New York City Mayor Bill de Blasio's initiative for 200,000 affordable housing units over 10 years calls for a $1 billion investment from the city's five public employee pension funds and the use of tax-exempt 501(c)(3) governmental purpose bonds to finance middle-income housing.
De Blasio estimated the overall price tag at $41 billion, including all possible public and private sources. He called it most expansive and ambitious such agenda in the nation's history.
"This plan is different from all other affordable housing plans. The time frame is the fastest ever and our approach to the real estate community is different," de Blasio said Monday at a social-justice themed press conference in Brooklyn's Fort Greene neighborhood.
The Real Estate Board of New York endorsed the plan, which mandates inclusionary zoning for persons and families with low and moderate incomes.
An "affordability crisis," as he called it, was a major theme of the 2013 mayoral campaign. Monday's report said more than 30% of rental households are "severely burdened" because they spend more than 50% of their incomes on housing. Between 2005 and 2012, according to the report, rents rose by 11% while renter's incomes stagnated after adjusting for inflation.
De Blasio called the plan, which would combine public financing and private initiatives, a "$41 billion attack on the problem of affordable housing."
The mayor said the 2015 budget will propose to more than double the Department of Housing Preservation and Development's annual capital budget in the five-year plan, increasing investment to more than $2.5 billion. It will also propose additional funding for infrastructure investments needed to make land available for significant new housing opportunities.
"I am a little concerned about how to pay for it," said Rachel Barkley, a credit analyst for Morningstar Inc. in Chicago. "Looking at capital costs, it's competing with a backlog of capital needs the city already has, which are significant.
"From the pension side, their pension funds are 60% funded, so it's not as though they have a generous lump of cash, even though I know New York City is sophisticated at running pensions."
The city's five pension funds are valued at $147 billion as of Oct. 31, according to data obtained from city Comptroller Scott Stringer's website.
According to Barkley, use of pension fund money to create below-market housing could raise a conflict for the pension plan trustees, who have a fiduciary duty to maximize gains.
De Blasio also said the city intends to maximize resources available at the Housing Development Corp. through a series of new loan securitizations, immediately and throughout the plan. He also plans to beef up staffing at the Department of City Planning.
In addition, de Blasio said the city intends to work with financial institutions, pension funds, financial intermediaries and philanthropy, looking to leverage private capital on a greater than 3 to 1 basis.
The mayor also called for the state and federal government to help identify new funding sources. Some state help in the area of housing policy, including subsidies and rent regulations, would also be necessary.
The 501(c)(3) bonds through the city's Housing Development Corp., he said, would supplement M2, a pilot that would replace the HDC's mixed-income program.
The program would hinge on the use of a 501(c)(3) charitable organization created with the city's assistance to develop and provide quality affordable housing for moderate and middle income New York residents.
HDC would then issue 501(c)(3) bonds to provide tax-exempt financing to the non profit owner. This model assumes the development of middle income housing on city-owned land in areas that can support these rents.
"Use of 501(c)(3) bonds in such projects would preserve valuable volume cap for projects targeted to lower income residents while minimizing city subsidy for middle income developments," the report said. "The conservation of both capital subsidy and private activity bonds would allow the city to finance additional affordable units for low income families.
"This middle income model will require long-term credit enhancement and liquidity on the HDC bonds so that HDC could offer particularly low rates for these developments."
According to the report, potential providers of this credit enhancement could include pension funds and insurance companies.
Moody's Investors Service rates the city's general obligation bonds Aa2. Fitch Ratings and Standard & Poor's rate them AA.