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How Does Affordable Housing Get Built in NYC?

December 11, 2014

There are three primary mechanisms for financing the building affordable housing in New York City. Each of these mechanisms creates either a financial benefit or financial relief in exchange for the developer creating affordable housing units.

This blog is Part I in a series of blog posts exploring the nuts and bolts of affordable housing production in New York City

There are three primary mechanisms for financing the building affordable housing in New York City. Each of these mechanisms creates either a financial benefit or financial relief in exchange for the developer creating affordable housing units. There are various different ‘housing programs’ within each of these categories and there are City, State, and Federal programs. The mechanisms can be used separately or in combination to add additional affordable units or more deeply affordable units in a single building.


PUBLIC SUBSIDY

Subsidies such as Low Income Housing Tax Credits (LIHTC) and other HPD programs are the most direct way affordable housing gets built. Essentially, public money is used to subsidize the construction and/or operation of a building, in exchange for some or all of the units being affordable. The depth of affordability and length of affordability varies significantly by program.


ADDED DENSITY

is a second way affordable housing gets built in New York City’s market. From a developer’s perspective, more density means more apartments to make money off of. Adding density therefore creates additional value for the developer, some of which can be reclaimed for the public. This is the principle behind inclusionary zoning. There are two basic versions of this: voluntary inclusionary zoning, where a developer can choose to build greater density in exchange for some of the additional units being affordable; and mandatory inclusionary zoning, where any developer building in an area that has been rezoned to allow for higher density is required to include a certain amount of affordability.


TAX ABATEMENTS

are the third method for creating affordable housing. Financial benefit to the developer comes from foregone tax revenues rather than already collected public money. By providing a break on the amount of taxes developers pay, the city brings down the cost of operating the building, which is of value to the developer. The city then reclaims some portion of that value for public benefit in the form of affordable housing. Ideally, a tax abatement strikes a balance between providing sufficient profit to the developer to encourage them to take the abatement, while still getting enough affordability back in return to make the deal worthwhile for the public.

Tax Abatements are the primary way the City incentivizes the private market-rate developers to also build affordable housing. Unfortunately, the most widely utilized tax abatement in the city, the 421a Developer’s Tax Break, in its current form, provides a windfall to developers while getting little (sometimes nothing) in return for communities.

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