After an apartment fire filled Twin Parks North West’s 19 stories with smoke and took the lives of 17 residents, commentators rushed to place blame. Was it a space heater or the fire alarm? Was it the doors? Was it the management? Was it . . . the architecture? Twin Parks North West, with its unique apartment layouts and multilevel public spaces, is indeed part of an important chapter in the history of urban design, one Susanne Schindler, together with Juliette Spertus, revisited for this publication almost a decade ago. But if the complex is unique, the tragedy was anything but. Four days before the Bronx fire, a blaze at a Philadelphia row house killed twelve residents. We could note, too, as The City did, the spate of fires at NYC public housing developments over the last year. What all these preventable tragedies point to are the enormous and ongoing shortcomings in the provision of safe, decent, or suitable housing for so very many amidst the paradoxical and unnoticed double standards that define “affordable housing” in the US. Below, Schindler lays bare the contradictions of a system that redirects public money to the private sector in the name of a “public benefit,” while starving the public sector itself of funds to directly realize that purpose. The public sector gets little funding and all the scrutiny, while the private sector gets all the money, with no accountability. Where can we place responsibility, when we can’t see the housing system clearly?
Occurring four days apart in two buildings providing affordable housing to low-income households, the fatal January fires at a Bronx high-rise and a Philadelphia rowhouse both gave commentators ample fodder for finger-pointing. In New York City, the fire at Twin Parks North West was seen as a result of for-profit owners who milk their properties. In Philadelphia, the Housing Authority was blamed for not providing public housing to the tens of thousands who would qualify for it. This finger-pointing has been lopsided, but not unexpected: a housing authority is one of the few, recognizable entities that could be expected to be responsible for providing homes to people unserved by the open market. A single private-sector developer, in contrast, is unlikely to be blamed for systemic failure, even if the developer is part and parcel of that system and a symptom of its shortcomings.
This lopsided perception reveals how poorly we understand the US system for generating affordable housing, which should more properly be called government-incentivized and -regulated, price- and income-restricted housing. Housing authorities play only a minor role in its provision, one that has been continually shrinking since the mid-1960s. Private-sector developers, in contrast — both for- or not-for-profit — have taken the lead. They are able to do so thanks to financial programs created and perpetuated by Congress (across the aisle) in the belief that the private sector is superior in delivering public goods. But private sector delivery of public services only works thanks to the public funding it receives. This public funding makes the provision of these services not only risk-free, but profitable. Something that the finger pointers have entirely ignored is that the US makes available most of its funding for affordable housing exclusively to the private sector, of which we expect so little, while explicitly excluding from these programs the public sector, of which we expect so much.
Let us look at the Bronx case to explain. The Camber Property Group and its partners (LIHC Investment Group and Belveron Partners), owners of Twin Parks North West, are able to access two of the central federal mechanisms that cajole the private sector into the provision of affordable housing. These are, on the one hand, Low-Income Housing Tax Credits (LIHTC) to generate capital for new construction or rehabilitation; and on the other hand, Section 8 vouchers to pay for the difference between a widely accepted measure of housing affordability, 30 percent of household income, and fair market rent. Housing authorities, in contrast, can access neither this equity (because they do not pay taxes), nor the operational subsidies (because public housing has no market value to peg the subsidy to). Need I mention the absurdity that, even if housing authorities could access this money, they could not use it to expand their housing stock, given that Congress barred them from doing so in 1998? Unless they are unusually creative and backed by dedicated municipal and state governments, as is the case with the Cambridge, MA or Tacoma, WA housing authorities, these public-benefit corporations rely solely on insufficient Congressional appropriations for upkeep and operations. Hence the well-known, billions-of-dollars’ worth of capital needs in what remains of the US’s aging public housing stock.
The only way for housing authorities to access this funding is by partnering with the private sector. This is what the New York City Housing Authority (NYCHA) has done, with Camber Property Group, at Baychester Houses in the Bronx. In this partnership, NYCHA retains ownership of the land and overall oversight to ensure compliance with the terms of the agreement, for instance with respect to tenant selection and the provision of services. But the day-to-day operations and revenue flow are Camber’s. As reported by Michael Kimmelman, Camber seems to provide, for now, better security and quicker responses to maintenance calls than NYCHA. This may have to do with fewer regulatory hurdles; or perhaps the organization is just better at running a building. The important point here is that Camber can be good at this work, and is able to do it profitably, because public-sector expenditures make it possible for them to do so. It is not due to the supposed innate virtues of efficiency, creativity, or agility often ascribed to market-based players. The Camber Property Group is managing the same buildings for the same tenants with the same monthly incomes, as was the case under NYCHA. But they have access to funding streams that NYCHA, or the Philadelphia Housing Authority, does not have access to.
In short, the US channels public expenditures to private-sector actors to deliver a public benefit while explicitly barring public-sector entities from doing so. The reason why so few understand this fact is that these public expenditures are deliberately hidden from view. LIHTC allows corporations like Google or financial institutions like Wells Fargo to invest in affordable housing development or preservation, and then to deduct the full amount of their investment from their federal income taxes, spread over the course of 15 years. But these corporations can save even more. The IRS allocates credits to states on a per-capita basis. State housing agencies then award the credits to selected proposals submitted by developers. Next, the developers sell their allocated credits to investors. Since the demand for lowering one’s taxes and obtaining Community Reinvestment Credit (which also comes with LIHTC) fluctuates, investors may pay less or more than a dollar for a dollar worth of tax credits. (According to Novogradac, a leading tax-credit consultant, the average price of a tax credit dropped significantly after the last Tax Reform Act, from $1.05 in late 2016 to $0.90 since early 2017.) And there are other perks: by becoming co-owners of the project, investors can claim any tax incentives specific to real-estate, including depreciation. It is also important to acknowledge that currently income and price restrictions — the actual public benefit — can expire after only 30 years, unless state or local regulations require otherwise. Thus another round of public investment is often required to “preserve” the affordability of the housing that has already been publicly paid for. All of this is so hard to track, few understand it. The key point is: the full amount of public expenditure (in the form of foregone taxes) often does not get spent on the provision of housing.
But the opacity of it all is what has made LIHTC a surprisingly resilient policy. It has been on the books for almost 40 years thanks to the support of a range of players who would otherwise have no shared stake in affordable housing: corporations, banks, developers. Given that it is the only source of equity (or grants) provided by the federal government for affordable housing today, even activists and nonprofits are hesitant to challenge it for fear of losing it altogether. Finally, LIHTC’s political survival resides in the fact that foregone tax revenue is not considered a public expenditure or subsidy, but is generally talked about as “private capital.” Because LIHTC is part of the tax code, it does not show up in the federal budget, which is often perceived as the nation’s spending plan. It is like magic: as if the public gets its benefit — the affordable housing — for free.
But the public benefit is not for free. Tax expenditures are public investment, not private investment. Accordingly, taxpayers should demand to know how, and for whose benefit, this public investment is made, and demand the same level of accountability of private developers that they would of a public housing authority. On the one hand, this means accountability with respect to what developers and management companies are being paid to deliver: namely “safe,” “decent,” and “suitable” homes, as municipal, state, and federal housing legislation tends put it. On the other hand, accountability means keeping track of where the money goes. According to the National Low-Income Housing Coalition’s 2021 Advocates’ Guide, LIHTC amounted to $10.4 billion in foregone tax revenue last year. The U.S. Department of Housing and Urban Development (HUD) estimates that this contributes to financing approximately 100,000 units of housing a year. But how much equity is actually generated, given that the value of a dollar of credit can be lower than a dollar? And how much is lost in various transactional fees?
The US Government Accountability Office (GAO) has repeatedly studied the cost-efficiency and effectiveness of LIHTC, prompted by reports of high or fraudulent development costs. In a 2018 report, it found no systematic tracking of construction or development costs, recommending standardized gathering at the federal level. It specifically pointed to the need for tracking one cost that has flown under the radar: the fees paid to syndicators. These are organizations that act as intermediaries between developers and investors seeking credits and assistance with their administration; Enterprise Community Partners is one of the largest. To date, GAO’s recommendations have not been instituted. Doing so would lead to more transparency and accountability, and would allow us to answer the question: If the full value of the tax credits were made available as direct grants to developers, would more money reach the project and be more effectively spent?
It is time to acknowledge and re-empower the public sector as a critical and vital actor in the development, ownership, management, and oversight of affordable housing. A first step is to make public investment directly available to public-sector actors, to avoid the loss of equity through changing prices and transactional fees. According to a recent report by the nonpartisan research institute Center on Budget and Policy Priorities, this — in addition to growing existing programs that support private-sector housing provision, like tax credits and vouchers — could very well be included in the currently stalled Build Back Better Act. A second step is to empower the public sector to better ensure that housing developers are accountable to the public. (This second point reveals another paradox: who is to ensure this accountability, if not the public sector, which has been so systematically undermined in performing even this task?)
All of this may be a hard sell politically. But if we recognize the paradox that the public is already spending money, but making it available only to some actors, calling for both direct public investment and stronger public oversight will be more palatable. At a moment where publicly-funded, privately-run prisons or schools are under increased scrutiny for the poor and even life-threatening quality of the services they provide, shouldn’t we demand the same of housing providers? Empowering the public sector while demanding accountability of the private sector is key if we want to not only prevent more fires like those that occurred this past January, but make headway in the development of so-often proclaimed, yet so rarely guaranteed, “safe,” “decent,” and “suitable” homes for all.
Author’s note: Several people have been helpful in articulating the argument made in this article, and I would like to thank them here: Matt Lasner, for prompting me to reflect on the fires; Juliette Spertus, for nailing, with the word “paradox,” what is going on here; and Chris Moyer, with whom I have been able to investigate what navigating “private capital” and “market-based solutions” means for housing authorities today.
