If you asked a reasonably well-informed New Yorker what the chief problem of housing for low income people is, they would probably answer “the poor door.” In projects that mix market-rate apartments with so-called affordable ones, some segregate units serving lower incomes and give them a separate entrance. That entrance no doubt lacks the doorman and high-end finishes of the market-rate lobby, and affluent tenants won’t have their sense of entitlement ruffled by people of other income classes, races, and ethnicities.
The outrage over this seemingly stigmatizing practice has gone viral, though I suspect tenants with responsive landlords in well-maintained buildings are perfectly happy, since the alternative is genuinely grim units in inconvenient locations.
Housing Finance: the Real Scandal
The impediments to building housing for low-income people are legion, however, and mostly wasteful and unneccessary. That’s the real scandal. Exhibit A is the nearly complete Sugar Hill development in Harlem. It was designed by the London architect David Adjaye (who is also designing the National Museum of African American History and Culture in Washington) for the highly respected housing nonprofit Broadway Housing Communities. You can link to my story on the project in Architectural Record here.
“The project represents the epitome of what we want to do in term of housing,” New York City Mayor Bill de Blasio said in a June press event. In terms of its urbanism and self-reinforcing mix of uses (housing for many incomes, pre-k education, a Museum of Childrens’ Art and Storytelling), yes. Not so much when it comes to the Kafkaesque financing it required.
Here’s what it took to build, quoted from the story.
A gift from the Sirus Fund, a foundation, allowed Broadway Housing Communities to acquire the site. Sugar Hill needed 14 other funding sources from federal, state, and local governments as well as several banks deploying Federal New Market tax credits. Each contributor operates with different criteria and on different cycles, requiring an elaborate and expensive syndication process to reconcile. The education and museum programs also added to construction, financing, and regulatory complexity. Some nine city agencies will have signed off on the project before it can fully operate.
This Byzantine process is one reason why the total project cost for the 191,000 square-foot building was $89 million, only $59 million of it for construction.
Tax Breaks for Affluent; Subprime for the Rest
By contrast, a market-rate building might tap three or four sources of funding, often fewer. Think about going to 15 sources to cobble together a mortgage. How many houses do you think would be built under those circumstances? How will Mayor de Blasio reach his goal of 200,000 affordable units? With such a tortured funding system, common in the development of housing serving low incomes, I don’t see how.
The housing crisis in cities like New York is exacerbated by tax breaks that are quite expensive to the federal government (mortgage interest, property taxes, and an assortment of others) that benefit the most affluent 20 percent. Few people with stable incomes near median income can buy in many markets even if they can make the payments. They have to have perfect credit and often must put down 20 percent. With no income mobility today, and no interest on savings, this goal is almost impossible to meet, even assuming an appropriately priced unit can be found.
Of course, inevitably, subprime is back in some markets. This is essentially a fraud on lower-income people. Even one-quarter point in interest is meaningful at the lower end of the income scale, and lower-cost neighborhoods tend to experience slower appreciation, which means subprime mortgages wipe out the alleged wealth effect of owning. And many low-income neighborhoods see values declining (see Ferguson, Mo.), which destroys hard-won wealth.
In vibrant economies like New York, renting, too, is out of reach for the non-affluent.
Improving affordability is far from impossible. The wasteful rules and funding impediments can all be addressed. But we’ve got to demand it, and hold elected officials feet to the fire. This means funding them straightforwardly rather than lamenting a “poor door.”