Last week, New York City Comptroller Mark Levine announced a plan to direct $4 billion of the city’s roughly $320 billion in pension assets to affordable housing development, more than doubling the city’s pension-fund investment in this area. The money will go toward office conversions and building and preserving affordable housing.
“Solving this crisis takes action on all fronts,” Levine said. “We’ve advanced critical zoning changes, but without financing, housing doesn’t get built. The NYC Housing Investment Initiative is about closing that gap, delivering the homes New Yorkers need, and making sound investments for the New York City retirement systems.”
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The initiative constitutes poor risk management. As comptroller, Levine is tasked with investing pension funds prudently to ensure that benefits are paid. If the assets fall short, taxpayers bear the burden since pension benefits are guaranteed. Investing in local real estate further exposes the funds to the local economy. If New York City faces a downturn, real-estate investment will decline in value as the job market weakens and tax revenue shrinks. Better risk management would involve more diversification, not doubling down on the city economy.
Levine’s Housing Investment Initiative is not just poor risk management; it is also misguided and ill-timed. After the Housing Stability and Tenant Protection Act of 2019 devastated the value of affordable housing, investments with real-estate firms Related Companies and Hudson Companies declined by 69 percent. Why inflict more damage? If these regulations continue in their current form, the affordable housing sector of the real-estate market has poor prospects for profitability, let alone competitive returns. The outlook will only worsen if the Rent Guidelines Board approves Mayor Zohran Mamdani’s promise to freeze rents. He recently placed six sympathetic appointees on that board to make it happen.
Landlords of rent-stabilized housing are already struggling. A rent freeze would push more of them into bankruptcy, devaluing mortgages that the city would buy and further eroding the profitability of affordable housing investments. Even the New York Times concedes that market-rate investors shy away from affordable housing because the returns are so low.
The timing of this initiative is even worse with the “fix tier six” bill about to go before the state legislature. Union workers are pressing to reduce the retirement age to 55 and eliminate pension contributions for state and city workers hired after 2012. This would blow an even bigger hole in pension funds, already far more underfunded than their unrealistic accounting assumptions reveal.
New York City’s pensions don’t have a dime to spare. Doubling investment in a money-losing asset class, especially as funding ratios are likely to deteriorate, would be a clear breach of Levine’s fiduciary duty. While hundreds of billions in pension assets may tempt policymakers as a source of capital for housing projects the private sector avoids, Levine’s responsibility is to safeguard the financial interests of beneficiaries. That mandate does not include subsidizing housing for New Yorkers at below-market returns.
The city’s housing crisis stems largely from rent-stabilization rules and the growing prospect of a rent freeze. Residents already bear the cost of these policies through a higher cost of living. Tapping pension assets to close the gap would only shift the burden forward—into future tax hikes.