Housing Issues and Options For New
York City
by Michael H. Schill
This paper presents a brief overview of the most important
housing issues facing New York City as well as some background
on existing programs and policies.
Issue 1: Affordability
Issue 2: Housing Preservation and Anti-Abandonment
Issue 3: The Disposition of In Rem Housing
Issue 4: Lead-based Paint Hazards in Housing
Issue 5: The Expiration of Use Restrictions
for Subsidized Housing
Issue 6: Discrimination in the Housing Market
Issue 7: Predatory Lending
Issue 8: Public Housing
The Scope of Housing in New York
According to the Housing and Vacancy Survey, in 1999
there were 3,038,796 housing units in New York City. Renters
occupied roughly two-thirds of all dwelling units, with
the remainder occupied by owners. The rental vacancy rate
was 3.19 percent, down from 4.01 percent in 1996. The
highest vacancy rate in the city was in Staten Island
(5.82 percent); the lowest was in Queens (2.11 percent).
Issue 1: Affordability
THE PROBLEM
Prices for housing in New York City have always been
expensive and seem to be increasing at a rapid pace. According
to the 1999 Housing and Vacancy Survey, 24.3 percent of
renters in New York City pay more than half their incomes
in rent. This actually represents a slight improvement
in affordability from 1996. The improvement is largely
attributable to increased employment and earnings among
very low-income1 New Yorkers. Nevertheless,
among very low-income New Yorkers, over half of all households
have severe rent burdens. In addition, many middle-income
households who do not live in rent regulated apartments
are feeling the pinch of increased housing costs.
EXISTING PROGRAMS AND POLICIES TO DEAL WITH AFFORDABILITY
I. Rental
The city already has several housing programs to make
housing more affordable. Among the most important rental
programs are the following:
- Public housing. The New York City Housing Authority2
currently rents over 170,000 units of subsidized housing
(rent is equal to 30 percent of household income). Recent
changes in federal policy will lead to more working
families living in New York City Housing Authority housing.
This will reduce the number of vacancies available to
the poor, but will increase housing opportunities for
moderate income households.
- In rem housing. The city owns and operates approximately
13,000 units of in rem housing (housing taken by tax
foreclosure). The incomes of households in in rem housing
are the lowest in the city. Because the previous owners
failed to maintain their buildings, the housing stock
is also in the worst condition of any housing in the
city.
- Housing vouchers. Over 100,000 households in New York
City receive Section 8 housing vouchers (which permit
eligible households to rent private market units and
pay only 30 percent of their income for housing). These
vouchers are targeted to very low income households.
- Private, project-based subsidized housing. Many privately
owned housing developments are subsidized under a variety
of federal, state and local programs. Among the housing
programs that fit into this category are:
- Section 8 developments
- Mitchell-Lama rental developments
- Section 202 elderly projects
- Low income housing tax credit projects
- 80/20 housing
- In rem housing disposition programs (see Issue
3 below)
- Rent regulation. Under state law, rent regulation
may remain in effect in New York City as long as the
vacancy rate is less than five percent. In 1999, over
half of all rental units in the city (54.5 percent)
were either rent controlled or rent stabilized. In some
parts of the city, however, rent regulation is irrelevant;
the landlords in these areas are unable to charge the
allowable rent because of the low incomes of their tenants.
In other neighborhoods, rent regulation keeps rents
well below market levels. In 1997, the state passed
a law that allows owners to deregulate their apartments
if the allowable rent exceeds $2,000 and the income
of the tenant is $175,000 or higher.
- Tax abatements. New construction of housing entitles
the owner, as of right, to a partial tax exemption under
Section 421-a for a period of between 10 to 25 years.
The exemption is not available to owners of buildings
between 14th Street and 96th Street in Manhattan unless
(1) they reserve 20 percent of the units for low and
moderate income families or (2) they construct affordable
housing or purchase 421-a certificates from a developer
who constructs affordable housing elsewhere. The City
Council may also grant tax abatements pursuant to Article
16 of the General Municipal Law.
II. Home Ownership.
The city also has several programs to provide affordable
homeownership opportunities. These programs typically
involve construction on land that has been acquired by
the city as a result of tax foreclosure or urban renewal.
Therefore, the bulk of these programs operate in predominantly
low-income communities.
- New York City Housing Partnership New Homes Program
Through the New York City Housing Partnership, the city
has produced over 15,000 units of housing. The city
contributes land for a nominal cost. The city also provides
a subsidy in the amount of approximately $10,000 which
is matched by the State of New York. These subsidies
become second mortgages on the properties that are forgiven
over time. The homes are typically sold to households
earning between $30,000 and $70,000. They are often
two-family homes. (The owner uses the rental income
from the other unit to pay his or her mortgage loan).
- Nehemiah Program
Coalitions of churches have built somewhat more modest
homes for moderate income families. The city typically
provides $15,000 per unit and contributes the land at
nominal cost for these houses which are typically built
using cost saving (mass production) techniques. The
incomes of purchasers, on average, are slightly lower
than those of purchasers of Partnership homes.
- New Housing Opportunities Program (New Hop)
This program, begun in 1997, promotes the development
of housing (both rental and homeownership) for middle
income families. The city, through its Housing Development
Corporation (HDC), provides capital subsidies and below-market
interest loans to developers to construct the housing.
The sources of financing are Housing Development Corporation
taxable bonds and corporate reserves.
- Alliance For Neighborhood Commerce, Homeownership
and Revitalization (ANCHOR)
Under the ANCHOR Program, the city has supported the
construction of over 875,000 square feet of commercial
retail space and over 300 units of housing on vacant
city-owned land. ANCHOR uses a combination of federal,
state, city and private funds.
POLICY ISSUES AND OPTIONS
Affordability problems are caused by the interplay of
supply and demand. On the demand side, the incomes of
very low income New Yorkers are simply too low to enable
them to pay for the maintenance and debt service on either
new or existing housing. In addition, in many neighborhoods,
particularly in the boroughs other than Manhattan, prevailing
rents are too low to encourage owners to build new housing.
On the supply side, we are not producing enough new housing
to satisfy increasing population needs (largely attributable
to immigration) as well as to replace obsolete housing.
Although it is expected that completions for 2000 were
quite high, (in 1999, just under 9,000 units were built),
recent production levels are nonetheless still low by
historical benchmarks.
Policies to alleviate affordability problems could either
address demand by increasing ability to pay (jobs, education,
housing vouchers) or supply by promoting the construction
of additional housing. Indeed, the mayor recently announced
a plan to increase capital spending on housing by $1.2
billion over four years3. Many housing advocates
would like a dedicated source of revenue to fund additional
housing production for low-income families and for middle
income families. Definitions of middle income occasionally
run quite high, sometimes over $150,000 a year.
To increase the supply of affordable housing, New York
City might enact proposals to reduce the cost of housing
construction. A recent study, Reducing the Cost of New
Housing Construction in New York City, [See Executive
Summary4] by Salama, Schill and Stark,
recommends over 60 different actions that could be taken
by the government or by private industry and labor to
bring down construction costs. These actions include:
- Rezoning some manufacturing zones to permit housing
construction.
- Using the power of eminent domain to create buildable
assemblages when combined with city-owned land.
- Promoting the re-use of brownfields by passing laws
to establish standards for safety and incentives for
development.
- Increasing the efficiency and effectiveness of the
Department of Buildings.
- Fighting corruption in the construction industry.
- Adopting a model building code with provisions to
reflect the idiosyncratic nature of New York City development.
- Creating flexible power in the Chair of the City Planning
Commission to waive restrictive zoning for affordable
housing developments.
- Creating developer-labor partnerships to reduce labor
costs for affordable housing.
Even if the city were to adopt the proposals set forth
in Reducing the Cost of New Housing Construction in New
York City, the cost of new housing construction would
still be too high for many households in the city. Therefore,
city capital subsidies would still be needed to promote
additions to the city's housing supply for these groups.
Since 1986, the city has spent approximately five billion
dollars in capital funds for housing construction and
rehabilitation. This unprecedented expenditure of funds
has led to the construction of over 22,000 homes, the
gut rehabilitation of more than 43,000 units of formerly
vacant housing and the moderate rehabilitation of over
97,000 units of occupied housing.
In deciding how to allocate capital funds for future
housing production, difficult choices would have to be
made to set priorities for spending, including:
- How much money should be spent on housing as compared
to other important capital expenditures such as schools,
transportation and infrastructure
- Whether the housing should be for homeowners or renters
- What the appropriate incomes to be served should be-
low, moderate or middle
- Whether the housing should be for homeless families
or individuals
- Whether supportive services should be provided
- Who should develop the housing- profit-motivated developers
or community-based organizations
- Whether the housing should be low density or high
density (to economize on land)
- Whether the housing should be funded from a dedicated
source of revenue
Issue 2: Housing Preservation and
Anti-Abandonment
THE PROBLEM
The quality of housing in New York City, on the whole,
has steadily improved over the past several decades. According
to the Housing and Vacancy Survey, only 4.4 percent of
all housing units in the city have five or more maintenance
deficiencies (e.g. holes in the wall or ceiling, rodent
or insect infestation, etc.). In addition, the current
economic boom as well as the city's policy of no longer
taking ownership or possession of tax delinquent properties
has made the problem of housing deterioration less visible.
Nevertheless, New York City's housing stock is among the
oldest in the nation. Many buildings in the city are tax
delinquent and at risk of abandonment. These buildings
typically have extremely high lien-to-value ratios (e.g.
back taxes, mortgage loans). A substantial number require
significant rehabilitation.
EXISTING PROGRAMS AND POLICIES
After several years of not vesting properties that were
tax delinquent, the Giuliani Administration has implemented
a three-pronged anti-abandonment strategy:
- Tax liens for properties that are not "distressed"5
are sold in bulk to private investors. These investors
can collect the amounts due, foreclose the liens or
do nothing.
- For buildings and lots that are "distressed," properties
can be vested but not taken over by the city. Instead
properties are transferred under the award-winning Third
Party Transfer Program [ see
description of program online6 in PDF
format] temporarily to a nonprofit corporation called
Neighborhood Restore which manages them until they can
be transferred to third party owners. The third party
owners are selected by the Department of Housing, Preservation
and Development (HPD) and provided with capital subsidies
to rehabilitate the housing7.
- The development of an anti-abandonment strategy to
identify which buildings are most at risk of abandonment.
To date, there has been very little analysis concerning
whether the buildings whose tax liens were sold have been
foreclosed upon by the purchasers or have become tax delinquent
once again. With respect to the "distressed properties"
excluded from tax lien sales, 30 properties were in the
first completed round of the Third Party Transfer Program.
Another round is in process with approximately 10 properties
in the Bronx, 36 in Brooklyn and 53 in Manhattan. The
definition of "distressed" has recently been changed to
further limit the number of units held back from the tax
lien sale. A prototype of an early warning system was
developed by New York University and the University of
Pennsylvania, but was not made operational by the city.
POLICY ISSUES AND OPTIONS
Code Enforcement. Code compliance presents a dilemma.
The failure of landlords to maintain their buildings up
to code may result in unsafe building conditions and lead
to deterioration and neighborhood blight. On the other
hand, if the Department of Housing, Preservation and Development
were to enforce every requirement of the existing code,
many owners would likely not be able to afford to bring
their units into compliance. This might lead to abandonment
and an increase in homelessness as tenants in illegal
dwelling units were evicted. In addition, the current
legal framework for enforcing the housing code is inadequate.
Litigation, either by HPD or by tenants, is expensive
and time-consuming, particularly in light of the huge
docket of cases in Housing Court. The city can and does
make emergency repairs on properties under its Emergency
Repair Program (ERP), but the costs of the program come
out of its budget8. Among the possible strategies
for improving the code enforcement system are the following:
- Reform the housing code to remove requirements that
are not importantly related to health and safety.
- Ensure that a sufficient number of housing code inspectors
exist to investigate and document unsafe conditions.
- Create an administrative tribunal to adjudicate housing
code violations with streamlined procedures.
- Expand existing programs that provide modest renovation
loans (such as HPD's 8A loans) to owners who agree to
do work to bring their buildings up to code.
The Third Party Transfer Program. The first round
of the Third Party Transfer Program was extremely promising.
The additional resources recently committed by the mayor
to the second and future rounds suggest that preservation
of housing will command an increasing share of the city
capital budget allocated to housing. This makes sense
for two reasons: (1) rehabilitation is cheaper than new
construction on a per unit basis and (2) the incomes of
households living in eligible units are typically quite
low and therefore the tenants have particularly pressing
housing needs. Nevertheless, certain issues remain to
be resolved, including:
- The appropriate balance between nonprofit and profit-motivated
transferees.
- The appropriate role of tenant cooperatives as potential
transferees.
- The choice of neighborhoods for future rounds9.
In particular, should relatively stable neighborhoods
with only a small number of distressed buildings be
targeted so as to strengthen and preserve existing efforts,
or should neighborhoods with large number of distressed
properties be chosen?
Issue 3: The Disposition of In Rem
Housing
THE PROBLEM
New York City took over approximately 100,000 units of
housing as a result of in rem proceedings in the 1970s
and 1980s. It was ill-equipped to manage the properties
which were the worst-maintained in the city. The tenants
have the lowest incomes of any group of tenants in the
city.
EXISTING PROGRAMS AND POLICIES
Mayor Giuliani has accelerated the disposition of in
rem housing since he took office in 1993. The number of
city-owned units has been reduced to less than 13,000
in 2000 (7,500 of which are in occupied buildings). A
substantial portion of the resources spent by the city
as part of its 5 billion dollar capital plan for housing
have been devoted to the disposition and rehabilitation
of in rem properties. With respect to rental housing,
there have been three categories of programs:
- Nonprofit ownership (currently called Neighborhood
Redevelopment Program, NRP)
- Low income cooperative ownership (currently called
Tenant Interim Lease, TIL)
- Ownership by private entrepreneurs (currently called
Neighborhood Entrepreneurs Program, NEP)
POLICY ISSUES AND OPTIONS
In his recent State of the City speech, the mayor announced
that he would speed up the disposition of in rem housing.
Relatively few people in New York City would support having
the city remain the owner of a large number of units.
Nevertheless, there is at times disagreement over the
appropriate resource allocation among programs for nonprofit,
for profit and tenant cooperatives.
Issue 4: Lead-based Paint Hazards
in Housing
THE PROBLEM
Lead-based paint, which is present in many buildings
in New York City, can cause developmental problems for
children if ingested. Over the past several years, significant
controversy has revolved around what should be done with
respect to lead paint. Until the recent passage of Local
Law 38, Local Law 1 required that lead-based paint be
removed from dwellings inhabited by children under seven
years of age. Since the time that Local Law 1 was enacted
in the 1980s, many experts have concluded that removal
of intact paint is often more harmful than leaving it
alone.
EXISTING POLICIES
Local Law 38 (enacted in 1999) changed Local Law 1 by
(1) removing protections for children six years of age
and older, (2) limiting the landlord's duty to a visual
inspection as well as "case-by-case" corrections, (3)
shifting the burden of ascertaining whether a child lives
in the apartment from the landlord to the tenant and (4)
changing the definition of lead-based paint. Lead-based
paint is considered immediately hazardous only if it is
peeling or located on a deteriorated surface. Lastly,
the landlord may receive an exception to the presumption
that all peeling paint in pre-1960 buildings is lead-based.
On November 1, 2000, Justice York of the New York State
Supreme Court, ruled in New York City Coalition to End
Lead Poisoning v. Vallone that the City Council had violated
the State Environmental Quality Review Act (SEQRA) by
not giving environmental considerations the requisite
"hard look" when Local Law 38 was enacted.
POLICY ISSUES AND OPTIONS
An effort needs to be made to balance the risk of harm
to tenants against the expected cost of lead paint removal.
As with many health and environmental issues, the debate
has become quite polarized. Any solution must take into
account the impact that remediation will have on the housing
stock and its affordability. If the requirements are stiff,
landlords will either (1) try to pass through the costs
to tenants (to the extent permitted by rent regulation
and economic conditions), (2) accept a lower rate of return
where they cannot or (3) disinvest in their buildings.
Issue 5: The Expiration of Use Restrictions
For Subsidized Housing
THE PROBLEM
The city has a significant number of privately owned,
subsidized housing developments. These housing developments
frequently were built under the Section 8 Program, the
Mitchell-Lama Program and the Section 221(d)(3) or 236
Programs10. Typically, these programs allowed
owners to prepay their mortgages or otherwise end participation
in the programs after a given period of time (often 20
years). A number of developments are old enough so that
owners can now exercise these rights if they wish. Tenants
of developments built before rent stabilization was enacted
in the early 1970s, are generally insulated from sudden
rent increases. Because of market conditions, tenants
living in developments located in Manhattan and built
after 1973 are the most vulnerable. Indeed, a few owners
of Mitchell-Lama projects in Manhattan already have made
plans to leave the program.
EXISTING POLICIES
For the federal programs, HUD has put into place a series
of protections for tenants of buildings whose owners terminate
their participation in the Section 8 or Section 236 Program.
These protections include housing vouchers. For Mitchell-Lama
tenants whose buildings do not also have federally insured
mortgage loans, Mayor Giuliani has committed to subsidize
rents for tenants whose incomes are below 80 percent of
the median. Bills have been introduced or passed the Assembly
to establish a moratorium on prepayments with respect
to Mitchell-Lama developments or to create notice periods
before developers can leave the program. These bills have
not made it through the Senate. Some tenants have filed
lawsuits challenging the right of owners to prepay11.
POLICY ISSUES AND OPTIONS
Most tenants living in privately subsidized buildings
have some level of protection either from rent regulation,
vouchers or city subsidies. However, tenants whose incomes
are above 80 percent of the area median income may be
at risk. Within the current legal framework, there is
not much the city can do to stop owners who qualify for
prepayment from leaving the program other than offering
financial incentives for them to remain. If owners are
successful in leaving the program, the city might consider
allocating some of the increased tax revenues that are
likely to be generated by rising property values (and
assessments) to assist in relocating these tenants.
Issue 6: Discrimination in the Housing
Market
THE PROBLEM
New York City is a highly segregated city. All data from
testing studies suggest that high levels of discrimination
in the private housing market exist particularly with
respect to black and Latino residents. This discrimination
frequently takes the form of real estate brokers steering
home buyers or renters who are members of racial or ethnic
minority groups to particular neighborhoods.
EXISTING POLICIES
New York City's Human Rights Law was a model for the
nation and is one of the most expansive in the country.
Individuals may file complaints with the New York City
Human Rights Commission, which will investigate and hold
enforcement hearings. In addition, people who believe
they have been discriminated against can file complaints
with the New York State Department of Human Rights or
with the United States Department of Housing and Urban
Development (HUD) alleging a violation of the federal
Fair Housing Act.
POLICY ISSUES AND OPTIONS
Recent efforts by the Human Rights Commission to automate
the processing of complaints are already generating positive
results. Additional resources would assist the Human Rights
Commission to enforce existing anti-discrimination protections
and to investigate patterns and practices of discrimination.
One source of revenue would be the Fair Housing Assistance
Program (FHAP) administered by the United States Department
of Housing and Urban Development. However, before the
city can receive FHAP funds, it must take steps to make
its Human Rights Law substantially equivalent to the federal
Fair Housing Act.
Issue 7: Predatory Lending
THE PROBLEM
Throughout the nation, including New York City, unscrupulous
lenders are bilking predominantly minority homeowners
out of their investments in their homes. These lenders
typically convince owners to take out second mortgage
loans at extremely high interest rates and pay high fees
for the privilege. Some offer reverse mortgages that strip
the equity from long time homeowners. Many of the borrowers
are elderly and face the loss of their equity, foreclosure
and, in some instances, bankruptcy.
EXISTING POLICIES
HUD has begun to investigate predatory lenders. In addition,
the New York State Attorney General has sued a couple
of lenders and reached settlement agreements.
POLICY ISSUES AND OPTIONS
The City Council might consider adopting legislation
to outlaw certain types of abusive practices. In addition,
the Human Rights Commission could focus more attention
on investigating predatory lending practices in New York
City and, if found to exist, bring enforcement actions
to stop them. In addition, studies show that many people
who obtain loans from predatory lenders could attain loans
from prime lending institutions. The city could increase
information and outreach to homeowners, particularly the
elderly and those in minority communities, about their
borrowing options and protections against lending abuses.
Issue 8: Public Housing
THE PROBLEM
The New York City Housing Authority (NYCHA) houses over
170,000 households in New York. It receives substantial
capital and operating subsidies from the federal government
and is a major source of permanent low-income housing.
NYCHA has a reputation as one of the nation's leading
housing authorities. During the late 1980s and early 1990s,
the Authority's developments became increasingly composed
of non-working, poor families. Crime rates within public
housing developments rose in relation to the rest of the
city (although in recent years these trends have been
arrested). In addition to these demographic trends, the
Housing Authority faces the challenge of maintaining its
extraordinarily large inventory of housing in the face
of uncertain federal funding.
EXISTING PROGRAMS AND POLICIES
In the past few years, efforts have been made to bring
the New York City Housing Authority's administrative and
management processes into the modern age. In addition,
recent federal legislation has made it easier for the
Housing Authority to maintain its historic tenant income
mix, which had been threatened by federal preferences,
targeting requirements and homeless placements. Federal
programs have been created to fund the redevelopment and
modernization of some public housing. However, the best
known program (HOPE VI) requires the demolition of units.
This is probably not desirable in New York because of
the relatively good quality of the stock and the fact
that high densities are acceptable in the city.
POLICY ISSUES AND OPTIONS
The New York City Housing Authority's "working family
preference" has been challenged in court for its impact
on efforts to desegregate public housing. In addition,
some tenant advocates have argued that the benefits of
increasing the income mix in public housing are not worth
the hardships faced by families who are not offered housing.
The appropriate balance between working and non-working
families remains to be worked out. Additionally, controversy
surrounds the issue of how energetically the city should
enforce a recent federal requirement that tenants who
are not working, elderly, disabled or responsible for
caring for children must work for eight hours each month
doing public service. Finally, the Housing Authority must
continue to expect that federal funding for modernization
will remain unreliable. Thus, the agency will increasingly
need to leverage private capital into public housing.
Footnotes
- A very low income household is one whose income is
less than half the city median.
- This change was designed to reduce concentrations
of poverty in public housing.
- According to a recent report by the Independent Budget
Office (IBO), $688 million of public funds would be
spent on the program. A substantial portion of these
funds, however, would be devoted to rehabilitation initiatives
rather than new construction. See IBO, Mayor's New Housing
Plan:Following the Money, Detailing the Programs in
Inside the Budget (Feb. 28, 2001).
- Executive
summary of the report.
- The original legislation enacted by the City Council
defined distressed properties as buildings with tax
liens equal to 15 percent of the value of the property
and that have (1) five or more serious repair problems
or (2) liens securing emergency repairs made by the
city in the amount of $1,000 or more.
- In 2000, the Third Party Transfer Program won a Pioneer
Institute Better Government award. A description of
the program is available online
- The Third Party Transfer Program (a.k.a. Local Law
37 Transfers) has recently engendered some controversy
because of allegedly insufficient notice and consultation
with tenants. Some city officials and tenant advocates
have a strong preference for transferring the buildings
to tenant cooperatives rather than private, profit-motivated
owners.
- ERP repairs become liens on the properties which are
repaired. Many of these debts, however, are never repaid.
- The choice of neighborhoods for future rounds is related
to the issue of nonprofit versus for-profit. Although
some neighborhoods may have large numbers of distressed
properties, nonprofit capacity in those communities
may be weak.
- Two additional problems concern private, subsidized
housing. Some developments, which were financed with
FHA mortgage insurance, are in deplorable condition.
In addition, the financial structure of a number of
these developments is untenable. HUD is currently seeking
to restructure the debt and the rental subsidies for
these projects under its "Mark-to-Market"
Program.
- Among the grounds upon which these lawsuits have been
based are that the owners are subject to deed restrictions
to maintain affordable housing or that the buildings
were placed in service before 1974 and are thereby subject
to rent regulation
This paper is not intended to be a comprehensive discussion
of the policy issues and options concerning housing, but
merely an introduction to the subject for candidates running
for election in 2001. The paper does not cover the related
issues of homelessness and special needs/supportive housing.
Copyright 2001 by Michael H. Schill
Michael H. Schill is the director
of the Center for Real Estate and Urban Policy at New
York University, and a NYU professor at both the School
of Law and the Wagner School of Public Service.