Affordable housing in N.J. nears its 'sunset'
As 30-year deals expire, experts fear rising prices
Tuesday, September 05, 2006 Star Ledger
 
As part of a sweeping national trend, New Jersey could soon begin losing tens of thousands of affordable housing units built decades ago with either federal housing subsidies or financial incentives offered by state judges.

Private developers, who agreed to keep the units affordable for between 10 and 30 years in exchange for the breaks, are being tempted to sell or convert the buildings by soaring condo prices and a hot rental market.

Gov. Jon Corzine has pledged to increase the state's affordable housing stock, and members of his administration are researching how to preserve the long-established safety net for low-income seniors and working-class families.

Programs designed to stem the loss of affordable units have been established in recent years, but officials at the Department of Community Affairs concede they may need to be expanded to deal with the coming wave.

"Many deed restrictions will continue, either because of the nature of the owners or the nature of the market," said DCA Commissioner Susan Bass Levin. "But the potential number of deed restrictions expiring over the next 10 years could be upwards of 50,000."

The DCA -- through the New Jersey Housing and Mortgage Finance Agency -- has preserved nearly 5,000 endangered units since 2002, largely by arranging low-cost financing for building owners with the help of additional federal subsidies.

But a study by the National Housing Trust, a nonprofit group based in Washington, D.C., found that federal price controls on 23,681 New Jersey housing units will expire in the next five years. Officials concede, however, that it is hard to gauge the true extent of the problem.

"It's difficult to know how many owners are truly getting out of the affordable-housing business," said Michael Bodaken, president of the trust. But the nation is losing tens of thousands of affordable units each year already, he said, and "as real estate markets get better, it has become more difficult to save existing affordable housing. Owners want to maximize their profits."

The situation stems, in part, from a massive federal subsidy program that aided construction of 1.4 million units beginning in 1968. Other cases are linked to federal voucher programs that pay rent subsidies to owners but also have built-in expiration dates.

The problem is magnified in New Jersey because 35,000 affordable units built by private developers came with similar "sunset provisions" that remove controls in 10 to 30 years. Nearly all that housing was built after a landmark 1983 state Supreme Court decision, which offered builders density bonuses in exchange for setting aside some units for the poor.

The first of those units began to expire in recent years, catching tenants and even some politicians by surprise. The housing is scattered statewide, from the poorest cities to the wealthiest enclaves.

State Sen. Ron Rice (D-Essex) said he was shocked when affordable condominiums in one Newark development, Society Hill, began changing hands for upward of $175,000. The same units had been sold to the working poor a decade earlier for less than $50,000.

Rice introduced a bill that would prevent affordable units built under state oversight from expiring in the future, but it hasn't gone anywhere.

"We are running out of land in New Jersey, and it's foreseeable there could come a day when there are no more affordable units left," Rice said. "We have to find a way to make sure all the units being built with subsidies of any kind remain, so every generation has the ability to live here."

Experts point out that many affordable units on federal expiration lists are owned by nonprofit groups, which have no desire to convert properties to market-rate units.

"We are mission-driven, and we are not getting out of this game," said Bonnie Kelly, who runs the Ridge Oak senior building in Basking Ridge, which was named on the National Housing Trust's list of expiring projects.

But even units controlled by nonprofit groups must be considered vulnerable, because many of these groups are facing the expense of renovating old buildings.

For example, Asbury Towers, a 26-story senior building in Asbury Park, was built in 1973 by a charitable arm of the state's Presbyterian churches. Today the building needs $30 million worth of work, but sits inside a redevelopment zone where penthouse condos are being sold for $1 million.

Gary Puma, CEO of Presbyterian Homes and Services of Princeton, said his nonprofit group had to decide whether to renovate the building, raze it and replace it with a much smaller one, or sell out.

"Sometimes, you really have to make the right business decision," he said. "It was an issue for us in Asbury Park, because this was a community that could be sold to a developer for quite a bit of money."

Selling Asbury Towers might have enabled the Presbyterian group to build other affordable complexes elsewhere. But, in the end, it opted for the large-scale renovation and is seeking help from the DCA to secure financing.

"Asbury has been part of us since 1973, and there have been people living there for decades," Puma said. "We decided we just could not walk away for the dollar."

Michael Barry, president of The Applied Cos. in Hoboken, a private developer, said the temptation of soaring markets is only compounded by the heavy upkeep costs on old buildings.

Although Applied has maintained affordable units in buildings in Bayonne, Hoboken and other towns, it also has converted some apartments to market-rate units when it couldn't secure additional subsidies.

"The state has a huge interest in preserving affordable housing, because the cost of building it new is prohibitive," he said. "Many owners have chosen to go the private route, because you make a lot of money. We have chosen to keep most of ours affordable, in part out of a sense of social obligation."