Tag Archives: DiNapoli

Lending to Keep Housing Affordable

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New York State Comptroller DiNapoli issued a critical audit of a loan program of the New York City Department of Housing Preservation and Development. HPD disagreed with many of the audits key findings. For the purposes of this blog post, however, I am more interested in the Article 8A loan program itself. The program derives its name from its enabling statute, Article 8A of the New York State Private Housing Finance Law.

According to the audit, the program is intended

to improve living conditions and to preserve safe and affordable housing for low- and moderate-income households. The Program attempts to achieve this goal by providing low interest rate loans, of up to $35,000 per unit, to owners of rent-regulated, multiple dwelling buildings in New York City (City). The loans are to be used to correct substandard or unsanitary conditions, to replace and rehabilitate building systems (i.e., heating, plumbing, and electrical work), or for other necessary improvements. (4)

To become eligible for this program, building owners “applying for Article 8-A loans must submit an application demonstrating that the physical condition of the property in question, and the owner’s property-related finances, warrant Program funding; and the applicant was unable to obtain a loan from at least two traditional lenders.” (5)

This is an interesting program design because it makes low-cost City funds available to owners who are already required to provide affordable housing pursuant to applicable rent regulation statutes. Given that many other owners of rent regulated buildings are able to operate their buildings without subsidized loans, one wonders why the relatively small number of buildings in this program should receive special treatment.

Legitimate policy rationales could include (i) preventing rent-regulated units from being left vacant due to their poor condition or (ii) preventing units from exiting rent regulation because they are eligible for the “substantial rehabilitation” exception to further rent restrictions. But better than assuming that a particular subsidized loan was made consistent with a legitimate policy rationale, would be for the City to make a specific finding of what it was getting in return for this subsidy. If subsidized loans were just going to (i) owners who had made bad choices in the past that led them to be rejected by private lenders or (ii) to owners in the “know” about this program, that would be a poor use of public funds.

Housing Affordability in NYS

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The NYS Comptroller issued a report, Housing Affordability in New York State. The report finds that

The percentage of New York State households with housing costs above the affordability threshold, as defined by the U.S. Department of Housing and Urban Development (HUD), rose for both homeowners and renters from 2000 to 2012, according to U.S. Census Bureau data. As of 2012, more than 3 million households in the State paid housing costs that were at or above the affordability threshold of 30 percent of household income. Within that group, more than 1.5 million households paid half or more of their income in housing costs. Statewide, the estimated percentage of rental households with rents above the affordability level increased from 40.5 percent in 2000 to 50.6 percent in 2012. (1, footnote omitted)

The report suggest that “that many New Yorkers are feeling pressure from a combination of stagnant or declining real income and increasing housing costs. A combination of factors including comparatively slow economic growth over time, a rising real estate tax burden, and limited housing supply in many areas of the State contribute to the increasing challenge New Yorkers face in finding affordable housing.” (2)

A pretty consistent theme on this blog is that limits on housing production necessarily limit housing affordability. While this seems obvious to me (perhaps I hang around too many economists?!?), it certainly is not to other people. Many people with whom I discuss affordable housing policy acknowledge that in theory, limits on the supply of housing should effect the price of housing (they all took Econ 101 when they were in college). But they look around New York City, see new high rises going up while housing prices are going up at the same time. They then doubt that increasing the supply of housing will reduce the cost of housing. All I can say is who are you going to believe — your Econ 101 teacher or your own lyin’ eyes?

But of course that is not a compelling argument. So I tell my interlocutors that it is necessary to take into account the fact that NY is seeing a dramatic increase in demand. This demand comes from the increasing resident population as well as the inflow of the ultra rich who want a (fifth?) part-time home in NYC as well as a safe place to park some capital. This high demand masks a problem that NY has faced for decades — too little new housing construction to support the existing residents, let alone all of the new residents.

The de Blasio Administration has acknowledged the need for increased housing construction as part of its program to increase housing affordability in the five NYC counties. The Comptroller’s report acknowledges that a similar dynamic is occurring throughout New York State. Perhaps Governor Cuomo will identify ways in which the State government can take a leading role in encouraging housing construction in all 62 of New York State’s counties.