Suggestions for Hochul's "Pro Housing Community Program"

NY Governor Kathy Hochul failed to pass her Housing Compact last year. Instead, she committed to an incentive-only program with $650m in funding. The media has yet to cover this initiative much because it hasn't incentivized too many townships, villages, or cities to take advantage of it. This incentive program was Hochul's response to the gutting of her Housing Compact plan, which was supposed to redirect the course of the NY state housing crisis. It's significant to know about. Today, I will elaborate on this program and explain how private actors can play a role in securing state funds for housing projects to benefit their housing aims.  

What are we talking about here?

Hochul's Housing Compact attempted to force locales in NYS to increase their housing stocks by 1% annually. If they failed to do so, they would lose some of their abilities to decide which housing projects to approve or deny. The ability to build with fewer restrictions would have offered private developers some leverage to get projects approved, providing locales with clear pathways to hold on to their executive rights over housing decisions.

Everyone hated this. "Local control, not Hochul control," local officials chanted.

Hochul decided to turn her idea on its head. Instead of threatening locales with penalties (that would likely have led to more housing), she offered jurisdictions rewards for building more housing. The idea mostly stayed the same. A locality demonstrating that they have grown their housing stock by 1%/0.33% yearly or 3%/1% in the last three years in downstate/upstate NY can be certified as a "Pro-Housing Community."

What does that mean?

Communities that obtain the designation would receive preference when applying for public funds for real estate development projects. Public funds include non-profit groups focused on infrastructure projects, revitalizing downtown areas, or committing to improving public transportation. To be clear, these groups are separate from multifamily or housing construction. With this incentive, Hochul encourages locales to commit to growing their housing alongside other community growth areas. Elected officials must understand and get comfortable with incentive mechanisms as vectors for housing growth. Still, Hochul's ideas do not address NYC specifically, where the bulk of the housing gets built; they do not allow housing developers to obtain similar gold star designations; and they don't go far enough in moving the needle on Hochul's stated aims.  

In reverse order:

1.       Pro Housing Community isn't doing enough for housing production

Pairing funding for community projects with housing growth is a good idea. Still, it would have been interesting to see this program apply specific benefits to the certified communities. It could be compelling to offer those localities tax breaks, the ability to bypass lengthy environmental reviews or provide them cheaper financing from state programs for certified localities.

2.       Developer certifications

It would be compelling to offer incentives to private actors. Housing developers in NY could submit their historical track records. Those who have built a minimum amount of housing units (maybe 50, maybe 200) in the last three years, and those whose projects generally add to the housing unit count and don't leave it neutral or reduce it (like condo developments do), get some designation. That designation can be taken to vendors and key stakeholders in NYC multifamily to achieve rebates on services rendered, obtain preferred lending terms, or receive quicker greenlights through community review processes. Informal relationships already exist between prominent private players and their bureaucratic handlers. Yet, as many as 1522 buildings, or 32.9% of housing units built in NYC from 2010-20120, contain fewer than ten apartments, according to research by the Furman Center. Boutique developers play an essential role in building housing in NYC. I would fathom they do not have those crucial governmental relationships. Changing that could look like this.

NY state could launch a partnership development team to a) work with lawmakers to develop small incentive packages and b) build relationships with developers and communicate why those incentives are worth the certification process.

What Hochul gets right with her current thinking is that the more communities certify themselves, the more complete the housing picture becomes. The easier it is to diagnose issues and prescribe solutions. Here's the current NY state housing dashboard.

3.       NYC-specific certification

It is a mistake to overlook NYC as part of this framework of incentives. Though NYC contributes more housing to the state than any other county, none of the public funding groups in Hochul's executive order serve NYC. There are 59 community districts in NYC. Most of them haven't grown their housing stock by 1% annually; they are colored in red below. Those districts that have exceeded the 1% mark are colored grey. If Hochul's goal is to bolster housing production, and we focus on only that for a moment, grey areas should stay as they are. Red areas, where net housing additions are too low, should get designations offering more rental housing project incentives. Affordable housing advocates usually deride The Upper East Side for its lack of contribution to the city-wide housing supply. Let's use it as an example. Colored red, the area has not grown its rental housing stock significantly since 2011. Developers often vacate buildings and do condo developments because rental revenues are too low to justify the high prices of buying land and building anything short of luxury. Increasing FAR levels can make rental projects work better. In other words, raise the total amount of possible revenue so that the payback period on the project's costs is smaller and the cash-on-cash returns sweeter. Or you could offer rebates on the development of those projects. Or you could exempt those projects from using union labor. Hochul and legislators should explore these ideas further. 

Having data on housing production is what Hochul is striving towards. NYC benefits from an organized data set of permit issuances and housing units delivered. Data can work hand in hand with intelligent policy to drive housing production. NYC accounts for an overwhelming majority of housing production in NYS. To make a meaningful dent in the affordable housing crisis is to make an impact in building more in NYC.

Note: Districts in red grew their housing stock by less than 3% in the trailing three years. Those in grey exceeded 3% housing growth. Source: Crain’s NY Business

Sources: Pro-Housing Community Program,  The Real Deal