Affordable Housing Institute : US

What does a business do when it’s losing money, has exhausted its internal cash reserves, has cut its operating expenses to the bone, and cannot raise capital?  Aside from insolvency, there’s only one thing to do: start selling assets.

It’s either the silver or the chateau

 

That predicament now confronts the New York City Housing Authority, as reported by the New York Times:

 

Facing a $225 million budget gap, the City Housing Authority is planning to sharply reduce its staff and sell vacant land in its projects for development into housing, much of it for middle-income residents, officials said yesterday.

 

Land is a financial asset — but since the value of urban land derives from what can be developed on it, and land value is a residual, if land is sold at its market value, it generates cash for the seller, but no affordability.

 

Under a plan scheduled to be approved today [May 30, 2007 — Ed.], the authority is proposing to raise $50 million by selling parking lots and other open space at a number of housing complexes. Officials at the authority, which is the landlord for more than 400,000 low-income New Yorkers –

 

Just under 180,000 total apartments.

 

– said that although some of that development might include market-rate units, the income from the land sales generated would help preserve housing for the poor.

 

 

There’s the conflict in a nutshell — NYCHA is selling its patrimony, land that could be turned into affordability via public-private partnership, and more than likely the resulting properties will be market-rate.

 

The city’s Department of Housing Preservation and Development, which often works with private developers to build homes for residents with a broad range of incomes, will buy the land, and expects to select developers for three projects on the West Side of Manhattan and one in Brooklyn within a few weeks, a department spokesman said.

 

This conflict — fair value or affordability? — actually bedevils housing bodies throughout the world.  In both the UK and Ireland, most public bodies that own land are required to sell it at true market value (English Partnerships is an exception in that it can innovate) even as they have an increasing shortage of affordable housing.

 

A sign they don’t even bother posting in New York City, it’s so permanent

 

In New York City, the shortage is getting ever worse:

 

At the same time, Housing Authority officials, who have been steadily reducing the agency’s staff, plan to eliminate an additional 500 jobs by October, through layoffs and by letting vacancies go unfilled.  

 

The housing authorities are in a terrible bind.  I’ve previously documented public housing’s continuing troubles, which are no longer ‘relatively under control‘, particularly in two NAHRO Journal of Housing and Community Development articles, The Ghost of Christmas Yet To Come and Public housing’s Gordian Knot.  The problem is that many housing authorities still engage in things hard to defend, and some are spectacularly dysfunctional (such as San Francisco, what’s wrong with this picture?). 

 

We’re working collaboratively on the structure

 

In a few months I’ll have a third JoHCD article, The Essential Housing Authority, which among other things deals with how a housing authority can reduce its own staff and direct activity without necessarily sacrificing any of its mission.  The key is contracting — smart contracting, that gives better results for lower cost. 

 

What NYCHA is actually doing is something I cannot endorse:

 

The authority also plans to use $100 million from its capital budget, which is normally set aside for long-term physical upkeep of its 2,653 residential buildings, to help cover its day-to-day costs.

 

That’s absolutely, categorically wrong.  When it comes to capital improvements, you can pay me now or pay me later. 

 

You can pay me one thousand dollars now or … one million dollars later

  

Despite those moves, the authority still faces a nearly $52 million budget gap for the current calendar year.

 

Further, draining capital funds simply to defer painful cuts means you’ll still have to make the cuts, and when you do, you will lack the capital to make cost-effective improvements.  Very bad idea.

 

We haven’t got the capital

 

“This budget requires hard choices, given the limited amount of new aid provided by Washington and Albany,” said Tino Hernandez, the Housing Authority chairman. “The board is taking the steps necessary to ensure fiscal stability while maintaining our commitment to the residents of public housing.”

 

I see no basis for Mr. Hernandez’s optimism.

 

The Housing Authority has struggled for years to balance its books as the gap between federal subsidies and expenses for items like pensions and heating fuel have continued to grow. Over the years, the authority has undertaken a variety of measures, including raising rents, freezing hiring, reorganizing management and seeking additional assistance from Washington and Albany — assistance it usually did not get.

 

There’s no question that higher levels of government — state and Federal — have been increasing the fiscal pressure to crush depth.  Because of public housing’s dependency trap, housing authorities depend on legislatures fulfilling their moral if not legal duty to fund them fully.  Like my own state of Massachusetts until recently (when, unexpectedly, logic won — clip and save), Albany has been no help:

 

Requests for $62 million in state aid yielded only $3.4 million [5.0% of the request — Ed.], while a proposal to bring parity to the way the state helps welfare recipients pay for public and private housing — which could ultimately mean an additional $46.6 million a year — is still pending.

 

“Need a dollar?  Here’s a nickel.”

 

For several years now NYCHA has been searching the sofa cushions, but is running out of juice to squeeze.  Starvation is bad for you: you think it can’t get any worse, and it does. 

 

Yep, that’s where the capital funding has gone

 

Officials at the authority have abandoned efforts, for instance, to gain permission to use $117.5 million from federal programs in different ways from the originally intended uses.

 

In response, the authority is looking to reduce its work force of roughly 13,000 full-time employees by 500, a move that could result in service cuts at properties where there have already been reductions in weekend staff levels while rents have increased.

 

This is only a 4% cut.  Further, NYCHA’s work force of 13,000 employees for 180,000 apartments — 15 apartments per employee! — is gigantic.  There’s got to be much more that could be done if NYCHA were committed to Reinventing public housing.

 

Although officials in Mayor Michael R. Bloomberg’s administration have been considering the idea of selling vacant land in the projects for years, they are only now taking the first major steps toward doing so. Housing Authority officials say there is enough empty or underused space within its developments to support 25,000 new apartments and homes, but that they are selling only enough for roughly 5,000 or 6,000.

 

Because of rent control, among other things, New York City has the nation’s tightest rental market, so anything that adds supply will be wise.  It’s very discouraging it’s taken a fiscal crisis to get land that had been sitting vacant for years into housing production.

 

A parking lot at the Linden and Boulevard Houses in East New York, Brooklyn, is to become a mixture of 180 two- and three-family and condominium town houses.  At least 15 of the two-family units are to be set aside for households earning no more than $56,700 for a family of four, with the rest affordable to households earning no more than $92,170 for a family of four.

I’m sure I can keep the issues straight

 

Two issues are tangled together here: land use and affordability funding.

 

The Housing Authority sees the plan as a way of leveraging its assets in a time of fiscal strain, but the Bloomberg administration also sees it as a way to ease the housing crunch for middle-class residents.

 

Selling land to put it into use makes enormous sense for New York City.  Channeling it to housing is even better.  We can applaud NYCHA, better late than never, turning its land over to an affiliated agency that can put it on a development track.

 

Meanwhile, should NYCHA insist on some level of affordability?  Can it trust HPD to deliver affordability?  Remember the imperatives of purchase price — if land is sold for a certain amount, then to develop it requires a certain level of home price, and that in turn puts a floor on the affordability.

 

“We’re creating more economically diverse communities by mixing middle income with the low-income populations” at Housing Authority projects, said Neill Coleman, a spokesman for the Department of Housing Preservation and Development.

 

So higher income is good!

 

 

“Hey, we invented spin!”

 

Mr. Coleman said that while it was “certainly conceivable” that the developments would one day include market-rate housing, the department would be able to mandate a higher proportion of lower-cost housing because it was buying the land from another government entity at a lower cost than it could privately.

 

Evidently someone — and knowing my colleague Shaun Donovan, it’s probably HPD — has done the land-value arithmetic and knows within a fairly tight range how much affordability there will be.

 

Several advocates of low-cost housing said that they supported the approach in theory, and that mixed-income communities are desirable for those who live in them. But some warned against using public land for middle-income residents at the expense of the poor.

 

“Within reason, a mixed-income, economically diverse community is a good community,” said Victor Bach, a housing policy analyst at the Community Service Society, which works with the poor. “Because the site and the land is being obtained from NYCHA, and NYCHA has a historical mission to assist low-income New Yorkers in providing housing that’s affordable to them,” he added, “that should be reflected in a higher proportion of the housing going to low-income New Yorkers.”

 

Let’s hope it does.

 

Cheer up, the mayor’s promised more affordable housing

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