As the housing problem gets worse and affects people in every district, it’s not surprising that the New York City Council is putting forward a set of bills that are supposed to create good jobs in affordable housing and make projects more affordable. Two bills that are being considered will unfortunately do more harm than good. They will make it much harder to build homes, lessen the benefits of growth on the economy, and make the problems that the bills are meant to solve even worse.
The first is an attempt to put prevailing wage standards in place for all affordable housing projects that use public funds, which means all affordable housing proposals. Even though this idea is good, it would slow down the process of building affordable homes.
In response to the bill, the New York State Association for Affordable Housing did an analysis in October 2023 that showed that requiring the prevailing wage on construction would make affordable housing cost $194.94 per square foot, which is $194,940 per 1,000 square feet, or about twice as much as the current amount of city capital given per unit.
It’s simple to understand why this is the case. Take a look at a made-up development: a big, multi-phased plan to add 1,000 new extremely low- and low-income (ELLA) flats. Today, the project would be paid for with tax-free bonds from the city’s Housing Development Corporation and 4% Low-Income Housing Tax Credits from the IRS. The Department of Housing Preservation and Development would also give the city about $200 million in capital to cover the rest of the cost.
According to a median wage requirement, each unit would need an extra $195,000 in city funds on top of the $200,000 that the city already spends on subsidies for each unit. That is completely out of line with how money is being spent now. The project would only be half done with the $200 million in city aid that was given to it.
This is the basic math behind cheap housing, which is paid for by a complicated mix of government grants and rents that are lower than the market rate. It’s so shaky that a prevailing wage requirement would either drastically cut the size of a number of recently approved big, all-affordable housing projects similar to the example above, or they would be canceled. Or, the projects would become much less affordable because rents would have to go up a lot, leaving New Yorkers who are already struggling to pay their bills.
Nobody should be happy about that result. A lot of construction workers who were already making well above the city’s median wage would lose their jobs, even though the lucky few who could work on some projects would make more. Large companies would be the only ones able to handle the higher costs, which could leave small businesses and minority- and women-owned businesses (MWBEs) in the cold. To give you an idea of how much these higher costs add up to, the average yearly wage for a carpenter, which includes time off, is $229,000.
The second bill has been around for years on the council. It is an ideological push to give community land trusts and charities more power when selling public lands. For people who don’t trust private companies working for profit, this may sound harmless or even appealing. But, like the prevailing wage bill, it doesn’t make sense when you look at it more closely.
Because there are so few homes available, it doesn’t make sense to limit the groups that can build affordable housing based on something random, like their tax situation. There’s a good reason why the city doesn’t use this measure to buy other things, like city cars.
Lastly, the bill isn’t really an answer to anything. There is no proof that nonprofits are more affordable over a longer period of time than for-profit businesses, despite what some leftists say. Instead, long-term affordability is already secured by a remainder interest, which is a requirement in the disposition agreement that gives the site back to the city if the developer doesn’t extend the regulatory agreement when it runs out.