The Price of Liberty is Eternal Vigilance
"Affordable housing" on Ansonborough Field?
Developer's estimate suggests it makes no economic senseWarwick Jones
We have often wondered how serious the City is about "affordable housing". We wondered out loud more than a year ago (November 25, 2004) in a note Hailed, Hyped and Hobbled suggesting that there had been a lot of talk but not much action over the years. This was followed in early 2005 with a flurry of intent by the City to move on a number of projects. Some of these projects are underway though the housing provided may still be beyond the financial capacity of those most in need. But if there is a single project that brings into question the City's policy, it is that of Ansonborough Field. Much of the "affordable housing" will be beyond the means of the needy and it will be provided by what amounts to effectively an incredible subsidy. Indeed, one has to ask as to why the City is persisting on providing "affordable housing" on Ansonborough Field? It makes no economic sense and can only be because of political considerations, or stubbornness.
Developers unveil their proposals
Last week, three developers unveiled their proposals for the Field. The City sought to develop the Field and looked to a project that would establish a hotel, commercial space, condominium units and "affordable housing". It was to be a "world class" project. And the developer was to pay the City for the privilege of undertaking the development.
We will let viewers decide as to whether the ensuing project is "world class" or not. We wrote on the proposals last week. We want to focus on the "affordable housing" component.
"Affordable Housing" a constraint for developers
For the developers, the provision of "affordable housing" was a problem. The City did not specify the amount that it wanted though from pronouncements prior to the bidding, it expected more than the developers offered. At the time the project was first being defined. one City spokesman suggested 50% of all housing should be "affordable".
"Affordable housing" constrained the developers in two ways. It had to be quality, and little different from the other "for- sale" housing - if it were substantially different it would detract from the "for sale at market" housing. But as important was the fact that it had to be affordable, within the financing capability of folk who earned between 60% and 150% of the area median income. This meant most likely that there would be little profit or possibly a loss on its provision. As the developer was not undertaking the development "pro bono", the profit had to come out from somewhere - the cash handed back to the City.
Two of the three developers proposed that 20% of the total housing units be set aside as affordable. Wood Partners planned to set aside 15%. Under questioning by the City appointed panel, a spokesman for the developer revealed some interesting figures relating to sales prices. The other bidders did not reveal these figures, but we feel that very probably, the conclusion that we draw for those revealed by Wood Partners would be pertinent to the proposals of the other developers as well.
Massive effective subsidies
Wood Partners' plan calls for 25 "affordable housing" units. Of the total, 12 would be for rent and 13 for sale. The rental units would range from 850 sq ft to 1450 sq ft. The " affordable for sale" units would range from 1-bedroom 1-bath to 3-bedrooms and 2-baths. The expected rents from the rental units would range from $523 to $1744 a month. If rented at market rates, the rents were projected by Wood Partners at $1400 to $2300 a month. "For- sale" affordable housing would be available from $145,000 to $330,000 per unit. This compares with the estimated market value of $452,000 to $847,000 per unit .
Viewers can do the math. The subsidies on the "for-sale" units range from $307,000 to $517,000 per unit. The rental subsidies range from $925 to $556 a month. Our calculation suggests that the profit foregone by Wood Partners and absorbed by reducing the cash paid to the City from selling housing as "affordable" units is close to $5 million. What the gain would be in realizable value if the rental units were rented at market rates is a guess. It would take the total higher, perhaps to $8 or $9 million.
Why not sell at market and use funds elsewhere?
Let's confine ourselves to just the "for-sale" housing. Effectively, the developer (and the City) is subsidizing 13 "for-sale" units to the tune of nearly $400,000 a unit. Why? Why doesn't the City sell this housing at market and take the full proceeds for use as "affordable housing" elsewhere?
In the last year or so, subsidies per unit paid by the City, and largely from HUD funds, have been less than $100,000, and typically, about $50,000 a unit. Assuming an average subsidy of $100,00, the City could take the funds available from the sale of the units on Ansonborough Field and subsidize 50 units somewhere else on the Peninsula. This is nearly 4 times the 13 affordable units that are planned for sale. And if the "affordable" rental units were rented at market rates, the figures would be a lot higher.
We also make the following comments and observations:
• Wood Partners said there is no difference in quality between the affordable and market rate housing - inside or out. They are all mingled and there is no clustering. So there is no problem for the City should it decide to provide all "market rate" housing units. However there were quality differences in those provided by the other developers but they were modest, one developer said.
• Ansonborough Field may be a desirable place to live. And it may appeal to the Administration's egalitarian feelings to have "affordable housing" there, but it will be at the expense of providing "affordable housing" to a large number of more needy folk.
• African Americans may well have borne the brunt of the closure of the housing project on the Field some 20 years ago. And it may be some good spirited desire to provide for them that drives the City to make a provision of "affordable housing". But looking at the rents and sale prices of the affordable units, we suspect that few will be coming back to the Field.
• Why are we providing housing for folk who are at a 120-150% of the median family income when there are so many in need at much lower income levels?
Houses are crying out for renovation on the East and West Sides
And with gentrification driving so many African Americans out of the East and West Sides and many desirous on staying there, and so many properties crying out for renovation, why is the City subsidizing housing on the Field? It seems clear the City could do more by selling the units on the Field at market rates and taking the proceeds and deploying them elsewhere. The funds that HUD provides to the City for "affordable housing" and social programs have modestly exceeded $2 million a year for the last 10 years or so. Perhaps only about half of these funds have gone to "affordable housing". The subsidy for "for-sale affordable housing" on Ansonborough Field is at 2.5 years of HUD contributions, and possibly about 5 years of contributions for "affordable housing". Adding that for rental housing, the total is much more. In this and other contexts, the subsidy for "affordable" units on the Field at much more than $5 million is large. In any context, it is unnecessary!