By Roger Trettel and Andrew Crossed
Buffalo is currently enjoying an urban revival that has not been seen in upstate New York in our lifetimes. With it has come a demand for rental apartments in the city and many important and exciting projects that include building renovations, adaptive reuse and urban infill.
As reported recently in the Triangle Business Journal, a housing study by Smart Asset ranked Buffalo No. 1 for the healthiest housing market in the U.S.
The City of Buffalo clearly has done a great job in the implementation and planning of numerous projects that have been a part of this revival.
The Buffalo News recently reported on our new project at 990 Niagara St. that will include some affordable units in response to public outreach. A question posed in the article is, how it is possible to include affordable units in such a project? To accommodate this, our project will look to federal and state tax credits and programs specifically designed to finance rental affordable housing.
At the risk of oversimplifying the issue, owners and developers commit to making rents affordable to lower-income residents for the life of the project in exchange for tax credits and low-interest loans that help offset the cost of the affordable units. This is necessary because rent for affordable units is not enough to cover the development and construction costs to build them. The federal and state resources are scarce, and the City of Buffalo has done a wonderful job in administering and maximizing these programs.
Inclusionary zoning is an excellent idea conceptually, however practically it is difficult to administer and unrealistic. The introduction of even 20 percent of the units as affordable in a project is extremely costly and complex, and changes the overall project financing from private to public.
For example, an affordable fixed rent for a one-bedroom apartment of $700 versus the market rent for the same unit of $1,450 creates a monthly gap of $750 or $9,000 annually. At a capitalization rate of 7 percent a gap in financing of approximately $128,000 is created for the life of the project for the unit.
The sources of funding available for affordable housing are extremely scarce and it is unlikely that the city could get more than two or three projects funded annually.
So yes, affordable rental housing is able to be created as part of upscale apartment projects. However, if all new projects were required to include affordable housing units there would be a tremendous slowdown in the important and impressive revival Buffalo is experiencing.
Roger Trettel is a real estate developer and heads the Buffalo office of Tetra Tech Engineering. Andrew Crossed is the managing partner of Park Grove Realty, a multistate real estate developer.