How New York City Can Get More Affordable Housing For Its Money

Mayor de Blasio wants more affordable housing in the city. He's made it the centerpiece of his second year in office to begin construction on 80,000 new apartments for working-class and middle-class New Yorkers.

Unfortunately, he's going about it the wrong way.

De Blasio doesn't want the city to pay directly for most new affordable housing — that is, housing for a family of four making $37,800 or less. He knows the city can't afford it.

Instead, he wants private builders to set aside “affordable” apartments in any new buildings that are built for wealthier condo buyers and renters.

To that end, the mayor wants to double down on existing tax subsidies for builders — asking Albany to tweak its tax-subsidy program for affordable housing, called 421-a. The program currently costs the city $1.1 billion a year in lost taxes — so the mayor should be applauded for wanting to improve it.

But de Blasio's reforms won't achieve their desired ends. To understand why that is, it's useful to remember that 421-a was first implemented in the 1970s to encourage investment in all new housing, whether “affordable” or not — that is, not to penalize builders for increasing the value of their property in a city that badly needed investment of all kinds. So the city and state offered the 421-a housing subsidy to give developers 10 years' worth of tax breaks.

But with the increase over the years in home values in Manhattan (and prime spots in the outer boroughs), and with the profits that developers were suddenly able to make, the exemption grew too generous.

So in 1985, the city added a new requirement to get the tax break: Developers would have to build affordable units in the city's hottest markets, mostly Manhattan.

De Blasio's new changes would lengthen the time period during which developers who qualified for the exemption would get to enjoy the tax break. In return, though, builders would have to include “affordable” apartments in new buildings across the whole city.

This new requirement won't accomplish much. Asking developers to set aside Manhattan apartments for working-class New Yorkers is expensive.

Building an “affordable” unit in Manhattan costs a developer $3,855 a month — roughly three times as much as one in, say, Astoria, at $1,655, or Bed-Stuy, at $1,255.

But the solution to that problem isn't to leave out the city's most expensive areas, either. Builders in less-prime areas may balk at the new requirements, too.

Here's why: Developers need about $2,300 a month to break even on new units in the outer boroughs, so they just can't make enough on the new buildings in lower-rent areas to break even on the deal.

The result: The mayor's plan will provide a small number of costly affordable units in Manhattan, but not much development elsewhere. There's a fix, though.

If de Blasio gives up on insisting that the affordable apartments must go in the same complex as the market-rate ones, the mayor can get a lot more of the apartments he wants — without giving developers such huge tax subsidies.

The mayor should give builders a smaller tax break on the Manhattan market-rate units they want to build. In exchange, those builders would put up more affordable units in desirable, but cheaper, neighborhoods around the city.

This would be possible by bringing back a part of the 421-a program phased out more than half a decade ago by Mayor Michael Bloomberg.

To help ensure new housing comes with enough transit and other support for new residents, the mayor could limit the program to the 15 neighborhoods where he wants to jump-start redevelopment, starting with East New York in Brooklyn.

And he should cap the size of the tax exemption per eligible market-rate unit, so that ultra-rich condo owners don't get too much of a tax break.

The mayor doesn't need to extend the tax exemption to 35 years to get more housing built, either.

These changes would save the city millions of dollars a year. New York would become a little more affordable to more people — while saving the city money.

This piece originally appeared in New York Post

This piece originally appeared in New York Post