Constrained by local budgetary and economic conditions, inflation, and labor shortages, New York City is evolving a spending plan for affordable housing that’s appropriate for the current environment. A new Manhattan Institute report includes a chapter looking at how this plan sets spending priorities and fits in to a broader, more effective policy vision.
In Fiscal Year (FY) 2014, the last budget adopted by Mayor Michael Bloomberg, New York City spent $428 million on capital expenditures for affordable housing. (City fiscal years begin on July 1 of the prior calendar year. Capital expenditures, mostly financed with long-term municipal bonds, are for improvements with a long life, like a residential building). Bloomberg’s successor, Bill de Blasio, wanted to spend much more. Buoyed by an economic boom and rock-bottom borrowing costs, housing capital spending peaked at $1.7 billion in FY 2019. After that, spending started trending down as economic headwinds emerged. By FY 2022, the last budget adopted under de Blasio’s mayoralty, housing capital spending was down to about $1 billion, still a big jump from Bloomberg’s time.
De Blasio’s spending binge bought a big increase in the production and preservation of affordable housing, but more recently, these efforts have scaled back, by necessity. The city faces high borrowing costs and rising debt service, as a percentage of tax revenue. Inflation is eroding the real value of capital budget allocations, while a chronic inability to fill vital staff positions is diminishing the city’s capacity to make and fulfill ambitious plans.
We’re living in a world of austerity budgeting. The experience was a familiar one for de Blasio’s predecessors but not for de Blasio himself. City government must now make choices and avoid big promises. In 2022, its first year in office, the Eric Adams administration focused a large share of its city-funded capital expenditures for affordable housing on the preservation of existing public housing and affordable private developments. It directed new construction capital spending to long-term commitments for the construction of low-income senior and supportive housing, as well as to “100 percent affordable” family-housing developments that also benefit from federal low-income housing tax credits and tax-exempt bonds.
The Adams administration’s preliminary FY 2024 capital budget correctly resists pressure from affordable-housing advocates to expand the city’s spending commitments to highly subsidized new construction targeting the lowest-income households. Once the city has exhausted its limited supply of federal tax credits and bond authority, the per-unit cost of building more low-income housing skyrockets. Large increases in capital budget resources for new housing would also challenge both the city’s ability to stay within prudent debt limits—thus jeopardizing its superior credit rating—and its ability to fill specialized staff positions in a highly competitive employment market.
Under de Blasio, the city tried to supplement capital spending for new affordable housing with off-budget mechanisms that didn’t require more debt. The most important was a generous tax exemption for new rental apartment buildings called Section 421a, which expired in June 2022. Without a revived tax exemption—not on anyone’s agenda in Albany—the city’s ability to reverse the decline in affordable-housing starts is diminished even more. Furthermore, in the absence of a compensating tax exemption, the city’s zoning-based “inclusionary housing” programs, which mandate or encourage a mix of incomes, do not work at all.
Should New Yorkers regret these constraints? While de Blasio’s affordable-housing spending benefited thousands of low-income households, he failed to increase overall housing construction even as the economy added hundreds of thousands of jobs. With a strong post-pandemic employment rebound, the demand from people seeking housing in New York City is as strong as ever, inventories of apartments for rent are tight, and rents are at record highs.
A plan providing a path to greater housing production in total, and not just government-subsidized affordable housing, would be far more effective in alleviating the city’s chronic supply shortage. Adams has appropriately set an ambitious goal of producing 500,000 new housing units over a decade, targeting housing demand at all income levels.
While keeping its affordable-housing spending within effective limits, the administration embarked on ambitious zoning changes intended to grow the city’s housing stock substantially without needing additional city capital funding. To reconcile its need for housing growth with budget prudence, the city needs to build a political coalition not only for the changes that it is considering but also for a more aggressive set of reforms that I discussed in a recent report. Additionally, the city needs support from the state legislature on multiple priorities included in Governor Kathy Hochul’s proposed “New York Housing Compact.” Unfortunately, those priorities won’t be addressed in 2023.
New York City is transitioning away from unrealistic expectations that a dire housing shortage can be resolved with public subsidies and zoning mandates for affordable housing in new developments. New Yorkers are discovering that the city’s ability to build more subsidized housing is limited by its financial capacity and that zoning-based inclusionary housing programs depend on costly tax incentives. Yet city and state leaders are far from reaching a consensus on a viable alternative. Holding the line on the Department of Housing Preservation and Development’s capital program is an important signal that the city needs to change course.
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