'It's just more lucrative to build luxury housing' if affordable housing requirements become too strict, says Deborah Wright, CEO of Carver Bancorp.
'It's just more lucrative to build luxury housing' if affordable housing requirements become too strict, says Deborah Wright, CEO of Carver Bancorp.

Elected officials from President Obama to the new mayor of New York want to kick-start a building boom in affordable housing. That's good news for the residents of cities where the cost of living is soaring. Not so much for banks.

While Washington policymakers gear up for a prolonged housing reform debate, lenders' immediate fight over development of low-cost apartments is occurring at the local level—especially in New York.

Mayor Bill de Blasio this month reached an agreement with the developer of the former Domino sugar factory in Brooklyn to expand the number of affordable-housing units at the site. In exchange the developer will get to construct taller buildings, according to media reports.

At the same time, the Association for Neighborhood Housing & Development and other advocacy groups have called on Mayor de Blasio to adopt new zoning policies that would mandate the creation of more affordable-housing units.

Bankers hope the debate turns more in the direction of the Domino deal. Real estate developers and their lending partners want to build affordable housing units, says Deborah Wright, the chairman and chief executive of Carver Bancorp in New York's Harlem neighborhood. But they have to make financial sense, she says.

"It's just more lucrative to build luxury housing," says Wright, who served as commissioner of the city's Department of Housing Preservation and Development under Mayor Rudolph Giuliani.

"No one in the private sector wants to have a mandate they can't fulfill," Wright says.

If the city decided to require that all new buildings in neighborhoods zoned for high density include a larger number of affordable units, lenders might deem the projects bigger risks, Wright says. But the issue is critical for the health of big cities.

"We've got to have room for working families, otherwise [New York and other large cities are] going to become only affordable to the wealthy," she says.

The issue of affordable housing is most salient in New York, Chicago and other big cities, particularly in big buildings. In New York, for example, half the city's affordable housing is located in buildings that have at least 50 units.

De Blasio, who took office on Jan. 1, campaigned on a promise to increase the density of housing developments, in exchange for additional affordable housing. Some housing advocacy groups plan to press him on the issue. A collection of advocacy groups and some City Council members held a rally at New York's city hall this month to support a mandatory affordable-housing zoning policy. The groups feel that approach will require all new developments to have affordable housing, without the need for negotiations for each individual development.

Calls and emails to Mayor de Blasio's office seeking comment were not returned.

Inclusionary zoning policies have worked in other cities, including San Francisco, says Joseph Reilly, president and CEO of Community Development Trust, a New York-based lender to affordable-housing projects.

"Land is very expensive" in big cities, Reilly says. "You've got a high-cost market in terms of construction costs, and you've got expensive land. You've got to figure out how to bridge that gap."

Some financial institutions plan to stay in New York's multifamily market, even if new affordable-housing policies make it more expensive to do so.

"We play the hands we're dealt," says Joseph Orefice, head of commercial real estate lending at the $16-billion-asset Investors Bancorp in Short Hills, N.J. "We want to be lenders in New York City. If you have changes in the rules, whether mandated affordable housing, or [an increase] in real estate taxes, they all have an effect, up and down the line."

Other banks that do CRE lending in New York are concerned policy changes could drive developers and their lenders out of the business. The $16-billion-asset Valley National Bancorp said that any new housing policy will make it, and likely other banks, think twice about financing projects.

"If the mandatory zoning policy impacts a developer's profitability, we may see less development," says Christopher Coiley, head of commercial real estate lending in New York for Valley. "It's a very difficult balancing act."

Valley "will continue to review and lend on projects for both market rate and low- to moderate-income projects accordingly," Coiley says.

How hard lenders will fight, and how public the clash with politicians will be, are unclear.

Two of New York's biggest lenders to multifamily housing have not made public statements on the Domino development or on the issue of inclusionary zoning. JPMorgan Chase, metro New York's largest bank by deposit market share, declined to comment.

Joseph Ficalora, president and CEO of New York Community Bancorp, the city's biggest multifamily lender, said through a spokesman that the $47 billion-asset thrift "[looks] forward to working with the Mayor and his administration on this important issue."

Meanwhile, the housing battle on Capitol Hill is just being renewed.

Obama included $1 billion in his latest budget for the National Housing Trust Fund. Mel Watt, an affordable housing supporter, now leads the Federal Housing Finance Agency. The bipartisan housing-finance reform plan released Tuesday would abolish the affordable-housing programs of Fannie Mae and Freddie Mac, and replace them with a new trust fund.

And a keynote address Thursday by Sen. Elizabeth Warren, D-Mass., at the National Community Reinvestment Coalition's annual meeting in Washington could provide more fodder to the affordable-housing debate.

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