By Michael Lappin.
Published April 6, 2023
A detriment to building sufficient affordable housing is the long and laborious path projects must go through to reach completion. Projects built via the Low-Income Housing Tax Credit (LIHTC), a major source of affordable housing, have multiple sources of financing and long and complicated processing requirements. In New York City, from the time an application is accepted to a construction start, two to three years can elapse.
Add to that the building out of a project, followed by complicated rent up protocols, and the total process, from start to being fully leased and operational, can take six years or more. If a project requires rezoning and/or sites transferred from public to private ownership, the time period may be even longer, with no guarantee of success. Both Gov. Kathy Hochul’s housing initiative and Mayor Eric Adam’s BLAST plan are designed to improve the latter processes.
Pricing for projects over such long periods is fraught with uncertainty, leading to highly conservative cost estimating. This reverberates throughout the affordable housing industry characterized by ever higher development costs. Thus, the call for more public subsidies to off-set those higher costs, while production still falls behind the need. The result: too much subsidy going to too few projects.
Contrast this with the speed of gentrification in many low and moderate-income communities. A small army of builders and developers looking for the next “hot” neighborhood buy and build market rate housing in residentially-zoned areas, often outpacing affordable housing production. Projects are done “as of right” with the only subsidy, if used at all, the now expired 421-a real estate tax benefit program. Projects typically take two to three years to completion.
Today’s low interest rates provide a window of opportunity for urban communities to take a bold step to increase the energy efficiency of their privately owned apartment buildings. Maturing 5- and 10-year mortgages can now be refinanced at interest rates that are 100 to 150 basis points lower, creating the potential for additional investments in these properties.