A variety of state and federal programs support affordable housing in New York City. The largest of these – the Federal Low Income Housing Tax Credit (LIHTC), Mitchell-Lama, and the Department of Housing and Urban Development (HUD) Section 8 project-based assistance – have dramatically increased the supply of affordable housing in the City. By some estimates these programs have together generated as many as 250,000 units of affordable housing citywide.
These programs operate by providing direct public subsidies, tax benefits and other financial incentives to owners of properties that contain affordable housing units.
To qualify for the benefits of each program, landlords must remain in compliance and satisfy minimum fixed terms of participation. Terms of compliance generally require restrictions on property use, rental rates and the types of tenants allowed occupancy. Landlords have to carefully weigh these commitments before entering into an affordable housing agreement.
New York City loses affordable housing when owners of participating developments either “opt out” or “fail out” of these programs. A property owner opts out when she decides to end her participation in the program after the conclusion of a mandatory period of compliance (also known as expiring out of use). Properties can also “fail out” by violating physical or financial requirements. After exiting the programs the units may be converted to market-rate residences.
A 2006 report by the Community Service Society of New York (CSS) estimated that as much as one-fourth of the affordable housing units extant in New York City in 1990 have either opted or failed out of their respective programs by that time.
Many of the original developments constructed through these programs benefited from cheap land, lower construction costs and public subsidies. Today, city land is scarcer, construction costs higher, and funding harder to secure. The economic downturn of 2008-2009 further reduced the pool of developers willing to invest in substantial new projects, even with the assistance of the affordable housing programs.
The economic downturn particularly impacted the LIHTC program by reducing the demand for available tax credits. In an environment with multiple obstacles to initiating new projects, policy makers have redoubled efforts to retain the City’s extant affordable housing stock. These preservation initiatives aim to keep existing developments participating in the various affordable housing programs.
The recent economic downturn may also have slowed the loss of affordable housing. The 2009 CSS report indicated that the rate of subsidized housing loss has slowed as developers face reduced demand for market rate housing and less access to funding for large redevelopment initiatives. The report also cautioned that the rising frequency of financial defaults may imperil many large affordable housing complexes in the City.
Legislative proposals constitute one prong of the preservation effort. In September 2009, the U.S. Senate began deliberations on the “Affordable Housing Preservation and Revitalization Act of 2009,” a bill designed to prevent existing affordable housing stock from converting to market rate upon contract expiration.
The bill guarantees that when new landlords or preservation groups assume ownership of eligible projects, these new owners will have access to residual funding tied to the project. These funds can be used by the new owners in order purchase, revitalize, and maintain the property.
The Section 8 Voucher Reform Act (SEVRA) of 2009 includes provisions to streamline various aspects of the tenant-based Section 8 Housing Choice Voucher program, and to ensure continued voucher funding. The House of Representatives began hearings on the bill in June of 2009.
Government and non-profit groups also preserve affordable housing through direct negotiations with developers. HUD maintains an Office of Affordable Housing Preservation (OAHP). The OAHP’s Mark to Market program works to reduce rent prices after the expiration of housing subsidy contracts and helps restructure remaining debt to support the reduced rental income. New York City’s Department of Housing Preservation and Development (HPD) provides funding and other assistance to local private and non-profit developers investing in affordable housing projects.
The New York State Division of Housing and Community Renewal (DHCR) supervises Mitchell-Lama developments and funds other capital programs to rehabilitate or build affordable housing. The New York State Housing Finance Agency (HFA) and Affordable Housing Corporation (AHC) also provide financing to developers investing in affordable housing, and the State of New York Mortgage Agency (SONYMA) offers mortgage insurance to lenders financing these projects.
By stemming the attrition of available units, preservation policies promote stability in the lives of residents and reduce the frequency of disruptive relocations. These policies also advance principles of equity, and the notion that lower and middle-income residents should not be “priced out” of certain parts of the city.
Critics of preservation argue that these efforts forestall more comprehensive solutions and new innovations. Others contend that that market forces will efficiently distribute housing and that efforts to modify the terms of existing contracts pose an undue burden on developers and discourage future investment.
According to this last rationale, the time limits on restricted use constituted essential components of the original deals, and investors never would have produced affordable housing at all without a chance to “opt out” at some later date.