Wednesday, August 24, 2016

Can Kevin Plank solve Baltimore's affordable housing crisis?

When I bought some stuff at the local deli Trinacria, hard hit by the rotten infrastructure around both of its locations with sinkholes and surface sewer pipes pretty much strangling its businesses, the only other customer in the store, a local resident, commented, "and with all that going on we want to give that rich guy Plank all that money".
Council Hearing about affordable housing: shouting and

One can't blame him for the misconception. Most people don't understand the concept of "self-funding". But the various pastors attending the City Council Hearings about the Port Covington TIF bills should know better. Instead they toot the same horn as if Kevin Plank was at fault and guilty of all of Baltimore's ills from redlining to bad police practices. And, of course, the affordable housing crisis that shakes all of America.

I am not saying, "give the guy (Plank) a break already. He is young and successful and he wasn't even alive when Baltimore's fate was tilted into the current direction". I don't suggest amnesia. I understand that last year's unrest was a wake-up call and that it, the report of the Justice Department, the conditions in Sandtown, Park Heights or McElderry Park cannot be easily isolated into buckets, each a different silo. As Carl Stokes said to me, "it is all connected". Having lived through the second of the two unrests in 48 years, with crime and health discrepancies sky-high, I am not one to simply say, "look at all the cranes, Baltimore is doing just fine". I get that we are in a different place now.

But pointing the finger at Sagamore representatives and accusing them of racism is another matter.  It follows the same simplistic populist instinct that a presidential candidate follows when he points the finger at Mexicans and blames them along with Muslims and the Chinese for everything that is wrong in America. Scapegoating is not solving any problems. Especially not if the object of derision is a successful local entrepreneur that brings jobs to the area and wants to invest a cool $5.5 billion in the local economy, a condition that many other cities in America would be glad to face.

Yes, true, he wants $535 million of infrastructure cost paid through public bonds and another $700 or so in tax breaks and the City is most definitely entitled to ask, "and what do we get in return"? Even if it must be understood that neither the tax breaks nor the TIF financing are supposed to take a single dollar out of the City's funds and that not doing Port Covington would not enable the City any more to fund schools, infrastructure or affordable housing. It would at worst do nothing for the City or, if the submitted numbers are right, flush a few millions of new tax dollars per year into the municipal revenue stream.

Housing Advocates demonstrating at City Garage (June 2016)
And then there is the housing issue. Baltimore Housing has not been able to maintain its ever diminishing housing stock and is suffocating from deferred maintenance. In spite of years of demolition and sales of public housing units, living conditions in what is left as housing managed by HABC is often deploring. The city is full of vacant housing units and still, waiting lists for Section 8 vouchers are a mile long. Homeless are camping in the streets. It is easy to suspect that there is something foul. But what? Housing advocates point the finger at Commissioner Graziano, another easy scapegoat and surely, there have been terrible things going on under his watch, including, incredibly, sex required for maintenance. But how about if these advocates would lift their eyes and look over the local horizon and discover that most US cities suffer the same housing crisis, no matter whether they are poor or rich?
Baltimore Homeless

So if somebody comes along and wants to build a new city with reportedly 14,000 new housing units, it is only fair to see to it that there is a good amount of affordable housing in the mix. No question about it. A diverse population has been a desirable goal, Jim Rouse knew this some 50 years ago when he designed Columbia with that goal in mind. But pastors and advocates can't get around a simple issue: In the current cost structure, to make a housing unit affordable, it has to be subsidized whether it is for rent or for sale. Even in Druid Heights, an area where relatively cheap two story townhomes with a porch can be built on land provided for minimal cost, an average of $50,000 or so are needed for each unit to achieve a purchase price that low income first time home-buyers can afford without getting a mortgage that exceeds 30% of their budget. Depending on what affordability level one wants to achieve, the subsidy level per unit in a tall multifamily structure as they are typically envisioned for Port Covington would be much higher.

The City is supposed to have collected money from developers for an affordable housing fund according to the inclusionary zoning bill and should have have such support funds to bring about affordable housing. Alas, they don't. Nor is there enough money coming from HUD to support renters that present their vouchers to landlords so that HUD funds would cover the difference between a market rent and what a specific voucher holder can afford. That means that the difference has to be carried by the developer. Surely there is somewhere a threshold for how many affordable units the market rate ones can support. I don't know where that threshold is because it depends on many factors and requires data not everybody has.

It is instructive, therefore to look at a report that the controller of the city of San Francisco has issued that studied this very question of how many affordable units one can require a developer to build before sinking a development altogether. The question in SF is highly acute and very high on the agenda because the place is in such demand that the cost of housing (to buy and to rent) has gone through the roof. So the advocates want 25% affordable housing more than double the currently required 12%. Of course, Baltimore isn't San Francisco and both, the cost to build and the market to sell or rent are as different as night and day. But guess what,  the report says that even in SF anything above 18% would actually reduce the amount of housing to be developed. This should give those pause, who want Sagamore to do 20% in Port Covington, twice the rate of what Sagamore agreed to do on their own including competitive low income housing tax credits to the extent they can get a hold of them.
Among the conclusions of the San Francisco report:
Affordable units in housing block at Transbay Center in
San Francisco
•New apartment buildings can rent a maximum of 18 percent affordable units before new housing is likely to be impeded. The idea is that the higher the affordability percentage, the less money developers will pay for the land. At greater than 18 percent affordability, the value of the land will drop to a level so low that owners won’t sell the land.•New condominium buildings can afford 20 percent affordability before new housing is likely to be impeded.•There is no indication that high-rise projects can absorb greater affordability.•Ownership projects are three times more likely than rental projects to pay the city a fee rather than include affordable housing on site. The city should increase the fee levels in order to give developers incentive to build affordable housing.•Conduct a feasibility analysis every five years that will influence the affordability requirements.The controller also recommends requiring the same affordability requirement for all projects in all neighborhoods. That’s significant because some affordable-housing advocates argue there should be higher requirements in neighborhoods facing significant displacement,
Sure, there are still some other avenues, for example the new Rental Assistance Demonstration program (RAD) in which developers can buy up public housing units and obtain unit based "vouchers" form HUD to build new affordable units in new locations. Such a thing could be worked out for the Perkins Homes "project" where the previous developer just jumped ship leaving Perkins Homes in Fells Point in the lurch.

But here is the rub when one looks at the bigger picture in which housing is only one element: For a fair Port Covington deal, the City should negotiate hard to get to a point where revenues to public coffers accrue earlier and in a more secured way then the current application shows, where the City has to wait for 40 years until the tax revenues start to flow in full. Per the current TIF bill, the the City would not partake in any upsides that come from real estate transactions and land sales in the sense of profit sharing. Profit sharing is one of the things BUILD wants to see, that seems fair enough: If real profits are made, the City gets a share, if not, well, not much harm is done, because without profit nobody will ever see all phases of Port Covington realized.

If the City is serious about profit sharing than this is the reality: The more the project gets loaded up with requirements for community benefits, low income housing and other items that cost money  and reduce profit, the less profit there will be to share. As MuniCap and BUILD's own analysis already shows, the currently projected profits aren't even enough to consistently pay back the bonds without special assessments on taxes inside the Port Covington development district levied over a period of 20 years.

The reverends, Carl Stokes and Mary Pat Clarke (who is married to a developer but threatened that there would be no deal unless the developer agrees to amendments) need to decide: More benefits or more profit sharing? It can't be both.

No single economic entity can solve all the City's problems without sinking the ship, not even Under Armour. In plain English, you can't kill the goose and expect it to lay the golden eggs as well. If Port Covington in the full build-out would really have 14,000 new units and 1,400 of them would be affordable than that would be more affordable units than the Housing Authority -built after Lexington Terrace, Lafayette Court and Murphy Homes were imploded and rebuilt as The Terraces, Pleasant View Gardens and Heritage Crossing. As in San Francisco, an analysis is needed what would truly work.

Klaus Philipsen, FAIA

San Francisco Business Times: Does San Francisco's 25 percent affordable housing requirement go too far? Early reports say yes.
Regarding the San Francisco affordable housing feasibility report:
The feasibility analysis was sure to be controversial no matter the findings, given the concerns over housing, affordability and displacement.
Its genesis stems from Proposition C, the June ballot measure raising the affordability requirements from 12 to 25 percent. When Prop. C was first proposed, Mayor Ed Lee criticized the 25 percent requirement as arbitrary. Developers warned that it would effectively kill the creation of new housing.
Ultimately, both dropped their opposition, in part because Supervisors Jane Kim and Aaron Peskin, the sponsors of Prop. C, agreed to adjust the percentage based on the feasibility analysis.

1 comment:

  1. To be clear
    #1 if Plank uses LIHTC he will be REQUIRED to provide a minimum of 20% of units affordable to 50% or below AMI or 40% of units at 60% AMI.

    #2 If Plank used NMTC program to develop mixed use projects that include housing he will be required to provide 20% of the units as affordable.

    If there is going to be 14,000 new units of housing and he wants $1.2B in public money the least he can provide is 2800 units affordable.