As the dust settles from the most significant rent reforms New York State has seen in decades, the affordable housing industry, in partnership with the City, must be ready to adjust to a new normal.
As I’ve mentioned before, the old rent regulation regime needed modification in order to protect tenants and maintain affordability throughout the stock. But I believe that making the laws permanent gives us a system that can’t adapt to changes in the market, rising costs, or the unique needs of communities. This includes the dramatic restrictions on the ability to raise rents to recover the costs of Major Capital Improvements (MCI) and Individual Apartment Improvements (IAI).
Given the far-reaching nature of these reforms, there is now substantial uncertainty as to how owners of rent-stabilized buildings will respond. Most importantly, we don’t yet know whether these owners will be able to make the investments needed to keep their buildings in good condition, without an ability to recoup their costs through IAIs and MCIs.
Meanwhile, with rents of rent-stabilized units essentially locked in for the long-term, the City doesn’t need to use subsidy dollars to buy/preserve affordability in the same way. If the owner of a $1,500 one-bedroom apartment (~80% AMI) can never exit rent regulation and can barely increase rents, the city doesn’t need to pay to lock in that affordability.
So where does the industry go from here? How will owners cover their costs, and allow their buildings to survive and remain habitable over the long-term? What will the impact be on nonprofit owners – will they have the capacity to manage cash-flow and fund maintenance needs when rents can barely ever increase?
These uncertain dynamics are why I’m pleased to highlight the first acquisition by a nonprofit through the City’s Neighborhood Pillars, a Program well-positioned to pivot to address the new issues of a post-rent reform world. Over the past few years, the team at CPC has worked with our long-time partners at the New York City Department of Housing Preservation and Development (HPD) as they crafted the new program. And with some minor tweaks to term sheets, HPD can now use Pillars to target subsidy dollars where they’re needed most: to help preservation owners maintain the integrity of the City’s most at-risk buildings.
Pillars was initially designed in response to the housing market that existed prior to the 2019 rent regulation changes: one that had high acquisition prices and saw speculative purchasers looking to realize higher profits by pushing out existing tenants and increasing rents. The program was meant to provide subsidy dollars to mission-focused nonprofits and preservation purchasers to help them compete with the high prices and bidding wars in the pre-rent reform world.
But now that stabilized rents are locked in and market values are likely to come down, that subsidy will likely no longer be needed to help fund high acquisition prices, and instead can go towards investments in building quality. Pillars could be a crucial program for the future of the housing stock in New York City, but the problems it was designed to address aren’t the same as the problems that might come in the years ahead; namely, that owners no longer have the incentive (or possibly the ability) to invest in the quality of their buildings.
With some owners already expressing concern that rent regulations will severely limit their ability to generate capital to address crucial maintenance issues, it is as important as ever to get properties into the hands of preservation purchasers who won’t let deferred maintenance and capital needs pile up over time.
Pillars could be an answer to solving this problem. The City has put the program on hold as the market responds to rent reforms, but I believe it is more important than ever to restart and bolster the program to protect the vitality of New York’s building stock for the long-term. A reinstated Pillars program, which redirects subsidy to fund capital needs instead of high acquisition prices, will position the City to preempt the impacts of financial distress, and ultimately address the building quality concerns likely to impact the stock under the new rent regulation regime.
The Pillars acquisition CPC just financed is a prime example of the potential of the program. With down payment assistance and $10.3 million in low-cost financing originated by CPC, the Settlement Housing Fund (SHF) acquired a physically distressed, 58-unit building on Wythe Place in the Mount Eden neighborhood of the Bronx. SHF will ensure that the building, a 1920s-era walkup, gets the rehabilitation it needs for all 58 units for years to come. SHF will upgrade the building’s electrical systems, install a new roof, and repair the façade and floors. As a mission-driven owner, SHF will invest in the building for the long-haul, and residents today and in the future will benefit from rent-stabilized leases, improved building quality, and other crucial tenant protections. Moving forward, without heavy competition with speculative purchasers, Pillars dollars can go even further to fund the investments which directly impact tenant quality-of-life.
Rent stabilized and naturally affordable unregulated buildings like Wythe are the backbone of our city’s housing stock, and we need to do all we can to help preserve them. The city needs a program like Pillars in place and it should do all it can to put it back in play. It gives us the resources and framework to adapt to the new housing market landscape, and can help ensure that our multifamily stock will be in good hands and in good shape for years to come.
- Explore our interactive Impact Map to find out more about Wythe Place and other CPC Projects that are making a difference in communities.
- Next City article on the Neighborhood Pillars Program