How Do You Measure The "Success" Of Affordable Housing?
/Here in Manhattan, it is an article of unshakable religious faith that conjuring “affordable housing” into existence, through some magic recipe of taxpayer subsidies and coercion, is a fundamental responsibility of government. And then you have the tiny handful of dissenters, like myself. It was way back in January 2013 that I called government-coerced “affordable housing” the “most expensive possible way to help the smallest number of people.” A few months after that (in September 2013) I officially nominated “affordable housing” in Manhattan as “the worst possible public policy.”
In the intervening seven or so years, it has only become more and more obvious that I was right. Mayor de Blasio (who took office at the start of 2014) promptly made increasing the amount of “affordable housing” a centerpiece of his policy agenda. A few tens of thousands of new such units (out of more than 3 million total housing units in New York City) have been built, with an opaque mishmash of subsidies and incentives that make it almost impossible to calculate the cost of the program to the taxpayers. Waiting lists for the “affordable” units have only lengthened during this time, while the number of unregulated housing units, known as “market rate,” has grown more slowly than demand, and therefore they have become even more expensive. And the biggest collection of “affordable” units, those of the New York City Housing Authority, have been reported in badly deteriorated condition, leading to calls for a rescue via new taxpayer expenditures of some $30 billion or more. Is anyone starting to get the picture?
The answer is no. One of our local newspapers, WestView News, has a front page article in the current issue that provides some serious insight into the mindset of the “affordable housing” advocate, Manhattan style. The article has been posted online under the headline “To Guarantee the Future You Have to Buy It.” The particular subject of the article is one of our many, many subsidized “affordable” housing projects here in Manhattan, this one known as Penn South Houses. This complex of 2,820 units is located between 8th and 9th Avenues, from 23rd to 29th Streets. At its closest point, it is just two blocks, 0.1 mile, from Penn Station, the busiest train station in the country. Here is a picture of a couple out of the dozen or so buildings, courtesy of WestView News:
This complex is what we here in New York call a “limited equity co-op.” Back in the 60s when it was built, the sponsor (a labor union) sold the apartments for deeply subsidized prices of about $7500 - $15,000 per unit, depending on the size of the unit. The deal was that when you sold, you had to sell back to the co-op for the exact amount you had bought for — no profiting by selling on the free market. The project also got a deeply-subsidized mortgage (financed by a tax-exempt bond sale by the State), and a total property tax exemption for 40 years. Let’s call this all “socialism lite.” (Indeed the sponsor, the International Lady’s Garment Workers Union, was very explicitly socialist in orientation; and many of the original occupants of this project were avowed socialists or communists.) The subsidized mortgage and tax abatement ran out around 2012- 14, whereupon the residents organized politically and got themselves (1) a $188 million federally guaranteed refi loan (courtesy of Senator Schumer) to replace the mortgage, and (2) a forty year extension of the City property tax exemption.
Today, a benchmark price for a good-size two-bedroom apartment in this neighborhood would be about $2 million. According to the WestView News piece, a recent price for a two-bedroom apartment at this complex was about $150,000, subject to the same deal that when you leave you must sell it back for exactly what you paid. To get one of these apartments, you must go through a waiting list of about 20 - 30 years.
The WestView News author is Bennett Kremen, who actually got himself one of these apartments after a 20 year wait. Kremen doesn’t tell us exactly how much he paid for his unit (presumably somewhere between the $7500 and the $150,000), but he does reveal the level of current monthly maintenance charges:
An average studio’s maintenance charge here is $430-$658 a month, for a one-bedroom apartment it’s $552-$899, and for two bedrooms it’s $830-$1,160.
Whatever (minimal) property taxes the complex currently pays would be included in this maintenance. For comparison, a benchmark property tax for an unsubsidized Manhattan $2 million condo would be about $1500 per month, $18,000 per year.
Let’s see what Kremen has to say about the experience. The short version is, “It’s great!”
The Penn South complex is wide, well-lit, well-maintained, peaceful, and surrounded by trees and shrubs and friendly people quite satisfied with where they’re living. . . . Everything’s kept in order, the trees are pruned, the heating is perfect. . . . Often, we’ve voted to keep this a limited equity co-op, not allowing it to become private in a wildly booming real estate market that could make many of us millions of dollars. When vacating our apartments, we retrieve only the equity we paid, nothing more. . . . I truly wish all in our hard-driving city could live as we do at Penn South. As I look out on my terrace at the recent newcomer to the neighborhood, Hudson Yards and all their mega expensive apartments, I thank God, my wife, and the International Ladies Garment Workers Union for this wonderfully affordable place to live in Chelsea.
In this piece, you will not find any mention of downsides, costs or tradeoffs involved in this form of “affordable” housing. To be fair to Kremen, he is at least implicitly comparing the situation of Penn South to that of the much worse situation of the New York City Housing Authority, where a fully-socialist non-ownership model gives the tenants no incentive to maintain the place, which then gradually deteriorates until suddenly a $30 billion rescue bill gets presented to the taxpayers. Even I will concede that the Penn South “socialism lite” model is better than that one.
But let’s take a more critical view of what the cost of this Penn South thing really is:
The property tax exemption for this complex is worth at least $10,000 per year per apartment, and up to $20,000 per year for larger apartments. This annual non-cash handout goes entirely to people who by definition are not poor.
Other people who must pay the additional $10,000 or $20,000 tax per year for comparable apartment also must earn cash income to pay that, and then pay tax on the cash income before they pay the property tax. That’s another subsidy of about $4000 - $8000 per year per apartment.
People who sell apartments in the private market must pay capital gains tax on the sale at a rate of about 20% federal and 11% New York State and City. Whatever you might think of the altruism of these people in agreeing to resell without personal profit, they also avoid paying these taxes, that are used to provide government services.
The article linked above reporting on the federally guaranteed mortgage loan estimates the savings to the complex at $3 million per year. That’s another $1000 per year per apartment handout that others don’t get.
Add it all up, and a fair estimate of the cost to taxpayers of this project is around $20,000 per household per year. And what exactly is the superior moral claim to the annual $20K of these people over, say, you? If every “middle-income” household (of which there are around 100 million) in the country is entitled to the $20K, we would be talking about an annual $2 trillion +/-. And that’s before we get to the cost of the “Green New Deal.”
And even that $20,000 per year per household is on the assumption that in an unsubsidized world this site would remain with the same buildings and the same number of apartments. If instead the complex was auctioned to the highest bidder and then put to it’s highest and best use — which probably would be some mix of office buildings, hotels, and high-end condos — the resulting property taxes alone would probably come to at least $50,000 per Penn South apartment, and maybe up to $100,000.
And finally, did I mention that this project is in close walking distance to Penn Station, the busiest train station in the country? The government spends additional billions to run hundreds of trains a day in and out of there, only to find a high percentage of the nearby blocks occupied by buildings that almost no one traveling into the City is going to. So those people need to get off and take the subway, when there could be hotels and office buildings right nearby. Subsidized housing is about the worst possible land use in the immediate proximity of a major transit hub.
But somehow this doesn’t seem like a subject where I’m making any progress at convincing anyone.