Envisioning the Future of the Red Zone

University Neighborhood Housing Program's

2009 Affordable Housing Forum

Tuesday, June 9, 2009

8:30 - 11:00 a.m.

Fordham University’s Rose Hill Campus, The Bronx

Faculty Lounge, McGinley Center

The same west Bronx neighborhoods that were at the epicenter of community organizing, community development and preservation activities during the past thirty years now provide much of the City’s affordable housing in the form of privately owned, rent stabilized properties with relatively low rents. While maintaining affordable neighborhoods in New York City is good news, there is a convergence of other statistical indicators for the same geographic area that demonstrates signs of distress. The frequency with which our neighborhoods here in the west Bronx color red on maps indicating various forms of housing, social and economic distress gave us the idea of this forum, Envisioning the Future of the Red Zone, where we will address this convergence of negative indicators and offer a framework for discussing what it means for these neighborhoods going forward.

Following a presentation of neighborhood and borough level data and maps (including brand new neighborhood data from the 2008 Housing and Vacancy Survey), University Neighborhood Housing Program will host an interactive panel and audience discussion that will focus on the ways that the institutions, lenders, public agencies and community groups that are responsible for the successful community development efforts of the past three decades can work together to envision a future that builds upon that success for the Red Zone.

Panel:
• Roger Hayes, UNHP Board (Moderator)
• Raquel Batista, Northern Manhattan Coalition for Immigrant Rights
• Nancy Biberman, WHEDCo
• Peter Mosbacher, Amalgamated Bank
• Xavier Rodriguez, Bronx Community Board 5 District Manager

Please respond to UNHP by June 8. The forum is free, but space is limited. You can fax this form to us at (718) 933-3624, email your response to mail [at] unhp.org, or call us at (718) 933-3101.

Housing Articles from the NY Times

On Saturday Jim Dwyer of the Times had a piece on the overfinancing of apartment buildings in the Bronx and how community groups never pushed for this scenario. UNHP's Jim Buckley is quoted extensively defending the role of the Community Reinvestment Act (CRA), a 1977 law that aimed to end redlining but has now come under attack from the Right for fueling the current housing implosion.

Charles Bagli follows this up with an article today on the financial trouble many private equity landlords are experiencing as they realize they can't drive rents up quite as fast as they had planned. While most of the properties featured in the article are located in upper Manhattan, there are a lot of private equity buildings in west Bronx.

Scary Thought for Section 8 Voucher Holders

It took years and years for new Section 8 vouchers to be issued in New York City, but many of the new 22,000 voucher holders are having a hard time finding an apartment in the hot rental market (2005 data showed the Bronx rental vacancy rate at a citywide low of 2.6%, and most vouchers are concentrated in the west Bronx - see the map). According to an article in the Times today, landlords posting availability of apartments often include the restriction, "No Section 8 or other programs."

Activists and organizers featured in the article claim the anti-voucher discrimination could be a mask for racial or class discrimination, while landlord groups claim the reason is the program’s "payment delays and other administrative problems." They are both right - the program has administrative problems, but not taking the vouchers is an easy and legal way to discriminate.

Part of the problem is that so many new vouchers were released at once into a tight rental market. Landlords in gentrifying neighborhoods won't take the vouchers since it won't maximize their rent increase strategies. In the neighborhoods of the west Bronx, rents are among the lowest in the City, leading to an extremely small number of vacant units. So while owners here generally accept the vouchers, there just aren't enough units to go around for all of the new voucher holders.

Councilman Bill de Blasio has introduced a bill to prohibit this type of discrimination - and laws like these exist in many other large cities and New Jersey. This could be a good idea if it's accompanied by changes made to the administrative side of the program improving the process for the landlords involved.

The worst part of the whole deal is that if a voucher holder can't find an apartment, the voucher is terminated; about 1,400 have been terminated so far this year. In this market of shrinking affordability, such losses make the situation even more dire.

How will the Subprime Fallout effect the West Bronx?

The recent dramatic changes in the real estate market -- ignited by the realization that making loans to folks who could never repay them was (also) bad for investors -- are slowly beginning to have an effect on the west Bronx housing market.

Up until very recently, New York had been mostly immune to the real estate downturn (dare I say bubble collapse?) occurring in the rest of the country. So while foreclosures are dramatically up in the City, the effects of them are mostly invisible (unless you know a victim), as troubled owners have been able to do a pre-foreclosure sale for more than the value of their mortgage (even if it's to a property-flipping 'we pay cash for houses'-type place). The main point here is that houses haven't been going vacant or boarded-up in recent years because there has been an out.
But while the City's economy remains strong, the troubles on Wall Street may be a sign that New York's real estate market may soon join the nationwide dive. Much of the subprime lending and "creative financing" that inflated this housing bubble is now drying up, as the secondary market (mostly Wall Street investors, but also Fannie Mae and Freddie Mac) are no longer interested in packaging or purchasing these riskier loans. That means that fewer potential buyers will have access to the type or amount of credit to pay the asking prices (pop! goes the bubble?).
Another similar issue that is especially relevant to the Bronx is the recent jump in jumbo mortgage rates. Because of concerns in the secondary market (the bank that gives you a mortgage often sells it so it can continue to make new mortgages) interest rates on mortgages above $417,000 have recently spiked. This phenomenon may not last, but if those rates do stay higher, buyers will have a harder time financing the two- and three-family homes for sale in the Bronx. In fact, some of the developers of the new-construction 3 family homes (often posted on craigslist.org) have begun dropping their asking prices lately, and many of these homes still have not sold.
If home prices in the Bronx fall below levels from two or three years ago, many homeowners going into foreclosure won't be able to sell for more than what they owe (most foreclosures are on mortgages made in the last two-five years). The result of this could be more properties actually going to auction, and potentially ending up owned by the bank until they could be resold. This is actually what is going on with distressing frequency across the rest of the country, especially in rust belt cities like Cleveland and Syracuse.
As for the specific foreclosure numbers, last week RealtryTrac reported on the rise in foreclosure rates comparing July 2006 to July 2007. The nation as a whole was up 93%, while NYC was up only 55%. The Bronx was up a measly 54.3%, from 208 filing in 07/2006 to 321 filings in 07/2007. UNHP's tracking of foreclosure data in the Bronx also shows increases in all parts of the borough, including the West Bronx.

On the multifamily side, Crain's is reporting that "financing for almost all large commercial and residential projects in the city has dried up," (subscription required) due to the lack of investor interest on Wall Street (another secondary market issue). However, this is mostly influencing deals outside of the Bronx (office and condo deals in Manhattan and parts of Brooklyn).


The majority of banks and thrifts that finance Bronx apartment buildings keep their mortgages in-house, so they may actually be able to pick up some of the business the secondary market is giving up, Crain's also reports. However, it is possible that many of these lenders will tighten their underwriting guidelines in current mortgage climate.

Overall, things remain fairly stable for owners of Bronx apartment buildings, in terms of their access to credit, but the question remains: What will happen in properties that have recently sold for high prices where the new owners need to raise rents to make their bottom line? Even in this recent strong economy, wages for most working class New Yorkers have stagnated, meaning more and more families pay upwards of half of their income on rent or are forced to double-up. An overall downturn in the economy may spell trouble for everyone, including new building owners who be forced to sell at a loss.