Gentrification Housing Affordability and Economic Inequality Professor Richard

Gentrification, Housing Affordability and Economic Inequality Professor Richard Froehlich Columbia University Chief Operating Officer and General Counsel NYC Housing Development Corporation September 2016

Contents ü What is Gentrification? ü Causes and Effects ü Displacement ü Defining Affordability ü Economic Challenges and Trends ü Broader Issues of Income Disparity ü Policy Tools for Affordable Housing ü Case Studies 2

Different Messages • • Mayor Bloomberg early in his first term (Jan. • 2003): “If New York City is a business, it isn’t Wal-Mart—it isn’t trying to be the lowestpriced product in the market. It’s a high-end product, maybe even a luxury product. ” Nearing the end of his third term (Oct. 2013): “Somebody said that there’s not enough housing. That’s a good sign, ” Bloomberg said. • Adding, “In cities, if you want to have lots of vacancies where everybody could easily find a place, you don’t have a good economy. ” Mayor De Blasio in his State of the City Address (Feb. 2014) offers a different approach: “Because the truth is, the state of our city, as we find it today, is a Tale of Two Cities – with an inequality gap that fundamentally threatens our future. It must not, and will not, be ignored by your city government. ” He adds specifically on housing: “We will lift the floor for New Yorkers crushed by skyrocketing rents…by requiring developers to build affordable homes for everyday people rather than simply multi-million dollar condos for the most fortunate among us. ” 3

Gentrification o What is gentrification? o The process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents o In a community undergoing gentrification, the average income generally increases and average family size generally decreases o Why does gentrification matter? Is gentrification good or bad? o Sometimes, public policies aimed at development encourage gentrification if there are no set-asides o Market demand will increase in improving neighborhoods 4

Cause Begins with Growth o With more than half of the world's population–over 3 billion people– now living in cities, urban areas face more challenges than ever before. o Growing cities, like NYC, are faced with increased demand for housing due to larger populations. The economics of that demand is obvious; putting pressure on rents irrespective of stagnant income. o New York has experienced cycles of growth, dispersion and disinvestment followed by renewed growth. o New York’s population hovered near 8 million from 1950 -1970 but had dropped to 7 million by 1980. Since then, it has grown dramatically from that nadir to a high of 8. 55 million people today. 5

Cause Begins with Growth o There are multiple causes of gentrification including: ü Increased housing demand ü Lack of housing supply ü Changing attitudes, lifestyles, and demographic trends ü Potential residents seek out the new “Hot” areas ü Job growth and the search for economic opportunities ü Spillover effects from wealthy neighborhoods, etc… o A combination of these factors cause neighborhoods to become more attractive to new population groups with higher incomes 6

Effects of Gentrification o Why does gentrification elicit such visceral responses? o Does gentrification necessitate displacement? o Is it worth trying to reframe the nomenclature? o What are the favorable and unfavorable dimensions of gentrification, for whom, when and why? o Potential Benefits: Renewed housing investment, blight elimination, decreased crime, improved retail services, revived tax base, a community with the power to demand better public services, etc… 7

Fears and Concerns o Gentrification is a catchword for neighborhood change o Implied change: Mostly economic, racial, and the fear of displacement o Displacement—actual, potential, indirect? o Fear of the Other o Anger from people who have had to accept poor services, weak schools, high crime, government inattention, sub-par retail amenities, and may not receive the benefits of gentrification o Spike Lee, famous movie director, writer and actor complained about the influx of white families into Fort Greene in Brooklyn: o Part of what he said: "Why does it take an influx of white New Yorkers in the South Bronx, in Harlem, in Bed Stuy, in Crown Heights, for the facilities to get better? " 8

Displacement o Is all new development good? o Public policies aimed at new development may trigger rising market rents in a neighborhood, causing existing, lower-income families to relocate because they can no longer afford to pay market rents or increased property taxes. o “The term "displacement" has been used to cover a variety of neighborhood phenomena. Unfortunately, the indistinct meanings attached to it muddle policy discussions and may even contribute to stoking community fears of gentrification. ” (Freeman and Braconi, 2002) o How to measure displacement? Hint: It is extremely difficult! o How do we keep neighborhoods affordable and prevent displacement? o First step, define affordability… 9

Defining Affordability o How do we define affordability? o The generally accepted definition of affordability is for a household to pay no more than 30 percent of its annual income on housing. o According to the U. S. Department of Housing and Urban Development, an estimated 12 million renter and homeowner households now pay more than 50 percent of their annual incomes for housing o Nearly 95 million Americans (35% of U. S. households) have a housing affordability problem o There are nine million low income renter households with only 6. 2 million affordable units o Supply of affordable multifamily housing may decrease by approximately 100, 000 units per year due to obsolescence or shift to market-rate status 10

Defining Affordability Source: 2011 Housing and Vacancy Survey (U. S. Census) and HPD Housing Policy Research & Program Evaluation 11

High Rent Burden US Cost-Burdened Households 35, 000 30, 000 26% 25, 000 20, 000 Cost-Burdened Renters Paying Greater than 30% of Income for Housing 20% 15, 000 49% 10, 000 41% 5, 000 Severely-Cost-Burdened Renters Paying Greater than 50% of Income for Housing 0 2001 2014 * In addition to a 9% decline in renters’ incomes in the US from 2001 to 2014, the percent of cost-burdened renters in the US has risen from 41% to 49% with severely-cost-burdened renters up from 20% to 26%. *Source: Joint Center for Housing Studies for Harvard University – America’s Rental Housing (12/9/15) Link: http: //www. jchs. harvard. edu/record-number-renter-households-face-severe-affordability-problems 12

Defining Affordability o Depth of Affordability – Affordable to whom? o Based on income qualifications of tenants o Length of Affordability – When will it be lost? o Based on the number of years a unit remains income restricted o Location – Where has housing been built? o Location of affordable developments and concentration affordable areas o Household Size – Housing for what size? o Based on the number of units and unit sizes. Studios versus 3 -4 bedrooms o Community Impact – How to build stronger neighborhoods? o The value brought to neighborhoods beyond housing (commercial, community and other mixed-uses) Source: ANHD Real Affordability (2013) 13

Economic Challenges and Trends o Nations around the world face serious economic challenges. Governments have taken on too much debt and public funding is limited in the United States, the European Union, and elsewhere o Future demographic trends are likely to exacerbate economic challenges, driven by plummeting birth rates and a rising elderly population that is promised expensive services and care o Lack of housing affordability is a leading cause of homelessness o Lack of housing affordability causes or aggravates poverty o Those who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food and transportation. Source: The Bipartisan Policy Center (2012) 14

Economic Challenges and Trends 63% of renter households have low incomes (< 80% AMI) Source: American Community Survey and HPD Housing Policy Research & Program Evaluation 15

Economic Inequality o In December 2013, President Obama gave a speech on economic mobility, in which he called income inequality and lack of upward mobility “the defining challenge of our time. ” o Yale professor and economist Robert J. Shiller said economic inequality in the United States and other countries is "the most important problem that we are facing now today. " o There is an on-going shift in urban geography, in which concentrations of extreme advantage and disadvantage are replacing neighborhoods that were once overwhelmingly middle class o Disturbingly, crime rates continue to fall in most areas, while at the same time pockets of low-income areas are experiencing violence at an all-time highs 16

Economic Challenges and Trends 80% of low income renters pay more than 30% of their income on rent Source: New York City Housing and Vacancy Survey and HPD Housing Policy Research & Program Evaluation 17

Income Disparity Median household income has not kept pace with rent increases since 2008 Source: American Community Survey and HPD Housing Policy Research & Program Evaluation 18

Economic Inequality Source: Credit Suisse Research Institute, Global Wealth Report, October 2010. - See more at: http: //inequality. org/global-inequality/#sthash. 1 At 1 MEm. H. dpuf 19

Economic Inequality 20

Economic Inequality in NYC • New York City has the highest income disparity in the US. • Manhattan’s income disparity for the median top 20% ($390, 000) and low 20% ($9, 630) is 40 x. The top 5% come in at $800, 000. – The New York Times recently noted that: “In a breakdown of New York City neighborhoods, the biggest income gap is in Morningside Heights-Hamilton Heights, Manhattan. The median household income for the area is $207, 053 for those in the highest one-fifth of the population compared with $6, 073 for those in the lowest one-fifth. ” – This neighborhood includes Columbia University and borders on one of the case study areas that we will review. – It also demonstrates that housing for low income people often borders housing for much wealthier people. Source: American Community Survey, Fiscal Policy Institute, “Pulling Apart , , , ”; and New York Times, “Income Disparity is Greatest in: New York, Census Finds”, 10/27/2011 21

Policy Tools o Most mainstream observers agree that community improvement is a good thing, but that municipal policies should seek to mitigate secondary displacement. (Freeman and Braconi, 2002) o How can government invest in neighborhoods without creating displacement? Demand-Side ü Help low- or moderate-income households pay for units that they select in their local housing market ü Primary federal tools Section 8 vouchers (tenant-based) & Section 8 contracts (project-based, subsidy to landlord) Supply-Side ü Lower the cost of creating and maintaining new housing units so that they are affordable to low- or moderate-income households ü Primary federal tools Public Housing Authorities (“PHA’s”), Low-Income Housing Tax Credit program (“LIHTC”), & Tax-Exempt Bonds 22

Policy Tools o Role of Inclusionary and affordable housing programs are efforts to increase the availability of low and moderate income housing. o Channel growth to include affordable options o Use disposition of land or direct subsidies to offset market changes to ensure a level of affordability o Consider increases in density or transfer of development rights as a way to increase affordability without affecting the City’s budget o Harness changes planned or ongoing in neighborhoods for benefit of both current and future residents • Think ahead, develop tools before you need them 23

Tax Policy o High real estate taxes in NYC can encourage developers to seek tax abatements that either require affordability, stabilization or income targeting for some or all units. o Government can address the maxim that taxes rise in conjunction with increased property values to preserve stability. o Localities can provide tax abatements to long-term low income homeowners so that they will not be displaced in communities with rising home values. o Other programs can be used to reduce tax burdens on low income homeowners generally. o Address other aspects of income disparity by encouraging higher wages through tax incentives for businesses hiring local workers o Increase economic opportunity in low income neighborhoods with job training and directing certain tax benefits and government-owned land disposition 24

Rent Regulation Rules o The Basics of Rent Stabilization in NYC: • Price controls were put in during WWII and then extended • Rent increases are approved by the Rent Guidelines Board for one and two-year lease renewals based on a survey of operating costs • Control over this program resides with the State legislature which gives landlords more lobbying power because statute has to be reauthorized • Applies to units built before 1974 and newer units that have received government subsidy or tax abatements • Two kinds of decontrol (return to market) o Vacancy decontrol if the monthly rent is above $2, 700 after a stabilized tenant leaves o Luxury Decontrol when income of residents is above $200, 000 for two years and rent exceeds $2, 700/month 25

Roles of Rent Regulation Positives • Rent regulation plays an important role to stabilize neighborhoods and prevent rapid displacement of low and moderate income people particularly in improving neighborhoods • Stable, diverse neighborhoods are attractive and positive for the city • Without rent regulation there would be swift demographic changes that would cause many current residents to relocate Negatives • • Disincentive to invest in upkeep Reduces creation of new housing Not a means-based subsidy People who have a good deal never leave and often are larger consumers of housing • Market rate rents are very high because of scarcity and demand • Provides a deep subsidy to those living in high cost neighborhoods while having little effect in lowrent areas 26

2011 Legislative Changes and the Stabilized Stock Estimated Loss (2008 through 2019)* Source: DHCR Apartment Registrations (1993 -2008) and HPD Housing Policy Research & Program Evaluation. *The number of units estimated to decontrol and NHMP additions are based on HPD projections. 27

NYC Housing Emergency Since 1974, NYC has had a net rental vacancy rate of less than 5%, the legal definition of a housing emergency. Source: U. S. Census Bureau and HPD Housing Policy Research & Program Evaluation. See 2011 Housing and Vacancy Survey Initial Findings, Table 7 The vacancy rate is calculated by dividing vacant available for rent units that are not dilapidated by the sum of vacant available for rent units that are not dilapidated plus renter-occupied units (dilapidated and not dilapidated). 28

NYC Subsidized Housing Stock: ~450, 000 households 450, 000 Units Financed Under NHMP Households Receiving Other Housing Assistance Number of Renter Households 400, 000 Households Receiving Voucher 350, 000 Households in Public Housing 300, 000 250, 000 200, 000 150, 000 100, 000 50, 000 0 <40% 40 -80% 81 -120% 121 -170% 171 -200% Income Target (% HUD Income Limits) Source: 2011 Housing and Vacancy Survey (U. S. Census) and HPD Housing Policy Research & Program Evaluation 29

NHMP Units Financed FY 04 -FY 12 Source: HPD Performance Analysis Group. Data as of December 31, 2011 (including HDC, HPD, MAP, Extended Affordability, and Down payment Assistance) 30

Housing Trade-Offs Despite the fact that housing conditions are the best on record, many households face trade-offs between cost (left) and quality (right). Source: U. S. Census Bureau and HPD Housing Policy Research & Program Evaluation 31

Case Studies: 3 Places Along the Spectrum o Households seeking affordable housing make trade-offs among housing cost, housing quality, and neighborhood location. This is true in both the private market and in affordable housing o Different types of households seek housing in certain areas, suggesting that we need to produce a wide range of sites in different neighborhoods to accommodate differential demand ü Chelsea Gentrified. Once a mostly low income neighborhood that saw large-scale urban renewal in the 60 s but is now a mostly affluent neighborhood ü Harlem Gentrifying. Badly decaying during the 60 s and 70 s but has revitalized with major influx of government spending. But long-term residents fear displacement as new residents follow improvements and prices continue to rise ü South Bronx Rebuilding/Stabilizing. The most decimated region in the City during the 70 s has now been mostly re-built but as the home of the larges portion of low income residents in NYC greater affordability is needed 32

Chelsea Gentrified 33

Chelsea Gentrified o Chelsea has become one of the priciest neighborhoods in NYC. o New flats are sold for $2 M to $15 M (median sales price is $1. 3 M) o Rents in doorman buildings range from $3, 000 for studios to $7, 000 for 2 br apartments but the median rent is $2, 500 per month o New attractions like the High Line Park, Chelsea Piers, Chelsea Market, numerous art galleries, hip restaurants and the Hudson River Park all draw tourists and affluent to the area 34

Chelsea Gentrified o Gentrified does not mean that there is no affordable housing o Public housing and existing affordable housing have been preserved. o In addition, new market rate housing has been built with 20% set asides for people making 4050% of area median income o Rent restrictions cover 40% of the units protect current tenants but those units could become market rate over time 35

Chelsea Gentrified o This map demonstrates the government supported investment in Chelsea and areas directly north of Chelsea over the last 15 years. o Most of the investment is for tax exempt bonds, inclusionary zoning bonuses and tax abatements. o The high cost of City property taxes encourages developers to build housing with at least some affordable units (usually 20%) o There has been a wide dispersion of projects built in this area but there are few remaining undeveloped plots of land other than that surrounding Hudson Yards (recently re-zoned). 36

Harlem Gentrifying 37

Harlem Gentrifying o Significant government investment preceded the changes o Empowerment Zone created under US special law in 1995 o Population increasing in step with City growth but is becoming more wealthy and less reliant on subsidies and assistance o Commercial development led by public subsidies has catalyzed private investment along major residential corridors o Economic activity has led to job growth and more retail choice o Highly impacted by credit crisis o Land values plummeted and several large developments were foreclosed as owners’ rosy assumptions were dashed o Bubble may be re-inflating, home prices now at a record high but still a value in comparison to NYC median prices 38

Harlem Gentrifying o Rents are increasing for market rate units to $2, 000 t 0 $4, 500 but the median rent is approximately $1, 500 o Home ownership is rising over the last 10 years (from 6% to 15%) and is more expensive (up to $600 k from $250 k) o But there are large amounts of affordable housing from prior initiatives that have been preserved o NYCHA, ML, Federally subsidized housing stock are all very important sources and continue to provide long term affordability. Almost half of all rental units are in this category 39

Harlem Results Source: HPD Photo Archive 40

Harlem Gentrifying o NYC took ownership of the majority of all housing in Harlem in the 80 s o Almost all previously City-held housing and land in Harlem (other than public housing has been sold to either existing residents, developers or not-for=profits o This chart shows the enormous investment by the City agencies in this area during the last 12 years. o Most of the investment is meant to provide affordability at lower rent levels than in Chelsea. o There are fewer 80/20 market rate developments and market rents are much lower than in Chelsea 41

Harlem Results Source: HPD Photo Archive 42

South Bronx Stabilizing 43

South Bronx Stabilizing o The Bronx is NYC’s poorest borough o Median income is $31, 000/household ($23, 000 less than NYC average). o The Bronx experienced the greatest drop in population in the City during the 1970 s (over 20%) and has not fully recovered but has grown close to peak o Bronx Community Boards 1 and 3 lost half of their population during the 70 s o The Bronx has the highest percentage of public housing, rent regulated and subsidized housing in NYC and the lowest percentage of home ownership. o The poorest area in NYC is the congressional district of Jose Serrano (comprising most of Bronx CB 1 and CB 3) and it is the poorest district in the US with more than 38% of the population living below the poverty line in 2010. o Even with the large government investment in the Bronx, the high poverty leads to the highest rent burdens in NYC coupled with the lowest average rents in NYC 44

South Bronx Stabilizing o The South Bronx has the largest percentage of rent regulated units in the City but that does not mitigate the housing affordability pressure on low income residents. o Rents are increasing for market rate units ranging to $1, 000 to $2, 500 but the median rent is approximately $1, 100 o Home ownership percentage has stayed steady as the supply of rental housing has risen from the City’s affordable housing programs. o A high concentration of affordable housing from prior initiatives that have been preserved 45

South Bronx Stabilizing 46

South Bronx Stabilizing o NYC invested more in South Bronx housing over the last 12 years than any other region of the City, building or preserving almost 55, 000 units of affordable housing. Increased supply has coincided with increased demand o NYC owned more development sites in the South Bronx than in the rest of the City. Overall cheaper land prices makes it easier to fund affordable housing more inexpensively o Both the average rents and rent burden have increased over the last 10 years as income growth has lagged rent increases o Housing investment has been mostly targeted to create and preserve units at 60% of the City’s average median income (much higher than the Bronx median income) and could be seen as a gentrifying force o Other efforts have been used to bring in more middle income workers into the Bronx by targeting affordability at 80% of AMI, creating greater income diversity and stronger retail markets. o Attempting to counter prior programs that concentrated poverty in the Bronx. 47

South Bronx Results Melrose Avenue, The Bronx (1989) Source: HPD Photo Archive 48

South Bronx Results Melrose Avenue, The Bronx (2005) Source: HPD Photo Archive 49

South Bronx Results 2241 Webster Avenue, The Bronx (2004 to 2005) Source: HPD Photo Archive 50

South Bronx Results East 148 th Street, The Bronx (2006) Source: HPD Photo Archive 51

South Bronx Results East 148 th Street, The Bronx (2010) 190 -unit Formerly Homeless/Special Needs Total Development Costs: $43, 275, 653 Source: HPD Photo Archive Partners: ØNYCHPD (HOME and HOPWA) ØBronx Borough President’s Office ØNYS Housing Finance Agency ØBank of America & JP Morgan ØNYS Homeless Housing Assistance ØFHLB Affordable Housing ØCommon Ground 52

Data from individuals seeking housing across NYC: Preferences: 50% 45% 40% 35% 30% 25% Chelsea 20% Central Harlem 15% South Bronx 10% 5% 0% Within Community Applicant Disability Municipal Employee Source: HPD Housing Policy Research & Program Evaluation 53

Data from individuals seeking housing across NYC: Ever lived in public housing? 35% 31% 30% 33% 25% 20% 15% 18% 10% 5% 0% Chelsea Central Harlem Source: HPD Housing Policy Research & Program Evaluation South Bronx 54

Data from individuals seeking housing across NYC: Paying > 30% of income toward rent? 60% 50% 49% 54% 40% 30% 20% 16% 0% Chelsea Central Harlem Source: HPD Housing Policy Research & Program Evaluation South Bronx 55

Resources • http: //www. nyc. gov/html/hpd/html/home. shtml • http: //furmancenter. org/thestoop/entry/a-truly-affordable-nyc-apartment-falling-homeownershiprates-reclaiming-gen • http: //furmancenter. org/thestoop/entry/gentrification-a-good-thing-de-blasios-ambitious-housingplan-metro-north-c • http: //www. urbancentre. utoronto. ca/pdfs/researchbulletins/CUCSRB 31 -Newman. Wyly. pdf • http: //furmancenter. org/thestoop/c/housing-starts • http: //www 2. maxwell. syr. edu/plegal/save 2/asherwq 1. html • http: //depthome. brooklyn. cuny. edu/sociology/brooklynlinks. html • http: //furmancenter. org/files/publications/Impactofsubsidizedhousingcombined 0602_001. pdf • http: //furmancenter. org/research/sonychan • http: //www. manhattan-institute. org/email/crd_newsletter 02 -06. html • http: //fiscalpolicy. org/wp-content/uploads/2012/11/FPI-Pulling-Apart-Nov-15 -20121. pdf • http: //www. demographia. com/db-sbrx-txt. htm 56