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Commentary By Eric Kober

How to Get More Affordable Housing: The Key Is Leveraging Private Developers

Cities, Cities Housing, New York City

Mandatory Inclusionary Housing, one of New York City Mayor de Blasio’s signature housing initiatives, is a bust. As politically appealing as MIH was in principle, it has failed to deliver in practice.

The program, which passed with considerable fanfare in 2016, promised that any developer benefitting from a favorable zoning change would have to provide permanently affordable housing in exchange.

Once enacted, it was expected to produce 12,000 of the projected 80,000 new affordable housing units promised by 2024 under the mayor’s Housing New York plan. But with that period half over, MIH accounts for just over 2,000 affordable units either completed or permitted, and most of those units are heavily subsidized.

In fact, the city’s voluntary inclusionary housing (VIH) program — maligned by MIH proponents as too soft on developers — has dramatically outpaced MIH in delivering permanently affordable units.

For MIH to work, market-rate rents must be high enough to effectively subsidize the cost of providing affordable units. Unfortunately, the de Blasio administration and the City Council diminished the potential for MIH to deliver affordable housing by requiring more affordable units, at too low a qualifying income, than was realistic in many parts of the city. The mayor then ceded to Council members a de facto veto over rezonings in their districts — a veto that thus far has blocked rezoning of the affluent neighborhoods in which MIH is most financially feasible.

Instead, the city has primarily used MIH to pursue heavily subsidized affordable housing projects for which the program was never necessary in the first place.

The next mayor should learn from de Blasio’s mistakes, relaxing requirements so that the program works where private investors want to build housing, not just the city’s most expensive neighborhoods, and for all types of housing, not just new rental construction in high-rent areas.

What went wrong? In March 2016, after years of lobbying, the city required that residential developers in parts of the city rezoned for additional housing would have to make a share of any new units permanently affordable to obtain building permits. (Buildings of 10 units or less were exempted.) Billed as the toughest “inclusionary zoning” requirements in the country, the MIH program requires as many as 30% of the new units on a rezoned site to be affordable.

As I document in a new Manhattan Institute report, as of September 2019, just over 2,000 permanently affordable units had been approved under the MIH program. Yet instead of developers themselves funding the new affordable units, as the program intended, the city has almost exclusively applied the program to developments with heavy public subsides — where all of the units are subject to income and rent caps.

Why is government, not developers, subsidizing the units? Location, location, location. Nearly all MIH-related developments are in low-income neighborhoods rather than the higher-income neighborhoods where additional market-rate housing would actually support a share of units at below-market rates.

What’s more, the city doesn’t need MIH in order to pursue publicly subsidized housing projects. Such projects have been undertaken in many administrations, constructed by non-profits or for-profit developers that agree to the city’s terms in exchange for public subsidies that ensure the housing remains affordable over the long-run.

Only two of the 38 residential developments participating in the MIH program, accounting for 343 permanently affordable units, can provide such units backed by private revenues rather than public subsidies alone. Only one — 601 W. 29th St. in Manhattan — has been approved in the sort of wealthier neighborhood where the city’s own analysis indicated that MIH could be financially feasible.

By relaxing MIH affordability requirements in the city’s middle-class neighborhoods and building pro-housing coalitions on the Council, the city can generate more below-market-rate housing that benefits New Yorkers and newcomers alike. Will it?

This piece originally appeared at the New York Daily News


Eric Kober is an adjunct fellow at the Manhattan Institute and author of the new report, “De Blasio’s Mandatory Inclusionary Housing Program: What Is Wrong, and How It Can Be Made Right.” He retired in 2017 as director of housing, economic and infrastructure planning at the New York City Department of City Planning. Follow him on Twitter here.

This piece originally appeared in New York Daily News