Thursday, November 19, 2009

Empty luxury condos, government intervention, and AY housing

The slogan "the right to the city," formulated in 1968 by the French Marxist Henri Lefebvre to imply a right to housing and other elements of urban life, has lived on in several ways, including a controversial effort to turn empty luxury condos into subsidized housing.

The Right to the City-NYC coalition, which includes housing advocacy groups and several elected officials (including Prospect Heights Assemblyman Hakeem Jeffries) held a press conference in Downtown Brooklyn on October 27 to urge the city "to convert these vacant condos into deeply and permanently affordable housing for low-income New Yorkers." (Here's CityRoom coverage.)

Others involved were City Council Members Melissa Mark Viverito, Letitia James, and Maria del Carmen Arroyo. While the group has the same general goals as the city in its Housing Asset Renewal Program (for which $20 million has been allocated), the latter is aimed at moderate- and middle-income families.

As Crain's reported in an article headlined Survey finds 601 troubled condo projects:
Right to the City identified Be@Schermerhorn, a 246-unit luxury condo, with a vacancy rate of more than 93%, and Forté, a 108-unit luxury condo, with a vacancy rate of more than 60%. Both buildings have been on the market for at least a year. Forté was recently taken over by its lender Eurohypo bank. The group has not identified specific buildings in the Manhattan neighborhoods yet.
Can it work?

Crain's offered some skepticism:
It's unclear how many developers want to participate in the Housing Asset Renewal Program, but industry officials note that developers may shun such a program for a number of reasons. They note that such government programs will take at least two years to implement. And some developers may have the resources to wait for the economy to recover.

“By the time government takes action, apartments will start to sell or rent,” said Boaz Gilad, president of Ore International, a Brooklyn-based developer who has been scooping up troubled projects and finishing them at bargain prices. “It might not be a relevant program anymore.”
Another advocate's take

Not every affordable housing advocate is on board. I asked Williamsburg activist Phil DePaolo of the New York Community Council for his take:
The plan to convert stalled site into “affordable housing” is another gift to developers who have abused communities throughout the city with nothing more than a taxpayer bailout. The market adjustment is going as we have seen auctions of properties in Greenpoint, Brooklyn and the Riverdale section of the Bronx. I am also skeptical about the permanency of the “affordable” units and who would be in charge of their oversight.

The city and State must adopt a “multilayered” approach that ensures the protection of Section 8 and Mitchell-Lama housing programs; fights for the repeal of the Urstadt Law that cramps the city’s ability to make its own rent regulations; and cracks down on warehousing of low- and middle-income units by landlords.
Jeffries' justification

In a Daily News op-ed headlined Let's help New York's middle class move into luxury housing on 4/23/09, Jeffries wrote:
Skeptics might view this effort as a utopian solution - after all, why would developers who just invested millions of dollars in an apartment building take so much less in sales price or rent? Quite frankly, they have no choice. The housing market has completely collapsed, and developers confront the prospect of steep financial losses as excess apartment inventory continues to build.

The Department of Housing Preservation and Development and the state Housing Finance Agency can offer developers tax incentives and bond financing to encourage the transformation of luxury apartments into affordable homes. Banks receiving federal bailout money must also be urged to refinance mortgage debt under the condition that the developers rent or sell their apartments at prices the community can afford.
Free-market response

The free-market response to the Right to the City plan comes in a 9/17/09 column by Nicole Gelinas, headlined NY's housing grab: 'Affordable' bribes for banks:
For starters, these plans are huge taxpayer gifts to politically connected developers and banks -- who'll have to cut their prices anyway, without any government bribes.

Developers and their financiers can hang on for a while, keeping condos empty. But eventually, they'll have to throw in the towel and sell off the units at prices that somebody will actually pay -- which isn't likely to be half-a-million bucks for a no-frills Harlem box.

Second, even if these programs really did benefit a few home buyers, it's at the expense of everyone else.

More than three-quarters of New York families would qualify for an "affordable" apartment under the government's income guidelines -- $108,000 a year for families in the state program.

...Middle- and working-class people would do better waiting for market forces to work. As prices for "luxury" condos plummet, they'll also pull down prices of older-stock housing down -- making more homes affordable in all price ranges.
...Finally, Paterson and Quinn would waste money that's needed elsewhere.

Quinn's $20 million for developers and banks could fund all but $5 million of the MTA's five-year plan to fix ceilings in subway stations. Using state credit to guarantee mortgages leaves less debt available for other worthy infrastructure projects.
Sorting through it

After a community meeting last month, I asked Jeffries to comment; he pointed out that the market won't necessarily work, because speculators would just buy the units and hold them, all the while leaving buildings--aided by bailed-out banks and city tax exemptions--empty and thus blighting neighborhoods.

(At the same meeting, Daniel Goldstein of Develop Don't Destroy Brooklyn raised some eyebrows with a half-serious suggestion that the state pursue eminent domain on such empty buildings.)

Gelinas has a point. As does Jeffries. The free market was never really allowed to work--otherwise a lot of those buildings wouldn't have been built in the first place.

To get those empty condos filled without new subsidies, theoretically the city could increase taxes on vacant lots and empty buildings, as in Boston, to incentivize owners. But the city won't do that. In fact, it will let developers maintain stalled building sites for up to four years, so it's going in the opposite direction.

Once upon a time the city was bending over backwards for developers. Now it's making some visible but spotty efforts to help those who need housing.

But what the city needs, more than anything, is a coherent overall policy. And that would mean that privately-negotiated affordable housing agreements like Atlantic Yards, with a privately-negotiated zoning bonus, wouldn't be necessary.

A market for AY?

Maybe the luxury market will sort itself out by then, but this situation does not bode well for the market-rate rentals and condos promised for Atlantic Yards. Will there be a market for $1217/sf condos in 2015?

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