Eight Things Developers Think About De Blasio’s Rezoning Strategy

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Adi Talwar

Jackson Strong of Titan Partners, LLC at a development site in the Southwest Bronx.
Strong says the housing affordability crisis is the result of the city’s restrictive zoning code and the high cost of doing construction here.

In the rezoning conversations we cover for Zonein.org, for-profit developers are usually referred to as the bad guys. They’re the ones believed to be bribing communities with a few units of affordable housing so they can tear up blocks to build luxury mega-developments. They’re the ones threatening to walk away if Mayor de Blasio tries to make the regulations tougher. They’re the ones who make a profit building projects on public land, with taxpayer subsidies.

But developers, not so surprisingly, don’t think they’re all so bad. In fact, they usually see themselves as part of the solution to the affordability crisis—and see the protests of community residents as fear-based and contrary to society’s interests.

All developers are not alike. Beyond the obvious differences—condo verses rental, affordable verses market-rate, big-time verses startup—there are also political ones. One described himself to us as a “bleeding heart liberal” deeply concerned with the concerns of the poor, while another said the middle class shouldn’t be expected to shoulder the housing costs of low-income New Yorkers. It’s true, however, they share some fundamental understandings of how the housing market should work.

City Limits talked to nine of them, some on and some off-the-record, about how they view the mayor’s mandatory inclusionary housing policy, the city’s neighborhood rezoning strategy, and the crisis of affordability. Whether to take these eight ideas as insight into the enemy, or as a valuable perspective from experts of the housing world, is up to you.

1. Upzoning is the only way to solve the affordability crisis

In the words of Seth Pinsky of RXR Realty, “It can all be boiled down to one issue, and it’s that our supply doesn’t match our demand.”

Every developer we spoke with blamed the affordability crisis on the mismatch between the city’s increasing population, on the one hand, and a lack of sufficient housing on the other, which they said was in great part due to an outdated zoning code that limits density in many areas. They thought de Blasio’s efforts to rezone neighborhoods made sense, and some wanted to see him go farther and upzone more centrally-located neighborhoods in Manhattan and Brooklyn.

In fact, one developer and recent State Assembly candidate, Jackson Strong of Titan Partners LLC, thought that the entire 1961 zoning code should be scrapped and that the city should revert to the prior 1916 zoning code, which established districts for different uses in some areas, as well as height and bulk requirements, but was not as comprehensive (or restrictive) as the 1961 resolution. An across-the-board densification would also prevent the kind of neighborhood-focused speculation that leads to rising rents, he said.

Check out what others think of the logic of supply and demand here.

2. Some of us acknowledge upzonings can exacerbate displacement but in the end we still think they’re in everyone’s interest

Multiple developers said they recognized rezonings could exacerbate displacement in a neighborhood, either by incentivizing property owners to demolish their buildings, or by catalyzing a revitalization that leads higher-income people to move to the neighborhood and rents to rise. Yet they argued that not rezoning would simply make the affordability crisis worse. Some also mentioned that when the city undertakes a rezoning initiative, it often brings investments to an area, so it’s a win for the original inhabitants as well, at least for those who can keep affording to live there.

One developer emphasized the importance of thoughtful community planning as a way to ensure that a neighborhood is able to retain its cultural character during a rezoning change. Another was more blunt and said that as a result of inevitable change and city-encouraged housing growth, in the future there will no longer be the kind of low-income, ethnic neighborhoods that New Yorkers know today.

“Low-income neighborhoods, local culture, deep local pride, that stuff may be lost to some degree, and that’s a big loss,” the developer said in an e-mail to City Limits. “But in exchange, when communities become a mix of market-rate and low-income housing, we create new neighborhoods with better public health, better public schools, better access to good jobs, transit and other amenities for low-income families to benefit from. My optimistic view is that El Barrio becomes a mix of the Upper East Side and El Barrio, which means low-income households will be located in a high opportunity areas.”

Yet he said he understood the impulse of community residents to try to resist development as a way to preserve the social ties that bind neighborhoods together.

“Maybe it’s ok for it to take a generation or longer for this to happen so the impacts are minimized. But I think it’s better to plan for and react to what’s coming to make sure the neighborhood has a substantial percentage of permanent affordable housing,” he said.

Two of the nine developers we spoke to thought displacement fears were overblown. Change is inevitable, not necessarily caused by a rezoning, one argued—while the other pointed to a study conducted in the 1990s that showed low-income people left gentrifying New York City neighborhoods at a slower rate than they left non-gentrifying neighborhoods.

Read about the research that’s been done on gentrification and displacement here, though critics say those studies are now outdated.

3. It’s not like all of us are snapping up land in the potential rezoning areas.

Most of the developers did not know the full list of neighborhoods being considered for a rezoning: It turns out that not all developers are focused on acquiring land for cheap in the rezoning neighborhoods. For some, it’s not really their strategy, and it’s also just plain difficult: you have to know about the rezoning really early on in the process in order to acquire land at a good price. Already in many potentially rezoning areas, landowners and their brokers are asking for more than what many developers think the land is worth.

On the other hand, one developer said that the most successful developers certainly do follow city policies and go looking for good deals. For instance, he said that the disruption to L train service will make Bushwick and East New York a less attractive place to build now, but potentially valuable after the completion of the L train repair work, so it’s a good time to land bank in those neighborhoods.

4. We’ll definitely build in the gentrifying neighborhoods. East New York, Jerome? Maybe down the line.

Certain neighborhoods that are being considered for a rezoning are more attractive to developers than others. Neighborhoods like East Harlem, Long Island City and Gowanus allow for the kind of market-rate rents that developers say they need in order to make up for the cost of providing rent-restricted units. One developer said they think in terms of rent per square foot: a neighborhood’s rents must be between $60 to $65 per square foot for a project to make sense.

Some developers noted, however, that if land prices are astronomical, and show no sign of falling, that could also make a project unfeasible, and make it likely for other, profitable uses that don’t require below-market housing—like an office building—to outcompete housing developers in the land market.

As for neighborhoods like East New York and Jerome that have much weaker rental markets, developers said there’s not much to do but wait and see. Speculation in East New York has driven land prices above what developers say they’d be able to pay given the low market-rate rents in the area. If land prices begin to drop off a little, developers who specialize in affordable housing might then begin to construct 100 percent rent-restricted buildings using city subsidy programs. And if market rents begin to rise, we might start seeing market-rate buildings with an affordable component under MIH.

Gary Angiuli, a property owner and developer in Bay Street, Staten Island, said that 100 percent subsidized buildings might be financially feasible on Bay Street, but property owners are holding out for increases in market-rate rents so they can develop 75/25 MIH buildings, taking advantage of their prime spot on the Staten Island waterfront.

Strong, who favors an overhaul of the zoning code to generate much more housing, was critical of the neighborhoods selected for a rezoning, saying that because many of them are in areas where the rental market is weak, the city will end up subsidizing a lot of housing, wasting taxpayer money that could be used to fund other important thing like infrastructure.

5. Two things can slow down a neighborhood’s gentrification: strong community resistance and distance from the city core.

A councilmember who responds to community opposition to development proposals or a community board with an anti-density attitude can make an area less attractive to developers, a few developers told us. But the big issue that everyone cited is distance.

“I don’t think East New York will become a big destination for that ‘millennial crowd,’“ one developer says, explaining that neighborhoods like Jerome Avenue and East New York are just too far from the city core to ever become as hot as a place like Williamsburg. Rather, he expects that once market-rate development begins in that area, it will mostly cater to immigrant families and other middle-income residents.

That hypothesis will probably come as a relief to some rezoning critics, though there are of course sometimes exceptions to that rule; the luxury real-estate market in Flushing is a good example.

Developers, however, also think it would be good if outer-borough neighborhoods could be brought ‘closer’ to the city core through large city investments in transportation, such as in the creation of more subway lines and improved ferry service to all the boroughs and New Jersey. Such investments would pave the way for more widespread, medium-scale development in neighborhoods across the outer boroughs.

If the city opened up many new subway lines in the outer-boroughs, says Pinsky, “instead of having to build 100-story buildings at all of our existing subway stations, we could build 10-story buildings on our existing subway stations and on our new subway stations.”

6. We’ve got an array of feelings about the city’s mandatory inclusionary housing policy.

Many of the developers we spoke to thought the mayor’s mandatory
inclusionary housing (MIH) policy—requiring 20 to 30 percent of floor area in buildings taking advantage of a rezoning to be reserved for rent-restricted units—was a great idea, a way to ensure future development created housing affordable to low and middle-income families in revitalizing neighborhoods across the city.

Might it make development less attractive, building more expensive? Developers said that yes, MIH could slow down development, for a few reasons. A developer that might have pursued a private upzoning before might not now because the project is not as profitable.

And even if a developer is attracted by the additional density provided by a neighborhood rezoning and is wiling to build an MIH building, landowners and speculating investors are already bidding up sales prices because of the potential rezonings, and it will take time for prices to drop and developers to agree to purchase.

One developer wanted to emphasize how much more expensive the new policy is; While the old 421-a tax credit program used to require that developers make 20 percent of units rent-restricted for families making below 60 percent AMI in certain areas, de Blasio’s MIH policy (under option 1 of the program) requires 25 percent of floor area to be affordable to families making below 60 percent AMI—which the developer said is effectively 28 percent of units, an increase of not five, but eight percent.

Several of the developers also had criticisms of the mayor’s policy.

One said that the costs of providing affordable units will force developers to charge more for the unrestricted units, which he said was placing the burden of affordable housing development on the backs of middle-class homebuyers and renters (another developer disagreed with this logic, arguing that you can never charge more than what the market allows).

Pinsky says its important to ask whether the dampening of the market that he believes MIH will cause is worth the benefits the policy could produce. He also said that MIH and recent proposals of the 421-a tax credit, which is intended to accompany MIH, take a one-size-fits-all approach.

“Some projects that might need a deeper benefit don’t happen…while other projects that could have gotten away with a much lower benefit end up getting a windfall,” he says. Say a developer somehow got land for cheap and needs a smaller density bonus, or fewer years of a property tax break, to be financially viable; that project could still get the same MIH bonus or 421-a tax break as a project with higher costs in another area under the city’s policies (though it’s true that under both MIH and 421-a, there is one workforce affordability option that only projects outside of Manhattan south of 96th Street are at liberty to choose).

He also noted that MIH and 421-a don’t necessarily reach the lowest-income families, and he believes that the government should allocate its limited resources where the need is greatest—a point raised by many tenant activists too.

Strong, too, noted that the units created by MIH are not necessarily affordable to the lowest-income families, and again, that MIH is being applied in neighborhoods that will require the city to subsidize developers at the expense of taxpayers. He recommended that the city focus on boosting supply to levels that reduce competition for the existing stock, and also supply vouchers and other forms of city rental assistance for those who need it the most.

Other developers, however, were critical of demands from rezoning neighborhoods for even deeper levels of affordability. They said that this would require more city subsidy, which would mean less affordable units overall or less money for other forms of infrastructure. Some also questioned the merits of focusing affordability on the lowest income brackets and argued that the middle class also needs affordable housing.

7. If we like MIH, then we love 421-a.

Most of the developers said that it would be close to impossible to build a market -rate MIH building without the return of the 421-a tax credit. David Amirian, president of The Amirian Group, pointed to the 28 percent dip in Manhattan real estate transactions in the first half of 2016 as compared to the first half of 2015 as evidence of the impact of 421-a’s expiration (though 2015 featured an unusually high number of transactions—the result of developers trying to launch projects before the expiration of the tax credit).

And as some developers point out, though the mayor has been able to continue meeting his affordability goals without 421-a this past year, this is largely due to preservation initiatives and 100 percent affordable housing that benefits from other subsidies.

But Pinsky said there were important questions to be asked about 421-a.

“As much as we need government-subsidized, rent-regulated housing for the disadvantaged, do we need it more than schools or transit—programs that we may not be able to fund in the future thanks to the program’s tax abatements?” he asked in an e-mail. “The answer may be yes, but it is unclear how thoroughly our elected officials are actually looking at the question as they debate the merits of a renewal.”

“I point the finger at other developers, too,” says Strong, who thinks city subsidy programs like 421-a benefit developers at the expense of taxpayers, without doing enough to address the crisis of inadequate supply or reach the lowest income families. “They like the system just as it is, because they have good connections with the [Department of Housing Preservation and Development].”

8. And there’s a whole lot else the government could be doing

Beyond upzoning to promote supply, the developers had a variety of ideas about how the city could address the affordability crisis: mostly, by making development itself less costly.

Some asked for less bureaucracy and more consistent regulations, including a more efficient and effective environmental review process.

Strong said the city should reduce construction costs by reducing parking space requirements not only for affordable units, as the city has already done, but for market-rate units too. He also would love to see a push to reform New York’s accident liability laws to be made more similar to those in other states that put more onus on construction workers, make obtaining licenses easier and adopt the International Building Code. (However, one of the other developers we spoke with wanted to increase parking requirements, and a couple others said they believed construction costs were out of the city’s control.)

Another developer said the city should tackle the income side of the affordability crisis by giving tax credits to corporations in expanding industries to create career-path jobs for New Yorkers. He also supported reforming zoning codes to allow smaller unit sizes, and increasing the real-estate transfer tax paid by sellers and buyers of expensive homes to fund affordable housing and infrastructure—as de Blasio’s touted Mansion Tax would do.


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