Perhaps Rube Goldberg Can Fix The Woes Of the New York City Housing Authority

Over the years I have returned repeatedly to the subject of the New York City Housing Authority, or NYCHA. Begun with great optimism prior to World War II, NYCHA expanded rapidly in the 1960s and 70s, until it housed around 500,000 people. The economic model was always pure unmodified socialism — the government owns everything, rents are tied to income (“to each according to his needs”), and any shortfalls in paying costs fall on the taxpayers. But after all, we will save oodles of money because there will be no profits for the evil developers. For a few of my prior posts, see here, here and here

The socialist economic model always lacked any mechanism to renew the capital investment in the buildings as they aged. After 2000, buildings were turning 30, 40 and even 50 years old. Beginning in the 2010s, NYCHA started regularly announcing large sums of money that it claimed it needed urgently for major repairs to these buildings. These numbers started at $17 billion in 2015, but escalated rapidly, first to $25 billion, and then to $32 billion in 2021. In 2023 there was a new “audit,” and suddenly the number became $78 billion. In the New York Post article at that last link, Mayor Adams is quotes as saying “[O]nly the federal government can provide the level of funding needed to overcome decades of disinvestment in the hundreds of thousands of New Yorkers who call public housing home.”

I don’t think that will happen in the Trump administration.

So at this point there is only one remotely feasible way forward for NYCHA, which is privatization in some form or another. I have repeatedly proposed the most obvious and workable route: give the buildings to the residents. No charge. I’d even be OK with a relatively slow real estate tax phase-in. Once they own the buildings, the residents can, if they wish, use their equity to borrow to make the needed improvements. But honestly, in most cases, the buildings are in such bad shape that the residents/new owners will be smarter to sell, take the money, and move somewhere else. In the case of many buildings which now find themselves in desirable neighborhoods, the residents will become millionaires. Meanwhile, the buyers in all likelihood would knock the buildings down and build something much better.

Adopting this proposal would be a huge win for both the residents and the taxpayers. Essentially, it manufactures and unlocks large amounts of wealth currently suppressed in the socialist ownership model. As long as the buildings are owned by the City, the apartments cannot be bought or sold, and have zero value. As soon as they can be traded, the apartments — or the buildings as a whole — will have values comparable to other buildings in their neighborhoods. In most Manhattan neighborhoods, that will mean values in the range of $1 - 2 million per apartment, and even substantially more in some cases.

Needless to say, this proposal is complete anathema to everyone involved, at least to the politicians, the bureaucrats, and the residents. To all of those, the starting point for any possible reform is that the existing tenants get to keep their existing economic arrangements for life without any change. That means that they don’t get to be owners. Somehow, it seems, the tenants are ready to go along with that. Maybe once you have been lulled into government dependency, any small level of economic risk in life becomes unbearable, even if you stand to become a millionaire.

And thus we get a proposal for restructuring some housing authority properties that could only have come from the mind of Rube Goldberg.

The first two NYCHA projects up for the proposed restructuring model are known as the Fulton Houses and the Chelsea-Elliott Houses. Here is an aerial view of Chelsea-Elliott:

Fulton and Chelsea-Elliott are located in the Chelsea neighborhood of Manhattan. When they were built (mostly in the 1960s), the Chelsea neighborhood, and particularly the western part of it where these projects are found, was a backwater of mostly underused warehouses that had been built to serve the port that since had moved away. But in the intervening years, Chelsea has become chic and valuable. There is lots of value here to be unlocked.

The restructuring program for Fulton and Chelsea-Elliott has been in the works for several years, and is only now getting ready to start implementation. As of this time, there has been no actual construction on any of the buildings that I am aware of. The proposal for how to proceed is laid out in this NYCHA Board Presentation document from last October. To greatly simplify, they will start by gradually moving all the residents of one building into apartments in other buildings in the complexes as they become vacant. Eventually, this first building will be completely vacant, at which point it will be demolished and replaced with a much larger building. Then residents of a couple of other buildings will get moved into this new building, and those other buildings will then be demolished and replaced with much larger buildings. The process will continue until there are new apartments for all the existing residents, plus lots of new apartments for new residents, mostly paying market rates. That last piece is where a developer gets to make some money. The whole thing is projected to take about 15 years, which sounds optimistic to me.

Oh, and according to this New York Post article from June 1, the NIMBYs in the Chelsea neighborhood are now organizing to keep the scheme from moving forward. They don’t want 15 years of construction across the street from their multi-million dollar homes. I can’t say I blame them.

Because there is no such thing here as a simple sale to the highest bidder, the “privatization” consists of bringing in a couple of well-connected developers to run the process for years on end. Those have been named via a non-competitive process called an RFP (request for proposals). The named entities are Related Companies and Essence Development. Lord knows what levels of graft were involved in their selection.

There is talk of doing something comparable at several other NYCHA locations. But because the economic model here is so complicated, and leaves a lot of locked-up value still locked-up, the potential for replicating this approach at all NYCHA projects is limited. Without real privatization or a massive bailout (that is completely unrealistic from any source), NYCHA will likely continue gradually deteriorating for the rest of my lifetime.