American Hotel in Queens on Tuesday watched a protest organized by a community group. Credit Yana Paskova for The New York Times


The host family will also get a taxpayer-funded $500 gift card for their hospitality.


A very nice touch, some money for presents.


That’s the spirit


Department of Homeless Service Commissioner Steven Banks said that the program aligns with the administration’s belief that everyone has to pitch in to address the homelessness crisis, which has led to a record number of people living in the shelter system.


“The situation has built up over many decades, and in the city everyone has a role to play,” said Banks.  “Families have to play a role.”


It has the added bonus of potentially strengthening the support systems for some of the city’s most vulnerable, he said.


“With the holidays, we wanted to redouble our efforts to reconnect people with their families,” said Banks.


Family can be the strongest magnetic force there is, especially when families reconnect. 


“We’re giving them a helping hand.”


The program could also end up saving the taxpayers money.


 “Home for the Holidays” will primarily target small families with kids, who officials believe will be easier to place.


Another clever feature has been added: those returning home are not risking anything:


Anyone who qualifies will still be considered a shelter resident, and remain eligible for rent subsidy programs like LINC or CITYFEPS.


If it works, the family is thrilled; if it doesn’t work, the family has whatever safety net it had before.


Banks said that the idea for the program came after the city launched a holiday-themed initiative last year for homeless veterans.


Veterans are an ideal ‘starter population,’ because after fifteen years of continuous engagement with terrorists, Americans feel toward their service men and women in ways they never felt in the Vietnam era.


At the time, the city was trying to end chronic homelessness among vets, and appealed to landlords to take in a vet for the holidays. The appeal was successful — about 1,000 vets found places to live — in part because the holidays softened many hearts.


The city decided to expand the program this year, Banks said.



Home means more than just housing, it means family: biological, adopted, or experiential.


If Mayor de Blasio won’t innovate, perhaps Commissioner Banks will.


Update: AHI gets results?  Mayor de Blasio is hinting at a major shift in homeless strategy.  When he does, I’ll post about it.


I’m still working out the details


The homeless magnet: Part 8, More than twenty days of school

February 1, 2017 | Apartments, de Blasio, Development, Ecosystem, Homelessness, Housing, Incentives, Mobility, New York City, NIMBY, Politics, Poverty, Rental, Vouchers | No comments 31 views

[Continued from the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, and Part 7.]


By: David A. Smith


Housing in the mist?  Kigali City Hall



Apology for posting delay


Last week I went to Kigali, Rwanda, for several days’ incredibly intensive work with the International Finance Corporation, the private sector arm of the World Bank Group), on the challenge of delivering affordable housing in Kigali, which like so many other cities in Sub-Saharan Africa is extremely fast-growing. 


The horrific, scarcely imaginable Rwandan genocide of 1994 is very much on the minds of the modern Rwandans who are trying to make their country a model for East Africa and even for the whole continent, and I was stuck by powerful combination of intense patriotism and urgent desire for practical solutions. 


Whether AHI and the IFC will accomplish what we hope is for the future; for the present, I am consumed with work on the assignment.  Hence my delay in returning to this critical blog post on New York City homeliness, and my apology for the delay.


[Dickens never had to apologize like this – Ed.  Oh, shut up. – Auth.]



As we’ve seen in the seven parts up to now, reality has a way of teaching indelible lessons:


I told you, never start a land war in Asia!


Three years into Mayor Bill de Blasio’s term, the number of people living in shelters overseen by the homeless services agency has swelled to about 60,000 from about 51,000.


Mr. de Blasio’s education in the challenges of solving the problems he was quick to criticize others for not solving is slowly morphing him into his predecessor:


Mr. de Blasio’s larger vision has given way to more pragmatic considerations — not only on housing and homelessness, but also on policing and criminal justice reform, key pillars of his mayoral campaign. The turnabout has been especially striking given that he has styled himself as a national leader while seeking to put New York at the vanguard of a new liberal movement.


In fact, in 2014, Mr. de Blasio revived his own version of Advantage, what New York called LINC and I might call ‘Son of Bloomberg’:


This time around, the de Blasio administration will need to figure out how to make the [revived] program last, preventing the “cost-effective intervention” from transforming into a $287 million failure that leaves thousands of families back on the streets.


To be truly cost-effective, an intervention needs three elements all at once:


1.     New supportive housing production so people have security of tenure and a time horizon to improvement their lives.  This requires defeating the NIMBY’s.

2.     Up-front non-recoverable capital because supportive housing costs much more than its economic value based on the rent a formerly homeless family can afford.

3.     Household income improvement via a ‘life refresh’ program with a beginning, middle, and an end, from which people graduate to income independence.


Though most of New York City’s efforts have gone and continue to go into the first two elements – battling the neighbors and scrounging for city capital or begging for state capital – its real intractable problem is the third element: once people are caught in homelessness, how do they ever become income-independent?


Maria Walles has some advice.


Walles and her husband lived on Advantage subsidies “for two long years.” While living in the shelter system from August 2009 to July of 2010, the couple slowly moved up the Advantage waiting list, eventually landing their first place in Bed-Stuy. For income, she worked as a maintenance assistant, making just above minimum wage.


Facts like that make some people want to raise the minimum wage, but as we’ve seen in earlier parts of this post, with inelastic housing supply, a casualty of New York City’s ferocious anti-development maquis,

bumping the minimum wage doesn’t create any new housing (and never will), it just bumps up the price of the limited supply.


“We really believed when we started the LINC program (Living in Communities, where people got vouchers, left shelters, rented apartments, the updated Advantage model) that that would work,” said Lilliam Barrios-Paoli.  “It hasn’t worked as well as everybody expected: part of the feedback is that landlords aren’t ready to take it because they fear it might go away.”



“If you were a decent resident, you had to say please, please, please to your landlord, but then you realized you simply couldn’t afford the apartment,” Walles somberly said. “It took me a minute to realize that I’d have to go through this again.”


So the Walles family became a fluctuating variable in the homeless equation:



The homelessness equation


+ Homeless households in New York City, beginning of year

– Homeless households in NYC moved from homeless into permanent housing

+ Housed households in NYC who lose their housing (eviction, expulsion, runaway)

+ Incoming homeless from outside NYC

– Outgoing NYC homeless who move away (another town, state, country)

= Homeless households in New York City, end of year



They can be in ‘permanent’ housing briefly, then they drop back into the shelter system.


A few months later, she and her husband ended back in the shelter system in Manhattan. She assumes the same fate for the two single mothers and couple living in the building. The Walleses remain there today.


Meanwhile, more households keep arriving in New York City at a steady rate, and that rate is much higher than NYC clears them into income independence of new permanent housing.  As Lilliam Barrios-Paoli put it, after resigning from the de Blasio administration:


“We’re not going to build ourselves out of this crisis.  There’s just no way we’ll create sufficient apartments affordable to the population that is in shelter.”


In the shelters, hope can die.


“My husband and I are tired of doing this.  ‘Oh, you’re back here, Maria?’,” Ms. Walles said, impersonating the staff of the shelter. “I don’t want to hear that. It’s not fair… it’s not right.”


To the Bloomberg administration, two years was more than enough time for the recipients to move into permanent housing with their accrued savings – the idealistic end goal of the program. “Of course, that’s subjective. The last administration did not see that as a flaw,” a DHS spokesperson said.


Any time limit is subjective.  A no-time-limit program is unsustainable.


“Advantage was a completely unrealistic one-size-fits-all solution,” Patrick Markee of Coalition for the Homeless told me. “Studies have shown that people who have long-term subsidies for their apartments stay in them, which is good for taxpayers because it saves money on the shelter system.”


That is of course true, but irrelevant in New York City unless it can crack the NIMBY carapaces covering most neighborhoods.



“When Bloomberg announced it, it became a revolving door to shelters and costly to taxpayers,” he continued. “It would have been improved if there were longer-term subsidies, and it used federal housing subsidies available.”


As Mr. Markee well knows, that’s illusory.  Federal housing subsidies are themselves finite, New York already gets a large share of them, and anything captured for permanent supportive housing has to come from some other housing program.


Triage may be cold, but it is inevitable.


Sources used in this post


New York Times, July 28, 2009; Seaweed font

New York Daily News, March 4, 2011

New York Times, May 31, 2011; Emerald font

New York Times, February 8, 2012; Kelly green font

Wall Street Journal, March 4, 2013: Sapphire font

Wall Street Journal, March 8, 2013: Azure font

AHI blog: New York’s self-reinforcing homeless system, October 21-25, 2013

Gotham Gazette, April 4, 2014; Caramel font

New York Times, July 25, 2014; Crimson font

New York Post, November 1, 2015; Turquoise font

New York Times, October 25, 2016; Forest green font

New York Daily News, October 28, 2016; Indigo font

Wall Street Journal, November 20, 2016: Siena font

New York Daily News, December 1, 2016; Garnet font

WNYC, December 5, 2016: pink font (AHI rough transcript)

Coalition for the Homeless web site, accessed January 1, 2017, gray font



Meanwhile, the Walles family makes no progress:


For Walles, who now volunteers at Picture for the Homeless as its housing campaign leader, this time frame is not realistic for families like her own.


I respect Ms. Walles for volunteering, but unpaid work doesn’t pay the rent.


“The only thing that puzzled me is that it was only for two years.  Not short-term, long-term. Permanent housing programs, two years or better, so you don’t have to see us again. Programs like Advantage take people out of the shelter and put them right back in. I don’t want to be a revolving door back into the shelter system.”


Ms. Barrios-Paoli sounds (WNYC, December 5, 2016, pink font) like a very good person made weary by the interlocking intractability against which she strove:


“New Yorkers are very impatient.  The issue over homeless has been in the making for twenty years.”


“I think we have think outside the box, and be more daring in what we’re putting on the table.  Say, ‘Yes, we’re going to invest in it.  We’re going to come up with something different.’ ”


On de Blasio’s thinking.  “It’s a process.  I’m sure he’ll get there.  But look, he was the only one elected and he had every right in the world to do [what he did].”


Tragically, the child of a homeless mother is being intellectually and emotionally crippled before she ever has a chance to choose for herself:


A report issued by the Independent Budget Office this month found that among public school students who lived in shelters during the 2013-14 school year, almost a third missed more than twenty days of school, while another third missed more than forty days.



The Legal Aid Society, where [current Commissioner of the Department of Social Services Steven] Banks was once attorney in chief, has taken issue with an intake process that requires homeless parents to bring their children along when applying for shelter, forcing the children to miss school.


Do you really want to claim in litigation that it would be better to separate parents from their children?  Put the children in foster care?  Do you really want those to be the headlines?


[Continued tomorrow in Part 9.]