- REAL ESTATE EDUCATION
- GIVING BACK
Testimony of The Real Estate Board of New York Before the New York State Senate Standing Committee on Housing, Construction and Community Development and the Senate Standing Committee on Social Services
February 28, 2020
The Real Estate Board of New York (REBNY) is the City’s leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate. REBNY strongly supports policies that expand the local economy, grow and improve the City’s housing stock, and create greater opportunities for all New Yorkers. Thank you for the opportunity to provide our perspective regarding homelessness, housing insecurity and affordable housing, and provide support for certain legislative remedies. Any proposed actions to address the affordability crisis should be studied at length to avoid unintended consequences that diminish opportunities for growth.
Enabling more effective use of rental assistance, especially in high-amenity areas, will expand housing choice for New Yorkers across neighborhoods and provide for mobility and increased opportunity. Expanding voucher programs that supplement families facing eviction, homelessness or loss of housing is a proven cost effective method of ensuring people are able to stay in their homes. Academic papers from both the Center on Budget and Policy Priorities and the National Bureau of Economic Research document that it is more cost-effective for government intervention to keep or place someone in their home than it is to provide temporary shelter.
These cost savings play out in the research conducted for New York State Senator Hevesi’s Housing Stability Support bill. Housing Stability Support costs $11,224 per year for a household of three in New York City, while temporary housing for the same family costs $38,460. This is a savings of $27,236. Using another example, domestic violence is the leading cause of homelessness within the New York City shelter system, accounting for 24,000 survivors of domestic violence currently residing in temporary housing in NYC. If we assume that they are all individuals, using HSS methodology, the cost to the City to house these domestic violence survivors is $622,200,000 per year. HSS would cost $23,670,000 per year, saving roughly $598,530,000 per year on housing domestic violence survivors.
REBNY is neutral as to which subsidy program the Legislature ultimately moves forward with, as long as it moves forward. Key components of a successful program must also address bureaucratic inefficiencies from past reiterations. This ranges from untying the provision of a housing voucher to an eviction notice and to addressing timely payments once a client is housed. While New York City bans sources of income discrimination, when all else is equal, owners are discouraged from registering units with voucher programs due to the lag that currently exists for many owners and managers when receiving payments for some voucher programs. Rectifying the situation with higher payment standards will alleviate payment concerns within a system that is arduous and places cost and time burdens on building owners who are attempting to provide quality housing to low-income New Yorkers. Landlords want services and support that help ensure the long-term stability of tenants and timely, complete payment, as well as services that ensure tenants do not infringe upon other tenants’ right to the warranty of habitability.
REBNY supports the expansion of voucher programs that close the gap between fair market rents and voucher subsidies, are targeted towards New York’s most vulnerable populations, have reasonable phase in and out periods, timely payments to landlords and the appropriate social services to facilitate independent living for those exiting shelters.
In order for vouchers to be a viable, effective legislative remedy to address issues of affordability, voucher holders must have housing in which to utilize them. New York City’s population is expected to exceed nine million by 2040. Between 2005 and 2016 the city added over a half a million people and since the end of the 2008 recession, added over 858,000 jobs. During that same period, only 125,000 housing units were constructed — representing 0.15 units per job added. To address this deficit and find a way to accommodate this growth and alleviate the rent pressure on our residential inventory, we need to build more housing units per year, not less. According to a 2018 paper “Protect Tenants, Prevent Homelessness” from the National Law Center on Homelessness and Poverty, “There is not enough affordable and available housing for America’s millions of low-income renters…. The lack of affordable housing causes housing instability for lowincome renters and leads to increased risk of eviction.” The City of New York’s Department of Housing Preservation and Development (HPD) draft report, Where We Live, the city’s effort to affirmatively further fair housing, also calls for the expansion of housing options throughout the five boroughs. Finally, the New York City Council Speaker Johnson’s homelessness report, Our Homelessness Crisis: The Case for Change, also highlights the imperative to modify zoning controls to align housing production with the needs of lower income households. The State and City must expand housing supply and seriously consider how various levers of regulation can impact the ability to construct more homes and provide continued job growth.
There are a number of tools available to government to incentivize developers to construct housing that will support population and job growth and alleviate issues caused by the affordability crisis.
AFFORDABLE NEW YORK (421-A) AND PROPERTY TAXES
According to the 2017 NYC Housing and Vacancy Survey, citywide we have a housing vacancy rate of 3.6%, constituting a “housing emergency.” In order to increase the availability of housing, we must produce more of it. In 2017 and 2018, the city experienced a net-gain in rent stabilized units for the first time in over a decade, due in large part to the incentives provided by the 421a tax abatement program. The sustained growth of the housing stock is contingent upon the predictability of programs such as 421a, and eliminating the program will discourage the construction of housing units that New York desperately needs.
The City’s real property tax system is arguably the most inequitable system in the country and does not align with policy goals to promote rental housing. Since 2009, property taxes have more than doubled and have become a nearly unsustainable burden on rental housing, with many multifamily rental housing developments now paying more than 30 percent of their gross revenue to taxes. Aside from macroeconomic factors related to population growth and land scarcity, the City’s property tax system is arguably the most substantial driver of rent growth and housing costs.
New York City’s real property tax system places an inequitable financial burden on rental apartment buildings in a number of ways. One way is the disproportionate share of the tax levy imposed on these properties compared to their share of the City’s market value. Since 2007, the property tax levy for Class 2 has increased from $5.2 billion to $10.8, a 107 percent increase — an annual average of 8.9 percent.
This increase falls disproportionately on the rental properties in this Class, largely due to a provision in State law that requires that coops and condos be valued based on comparable rental property. As taxes on apartment rentals have increased, some properties are being taxed in excess of 30 percent of their gross income. In order to achieve fair housing, we must reform our broken property tax system that indiscriminately demands certain property owners bear a much larger burden of the tax levy than others.
Fundamental changes are necessary to correct the inequitable property tax system and a reporting structure to ensure that those changes were successful in encouraging multifamily production. In the absence of that paradigm shift as-of-right tax exemption programs are and will continue to be necessary if anything is to be done to boost the supply of rental housing. The Affordable New York (421-a) program is the most effective tax benefit program to address our housing supply deficit at scale. In addition to rising property tax burdens, construction costs have also increased substantially over the past decade. A 2015 analysis concluded that it costs approximately $750,000 to construct a 1,000 square foot apartment. The 421-a program is effective because it cross subsidizes market rate and affordable housing units to provide thousands of affordable housing units in geographies where land and construction costs are exceedingly high. The program also represents the only meaningful tool to implement economic integration in high-income neighborhoods.
A supply-side solution that merits serious consideration is raising the floor area ratio (FAR) cap in the State’s Multiple Dwelling Law. Originally implemented in Albany in 1961, the cap mandates that a residential building cannot have 12 times more square footage than the lot on which it is built. This antiquated regulation greatly reduces the ability of the city to create more housing. The Regional Plan Association (RPA) made a clear and convincing argument to unlock the potential to create more affordable housing by triggering Mandatory Inclusionary Housing. A 2016 analysis of NYC Department of Buildings data demonstrated that specific projects across the five boroughs could have offered more affordable apartments to the residents who need them were it not for the cap. There is simply no reason to limit the production of affordable housing units.
It is important to recognize that removing the 12 FAR limitation in the MDL would not unleash a surge of new residential construction in areas where the MDL has capped residential development. New York City’s Zoning Resolution (ZR) has incorporated the 12 FAR residential limit in all the high-density locations where the existing FAR is above 12. Hence, even if state law were changed to remove the 12 FAR residential restriction, a local zoning change to remove the limit in the ZR would be required. This change would mandate an environmental review and a seven-month Uniform Land Use Review Procedure (ULURP). It would, however provide the opportunity for housing developers to increase density throughout New York and provide enough housing to keep pace with demand, and relieve pressure that increases the prices of our limited supply of housing.
This change in the MDL would have no fiscal impacts on State revenue. Rather, it is more likely to generate increased property and transaction taxes (a portion of which would go to the state), as floor area is more valuable for residential use than for commercial use.
Finally, raising the cap would not weaken the public land-use process through which new projects are scrutinized, nor would it nullify the studies of the potential impact of a new development in a certain neighborhood. All it would mean is that New York City has more control to determine appropriate areas to increase affordable housing production in future land use actions.
PROMOTING HOUSING STABILITY
Promoting housing stability means preventing homelessness. Aside from increased vouchers and more housing supply, especially for lower income bands, there also needs to be better efforts to prevent and reduce incidents of domestic violence. Domestic violence is the single largest cause of homelessness for people entering the City of New York’s Department of Homelessness shelter system. Forty percent of the family population in shelters are there because of domestic violence. The City and State need policies that provide survivors of domestic violence the opportunity to establish credit and financial agency. More upstream intervention and assistance is important to solving the homelessness crisis in this city.
Additionally, New York City has a “Right to Counsel” (RTC) program that has shown great promise in reducing eviction cases. REBNY supports the right to counsel. Regardless of why a tenant is in Housing Court, having equal access to legal representation is important. According to the National Law Center on Homelessness and Poverty guaranteeing counsel in housing cases leads to more families staying in their homes. The NYC program has already been shown to have a very positive impact. According to the Rent Guidelines Board 2019 Income and Affordability Study, citywide in 2018 "evictions are down 37.1% over 2013 levels. This is also the fewest number of evictions since at least 1983 (the first year the data is available for)." That trend has continued, with evictions decreasing by more than 25 percent in New York City last month compared to January 2019. In the zip codes for which the program is offered, it is attributed for the majority of the decrease in evictions in those zip codes.
A predictable framework for promoting stability in the housing market is one that also recognizes private property rights, the rule of law, and thus honors lease terms entered into by two parties. The State of New Jersey has had for a number of years a law on the books related to the removal of tenants. This law (N.J. Stat. Section 2A:18-61.1) provides clarity and predictability, defining good cause for eviction as actions including but not limited to:
- Failure to Pay Rent
- Disorderly Conduct
- Damage or Destruction to the Property
- Substantial Violation or Breach of Landlord’s Rules and Regulations
- Violation or Breach of Covenants or Agreements Contained in the Lease
- Failure to Pay Rent Increase
- Health and Safety Violation or Removal from the Rental Market
- The Landlord wants to permanently Retire the Property from Residential Use
- Refusal to Accept Reasonable Changes in the Terms and Conditions of the Lease
- Tenant Continuously fails to Pay Rent or Habitually Pays Late
- Conversion to Condominium, Cooperative or Fee Simple Ownership
- Tenancy After Conversion to Condominium, Cooperative or Fee Simple Ownership
- Tenancy Based on Employment
- Conviction of a Drug Offense Committed on the Property
- Conviction of Assaulting or Threatening the Landlord, His Family or Employees
- Civil Court Action that Holds Tenant Liable for Involvement in Criminal Activities
- Conviction for Theft of Property
It is important to note that there is no determination related to rent increases. Most recently, both California and Oregon have passed their own versions of this statute, exempting new construction built within the last 15 years and establishing a form of rent stabilization for their older building stock. In both the California and Oregon statutes, an owner may recover their property by providing reasonable notice and one months’ rent.
Unfortunately, current language of S. 2892-A only shares its title with the laws of New Jersey, California and Oregon and none of the substance. There is no connection to household income nor need, neither is there a recognition of the differences in the states’ property tax systems, the rate of property tax increases in NYC, nor labor costs. The proposal to enact S.2892A would lead to the deterioration of the housing stock and severely discourage the creation of multifamily housing, exacerbating the affordability crisis. Citywide, from 2016 to 2017, the most recently available data, the Rent Guidelines Board found that expenses in stabilized buildings increased 4.5%. Expenses for buildings will continue to rise as operational components including property taxes and labor costs increase. Currently, 1.5 times the Consumer Price Index does not keep pace with expense growth, making financing housing untenable.
While many point to California and Oregon as the precedent, S. 2892A is nothing like these bills. Banks will simply not finance construction where rent growth is capped below the rate of expense growth.
The City must grow housing for all New Yorkers across all income levels, especially for lower income New Yorkers. 50% of households are rent burdened and there are few options at lower rents today. That is especially true in higher income neighborhoods. The construction of mixed income housing, including lower AMI units, can help integrate and provide access to opportunity. Under the limitations espoused in S.2892-A, any property that relies on the market rate units to cross-subsidize their affordable units will not be able to keep up. The integrated affordable housing model where market rate units subsidize the development of affordable units falls apart. Fewer affordable units will be built and neighborhoods will remain highly segregated. Our neighbors looking for homes and those who are hoping to come to this city will have fewer options to choose from. Construction and job growth will go down at a time when we need to be producing more, not less, housing.
REBNY encourages to the State to follow through on the formation of its council to study the impacts of the Housing Stability and Tenant Protection Act of June 2019 before it undertakes extending its principal parameters to the entirety of housing market. The state should also seriously consider modeling a statewide program on the city’s RTC program.
REBNY appreciates the opportunity to present our perspective on homelessness, affordable housing, and housing insecurity. The real estate industry will continue to produce more housing units to combat these pervasive issues if it is economically viable. REBNY is committed to joining the efforts of the state to combat these challenges, and looks forward to further discussions and participation as a viable civic partner working to ensure that current and future New Yorkers have a place to call home.
Thank you for your consideration on these points.
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Senior Vice President
Real Estate Board of New York (REBNY)