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The Affordable Housing Racket
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I’ve long been fascinated by the Affordable Housing racket. Josh Barro writes in the NYT:

Abington House, at 500 West 30th Street near the High Line in West Chelsea, is a new luxury residential building and, like a lot of new luxury developments in Manhattan, it’s extremely expensive. The cheapest two-bedroom apartment now listed there rents for $5,850 a month. That gets you only one bathroom; a two-bed, two-bath can run as high as $8,695.

But 78 apartments in the building, or 20 percent of the total, are set aside as affordable housing under New York City’s “inclusionary zoning” program. That means 19 two-bedroom apartments are priced from $687 to $873 — about a 90 percent discount to market rents. Those apartments were granted to 19 households that make from $25,612 to $42,950 a year and won a housing lottery the city held last year.

So that’s a discount of about $75,000 per year or so, presumably for many years. After all, how anxious would you be to move if you were getting $75,000 per year, tax-free, each year for staying in your luxury apartment? So, what’s the net present value of being chosen for an affordable housing unit in this building? A million dollars? What would you do to win a million dollar gift? (I mean, not you, personally, of course, but other people, those dishonest swine.)

The link goes to a Curbed article and the link to the city lottery appears to now be dead. But that’s still the least opaque process I’ve ever come across for handing out these affordable housing goodies.

I’m remind of when I applied my son to a charter school founded by his old teachers. They set up lots of hoops to jump through to apply for the lottery such as parents having to drop off applications in person and find out if he was chosen in person. I show up to find out if he was chosen in the lottery, all nervous, and the man with the clipboard of winners, who used to teach my son math, doesn’t even bother to look at it when he tells me my son got in. I asked him to check just to make sure my son is in, and he laughs at my naivete: of course my son, who got a 5 on the Biology AP in 7th grade, is in. What do the founders of this charter school look like, idiots?

I’ve never seen an article about who gets affordable housing units in the best new buildings. I think we are supposed to believe they routinely go to single welfare mothers from the South Bronx. But if you were paying $100,000 per year for an apartment, how happy would you be about riding the elevator with the single mom’s boyfriends?

Somehow, I suspect affordable housing apartments are more likely to go to, say, the nephew of a City Commissioner of Building Safety or, say, the daughter of another real estate developer who is an adjunct instructor of creative writing at NYU for $3,800 per class, or somebody else whom the paying tenants won’t complain about.

 
• Category: Economics • Tags: Housing 
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  1. DCThrowback says: • Website

    “my son, who got a 5 on the Biology AP in 7th grade” – the proud father can’t resist. I wouldn’t be able to either. That’s awesome, Steve.

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    Education Realist noted recently that they just made the AP Biology test harder.
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  2. @DCThrowback
    "my son, who got a 5 on the Biology AP in 7th grade" - the proud father can't resist. I wouldn't be able to either. That's awesome, Steve.

    Education Realist noted recently that they just made the AP Biology test harder.

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  3. countenance says: • Website

    Would it be so crazy for me to speculate that the lottery for the affordable units isn’t so random? And that winning a prize with a net present value of $1 million means that you have an incentive to pony up, say, $100,000, behind everyone’s backs, to people holding the lottery?

    Or if it’s not any of that, they do like they do in charter school applications, in that it’s theoretically random among those that apply, but make the application process so time consuming, complicated, convoluted and strewn with hoops to jump through and quicksand to avoid that the typical low IQ black or Hispanic undertow welfare single mother household won’t make it through in order to “apply” officially.

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  4. anon says: • Disclaimer

    Somehow, I suspect affordable housing apartments are more likely to go to, say, the nephew of a City Commissioner of Building Safety or, say, the daughter of another real estate developer who is an adjunct instructor of creative writing at NYU for $3,800 per class, or somebody else whom the paying tenants won’t complain about.

    This happened at NYU recently. The President of NYU had two faculty apartments converted into a duplex for his aspiring actor son:

    “NYU gave president’s aspiring actor son apartment on campus”

    http://nypost.com/2014/04/16/nyu-scion-scored-spacious-faculty-apartment-during-housing-squeeze/

    “New York University’s controversial penchant under President John Sexton for doling out real-estate perks to top professors and executives also extended to his son.

    Jed Sexton, whose sole affiliation with NYU was his status as the president’s son, for years enjoyed a spacious faculty apartment while the university experienced a “severe” housing shortage, The Post has learned.

    In spring 2002, NYU ordered that a pair of one-bedroom apartments normally reserved for law school faculty be combined into a lavish, two-story spread in the heart of Greenwich Village, property records show.

    The Harvard-educated Sexton, who was a 33-year-old aspiring actor at the time, shared the new duplex with his newlywed wife, Danielle Decrette, for the next five years, according to documents and people briefed on the situation.

    That’s despite the fact that NYU officials, just weeks earlier, had warned in a written report of a “severe housing shortage” for faculty, “especially of larger units.”

    The report was addressed to John Sexton as he prepared to take the helm as president after more than a decade as dean of NYU Law School.

    The arrangement adds to the scrutiny on NYU. During Sexton’s tenure as president, the university has come under fire for rewarding a select group of faculty and administrators with forgivable mortgage loans to buy multimillion-dollar vacation homes.”

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  5. anon says: • Disclaimer

    The NYU prez was also doling out apartments to select associates and professors, and was also apparently doling out below market rate mortgage loans for people to buy vacation homes.

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  6. slumber_j says:

    The only people I know who scored an apartment that way (in a new development in Battery Park City some years ago) sure fit the bill Steve outlines: super-SWPL creative types whose income was below whatever the threshold was. They’re so SWPL that her parents have a gigantic house in Nantucket to complement their CT Gold-Coast primary residence. So SWPL that the husband is *Canadian*.

    No special connections that I know of, however. Very nice people, and they still live there.

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  7. Anonymous says: • Disclaimer

    When I was a graduate student in the Midwest, there was a city-sponsored affordable housing program in our town for low-income homebuyers, and almost all of the people who owned homes through the program (including me) were graduate students. There wasn’t anything underhanded about the process — we were just the only people who met both the income requirements and had good enough credit history to get a mortgage. There could well be similar eligibility requirements for entry into this lottery that most single welfare mothers from the South Bronx do not meet.

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  8. prosa123 [AKA "Peter"] says: • Website

    Some of the developments have seperate entrances (“poor doors”) for tenants of the affordable units.

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  9. Ed says:

    They run your credit for these programs in NYC. When I first moved to NYC I applied to one lottery and won. However my FICO score was 3 pts below the threshold so no go for me. I also think they do home visits during the application process, yet another way they keep the undersirables out.

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  10. I’m testing out whether you can post comments without leaving an email.

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  11. Biff says:

    I wonder how the shakedowns work. ‘Bribe me before- well. Cute daughter you got there. We have to put the sex criminals somewhere.’

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  12. Dennis Dale says: • Website

    What’s to prevent Laquisha from subletting the apt on the sly for say 40,000 per year, when she doesn’t necessarily want to live in an environment where her sort of daily drama is frowned upon? The residents are going to complain about how suspiciously quiet, well-mannered and SWPL the people in the subsidized units are, demanding an investigation? I don’t think so.

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  13. I can’t speak to the NYC situation but the long standing New Jersey practice of using seemingly neutral criteria to screen out actual minority low-lives can be illuminating. A study performed a number of years ago claimed that the majority of suburban affordable housing tenants were recent college grads who appeared poor on paper but were on the cusp of prosperity. More than a few grad students were found as well.

    As a side note, I drove past Princeton’s New Jersey’s affordable housing village Tuesday. Lot’s of Central Americans and a few Indians wandering about. Maybe living in affordable housing is getting to be just one more thing American won’t do. BTW, I always called this Awardable Housing given how it tends to go to favored groups and people.

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  14. Anonymous says: • Disclaimer

    “I asked him to check just to make sure my son is in, and he laughs at my naivete: of course my son, who got a 5 on the Biology AP in 7th grade, is in.”

    Way to be, Steve’s son!

    Now, only 95 more to go. Always plenty of room up!

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  15. Anonymous says: • Disclaimer

    Ages ago I took the AP bio test in my senior year of high school just because it was available — saved me two courses of freshman bio during undergrad. If I had actually been smarter and less lazy or else had better connected parents, I would have realized that I should have gone out of my way to do that for other tests as well.

    Is it possible to complete an entire BA through tests alone? Seems like that should be a thing.

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  16. George says:

    19 households that make from $25,612 to $42,950 a year

    In NYC the households were mostly likely government workers. I say this as most professional anythings in NYC would make well in excess of $50,000 a year including IRA benefits. Government workers on the other hand have pensions and health benefits so their base pay can be much less. So my guess is the housing went to city employees.

    One thing I am curious about is why the $75000 is not considered taxable income by the IRS.

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  17. Anonymous says: • Disclaimer

    >>That gets you only one bathroom;<<

    How is just one can "luxury"?

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  18. hodag says:

    I am laughing about the charter school. Lil roundeye got a 142 on her IQ test for the gifted school in Chicago Public Schools. (Not me, my wife). Cut off for folks from nice neighborhoods was 144.

    But somehow we won the lottery for the neighborhood magnet that had 3500 applicants for 50 spots. I would be dissipointed if the principle didn’t fix it.

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  19. Anonymous says: • Disclaimer

    Nyt ran article about “outraged” low income tenants “insulted” by the fact that they were “shown the poor door” by doormen (as if it’s doormen calling the shots. The doormen who probably earn the same income as them , but pay twice as much to live somewhere that is at the very least 100 times worse then the building the work in) it boils down to builders using low income units as a way to get government funding on a solid investment.

    I would guess the racket works like this
    You give the gmen an overinflated estimated cost , they give you 20% of that cost.
    Which is really 40% of the actual cost. You spend that money to get the building partially built .
    Once you have the building up you create digital tours of apartments that are not even complete.
    People start buying . You sell half the units and use the money to complete the build . Now the building is 60% full and you have yet to invest a single cent from your own pocket . Now you wait until the apartments are complete and tenants are in . The remaining 40% of the units are sold at a slight mark up, considering there aren’t many left and it’s been two years since you sold the first batch. The profit isn’t taxed as heavily because you were nice enough to let the po’ folks join you . Po’ folks save $95,000 a year . Rich folks dump enough money into the place to keep it up and running. Sounds about right. The real culprit isn’t the guy winning the apartment lottery, because the fact is just about anyone can sign up for a apartment lottery. The real “winner” is the guy “winning” the opportunity to build this building with zero down, nothing to lose, and a garuntee pay day. Where do you sign up for that lottery ? Is that available to everyone? I didn’t think so! Even in the nyt article from a few weeks ago. All the bitching and moaning was directed at “the doormen” and not one mention of one owners/builders name. And in regards to who gets the low income apartments I think nyt stats read “most likely to be the elderly and minorities”
    Numbers were 53% minotrities , 22% elderly . So I think nyt meant “most likely to be minorities” (if only 22% are elderly , then 78% are not elderly.) low income tenants Most likely to be none elderly low iq Minorities. In that article the low income tenants ask why they are denied the amneties of the building , such as the gym and the roof deck. They suggest a fee be put in place that would allow them Acces to the a amenities they are currently denied access to. I suggest they pay fair market rent as the fee. But that would be absurd. As would disclosing the identity of the builders/ owners / “winners” of the billion dollar building lottery.

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  20. Mike Zwick [AKA "Dahinda"] says:

    “$687 to $873 ” That is affordable? Where I live this would get you a two bedroom luxury suite with parking and all of the perks!

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  21. George says:

    “What’s to prevent Laquisha from subletting the apt on the sly for say 40,000 per year”

    The neighbors will rat her out. This is mostly likely co-op type ownership so you may not be allowed to sublet, or renters must be approved by the board. In upscale buildings those on affordable housing will be obvious and if they are not a police family they will be ratted out. And why would they risk it? BTW, the co op board probably can veto any applicant so Laquisha is likely a public school teacher or low level city bureaucrat. Making $25k in NYC is easier than other places in the US, but you still have to be able to do something, most likely the applicant passed a low level civil service test to get their job in the parks dept for example.

    Most likely the actual terms of the affordable housing are $25,612 to $42,950 a year for a family of 3. People in NYC in that salary range that can form families typically work for the government so they do not need to save any money for retirement or medical emergencies due to their benefits package. Having a wife and kid on city worker benefits is not a problem like it might be at a private employer. Forming the family would need to be done early as you need to get on all sorts of waiting lists. While on the waiting list it is ok if your pension improves, but if your salary does you may exceed the limit. $25k is above the section 8 limit so that will not attract the wrong kind of people. The $42k limit means most civilians able to work in NYC will make more than that, especially if they are on a waiting list for 5 to 10 years. So that basically leaves employees of the city, state or federal government, and some universities.

    A minor but nice perk to affordable housing is you do not need to insure it as much. If you or a family member cause injury to someone they cannot sue you for your affordable housing as they do not qualify. So that could be a $2000 a year savings on a personal umbrella policy. Living in NYC also means you do not need a car or car insurance or even a drivers license.

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  22. Anonymous says: • Disclaimer

    In the late 80s to at least the mid-90s in Orange County, CA, the affordable housing programs were a complete scam. Apartments that I lived in in Newport Beach and then Irvine required lengthy applications AND then had a waiting list. It was often the case in both of those complexes that people who had gone to college, had a decent career of some kind, etc., lived in a one bedroom with one child, while those who had lived a more colorful life qualified for the affordable housing programs and paid far less for a two bedroom. Everybody in the complexes at that time was white as far as I can remember. Maybe some non-Mestizo Hispanics.

    While I was living in a Newport Beach two bedroom, and applying for an Irvine three bedroom, I filled out the new paperwork and noticed that my income was “too low” for one aspect of qualifying for the program, while “too high” for another aspect. I ran the numbers for their formulas, and quickly discovered that NOBODY “qualified” for the program, because the minimums were always higher than the maximums, regardless of how many children you had, etc. I called the person handling the paperwork, and she admitted that the minimums and maximums were simply “guidelines.” I wonder how many people got the application packet, ran their own numbers, saw that they didn’t qualify, and gave up.

    When I was trying to get a three bedroom, they had a rule that you had to apply in person to each apartment complex that you were interested in. This would have been a big barrier for people without a car, people who can’t read a map, etc. Once you fill out the application, you went on a waiting list. This was back before middle-class people had cell phones. If your phone got disconnected or you moved while you were on the waiting list, you would have been crossed off the waiting list when an apartment became available.

    As far as I could tell, they relied on self-reporting of income, and if your income rose above the limit for one year, you could write a letter of explanation saying that your income would be lower the next year, and they would let you keep your apartment.

    I had no real income at all at the time that I applied for one of the apartments, and a CPA that I had never met before wrote a letter on my behalf stating that my income would be rising in the next year, and that helped me get an apartment.

    A man I knew turned in phony documents to get an apartment (his income was far too high) and then, when he moved out, he turned the apartment over to a friend, saving the friend the difficulty of applying for the program and being on the waiting list. The apartment manager was furious, but did not want to bother with an eviction, so the friend got away with it.

    The apartment complex really only cares about getting trouble-free tenants — the key to making it to the top of the list is to fill in the form neatly, keep in touch with the management, and have the best possible credit score.

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  23. Them says:

    This reminds me of back in the eighties, I was hot for this Wellesley feminist girl (yeah, I know, but she was smart and gorgeous). The next year, I saw her apartment while she was attending Harvard Law. Brand new building, beautiful place in Central Square. Affordable housing set aside of course. If you can’t control the rent, your damn sure gonna try to control who the tenant is.

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  24. Anonymous says: • Disclaimer

    What would happen in NYC if all rent controls were lifted, and the free market determined rents?

    There’d be some rough sledding in the near term, but in the long run rents would drop.

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    • Replies: @Kyle McKenna
    Yep. Few understand this--average rents would increase slightly, but market rents would drop significantly. Because these sweetheart deals would vanish in a flash.
  25. It gets better.

    The last “populist Democrat” proposal for “Universal National Service” included a well-hidden clause providing for 15% of conscripts to be awarded an unlimited college scholarship.

    The 15% would be chosen at the sole discretion of the Administrators of the National Service Agency.

    There’s a well-known syndrome at the two US Naval Recruit Depots, whereby the hot chicks coming out of boot camp – somehow, mysteriously… get assigned to Flag Staff offices.

    Raise your hand if you think there’s a shortage of 19-year-old hotpants American chix who would gladly spend 2 years giving BJ’s to elderly congressmen in return for help in getting into HYP + Law School… ON A FULL FREE RIDE.

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  26. @Anonymous
    What would happen in NYC if all rent controls were lifted, and the free market determined rents?

    There'd be some rough sledding in the near term, but in the long run rents would drop.

    Yep. Few understand this–average rents would increase slightly, but market rents would drop significantly. Because these sweetheart deals would vanish in a flash.

    Read More

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