Proposing a Solution to Affordable Housing in New York City
By: Michael Oviosu
Tags: Affordable Housing, Community, New York, Homelessness, Modular Homes

The first step is to discuss the housing problem in New York and describe the peculiar situation we’re in…

As the nation is combating a global pandemic and fighting for social justice and freedom to Black people after 400 years of racial and financial inequality, there is a greater urgency to develop more suitable affordable housing solutions to marginalised members of society.

According to The Coalition For The Homeless, over 61,000 New Yorkers sleep in shelters every night but only 6,000 apartments are being planned to be built every year through 2026.

Part of the reason for this low amount is attributed to the popular belief that affordable housing is not profitable. With New York City being the epicentre of the corona virus pandemic, homeless and displaced residents are bearing the brunt of it.

In 2017, there were 560,000 more households that required low-rent apartments than apartments available due to rising rents and stagnant incomes over the last twenty years

Share of housing units created or preserved by income band

Looking into the numbers, 20% of housing in New York is reserved for individuals with extremely low income and very low income households.

The overwhelming majority, 58% is catered to low income households.

The gap in the supply of housing for residents with higher levels of homelessness and poverty is what needs to be addressed.

Statistics show that during an economic downturn, the use of Low-Income Housing Tax Credits(LIHTC) to build and maintain housing falls. In the Great Recession, it decreased by almost 50% from more than 116,000 units in 2004 to 61,000 units in 2010.

Under the Tax Cuts & Jobs Act, there was a reduction of corporate taxes which led to reduced incentives and the value of the LIHTC tax credits, leading to a decrease in the number of houses built.

As the world deals with the after-effects of the COVID-19 pandemic, developers might have less incentives to develop affordable housing for residents.

Trends in Affordable Housing Market

The biggest and most relevant trend we are seeing in the affordable housing industry is shrinking supply and high demand. With the COVID-19 crisis, we believe we are right to assume these issues will continue and create a greater demand for affordable housing solutions. This has been an issue since affordable housing first began to be addressed and only continues to grow as the gap between a liveable wage and the median wages earned by low income housing candidates continues to rise.

The share of low-income renters experiencing housing hardships in 2019

People who qualify for affordable housing are generally having a difficult time making ends meet, with 30% of low-income renters falling behind on rent, 20% having their utilities turned off, and 15% being threatened with eviction.

As of March 2019, 181,090 families are on the waitlist for public housing and 138,705 families are on the waitlist for Section 8 housing.

Homelessness has been steadily increasing in New York City. As of January 2020, there were 62,679 homeless people in the city (14,682 families and 22,013 homeless children). This number will continue to increase — likely leading to more than 100,000 people in New York City being homeless by 2021. There is an immediate need for a solution to assist the homeless communities in addition to the low-income affordable housing candidates.

The next step is to propose a solution to the housing problem…

This form of construction creates affordable and adequate housing for low to middle-income earners, public workers, and SMBs.

At scale, modular housing construction reduces building costs and construction time by 20% and 50% respectively compared to traditional methods.

Modular construction homes significantly reduce the cost and time of building a home

Time and Cost Advantages of Modular Construction

Traditional methods of construction are unable to meet the growing requirements. My proposed solution involves converting shipping containers to affordable housing and strategically placing them on vacant plots of land scattered across the city.

Structural Advantages of Modular Construction

Incorporating modular housing into the way homes are built will give developers an advantage as a “green solution” over their competition.

A 1 bedroom layout is shown here. There will be a few modifications to the final design

From a building programming standpoint, there’s an average loss factor of 30%, and a minimum buildable area of 20,751 sq ft. An average building using this form of construction can hold up to 90 units.

Proposed room specifications for a one bedroom unit. For a two bedroom, the size would be 320 sq. ft

I identified this as a way to save design costs, labour costs and reduce time spent building a home. Conservative estimates show that this form of construction reduces building costs by up to 15%. At full efficiency, that number rises to 25%. By adopting this approach, construction work would be carried out at the same time that excavation takes place.

The modular construction building process takes between 37 and 46 weeks

It has been proven that traditional construction methods are unable to meet the growing requirements of housing in New York City. Alternative construction methods allows homes to be built faster and easier.

A three-step solution is required to fix the issues surrounding affordable housing

Achieving a project solution of this magnitude requires a significant amount of investments funded by the public and private sector.

Partnerships with Non-Profit Organizations:

Joint ventures between affordable housing developers and non-profit organisations are helpful to create an organic community of tenants. An ideal environment for low-income and extremely low-income households is an urban village filled with supermarkets, open spaces, workshops, and parks.

Partnering with non-profit organisations like Camba Inc, New Story Charity, and ACE will allow us to work with cultural institutions that are mission-aligned and looking to provide shelter for their community members. This would allow us to cut costs & engage with other communities.

Partnerships with the Public Sector:

There are a number of grant and loan opportunities available to developers by the Community Development Financial Institutions Fund:

Loan Opportunities under the Community Development Financial Institutions Fund

Partnerships with Individuals:

An effective affordable housing solution involves engaging with community members to make regular tax-deductible donations towards housing people who have fallen into homelessness. These regular contributions, in the form of $1 - $50 monthly contributions will equip tenants with the social services they need to thrive.

Partnerships with Banks:

In a bid to raise more capital, developers can sell their tax credits to banks for cash that can be used to building homes for the less privileged.

As developers work to provide shelter for the homeless, they should continually look for ways to develop a program that assists distressed individuals and families to get back on their feet. Affordable housing solutions should allow tenants who sign multi-year lease agreements to defer rent payments for the first twelve months, after which they’ll pay between 1.5% and 3% interest in subsequent years.

The bulk of people become homeless due to loss of jobs or extenuating circumstances like unplanned health issues. By providing rent relief, tenants would be able to stay afloat while living in their units. Individual mentorship programs in partnership with local non-profit organizations will work towards providing individual financial assistance and job search opportunities for tenants. Solutions include:

Setting up workshops for applicable tenants to get immersed back into society

Provide employment to underprivileged members of society

Partnering with the government to provide housing to recently released convicts and military members to reduce the number of displaced members on the street.

There are financial risks from investing in the affordable housing market.

Under the affordable housing solution, there are three major risks that have the potential to endanger financial sustainability:

Tenant Default — Tenants are inherently “risky” being that they are lower than 60% AMI. Affordable rents and the deferred rent can relieve their financial strain throughout the life of their lease. Additionally, developers should look to invest in tenants’ financial education by connecting them with other non-profit organizations that focus on financial education (e.g. DREAM Organisation) and partner with organisations to provide employment referrals for underrepresented low-income urban citizens. These efforts will prevent them from defaulting on the balloon payment at the end of their lease. Construction Issues — The business of real estate development inherently has great risk during the construction process. This is a risk that is unavoidable. A way to assuage difficulty during construction is to sign recurring contracts with the same general contractors to eliminate any variability in quality and price. Decrease in donations and grants — Grants and donations make up the majority of funds and is expected to fuel development projects. To prevent a decrease in donations and grants, developers should closely manage relationships with donors and lobby for policies that favour donations in the form of tax credits.

I hope this article serves as a starting point for individuals to start thinking about how lack of affordable housing affects their community. My hope is that developers are encouraged to think outside the box and develop ways to solve the affordable housing crisis affecting underserved members of society.

I am grateful to John Mooney, Alex Suh, and Professor Josh Panknin for their contributions to this research and proposing solutions to the housing problem affecting thousands of residents in New York City.