Conversations with Leaders

CONVERSATIONS WITH LEADERS

OF THE NEW YORK CITY REAL ESTATE

AND DEVELOPMENT COMMUNITY

A History of Supportive Housing

in New York City

Claire Haaga Housing and Services, Inc. (HSI)

April 6, 2000

As founder and president of Housing and Services, Inc. (HSI), Claire Haaga has been at the forefront of affordable housing development in New York City since 1987. With HSI, Ms. Haaga developed the first supported singleroom occupancy hotel in New York during the 1980s; one of only two residences for families with AIDS in the United States; a model residence for victims of domestic violence; and approaches to rehabilitating singleroomoccupancy hotels with tenants in place. She also heads Housing and Services of South Florida, Inc., which, beginning in 1993, has provided technical assistance to the City of Miami and Dade County. Prior to the founding of HSI, Ms. Haaga served as associate director of the Vera Institute for justice, where she designed, managed, and obtained financing for a variety of housing and human service projects.

Introduction by Professor John Goering, School of Public Affairs, Baruch College

Claire Haaga represents an absolutely unique and critical force in the development of affordable housing in New York and throughout the nation. In 1987, she founded Housing and Services, Inc. (HSI), which has developed over 1,500 units, but, even more importantly, is recognized as the organization that is often brought in to deal with "impossible" projects. HSI was asked by Mayor [Rudolph] Giuliani, the Secretary of the Department of Housing and Urban Development (HUD), the U.S. Attorney General, and others to tackle the controversial Kenmore Hotel, which had been seized by the federal government because of the drug trafficking activities of the owner. The successful redevelopment of the Kenmore by HSI is well known and respected both at City Hall and in Washington. Ms. Haaga and her colleague Larry Oaks offer the following overview of this area of housing development.

The following is the text of a talk given to students in the undergraduate program in Real Estate and Metropolitan Development at Baruch's School of Public Affairs on April 6, 2000.

A HISTORY OF SUPPORTIVE HOUSING IN NEW YORK CITY

Remarks by Claire Haaga

I'm going to begin by walking you through the history of supportive housing in New York City. Over the past two decades, different factors have appeared in every large city across the country, but there are some similarities in the development of supportive housing that I'm going to describe. Then, Larry Oaks, HSI's Director of Property Management, will cover some of the challenges of managing supportive housing.

One of the first questions you might ask is, why does the nonprofit sector need to develop lowcost housing? Why not just let market forces create housing for lowincome people? Why do you need a whole industry to build supportive housing? The problem is that market forces tend to work in the other direction: they create upscale market housing but not lowcost housing. Twenty years ago there was some credence given to the "trickledown theory"that if you create enough marketrate housing, people will keep moving up and vacating lowcost housingbut unfortunately that hasn't proven true.

I'll use the 1970s as a starting point because I think it was a critical turning point. Up until then, New York City had been largely a city of renters. There were a lot of "momandpop" owners of small buildings, often tenement buildings, or sometimes buildings with up to 50 apartment units. The owners tended to live on site and manage their own buildings. There were also a few larger real estate companies that owned hundreds or even thousands of units, but they were operated on a lowprofitmargin scale.

Although New York has always been a very heterogeneous city with lots of different immigrant waves, the housing market had always adjusted fairly well. There was never a housing surplus, but there was always enough to accommodate people whose incomes were at the low end of the scale.

However, in the mid1970s, New York City was teetering at the edge of bankruptcy. President [Gerald] Ford told the city to "drop dead." Bankruptcy was forestalled through a combination of public and private efforts, and New York City slowly limped back to solvency. The economy, however, needed various incentives to get people interested in living and working in New York City because the middle class was leaving. People thought that even though it didn't go bankrupt, New York City was not a very secure place to be. Companies weren't investing. There was a very definite flight from the city.

The city did a number of things to try to attract and hold the middle class, but some of those incentives had unintended negative effects on low-cost housing. One of these was a real estate tax abatement program known as the J51 program, which provided 10 to 15year real estate tax abatements for the conversion of older buildings into residential use. The J51 law spurred the conversion of thousands of rental units into coops.

On the one hand, the abatements were a great success. New York City started to see more home ownership through the coop movement. Many saw this as a positive sign because former renters were putting down stakes and becoming owners. However, a major downside of this incentive program was that many of the converted units were in singleroomoccupancy (SRO) hotels on the Upper West Side of Manhattan, in midManhattan, and in downtown Brooklyn.

Between 1972 and 1982, largely through this conversion process, New York City saw the loss of 100,000 SRO units. What happened to the former tenants of these units? How did the coop converters get them out, as there were rent protection laws even back then?

There's no single answer, but suffice it to say that not all of the units were vacated legally. The next question is, where did these SRO tenants go? Most were people living on fixed incomes, social security, disability, or public assistance. Few of them had families or friends, so they did not have many options when they were squeezed out. They soon became a large part of the homeless population that began populating the streets of New York City in the early 1980s.

At the same time, owners of small apartment buildings in areas such as Harlem and Washington Heights in Manhattan, Bushwhack and Brownsville in Brooklyn, and Jamaica and Corona in Queens were hit by high operating costs spurred in part by the fuel crisis of the 1970s. Then insurance costs went up because the insurers got nervous.

Many property owners had been family businesses, and the sons and daughters were no longer interested in being owners and supers of small buildings. They were getting more education, and they were looking for jobs that required and rewarded such education.

Owners were walking away from their buildings in droves. Some of them torched or set fire to their buildings for insurance proceeds. In the late 1970s, an alltoofrequent headline in New York papers was "The Bronx Is Burning." I personally went out with fire marshals to fire scenes in the middle of the night in the South Bronx. One fire station might have 10 calls a night, and firemen would just go from fire to fire. Needless to say, this disinvestment and abandonment phenomenon reduced the city's housing inventory substantially.

In the 1980s, we had a Republican president who didn't believe there should be federal involvement in housing. Ronald Reagan began to "dismantle" HUD. One of the first programs that was targeted was the Section 8 Rent Subsidy Program, which had provided marketrate rent subsidies for 20 years, creating a powerful incentive for private owners and developers. For example, in 1976 a developer of a building in the South Bronx could get $800 to $1,000 a month for a onebedroom apartment. That was far above fairmarket rent at that time. When the federal government withdrew from the Section 8 program, private developers walked away from lowincome housing.

At the same time, it was becoming public policy not to build additional public housing. Indeed, the worst example of public housing, the Pruitt Igoe in St. Louis, was simply blown up, dynamited, because it was considered too bad to save. So we saw the withdrawal of both the public and the private sector from lowcost housing by the early 1980s.

While there's a happy ending to this story, I'm going to give you a few more grim chapters. At the same time that all this was going on, New York City changed its real property tax foreclosure laws and reduced the time of vesting from three years to one year. Previously, if an owner didn't pay his real estate taxes, he had three years to catch up. The city shortened that period to one year. This is the interesting public policy question: Was that oneyear threat going to make people hurry up and pay their property taxes more quickly?

The answer is "no," because smaller owners usually didn't have enough money to pay their property taxes. There were some real scofflaws, but many of these people were just squeezed because of factors cited above. Speeding up the vesting process didn't spur them to pay their taxes sooner.

In the early 1980s the city found itself taking title to thousands of properties for failure to pay taxes. This process is called an in rem proceeding because the city was attaching "the thing" or "the property." Within several years, the city became the owner of 60,000 housing units, but it had no plan for managing these units. The former Housing and Development Administration became the Department of Housing Preservation and Development, which set up a large property management operation to manage these in rem properties. It is an understatement to say they were scrambling about how to do this.

Stan Altman, now the dean of the School of Public Affairs at Baruch, was one of the people brought in to consult about how to manage this problem. He went out and saw the condition of the buildings and noted that they didn't even have superintendents. If any of you live in apartment buildings, you know that the superintendent is sort of a fixture. He sweeps the hallway, takes out the garbage, makes sure the lights are on, and in some cases collects the rent.

When the city took over these buildings, they didn't offer jobs to the existing supers. Consequently, there were no superintendents on site. Dean Altman suggested that they hire supers immediately, but they didn't know how to do this. Through a nonprofit that he headed at the time, Dean Altman created a superintendent training program, Project Match, that trained thousands of people as superintendents of buildings over the next six to seven years. Trained supers helped, but the overall task of managing these properties was a mammoth one that the city is still not out from under today.

Adding to this mix of problems on the social front, New York State was releasing thousands of patients from mental hospitals to the community under the guise of a more humane approach to treatment. The missing link was the absence of treatment services in the community; people were just discharged to nothing.

The Rockefeller drug laws also led to an increase in homelessness. When Nelson Rockefeller was the governor of New York in the 1970s, penal laws were amended to impose much more severe penalties for even minor drug offenses. This resulted in many more people going to prison for longer periods of time. Most people eventually get out of prison, but they are generally released without skills or income. By the early 1980s, many offenders were being released with nowhere to go.

I was involved in creating a work program for exoffenders in the late 1970s. We employed 200 people at a time and had to turn away many more. They had been released from state prisons with $40 and from the city prison with one dollar. As you can imagine, they either started mugging people right away or they hit the streets as homeless people.

To add more to the mix, by the mid1980s we had a new factor known as "crack." Crack was test marketed in the Bahamas in the early 1980s. The distribution processes were refined, and it hit the streets in nickel bags in 1985. This was a highly addictive, cheap, and very available drug sold through a very complex and accessible distribution network. Crack became the drug of choice not only for hardcore drug users but also for many who had never experimented with drugs before.

In summary, the confluence of several major factors led to the crisis in homelessness and lowincome housing in New York City. These factors were:

• coop conversions spurred by the J51 Law;

• the fuel crisis and rising insurance costs;

• the accelerated seizure of property from delinquent owners;

• the release of thousands of mental patients and prisoners; and

• the loss of the federal Section 8 program and no increase in public housing.

These factors were not the result of government officials saying, "This is going to be our public policy." Rather, it was just the opposite: people at different levels of government didn't talk to each other and didn't think about what happens when you make policies such as drug laws or a real estate tax abatement in a vacuum. So we ended up with a huge increase in the homeless population.

My organization at the time, the Vera Institute, was asked to come into the Third Street Shelter on the Bowery and find out why all these people were suddenly showing up as homeless. It was a very quick study. You didn't have to be very smart to figure out why so many people had become homeless.

The city began to provide shelter under a court order, but its efforts created high costs and few longterm benefits. An alternative housing structure with alternative financing and management approaches was needed. The city simply didn't have any proven models that could be adapted to current circumstances.

We also needed a new breed of owners and operators. So, in 1984 and 1985, my organization began experimenting with ways to develop lowcost housing. In 1987, we created Housing and Services, Inc. (HSI) to serve as a developer for other nonprofits. Our original idea was to do policy development and a pilot project, and then document it so that others could replicate it.

We found, however, that there weren't other people to replicate the model and that there really was a niche that needed to be filled by a nonprofit developer. Another hurdle we faced in the mid1980s was that nonprofits, particularly those in New York City, did not think of themselves as landlords. They fought landlords. The role of owning and managing property, being tough on tenants, and maybe even evicting tenants did not seem appropriate to them at first. Nonprofits had to be reeducated, because there were many cases where they could fill the breach between the public and the private sector.

The Comeback of the SRO

When you start on something like supportive housing, the road map is not clear. It's not as if government says, "We've got this problem, so we'll create funding sources, we'll make property available, and we'll just lay it all out." Quite the contrary. The government was not trying to be difficult, but its officials just didn't believe nonprofits could solve the problems. Government had no experience with lending to nonprofits nor with the homeless population, for that matter. (By "the homeless population" I mean people living on fixed incomes at the lowest end of the income spectrum, making less than $6,000 or $7,000 a year back in the mid1980s. That number might be closer to $10,000 today, but it's the same situation.)

Our first step was to identify a building. We find that the more concrete (no pun intended) you are, the better you are able to make your point about public policy. We found a building in Harlem that had been a singleroomoccupancy hotel (SRO). It was one of the buildings the city had seized under a tax foreclosure. It had been vandalized and vacant for about ten years.

We told the city that we wanted to recreate SROs. They replied, "That is a terrible idea. We think everybody should have a onebedroom apartment. Who wants to live in a small unit and share facilities?" We then gave the city a basic economic argument. We said, "If you can afford to provide onebedroom apartments, great. But for a lot of people, you've also got to look at their other needs." For former alcoholics, drug users, or people with mental health problems, the experience of living in their own unit and worrying about furnishings and utilities may be an isolating experience. You don't want to overinstitutionalize people, but people who literally have been disconnected from society in many cases need an opportunity to reconnect with some support.