Financing Much-Needed Repairs on NYC’s Public Housing
Much of our national public housing stock, one million units strong, is in a state of physical and financial crisis. We have previously written in these pages about the unmet capital needs, declining federal government support and daunting replacement cost of this housing.
The largest public housing in the nation, the New York City Housing Authority or NYCHA, is not immune from these trends. With over 2600 buildings and 179,000 units it is a vast real estate and services institution with a very big problem. According to a NYCHA Press Release, the replacement cost for these units is $66 billion and unmet capital needs is $17 billion. NYCHA must be creative and bold or face the prospect that the conditions of the portfolio will seriously decline. NYCHA CEO Shola Olatoye has ordered a strategic plan which includes a measured embrace of the RAD, federal Rental Demonstration Program, or a first for the big housing authority to incentivize private debt and equity financing to maintain their developments. Given the physical needs of the NYCHA assets and the constrained city budget, she will have to move beyond this if we are to save this irreplaceable city asset.
All 3,200 housing authorities, including NYCHA, as well as the political class and HUD, need to accept that the way they will need to operate in the future must be different than the way they have operated for the past 80 years. Given that congress is allocating just more than half of what was federally authorized 17 years ago, when one of the authors of this column set that subsidy target, it’s folly to expect the federal government to fork over billions for public housing. It’s equally implausible to expect the state or city to write a check to cover the massive shortfall.
A more efficient and cost effect process for comprehensive rehabilitation should be put in place. Historically, NYCHA has been relegated to band-aid approaches due to a lack of capital: fix a roof but don’t re-point the bricks, put in new windows but not a new boiler at the same time. This method creates excess disruption, inefficiency and cost. With the proper financing, the building needs can be addressed in a single RFP with global warranties and coordination to get the best results.
Second proper appraisals need to be authorized for all land that is vacant or underutilized. Appraisals performed in 2012 on just 8 developments determined a value of $770 million. Given the real estate market in NYC it’s fair to assume that value has risen. To be clear, we are not suggesting the sale of any existing building. While in an ideal world all the available land would be used for affordable housing units, the reality is that preservation of the current affordable housing stock requires NYCHA to realize prices that would address that need. Therefore, a balance must be achieved between full market price that advances preservation and the unmet demand for more affordable housing.
Given the enormous capital needs of the existing NYCHA buildings and the obvious budgetary limits of the city’s ability to meet those needs, a creative approach – which is only part of the solution – is necessary.
All valid residents of adjacent affordable housing should have a say in this, utilizing reputable non-profits which would go door to door after proper information has been distributed. The question for the residents would be: “are you willing to give up an underutilized parking lot or playground in return for a major rehab of your building?” If the residents vote in the negative, it will be a choice to remain in inadequate housing and live with a disruptive band-aid approach to repairs
Residents of subsidized housing also need to realize that they have as much, but no greater rights, than any other renter or homeowner in New York City to determine what type of building is being built next to them. It’s a simple truth, whether you live in Staten Island, Brownsville or Park Avenue, that no one can guarantee your view.
Critics may question how it would be possible to ensure that the rehab gets completed, both correctly and on time. One possibility would be to harness the largest and most active developers by including in the bid packages the scope of work needed for the new development and a requirement that the GC be at risk for the rehabilitation of the existing adjacent building as well as the adjacent new lot. The developer would be required to perform the rehab simultaneously with the new development or prior to starting the new development to ensure timely completion.
In order to maximize the bid for these hybrid projects, the city should allow a real estate tax abatement for a period of time. This would help encourage participation and enhance value. And it would not add cost to the city since NYCHA pays a very modest PILOT, rather than assessed real estate taxes. The developer might be asked to assume the PILOT payment for the entire site, reducing the annual costs to the city. In lieu of full taxes the new development could cover all or part of the maintenance of the rehabbed NYCHA building to ensure the long term viability of the rehabbed properties.
The funds raised by either a sale of vacant lot or through a 99-year lease with the sale value paid upfront would be used for the required repairs. Any excess funds could be transferred for needs in other NYCHA buildings. For this to work, the federal government would have to commit to not reducing the baseline capital subsidy to NYCHA.
Such a program requires:
- HUD to streamline its cumbersome and lengthy process of approving land sales by allowing numerous properties to be approved through a single application.
- The federal government to maintain level funding for public housing and for HUD, in particular, to maintain current capital subsidies for NYCHA.
- A rational and speedy approach to soliciting resident approval of the concept.
- NYC to directly manage the bidding process, perhaps through EDC, to ensure a timely, transparent and efficient process.
- The buy in by major NYC groups representing the real estate industry, including REBNY, and the Building Congress.
- NYC to effectuate the same standards required of private landlords onto the rehabbed NYCHA buildings, namely inspection, building code violations, live-in supers and maintenance staff as required by the city code.
The benefits could be enormous: NYCHA would be self-funding major rehab work, with limited public subsidy; a concept virtually unheard of. With major rehabs completed, the operating costs for NYCHA buildings would be reduced, as repairs would be less frequent and costly. And perhaps most importantly, residents would once again be living in decent safe, and well maintained housing, an accomplishment we could all celebrate.