The Real Estate Board of New York to The City Council Land Use Committee on bills related to unit size and affordability for HPD sponsored housing developments

DOWNLOAD THE TESTIMONY

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 professionals active in New York City real estate. REBNY appreciates the opportunity to provide feedback regarding Intros 1433, 1437, and 1443.

New York City is in the throes of a housing crisis driven by a severe lack of new production and an insufficient supply of affordable housing needed to meet the City’s diverse socioeconomic needs. The need to produce more housing is more acute than ever, and the need for deeply affordable and family sized units are legitimate public policy goals.

However, the three bills being considered today would impose rigid, citywide unit-mix mandates that impose additional costs to HPD. Given the anticipated federal funding cuts to HPD’s programs we are very concerned about the ability of the agency to achieve its mission even before additional budgetary challenges are placed on the agency. Adopting this legislation – in addition to other bills currently under consideration – without ensuring adequate funding will result in fewer affordable homes of all sizes. We urge the City Council to consider the holistic impact of these bills and calibrate these proposals in concert with the financial realities the City faces.

Bill specific feedback as follows:

Intro 1433:

Subject: A Local Law to amend the administrative code of the city of New York, in relation to the citywide percentage of rental units in projects receiving city financial assistance that must be 2- and 3-bedroom units

Sponsors: Councilmember Eric Dinowitz This bill would require a certain minimum percentage of the total city-wide rental units in projects that receive city financial assistance and are approved by HPD to be 2-bedroom and 3-bedroom units. The required minimum percentages would be based on the citywide share of households, over a five-year period, that have 3 or 4 members and at least 5 members. It also imposes a geographic distribution limit with no more than 35% of the required 2- and 3-bedroom units that may be in a single borough.

There are several factors that impact both the number and distribution of units that can be constructed at a given site. These factors include, but are not limited to, construction costs, financing and lender requirements, site constraints, and community needs. The bill does not require that unit mix be met on an individual project basis. However, there is industry concern that the agency will seek to meet the mandates imposed in this bill by requiring in turn additional unit mix constraints and planning considerations for housing developers on an individual project basis to ensure the borough and citywide shares are met.

Presently, subsidies are determined on a per unit basis. Requiring a higher share of larger units would reduce the total units within a project site and therefore the amount of funding to the project. To maintain financing viability would require more subsidy per unit, or subsidies determined on a per square foot basis independent of unit counts. In either case, this will necessitate revisions to existing term sheets.

HPD’s term sheets can and should be adjusted over time to reflect both citywide and neighborhood needs. However, mandating through legislation larger unit sizes, without a companion conversation and commitment on the additional subsidy necessary to achieve this requirement, will reduce the total number of units that can be produced, which is counterproductive given the city’s housing crisis.

Intro 1437:

Subject: A Local Law to amend the administrative code of the city of New York, in relation to the maximum citywide percentage of studio apartments in city-funded projects to construct rental units for older adults

Sponsors: Councilmember Crystal Hudson

Intro 1437 focuses on rental projects for older adults that receive city funding and would cap the number of studio apartments at no more than 50% of total units in those developments. In conversations with city and state elected officials and in their public remarks regarding the removal of the dwelling unit factor in City of Yes, elected officials have made clear that their constituents desire a range of unit sizes and that intergenerational households anchored by an older adult require more than a studio sized apartment to live in dignity. At the same time, we also hear from providers assisting voucher holders regarding the need for more studios and one bedrooms.

While the mandate would not preclude projects that are wholly one bedroom or studios, the implementation of this requirement may result in deals not moving forward because of a lack of sufficient subsidy and that the mix required would not meet site planning and design consideration on a project-by-project basis. In practice, restricting studios would reduce the total number of units that can be delivered, directly undermining the City’s stated housing production goals.

Intro 1443:

Subject: A Local Law to amend the administrative code of the city of New York, in relation to the citywide percentage of rental units in projects receiving city financial assistance that must be affordable for extremely low-income and very low-income households

Sponsors: Councilmembers Sandy Nurse, Farah Louis, Gale Brewer

For all covered rental projects that receive city financial assistance (loans, grants, tax credits/exemptions/abatements) under HPD, this bill would add a new chapter to the Administrative Code to ensure minimum percentages of units are affordable to certain income bands. Specifically, at least 30% of the aggregate units must be affordable to “extremely lowincome households” (ELI)(defined as ≤ 30% of Area Median Income, AMI), and at least 20% must be affordable to “very low-income households” (VLI)(defined as > 30% up to 50% of AMI). For the extremely low-income requirement, units set aside for homeless individuals/families or used as supportive housing are counted as meeting that category. Also, the department (HPD) is deemed in compliance if the average across 5 consecutive fiscal years meets those percentages.

Of the three bills under consideration today, this one has the largest potential price tag and adverse implications. Intros 1433 and 1437 would require more subsidy at the time of construction, a one-time per project cost. However, this bill will impact project viability and financing for developers of city assistance rental projects for the lifetime of the project. Rents for VLI and ELI apartments are set below operating expenses, meaning that they never bring in sufficient revenue to cover the cost of running the unit. This puts more pressure on either the market rate units to fill the gap, assuming the market can support those higher rents, or the need for additional operating subsidies from the government. In the case of a 100% affordable project, the building would operate at a loss from Day 1.

Constructing these apartments in the first place already requires significant capital subsidy from the government. Therefore, requiring at least 30% of the aggregate units to be affordable to “extremely low-income households,” or a higher share than presently contemplated in any city term sheet, is not feasible unless those units come with much more money on a recurring and ongoing basis.

The three bills under consideration today will worsen the City’s housing crisis. They ultimately will limit the City’s ability to adapt its programs as needs and market conditions change, and revisions should be considered to moderate these impacts if the bills move forward. Legislating requirements in this manner will make it more challenging to design and finance new housing in New York City and reduce opportunities to boost the housing pipeline to address the affordability crisis. Given the costs associated with these bills and HPD’s existing resource constraints, careful consideration must be given to projects that have filed with HPD but have not yet executed their financing and closing agreements. Otherwise, significant upfront costs for predevelopment work will be lost, and those projects may not be able to move forward. Many city-subsidized projects receive discretionary approvals where negotiations with the local council member dictated bedroom mix and affordability levels, and for large scale developments, those requirements will play out over many years as individual buildings are phased in. These types of projects should not be subject to the bills’ requirements. We believe there are additional categories of projects that may be inadvertently impacted and would need to be exempt from the share distribution requirements, and more time is needed to identify where other regulatory frameworks control unit mixes and affordability levels. Lastly, the effective date should go into effect after HPD has determined the scope of projects impacted and the additional funding necessary to fill the financing gap.

Thank you for your consideration of these points.