A public-private answer to affordable housing

As federal funds to subsidize housing dwindle, a New York nonprofit pledges $1 billion to ease the squeeze.

Standing in the in the center of a littered courtyard of an abandoned, boarded-up building in the Bronx, Peter Magistro is preparing to transform it into one of the hottest commodities in the country today: affordable housing.

"We did a lottery on our last building: We had 5,000 applicants for 50 units," he says. "So you get the idea, the demand is endless."

With the still-booming real estate market driving up rents, more than 14 million American families have critical housing needs - which means they're spending more than 50 percent of their income on rent or living in dilapidated or overcrowded housing. That's an increase of 60 percent since 1997.

In New York City, 1 in 4 residents now fall into the critical-need category.

To help meet the demand, the Enterprise Foundation - a nonprofit group that leverages financing - has pledged an unprecedented $1 billion to New York over the next five years to make it possible for developers like Mr. Magistro to build tens of thousands of new units. It's part of Mayor Michael Bloomberg's goal of building 65,000 new affordable units in the city. And as federal funds to subsidize housing are dwindling, the effort is drawing national attention.

"In two decades, the city hasn't made this kind of a commitment to housing," says Shaun Donovan, New York's Commissioner of Housing Preservation. "What the Enterprise Foundation has seen is that there's a real opportunity to be successful here in their mission ... of developing affordable housing."

Housing experts say such a commitment of private resources is more crucial than ever. Despite the success of private developers like Magistro, who's spent the past 30 years renovating and building affordable housing in the Bronx, many housing experts contend the affordable-housing crisis is about to become far worse because of Washington's overwhelming budget deficit.

Since the 1980s, when the federal government began pulling out of the business of building affordable housing, it has provided various vouchers under the Section 8 program, tax credits and grants to private developers. Groups like the Enterprise Foundation have used those funds to leverage financing in the private marketplace. It's that delicate balancing of public and private funds that makes it financially feasible for people like Magistro to turn empty shells into well-maintained, elegant apartments.

Because of the deficit, however, the Bush administration has proposed cutting many low-income housing programs in its 2005 budget. That, say housing advocates, has sent shivers through the affordable-housing community.

"The fear is that the underpinnings of this public-private partnership, such as it is, will come undone," says Bart Harvey, chairman and CEO of the Enterprise Foundation. "It is critical that the government continue to play its role, even though that role may be small right now given the need."

Officials at the Department of Housing and Urban Development (HUD) acknowledge that the deficit has reduced available funding. But they insist it will not jeopardize the complex public-private partnership that has developed over the past quarter century. HUD's Bryant Applegate says affordable housing remains one of the top priorities of the administration - which in light of the reduced resources is looking to find new, creative ways to address the problem.

One of its top priorities is called "America's Affordable Communities Initiative." It's designed to encourage local and state governments to reduce some of the regulatory burdens that add to the cost of housing - things like building fees, density restrictions, and sidewalk setbacks. Mr. Applegate contends such items could add as much as 35 percent to costs.

"This initiative is not designed to take the place of other programs or be the cure-all for problems in specific areas," he says. "It's just one piece of the puzzle."

Applegate notes that HUD gives extra consideration to grant applicants if they can show they're working with local com- munities to reduce regulatory barriers. As part of Mayor Bloomberg's plan, New York City is in the midst of a massive rezoning of manufacturing and some older waterfront districts to help make it easier for developers like Magistro to build affordable apartments.

Housing experts across the board applaud HUD's effort, particularly for working with local communities on the problem, rather than trying to impose a set of federal standards from above. But they also say it cannot take the place of federal funds.

"We need both. We need to reduce regulatory barriers locally, and we need to maintain and increase federal funding," says Conrad Egan, president and CEO of the National Housing Conference.

Mr. Egan says the federal funding component is particularly crucial for building housing for extremely low-income people who are often elderly, disabled, or formerly homeless. Magistro, who usually sets aside a percentage of his projects for the formerly homeless, agrees that both approaches are needed.

"The savings wouldn't be enough to offset the need for federal funding," he says. "For instance, this project is 10 percent formerly homeless, and we couldn't do it without the Section 8 component. It wouldn't be possible."

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