Affordable Housing Plan Application: Fill & Download for Free

NYC has started to try, but not necessarily to combat homelessness. We have plenty of other housing issues not the least of wish is homelessness. While I can’t comment constructively on other cities, I imagine the issues will be similar to NYC. Furthermore, NYC should make a good example as micro units would be well positioned here and we have a large homeless population. Buckle in, this will be long winded.Ultimately, your largest considerations on the matter will be cost and existing regulations. Mayor Bloomberg tried to push the micro unit concept with a pilot project at Carmel Place in Kips Bay. The open competition was won by nArchitects (we competed as well at my prior firm). This is the product below.The units are all studios with convertible furniture (by Resource Furniture).The project contains 55 units with about 40% of them set aside as affordable and they range in size from 265 SF to about 355 SF. These rent for various rates but looking online it seems the average is about $2,800/month for the market rate units. Let’s assume an average size of 300 SF, that works out to about $112/SF. That’s well above market, but that fee includes various services including WiFi, TV, housekeeping services, in-building amenities (gym, lounge, terraces) and various other events sponsored by the management agency (Ollie CoLiving).Ignoring the CoLiving concept (but we can come back to this later), the impetus for micro units is cost. The market commands a certain cost per rentable SF for housing. In NYC this number ranges from about $50/SF to $75/SF. We’ve seen what I consider a return to “tenement” living in NYC, albeit with significantly better living conditions. Many people share apartments with 1,2,3,4 or more roommates. I had a colleague in grad school sharing an apartment with 8 other roommates. So if we were to use the lower end of the spectrum and say $50/ft - a 700 SF apartment would cost about $2,916/month and might have 2 people sharing it. At 700 SF, that’s going to be a 1 bedroom or a tight 2 bedroom (you can design a fully legal 2 bedroom, 2 bath in 700 SF - I’ve done it). If it’s the former, one person will get the bedroom and the other will more than likely “flex” the living room. I’ve had coworkers dream of one day sleeping in a bedroom with a solid wall. The rent will more than likely be split accordingly with one person paying slightly more but about $1,450/month.If we cut the apartment size to 300 SF and keep all other factors the same, this apartment will rent at about $1,250/SF. Now it’s important to note that studios typically rent for more per SF than higher bedroom count units. That make sense as they cost more to build. You’re still going to have 1 kitchen, maybe 1 bathroom and more than likely the same mechanical system (maybe less ducting). So let’s increase the rent 20% to cover those costs and now you’re paying $1,500/month…for your own space.It’s important to consider the driver of these costs. Development in NYC is expensive. The average cost for residential construction under 12 stories is usually about $350/SF (hard costs / construction costs). Above 12 stories mandates a host of additional construction costs due to site safety requirements and tends to increase the cost to $450/SF. This is before soft costs (architects, engineers, consultants, etc) and financing costs (which are also a soft cost). The latter very often can make up half the soft cost depending on borrowing rates. You also have to factor land costs - which of course are also some of the most expensive in the nation. For a rental, these want to come in at about $250/ft. Depending on the location and the level of finish on the building it becomes difficult to make the numbers work when you go higher. Please keep in mind I’m an architect and these numbers vary with the market. In my experience these are fairly representative though. So now we’re in the neighborhood of $1,200-$1,300/ft and we’ve got our building in place. However, you have to consider operating costs, depreciation, capital expenditures (to maintain the building so it doesn’t fall apart around you) and taxes.Taxes can be reduced or excluded for projects that pursue Inclusionary Housing (more on this in a bit) or Affordable Housing (formerly 421A now Affordable New York). There’s other programs as well, but these are the most popular for new construction. So now with these programs we can reduce some of the developers tax burden, which reduces their operating expenses, but requires the introduction of Affordable Housing. Rents for AH units are set based on a federally calculated AMI (area median income) set by HUD and based on family size. There’s varying AMI’s starting at 30% and going as high as 165%. 130% AMI is a close approximation of market rate in most new construction, but again it depends on neighborhood. This is where we experience a large inconsistency between the way the federal government analyzes NYC and residents actually understand NYC. The Upper East Side realistically has a much different AMI than Bedstuy, Brooklyn. But HUD assigns a city wide AMI ($74,700 for a single person household and $96,100 for a 3 person household). Maximum rents are then computer based on the AMI and family size. So we can reduce the tax burden by setting aside 20%-30% of the units for affordable housing. Of course, some costs(usually operating costs) get passed on to the market units to carry the affordable ones. There’s a limit of course as the rents will have to stay within what the market will bear.Historically, developers have taken advantage of both programs where possible. Inclusionary Housing is a zoning provision that allows for an increase in density by providing affordable floor area. It was first introduced in high density districts (R10) as it was presumed the higher density would allow the market rate units to “carry” the affordable units. It was then further rolled out to medium density Inclusionary Housing Zoned districts. In these districts the city incentivized (forced) the construction of affordable floor area by reducing the base development potential (base floor area ratio FAR) for strictly market rate developments, but permitting an increased FAR (higher than the normal base) for providing affordable floor area. So if your normal base development for a district is 5.4 FAR, in an IHZ district it would be reduced to 4.2 FAR without affordable housing, but increased to 7.2 FAR with affordable housing. This created 80/20 buildings (80% market rate and 20% affordable). Inclusionary Zoning provides the ability to build a larger building but did not grant any financial relief. Developers could then pair this with the 421A and usually deliver an 80/20 or 75/25 or 70/30 building while also capitalizing on the tax breaks for financial relief.The NYC Zoning Resolution (the first in the country established in 1916) controls density by district, by block and also in terms of the maximum amount of units permitted to be developed in a building. It does this using what’s known as the density factor. This is 680SF for medium to high density districts. In other words, you take your maximum residential development potential (your lot size x your residential FAR to arrive at your maximum ZFA and then divide by the factor). Obviously, that doesn’t mean that the apartments are 680SF as that number can include common spaces. But, when developing a micro unit model we now have a problem. If I have 100,000 ZSF (zoning square feet) to work with, and apply the factor, I can build a maximum of 147 apartments. However, if I want to build a micro unit building that factor is grossly misproportional. Assuming an 85% efficiency, the same 147 units in a micro unit configuration would be approximately 52,000 SF (I rounded). So the developer would be leaving nearly 50% of the developable floor area “on the table”. They would also now only have about 50% as much floor area generating income. So we have a problem. We could pack in different uses and use up the floor area. Things like a school or office space. But they might not generate the same return that residential would have (schools pay roughly $30–$50/SF). They may also be incongruent to the proposed design of the building or the site location.We could pursue a variance to modify the density factor on a project by project basis. This would be done through the Board of Standards and Appeals (BSA). Variances are typically awarded based on hardship. In this case we have none. Our argument would be relief from the zoning code in order to construct a non complying project. Unlikely that we’ll get it. But let’s say we do. It will add upward of a year delay into the project and cost more than $250,000-$500,000 of legal and consultant fees. And that doesn’t include any “carry costs” associated with holding a site for an additional year without development. A lender would never sign up for this so the developer has to carry all of these expenses out of their own pocket before they can get started.Alternatively, we could also seek a Special Permit from the Department of City Planning (DCP). This issue is more applicable to homeless shelters. In NYC, most districts require a Special Permit to construct a homeless shelter (they are termed settlement houses in NYC). Settlement Houses can be classified as community facilities in NYC (they do technically provide a community service) which typically allow a higher FAR than residential use. So while some districts require the Permit for the use, many others will only award you the Community Facility FAR via the permit (they restrict you to a lower residential FAR otherwise). A Special Permit from DCP requires undergoing a roughly 2 year process shown as the Uniform Land Use Review Procedure(ULURP). This is most typically undergone to rezone land, but it’s the same procedure here. The process requires a land use attorney, lobbyist, architect and a team of consultants (traffic and environmental engineers for example). It can cost $1mil-$1.5mil. It’s discretionary which means not As of Right. The development team ends up meeting with community stakeholders, politicians, councilmen, city representatives and there is also a community board review where any member of the community can come in and weigh on the proposed action. Can you imagine what a 3 ring circus one of these events can become? How many people do you suppose want a homeless shelter in their neighborhood? Or an even larger shelter if the developer is seeking the higher FAR.Further exacerbating the issue is location. The goal is to locate homeless shelters in the communities where the population stems from. This makes sense. People may have lived there their entire lives, come upon hard times or economics changed and that led to homelessness. But, at the same time if the neighborhood changed drastically the counter argument that it’s not an appropriate location for a homeless shelter is also very valid. Let’s consider Williamsburg or Long Island City. 15 years ago these were fringe neighborhoods with lower costs of living. There wasn’t much there really. But now? Sure you can locate a shelter there, but when you walk out the front door it’s still $5 for a coffee and $4.50 for a slice of pizza. And the cost of land has skyrocketed in those areas. It’s a valid argument to consider that you can get significantly more “bang for your buck” in other neighborhoods.So where does this leave us? Clearly the existing regulations were not designed for the proposed typology (micro-living). And even in the cases where provisions are made (settlement houses) we have to jump through extra hoops to develop such a project. Costs are always a concern. Real estate can be volatile and risky. The people who choose to make money in RE do so because they expect a higher return on their investment than parking those funds in the stock market or a bank (your stocks aren’t going to catch fire or get flooded).And the market is the market. There’s very little one can do to lower land value. Construction costs are also dictated by the market. During a peak market period there’s a lot of construction going on. Which means construction costs are elevated (supply/demand). Conversely, when the market is slow and construction costs are lower - the cost of money is probably very high (lending rates) as the slow down is more than likely indicative of a larger issue. People love to point to the “greedy developer”, but the majority of a project is financed by banks or other types of lenders. On larger projects, the lender will literally have a representative sitting at team meetings taking notes and ensuring their investment is protected. Even if the developer had alternative concerns and wanted to accept a lower return - there’s no guarantee a lender would finance such a proposition. Remember, lenders are also using someone else’s money so they need to meet their return requirements. It could be a pension fund, a REIT, or a conventional bank. These entities are still leveraging a pool of resources that belongs to multiple people.So what can we do about it? Well we can start by revisiting existing regulations. The zoning code was written in 1916. It underwent its first major update in 1961 - this was more like an overhaul. It’s been then modified throughout the years via smaller text amendments or through Special Districts with the largest modification coming in 2015 with Zoning for Quality and Affordability (ZQA). ZQA did a lot of good things including the removal of minimum apartment sizes under Quality Housing regulations. There were proposals for eliminating density regulations entirely, but they were not adopted (note this is density regulations specific to dwelling unit size not density in terms of FAR). So while we solved one problem as it relates to the micro unit typology, we still have the density factor to contend with. Now the City could modify the density factor via another code wide revision - which is difficult and time consuming as you can imagine. It can also decide that it wants to “test” the micro unit typology in local districts and adopt a “text change” or amendment to specific Special Districts only. For example, we could add a single paragraph of text to the Hudson Yards Special Distrct permitting a modification of density regulations under conditions XYZ. This would be much easier. Less stakeholders. More control. Less “chefs in the kitchen”.We would also need to revisit the Multiple Dwelling Law (MDL). This law was written in 1929, but it applies to all multi family housing and hotels in NYC. While it doesn’t set provisions for minimum dwelling unit size, it does set minimum sizes for rooms. The department of buildings would need to implement provisions via which these regulations could be waived or modified under certain conditions. Regulations in NYC regularly contradict each other and are enforced by different entities. Usually you end up complying with everything.Great. We’ve solved our regulatory hurdles. Believe it or not, that was the easy part. Now we have to figure out how to finance these endeavors. Micro units are a significantly easier issue. These are just smaller residential apartments. Remember we are shrinking the size of the apartment so we can still charge market rate rents per SF. So we’re not distorting the market. Once we amend the regulations we can begin rolling out the typology.But what if we want to go more affordable? What if reducing the size of the unit is not enough? Now I’m still not talking about homeless shelters where presumably the operator is carrying the entire financial burden. We’re talking about affordable housing or even workforce housing. Let’s look at a case study.In Newark, NJ there’s a development known as Teacher’s Village (I’m going to call it TV because I can’t be bothered to write it out). TV was developed to provide workforce housing for teachers, affordable housing to the community, and services - namely several charter schools. It’s an incredible project and very well done.Fun fact: see that 2-story long building in the top left? I was working on converting it to rentals and creative space along with a 2–3 story enlargement. I spent an afternoon walking the space and documenting it. The building collapsed under its own weight 2 weeks later. Scary stuff….back to the topic.TV is the brainchild of Ron Reit, CEO of RBH Group. Ron was already a successful developer who saw an opportunity that could to be addressed. Leveraging experience and connections, the project was paid for with State tax credits and excellent investment from Goldman Sachs, TD Bank and others. The private investment groups could channel CRA (community reinvestment act) credits and Opportunity Zone (OZ) finds into the development. OZs allow an investor/developer to defer and reduce capital gains by investing them in identified sites. When you’re dealing with huge sums of capital gains, there could be a huge advantage in OZ sites. I won’t get into all the details (I have some links below for those interested) suffice to say some very smart people with access to large resources leveraged every advantage and government credit they could to make such an endeavor come to life. Not every project can have the same advantages.So what’s the (a) solution? I have no clue. But I’ve been playing with an idea for a while (one of these days I’ll find some time to do some research on it). Affordable housing and homelessness are both public issues. So we shouldn’t necessarily look at private solutions to a public problem. But with that said, the experience and knowledge base to work out a solution is much more prevalent in the private sector than the public one. So we should look for a public/private partnership. What if we could set up a State financed enterprise (similar to China’s State Owned Enterprise’s)? In NYC this could be something like the Empire State Development corporation. The public corporation would take on the debt and financing, but also hold title to the asset. Lenders wouldn’t be financing a developer that could potentially go bankrupt any day. They would make the loan to NYC which presumably has significantly less risk as it can always raise money through taxes or bonds. Presumably NYC can also take a lower return. The asset is performing a service on its own, any income it generates as profit would be “sweetener”. Perhaps it’s acceptable to have a 50 year pay back. Maybe even a 100 year payback. Meanwhile, the private side of the equation would develop and/or manage the project. They would take a fee for that service. It might not be as much as they would have made developing their own project, but this would be a significantly less risky proposition for them. The City can also provide its own variances or special approvals presumably faster than under the current processes. A mayoral override for example can trump the entire ULURP process.Maybe something like this exists? That’s not clear to me yet - but if not it could be interesting. Would be great to see this discussed in the comments.TL:DR Existing regulations might impede the creation/adoption of a micro unit typology. This is further exacerbated by economic realities especially when you consider low to no-income generating uses like homeless shelters.RBH Group / HomeTeachers Villagehttps://www1.nyc.gov/site/hpd/services-and-information/area-median-income.pageAverage Rent in Manhattan & Rent Prices by Neighborhood