Most New York Democrats breathed a sigh of relief last week despite Republican gains in Congress and Albany. While the power structure remains status quo, the ideological center moved slightly to the right. Real estate developers support Democrats over Republicans by a wide margin and they will need to leverage that influence to address several issues looming over The Bronx real estate market.
To meet New York City’s affordable housing requirements, the 421-a tax abatement program will need to be renewed in some form. Various pandemic relief programs muted the impact of the 2019 rent control legislation, but the extra money is fading away. Tenants are straining under their rent burden again and landlords are having a tougher time keeping up with repairs and maintenance.
On a more macro level, crime and inflation are disproportionally hitting low income neighborhoods, sowing doubts among businesses considering expansion in The Bronx.
As legislators settle into their new offices, a pressing item of business will be renewing the 421-a tax abatement program that expired in June. All those fancy towers rising in Mott Haven are possible because they include a percentage of low income units, in exchange for a tax reduction lasting up to 35 years.
The math wouldn’t work without the subsidies, as most developers see better opportunities in Westchester and Florida. The economic cycle is closing the development window as the Federal Reserve tightens monetary policy. That doesn’t mean developers close up shop, they adapt to this part of the cycle and plan their next ventures. So, it’s important for The Bronx to remain a compelling investment in the challenging economy.
Most observers across the political spectrum expect the program to be renewed in some form. Legislators can then focus on the existing housing stock. They may be confronted with some blowback from previous legislation.
Rent is Due
The most important New York real estate regulation in a generation has yet to be fully felt three years after its passage. The Housing Stability and Tenant Protection Act of 2019 (HSTPA) was predicted to bankrupt landlords and bring back the burning Bronx of the 1970s.
The law granted new rights to tenants and made evictions more complicated. It also restricts landlords from raising rents on renovated vacant apartments. If landlords can’t realize added value, they will be reluctant to invest.
The 2020 Covid pandemic proved to be more significant than HSTPA. Massive government aid brought delinquent tenants current and kept the rent coming to the landlords. Rent arrears have become less of a problem, but those pandemic programs are winding down.
More repairs and maintenance are getting deferred as permitted rent increases have been far below the inflation rate. The Rent Guidelines Board allowed regulated rents to rise by 3.25% for one-year leases this year. Landlords welcome the biggest jump in over a decade, but it’s less than half the rate of most inflation metrics. The inevitable deterioration of the housing stock will show up in rising complaints. So far, the press has focused on problems at NYCHA, but some large landlords are drawing scrutiny too.
Taking It to The Streets
While these policy issues are debated in Albany, the politicians claim that rising crime is just Zeldin propaganda. The rest of us know otherwise. Crime prevention is the primary responsibility for local leaders. If businesses and their employees aren’t safe, it can all go downhill quickly.
Albany’s other major legislation from 2019 was the cashless bail law, who’s effects began hitting immediately. Everything got skewed by 2020, but the current crime wave began in 2019. We all see frequent news reports of heinous crimes committed by repeat offenders. Fortunately, there’s an easy answer. Put the criminals back in jail. It would be the greatest gift to the poorest Bronxites who are bearing the brunt of rising crime.
Unfortunately, decarceration is the prevailing criminal justice policy. Catch and release is not only letting criminals run free, but it has broader implications for Bronx real estate. The Rikers Island population has already been cut in half in preparations to be closed and replaced with borough based prisons. There hasn’t been much vocal opposition to building a prison in Mott Haven, but Morris Park is another story.
Plans to house Rikers Island inmates with complex medical needs at a Jacobi Hospital building drew noisy protesters to a community meeting this summer at Maestro’s Caterers. Aliya Schneider reports for the Bronx Times that City Councilmember Marjorie Velázquez opposes the plan in favor of senior housing or a birthing center saying “we need to make sure that we’re taking care of the women that we have here in our district.” Assemblymember and incoming State Senator Nathalia Fernandez also opposes the plan.
The Path Ahead
Mayor DeBlasio found it “unconscionable” that prisoners shown mercy would recommit crimes, but Mayor Adams and Governor Hochul will have to deal with that reality. They don’t have a toxic relationship like Coumo and DeBlasio had, so hopefully they can work with the City Council to reconcile the interests of their campaign supporters and constituents. We can take encouragement that the NYC prison population, currently at 5,811 inmates, has actually grown 6.9% so far this year.
Although the political status quo won last week, factors supporting The Bronx real estate renaissance are turning dramatically. Legislating to address the looming clouds from rising interest rates, regulations, inflation, and crime will prove more difficult than spending free federal covid money.
Real estate developers know how to handle higher interest rates, but they need confidence that government policies won’t ruin their investments. Inflation and Republican control of the US House of Representatives will spell the end of free money, making it more important for our local leaders to implement the best policies to keep The Bronx developing.