SPRING 2007

INVESTIGATES
H AR D
C O STS
The rising price
of an affordable
New York
New stadiums. More
subways. Taller skyscrapers.
New York City is booming-
and rents are soaring.
Mayor Bloomberg's IO-year
housing plan is an attempt
to keep the city affordable.
But the local building boom
and global economic forces
are driving up the cost of
constructing homes for low-
and middle-income people.
Given its tight budget and
the administration's larger
development ambitions,
what will the mayor's
promise really deliver?
St o r y b y J a r r e t t M u r p h y
The new Citi Field rising next to Shea Stadium is one of dozens of major construction projects-from sports arenas to luxury condos to public
works-underway in the five boroughs at the same time as a crucial effort to build and preserve affordable housing unfolds. Photo: Jarrett Murphy
PUBLISHER.S NOTE Welcome to the inaugural issue of City Limits Investigates.
You hold in your hands the latest chapter in City Limits' proud 30-year history of reporting
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This initial issue takes up a topic that has long absorbed, frustrated and bedeviled
New Yorkers (and one in which City Limits has its deepest roots); the production of af-
fordable housing. New York City, to a degree unique among major metropolitan areas, has
taken on the responsibility of creating affordable housing for its citizens by either being a
builder itself or using subsidies to compel private sector players to fill this critical niche. In
December of 2002, to much fanfare and optimism, Mayor Michael Bloomberg announced
his first major housing plan. More than four years later City Limits Investigates began its
reporting with a set of simple questions-what have we built so far, what does the mayor's
commitment actually represent in term of meeting the large and self-evident need the city
has for housing and what, if anything, might derail or curtail this significant initiative? In
these pages City Limits Investigations Editor Jarrett Murphy puts the mayor's announced
plans under the spotlight, shows them in their historical context and looks at the breadth
of issues that are shaping and threatening this ambitious program's intended scope. From
East New York to East Asia, Albany to Atlantic Avenue and from the corridors of power in
the District of Columbia to Corona, Cll maps where the promise and peril lie with respect
to this hugely important public investment.
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SPRING 2007
THE
COST
OF GOOD
INTENTIONS
Is the mayor's
housing plan getting
priced out of market?
CHAPTERS
I. The new math 4
II. A moving target 7
III. Killer prices 10
IV. Soft costs, and hard choices 13
V. Construction hazards 17
VI. The broader picture 19
VII. Getting it done 23
VIII. A long-term lease 25
IN FOCUS
From Chile to Chelsea
A world of higher costs 6
Pinching the Public Purse
Bigger price tags, tighter budgets 11
A Defining Problem
What "affordable" really means 16
CITY LlMITS STAFF
Jarrett Murphy
Investigations Editor
Karen Loew
Web and Weekly Editor
CITY FUTURES STAFF
Andy Breslau
Executive DirectorlPublisher
Ahmad Dowla
Administrative Assistant
Jennifer Gootman
Deputy Director
CITY FUTURES
BOARD OF DIRECTORS:
Michael Connor, Russell Dubner,
Ken Emerson. Marc Jahr. David LebensteIn,
Gail O. Mellow, Lisette Nieves. Andrew Reicher.
Ira Rubenstein. John Siegal, Karen Trella.
Peter Williams. Mark Winston Griffith
CITY LIMITS INVESTIGATES
BY JARRETT MURPHY
THE COST OF
GOOD INTENTIONS
Is the mayor's housing plan getting
priced out of market?
The building at 37-60 98th Street in Queens will never be a
tourist attraction like the new Yankee Stadium, or a financial center
like the Freedom Tower. It will play no role in the heroic tasks of
bringing drinking water to the city, like Water Tunnel No.3, or moving
millions like the Second Avenue subway. It will not enjoy breathtaking
views like the highrises popping up along the Brooklyn waterfront.
It will just be a place to live-an affordable housing project by the
veteran developers at ACO RN. But while the nine-unit building in
Corona has little in common with all the big-ticket projects in the city,
it does share with them one fundamental trait: In order to exist, it
needs concrete, steel, pipes, wires and skilled builders to create it.
I. The new math
In New York's construction boom,
those basic ingredients of buildings are
in high demand. Already underway or
on the drawing board are projects like
the Mets' new ballpark, Atlantic Yards,
West Side redevelopment, a $10 billion
menu of improvements to the city's
water and sewage system, the 7 train
and East Side access subway expan-
sions, dozens of schools being built or
upgraded, two major downtown transit
hubs, an expanded Javits Center, a new
West Harlem campus for Columbia and
new highrises from Ground Zero to
Long Island City.
The roar of earthmovers and the
sweep of tower cranes are signals of
New York's resurgence, but the progress
4 SPRING 2007
comes at a growing price. One less
glamorous project, the Croton water
treatment plant going underground at
the southeast corner of Van Cortlandt
Park, was supposed to cost $992 million
when estimated in 2003. The budget
has already swelled to $1.9 billion-and
that's not counting the impact of the
recent announcement that the low bid-
der for the project has pulled out. The
filtration plant isn't the only worksite
with ballooning bills. The MTA says
it's getting much higher estimates than
expected for the 7 train extension. The
School Construction Authority has had
to re-evaluate its building plans and the
New York City Housing Authority says
it has re-prioritized its renovation proj-
ects. The Freedom Tower's reported
cost is rising.
So is the bill at 37-60 98th Street.
In late winter in a cluttered office in
downtown Brooklyn, ACORN housing
director Ismene Speliotis wrestled with
the building's finances, trying to cover
rising costs with the modest rents she
hoped to charge the low-income ten-
ants who will live there. Three years
ago, Speliotis was bidding out jobs for
$120 to $140 per square foot. Last year,
a contractor signed for $160. But now
the estimates for rehabilitating the Co-
rona project were coming in at $190.
"I'm thinking, This is crazy,'" she says,
comparing last year's prices to the lat-
est round. "What happened?"
What happened is that construction
prices in New York City have soared
in recent years. The Croton treatment
plant provides one snapshot: Since the
This building at 37-60 98th Street in Queens is one of several projects that ACORN is trying to complete despite higher costs. Photo: Jarrett MUIphy
FROM CHILE
TO CHELSEA
A world of higher costs
CITY LIMITS INVESTIGATES
Presidential Proclamation 7529 was President Bush's bid to give breath-
ing room to American steel producers. It's also one reason in a universe
of reasons why the cost for constructing everything from affordable
housing to high rise condos has risen in New York City.
The president's March 2002 directive imposed new tariffs on most
imports in order to let U.S. companies respond to an influx of foreign
steel that had pushed prices to a 20-year low. Not surprisingly, when
the imports slowed, prices rose. What was surprising was what hap-
pened after the Bush administration lifted the measure in December
2003: Prices kept rising. Today, steel costs about 60 percent more than
it did when the president ended the tariffs. That's partial proof that the
Bush plan succeeded: Steel companies used the time-out to restructure
through mergers and buyouts, and the few big firms that remain have
the muscle to keep prices high.
Supply is only one side of the steel story, however. China is both the
world's biggest producer of steel, and its biggest importer, says a recent
Congressional report. The appetite for steel in China has a huge impact on
world prices, and in more than one way: Not only do the Chinese buy more
steel these days, they also export less coking coal, which is crucial to pow-
ering the furnaces used to manufacture steel elsewhere. And China's thirst
for other fuels is one reason-along with war in the Middle East-that
transportation costs are higher these days, pushing up the price of steel
and any other material that needs to be trucked or shipped.
The Freedom Tower will require around 50.000 tons of steel.
some of it custom-made in Europe and shipped across the
Atlantic. Image: Silverstein Properties
2003 estimate, the price of concrete
jumped 33 percent, steel rebar's cost
rose 48 percent and the price of copper
soared 133 percent. That's due in part
to all the demand for materials, labor-
ers and contractors from the dozens of
projects around the five boroughs. It's
also the impact of the surging economy
in China, conflict in the Middle East
and labor unrest in Chile. Steel and
concrete bind those global forces and
those marquee local projects not only to
ACORN's building in Corona, but also
to the entirety of Mayor Bloomberg's
larger plan to build affordable housing
in New York City.
In mid-March of this year, Bloom-
berg announced a milestone in his 10-
year initiative to construct or preserve
165,000 units of affordable housing: the
completion of funding for 55,000 units,
or a third of the goal. By 2013, the New
Housing Marketplace Plan would be
6 SPRING 2007
responsible for housing 500,000 people,
or "more than the entire population of
Atlanta," said the mayor as he present-
ed keys to the new owners at a devel-
opment for low-, moderate- and middle-
income families in East New York. One
of the people moving in, a Nigerian im-
migrant and city worker named Olateju
Ogunremi, called the occasion "a great
day for my family." Developers, funders
and officials celebrated the opening of
ownership housing in what has histori-
cally been one of the poorest and most
dangerous parts of the city.
But amid the boasts of success, peo-
ple involved in planning, building and
funding affordable housing are express-
ing grave doubts that the city can meet
the mayor's housing goal. With the cost
of some forms of construction rising
at 1 percent a month, with a dwindling
stock of cheap land to build upon and
with government's contribution essen-
tially fixed, people on the front lines of
the fight to keep New York City afford-
able worry that the New Housing Mar-
ketplace Plan will never get to 165,000
units-or if it does, that the housing pro-
duced will not meet the most pressing
needs. While city housing officials con-
tend that their plan is on track, they also
admit that rising costs could change the
complexion of the affordable housing
they are delivering.
The dozens of people interviewed for
this article-affordable housing devel-
opers, funders, designers, builders and
advocates-almost uniformly credited
Bloomberg for his housing pledge and
saluted Commissioner Shaun Donovan
for generally innovative leadership at
the Department of Housing Preserva-
tion and Development. The question is
whether the city's best intentions can
survive the frenzied local real estate mar-
ket, tight-fisted federal and state housing
CITY LIMITS INVESTIGATES
But China is not the only emerging economy that needs more steel and
fuel than before. China's kind of the buzzword, but India's economy has
been growing almost as fast as China," says Ken Simonson, chief econo-
mist for the Associated General Contractors of America. Other Asian mar-
kets are also heating up, he says. And during recent years of solid growth,
especially in the real estate market. the U.S. economy has been hungry for
building products, too.
The average U.S. home contains some 440 pounds of copper, much
of which comes from a handful of mines overseas. In the Democratic
Republic of Congo, the copper extraction industry is trying to recover
from the ravages of the long civil war. Meanwhile, Chile's largest mine,
Escondida, suffered a major labor strike last year. This mix of geogra-
phy and politics is part of the reason why copper is now more than
three times as expensive as it was four years ago. Concrete, the most
commonly used man-made substance on earth, is a more modest 32
percent higher than in 2003, but because of the weight of its key ingre-
dient, cement, concrete is very expensive to long-haul. And once mixed,
there's a limit to how long you can keep concrete in a transit truck.
That's one of the problems that Bob Harvey tries to solve as deputy
executive director for capital planning at the Lower Manhattan Construc-
tion Command Center. He deals with contractors at the 50-plus projects
underway south of Canal Street to stage the work, unclog bottlenecks and
close streets to permit some $22 billion in planned jobs. "We help them pri-
oritize," Harvey says. "We help them to-what should we
mise, so that not everybody is trying to get a concrete delivery at once .
Harvey says there have been no supply shortages yet. But lathers,
the workers who help to build foundations, are in short supply, as are
sandhogs, who are all engaged in the digging of Water Tunnel NO.3.
And in some ways, the city is just getting started. "Assuming the public
works agenda doesn't go bust, it's a 10-year construction calendar,"
says Christopher Ward, head of the local General Contractors Associa-
tion. "That's going to require some significant expansion of labor, and
pipelining labor is going to be part of that. Are you going to get labor
from elsewhere? Is it going to be quality?"
And is it going to be union? Ward and others fear that rising con-
struction costs in New York (which climbed 300 percent over the past
25 years) could eventually threaten the city's status as a .. union town."
A 2005 study by the Furman Center for Real Estate and Urban Policy at
New York University found that labor costs for constructing a mid-rise
apartment in New York were 5 percent higher than in Los Angeles and
15 percent higher than in Chicago. Some unions have seen the need
for change, and recently reworked job rules. "It was cost. It was the
pressure of competition," says Lou Colletti, chairman of the Building
Trades Employers' Association. We recognized that we were losing
market share. "
L.abor costs are just one reason why prices for building in New York are
higher than elsewhere. Another is the building code, which is complex and
incompatible with national standards. The city is in the midst of rewriting the
code, but it's still unclear whether the changes will save builders money.
And New York's lengthy project review processes and contracting
rules also boost costs. Contractors often must absorb price increases
that occur while they await the review process, so they factor a large
price cushion into their bids. The process and contract rules are intend-
ed to protect the public. But, critics say, they also push up the final price.
"It ends up being an escalating spiral," says Ward.
-JARRETT MURPHY
policies, global economic forces and the
Bloomberg administration's own budget
constraints. Some believe the city's plan
must change to succeed. "I think this
is a good group of people to have that
conversation, but we haven't had it yet,"
ACORN's Speliotis says of HPD and the
mayor's advisers. 'They're struggling to
make the numbers work."
In city where roughly three in 10
renters pay more than half their in-
come toward rent, and where afford-
able housing has been identified as a
key middle-class issue, the stakes of
that struggle are high. The outcome
affect not only the quality of life in
the city, but who lives here.
II. A moving target
Real Estate Institute at Baruch College
and the main author of a 2005 report that
traced the history of affordable housing
programs in the city. A government role
in building New York's housing dates
back at least to the public housing creat-
ed during the 1930s. Over the rest of the
last century, as successive governments
recognized that the market was simply
too tight for poor and even middle-class
people to get a foothold, the nature of
the intervention evolved, from rent
control to rent stabilization to Mitch-
ell-Lama and other tax breaks. Each
program was an attempt to manage the
market failure that prevented the city's
supply of land-the ultimate finite re-
source-from meeting the demands of
the range of income groups that called
New York home.
1985, after years of prodding by housing
advocates and the city's return to fiscal
health following the previous decade's
crisis, Koch's plan ultimately prom-
ised to build or preserve 253,000 units
of affordable housing. The Ten-Year
Plan (which actually ran until at least
1998) tapped into the reservoir of about
100,000 land parcels that the city had
taken over during the 1970s through tax
foreclosure or other means, found de-
velopers willing to fix and manage the
buildings and ultimately pledged $5.1
billion in subsidies to fund the work.
'The fact is that no one had ever built
housing with city monies," Koch says.
"I had an arrangement with President
Carter that he was going to provide
a special housing allowance to New
York City of a billion dollars, and then
he reneged. He called me and said he
couldn't do it, and I said if he couldn't
do it, we'll do it with city money."
'There's never been a time when we say
housing's easy," says Barry Hersh, asso-
ciate director of the Steven L. Newman
The most ambitious of these 20th
century efforts was the Koch adminis-
tration's Ten-Year Plan. Announced in
SPRING 2007 7
Before fiscal pressures forced the
city to lower its financial commitment,
the Dinkins administration continued
the Koch plan, tweaking it and oversee-
ing HPD's biggest years of spending.
Housing took a back seat in the Giuliani
years but buildout of the Ten-Year Plan
continued and, as it progressed, the
stock of city-owned land was steadily
depleted. Meanwhile, the city's popu-
lation grew by nearly 700,000 in the
1990s. Both trends were triumphs over
the city's 1970s nadir, when arson and
population loss devastated neighbor-
hoods. But in that very success were
the seeds of the next problem.
"Crisis" was, in fact, the word housing
advocates were using to describe the
state of affordable housing by the time
Michael Bloomberg was first running
for mayor. While record-low crime rates
were luring more affluent people into
RELATIVE COSTS
150%
125
2001 02 03 04 05 06 07
----- AII prices --Plywood
WOOD & THE WAR
After the Iraq invasion in 2003, the
Defense Department purchased some
25 million square feet of plywood
that a hot residential housing market
was already gobbling up. Prices leapt
37 percent between 2003 and 2004.
As supply caught up to demand and
the national housing market cooled,
plywood prices fell.
(Source: Bureau 0/ Labor Statistics: Consumer Price Index for
all urban consum"" and Producer Price Index for ' plywood,'
not seasonally adjusted, for the month 0/ February in years
2001 through 2007. Indices standardized, 2001- 100,)
8 SPRING 2007
CITY LIMITS INVESTIGATES
the city, there was a shrinking number
of places for less fortunate residents to
live. Housing First!, a coalition of advo-
cates, clergy and developers, formed
in May 2001 to press the case for a city
housing plan delivering 186,000 units
over ten years at a price of $10 billion.
While the housing issue gained some
candidates' attention early in the cam-
paign, the Sept. 11 attacks and the bitter
Democratic primary radically changed
the focus of the 2001 race.
Bloomberg emerged the victor, but in-
herited a busted budget. Given the fiscal
state at the time, it was no surprise that
the first years of Bloomberg's adminis-
tration actually saw a slight dip in afford-
able housing production. But Housing
First! kept pushing City Hall to act. At
the end of his first year in office, the
mayor met them not quite halfway.
In December 2002, Bloomberg an-
RELATIVE COSTS
400% ,----,--
300 I--t--+--t---t--+-
200 1--+--1-
100
2001 02 03 04 05 06 07
----- All prices --Copper
PIPE STRIFE
The average American home contains
about 440 pounds of copper, and
expanding Asian economies also
require hefty amounts of Cu (Copper's
sign on the periodic table). But the
major mines that respond to growing
worldwide demand have all been
hampered by local events, be it a major
labor strike at Chile's Escondida mine
or violence in the Democratic Republic
of Congo, causing copper prices to
soar higher than any other major
construction material.
(Source: Bureau 0/ Labor Statistics: Consumer Price Index
for all urban cons.m"" and Producer Price Index for 'copper
ores,' not seasonally adjusted, for the month 0/ February in
years 2001 through 2007. Indices standardized, 2001- 100.)
nounced his New Housing Marketplace
Plan to build and preserve more than
65,000 homes and apartments over five
years at a cost of $3 billion. "Affordable
housing is fundamental to our long-term
economic prosperity," the mayor said,
"and this commitment demonstrates
that in these difficult budget times, the
city has found innovative new ways of
funding affordable housing." In April
2005, saying that "New Yorkers des-
perately need affordable housing," the
mayor announced a slight expansion of
the plan, in which $130 million in Bat-
tery Park City Authority revenues were
dedicated to build or preserve 3,000
more affordable units over four years.
That was the state of Bloomberg's
housing policy when the next mayoral
campaign began in earnest in the latter
half of 2005. Democratic frontrunner
and former Bronx Borough President
RELATIVE COSTS
150%
v
125
V
/
... , ... - --
I- -

..:P
-
100
2001 02 03 04 05 06 07
----- All prices --Concrete
STIFF COMPETITION
No other manmade substance gets
as much use around the world as
concrete, which is a combination
of water, sand, gravel and portland
cement. Cement, made mainly from
kiln-treated limestone, is heavy
and therefore costly to transport-
especially when fuel prices are rising.
Steady global demand and escalating
shipping costs are one reason why
more than 30 states reported concrete
shortages in 2004 and 2005.
(Source: Bureau 0/ Labor Statistics: Consumer Price Indexfor
all urban consumers and Producer Price Index for 'concrete
ingredients and retated products,' not seasonally adjusted,for
the month 0/ February in years 2001 through 2007. Indices
standardized,2001-100.)
Fernando Ferrer, who emphasized his
role in rebuilding his borough dur-
ing the Koch housing push, pitched
a 10-year initiative to renovate or cre-
ate 167,000 units for $8.5 billion, paid
for partly by property tax increases
on vacant land. Ferrer earned praise
from some housing advocates, and he
chided the mayor for not responding
to "one of the worst housing crises
New York City has ever endured."
Three weeks before Election Day,
Bloomberg responded with a plan
that more than doubled his existing
commitment: 165,000 units by 2013
at $7.5 billion, paid for with existing
revenues and creative financing rather
than a new tax. "I don't think it's right
to make housing more expensive for
some New Yorkers in order to make it
more affordable for others," the mayor
said at the time. It wasn't until the fol-
RELATIVE COSTS
200% .---r--,--,---,,----,--,---,
150
L

-
2001 02 03 04 05 06 07
----- AII prices --Steel
NOT A STEAL
An alloy of iron and carbon that is
strong, durable and lighter than any
alternative, steel is the building
material that's made all modern cities
possible. It's also a global industry
that's undergone seismic change
in the past decade, from the rise
of China as both a producer and a
consumer, to a wholesale corporate
restructuring in the United States
triggered by protectionist measures.
Some 50,000 tons will be used in the
Freedom Tower.
(Source: Bureau of Lalx>r SffJlistics: Consumer Price Inda
for all urlJan CJJ1tSUmers and Producer Price Index for "steel
mill products,' not seasonally adjusted, for the manth of Felr
ruary in years 2001 through 2007. Indices standardized,
2001-100.)
CITY LIMITS INVESTIGATES
lowing February-after the mayor's
commanding re-election victory-that
details of the new Bloomberg plan
emerged. It would combine $5.8 bil-
lion in city money with funds from
other sources to generate 92,000 units
of new housing and preserve 73,000
other units (some 12,000 units would
be supportive housing for formerly
homeless people). And it would use
innovative tools to get the job done: A
land bank to preserve parcels for de-
velopment, a middle-income program
to target people making more than
poverty wages but less than was need-
ed to rent or own comfortably, and a
trust fund to bankroll housing for in-
come groups traditionally neglected
by housing subsidy programs, like
the very poorest and those of mod-
erate means. While Koch aimed for
253,000 units and-adjusted for infla-
RELATIVE COSTS
200%
150
100
/
-
I
V
V--
-----
.--- -
-
2001 02 03 04 05 06 07
----- All prices --Drywall
HITTING THE WALL
An essential material for interior work
in homes and apartments, drywall is
a slab of the mineral gypsum (calcium
sulfate) covered with cardboard. The
U.S. homebuilding boom kept pushing
prices higher until the recent ebb in
the housing market, but drywall is still
about 60 percent pricier than it was
four years ago.
(Source: Bureau of Lalx>r Statistics: Consumer Price Index
for all urlJan consumers and Producer Price Index for
sum products: not seasonally adjusted, for the ,nonth of
February in years 2001 through 2007. Indices standardized,
2001- 100.)
tion-ultimately pledged about half a
billion more for a plan that had tens of
thousands of city-owned units to build
upon, Bloomberg's initiative quotes a
higher price tag in today's dollars. So
City Hall has called the New Housing
Marketplace Plan "the largest municipal
housing plan in the country's history."
But for the Bloomberg administra-
tion, from the outset, public {pnding
for housing was intended to be part of
a larger building strategy. The mayor
wanted a "two-pronged" approach, Dep-
uty Mayor for Economic Development
and Rebuilding Dan Doctoroff said at a
public hearing in March. 'The first part
of the strategy is to increase the supply
of housing provided by the private mar-
ket through rezoning and making this
city a more attractive place to live," and
housing subsidies are the second part,
Doctoroff said. 'This strategy is work-
ing," he added, as the slideshow that
accompanied his talk displayed a chart
titled, "Housing Production at Highest
Levels since 1970s."
"This surge has been led by the outer
boroughs-an increase that is nothing
short of astonishing," he said. Evidence
of that surge is almost everywhere, from
South Williamsburg to Harlem to Jamai-
ca. In the South Bronx, new $600,000
three-family homes are being sold even
before the certificate of occupancy is is-
sued, says veteran appraiser Dan Houli-
han, and land prices for typical parcels
have shot from $75,000 to $200,000.
"Free market, all over the South Bronx,"
Houlihan says. 'There's a tremendous
and so far insatiable demand."
That inexhaustible demand for hous-
ing drives the housing crisis that con-
fronts New York now, five years into
Bloomberg's mayoralty and three years
into the initial New Housing Market-
place Plan. The burst of private housing
production encouraged by the adminis-
tration doesn't seem to have made New
York City any more affordable. The
2005 federal Housing Vacancy Survey
had 29 percent of New York City house-
holds paying more than 50 percent of
their income toward rent, an uptick of 3
percent over the 2002 survey.
SPRING 2007 9
CITY LIMITS INVESTIGATES
Mayor Koch says he funded his housing plan largely with city money after the Carter administration backed out. Photo: City Limits archives
A recent report by the Furman Cen-
ter for Real Estate and Urban Policy at
New York University on homeowner-
ship in the city found that from 2000 to
2005, the share of New York City home
sales that were affordable to people
earning the median income dropped
from 11 percent to less than 5 percent.
Even in neighborhoods where rents
haven't risen yet, market movements are
ominous. In recently released research,
the Bronx-based University Neigh-
borhood Housing Program charted a
rise in purchase prices for multifamily
buildings along the Grand Concourse
corridor-a rise that doesn't seem jus-
tified by the rents those buildings are
currently generating, and could trigger
steep increases in the near future.
'There has been a fair amount ofhous-
10 SPRING 2007
ing built, just not in the market where
low-income people can compete," says
Brad Lander, director of the Pratt Cen-
ter for Community Development. "[The
poor 1 are competing increasingly with
higher-income New Yorkers who are
moving back into the city." And when it
comes to building materials, the people
who build housing for the poor are also
up against stiff competition.
III. Killer prices
The 4,700-mile trip began in Luxem-
bourg, where about 806 tons of steel
were fashioned into 27 columns weigh-
ing between 20,000 and 40,000 pounds.
Sent by train to Antwerp, the steel was
divvied up among four ships for the
transatlantic voyage to Portsmouth, Va.
or Camden, N.]., and then on to a fabri-
cation plant in Lynchburg, Va., where
the columns were made even stronger
and heavier-more than 25 tons apiece.
A few weeks later, three of the columns
were shipped north and embedded in
concrete in Lower Manhattan as part
of the skeleton of the Freedom Tower.
Eventually, some 50,000 tons of steel
will go into the building. Already, more
than 675 tons of steel rebar have been
set in 3,000 tons of concrete poured at
the site by 300 transit truck trips.
At 1,776 feet, the Freedom Tower
will stand head and shoulders above
any of the other developments now
under construction in the five bor-
oughs. But while the size of the Tower
dwarfs the other projects, higher costs
are affecting virtually all of them (see
"Pinching the Public Purse," on this
page.), for reasons far and near. High
global demand, labor unrest, war and
corporate restructuring have pushed
up world prices for materials (see
"Chile to Chelsea," p.6.). Meanwhile, in
the city, some skilled laborers are in
such high demand for current projects
that any additional manpower has to
come from out of state. A report by the
New York Building Congress earlier
this year warned that labor shortages
could hit city construction projects. At
the same time, many contractors in
the region have so much work on their
hands that they can afford to pick and
choose jobs, reducing the competition
that leads to lower prices. One $400
million public works job put out to bid
late last year in Connecticut failed to
get a single taker; Christopher Ward,
managing director of the city's Gen-
eral Contractors Association calls that
"the canary in the coal mine."
The sheer volume of local work also
means that delivery mechanisms like
concrete mixers-and even just the
street space to drive and park them in-
are in high demand. The result has not
been a sudden leap in price, but a steady
and substantial climb. "On large-scale
construction projects in New York, the
construction managers we're working
with pretty much agree that the escala-
tion is running close to one percent a
month, some say more than one percent
a month," says Carl Galioto, an architect
and partner at Skidmore, Owings &
Merrill. 'That's tremendous."
It's not as though construction were
ever cheap in New York: A 2005 report
by the Furman Center found that hard
construction costs (materials and la-
bor) in the city were 39 percent over
the national average and 8 percent
higher than the next most expensive
city, San Francisco, thanks to the prev-
alence of costlier union construction,
lengthy public review processes and
New York's outmoded building code.
The gap seems to be widening: The
Furman Center found that New York's
prices had grown faster than the na-
tional average between 1999 and 2005.
CITY LIMITS INVESTIGATES
Even unexpected price increases are
par for the course in construction Dan-
iel Martin, who now runs the private
nonprofit Housing Partnership Devel-
opment Corporation (HPDC) but used
to oversee construction lending for
banks, recalls one job where the con-
tractor discovered only after breaking
ground that there was a boulder the
size of an ice cream truck in his way.
"Every deal has construction risk, "
he says.
What's different now is that so many
projects--each with their own set of
construction risks-are operating in
New York's already high-priced environ-
ment "For the first time in my career,
which is 30 years, all of the market sec-
tors are hitting at the same time, so that
there are major infrastructure projects
that are proceeding at the same time
that there are residential projects, com-
mercial projects, institutional projects,"
Galioto says. He was involved with the
construction of the new Seven World
Trade Center, in particular the curtain
wall, just two years ago, and estimates
that the same job would cost 50-60 per-
cent more today.
The city's Economic Development
Corporation (EDC) is studying con-
struction costs to determine why they
are rising and if there's anything the
city can do to reduce the price hikes.
Some observers say they've seen the
price for materials easing over the past
few months, and predict it to cool even
more in the future as the wider Ameri-
can housing market catches its breath.
Others aren't so sure: Bob Harvey of
the Lower Manhattan Construction
Command Center says he doesn't see
demand peaking until 2009 or 2010.
The Associated General Contractors of
America is predicting double-digit price
increases again in 2007 for some metals
and concrete.
Building industry figures who were
interviewed say the cost run-ups haven't
derailed any private-market projects so
far. Given the strength of demand for
housing and office space, developers
can raise rents to cover higher build-
ing prices. For the moment anyway, the
PINCHING THE
PUBLIC PURSE
Bigger price tags,
tighter budgets
Rising construction costs affect not only
the price tags for building affordable
housing, but also those of other publicly
funded or subsidized projects. These in-
creased expenses can deplete city and
state budgets and thus leave less to go
around for things like affordable housing.
How severely resources will be squeezed
depends greatly on how public agen-
cies like the Metropolitan Transportation
Authority, Port Authority and Economic
Development Corporation-as well as
private developers-react to riSing costs.
Here's what some of them are doing:
~ Mysore Nagaraja, the MTA's presi-
dent of capital construction, said that the
MTA has dealt with rising prices for ma-
terials by including in its contracts rate
escalation clauses requiring developers
to take the hit if material costs go up
by less than 10 or 15 percent. While the
MTA must pay if materials costs rise more
than that, Nagaraja said these clauses
help prevent contractors from making
overblown bids because it gives them in-
surance against the possibility that costs
will spiral out of control. The MTA, how-
ever. recently reassessed the finances for
the Second Avenue subway because of
a factor those escalation clauses cannot
address: skyrocketing real estate prices.
The MTA announced it would need $54
million more than the $191 million it had
estimated in 2005 for property on the Up-
per East Side. The MTA also has upped by
more than $100 million how much it will
pay for land for its Fulton Street Transit
Center.
~ Another way agencies have re-
sponded to anticipated cost overruns is
by redesigning projects. The Port Author-
ity's executive director. Anthony Shorris,
sent out a memo in February calling for
value engineering" amendments to
the design for the transportation hub at
the World Trade Center site. The project
had been budgeted for $2.2 billion, but
the memo revealed a contractor's claim
SPRING 2007 11
that unless costs were reined in, the price
could soar to $3.4 billion, said Authority
spokesman Steve Coleman. That same
month, the Authority adopted a budget
for the Freedom Tower of almost $2.9 bil-
lion-nearly 45 percent higher than the
$2 billion price tag that was reported by
the New York Times last June.
~ Some critics of the publicly subsi-
dized Atlantic Yards project in Brooklyn
fear that high construction costs will
have a more direct effect on affordable
housing than just depleting the public
purse. The development by Forest City
Ratner Companies (FCRC) is supposed
to make 50 percent of its rental units
affordable, but the first phase of the
project-scheduled to be completed in
2010-is only required to designate 30
percent of the units that way. Members
of Develop Don't Destroy Brooklyn and
City Councilmember letitia James claim
rising costs could postpone or derail the
second phase of the project, which is due
to end in 2016, thus endangering the un-
usually high affordable housing benefits
that the construction promised to pro-
vide. loren Riegelhaupt, a spokesman for
FCRC, wrote in an e-mail that he would
not comment on "ridiculous speculation
by opponents whose only goal is to stop
the project. Meanwhile, the city's Eco-
nomic Development Corporation recently
announced it would use almost half of
the $205 million designated for Atlantic
Yards infrastructure in Mayor Bloom-
berg's fiscal 2008 budget just to purchase
real estate near the site. The $205 million
is twice what the city originally pledged
for the entire project.
~ Some developers have turned rising
costs to their advantage. As the Yankees
were fighting off a challenge to their new
stadium last year, they argued in court
that construction costs were swelling so
much that if the project were delayed, it
might become too big a pill for the team
to swallow. luckily for principal owner
George Steinbrenner III and company,
courts approved their plan and the city
and state offered to kick in around $400
million worth of subsidies.
-LUKE JEROD KUMMER
12 SPRING 2007
CITY LIMITS INVESTIGATES
market is bearing it.
T
he story starts the same but ends
differently for developers work-
ing below the market. While affordable
housing construction rarely involves
highrise work-where prices may have
seen the most dramatic spike-it's
hard to avoid using steel and copper, let
alone concrete, even in smaller-scale
residential jobs. The materials associ-
ated with simple, small-home construc-
tion have seen price hikes, too, thanks
to the booming U.S. real estate market
and other events, like the war in Iraq,
which soaked up a lot of plywood for
constructing U.S. bases overseas.
Reports on the extent of the cost
increase for affordable housing differ
from neighborhood to neighborhood.
In Staten Island, where downzoning
has dampened building, the market is
reported to be fairly cool. But just about
everywhere else, the market is getting
tighter, and the differences are of de-
gree. At the Fifth Avenue Committee
in Brooklyn, director of housing devel-
opment Gretchen Maneval estimates a
nearly 50 percent increase over the last
five years. Rafael Cestero, who spoke
on behalf of HPD for this article, says
jobs that used to come in at $150 a foot
now run closer to $175. Emily Yous-
sout, president of the Housing Devel-
opment Corporation (HDC), says she
sees them as high as $200 a square foot.
Denise Scott, managing director of the
New York office of the Local Initiatives
Support Corporation (LISC) , says her
units used to get built for $120,000; now
$180,000 is not a strange price to see.
"Construction costs are killing us,"
says Paul Freitag, an architect with
Jonathan Rose Companies, a builder de-
veloping several projects in Harlem and
the Bronx. "I think it's particularly tough
in the case of affordable housing where
you're looking for public subsidies to fill
the gap." While private sector residences
can simply rent at higher prices to offset
higher building costs, affordable hous-
ing jobs-by definition-are limited in
how much revenue they can count on
from their occupants.
Creating affordable housing is never
easy. It always requires a deft hand for
balancing cost pressures, subsidy lim-
its and community demands. There are
lengthy applications to fill out and long
time lags to endure, and the subsidy
programs that fund housing force devel-
opers to make tough choices. Over the
years, successful affordable housing
developers have become increasingly
skilled at navigating these challenges.
One veteran of the Koch housing push
recalls that in the early days, with the
civil service still depleted by the fiscal
crisis brain drain, the city paid a subsidy
of up to $115,000 to get one affordable
apartment done. As developers and bu-
reaucrats learned by doing, the cost was
driven down. Martin, displaying a five-
inch-wide binder of the applications his
organization prepares for each subsidy
request, says HPDC has whittled down
the lead time it needs with the state M-
fordable Housing Corporation to eight
to 10 weeks between application and de-
cision. "Affordable housing developers
have been doing this for years," Martin
says. 'They know exactly what it takes
to get jobs done."
In the past, affordable housing has
also been boosted by the city's histori-
cal trends and wider market forces. The
abandonment of the 1970s provided
cheap land. And in recent years, even as
construction costs crept up, so did the
price developers were fetching when
they sold Low-Income Housing Tax
Credits on the secondary market. But
now those advantages are vanishing.
Tax credit investors seem to be seeking
slightly higher yields and offering some-
what lower prices, and the supply of
cheap land has dwindled-all while the
costs of construction climb and the need
for affordable housing is growing more
acute. Affordable housing developers
are being asked to do more with less.
IV. Soft costs,
and hard choices
It's a long way from the Freedom Tower
to an outer-borough affordable hous-
ing project, in terms of distance and
design. But it's likely that the sheer
number of major construction projects
like skyscrapers and stadiums is having
some effect on the prices that afford-
able housing developers see. "I think
it is possible that it does, because it's
harder to move up and get the contrac-
tors and the help on sites," says HDC's
Youssouf. "I'm sure that it has an im-
pact. Exactly how much I can't say."
A building is, of course, more than
concrete, steel and copper. It's the phys-
ical embodiment of so-called "soft costs"
like design, financing and overhead. On
a recent 58-unit vertical construction af-
fordable housing project, soft costs rep-
resented $4 million of the overall $18
million price tag.
Many of those prices move up with
the interest rate. Taxes are climbing
because of rising assessment value;
the Department of Finance's prelimi-
nary assessment for all New York City
property in fiscal 2008 is up 19 percent.
Thanks to Sept. 11 and other factors,
HPDC has been paying up to 10 times
more for insurance on jobs than 10 years
ago. Fuel costs mean Harlem Congre-
gations for Community Improvement
(HCCD is paying three times as much
to heat some buildings as it did three
years ago. And the city's water board
was considering an 11.5 percent hike in
the water rate this spring on the heels
of a 9.4 percent increase last year.
But fuel, insurance and water costs
are only part of the pricey picture fac-
ing affordable housing developers. 'The
main thing is these incredible land val-
ues," says ]aye Fox, a consultant who
helps developers with affordable hous-
ing deals. 'The two of them [construc-
tion and land costs] combined together
are a disaster. Now there's virtually
no place in New York City where you
can't do market-rate, unsubsidized de-
velopment, so people are choosing to
do that," instead of building affordable
housing. The sudden need for afford-
able housing developers to compete
with private market jobs for land-a
result of the city's dwindling supply of
tax-foreclosed properties-is a para-
digm shift for low-income housing in
CITY LIMITS INVESTIGATES
The rise of high-end housing in once-neglected neighborhoods is a sign of New York's healthy
economy but a red flag for New Yorkers struggling to afford to stay. Photo: Jarrett Murphy
New York. "Now the developer has to
buy land. So there is an element in this
that never was in the equation before,"
says Martin. The effect is shrinking
space for affordable projects. "I don't
touch East Harlem anymore," Martin
says, referring to the steep prices in
that neighborhood these days. 'That's
just the way it is."
When land prices block developers
from a particular neighborhood, the
impact is hard to gauge because the
potential projects never get built. But
when a project does get started, and
higher construction costs kick in, their
impact can be complex, even idiosyn-
cratic, depending on a project's partici-
pants, timing and funding stream.
Much depends on the arrangement
between funders, developers and build-
ers. There are a number of mechanisms
for bringing together the players for an
affordable housing project, depending
on the land and funding program in-
volved. In some cases, public agencies
conduct a request for proposals process
to select the developer, the builder, or
both. When a large pot of money is to
be divided, developers might line up for
funding and be granted money in the
order that their plans are approved. In
other instances, developers are tapped
to work on a particular parcel and ne-
gotiate with contractors on their own.
Developers-they could be non profits
or for-profit companies-usually set
aside a contingency fund for cost in-
creases, as well as a fee for themselves.
Contractors also build a cushion into
their bids to buffer any price increases
they might face.
There comes a point in the deal when
costs to the affordable housing devel-
oper are supposed to be fixed-at clos-
ing. But the period leading up to the
closing is when rising prices cause the
most trouble. "Prices with the contrac-
tor are locked in when you sign, but
that's usually done only right before
we start construction," says Martin
Dunn, a developer active in the Bronx
and Brooklyn. "If you have a long pre-
development process-if costs go up a
lot during that time and your subsidy is
fixed-it's a problem."
The lag between subsidy award and
construction closing forces developers
into a back-and-forth dance. "We've
SPRING 2007 13
CITY LIMITS INVESTIGATES
LOCATION, LOCATION
Where affordable housing units that were completed
in fiscal year 2006 were located:
50%
40%
30%
20%
10%
O % L - - - - - ~ - - E - ~ ~ - -
Brooklyn Bronx
(36. 1 %) (31.8%)
(Source: HPD)
been in the position where we've had
the financing together and then the
bids come in and the bids are higher,
it takes a while to go through all the
government approval processes and
to assemble a few different sources
of financing and then you go back to
the contractor and it's like, 'Oh, it's
been eight months, I've got to raise my
price,'" says one construction manager
who didn't want to disclose the project
involved. [Affordable housing develop-
ers are often reluctant to discuss spe-
cific jobs in detail, lest they offend the
community organizations, contractors
or funding agencies they need to work
with-or, in two cases that came up
during reporting for this article, if they
are contemplating a lawsuit against one
of the parties involved.]
While costs are supposed to be locked
in at closing, a contractor can always ar-
gue that the situation has changed, and
submit change orders that ask for more
money. Then it's up to the developer to
play hardball. Contractors could also
default on a job that they simply can't
afford. That's rare, but what is common
are delays on the job site that pick a
developer's pocket: Every day that the
developer holds a construction loan,
14 SPRING 2007
Manhattan
(27.9%)
Queens Staten Island
(3.9%) (0.3%)
rather than a cheaper permanent loan,
is a costly one.
Different building types transmit
costs in distinct ways. Constructing
higher buildings, for example, means
more units, but also higher costs.
Builders can use cheaper block-and-
plank construction-in which fabricat-
ed concrete slabs are placed on top of
walls made of concrete blocks-for 10
stories and below. Building above that
height could require a steel frame and
more expensive safety procedures on
the job site. But while block-and-plank
is cheaper, its low cost means the con-
tractors who do it are in high demand.
And while smaller buildings are less
expensive to build, they don't enjoy the
economies of scale upon which larger
developments thrive. This variation
in costs is likely one reason why New
York City affordable housing projects
funded by the state Division of Hous-
ing and Community Renewal last year
received anywhere from $11,000 in
subsidy per unit to as much as $54,000
per unit.
Whatever the nature of the cost in-
creases, the threat they pose is the
same. There's little wiggle room in an
affordable housing deal. Developers
can't raise rents or sales prices to the
extent that market-rate jobs can. Since
affordable housing developers trade
profit for the ease of marketing cheap
units, there isn't a big margin to eat
into. And ironically, the hard-earned
expertise of veteran affordable housing
developers sometimes means there's
not very much fat to trim. Projects can
become victims of their own efficiency.
When prices rise for land or construc-
tion or both, the alterations that devel-
opers must contemplate are painful,
sometimes involving changes to what
they build or whom they build it for.
"LOOk, construction costs and
sort of managing them in the
face of what our subsidies are and how
much affordable housing we're doing is
what HPD has been doing for like, the
past 25 years, so it's not a unique situa-
tion," says Cestero, who spoke with City
Limits in February as HPD's deputy
commissioner for development but left
for a job at the Enterprise Foundation
later in the year. '''There's no question,
though, that there has been over the
past five years a significant increase in
construction costs and it's something
we've been paying attention to." One of
the ways HPD deals with rising costs is
to simply keep them from rising. 'We
have an entire team of construction en-
gineers and architects who really work
hard with the nonprofit developers and
the for-profit developers to drive down
the cost of construction and value-en-
gineer things and really look at how
we can reduce the cost of construction
and literally line-by-line, go, 'Guys, 2x4s
don't cost that much,'" Cestero says.
But what HPD sees as increasing val-
ue can, to other eyes, look like reduced
quality. Some developers admit that part
of the reason for today's higher costs
is that affordable housing looks better
now than it did a generation ago, and
those improvements are what might get
cut. When costs rise, "It becomes hard-
er to do hardwood floors," for example,
says Frank Lang, housing director at St.
Nicholas Neighborhood Preservation
Corporation in Brooklyn. But some cuts
can affect both appearance and durabil-
ity. "At times we're forced because of
construction prices to reduce the scope
of the work, which ultimately leads to
lesser quality housing," says Drew Kiri-
azides, who as housing development di-
rector at Pratt Area Community Council
(pACC) oversees more than a dozen
current housing projects ranging from
small homes to multi-unit buildings.
"For example, instead of using brick,
we'll use stucco, or we originally plan
to have a community room but now we
realize we can't afford to put that in the
project. We wanted ceramic tile in the
kitchen, now we're putting in vinyl tile. I
think the effect is to reduce the longev-
ity of the development, which leads to
higher operating fees in the future. You
suffer down the line."
Once the parties sign off on a con-
struction plan, any cost increases hit the
contractor hardest, which means there
could be some incentive for builders to
cut corners. The funding agencies and
banks send engineers and inspectors to
the job sites to prevent that from hap-
pening, but they cannot see everything.
HPD, which started about 18,000 units
last year, employs 67 inspectors. "If
they want to beat you," says HPDC's
Martin about cheating builders, "they
beat you." Contractors know, however,
that if they perform badly they could be
barred from future projects. In March,
one HPD contractor who violated wage
rules was banned from bidding for
five years.
While many affordable housing deals
involve a developer (nonprofit or for-
profit) who hires a builder, there are
many for-profit developers who do the
building themselves. While construc-
tion costs eat into a developer's fee, a
developer who is also the builder could
be profiting from cost increases on the
construction side. "A lot of these devel-
opers are also general contractors and
when you have that identification of
interest, you're making money on that
capacity. You can absorb some of that,"
says Dick Conley, executive director of
the Community Preservation Corpo-
ration, an affordable housing lender.
CITY LIMITS INVESTIGATES
"You know you're making money. The
nonprofit never controls that part of
the equation."
G
ood contractors-and veteran de-
velopers say they know who the
good ones are and stick with them-ad-
here to the construction plan. But in
drafting the plan, developers can manip-
ulate a key variable: the types of apart-
ments the development will contain.
The distribution of studios and one-,
two- and three-bedroom apartments
helps determine who will end up living
in a project. It also will affect the sub-
sidy the project receives, but possibly
in a perverse way. Because many fund-
ing programs award their subsidies on
a per-unit basis and pay the same sub-
sidy no matter how large the apartment
is, there is an incentive for developers
to take the space that might have held a
two-bedroom, and do two studio apart-
ments instead-doubling the subsidy
intake and probably increasing the rent
per square foot as well. "That's definite-
ly a strategy," says one developer. But
there are checks on it. Funding agen-
cies usually demand a certain percent-
THE CLOCK TICKS
age of two bedrooms, and so does the
market. "Somebody can have a slight
increase in the number of studios but
not a huge one," Youssouf says, "be-
cause they also have to have what the
demand is in certain communities. Stu-
dios are not in demand."
The range of options is illustrated by
three HPD-funded developments that
were recently advertising for tenants.
At a 155-unit development in Melrose,
just over a third of the apartments
are studios or one-bedrooms, while a
109-unit project in University Heights
devotes about half its units to such
smaller apartments. A development at
Riverwalk Landing on Roosevelt Island,
meanwhile, allots 17 of its 25 units to
studios or one-bedrooms.
The market acts on affordable hous-
ing projects in other ways. 'The de-
velopers that specialize in affordable
housing, I see more of them going into
market-rate housing and leaving the af-
fordable housing world because they're
squeezed too thin," says Bernard Carr,
executive director of the New York
State Association for Affordable Hous-
ing. Even within the affordable hous-
(Source: HPD)
Here's when work started on HPD affordable housing units
that were completed in fiscal year 2006:
A. 23% Pre-2003
B. 24% 2003
C. 25% 2004
D. 26% 2005
E. 3% 2006
SPRING 2007 15
A DEFINING
PROBLEM
What "affordable"
really means
Considering its importance as a yardstick
for measuring the impact of the mayor's
housing plan, the federally determined
Area Median Income or AMI is-at the very
least-an imprecise gauge for affordability
in the city. The Department of Housing and
Urban Development (HUD) lumps the five
boroughs in with Nassau, Putnam, Suffolk,
Rockland and Westchester counties to gen-
erate New York City's AMI, even though the
median income in Putnam is nearly three
times more than the Bronx. That means af-
fordable housing based on percentages of
AMI isn't really reaching as low on the city's
income ladder as advertised.
"It's a relative term, says Vito Lopez,
who chairs the New York State Assem-
bly Standing Committee on Housing, of
affordable housing pegged to the AMI,
which in 2006 was more than $70,000.
You can build affordable housing for
[incomes of] $70,000 in outer-borough
neighborhoods, and it would only go to
people from outside our neighborhood:
Indeed, some developers say the differ-
ence between AMI and what people in
any neighborhood earn can sometimes
make it challenging to satisfy their
community preference-a set-aside of
affordable units for residents of local
community boards-because few lo-
cal residents in need of housing make
enough money to qualify. At the same
time, recent increases in AMI probably
helped affordable housing developers
because it allowed higher rents to cush-
ion the impact of rising costs.
Even in its submissions to the Federal
Register-not a publication in which
agencies usually shy from cataloguing
the arcane-HUD describes the rules for
setting median family incomes (a related
measure upon which AMls are based) as
"relatively detailed: HUD relies on defi-
nitions of metropolitan areas produced
by the federal Office of Management
and Budget (OMB), which is supposed to
draw the boundaries to reflect data from
16 SPRING 2007
CITY LIMITS INVESTIGATES
ing world, the combination of rising
prices and a roaring market is leading
developers to shift their emphasis. "I
think there are a lot of developers out
there who would love to do mixed in-
come. They're having to m i n i m i ~ e the
amount of affordable housing in order
to minimize their costs," says Freitag
of Jonathan Rose Companies. "I think
it's making us really look hard at the
percentage of affordable housing in-
cluded in the project because we've got
to make it all work out at the end."
Rising costs are also forcing develop-
ers to take a hard look not just at the
amount but also the type of affordable
housing they produce. It has long been
a challenge for affordable housing to
reach people in certain economic stra-
ta. Subsidy programs have often led
developers to target narrow income
bands: Low-Income Housing Tax Cred-
it deals, for example, cover construc-
tion costs for units to be occupied by
people making 60 percent of area me-
dian income, which was about $42,540
for a four-person household in 2006, or
less. (Area Median Income, or AMI, is a
key benchmark for affordable housing
programs; see i ~ Defining Problem," on
this page.) That cutoff point has often
created a dilemma for developers who
want to reach other income bands: If
they target families making lower than
60 percent AMI, developers get the
same subsidy but lower rent. If they try
to reach families with slightly higher
incomes, they get slightly higher rent
but lose the subsidy altogether. So, tax
credit deals often serve families right
at or below that cap, and few who earn
more or much less.
Hoping to counter that tendency
in housing programs, some develop-
ers and agencies are trying to target a
broader range of incomes. To do this,
they are setting aside apartments for
different income groups. One HDC
subsidy program, for instance, splits
the units in a given development, with
30 percent dedicated to people with
middle incomes, 20 percent for those
with lower incomes, and 50 percent at
market rate.
When rising costs begin to squeeze
an affordable housing project during
its planning stage, that income mix is
a key componept with which develop-
ers can tinker. Subsidy programs have
income guidelines but there is usually
room to maneuver. This malleability is
a handy tool wijen it salvages projects
that otherwise Plight be priced out of
existence. But it also means that the
final affordable housing product could
serve a different set of New Yorkers
than originally intended-in other
words, that there will be winners and
losers. After all, "affordable housing" is
a broad term, with city programs serv-
ing four-person households making as
much as $140,000. On the question of
how rising costs will affect different in-
come groups, there's disagreement.
HPD is worried that moderate-in-
come families will be squeezed out. "If
anything, I think what you're seeing is
it's even more difficult now than it was
a year ago to build those units that are
between 60 to 80 percent AMI [about
$57,000 for a family of four], the upper
end of the low-income range," says Ces-
tero. "And that's something that we are
frankly concerned about." There are
people in the development world who
share that view, which is that the struc-
ture of subsidy programs actually dis-
advantages people of moderate income.
'The 60 to 80 percent AMI is a money
loser," says ACORN's Speliotis. "And
it's a huge need."
Others feel prices are rising so much
that they'll swamp whatever advantage
the funding programs give to lower-
income groups. Kiriazides says PACe
is now selling three-family houses it
once marketed at $300,000 for as much
as $500,000. "Some homes, we were
targeting about 80 percent AMI, now
these programs are targeting 125 per-
cent AMI [$85,000 for a family of four)
or 150 percent AMI [$106,000) and so
that does have an impact," he says.
"Other times, the organization will re-
think doing the project, because if it's
getting close to market [prices), it com-
promises our mission." HPD recently
rethought its request for proposals for
one development site in Williamsburg-
Greenpoint. The original project plan
called for 100 percent of units to be af-
fordable to incomes up to 40 percent of
area median income. The revised pro-
posal raises the income bar to 100 per-
cent of area median income, although it
promises to give consideration to devel-
opers targeting lower income levels.
Not all affordable housing projects
are affected the same way by rising
costs. Projects done under the Low-In-
come Housing Tax Credit, which cov-
ers most construction costs, still work,
says Conley. But those built under city
and state programs that use a fixed sub-
sidy are trickier. 'The need for city sub-
sidies to make the programs feasible
has gone from $50,000 to $80,000 or
more" per unit, says Conley.
Last year, the HDC raised the subsidy
levels within some of its programs to re-
flect higher land and construction costs.
The city's lead agency for the mayor's
housing plan, HPD, taps into some
HDC programs. But it also has subsidy
streams of its own. And those subsidies,
Cestero says, haven't budged.
'The one thing I will say is in the face
of rising construction costs we have
not increased our subsidy amounts,
nor do we foresee doing that because
we think there's ways in which we can
control the rise in construction costs so
that our programs still work," he says.
"We've set maximum subsidy limits
on all of our programs and said that if
you can't bring your project so that the
numbers work within those subsidy lev-
els, you'll be required to bid the project.
You'll be required to get three bids and
you'll have to accept the lowest bid. And
doing those kinds of things we think is
a way that we can continue to control
costs and keep the projects within the
line of our subsidy programs."
v. Construction hazards
HPD does not face easy choices when
it comes to deciding how to spend the
$7.5 billion pledged for the 10-year
housing plan. On one hand are advo-
cates for the desperately poor, like the
CITY LIMITS INVESTIGATES
Past housing programs and economic growth have depleted the stock of vacant land, forcing
affordable housing developers to compete in t he privat e market for space. Photo: Jarrett Mu.rphy
Coalition for the Homeless, which in
a March report called for the mayor's
plan to set aside more affordable hous-
ing units for the shelter population. But
the fear that New York City is losing
its middle class-police officers, fire-
fighters, teachers, social workers and
blue-collar employees-is a powerful
argument for reserving units for peo-
ple making wages that put them above
poverty but below the market.
The city also has to step carefully in
the marketplace. HPD, after all, is not
just another builder. It's a behemoth,
and when reviewing rising construction
prices, it has to be careful not to drive the
market If HPD signs off on a $5 nail in
Corona, they'll soon be paying the same
in Crotona. Sometimes the department
can be downright stingy. 'We closed on
a project last summer and HPD-who I
love-kept saying, Well, you should be
able to build us for X dollars a square
foot,' and I'm like Where? Find us the
contractor.' And they say, Well, that's
what we had deals at last year,' and we're
like, That was last year,'" says Freitag.
'There's a lag there."
In structuring its programs, HPD is
each census. When OMB issued its most
recent update in 2003, HUD spent two
years developing a methodology for im-
plementing changes called for in OMB's
maps. The mechanism HUD now uses
throws out of consideration any coun-
ties whose rents or median income are
more than 5 percent out of line with the
rest of a given metro area. In fiscal 2006
Monmouth-Ocean County, N.J., was axed
from the New York City area because of
differences in the numbers.
HPD Commissioner Shaun Donovan ac-
knowledges that the AMI doesn't reflect
New York City's household earnings, but
doesn't think there's much the city can
do to fix it. Since the all-important Low-
Income Housing Tax Credit is based on
AMI, it would be hard to alter the other
programs that revolve around it. "That's
the system and it's going to be extremely
hard to change it, n Donovan said at a
recent hearing, while insisting, "The vast
majority of the resources we have go to
the neediest families."
-JARRETT MURPHY
SPRING 2007 17
also mindful of the larger Bloomberg
strategy, which seeks to foster market-
rate housing development to address
what Deputy Mayor Doctoroff de-
scribes as the city's "fundamental sup-
ply problem."
The recent debate about reform-
ing the 421-a tax break epitomizes the
tradeoffs and choices inherent in that
approach. Initiated in the 1970s, 421-
a granted tax breaks to any multi-unit
housing development throughout the
city. In some neighborhoods, the pro-
gram required or encouraged devel-
opers to include affordable housing in
their projects, but in vast swaths of the
city it did not. By 2006, the program
was badly outdated, hailing from a time
when builders needed an incentive to
build market-rate housing in neighbor-
hoods like Tribeca. Last year, a city task
force recommended and the City Coun-
cil passed changes to 421-a that prom-
ised more affordable housing creation
by, among other things, expanding the
area in which such housing is required
in order to get tax benefits. If approved
by the state legislature, the reforms
will generate $400 million in savings for
an Affordable Housing Trust Fund to
be administered by HDC to build and
rehabilitate affordable housing in the
city's 15 poorest neighborhoods. Other
savings from the reforms will help fund
the mayor's existing $7.5 billion afford-
able housing commitment.
Under the reformed law, however,
developers in several areas of the city
would still be able to get a tax break
without building any affordable housing.
And while the new law targets afford-
able housing for poorer income groups
than the old law-setting the bar at 60
percent AMI rather than 80 percent-it
does not go as low as some City Council
members and advocates wanted.
"A number of us had called for a com-
plete reform of 421-a where no market-
rate developer would get the tax break
without providing affordable housing.
I still think that was an ideal solution,"
says Brooklyn Councilmember David
Yassky, whose alternative plan also
defined affordable as 50 percent AMI
18 SPRING 2007
CITY LIMITS INVESTIGATES
and below. But Yassky credits the final
bill for striking a difficult balance. "You
have a tradeoff between fewer apart-
ments to reach a very needy group and
more apartments that reach a some-
what less needy group," he says.
HPD sees another tradeoff-be-
tween requiring affordability and get-
ting housing built. At a hearing of the
State Assembly Standing Committee on
Housing in March, HPD Commissioner
Donovan said his analysts had deter-
mined that further restricting the 421-a
tax break would choke off housing de-
HPD Commissioner Shaun Donovan says
his agency is on track to meet the mayor's
affordable housing goals, despite rising con-
struction costs. Photo: City HaJJ
velopment in vast areas of the city. 'We
must encourage the private market to
continue," Deputy Mayor Doctoroff
added. 'We are driven by a financial
analysis of where can we get people to
build buildings ... To the extent that
you lower that [income level], the risk
that you run is that nothing gets built.
All you're doing is biting off your nose
to spite your face."
City officials don't just view afford-
able housing creation as part of the
city's development strategy, but also as
part of the whole metropolitan region's
housing market. "Some of this should
be a regional issue," Bill Carbine, HPD's
Assistant Commissioner for Neighbor-
hood Preservation, said at a recent con-
ference. "If there's affordable housing
in Jersey City or in Yonkers, that helps
all of us with this problem."
D
evelopers say that HPD is flex-
ible when costs rise so much that
a project is threatened. In the case de-
scribed above by Freitag, he says HPD
was ultimately convinced to put more
money in to cover rising costs. But de-
velopers would rather not have to win
those fights on a project-by-project ba-
sis. Even when they do win, many rec-
ognize that increased funding for one
housing project reduces the stream
available for others. 'What it basically
means is we've got to get deeper sub-
sidies. So it's cutting into the number
of units you can get done, " says Scott
from LISC, who says her organization's
single-family home program is barely
staying ahead of rising costs. "It really
is starting to eat into the city's budget
because so much of this money is going
to cover a single project where it used
to be spread out over multiple projects
a few years ago,"
The city's budget is a menu of par-
tially satisfied needs. There are always
potential uses for more money, from
higher NYPD salaries to more senior
centers to new schools. "HPD definite-
ly wants to build housing, but resourc-
es are limited," says Conley from the
Community Preservation Corporation.
'With budget planners, it's always a
fight. It's always a chess match to make
these things work."
And so far, anyway, the Bloomberg
administration isn't moving its pieces for
housing. The $7.5 billion overall price
tag for the New Housing Marketplace
Plan has not budged. And as significant
a commitment as Bloomberg's plan ap-
pears to be, never has the mayor come
close to spending what Koch did: In
inflation-adjusted terms, Koch pledged
about three times in 1989 what Mayor
Bloomberg dedicated to housing in
2006. "As committed as this administra-
tion is, I think they are also committed
to doing it with limited subsidies," says
Fox, the housing consultant She ques-
tions whether, given higher land and
construction costs, that approach can
work-whether the limited subsidies the
city is offering can absorb rising costs
and still deliver the type and amount of
affordable housing that the city needs.
Construction prices could conceiv-
ably ease in coming years. But land is
the barrier that developers see looming
largest down the road. "It is the issue
going forward," says Scott. "Our expe-
rience with city-owned land, as difficult
as that is, you can imagine what it will
be like when acquisition is added in."
HPD gets credit for working with other
entities-like the New York City Hous-
ing Authority, the Health and Hospitals
Corporation and the departments of
Education, Transportation and City-
wide Administrative Services-to find
publicly-owned land that might be
developed into housing. But the New
York City Acquisition Fund, a new ini-
tiative that's part of the mayor's plan,
is only now completing its first deal,
although HPD says it's on track and
has more capital to work with than ex-
pected. Another innovation within the
mayor's plan-the NYC Land Bank ad-
ministered by HPDC-hasn't taken in
many deposits yet, however. ''We've ac-
quired a handful of sites," says HPDC's
Martin. "A number of other deals are
at the point where the question is: Are
these prices at a point where the overall
development budget can absorb that?"
The problem of land availability
featured prominently in Bloomberg'S
speech on April 22nd unveiling his
multifaceted sustainability effort, with
the mayor calling for new zoning rules
to allow more development near mass
transit sites, the construction of decks
over highways and railyards and an ac-
celerated clean-up of the city's brown-
fields in order to create more land for
housing development.
When it comes to the other finite
resource confronting the housing ini-
tiative-money-HPD insists the New
Housing Marketplace Plan will have
what it needs. 'This has been and
continues to be one of the mayor's top
CITY LIMITS INVESTIGATES
couple of priorities," says Cestero. ''We
have very close contact and regular
check-ins with City Hall but also with
[the mayor's Office of Management
and Budget] to make sure our budget
remains where we need it to be to de-
liver on the promise of 165,000 units. If
there need to be adjustments, adjust-
ments will get made."
As the state legislature considers
whether to approve the city's chang-
been of limited success; in some cases,
the lure of the free market is simply too
strong. And for every high-profile afford-
able development like Starrett City that
pols rally to save, dozens of smaller par-
cels-not to mention large complexes
like Peter Cooper Village and Stuyvesant
Town-are lost. (As City Limits reported
in March, during the two-month Star-
rett City controversy some 1,042 units
in Mitchell-Lama developments left the
And for every high-profile affordable development like
Starrett City that pols rally to save, dozens of smaller
parcels-not to mention large complexes like
Peter Cooper Village and Stuyvesant Town-are lost.
es to 421-a, developers are racing to
get projects approved under the cur-
rent, more lax law. Since the new ver-
sion won't take effect until December,
there's nothing the Bloomberg admin-
istration can do but watch and wait. In
that and other ways, the mayor's hous-
ing plan is shaped by the larger envi-
ronment in which it operates. The city's
choices, and their consequences, have
to be viewed as part of that whole.
VI. The broader picture
The Bloomberg administration has said
since the beginning that preserving af-
fordable housing is as important-and
cheaper-as creating new below-mar-
ket units. In fact, about 44 percent of the
units encompassed by the New Hous-
ing Marketplace Plan are to be achieved
through preservation. The question is
whether that effort will make a dent in
the ongoing loss of affordable housing
around the city, particularly through
properties exiting Mitchell-Lama, the
program launched in 1955 that offered
financing to builders who agreed to
keep their buildings affordable for 20 or
more years.
The administration has developed in-
centives to entice Mitchell-Lama owners
to stay in the program, but these have
program.) From 2002 to 2005, 27 per-
cent of New York City's rent-controlled
housing vanished. Meanwhile, a recent
study by the Center for the Urban Fu-
ture, City Limits' sister policy institute,
found that 20 percent of the housing
stock assisted by the federal Depart-
ment of Housing and Urban Develop-
ment in New York City is considered
"distressed," meaning it could become
unlivable and leave the housing stock
altogether. The size and speed of these
trends cast the New Housing Market-
place Plan in an unforgiving light. 'The
mayor's plan is a strong plan," says
Lander from the Pratt Institute. "But it's
a drop in the bucket. It'd be nice if the
mayor's plan could solve the affordable
housing problem. But the crisis is too
severe."
The city could have additional tools at
its disposal-if it chose to use or press
for them. For years, tenant advocates
have prodded the city to seek the repeal
of the Urstadt Law, which effectively
puts Albany in charge of the city's rent
control and stabilization rules. Mayor
Bloomberg at one time supported re-
peal, but his position recently became
less clear. While the administration and
City Council have worked to reform
and retain the 421-a tax break, they al-
lowed a similar program that served
SPRING 2007 19
one- and two-family homes-called 421-
b-to lapse. When the City Council in
2005 passed Local Law 79, a measure
that gives Mitchell-Lama tenants the
right of first purchase if their owners
want to go market, Bloomberg vetoed
it. After the council overrode that veto,
HPD refused to enforce the law, which
the administration believes interferes
with federal and state housing policy.
Two court battles over the law were
awaiting a judge's ruling at press time.
But housing laws are only one way
the city affects the affordable housing
picture in New York. Economic devel-
opment is another. When the EDC di-
CITY LIMITS INVESTIGATES
"But there are still these spaces" in the
city's plans from which it is absent.
City policymakers also impact afford-
able housing when they change zon-
ing laws. Plans to increase the density
in some areas-like Williamsburg and
the West Side-have met with fierce
and well-publicized opposition, but also
created potential for affordable hous-
ing. Meanwhile, in several other neigh-
borhoods, the city has quietly capped
density and limited the potential for
housing development. Since taking of-
fice, the Bloomberg administration has
pursued downzoning in Far Rockaway /
Mott Creek, Dyker Heights/Fort Ham-
Developers who built the cheap, unattractive housing
that fueled neighborhoods' demands for the new zoning
restrictions have to take some of the blame. But there's
little doubt that the city's tighter rules are suppressing
not just ugly, out of scale buildings but also quality
housing development that could be affordable.
rects public money and precious land
to private developers, it has an impact
on the feasibility of affordable housing
in that area of the city. But gauging the
net effect of an individual project can be
difficult: "Mfordable housing" is quot-
ed in arguments both for and against
Atlantic Yards, which includes a sub-
stantial amount of non-market housing
but also could push rents up in the sur-
rounding area. Judging the EDC's over-
all approach is just as tricky. The recent
request for proposals for development
of the Queens Borough Hall parking
lot demanded affordable units, but the
recent RFP for large scale development
at Homeport in Staten Island made no
mention of below-market housing. At
Arverne East in the Rockaways, where
local leaders opposed the inclusion of
any affordable housing in the project,
EDC set the income level for affordable
units at a relatively high 130 percent of
AMI (or $92,000 for a family of four).
"Mfordable housing is much more
present," says Lander of today's EDC.
20 SPRING 2007
ilton, Douglaston/Little Neck, College
Point, Bensonhurst, Springfield Gar-
dens, Kissena Park, Bayside, Bay Ridge
and Throgs Neck. In its most sweeping
act, the City Planning Commission in
2003 downzoned about 40 percent of
Staten Island's residential lots, affect-
ing the neighborhoods of Westerleigh,
West Brighton, Mud Lane, Willow-
brook, New Dorp and Midland Beach.
Developers who built the cheap, unat-
tractive housing that fueled neighbor-
hoods' demands for the new zoning
restrictions have to take some of the
blame. But there's little doubt that the
city's tighter rules are suppressing not
just ugly, out-of-scale buildings but also
quality housing development that could
be affordable. 'They've driven the cost
of land through the roof because of
downzoning," says Randy Lee, a devel-
oper on Staten Island. 'The problem
you have is in a lot of new zones, they
wanted to eliminate two-family houses,
so you eliminated the rentals and those
rentals represented an affordable hous-
ing stock. Almost all zoning that allowed
townhouses was eliminated. There is
no zoning left for garden apartments,
condo housing, senior apartments. Any
place where there's land to do this, they
zoned it out," Lee says. And the upzon-
ings don't make up for it, he says. "You
can't punch the pillow down in Staten Is-
land and expect people to pop up on the
Upper West Side or Williamsburg. They
pop up in Rockland County or New Jer-
sey." The impact of zoning laws might
be reflected in recent affordable hous-
ing production. Of 7,880 affordable units
that HPD finished building or rehabili-
tating in fiscal 2006, a mere 24 were in
Staten Island. A slim 4 percent of the
total built last year were in Queens.
By the city's own projections, 900,000
new residents could live in the five bor-
oughs by 2030, meaning space within
New York's neighborhoods must be
found for what amounts to the cities of
St. Louis and Boston combined. Bloom-
berg's long-term planning initiative,
PlaNYC is intended to prepare the city
for sustainable growth. But that conver-
sation comes well after key decisions
the administration has already made
that will shape patterns of development.
In his April speech unveiling PlaNYC,
however, Mayor Bloomberg announced
a push for new zoning rules to increase
housing in areas near mass transit
lines. Even harsh critics of the Bloom-
berg administration acknowledge that
zoning requires a very delicate balance.
"You've got to be careful with density,"
notes one former political opponent of
the mayor's. "How dense a city do you
really want to live in?"
T
here are inevitable tradeoffs in
any change to city policy that
might increase affordable housing.
Higher subsidies mean more taxes,
higher borrowing or less spending on
other items. Dedicating economic de-
velopment parcels to housing obviously
limits their availability for other uses,
like manufacturing or open space. And
zoning for more density can strain pub-
lic services and alter the character of
beloved neighborhoods. Even a munici-
CITY LIMITS INVESTIGATES
The city's Economic Development Corporation is insisting on mixed-income housing in the development proposed for the current site of the
Queens Borough Hall parking g a r a g ~ a requirement EDC has omitted from some other proposals. Photo: Jarrett Murphy
pality as large as New York faces tight
constraints, which is why city housing
advocates, developers and policymak-
ers are looking for more outside help.
"Part of this is the city is sort of alone,"
says LISC's Scott. "I think the city has
been somewhat responsive. I just feel
they're bearing too much of a burden
to make this happen."
Members of Housing First!, the coali-
tion of affordable housing developers
and advocates that began pushing for
a city housing plan in 2001, have been
targeting state policy for a year. While
the initiative Bloomberg unveiled in
early 2006 was 20,000 units shy of what
Housing First! had asked for five years
earlier, "we realized it didn't make
sense to keep pushing the city," says
Hilary Botein, the group's coordinator.
Housing First! met with Eliot Spitzer
during his gubernatorial campaign
to pitch their $13 billion, 10-year plan
for the state to finance 220,000 units
in the city in addition to the mayor's
plan. The new governor's first budget
didn't inspire much confidence, how-
ever, as Spitzer called for a $26 million
cut in funding for the state's lead hous-
ing agency. At press time, it was still
unclear how housing programs would
fare in the final budget
Meanwhile, rising construction costs
and strong demand have gobbled up
funding at the state Housing Finance
Agency, which runs the 80/20 program
that subsidizes buildings that devote
20 percent of units to low-income hous-
ing-a favorite of big-name developers
like Silverstein Properties Inc. and Rock-
rose Development Corp. HFA recently
reported having $4.8 billion of projects in
its pipeline but only $540 million in funds.
Under the direction of new president
Priscilla Almodovar, who was Spitzer's
housing adviser during the campaign,
HFA has begun to reform the program,
capping the subsidy at $1.5 million per
unit-a hefty amount justified by the
program's ability to get major builders to
include affordable housing in high-cost
projects. Developers fear that additional
changes are in store. But many housing
advocates see 80/20 reform as a poten-
tial plus for affordable housing, with
some hoping for a revised program that
calls for a 70 percent market/30 percent
SPRING 2007 21
CITY LIMITS INVESTIGATES
22 SPRING 2007
CITY LIMITS INVESTIGATES
affordable breakdown, or better.
When it comes to the most significant outside support for af-
fordable housing, however, the state is merely a pass-through
for federal aid that comes to the city. And the most significant
funding issue, many say, is the allocation of tax-exempt bonds
to New York. Congress limits each state's share of such bonds
to about $85 per capita under the so-cal.led private activity
volume cap. The lack of room under this cap is, according to
HDC's Youssouf, "the biggest obstacle we're having."
Albany receives about $1.6 billion in volume cap and directs
a portion to New York City; most of those bonds end up in
HDC's hands-but not for long. 'We have a huge amount of
demand. Already we have $1.8 billion in the pipeline for this
year. If we only get $200 million [in bonds 1, we're not going to
be able to even make a dent in that pipeline," Youssouf says. "I
think the real issue has to come with the federal government
agreeing that in high-cost areas, where you have a very low
vacancy rate, what they should do is increase the amount of
tax-exempt housing bonds you're allowed to issue."
So HDC, HPD, Housing First! and others are looking be-
yond Albany to Washington. That's nothing new. "In the past
we've done some work with the congressional delegation,
but it was sort of sad because they were fighting for their
lives," says Botein. All that changed when the Democrats
took charge of Congress, elevating the stature of New York's
contingent, particularly senators Clinton and Schumer and
Harlem Congressman Charles Rangel, who chairs the pow-
erful Ways and Means Committee.
"I think at least we have people who will listen, who have
the ability to fight for that change," says Youssouf. Mean-
while, HDC is pushing a new taxable bond structure to try
to cover some of the project costs that tax-exempt bonds
can't fund.
New York City has often hoped for federal housing aid and
been disappointed. Koch, whose housing plan emerged after
the White House backed away from a promise to send mon-
ey, believes New York's luck could change if national politics
cooperates. "Under the next Democratic president, they will
restore a federal housing initiative. I'm certain of that. Not un-
der a Republican," says the former mayor, who in 1981 ran for
re-election on both the Democratic and Republican lines and
addressed the GOP convention in New York three years ago.
But the city will never be able to pass the entire buck. "I
don't think the federal government will just pay the whole
thing," Koch adds. 'They'll expect local funding."
VII. Getting it done
HPD Commissioner Donovan told City Limits in a statement:
"Our architects and construction engineers are working with
The new Ya nkee St adium taking shape in early April. By the time
the mayor's housing plan reaches the 10-year mark, the team will likely
have played at least four seasons there. Photo: Jarrett MurPhy
SPRING 2007 23
developers to keep down the cost of
construction line by line. We are being
creative and flexible in how we use our
funds to deliver the mayor's 165,000 unit
commitment." He continued: "But our
building standards and programmatic
objectives for the New Yorkers served
by the Housing Plan are unchanged
and interest from developers in bidding
for work remains strong."
Indeed, developers are still building
affordable housing despite rising costs.
CITY LIMITS INVESTIGATES
Fifth Avenue Committee (FAC) set
lower sales prices on some of the mod-
erate-income units at its Atlantic Terrace
project. 'To make the project work we
have several market-rate units, but at
the same time we're also hoping to attain
deeper afford ability than we planned on
the lower-end units," says FAC's Mane-
val. ''What's really appealing about the
mixed-income model is you set your
parameters and you commit to a cer-
tain level of affordability, but because
... if it's a matter of life or death for a project,
requirements can budge, developers say. "Nobody
wants to see a project fail," says HPDC's Martin.
But the tighter budgets are making
deals more difficult to pull off.
Some housing developers are look-
ing to religious institutions and librar-
ies as potential sources of land. Others
are using community support to con-
vince borough presidents to contrib-
ute crucial funds: Brooklyn's Marty
Markowitz has devoted $500,000 to an
ACORN site in Brownsville, "which is
really the difference between afford-
able and not affordable," ACORN's
Speliotis says. Many deals require a
chain of creative steps: In South Wil-
liamsburg, Los Sures Community De-
velopment Corporation is wrapping
up work on a 23-unit building, which
Executive Director David Pagan says
came to fruition only because his orga-
nization got the land from the state at a
cheap price in the 1990s, split it up into
three parcels for deals with separate
funding sources, and got one contrac-
tor to handle most of the work, thus
spreading out the costs.
In many neighborhoods, the roaring
real estate market is a double-edged
sword that affordable housing develop-
ers can wield. The hot market makes
land more expensive, but in projects that
mix affordable units with market-rate
units, the ability to obtain higher rents
from the market can offset higher build-
ing costs. When HDC income guide-
lines changed last summer, Brooklyn's
24 SPRING 2007
of the market being where it is, if you're
including market-rate units, then you
have a little bit of flexibility. One market-
rate unit can get you 18 more affordable
units because the market is so great."
But some neighborhoods are hot-
ter than others. "In the Bronx, most
of those neighborhoods, the market
is a low-income market so there is no
flexibility here," says Conley from the
Community Preservation Corporation.
"Eighty percent AMI or higher, that's
market rent." In other words, there are
limits to how high some developers can
raise rents, and therefore how much of
their cost increases the market rents
can offset.
When a developer can't hitch a ride
on the real estate market, he or she
might have to tinker with the composi-
tion of the project itself. On one hand
is the physical construction plan, where
there might be room to scale back on
the scope of work. LISC's Scott recalls a
house in the South Bronx that remained
affordable only because of some rethink-
ing of the rehab plans. "We couldn't do
as much work," she says, "but we were
able to give them a decent building at a
price they could afford." On the other
hand is the makeup of people who'll live
in the project once the work is done.
The RFPs to which housing developers
respond often require units for certain
income levels. But if it's a matter of life
or death for a project, requirements can
budge, developers say. "Nobody wants
to see a project fail," says HPDC's Mar-
tin. If costs become a major issue, all
the players get together to crunch the
numbers, sometimes upward. "For ex-
ample, let's say the target was 80 per-
cent AMI. Can we support moving up
to 110% AMI? For the developer, that's
a 20 percent increase in sales price on
certain units, and it's enough to put him
over the top."
W
hile each government funding
agency faces a limited budget
and a responsibility not to drive up
the market for construction costs, de-
velopers say that funders sometimes
can be convinced to put more money
into a project. More subsidies are what
saved Jacob's Place, an eight-story, 63-
unit building that Fordham Bedford
Housing Corporation was finishing up
this spring on Webster Avenue in the
Bronx. Named for Astin Jacobo, an
influential community organizer, the
building saw construction costs jump
20 percent between the beginning of
the planning process in 2005 to clos-
ing last June. When the prices began
rising, Fordham Bedford's Pat Logan
says he negotiated with his contractor,
but he thinks HPD's flexibility was the
difference. 'The city did adjust their
subsidies to make the project happen,"
he says.
Logan argues that the makeup of the
project helped its cause. There are no
studio apartments; 10 percent of the
units are for the formerly homeless
and the rest are for households mak-
ing 50 to 60 percent of median income.
Inside the apartments are amenities
like Internet connections, recycled tile,
bamboo floors and low-energy dishwa-
ters. There are plans for a green roof
and early education services in the six
ground-floor classrooms. Bronx Bor-
ough President Adolfo Carrion chipped
in $1 million toward the $14 million cost
and the Enterprise Foundation helped
the project get a good rate for the sale
of its tax credits, which made it easier
to convince HPD that the building de-
served more help, Logan says.
Obviously, developers don't receive
everything they- or their contrac-
tors- want out of negotiations with
HPD. At one project on 154th Street
and 8th Avenue, HCCI ran into trouble
with the last in a set of four buildings
they were rehabilitating on the site, as
steel prices shot up. "We could have
moved forward with the project but
we felt the project wouldn't have been
good quality if we held [the contractor]
to that price," says Lucille McEwen,
HCCl's president and chief executive
officer. "So we actually had to step up
and fight for that contractor to get a
bid resubmitted for him and to get the
city to consider a higher price." The
negotiations took a year, as prices kept
FOUR MAYORS
CITY LIMITS INVESTIGATES
creeping up. Finally, HPD agreed to
cover $100,000 of what McEwen says
was a $230,000 increase in steel costs
for the site.
Even when developers get extra mon-
ey for a deal, it can come with strings
attached. Federal Home Investment
Partnerships Program (HOME) funds,
for example, require contractors to pay
prevailing wages on projects above a
certain size. That could add $10 to $20
per square foot in construction costs.
FAC's current Red Hook Homes deal
involves 11 funders; another recent
project required 13. Modern housing
deals sometimes require consultants
to help with the plan, intermediaries to
secure the subsidies, syndicators to sell
tax credits, a bank or banks to do the
A look at how affordable housing fared under recent administrations:
IN THOUSANDS. IN MILLIONS
25 1200
I
I
20 - ~
15
-
/'""',
r-...,
1000 I
800
I
I
I
600
10
-
~
400
5 -
200
o L--_' ::::..:< ./---II---.; ' ... ...I ,--,I---.; '- """""' ./---II_'- """",./-ol
0
lending and more. Each entity involved
requires a fee to pay for its operations,
and each step takes time, dragging
deals out. The increased intricacy of af-
fordable housing deals requires more
and more sophistication on the part of
the developers. 'That's the difference
we find now," says HPDC's Martin.
'There's no cookie-cutter deal."
N or is there a deal sure to work,
which is the problemACORN'sSpeliotis
was struggling with in late winter. 'The
Rockaway works," she says, referring
to the building in Brownsville. "But we
have four or five projects at HPD where
the numbers aren't working. And I'm
telling you those construction numbers
are on the low side and those numbers
don't work. So we're squeezed."
Photos: City Limits archives and City Hall
I I
: I
I I
Koch Dinkins Giuliani Bloomberg Koch
1987-90 1991-94 1995-2002 2003-07 1983-90
Dinkins
199194
Giuliani
1995-2002
Bloomberg
200306
Average annual affordable housing starts Capital commitment per fiscal year
(Source: Mayor's Management Reports,fiscal years 1987-20(7) (Source: mo. Inj/otjqn-<Jdjusted. blcilldes city and _-city /unds.)
SPRING 2007 25
VIII. A long-term lease
By the end of 2013, most children born
the day that Mayor Bloomberg an-
nounced his first housing plan will be in
sixth grade. The Yankees will be playing
in their new ballpark, Shea Stadium will
be no more as the Mets take their at-
bats on Citi Field and the Nets will prob-
ably be playing at the corner of Fulton
and Atlantic in Brooklyn. Bloomberg's
successor in City Hall will have faced
re-election. And the New Marketplace
Housing Plan will have reached its pre-
scribed end date.
City Hall's announcement in March
that the housing plan had funded one-
third of the promised units was indeed
a milestone-marking not just how far
the city has come, but how far it has to
go. Not all the units funded have been
built yet. And the 110,000 units HPD
still must fund will serve more house-
holds than exist in the city of Newark or
Dutchess County. To meet its goal, HPD
will have to nearly double the number
of new units it constructs annually from
the 6,000 it has done in each of the past
four years to more than 11,000 a year for
the remainder of the plan. Meanwhile,
the city's housing market continues to
edge out affordability. The question of
whether the city will meet its goal might
depend on how the 165,000-unit target
is interpreted. In other words, what
does affordable mean?
At the outset of the New Housing
Marketplace Plan, HPD set ambitious
goals for affordability. Overall, 68 per-
cent of the units created were supposed
to be affordable for people making 80
percent of Area Median Income or less.
These low-income households were
supposed to account for 65 percent of
the newly constructed units and 84 per-
cent of the preserved units. The lower-
income segment of home ownership
was supposed to be 65 percent, and on
the rental side, 69 percent.
HPD says costs have not changed
the goals. "Seventy percent of the
mayor's plan is serving low- and very-
low income families," Cestero said in
February. 'That hasn't changed and
26 SPRING 2007
CITY LIMITS INVESTIGATES
that's not going to change," in the face
of rising costs. "I think there are things
that we're aggressively doing to try to
control costs and so far we've been suc-
cessful in doing that."
HPD data obtained by City Limits paint
a complicated picture of whom HPD is
serving and how that changed from fis-
cal year 2004-the first year covered
by the plan-through fiscal year 2006,
which ended last June. Numbers from
an HPD survey of projects that closed
in fiscal year 2006 show HPD excelling
in many areas and falling short in a few.
Among rental units, HPD exceeded its
goal, allocating 77 percent of the apart-
ments to low-income families in fiscal
2006-down slightly from 2004. Less
than half of the homeownership units
went to low-income families, which
falls short of the target but represents
a huge improvement over 2004, when
about a quarter of homes went to low-
income owners. Overall in fiscal 2006,
just shy of 60 percent of units in 2006
went to low-income families, according
to the survey. That's short of HPD's tar-
get, and lower than in 2004.
But HPD says the survey data paint
an inaccurate picture of its perfor-
mance. When HPD extrapolates the
survey numbers to the units completed
under individual programs, the agency
finds that it is exceeding all its goals,
with 84 percent of units occupied by
low-income people.
Under either interpretation, the over-
all numbers mask different fortunes
enjoyed by separate income groups.
Households earning less than 60 per-
cent of the area median income (about
$21,000 for a family of four) gained a
greater share of affordable ownership
housing produced in 2006. Higher-
income groups-making $85,000 or
more for a family of four-made gains
in rental housing. People in the middle,
from about $57,000 to $85,000 for a fam-
ily of four, saw their proportion of units
closed in 2006 decline compared to two
years earlier.
Each year is just a slice of time, how-
ever, and any movement in the num-
bers over two years is scant proof of a
trend. More importantly, the numbers
only describe what happened in one fis-
cal year that ended lastJune.
~ e vexing choices that affordable
.1 housing developers face on how to
make individual projects work are mag-
nified for HPD. 'The city must choose
between building the most units and get-
ting the deepest affordability," McEwen
of HCCI says. 'That's a tough call."
More than two decades since he
launched the Ten-Year Plan, Mayor
Koch is remembered best for the more
than 180,000 units of housing that initia-
tive built. The New Housing Marketplace
Plan will stretch beyond Mayor Bloom-
berg's final term, but with three more
budgets to implement, he still wields vast
control over the extent and character of
his long-term housing imprint.
HPD officials are prone to stress that
the affordability crisis is the flip side of
better times for most of the city. "Some
of the problems that we're facing are
a direct result of the good things that
have happened," said HPD's Carbine
at a recent conference. ''We do live in a
market economy and a thriving market
is overwhelmingly good for people, but
it does create challenges."
Affordable housing developers do not
deny that the current housing crisis is
a symptom of the city's success-a vic-
tory over the years of arson and aban-
donment. But only those people who
can afford to stay in the five boroughs
really reap the benefits of New York's
broad renaissance. "Whether you lose
your home because it's burned down,
or because you can't afford it anymore,
you're losing your home," said John
Reilly, executive director of Fordham
Bedford Housing Corporation. "If that's
the bottom line, it doesn't matter what
the reason is."
With massive development projects still in the pipeline, New York City's construction boom-like the Bloomberg administration's New Housing
Marketplace Plan-will outlast the mayor's remaining two-and-a-half years in office. Photo: Philip Greenberg