|
FULL ARTICLES
The New York Times
In New York, NIMBYism Finally Outstays Its Welcome
By Mara Gay
Why is it so hard to build housing in New York?
In search of an answer to this question, I spoke with Marjorie Velázquez, the City Council member whose one-woman opposition is being allowed to hold up the construction of a roughly 350-unit housing development in the Throgs Neck section of the Bronx, a project that includes apartments for older people and veterans.
Ms. Velázquez’s stated reasons for opposing the project are wide-ranging. She has concerns about crowding in schools. She wants to know “what kind” of veterans will live in the development (“I see a lot of groups come in and say, ‘Oh we’re going to do this, we’re going to do that!’ and appear to be heroes and they leave our veterans behind,” she told me). She says the city should be focusing on infrastructure needs in the area. “We’re a transit desert,” she said.
Then, she talks about the sinkholes that plague Throgs Neck, a community she says has been ignored. “Do you see what I’m saying?” she asked, adding that she wanted to “make sure that it’s for us, by us.”
The City Council may vote for a zoning change that would clear the way for the Throgs Neck project anyway. Approving the change over Ms. Velázquez’s objection would be a major break in tradition for the council, setting an important precedent in a city where people are struggling to afford to stay in their homes and communities.
Some of Ms. Velázquez’s constituents in Throgs Neck, a tidy neighborhood dotted with single-family homes at the mouth of the East River, have been expressed their opposition differently. “He wants to put low-income drug houses on the corner here!” one man shouted at a protest over the proposed rezoning in June, according to video of the event posted on Twitter. Whether he was referring to Mayor Eric Adams or someone else is unclear.
In New York, patience for this kind of NIMBYism — the “not in my backyard” phenomenon in which communities oppose badly needed new housing — is growing thin. Local communities hold enormous power to block development, often through local council members in New York City, or county executives in the suburbs. As the housing crisis intensifies, there are signs that New York’s politicians may finally be willing to stand up to NIMBYism.
“When you say ‘not in our backyard,’ you are believing your block belongs to you. It belongs to the city,” Mr. Adams said in a phone conversation. “I believe local communities should have input, but we all need to take responsibility for the housing crisis we are facing.”
For years, neighborhoods in New York City and the New York suburbs have had near veto power over land-use and housing development decisions. That could soon change. In the 51-seat City Council, momentum is gathering to end a practice known as “member deference,” in which the entire body lets a member decide the fate of land-use proposals in his or her district.
“I reject that this will be a Council that says no to housing, given the scale of the crisis we face,” the Council speaker, Adrienne E. Adams said in a statement. Ms. Adams said the Council would continue to value community input, but not “irrational opposition that rejects desperately needed housing.”
The mayor is also backing smaller changes to the citywide zoning code that would make it easier to build housing and don’t require the approval of individual Council members. One of those changes, for example, would remove caps on the building of studio apartments. Another would eliminate rules requiring a certain number of parking spaces to be built with housing units. Dan Garodnick, chair of the City Planning Commission, told me his team had found dozens of such regulations that create needless barriers to housing production.
This change in New York politics is part of a nascent but promising movement. As rents rise, the anti-development sentiment that once dominated Democratic politics is giving way to calls to build more housing, fast. Lately, even politicians who count themselves among the most skeptical regarding for-profit developers have thrown their support behind building units to ease the crisis.
Councilwoman Tiffany Cabán, a proudly far-left Democrat, surprised many recently when she voted to site 1,400 new units of housing in her district in Queens. “Listen, I’m not anti-development,” she told me. “We desperately need more housing.” Ms. Cabán said she had come to believe the city should embrace every possible way to build more housing, from allowing responsible building by for-profit developers to using whatever city-owned land remains to put up apartments.
But solving the housing crisis in New York City will require a regional approach. The city and its suburbs are connected by extensive rail lines allowing residents of Long Island and Westchester to commute to Manhattan. The system is an enormous strength. But for the better part of a century, zoning laws in Westchester and especially Long Island have severely limited the construction of higher-density housing developments.
The zoning laws have their roots in the Jim Crow era of segregation, when they were used to keep Black Americans and others from buying homes in certain areas. The problem is especially acute on Long Island, where the biggest growth took place in the years after World War II, when the federal government backed housing discrimination through preferential treatment in government loans.
Over time, these laws have contributed not only to racial and economic segregation in New York, but also to the affordability crisis by constraining the region’s housing supply. Gov. Kathy Hochul and the State Legislature need to challenge suburban zoning laws that make it difficult or virtually impossible to build the multifamily housing the state needs.
Eliminating these restrictions doesn’t have to mean the end of suburban life. Indeed, higher-density development in suburban downtowns can invigorate them. It won’t be easy. A proposal in the State Legislature that would have allowed for multifamily housing to be built around transit centers on Long Island failed this year after Ms. Hochul backed down in the face of local opposition. If she is re-elected this November, resurrecting that effort would be a worthy priority.
The governor and the State Legislature could also go much farther. California last year essentially banned single-family zoning, something that leaders in Albany could consider as well. They could also could make government investment in the suburbs contingent on the elimination of exclusionary zoning. At the very least, state and federal officials could make it clear to communities in Suffolk and Nassau Counties that infrastructure improvements for the Long Island Rail Road will continue only if multifamily housing is built near transit centers.
Several members of New York’s congressional delegation support a bill introduced by Senator Elizabeth Warren known as the American Housing and Mobility Act, which would offer federal funding for localities that reform their zoning laws to encourage greater density and the building of moderate- and low-income housing. Senator Kirsten Gillibrand, a co-sponsor of the bill, acknowledged that passing the bill would be an uphill battle. “NIMBYism is real,” she told me in a phone conversation.
Given the scale of the crisis, these efforts to build more housing are essential and urgent. The median rent in the city has undergone a double-digit percentage increase from prepandemic levels in every borough but Staten Island, according to data from StreetEasy.
The good news is that housing is at long last a political priority. If it doesn’t build more housing, and quickly, New York will soon shut out young, working-class and middle-class people. Only the wealthiest will remain, along with NIMBY holdouts sprinkled across the city. What a lonely, sterile end to New York that would be.
Gotham Gazette
How to Break Barriers to Build More Housing in New York? Experts Point to Changes
By Samar Khurshid
New York City has an acute housing shortage, with emergency-level lows in apartment vacancies, especially for units affordable to most New Yorkers, and astronomical rents, a homelessness crisis, and halting recovery from the COVID-19 pandemic.
At the core of the city’s housing supply deficit is a lengthy and cumbersome land use decision-making process, a bureaucratic maze of local and state regulations combined with political dynamics that have often hampered housing production. The challenges to both housing and economic development, with recommendations for how to overcome them, were newly-examined in a recently-released report from the nonprofit Citizens Budget Commission (CBC).
On Wednesday, CBC assembled government officials and other experts to analyze the major obstacles to achieving needed growth and offer various solutions to tackle housing scarcity and the related pressures it causes. During the morning event held over zoom, nearly 200 audience members heard from CBC report author Sean Campion, New York City Deputy Mayor Maria Torres-Springer, and a panel of current and former government officials and land-use experts.
The panel featured Vicki Been, faculty director of the NYU Furman Center and former deputy mayor for housing and economic development; Dan Garodnick, chair of the New York City Planning Commission and Commissioner of the Department of City Planning; RuthAnne Visnauskas, president and CEO of New York State Homes and Community Renewal; former City Council Member Margaret Chin; Jacob Elghanayan, senior vice president of TF Cornerstone, a real estate development firm; and Michelle de la Uz, executive director of the Fifth Avenue Committee, an affordable housing developer. Ben Max, executive editor of Gotham Gazette, moderated the panel.
Torres-Springer, the Deputy Mayor for Economic and Workforce Development and former city housing commissioner, spoke about the city’s housing crisis, one on which there is broad consensus, and how the administration of Mayor Eric Adams has begun tackling it.
“I think that this crisis is manmade,” she said. “It is a casualty of institutional failures and a status quo that is calcified by a regulatory environment that costs too much in time and money, a political environment that allows people to say, ‘Well, it's not my problem,’ and a civic environment that too often condones finger-pointing, hand-wringing, and pearl-clutching.”
The solution, she said, requires “a whole-of-society approach.”
CBC identified several issues with the land use-decision making process in its report authored by Campion, the organization’s Director of Housing and Economic Development Studies. Among them were that 40% of discretionary land use applications are either rejected or withdrawn, the median approval time for an application is about two-and-a-half years (longer than other comparable municipalities), and that the long approval process increases development costs 11-16%, adding about $67,000 to the cost of each new apartment unit.
Those issues arise from, among other things, the State Environmental Quality Review Act (SEQRA), which requires environmental reviews of projects, lawsuits from private citizens that can challenge those reviews, an increasingly complex process of conducting those reviews at the city level, and the local political landscape that incentivizes City Council members to prioritize their short-term interests and local concerns (often of a loud minority) over long-term and citywide needs.
Referencing shootings in the city, Torres-Springer emphasized that the housing crisis is its own form of “silent violence” that affects New Yorkers. “Far too many people in our city are suffering in silence,” she said. “It is a violence that causes people to make unfathomable decisions about whether to pay rent or to eat, to keep a roof over their heads or to get needed medication. A violence that causes the children, the sick, the elderly to wonder where they are going to sleep at night.”
She laid out some of the efforts that the Adams administration has taken to tackle inefficiencies in housing production since the mayor announced his housing plan in June. She said the administration has launched a Building and Land use Approval Streamlining Task force (BLAST) that is spearheading an effort by 15 different city agencies to examine changes in internal city processes that will expedite the land use review and approval process. She also said the administration is crafting proposals for the State Legislature, which will return to session in Albany in January, and that it will unveil a report on all those efforts “in just a few weeks.”
Among the main items for which the city is seeking state help is a replacement for the expired 421-a affordable housing tax credit, “the loss of which is already creating a decline in applications for new rental housing construction in our city,” Torres-Springer said.
The panelists broadly agreed on the importance of speeding up land-use decision-making and tackling New York’s housing crisis (which extends beyond the five boroughs), including issues identified in CBC’s report. They differed somewhat on what they see as the largest obstacles to development, particularly housing production, in the city.
“We're really trying to control something, in some ways, that is multifactored and many of them are sort of uncontrollable,” said Visnauskas, the state housing commissioner, noting that besides the state environmental review hurdles, housing construction costs and other regulatory costs have also increased. She said that the state is working to expedite the development process to reduce costs, but she did not specify how exactly.
“The biggest problem from my perspective is that the environmental review and land use process overall makes it easier to opt for ‘no,’” said Garodnick, insisting that the City Environmental Quality Review (CEQR) process is “too long and too expensive” and that the city can and will simplify the CEQR manual for developers. He also pledged other fixes within the city’s control to speed up processes, some of which will come from the BLAST process Torres-Springer mentioned.
Garodnick noted the “City of Yes” citywide zoning amendments that Mayor Adams announced a sketch of earlier this year and the Department of City Planning, with other administration partners, is now working to flesh out before entering them into the city’s review process. Among other changes, they will seek to make it easier to build more housing units without seeking special permits.
Been, who was also once the city’s housing commissioner, turned her eye to the difficulty in approving large-scale neighborhood rezonings initiated by the city and said it is essential for city officials to pursue more of them. Been oversaw several such rezonings, all of which are controversial in New York City, under former Mayor Bill de Blasio to varying degrees of success. She pointed to the Furman Center’s 2021 report showing that 25% of multi-family homes constructed between 2010 and 2020 were in such rezoned areas, which only accounted for 3% of the city’s land.
“But neighborhood rezonings are increasingly difficult to get through,” she said, in reference to City Council buy-in. “They represent change and risk while processes like SEQRA privilege the status quo.”
She said the city needs to more closely tie the overall citywide goals of creating housing with those rezonings while also being more transparent and data-driven in how those rezonings are initiated. “We could be asking through a regular review of all of the community districts within the city, which ones are lagging behind in meeting the needs of a growing city,” she said.
Elghanayan agreed with Been that the city needs to undertake neighborhood rezonings. “As-of-right [development] is clearly what every developer…wants to focus on. So to me, keeping that part of New York's land use process is essential,” he said, in reference to the much-maligned challenges with the discretionary approval system. “I think continuing to expand the…quantum of as-of-right sites through area-wide rezonings is the best way to ultimately build the most housing,” he said.
He said that every local rezoning is like a “little mini political campaign,” which is easier for larger, well-resourced developers like his own firm than for smaller developers in the city, and “why the citywide rezonings are important.”
Elghanayan also added that one big fix to the system, from his perspective, would be shifting the city's elections to open primaries, which he believes would help local politics better reflect the will of the majority, who often support development projects. He referenced the scuttled Amazon 'HQ2' plan for Queens that his company was involved in as something that succumbed to opposition from local officials but was a job-creating project supporters by the majority of New Yorkers.
De la Uz, whose organization is involved with the Gowanus rezoning passed last year, said the city isn’t doing enough rezonings in high-opportunity neighborhoods, “which predominantly are wealthier and whiter.” And she pointed to a “mismatch” between community perceptions and neighborhood and citywide needs. It takes a lot of effort, she said, for “every-day residents in the neighborhood [to] understand, really, their responsibility, their community's responsibility and obligation to help make the city more equitable, more fair, more inclusive, more sustainable.”
She later stressed the need for educating local residents, particularly community board members, about the technicalities of the land use process to ensure that their participation in it is more meaningful.
“I think the biggest thing is really getting the information early on to Council members and to the community so people understand what is at stake, and for the Council member to be able to balance local need and citywide need,” said Chin, citing her own experience in overseeing rezonings in her Lower Manhattan district as a City Council member for 12 years.
Chin also said that City Council leadership has a responsibility to ensure that worthy projects are approved without giving undue power to the traditional practice of ‘member deference’ that allows local Council members to override projects. She repeatedly said it is essential for the Council Speaker and land use committee chair to be involved, to offer help to local members, including resources from the Council’s land use division.
Garodnick, a former City Council member himself, echoed Chin’s perspective. “I think it has to be a balance,” he said. “I think what happens too frequently, unfortunately, is that the local concerns predominate and the citywide concerns get lost in the mix.”
He said the Council and its Speaker and the mayoral administration should all be able to clearly articulate citywide interests in advancing projects, whether they’re smaller rezonings like the Bruckner Boulevard rezoning in Throggs Neck in the Bronx or larger neighborhood ones like the rezoning of parts of Atlantic Avenue in Brooklyn or the rezonings around four planned Metro North stations in the East Bronx.
CBC’s report recommends many potential changes to the land use process at both the state and city levels, and breaks them up into different categories based on how achievable they may be and on what timelines they could be tackled.
It urges the state to amend environmental review laws while setting clear and objective standards for local governments to contribute to housing production. It encourages the city to improve the process of advisory reviews of land use applications, streamline environmental reviews, assess applications based on how they align with larger citywide goals, and create an appeals process for applications rejected by the City Council or require a supermajority of Council members to reject any land use application.
Visnauskas said there are a “myriad of solutions” that include, besides changes to process, other incentives to encourage production including tax incentives and authorization of accessory dwelling units, for instance. “There isn't really one solution to all these things. We really need five or six tools that communities across the state can be using to get at greater housing production,” she said. Some of those solutions were proposed by Governor Kathy Hochul this year and not passed by the Legislature, but Visnauskas said the governor will likely revisit them next year if she is elected to a full term in November. “I think that economic growth and housing and affordable housing are very core issues for the governor,” she said.
“I think you'd expect to see housing as a big focus as we go into the governor’s State of the State [agenda in January] and at this moment, we're pretty optimistic and trying to be smart,” she added.
Been said there are key lessons the city can take from other jurisdictions, some of which CBC identified in its report. For instance, objective standards for rejecting a proposed project, allowing affordable housing on previously restricted land, exemptions from environmental reviews in certain cases or protection from legal challenges, and more.
Garodnick said that along with rezonings and the citywide zoning text amendments, the Adams administration is pursuing other ideas including expanding the types of projects exempt from environmental reviews and streamlining the application process to make it easier for those without significant resources.
“We need to make this easier and more standardized. We want to urge applicants to pursue the simplest set of actions to facilitate their projects,” he said. He said the Department of City Planning is working to make it easier to receive public comment on projects and is working on accurately measuring the timeline of projects. He also floated the prospect of a mobile app “that would allow for the maximum automation” that could help potential land use applicants determine their environmental review requirements without relying on in-person help from DCP.
“The result we hope is that people do not default to ‘no’ and they do not come to that conclusion that this process is too hairy, complicated, long, volatile for them to want to pursue and instead enable for us to be able to move more projects consistent with the public policy through the system,” he said.
Chin disagreed with CBC’s recommendation of an appeals process for developers to potentially override Council decisions. “I think it is a City Council issue…The process should be within the Council,” she said, again stressing the importance of a Council culture of getting projects across the finish line to add needed growth. “The goal is really how you get to the approval process…and to make sure that the local Council member is being supported,” she said.
Syracuse.com
After 2-month delay, Syracuse Common Council approves sale for ambitious housing project
By Chris Carlson
Syracuse Common Councilor Pat Hogan ended a two-month stalemate with city officials, allowing the sale of one of the city’s largest available parcels to move forward and paving the way for hundreds of housing units to potentially be built.
Following conversations with city officials over the weekend, Hogan called for a vote approving the sale of a portion of the former Syracuse Developmental Center to the Albanese Organization, a tri-state developer. The sale was approved by a unanimous vote from the Common Council on Monday.
For two months, Hogan, the 2nd district councilor, had declined to bring the sale up for a vote, asking for more details about the project and expressing concerns about both the mix and amount of housing that would be built in his district.
He said weekend conversations with Eric Ennis, the city’s deputy development commissioner, and 4th District Councilor Latoya Allen convinced him to stop delaying the vote on a piece of land that has been declared, at various times, both an eyesore and a potential jewel.
Hogan said the changes to the contract include the removal of 600 units of housing as a target. That has been replaced by 300 units. The city will be paid $20,000 per housing unit built.
Hogan said the contract does not specify the mix of housing that will be built.
Hogan said housing options being considered will include owner-occupied homes, multi-family houses, single-family homes, townhomes and small multi-family units. Albanese said it intends to build affordable, workforce and market-rate housing.
“We have more flexibility,” Hogan said. “And we have more oversight. I’m much more comfortable with how it’s going to go.”
The city announced its plan to sell a portion of the 47-acre parcel to the Albanese Organization in January. Gov. Kathy Hochul made a June announcement that the state would provide $29 million to help demolish abandoned buildings and clean up the site. The plan included a proposal for Albanese to build hundreds of units of mixed-income housing on half the property.
Albanese will hold community engagement meetings with the neighborhoods nearest to the development -- Tipperary Hill, the Westside and the Near Westside.
During a public meeting last week, Deputy Mayor Sharon Owens said the engagement would likely resemble the charrettes held for the neighborhoods impacted by the removal of Interstate-81.
That meeting, occasionally contentious, made the administration’s frustration over the delay clear, prompting a weekend of conversations.
“My weekend was Eric Ennis, baseball and football,” Hogan said. “Eric called between games. He took time out of his weekend. I love people that show an urgency to get things done.”
Allen, the 4th district councilor, spoke with Hogan to stress the importance of having community involvement early in the process, rather than having a developer craft a plan the council might not like.
“The developer is not from Syracuse,”' Allen said. “We want people from the neighborhoods to be part of the process because we know what works here, especially with housing. . . If not that, then we’re going to be given a plan and, knowing this council we’re going to say no, and we’ll keep going back and forth.”
Patch
Innovation QNS Increases Affordable Apartments In Bid For Approval
By Nick Garber
The developers of Innovation QNS will significantly increase the number of affordable apartments included in the massive five-block development, they announced Wednesday, in an eleventh-hour effort to win approval for the controversial rezoning.
About 40 percent of the project's 2,800 apartments will now be permanently affordable, or about 1,100 units altogether — up from the previous total of 25 percent.
Developers are also deepening those units' affordability levels, with 500 of the apartments to be available for people making 30 percent of the area median income — or about $28,000 for a single person.
The commitment, first reported by the Queens Eagle and confirmed by Patch, was made via a letter sent by developers on Tuesday to local Councilmember Julie Won, who will likely decide the fate of Innovation QNS.
"By a significant margin, Innovation QNS will deliver more affordable housing and more deeply affordable housing than any other recent rezoning in New York City," wrote the developers — a joint team of Silverstein Properties, Kaufman Astoria Studios and BedRock Real Estate Partners.
The new changes bring Innovation QNS closer to meeting the standards set by Won, who previously said it would need to be at least 50 percent affordable to secure her support.
Won did not immediately respond to a request for comment Wednesday. Innovation QNS is now awaiting a final vote by the City Council after being approved by the City Planning Commission, and Won's colleagues will likely respect her stance on the rezoning under longstanding tradition.
The new affordability commitments have already swayed one former naysayer: Queens Borough President Donovan Richards, who had recommended rejecting the project unless it were upped to 50 percent affordable, praised the changes in a series of tweets Wednesday afternoon.
"With this compromise on Innovation QNS, I'm confident we're making real progress to bring true and deep affordable housing to Queens," he said.
The developers, in their own statement, cited a "productive dialogue" with Richards and Won, and said Innovation QNS would more than triple the number of affordable homes created in Astoria in recent years.
"[We] look forward to continuing to collaborate with the Council Member to deliver this urgently needed $2 billion investment in Astoria," said Tracy Capune, a vice president at Kaufman Studios.
In total, Innovation QNS would construct more than 12 new buildings and two acres of green space across five blocks between 37th Street and Northern Boulevard, bounded by 35th and 36th avenues — a low-rise area now home to auto repair shops, a P.C. Richard store, and the Regal UA Kaufman Astoria movie theater, which would be rebuilt on a new block as part of the development.
Supporters have said it would help alleviate the city's housing crisis and enliven the neighborhood with new retail and recreational space, while opponents have long charged that the project would indirectly displace longtime residents and be unaffordable for the people who already live in Astoria.
Won, who has also said the developers did not do enough to inform neighbors about the project, still sounded critical of Innovation QNS following this month's yes-vote by the City Planning Commissison.
"The developers continue to disregard the community’s voice, choosing to move forward with a project that received major backlash at town halls this spring and the overwhelming disapproval by Queens Community Board 1," Won said at the time.
Multi-Housing News
Financing Affordable Senior Housing Gets More Challenging
By Joe Gose
The need for senior housing will only swell as the earliest born in the Baby Boom generation begin to hit 80 in 2025. For many, market rate housing will be out of their reach and will fuel further demand for affordable options.
But higher interest rates and construction costs, building material shortages, and depressed prices for low-income housing tax credits are making affordable senior housing development and renovation more difficult at a time when much more supply is needed.
In 2019, 10.2 million households headed by a person aged 65 or older, or roughly a third of that population cohort, paid a disproportionate share of their incomes for housing, according to the State of The Nation’s Housing 2022 report issued by Harvard University’s Joint Center for Housing Studies.
The report also pointed out that even if the cost-burdened share of seniors remained steady the next several years, the affordable need would escalate sharply simply because of the large cohort of aging Baby Boomers. The number of 65-and-over households will surge to more than 50 million in 1938, a 51 percent increase over the number in 2018.
“A lot of seniors are in a place where they can’t increase their incomes to keep up with inflation, and they’re facing tough choices,” said Jeffrey Jaeger, a principal and co-founder of Standard Communities, a San Francisco-based developer focused on affordable and workforce housing. “There are a lot of luxury communities that have been built for the aging population, but there continues to be high demand and need for a quality affordable senior product.”
While labor shortages and rising operating expenses have prolonged a difficult senior housing environment that was initially created by the pandemic, occupancy continues to improve. The average senior housing occupancy rate increased nearly a percentage point to 81.4 percent in the second quarter from the first quarter this year, according to the National Center for Seniors Housing & Care. That marked the fourth consecutive quarter of occupancy growth and 340 basis points higher than the pandemic low of 78 percent, the group reported.
Occupancy rates in many affordable senior housing projects are much higher – typically at 95 percent or higher, said Andrew Anania, a managing director in Berkadia’s tax credit syndication practice.
But a volatile construction environment is challenging developers. NHP Foundation, a New York-based non-profit developer of affordable housing for families and seniors, experienced an 18 percent construction cost increase when the closing of a deal to develop 74-units in Houston was delayed, said Stephen Green, executive vice president and chief investment officer of the organization. Part of these price increases stem from premiums that subcontractors are having to pay for cabinets, flooring, drywall and other materials, he added.
“The demand for affordable senior housing is always there – occupancy isn’t the issue,” Green explained. “But the price increases and supply chain issues have been difficult to manage. And now we’re in a rising interest rate environment.”
NHP Foundation is nearing completion of The Citadel, a 74-unit affordable senior housing community in Houston. The project includes studio and one-bedroom apartments in the city’s historic Third Ward neighborhood. Image courtesy of NHP Foundation.
Indeed, the Federal Reserve’s focus on raising interest rates to fight inflation has had a significant impact on the ability of developers to build affordable seniors housing projects, said Jaeger. After falling to below 3 percent in late July, the 10-Year Treasury yield topped 3 percent in late August. That’s roughly double where the yield started 2022.
Meanwhile short-term interest rates have ballooned even more than that. The benchmark securitized overnight funding rate (SOFR) spiked 75 basis points to 2.28 percent in late July and remains there. At the beginning of 2022, SOFR was virtually zero.
“There has been a lot of volatility in the debt markets for senior housing, particularly over the last six weeks,” said Aaron Will, vice chairman and co-head of national senior housing with CBRE in Houston.
At the same time, lower LIHTC prices have made it more difficult to raise equity. The average three-month LIHTC price dropped roughly 3 cents to around 90 cents per tax credit in early 2020 and has hovered around that level as of April this year, according to Novogradac, an accounting, valuation and consulting firm. Buyers of the tax credits that went to the sidelines as the virus took hold fueled some of the decline, said Anania.
But a late 2020 law that converted the 4 percent tax credit to a fixed rate from a floating rate, which had been a little more than 3 percent, has also influenced the lower price levels. As a result of the fix, developers can raise more equity through the sale of fewer tax credits, which has benefitted the market, observers say. But the 4 percent fix also has effectively created a greater supply of tax credits.
“When you have a fixed demand for the credits and then you put a lot more credits in the market, what happens?” Green asked. “Prices go down.”
Additionally, a higher federal funds rate has increased the cost of capital for banks, which purchase the lion’s share of tax credits as part of their Community Reinvestment Act (CRA) obligations, added Anania. That, along with recessionary trends, could also negatively impact pricing going forward.
Widening Gap
Given the complexity of financing projects with rental rates that meet low-income thresholds, developers typically need additional money even in more normal times. But all of these variables together – construction cost increases and delays, higher interest rates and lower LIHTC prices – have only exacerbated that situation.
“The combination of economic conditions as well as the lingering COVID-19 impacts have generated a budget gap for the developer,” Anania said. “And it can happen as construction costs and interest rates move higher on them during the development period. As you’re waiting to get a solution for one particular situation, another problem pops up.”
How are developers filling that gap? In some cases they’re tapping federal funds available through sources such as the $1.9 trillion American Rescue Plan Act of 2021 and disaster recovery funds, as well as state and local subsidies, grants or low-interest loans geared toward affordable housing. The state of Connecticut provided NHP with an additional subsidy of $3 million – for a total of $7 million – after costs for a project rose 17 percent, Green said.
“It’s is the rare transaction where funding is just LIHTC equity and debt – although there are some and we’ve done a couple,” he said. “But when you’re doing new construction or a major renovation, you’re going to have a gap, and it has definitely gotten bigger.”
| 
