This week on Housing New York, the field for New York City Mayor is now set, after the entrance of Andrew Cuomo into the race. We'll preview the election. Plus, new lead based paint laws have been finalized. We'll explain why everyone should care. And the state is putting some money behind an insurance solution for some housing providers. We'll explain why it misses the mark. 

Let's start Housing in 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. Our housing crisis has been so long in the making, and the severity of this crisis is now so dire, that to change the trajectory of this problem, we need to do everything, everywhere, all at once.”

[INTRO]

Welcome to Housing New York, our weekly podcast discussing all the top housing news happening in New York. I'm your host, Kenny Burgos, the CEO of the New York Apartment Association. It's March, college basketball has made the month famous with its tournament being dubbed March Madness. But I can tell you politics in New York could also claim that name. The rush to pass the budget, the kickoff of the rent guidelines board meetings. And this year we have the mayor's race getting into full swing, so we will do our best to report on all the madness with our podcasts. With that, let's get to the news. 

[01:34] [Andrew Cuomo enters the mayor's race]

We're kicking off the podcast talking about the mayor's race. Over the weekend, former Governor Andrew Cuomo officially launched his campaign, after months of speculation. 

[Audio from Gov. Andrew Cuomo’s campaign announcement video]

[Cuomo] “Hello, I'm Andrew Cuomo. Let me start by telling you what you already know. New York City is the greatest city in the world.”

[Kenny]

He currently sits atop the polls that have been conducted, with about 30-to-35% of the vote.

In New York City, there is ranked choice voting, which means you can pick up to five candidates in order of preference. When polls are conducted this way, Cuomo still wins after several rounds, over a more progressive challenger. The Democratic primary is in June, and it seems likely that the winner of that race will end up being the next mayor.

Some independents have discussed running for the seat, and the Republican Party seems like it's going to nominate Curtis Sliwa as their candidate. But let's be honest, they have an outside chance of winning. 

[Audio from Gov. Andrew Cuomo’s campaign announcement video]

[Cuomo] “We must stop talking and actually start building thousands of new affordable units, and create thousands of good jobs in the process. Look around you. We know how to build. We built the greatest city on the planet.” 

[Kenny]

For today's pod, we thought it would be good to recap Governor Cuomo's housing credentials. He was the former Secretary of Housing and Urban Development, or HUD. As governor, he worked with the legislature on minor reforms to rent laws in 2011 and 2015. 

In 2019, he signed the Housing Stability and Tenant Protection Act, which we have talked about a lot on the podcast. It implemented vacancy control on rent stabilized apartments, which led to declining values of buildings, less revenue for upgrades and maintenance, and it plunged at least a thousand buildings into financial ruin.

During his time in office, he invested $20 billion in state funds on a program to create 100,000 affordable homes across the state.  He also invested $2.6 billion in supportive housing to directly address growing homelessness in the state. These efforts were notable, but not nearly enough to meet the growing demand for housing in New York. 

We think it is safe to say that as governor, Cuomo was not a champion for housing supply, mostly because it was never a priority for him. He does have a track record of being very responsive and decisive when dealing with a problem or a crisis. We believe that rent stabilized housing is in a crisis, so if he is elected mayor, we would hope that he would focus on the issue and work with the industry to find a solution that works for both housing providers and their renters. 

[03:58] [Hud cuts expected]

We're going to turn our attention to the federal government now, where there is a lot of concern. 

This past week, there were several stories about the massive cuts expected at the Department of Housing and Urban Development. What these cuts will exactly look like is not certain, but it seems likely that much of the research staff at HUD is going to be let go.

This matters, because that division of the agency figures out area median incomes and fair market rents. Those data points are then used to determine financial aid, voucher amounts, and a host of other things that are vital to the housing infrastructure in New York. We aren't suggesting that HUD will not be publishing those numbers anymore, but any dramatic changes to that process could have a direct impact on New York City housing. And not knowing if or what those changes will be, that creates uncertainty. In business, uncertainty of any kind is bad. 

The other area of concern in New York has been funding of affordable housing, which typically comes from low income housing tax credits, or LIHTCs. There are estimates that $4.5 billion in funding could be on the chopping block.

This past week, the head of New York State's top housing agency, DHCR, told lawmakers that they should not be passing additional state funding to fill in theoretical or potential gaps in federal funding. This is a typical thing that happens when states rely on federal funding. If the state puts more money towards housing, the federal government has an excuse for cutting funding towards housing. 

Everyone should be aware that if federal cuts come, the state will have to respond quickly, if they're going to prevent the current housing crisis from getting worse. And if the state doesn't have the money to fill that hole, they're going to need to look at alternative options. The most obvious one would be to ease regulations, so private investment in housing comes back to the state. 

[05:42] [New rules on lead-based paint]

It's time to talk about lead based paint now. Last week, the New York City Department of Housing Preservation and Development finalized new rules on the testing and remediation of lead based paint in apartment buildings. This was not surprising, but we thought it would be a good time to explain how these laws work, and why they're incredibly important. 

First off, every single building built before 1960 has a presumption of lead based paint. That means that the owners of these buildings need to conduct testing before the end of this summer. The test is called an XRF test. Anything above 0.5 on that test triggers a process for remediation. Also, by the end of 2027, all apartments will be required to undergo lead paint remediation, even if tenants are currently living in the apartments. 

As we have said many times before, we have a lot of old buildings in New York City. At least 60% of apartment buildings in this city were built before 1960. So all of these buildings have to comply with this expensive, but important, regulation. That means a lot of financial investment and a lot of disruption to tenants' lives. They will either have to live through these renovations or leave the apartment for a period of time while the work is taking place. 

Just to give you some insight into the level of this work. In order to test, all of the family's furniture will have to be moved to the center of the room in order to get readings on all of the walls, moldings, window frames, and door frames. And then, to do the turnover work, in many cases, walls will have to be torn down and replaced. Ceilings could have to be completely replaced. The cost of the work is likely going to be a minimum of $30,000 and easily growing to $75,000 or $100,000 in an apartment. 

There are some government grants available to help with this work, but they are woefully inadequate and they significantly underestimate the actual cost of work. Additionally, the Rent Guidelines Board has not approved rent adjustments to create capital for most buildings to be able to do this work. So we fear that compliance with this mandate will not only be difficult, it will ruin the finances of thousands of buildings.  

[07:44] [Insurance compacts]

Another thing ruining many buildings in this city is skyrocketing insurance costs.

We aren't going to recap the problem since we have spoken about it before, but we did want to talk about the news that the state is giving a low interest $2 million loan to a new insurance captive that was formed by a few affordable housing providers in New York City. The idea of a captive to lower liability costs is interesting.

Essentially, by pulling together a lot of capital, they can insure each other's buildings against big settlements for liability claims. But insurance is highly regulated. So in order to do this and get sign off from the government, you need to have a lot of money you're willing to set aside as a security blanket in case things go wrong.

We applaud the people doing this and we wish some luck, but we've looked at doing a similar thing. And the reality is that most apartment building owners just don't have enough cash. To even entertain this idea. Plus the reason that liability insurance continues to go up is a growing insurance fraud. So if the government is looking for a solution to our growing insurance problem, scaling this up is not realistic or frankly smart.

We need to crack down on insurance fraud as well to make sure liability insurance premiums come down. 

[08:53] [Buildings in decline]

We're going to end this podcast talking about the sale of a building in East Harlem. 

It was the talk of the real estate industry because it was a rent-stabilized building that sold for less than $10,000 an apartment. And it was a 97% decrease in value from its purchase price in 2016. You heard that correctly: 97%. 

It's important to note that every single building has a story. We don't have any inside information about this building, but you can piece together the pictures simply by looking at the public data.

In the case of this building, the purchase price of more than $8.8 million was a little high at the time. We know this because the mortgage was only $6 million. That means the building's value, as determined by standard bank loan practices, was only about $7.5 million dollars in 2018. 

After the passage of the 2019 rent laws, the building's value declined rapidly. That's because net operating income began to decline as operating expenses went up. Since the rent in the building didn't cover operating costs and mortgage payments, you start to see violation counts tick up. In the case of this building, they had particular problems with complying with lead-based paint regulations that we described earlier.

What you ultimately got was a downward spiral where the eventual outcome of the building was foreclosure, or in this case, fire sale. We are seeing this happen to thousands of rent-stabilized buildings right now. 

A 54-unit building on Morris Avenue in the Bronx is at auction after foreclosure And the opening bid is less than $20,000 a unit. A dozen other buildings have sold for 40% to 60% declines in values just in the past year. 

We hate to be alarmist, but all the data points to these foreclosures and fire sales picking up this year into next year. It would be nice to know if the mayoral candidates have a plan for this rapid decline of rent stabilized housing. 

[OUTRO]

That's it for the podcast. As always, you can follow us on social media @housingny. On Bluesky, we are just @housing. 

The Housing New York podcast is a proud product of the New York Apartment Association. 

Please keep sending us feedback on our website or in the comments below. 

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.