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The city’s housing market has been facing new challenges over the last couple of years. On top of longstanding issues like rising rents and a growing homeless population, the most recent Housing Supply Report said the city had seen a decrease in new housing construction and an increase in vacant housing units.
Now affordable housing developers, tenant advocacy groups and real-estate operators are grappling with the unprecedented impact of COVID-19 on the economy.
Tough choices for affordable housing operators
In Brooklyn’s Bushwick neighborhood, RiseBoro Community Partnership owns and operates over 2,000 units of affordable housing and provides social services as well. Since the epidemic began, Scott Short, the CEO, has had to make difficult decisions like from prioritizing essential finances and shifting staff duties.
The clock is ticking on how long Riseboro can keep its head above unchartered waters.
As landlord, Short says, he has to “make sure that we can continue to maintain and operate our buildings to the standard that we expect them to be maintained and operated.” But that depends on rental revenue that is drying up.
“I think a lot of our tenants are being faced with a choice about whether to pay rent or put food on the table for their families. And I’m sure most of them choose to feed their families over paying rent,” says Short. “We’re experiencing a 40 percent reduction in rental revenue, and that’s going to force us into making difficult choices—’Which of these essential bills to pay right now and which do we try to defer?’—because affordable housing is not underwritten to operate with significant cash flow surpluses.”
He adds: “These buildings are basically underwritten to run and break even on a monthly basis.”
Payroll and staff benefits top the list of payment priorities. Other obligations—business to business relationships, insurance company premiums and utility payments—he tries to negotiate or address on a month-to-month basis.
What would help, Short says, would be more government investments in housing voucher programs such as federal Section 8 or city FHEPS because those are tailored to each household’s specific income, and not a flat-amount check that might or might not fill the gap between housing costs and tenant income.
Last month, state Senator Brian Kavanagh introduced a bill to create a program of rental assistance through housing vouchers for people who are homeless or who face an imminent loss of housing and designate public housing agencies to administer the program.
Where the challenges lie
Even as affordable housing groups face complex financial and social choices amid the epidemic, affordable housing construction is continuing, because it is considered essential. According to the city’s Essential Active Construction Sites data map, there are 689 affordable housing projects under way now.
Those are the newest units under Mayor de Blasio’s plan to build or preserve 300,000 units of affordable housing. Through October 2019, fewer than half of those units had been started by the city, and the build-out is supposed to last into 2026. That means much of the initiative will play out in a post-COVID world. The pandemic and its economic aftershocks could affect the de Blasio housing plan in a number of ways. An economic downtown could reduce some costs for acquiring and building new housing, but it could also hamper the ability to fund new housing and deepen the needs of the tenants it serves.
According to the NYU Furman Center, the immediate future of affordable housing depends on two factors: whether social-distancing rules force a slowdown in new construction, and whether there is any substantial drop in the value of tax credits, which are vital to funding new housing. During the last recession the value of tax credits fell substantially. If the value falls, then the government (city, state or federal) has to put in more subsidies to achieve the same volume of housing.
Others say that making the math of affordable housing work depends on the government recognizing that developers and operators face some costs that will not automatically adjust in light of the crisis.
“Any city, state or federal level relief package for community-based affordable housing must look at the entirety of affordable housing operations, and specifically some of the largest expense items in the current landscape,” the University Neighborhood Housing Program, which oversees 27 affordable housing buildings accommodating 1,216 low-income households in multifamily buildings in the Bronx, wrote in a blog post. “Those include water, insurance, real estate tax, and compliance with New York local laws.”
Economic possibilities and the population trend
After at least three decades during which urban living has become more attractive and the benefits of density—cultural, political, environmental—have been more broadly acknowledged, COVID-19 could trigger a change of thinking.
Some coverage of the virus and its impact on New York City has emphasized the way density amplified COVID-19’s spread in the five boroughs. While that’s hardly the final word on density, changed attitudes could reduce the perceived desirability of city life. Even if density itself doesn’t dissuade newcomers, the possible closure of many cultural destinations and restaurants could. And a prolonged recession could also tamp down people coming to New York. Things were already heading that way: After years of boom, New York City has of late seen population growth stagnate.
While rural and suburban areas could be devastated, the Furman Center experts do not expect a huge decrease in the city’s population because of COVID-19. Generally, the city has maintained its population with very large flows in and flows out. One of the key in-flows is immigration, and that has been dormant due to newer federal immigration policies under the Trump administration.
According to Furman, if the federal stimulus package and unemployment insurance system work well, then recovery will begin quickly. But the city’s economic comeback doesn’t just depend on what’s in New Yorkers’ pockets. One of the most important factors for New York’s economy is tourism and as long as there’s no way to prevent the virus and social distancing exists, that economic engine will be slow to come back.
For-profit developers worried
The market-rate real-estate industry says their non-essential status adds to a list of major financial concerns.
“The housing market, particularly the higher end housing market in New York City was [facing] their real challenges. There was a substantial decrease in volume and a substantial decrease in pricing,” said Jonathan Adelsberg, an attorney in the real estate department of Herrick, Feinstein law firm.
Given those challenges, Adelsberg said developers, including some of his clients, will need to renegotiate the terms of their loans with their existing lender and condominium sales will have to be reevaluated for potential extensions or deferral of payments. Sellers and buyers will also face some difficult choices: A seller may not get the best price and buyers may want to hold onto their down payments.
For landlords, Adelsberg said the most accurate way to describe what’s going on with property owners is a domino effect. “If enough rents aren’t paid out of the building and the landlord still has to pay his or her real estate taxes, [unless] the city is going to forgive the payment of real estate taxes on buildings where tenants are not paying rent,” landlords face a squeeze. “You still have to pay the individuals who clean, repair and service the building.”
According to Brendan Schmitt, an attorney at Herrick, Feinstein law firm who focuses on development and construction law, another issue is that there is very little federal assistance for developers.
Given all of the challenges developers and affordable housing developers are facing in an unpredictable epidemic, the scale of the impacts on housing remain unknown. “If there’s any comparison to a hurricane, a blizzard, an earthquake, a natural disaster or a building that’s burning down, we’re at the epicenter of that crisis, meaning the hurricane has not blown over, the snow is still piling up in the streets and has not been plowed yet,” says Adelberg. “It is an unprecedented phenomenon that a construction has been halted, that people are not allowed to leave their homes. All of these components are so unprecedented and so immediate.”
Tenant needs persist
A NYU Furman Center initial analysis on those impacted by COVID-19 found that lower-income households were more likely to work in occupations prone to COVID-related job loss. In about 549,000 households, all earners worked in vulnerable occupations, making these households especially susceptible to income loss. And the risks had a racial skew, Furman concluded: “The potential negative impact for low-income people of color, who are predominantly renters, could be at a scale equivalent to the effects of the foreclosure crisis.”
Last month, the Real Estate Board of New York (REBNY) announced last month property owners representing over 155,000 rental units pledged not to execute any warrant of eviction for the next 90 days. That was before the governor ordered the 90-day eviction moratorium.
But neither move has solved the crisis facing tenants and, indirectly, the landlords to whom they pay rent.
While a landlord, Riseboro also views this crisis as a social services provider, one that offers tenant advocacy, legal help for tenants facing eviction and home-based services for seniors. Despite the closure of those services’ physical space and a statewide eviction moratorium, Shorts says, “We have not seen any drop off in the demand for our services through these programs.”
Short recommends that the government loosen rules and regulations that govern assistance for housing, food, health and other social services.
“The city has suspended the requirement for a physical inspection which should be done annually for the renewal of existing vouchers,” he says. “But for new vouchers, whether it’s Section 8 or others, there still is in-person inspection of the unit required, which is not possible in this environment.” He also recommended that the state follow the city’s lead in giving nonprofit services contractors more flexibility to deal with the crisis, and the both levels of government reassure nonprofits that they’ll be paid what they expected under government contracts.
Emily Goldstein, the director of Organizing and Advocacy for Association for Neighborhood & Housing Development, says the city and state have so far imposed measures that point in the right direction but do not reflect the scale of the problem.
“The eviction moratorium is a good temporary measure, but it does not address the bigger question for tenants who have lost their incomes and were living paycheck to paycheck. There needs to be a broad approach to ensuring that we’re not going to be facing a wave of displacement as we come out of the shelter in place situation,” she says. “I think one piece of the puzzle is to think about who are vulnerable populations at risk of displacement and make sure we’re crafting solutions that are going to for those [households]. For example, traditional Section 8 vouchers with federal funding are not available to undocumented immigrants.”
Goldstein also said the city should be on the watch for speculative and predatory investments by people looking to capitalize on the crisis.
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