Nov. 21 (Bloomberg) -- Around the side or back doors and down 10 steps of the single-family homes in Ozone Park, Queens, lies a netherworld of illegal basement dwellings -- a byproduct of New York’s chronic housing shortage.
“Some are even better than those that are above,” said Seema Agnani, an urban planner pushing for a law to add the units to New York’s legally protected housing stock.
To Mayor-elect Bill de Blasio, the subterranean apartments in neighborhoods mostly outside Manhattan symbolize government’s failure to provide affordable housing for residents of the biggest U.S. city. He takes office Jan. 1 having pledged to build or preserve 200,000 low- and middle-income units in the next decade.
De Blasio, a 52-year-old Democrat, won election this month by the biggest margin by a non-incumbent in city history on a platform vowing to close the growing gap between rich and poor. Unless something is done, he said near the start of his campaign, New York is in danger of becoming a place only for the rich, “where mixed-income neighborhoods will be a thing of the past.”
More New Yorkers are spending higher shares of their paychecks on housing than ever before, with a third paying at least half of their income on rent, according to the city’s Rent Guidelines Board. Having vexed mayors for decades, the housing emergency may only grow worse as city officials project the population to swell about 10 percent to 9.1 million by 2030. For de Blasio to meet his goal, he’ll have to contend with the city’s real estate industry, limited resources and geography.
“Most cities sprawl their way out of their housing crises -- they build wide -- but New York is a series of islands, so we can’t build out; we have to build denser and smarter and up,” said Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development, a coalition of nonprofits. “What you generally see built here over the last 20 years is market-rate or luxury housing, which doesn’t help the great majority of New Yorkers.”
Affordable-housing advocates including Dulchin are quick to laud the success of outgoing Mayor Michael Bloomberg, who’s on track to build or preserve 165,000 units by next year. Even so, they see in de Blasio an ally more willing to embrace what they call a fairer mix of government incentives to spur private development of homes that teachers, firefighters and retail workers can afford.
The benchmark de Blasio has set for himself over the next 10 years -- two more than the maximum he’s allowed to serve -- would eclipse that of his recent predecessors. The subsidized housing plan of the late Edward Koch, a Democrat who led New York for three terms in 1970s and 1980s, produced more than 156,000 new and renovated units. Rudolph Giuliani, a Republican who served two terms through 2001, added 44,000 to Koch’s program.
De Blasio’s plan calls for the construction of 50,000 affordable units through a policy called mandatory inclusionary zoning. It would build on a similar, voluntary program instituted by Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP.
Under de Blasio’s proposal, real estate developers would be required to create permanently affordable and rent-regulated housing for low- and middle-income families in order to build in neighborhoods rezoned for higher density. Similar policies are in place in San Francisco, Chicago and Boston.
Backers of the program, including Dulchin and Democratic Councilman Brad Lander, say it would encourage more developers to build in more neighborhoods, be a better use of public subsidies and would help preserve rent-regulated apartments in rezoned areas. They criticize the voluntary program for not producing enough housing that people can afford. Since the policy was instituted in 2005, only 1.7 percent of all residential units included in building permits -- about 2,700 apartments -- were classified as affordable, according to an August report from Lander’s office.
Developers won’t build anything unprofitable without government assistance, said Mary Ann Tighe, New York regional chief executive officer at property brokerage CBRE Group Inc. and the former chairwoman of the Real Estate Board of New York, a trade group.
“There’s been an ongoing desire by some to make affordable housing part of sort of a social engineering project,” she said in an interview. “There is no commanding the development community: ’You must do this.’ There’s no waving a mayor’s magic wand.”
Finding more public funding for housing may not be easy. De Blasio faces a deficit in the next fiscal year of as much as $2 billion as he attempts to produce a balanced budget of about $70 billion.
Howard Husock, who studies housing policy at the Manhattan Institute, which advocates less government regulation, said New York’s high rents and low vacancies are caused by too much subsidized housing, not too little. De Blasio’s zoning plan could widen the income divide of residents in the same building by forcing developers to increase the prices of market-rate apartments to make up for the revenue lost on below-market units, Husock said.
De Blasio also wants to direct $1 billion of the $144 billion in city pension assets toward preserving 11,000 units. That would compare with the majority of the city’s $2 billion Economically Targeted Investments program invested in affordable housing since the 1980s, according to Comptroller John Liu’s office. Other solutions include closing a tax loophole that encourages real estate owners to wait to develop vacant land until prices rise.
New York has faced a “housing emergency” -- defined as having a rental vacancy rate below 5 percent -- since surveys began in 1965, city statistics show. The rate was 3.1 percent in 2011, the latest year for which data are available; for units with monthly rents of $800 or less, it was 1.1 percent.
There were 3.35 million housing units, according to the city’s Housing Preservation and Development Department, the most since it began counting in 1965. Just 38 percent New York City renters live in unregulated, market-rate apartments, according to New York University’s Furman Center for Real Estate and Urban Policy.
Tenants lack bargaining power in such a tight market, says housing advocate Dulchin. The shortage also contributes to economic instability and homelessness, he said. More than 51,000 people sleep in city shelters each night, an almost 70 percent increase since 2002, according to the Coalition for the Homeless.
New York has long played a game of catch-up on affordable housing. From 1994 to 2011, the regulated housing stock added about 137,000 units while losing about 240,000 for reasons such as rent decontrol, subsidy expiration and co-op and condo conversion, according to the Rent Guidelines Board. More than 45,000 units will expire from rent restrictions and require new subsidies during de Blasio’s first term, according to the Furman Center.
In New York, the mayor isn’t in completely in charge of city housing. The state legislature in Albany oversees rent regulations, and the federal government helps out with funding subsidies. Unless Congress reverses the sequestration cuts that took effect March 1, as many as 185,000 low-income households could lose their housing vouchers, including as many as 19,000 in New York, the second-largest total of any state after California. That’s according to a report this month from the Center on Budget and Policy Priorities, a Washington-based research institute that examines the effects of fiscal policies on low- and moderate-income Americans.
City law forbids homeowners from renting units that are more than one-half their height below curb level. In practice, it’s flouted so frequently that some residents are hard-pressed to identify homes on their blocks without a basement apartment. In interviews last week, homeowners recounted how the units, which they rent for about $900 a month, are routinely built by construction companies and marketed by real estate agents off the books.
Some are firetraps lacking windows or quick exits. Others, with full kitchens, bathrooms and bedrooms, are distinguishable from legal units only by their lower ceilings and minimal amount of sunlight, which peeks in from windows big enough for only the slimmest of residents to slide through.
Most of the thousands of illegal basement apartments are in Queens, according to an estimate by Chhaya Community Development Corp., which works with South Asians in the borough. One survey by the organization found that least 35 percent could be potentially legalized to provide adequate air, light and safety.
In his housing plan, De Blasio pledges to “end the practice of pretending these homes and their families don’t exist.” That would be done through legislation creating an “accessory dwelling unit” pilot program to begin bringing the illegal units out of the shadows. Chhaya is part of a coalition working with city council members to introduce such a bill next year.
Legalization could provide protections and proof of residency for tenants, while eliminating homeowners’ risk of losing income and getting fined, said Agnani, Chhaya’s executive director. The city could better account for neighborhood populations and plan for expenses such as schools and sanitation, she said.
The idea has won an unlikely ally in the Manhattan Institute’s Husock.
“Anything that increases supply is really good and anything that allows homeowners to make better use of the housing that they own themselves, for which they find willing tenants, as long as it’s safe, really should be encouraged,” he said.