Starter Home Conundrum: Bronx Co-op Subsidy $710K Per Unit

Some 40 percent of homes built in 1980 were smaller than 1,400 square feet. Today, only 9 percent are.

Given the cost of land and construction, and large minimum lot sizes in many suburbs, it generally doesn’t make sense to build a starter home.

Although buyers are bidding up the few small homes that are available, in most cases the prices are still not enough to cover developers’ costs, let alone yield a decent return. So they build larger homes and sell them for more than most first-time buyers can afford.

Elected officials love the idea of moving people into homeownership, but haven’t come up with great ways to do it. Programs that work at scale tend to be on the financing side. However, providing 3-percent-down mortgages still doesn’t make starter homes available and affordable, nor does it allow politicians to cut ribbons in front of projects.

Instead, they advance piecemeal solutions that depend heavily on subsidies. On Oct. 14, for example, Gov. Kathy Hochul celebrated the completion of 58 affordable co-op units at Camber Property Group’s Stevenson Square campus. The price tag: $53 million.

That’s $914,000 per apartment.

Center for Affordable Housing Lending's Julia Gordon — Center for Affordable Housing Lending’s Julia Gordon (LinkedIn)

The cost would have been even higher had the site not been cheap land in the Soundview section of the Bronx. (Camber bought the 948-unit campus, a 1970s Mitchell-Lama, in 2017 and created a master plan to add housing on underutilized parts of it.)

Yet these $914,000 units will be sold to 58 lucky buyers for an average price of $204,000 — affordable to households earning 80 percent of the area median income.

A model where the homes sell for 22 percent of the cost won’t be scaled up, even if the socialists’ tax-the-rich dreams all came true.

And we tend to forget about the long-term costs of affordable housing development. Buildings age, expenses rise and subsidies expire. Even Mitchell-Lama, which created 69,000 co-op units over three decades, proved unsustainable.

What solutions would scale? The top of this column links to a paper with proposals by Julia Gordon of the Center for Affordable Housing Lending, a policy research partner of the National Association of Affordable Housing Lenders.

Its five main ideas, and my take on them:

Incentivize construction of starter homes. That works if the necessary subsidy is not too large. It can’t be $710,000 per unit, as in the example above from the Bronx.
Repair existing homes. The idea here is that many starter homes are deteriorating, reducing supply. In strong markets, house flippers are already fixing up homes, but a repair program could help in weak markets.
Prod localities to reduce lot sizes and allow multifamily, townhomes and manufactured housing, and otherwise stop being exclusionary. This can move the needle but not as much as state and federal mandates, which often meet political resistance from single-family neighborhoods.
Free up supply by removing disincentives to sell. Yes! It doesn’t make sense to spare a home from capital gains tax when the owners die. Our tax policy essentially traps people in homes that have appreciated a lot.
Provide incentives to sell to owner-occupants. I don’t see how that would help. Demand from would-be owner-occupants is already high. Subsidizing it without adding supply would only push prices higher.

The recently passed 21st Century Road to Housing Act was a big step in the right direction, at least compared with the years of no progress that preceded it in Congress. Rather than take a big swing at one problem, it chips away at lots of obstacles to reducing housing costs.

California’s pro-housing movement, led by state Sen. Scott Wiener, has pursued that model with success. So has Gov. Kathy Hochul in New York, following the defeat of her ambitious 2023 housing reform plan.

It’s a framework that states and cities would do well to adopt.