When Do the Rich and Poor Live in the Same Building?

This article highlights an interesting real estate trend.  We all know that this is a time of rising income inequality.   The rich tend to live in different neighborhoods and in different housing structures than the poor but this article discusses the fact that changes in the tax code have provided developers with strong incentives to provide "affordable housing" units for middle class people even in very fancy buildings.

Consider, Marietta Hill. She has effectively won the lottery.

"Ms. Hill, an orthodontic assistant, pays about $500 a month, even though the starting market-rate rent for a studio in her building is $2,950."

Why is the developer providing this great housing at a 80% discount to Ms. Hill? 

"In the depths of a recession in the 1970s, developers were given tax abatements to promote construction under a program known as 421-a. To encourage building in forlorn parts of the city, developers were offered a tax abatement allowing them to pay real estate taxes on the assessed value of the land before construction. For instance, if the property was worth $1 million unbuilt, but the new building increased the value to $10 million, they would pay taxes — for 10 to 25 years, depending on the project — on only the $1 million. Affordable housing did not have to be provided.

But as land in Manhattan between 14th and 96th Streets was extremely valuable even then, it was designated an excluded zone. One of the few ways that developers could get the 421-a tax abatement was to build affordable housing, the most common being 80/20 projects. Where the 421-a program can save millions in taxes for the length it is applied (usually 20 years in Manhattan), the 80/20 program allows developers to borrow money at extremely low rates, similar to those paid by the federal government."

The 80/20 projects means that the developer gets to rent out 80% of the units at market prices but agrees to lose money on the other 20% .

" 20 percent are reserved for those making less than 50 percent of the area’s median income, which varies by location and family size, but is in the ballpark of $80,000. More than 20,000 rental apartments have been built under this program over the years, 4,200 of them reserved for affordable housing."

A sociologist could write a good book studying whether the rich neighbors in the building can identify the "other 20%" and whether there are any friendships formed across income groups.  Is any social capital being built up across income classes or does proximity not matter?

 

 

 

Comments

[A Facebook User]

I think this policy does more harm than good. I think it erodes society's notion of fairness.

Additionally, it can actually work counter to it's intended purpose... which I have seen first hand. More often than not, groups at drastically different income levels have different ways of living. When these differences are in conflict, and they are "in your face" everyday, blood boiling animosity can build up on both sides.. much more so that if the two groups had limited interaction by living on different ends of town.

Finally, has anyone done a market analysis to see if reserving the 20% actually drives up prices for the remaining 80%, because less inventory is available for "paying customers"?

[Hendri Prastio Kurniawan]

wew....good
http://www.hendriprastio.com
http://www.hendriprastio.com/2012/11/commonwealth-life-perusahaan-asuransi.html
http://www.hendriprastio.com/2012/11/ekioskucom-jual-beli-online-aman.html

[ArsitekBandung]

Nice info...

http://www.arginuring.com
http://www.jasaarsitek.arginuring.com
http://www.rumahminimalis.web.id
http://www.arginuring.wordpress.com