“We’ve turned the city into a museum.” Kenny Burgos reviews Abundance

Plus, we welcome NYAA’s newest teammate: Senior Vice President Woody Pascal.

This is your New York Apartment Association weekly update with CEO Kenny Burgos.

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On The Agenda

1:11: Abundance by Ezra Klein and Derek Thompson 

2:59: Federal update: Shakeup at Fannie Freddie

4:07: The insatiable demand for housing vouchers 

5:38: The Rent Guidelines Board meets on Thursday 

→ Last year’s Income & Expense report data 

7:39: Some good news: Introducing NYAA Senior Vice President Woody Pascal

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Transcript

This week on Housing New York, Abundance is the hot topic, and we'll explain how that applies to our state. Plus, the Rent Guidelines Board meets for the first time this week; we'll make some predictions about the first report coming out. 

And we have a big announcement about the New York Apartment Association. 

Let's start housing New York.  

[THEME]
“We need 800,000 units to meet the demand today. What we have right now in the United States and what we have right now in New York City is almost a crisis of absurdity.”

[INTRO]

Hello Housing New York listeners. I'm your host, Kenny Burgos, the CEO of the New York Apartment Association. Each week we gather to talk about housing news, and this week we have a lot of exciting news. 

I hope you all had a great weekend. I know the loss of St. John's men's basketball team put a damper on it. For many, it felt like the city was really behind them. And let's be honest, we needed something good to happen in this city. The vibes haven't been great for the past few months, but maybe the Knicks can give us some hope. 

Okay, onto the news. 

[01:11] [Abundance]

We're gonna start the podcast talking about Abundance. 

It's a new book out by Ezra Klein and Derek Thompson, two self-described liberals who think the Democratic party has lost the plot – [that] they focus too much on building government and not enough on actually delivering value to taxpayers. Specifically, they say Democrats don't know how to build things anymore. 

A large part of the book focuses on housing, and one example they use is the Mayor of Chicago cheering an $11 billion investment to build a hundred thousand affordable homes in that city. If you do that math, that's $1.1 million per affordable home. It's basically the same math that most New York elected officials use as well, because the cost of building in the city is so high.

We can't stress enough how important this message is for New York elected officials.

The mindset that the government has the capacity to build housing, to meet our needs, is gonna be met with huge skepticism because we have no recent proof that we are able to build anything in a cost-effective way.  

Another thing they mention in the book is that more than 15,000 buildings in New York City are landmarked, which means they can't be redeveloped into modern energy efficient housing that the city needs. We've basically turned a city into a museum.  

Solving housing in New York City requires a completely new state of mind, one that is focused on abundance. 

Unfortunately, most public officials are still selling tax-and-spend policies that yield only a fraction of the housing we need. And some of the most powerful voices in the Democratic Party, the lawyers who benefit from all the strict regulations, have started to push back on this new narrative. 

This is something we know all too well. The most powerful voices in New York government are lawyers that want more regulations and more complicated systems. That's the real fight inside the Democratic party. 

We encourage everyone to read this book, especially if you care about the future of this city. 

[02:59] [Shakeup at Fannie & Freddie]

Let's talk about mortgage rates and the federal government now. 

Last week, a massive shakeup began at the two government-backed lenders that millions of apartment buildings and homes rely on. The shakeup started with the firing of top executives at Fannie and Freddie, which came in the direction of new FHF Director Bill Pulte. 

The idea is that the federal government is moving away from offering loans that have better-than-the-private market rates, in order to advance fair housing goals of providing subsidized housing in high opportunity areas. The impact of this is uncertain, but since Fannie and Freddie provide nearly 70% of housing loans in the country, a shakeup in policies and practices will impact access to financing for all buildings. 

This is particularly concerning for the majority of rent-stabilized buildings in the city that have seen their building values decline dramatically over the past five years, which in turn makes securing financing difficult, if not impossible.  

It's important to note that when a building's value starts to decline, that building loses any access to capital for upgrades or maintenance. The rents need to finance the entire building operation, which is unfortunately not happening in most rent-stabilized buildings in the city right now. 

[04:07] [Vouchers]

Let's talk about vouchers now. The Real Deal’s Erik Enquist wrote about the Section 8 waitlist, the struggles to find permanent housing for people on the list – and he made some really good points that we want to echo.

The first point is that 600,000 people applied to be on the waitlist this summer. That shows you off the bat how much demand there is for affordable housing or rent relief. The list was capped at 200,000 people and NYCHA has been able to find permanent housing for just 318 families in nine months. 

That's bad. And we have to ask why it is happening. 

The answer is simple: We don't have enough housing for them. The vacancy rate remains insanely low, which is a product of government policy zoning restrictions and unfair property taxes continue to deter investment, but more acutely, vacancy control on rent-stabilized apartments has taken thousands of units offline permanently, and also created financial distress in buildings that makes turnover of apartments take years instead of weeks. 

If we want to find permanent homes for all these voucher holders, we are gonna need to rapidly increase housing. 

Sadly, nobody has a plan to do this right now. Every housing plan being pitched basically calls for a large amount of government funding to build less than half the housing necessary to help people on the Section 8 waitlist. 

We joked in a previous podcast that it'll be at least 15 years before NYCHA gets through the current waitlist. But upon further reflection, we suspect 15 years is too optimistic of a prediction.

[05:38] [Rent Guidelines Board meeting preview]

Time to talk about the RGB. Last week we promised a preview, so here it is. 

On Thursday, the Rent Guidelines Board is going to meet. They're gonna release the Income & Expense report, which shapes the entire conversation about rent adjustments.  

Last year's I&E, which looked at data from 2022, showed a tale of two cities. 

Roughly two thirds of the rent-stabilized buildings were built before 1974 and received no subsidy from the government. This cohort saw their net operating income decline. 

Roughly 20% of the rent-stabilized buildings are in the core of Manhattan and mostly free-market buildings, with a few stabilized units. This group of buildings saw massive income growth as they recovered from the pandemic. 

The rest of the buildings are newer construction, receiving huge tax subsidies from the government. 

We anticipate Thursday's report to say the same thing. The only difference is that inflation was highest in 2023, and the RGB historically just ignores inflation in the I&E, which paints the picture that net operating income is going up more than it actually is. We'd hope they adjust for inflation, but we suspect they won't. 

The other thing we will likely see from the 2023 data is a decline in building expenses. Older rent-stabilized buildings in the outer boroughs have been forced to cut back on maintenance and repairs every year because of the consistent defunding. So even if NOI for these buildings stays flat when adjusting for inflation, it is only because there is less money to spend on building maintenance, which should trouble everyone. 

Over the past three years under the Adams administration, the RGB has adjusted rents below inflation by 1.4% annually. Under the De Blasio administration, the RGB was actually much better for building owners, with rents adjusted only 0.7% below inflation during his eight years in office.  

This decade of defunding has been particularly hard on 100% stabilized buildings. This is why roughly 1,000 buildings are in some stage of the foreclosure process, and another three-to-four thousand buildings are less than a year away from bankruptcy. 

[07:39] [Introducing NYAA Senior Vice President Woody Pascal]

We're gonna end the podcast with some exciting news about the New York Apartment Association. 

We have a new Senior Vice President starting today.

He is well known to housing experts from his nearly two decades working for the Division of Housing and Community Renewal. His name is Woody Pascal. He's run the Office of Rent Administration for more than a decade, and nobody knows the regulations around housing better than him. 

Part of our mission at the New York Apartment Association is to help owners run their buildings more effectively. That's better for the building owners and for the tenants. Woody's expertise and experience is going to be vital in our efforts to make housing better. We're very excited to have him on the team. 

[OUTRO]

That's a wrap on the podcast. If you want regular updates on housing news, you can follow us on our social media channels on X, YouTube, Instagram, and TikTok. Just search @housingny. 

The Housing New York podcast is a proud product of the New York Apartment Association. We appreciate your feedback and you can leave us a comment on Substack or wherever you're listening to this podcast.

You've been listening to Housing New York with Kenny Burgos, and I'll see you all next week. 

And remember, good housing policy starts with good conversation.