In the face of a severe housing crisis, New York City is taking important steps towards increasing affordable housing supply through initiatives such as the ‘City of Yes’ and ‘City for All,’ along with a state plan that commits $1.5 billion to expand housing.
Yet, more actions are necessary to ensure that public investments effectively enhance community welfare. At a time when the federal government trends toward diminishing its role, it is crucial for New York City’s housing strategies to bolster civic infrastructure while promoting equity and inclusion.
Significant public investments will be essential to meet the city and state’s housing goals, with a diverse array of developers engaged in the construction of this needed housing.
However, it’s crucial to acknowledge that not every public investment yields the same benefit for communities. Nonprofit developers stand out as the only segment in the affordable housing arena that is legally bound to reinvest their financial gains back into the neighborhoods they serve.
The public-private partnership model for housing development emerged over a generation ago, largely out of the necessity to fill the gaps from wavering public support to fully fund affordable housing construction and operation.
As a result, the policy landscape shifted from public housing agencies using federal funds for construction and management towards privatization, where the public sector establishes policy priorities and provides subsidies that private developers then compete for.
In New York City—a precursor in implementing this public-private model—mission-oriented nonprofits were among the first private entities to embrace this shift. During the early 1980s, under the leadership of the Koch Administration, with the city facing significant crisis, local nonprofits began engaging in real estate development after being encouraged to do so.
They purchased abandoned properties from the city for a nominal fee and revitalized them into affordable housing, thus breathing life back into abandoned neighborhoods.
This was a prototype that inspired similar efforts across the nation, facilitated by the introduction of the federal Low Income Housing Tax Credit program in 1986 and other financial mechanisms aimed at enhancing resources for public-private housing partnerships.
Although nonprofits pioneered this approach, private developers soon entered the fray, recognizing the potential profitability inherent in affordable housing.
Policymakers designed financial incentives to attract a broader array of development partners to respond to the pressing need for affordable housing at scale.
Navigating the intricate public processes to secure necessary incentives required persistence and patience, particularly in high-demand markets like New York City, where demand for affordable housing consistently outpaces supply.
After a generation of operating within this new model, divergence between for-profit and nonprofit developers has become apparent.
For-profit developers seized financial benefits, which they channeled into growing their businesses, attracting equity investors, and in many cases, cashing out for substantial personal gain.
In contrast, nonprofits have surrendered the prospect of personal wealth accumulation in favor of governance structures where their organizations operate under volunteer boards.
Equity investors have not been a facet of nonprofit operations; instead, they reinvest their gains primarily in subsidizing their organizational missions.
A poignant example of this ethos can be found in the Fifth Avenue Committee (FAC), a Brooklyn-based nonprofit founded in the 1970s as a grassroots movement to combat neighborhood abandonment in lower Park Slope, an area previously affected by redlining.
Initially encouraged by the city government, FAC transitioned into real estate development and by the end of the 1980s, had successfully renovated and managed over 400 affordable apartments.
Now, celebrating its 47th anniversary, FAC’s real estate endeavors have not only expanded its affordable housing pipeline to over 2,000 homes but have also fueled organizational growth.
The collective annual budget of FAC and its affiliates stands at $20 million, providing support to over 7,000 low- and moderate-income New Yorkers through various services, including adult education, workforce development, tenant organizing, eviction prevention, financial coaching, and community health worker services.
FAC has also established itself as a significant advocate for inclusive development planning in rapidly changing neighborhoods such as Gowanus.
The advocacy work has yielded tangible benefits for the community, including a commitment to ensuring that 35 percent of the 8,500 housing units being constructed in Gowanus as part of a 2021 rezoning plan will be permanently affordable for low- and moderate-income residents.
Additionally, FAC has secured a $200 million commitment from the city for vital upgrades to local public housing as part of its negotiation outcomes.
The extent of FAC’s community-oriented work is intrinsically linked to its real estate activities.
Despite securing significant funding through city and state contracts and private grants, FAC generates roughly one-third to half of its annual revenues through earned income, which is heavily influenced by developer fees.
Thus, the ability of FAC to deliver affordable housing directly subsidizes its community programs.
In the past three years, FAC has reinvested nearly $3 million back into community programs serving low- and moderate-income New Yorkers.
Despite its contributions to community well-being, FAC struggles against for-profit developers when competing for public subsidies due to its focus on community reinvestment over profit maximization.
While nonprofits like FAC leverage their resources for the benefit of neighborhoods and residents, for-profit entities often redirect their revenue towards enterprise expansion and attracting equity investments.
This discrepancy can put nonprofits at a disadvantage when it comes to the financial capacity criteria used to evaluate development proposals for public subsidies.
As New York City and the state prioritize the urgent need for increased housing supply, there exists a risk of favoring for-profit companies that prioritize scale over community investment.
To mitigate this risk and cultivate neighborhoods instead of mere housing structures, the public sector must evaluate nonprofit and for-profit developers differently.
Investments in nonprofit organizations should factor in the multiplier effects their operations provide to the surrounding communities, as well as the positive impact on lives beyond merely the residents of the new housing.
A strategic understanding of mission-driven investments should extend beyond nonprofits to include community land trusts, limited equity cooperatives, and other models of community-based ownership that will safeguard public investments for future generations.
Philanthropic entities also play a vital role in this conversation.
Private and corporate foundations, along with individual donors, should consider enhancing the financial capacity of nonprofit organizations, enabling them to scale their housing development efforts effectively.
We advocate for more than just operating grants; we need investments aimed at strengthening nonprofits at the enterprise level.
Such financing could help these organizations enhance their financial health, empowering them to undertake more ambitious affordable housing projects that integrate essential resources for the communities in which they are built.
image source from：citylimits
