A ‘Gentrification Tax’?

Washington Heights and Inwood have a high concentration of Dominican families living in rent-stabilized apartments. (Photo by Mariela Lombard via El Diario)

If you can’t beat them, join them. That seems to be the principle guiding two public policy recommendations from the CUNY Dominican Studies Institute, which seek to make the most of skyrocketing rent prices on behalf of the community in the neighborhoods of Washington Heights and Inwood.

How would the proposals work? First, an additional tax would be assessed on the new value of buildings derived from gentrification. Then, the tax revenue would be used to create a community land trust (CLT) to reinvest in the construction of affordable housing and make improvements to the community’s infrastructure.

Both of these recommendations are proposed in the institute’s latest study, entitled “Restoring housing security and stability in New York City neighborhoods: Recommendations to halt the displacement of Dominicans and other working-class groups in Washington Heights and Inwood.”

The report, which aims to contribute to the discussion over the rezoning plan for Inwood proposed by the New York City Economic Development Corporation, was authored by Institute director and sociologist Ramona Hernández, public policy analyst Yana Kucheva, Sarah Marrara and Utku Sezgin.

Hernández told El Diario that gentrification – which caused the loss of 4,844 rent-controlled housing units in Washington Heights and Inwood between 2007 and 2014 – cannot be stopped and that it is necessary to propose innovative and creative alternatives to diminish its negative impact on the mainly Dominican and Latino community living in the area.

The first recommendation is to collect an additional property tax (tax increment financing, or TIF) to fund affordable housing. It would operate as follows: Given that gentrification increases the price of inexpensive housing in every community, “the city could charge additional property taxes over the price increase of housing brought about by gentrification. This additional revenue could be set aside for two specific purposes in these neighborhoods: to finance affordable housing – whether through preservation or by building new units – and to apply it to the betterment of amenities such as better parks and more reliable services.”

According to the research, the main advantage of obtaining funding from this tax is that it keeps the revenue generated by gentrification in the neighborhoods.

Another significant advantage of this model is that it pays for itself. Municipalities would not need to collect any new taxes. On the contrary, investments in infrastructure and resulting increases in housing prices would be utilized to help gentrified neighborhoods keep their socioeconomic diversity.

“Housing in general and affordable housing in particular are generally not seen as ‘infrastructure’ by the people in charge of local policy. We argue that housing is infrastructure because neighborhoods cannot exist without housing. We also argue that housing is the most valuable type of infrastructure for working class families because it provides security and stability to the members of those families,” added the document.

As innovative as it may sound, the researchers are not reinventing the wheel. New York City used TIF in order to expand the 7 train line to 34th Street-Hudson Yard without state or federal funding. Still, implementing a similar measure in Washington Heights and Inwood to improve housing would be a first, and may become a model for other neighborhoods.

“If the city was able to use this type of financing to expand the 7 line to Hudson Yards, we believe that an even bolder step could be taken to use the tax revenue generated by gentrification to preserve affordable housing,” said Professor Yana Kucheva, co-author of the report.

Revenue influx

The second recommendation is to use the influx of revenue from TIF to finance community land trusts (CLT).

“At its most basic level, the CLT idea implies dedicating an influx of income to buying land on behalf of the local community. The land is kept in a land trust in perpetuity by a local nonprofit organization which will make sure to represent the interests of the beneficiaries of the land trust. Housing located in the CLT is generally bought along with it but is later sold to owners, cooperatives, other nonprofit organizations or for-profit businesses. All individuals and companies buying housing inside CTL’s property agree to keep rental units at the disposal of the community’s residents or give up keeping earnings above a certain level if they choose to sell the property.”

The study continues: “The CLT has a right to buy back any building for sale inside its land at a lower price than market rate and to intervene in absent or negligent owner situations. The leadership of the CLT is made up of residents living in buildings within the CLT, members of the community not living in the CLT who are part of the service area of the CLT and people who represent the public’s interest.”

As a precedent, in 2017 the city announced that it would allocate $1.65 million to create and expand three CLTs through Enterprise’s Community Land Trusts Capacity Building Initiative.

Among the beneficiaries was Interboro CLT – an association between the Center for NYC Neighborhoods, Urban Homesteading Assistance Board (UHAB), Mutual Housing Association of New York (MHANY) and Habitat for Humanity – which seeks to strengthen communities through the development and management of affordable housing for low-income people in southeast Queens, Edgemere and central Brooklyn with a long-term goal to expand to the rest of the city.

While no CLTs exist in Washington Heights and Inwood yet, an organization called Faith in New York is looking to create one in a property owned by the Department of Transportation located at 672 W. 158th Street.

“Corrupt” loopholes

Alongside the two recommendations, the study points at the need to close loopholes in rental laws that Ramona Hernández said “border on corruption.”

Firstly, the report criticizes the unrestrained number of vacancies, caused by what is colloquially known as the “eviction bonus,” a loophole that allows owners to increase rental prices up to 20 percent more plus 1/60 of the cost of any improvements made to a rent-stabilized housing unit when a tenant moves out or is evicted.

When the apartment reaches a rental price of $2,733.75 by way of vacancy allowances, it is permanently removed from the rent-stabilized market. The report highlights that, between 1994 and 2016, a total of 284,301 units from that market were lost. Even though the city added 132,402 stabilized rental units in the same period, the net loss amounted to 151,899 units, according to reports from the New York City Rent Guidelines Board in June 2017.

Another loophole in rental regulations allows owners to charge preferential prices in rent-stabilized apartments. “The ‘preferential rent’ rider was introduced in 2003, and allows owners to charge less than the maximum legal regulated rent to comply with rent stabilization.”

In theory, such discounts should be good for tenants but, in practice, preferential rent provisions benefit landlords in many ways. Owners are required to register the maximum legal rent for their apartments according to rent stabilization rules. However, they can actually enter any amount, as the New York State’s Division of Housing and Community Renewal (DHCR) rarely checks whether the numbers landlords declare match rent regulation rules,” the report criticizes.

“Finding more money to preserve and build affordable housing will not be enough if owners continue to exploit the loopholes in local rent regulations,” added Professor Kucheva.

The researchers concluded by saying that the state is required to reform rental increase management in rent-stabilized units with preferential rents. “Regulations regarding rent stabilization will be renewed throughout the state in 2019, which makes this the right moment to re-examine how the current system could be reformed to preserve the affordability of rent stabilized units,” they emphasized.

Existing and in-process land trusts

In 2017, the city assigned $1.65 million to use in several CLT projects:

Interboro CLT – an association between Center for NYC Neighborhoods, Urban Homesteading Assistance Board (UHAB), Mutual Housing Association of New York (MHANY) and Habitat for Humanity – seeks to strengthen communities through the development and management of affordable housing for low-income people in southeast Queens, Edgemere and central Brooklyn with a long-term goal to expand to the rest of the city.

Cooper Square CLT, the only CLT in Manhattan, has managed the Lower East Side’s low-income mutual housing association for over 20 years and is seeking to expand its portfolio by acquiring and developing buildings in trouble.

East Harlem/El Barrio CLT is working alongside developers Banana Kelly to acquire and renovate a group of low-rent buildings in East Harlem.

New York City Community Land Initiative collaborates with the New Economy Project to manage the CLT Learning Exchange platform, designed to help community organizations and developers of affordable housing seeking to form CLTs.

Source: New York City Department of Housing Preservation and Development (HPD)

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