Councilmembers,

As a HALA member I took a keen interest in discussions around the MFTE program.  I am pleased that the program will be made permanent, expanded in geography, and now includes all unit sizes.  I am also pleased that the council has committed to work with the state on a number of potential expansions of the program.

Having said that, I am profoundly disappointed with the policy direction that has been taken with regard to small scale development.  In my recent conversations with the Mayors staff, the Office of Housing, Council Central Staff, and Councilmember Okamoto’s office, I have discussed problematic elements of this new legislation, primarily:

Raising the required participation rate from 20% to 25% for small-unit development.  The only rational outcome that can be expected from this policy change is that the participation rate for these project types will decline.  As small-unit development provides MFTE units that reach deeper levels of affordability (40% to 65% AMI), policymakers should not be indifferent to this outcome.  The Office of Housing’s stated rationale is that the participation rate has been raised because “the rent buy down is smaller per unit for small units”.  That explanation is an expression of circular logic, not math.  The relevant measure is the percentage of the rent reduction, not the absolute value.

There has been no attempt to calibrate MFTE rent levels for Small Efficiency Dwelling Units (SEDU’s) in a reasonable manner.  MFTE rent is identical for congregate units and SEDU’s despite the fact that SEDU’s are about 50% larger than congregate units.  In an industry that uses rent/ sf as a fundamental unit of analysis, this is a transparently false assumption. Robust market survey data on housing prices, units sizes, and how rent correlates with unit size is readily available.  At this stage pegging MFTE rent for SEDU’s might entail marginally more guesswork than for other housing types, but the current legislation does not even make an attempt.

As a result of the above policy decisions, I expect to see participation rates for small projects drop from current levels, with participation rates for SEDU’s close to zero.  This is unfortunate.  Every year that policies like these are in place we miss out on the opportunity to increase our supply of rent stabilized affordable units in the 40% to 65% AMI range.

Which brings me to my last point, which is that the above missteps are made possible because the policy review for the MFTE program is done in narrative form using fuzzy math and an invisible methodology.  In all of my discussions, I have emphasized first and foremost that the method of calculating MFTE rents and participation rates should be made explicit and published prominently.  Disclosure of the methodology would both assure skeptics of the measurable public benefits and help explain for present and future policymakers the direct relationship between market rents,  MFTE rents, and required participation rates.  I was assured by councilmember Okamoto that he agreed this was an important element of the public policy debate.  I have yet to see this calculation method published, and I did not see it presented at the council hearing on Sept 24^th.

I offer this critique from the standpoint of someone who wants the policy to work.  I want my clients to participate in this program, and I want the work of our office to help contribute to the affordability in our city.  The HALA committee urged expansion of this program because it has enormous potential to leverage market rate development to help provide stabilized affordable housing stock.  The current legislation might be at best characterized as “two steps forward, one step back.”  We must do better.

Regards,

 

David Neiman

 

P.S.  To see my my original recommendations, please see my previous post on this topic.