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The Real Deal Podcast: Shaun Donovan

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Shaun Donovan, as commissioner of the city’s Department of Housing Preservation and Development, heads the nation’s largest municipal developer of affordable housing, a charge that includes his boss’ ambitious plans.

Mayor Michael Bloomberg wants to develop or preserve as many as 165,000 affordable housing units. Through partnerships with private developers and targeted eminent domain, Donovan’s department hopes to coordinate this effort so it’s completed within 10 years. It’s the sort of massive public-private housing effort not seen in the city since at least the 1980s.

In a recent podcast interview with The Real Deal, Donovan shared his strategy. He also talked at length about the popular 421a tax incentive for residential development, an incentive the city is considering altering. Donovan said the city has no plans to end the 421a, but that its use by developers in areas like Lower Manhattan could be curtailed.

THE REAL DEAL: The mayor has announced plans to build or preserve 165,000 affordable housing units in the city within the next 10 years. How likely is that to happen?

SHAUN DONOVAN: First of all, I’d say it’s a very aggressive plan. It’s the largest municipal housing plan in the nation’s history. Early in his first term, the mayor announced a plan to build or preserve 65,000 units. In fact, we were making such good progress on that — and, frankly, the real estate market in New York has been so strong that, if anything, affordability is a growing challenge — so he expanded the pace. It is an ambitious goal, but I feel pretty confident that with the support of the mayor and the real estate community, we’re going to achieve it. Last year, we were able to start on over 18,000 units.

TRD: Where were these 18,000 units going?

SD: All over the city. One of the things that we try to do is make sure that every community in New York City has affordable housing. The primary areas where we’ve focused have been in Harlem; we’ve done a lot of units in Brooklyn. We’re building right now on the waterfront in Brooklyn — Williamsburg and Greenpoint — but also in Downtown Brooklyn. We’re doing a lot of work in the Bronx as well.

TRD: Can you describe the financing that goes into this affordable housing plan?

SD: One of the advantages of being in New York is we have the most sophisticated real estate finance community in the world. So, we work with hundreds of private developers, but also different financial institutions. All the biggest banks in the country are involved in the work that we do in New York City.

TRD: Do you ever find it difficult to entice private developers into helping build affordable housing?

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SD: We’ve really evolved, if you think about where New York was 20, 25 years ago. The big challenge then was abandonment — if you remember Howard Cosell during the 1977 World Series declaring, “The Bronx is burning.” Today, if you go back to those very streets that were burning in the 1970s, houses are now selling for $500,000. So, the challenge has really changed from abandonment to affordability.

So, one of the ways we’re trying to meet the demand for housing is to harness the strength of the [real estate] market to benefit affordable housing. Let me give you an example. Greenpoint and Williamsburg, on the waterfront, we looked at that area: a 2-mile stretch of waterfront without a single active industrial company left. We’ve rezoned it so we can create, we think, about 11,000 apartments in that area. So, what we did is say to developers, “Well, you can build 100 percent market-rate housing and we’ll let you build 30 stories. But, if you’re willing to incorporate between 20 and 30 percent of your square footage as affordable, we’ll let you build up to 40 stories.”

Using the strength of the market, we’ve given [developers] a big, extra incentive to create affordable housing as part of their project.

TRD: What is the future right now of the 421a tax incentive for development?

SD: Well, the 421a is a program that’s going to be with us for a very long time. What the mayor announced recently was that we need to look at this program in light of the way that the market has changed. When the 421a was created, there was almost no building in many parts of the market, and it was intended as a tool to jumpstart the private market into building market-rate housing — and it’s worked.

We really need to step back and take a look at the 421a program and say, “In certain areas, it’s no longer needed just to spur market-rate construction.” What we can do is make some changes to the program so we can maximize the amount of affordable housing we’re getting through the use of the 421a program. It’s a way of harnessing the strong market we have and directing it toward creating affordable housing.

TRD: Can you speculate on where some of this harnessing will happen?

SD: Just to give you one example: Lower Manhattan has been one of the strongest areas for [housing] development over the last few years. And it’s an area where we think the market is probably strong enough to be able to sustain market-rate development without full 421a benefits.

TRD: But the 421a is not going to disappear?

SD: Absolutely not.

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