The City has dangled the promise of affordable housing in SoHo/NoHo/Chinatown before the public to give a progressive veneer to the massive handout that De Blasio’s upzoning plan makes available to developers, and to draw attention away from the likely demolition of existing affordable housing that this will effect. These promises, however, are unlikely to ever materialize. Here, we explain why.
Where do the promised affordable units come from?
De Blasio’s plan “requires” an affordable housing set-aside on any residential development of more than 12,500 sq ft. The City arrives at its housing projection by assuming that almost all new construction in the rezoning area will consist of residential development with 25%-30% affordable units on site. Given, however, the various loopholes and exemptions made available by the plan, this assumption is almost certainly wrong.
Projects of between 12,500 and 25,000 sq ft
The affordable housing requirement for projects with between 12,500 and 25,000 sq ft of residential floor space gives developers two options: the on-site development of affordable housing or a contribution into an MIH Affordable Housing Fund. The City argues that all developers will choose to develop the affordable housing on site, because, historically, no MIH project developer has ever opted to pay into MIH Housing Fund instead. The grounds for this past trend, however, do not apply to SoHo/NoHo/Chinatown, and there is every reason to believe that developers in these neighborhoods will overwhelmingly choose to pay into the fund rather than develop affordable housing locally.
Until now, MIH projects have been located in neighborhoods with weak housing markets. As a result, the vast majority of MIH projects (57 out of the 67 completed or under construction as of January 6, 2020) lack any market units at all and depend for their viability on substantial city, state, and federal subsidies. Absent the possibility of profits from market units, there is no logical reason to avoid meeting the affordable housing requirement on site.
In projects with market units, those apartments hardly command higher rents than their affordable counterparts. This limits the advantage of paying into the housing fund so as to make possible the development of market units in the place of on-site affordable ones. Consider the example of the MIH Project at 2178 Bergen Street in Ocean Hill, Brooklyn. Market 2BR units for this project have been listed for an average of $2,193. By comparison, its most expensive “affordable” 2BR units rent for $2,400.
Needless to say, the market conditions in SoHo/NoHo are far different. Listings for 2BR in new buildings within the rezoning area have been averaging $14,196. Given those rates, developers will gladly pay into the fund in order to meet the MIH requirement without having to sacrifice extremely valuable market rate development to do so. Finally, this payment is unlikely to ever go towards the production of local affordable housing, because of the lack of available public development sites within the rezoning area.
Projects of 25,000 sq ft or larger
Projects with 25,000 sq ft or more residential floorspace must meet the affordable housing requirement on-site and cannot fulfill this obligation with a housing fund payment. The requirement, however, is only triggered by 25,000 sq ft of residential development, and not by other profitable uses allowable under the rezoning at that size or larger, such as hotels, office space, retail, and dorms. This creates an incentive for developers to favor projects that combine non-residential with residential uses that stay below the 25,000 sq ft threshold. One of the projected affordable housing development sites, 410 Lafayette Street, offers an apt example.
The following are two development scenarios allowable under the plan.
a) 53,436 sq ft of commercial space with 25,000 sq ft of luxury residential for a total of 78,436 sq ft of 100% market-rate development.
b) 60,472 sq feet of luxury residential uses with 25,916 square feet of affordable housing
The first scenario results in far more market-rate space for the developer and allows the developer to devote top and bottom floors to their more valuable respective uses, luxury residential and commercial. The second scenario, by contrast, forces the developer to sacrifice 30% of valuable real estate to affordable housing development. Under such circumstances, developers will typically opt for the first option, thus ensuring that large projects will result in little if any local affordable housing.
Given the structure of de Blasio’s rezoning plan, the City’s fantastical affordable housing projections should be closer to zero than to the approximately 900 units but forward by city officials (more than half of which the city itself admits are unlikely to ever be built, if you read the fine print). More realistically, it should be a negative number in order account for existing affordable housing likely to be demolished on account of the plan.
To learn more about the problems with the plan, go here.
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