Since the pandemic, New York City affordable developer Phipps has been giving more and getting less.
Phipps manages about 10,000 affordable housing units using a comprehensive model, meaning that it provides social services to tenants — even to those who haven’t paid their rent.
“It’s become quite a burden on us for property management and social services to try to get the help needed for our families,” Cathy Pennington of Phipps said.
Distress in New York’s subsidized affordable housing has been worsening since the 2019 Housing Stability & Tenant Protection Act became law and then soaring insurance payments, high utility bills and increasingly expensive maintenance added pressure from the cost side.
But buried in the conversation is the fact that the revenue side of the equation has also taken a hit. Tenants, it seems, just don’t pay their rent like they used to.
Those in the affordable housing space have their theories about why that is: cultural shifts, economic forces and a system that helps only the renters in the worst shape. One thing they can agree on? It’s not clear that collections will ever naturally recover.
“As a lender, we’re treating this as the new normal,” said said Robert Riggs, from Community Preservation Corporation, a nonprofit lender.
The drop in collections and squeezing of revenue might on its own be brutal to New York’s affordable housing. But combined with sharply rising expenses, the prognosis may be fatal.
Staying put
At Enterprise Community Partners, a nonprofit lender, the average rent collection in its New York affordable projects was once 95 percent. Now, it’s closer to 90.
The number of projects experiencing more concerning collection rates has also more than tripled. In 2017, just 3 percent of projects had collection rates below 80 percent. Now that figure is 11 percent.
A shift from 95 to 90 percent may not seem big. But it can mean a loss of about $6,000 per month or $75,000 per year, according to Enterprise. That’s as much as the annual insurance payment on three or four units.
“That really does represent a lot of lost income to the properties,” Patrick Boyle of Enterprise said.
During the pandemic, market-rate units had increasing vacancies and lower rents, since tenants moved out of the city and supply overtook demand. But those living in regulated housing were both more likely to see their jobs cut and less likely to move away. They stayed where they were, and those who couldn’t pay just … didn’t.
Another nonprofit lender, Community Preservation Corporation, had collections at projects in its portfolio dip close to 70 percent during that time. Before the pandemic, the lender would underwrite all its projects to 95 percent collections, and it expected an even higher rate.
“They kind of have to roll their dice out to the edge. Which is awful, right? But they won’t help you unless you’re in that position.”
“Before the pandemic, it was just a truism in the industry that people with below-market rents paid their rent,” Riggs said.
Since then, CPC has had to revise its strategy.
“We don’t underwrite to 95 percent collections anymore,” Riggs said. “There’s no track record of that happening in the last 5 years.”
The collections numbers still hover at about 92 percent.
Affordable housing in New York is developed by both nonprofit and for-profit operators, who agree to certain conditions to access city and state funding and financing. One is pegging maximum rent increases to levels set by the city’s Rent Guidelines Board. A freeze on those increases, the marquee campaign promise of mayor-elect Zohran Mamdani, would stymie revenue even further.
It’s not totally clear to what extent the trend in New York’s affordable housing mirrors collection declines in the market-rate and national housing markets. Data is difficult to come by, especially pre-pandemic data. The American Apartment Owners Association says that traffic to its collections agency has stabilized since the pandemic, and the National Multifamily Housing Council has stopped monitoring national rent collections.
Those who study these numbers say that they believe national collections in market-rate housing are just slightly below where they were pre-pandemic, but that’s based more on educated hunches than on hard numbers.
“Everything within our data suggests that even when renters do fall behind, they show a high priority to catch back up,” Jonathan O’Kane of Chandan Economics, which monitors rental performance, said.
Boyle, at Enterprise, said that he believes the issue is most acute in the affordable space, but not just in the city. About one-quarter of the projects in the nonprofit’s data are outside the five boroughs.
Out on the edge
Among borrowers in CPC’s portfolio, collections are uneven across properties, Riggs said. But the lender has so far failed to find a pattern. Did the pandemic and the eviction moratorium change how tenants think about and prioritize rent? Are tenants who don’t pay making their neighbors wonder why they don’t do the same?
“Sometimes we see an owner with similar buildings and the same management company in the same neighborhood and they have completely different collections,” Riggs said.
But at the base of the issue, some in the affordable space say, is a tight financial reality.
“If you have no money and there’s three choices you have, and one of them is food, then there’s the other two,” John Crotty, a founding member at Workforce Housing Group and former city official, said. “People are broke, they’re hurting.”
Those in lower-cost housing are more likely to find themselves in a pinch.
“Everyone is concerned with affordability,” Oksana Mironova, a housing policy analyst at the Community Service Society, said. “Lower-income people are the ones who are always hit.”
At the same time, some city policies incentivize tenants to fall deeper into arrears. Housing court takes months, keeping renters in units they can’t pay for without help.
Sometimes it takes being nearly evicted for a tenant to qualify for city resources.
“We’re doing everything we can to prevent eviction, but unfortunately, after a period of time and as the arrears grow, we do have to turn to the courts to help us,” Pennington of Phipps said. “And sometimes in court, they finally get the help they need.”
For example, the city’s “one shot” deal helps the neediest New Yorkers get out of arrears with a lump sum payment. But prioritizing only those in severe distress, some say, makes renters go through greater deprivation in the hopes of getting help.
“They kind of have to roll their dice out to the edge,” Crotty said. “Which is awful, right? But they won’t help you unless you’re in that position.”
Other rental assistance programs, such as the CityFHEPS voucher program, can end quickly, leaving a tenant in a unit they can’t afford, Pennington said.
The highest levels of rent nonpayment are likely in metropolitan areas where rents have risen steeply since the pandemic and salaries have not kept up, according to Alexandra Alvarado of the American Apartment Owners Association. The median rent for a new lease in Manhattan has risen 13 percent in the past year, according to a December report from Douglas Elliman and Miller Samuel.
“The majority of people are just struggling financially,” Alvarado said of those who aren’t paying nationally. “I don’t know that it’s necessarily a choice.”
Push and pull
Those in the affordable and nonprofit space are keen to discuss carrots, not sticks. They focus on easing access to city resources.
The New York Housing Conference, which advocates for affordable housing, has proposed a separate housing court specifically for those in subsidized units. Staff there could assist with accessing city one-shot deals and other rental assistance programs. This could, at least in theory, save the city money by helping tenants when they have less in arrears.
“The tenant gets so far in the hole in accumulated arrears that they can’t dig their way out,” Rachel Fee, the group’s executive director, said.
But speeding up housing court could also ease evictions.
“I think there’s some hope — and this is terrible to say — that as evictions start to happen at a faster rate, that behavior will change,” said Riggs.
But in the meantime, they say, something has to give. Piling on expenses without more revenue is pushing affordable housing toward a cliff.
“The lack of cash coming in from failure to pay rent, and the court system not changing that in any timely fashion, indeed making it longer, is fatal,” Crotty said via email. “Building owners can’t withstand it.