April 30, 2014

Tackling Housing Quality and Affordability with Two Dozen Lenders


Last month UNHP held its annual Multifamily Assistance Center and Building Indicator Project Lender meeting at the offices of Enterprise Community Partners. Two dozen of the top multifamily lenders in New York City participated, along with Commissioner Vicki Been and Deputy Commissioner Vito Mustaciuolo of the City’s Department of Housing Preservation and Development.

After the welcome and introduction, our Deputy Director Gregory Jost took everyone through a presentation beginning with a summary of the affordability crisis told in our Nowhere to Go report (available here) beginning with how incomes across most of the City, adjusted for inflation, have declined significantly. In the Bronx, real income has declined by 23% since the 1990 Census.

Meanwhile, rents continue to rise much faster for inflation. While Manhattan rents have risen the most sharply, rents in the Bronx were up 48% above inflation between 1987 and 2011.

Stagnating and declining wages, coupled with increasing rents have left New York City in the midst of an affordability crisis. Nowhere is this more acute than in the west Bronx where it is typical for a household to spend more than half of their income on rent. Despite the lowest rents in the City, the concentration of low wage workers (e.g., home health aides, daycare providers, retail, food service, security guards) leaves families struggling to make the rent and have created the largest concentration of families living paycheck to paycheck in the nation.

Families are now turning to other methods to make the rent and avoid homelessness. These “Rooms for Rent” signs now proliferate throughout the west Bronx.

Hard data also shows an increase in overcrowding throughout the City, especially in the Bronx and Brooklyn, as families double up or rent out rooms in their apartments.

Meanwhile, there is a huge disconnect between what is happening with families struggling to pay the rent and with the prices being paid for multifamily residential properties in the Bronx. The nominal average price per unit is at an all time, and we are approaching 2007 prices adjusted for inflation, with the average price per unit topping $92,000 for the second half of 2013. While rents have increased substantially, operating costs have kept pace, meaning speculative investment is likely back to driving the market. The Bronx still occurs as something of a bargain compared to much of the rest of the City. However, with the growing concentration of low wage workers who can ill afford further rent increases, these prices will continue to increase the squeeze on many tenants who may face harassment, eviction, overcrowding and/or homelessness. In sharing this data with lenders who finance these purchases, we continue to make the case for responsible underwriting based on current rent rolls, with an understanding of the limitations current tenants face in paying higher rents.

Meanwhile, we continue to share data from our Building Indicator Project with the top multifamily lenders in the City. Since 2008 we have been sharing portfolios with a growing number of lenders who use BIP data to improve their asset management and encourage owners to make repairs and pay off liens. Following the bursting of the real estate bubble and the subsequent spike in number of distressed properties, we have witnessed a significant decline in the number of physically and/or financially distressed properties across the City. We consider improved code and lien enforcement, strong organizing and cooperation by banks and community groups using tools such as the BIP database to be responsible for much of this decline.

While there have been significant decreases in high scoring buildings, we continue to see high concentrations in certain neighborhoods, namely the west Bronx, upper Manhattan and central Brooklyn.

We concluded with asking the question how long can this decline in levels of distressed properties last? Given underlying financials of residents, rising building prices, and precedent from the last housing bubble, will we see another spike in distressed buildings in the coming years? How can lenders be proactive to prevent that from happening again?

HPD Commissioner Vicki Been then shared updates from HPD regarding their work on distressed properties through the Alternative Enforcement Program and the Proactive Preservation Initiative. Questions were answered with regards to clearing old violations, and other strategies to improve housing stability and quality.

Since the meeting UNHP has distributed the new BIP multifamily portfolios to 26 participating lenders, shared the data with two dozen nonprofit subscribers (subscriptions funded by Enterprise Community Partners), and continue to share our data with the FDIC, the NYS Department of Financial Services, the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency (OCC), and will continue to do so on a quarterly basis going forward.