Perhaps Rube Goldberg Can Fix The Woes Of the New York City Housing Authority

Over the years I have returned repeatedly to the subject of the New York City Housing Authority, or NYCHA. Begun with great optimism prior to World War II, NYCHA expanded rapidly in the 1960s and 70s, until it housed around 500,000 people. The economic model was always pure unmodified socialism — the government owns everything, rents are tied to income (“to each according to his needs”), and any shortfalls in paying costs fall on the taxpayers. But after all, we will save oodles of money because there will be no profits for the evil developers. For a few of my prior posts, see here, here and here

The socialist economic model always lacked any mechanism to renew the capital investment in the buildings as they aged. After 2000, buildings were turning 30, 40 and even 50 years old. Beginning in the 2010s, NYCHA started regularly announcing large sums of money that it claimed it needed urgently for major repairs to these buildings. These numbers started at $17 billion in 2015, but escalated rapidly, first to $25 billion, and then to $32 billion in 2021. In 2023 there was a new “audit,” and suddenly the number became $78 billion. In the New York Post article at that last link, Mayor Adams is quotes as saying “[O]nly the federal government can provide the level of funding needed to overcome decades of disinvestment in the hundreds of thousands of New Yorkers who call public housing home.”

So at this point there is only one remotely feasible way forward for NYCHA, which is privatization in some form or another. I have repeatedly proposed the most obvious and workable route: give the buildings to the residents. No charge. I’d even be OK with a relatively slow real estate tax phase-in. Once they own the buildings, the residents can, if they wish, use their equity to borrow to make the needed improvements. But honestly, in most cases, the buildings are in such bad shape that the residents/new owners will be smarter to sell, take the money, and move somewhere else. In the case of many buildings which now find themselves in desirable neighborhoods, the residents will become millionaires. Meanwhile, the buyers in all likelihood would knock the buildings down and build something much better.

Adopting this proposal would be a huge win for both the residents and the taxpayers. Essentially, it manufactures and unlocks large amounts of wealth currently suppressed in the socialist ownership model. As long as the buildings are owned by the City, the apartments cannot be bought or sold, and have zero value. As soon as they can be traded, the apartments — or the buildings as a whole — will have values comparable to other buildings in their neighborhoods. In most Manhattan neighborhoods, that will mean values in the range of $1 - 2 million per apartment, and even substantially more in some cases.

Needless to say, this proposal is complete anathema to everyone involved, at least to the politicians, the bureaucrats, and the residents. To all of those, the starting point for any possible reform is that the existing tenants get to keep their existing economic arrangements for life without any change. That means that they don’t get to be owners. Somehow, it seems, the tenants are ready to go along with that. Maybe once you have been lulled into government dependency, any small level of economic risk in life becomes unbearable, even if you stand to become a millionaire.

And thus we get a proposal for restructuring some housing authority properties that could only have come from the mind of Rube Goldberg.

The first two NYCHA projects up for the proposed restructuring model are known as the Fulton Houses and the Chelsea-Elliott Houses. Here is an aerial view of Chelsea-Elliott:

Fulton and Chelsea-Elliott are located in the Chelsea neighborhood of Manhattan. When they were built (mostly in the 1960s), the Chelsea neighborhood, and particularly the western part of it where these projects are found, was a backwater of mostly underused warehouses that had been built to serve the port that since had moved away. But in the intervening years, Chelsea has become chic and valuable. There is lots of value here to be unlocked.

The restructuring program for Fulton and Chelsea-Elliott has been in the works for several years, and is only now getting ready to start implementation. As of this time, there has been no actual construction on any of the buildings that I am aware of. The proposal for how to proceed is laid out in this NYCHA Board Presentation document from last October. To greatly simplify, they will start by gradually moving all the residents of one building into apartments in other buildings in the complexes as they become vacant. Eventually, this first building will be completely vacant, at which point it will be demolished and replaced with a much larger building. Then residents of a couple of other buildings will get moved into this new building, and those other buildings will then be demolished and replaced with much larger buildings. The process will continue until there are new apartments for all the existing residents, plus lots of new apartments for new residents, mostly paying market rates. That last piece is where a developer gets to make some money. The whole thing is projected to take about 15 years, which sounds optimistic to me.

Oh, and according to this New York Post article from June 1, the NIMBYs in the Chelsea neighborhood are now organizing to keep the scheme from moving forward. They don’t want 15 years of construction across the street from their multi-million dollar homes. I can’t say I blame them.

Because there is no such thing here as a simple sale to the highest bidder, the “privatization” consists of bringing in a couple of well-connected developers to run the process for years on end. Those have been named via a non-competitive process called an RFP (request for proposals). The named entities are Related Companies and Essence Development. Lord knows what levels of graft were involved in their selection.

There is talk of doing something comparable at several other NYCHA locations. But because the economic model here is so complicated, and leaves a lot of locked-up value still locked-up, the potential for replicating this approach at all NYCHA projects is limited. Without real privatization or a massive bailout (that is completely unrealistic from any source), NYCHA will likely continue gradually deteriorating for the rest of my lifetime.

“Giving” them equity that they would just sell before they move elsewhere is a stupid idea. If they were good at handling money like that, they wouldn’t be in public housing.

The best thing would be to just boot all the illegals from NYC to reduce the pressure on housing costs and the number of residents that might need alternatives while instead selling the buildings to developers.

Bid out each building for renovation, with the winning renovator getting the number of units bid.

Imagine a 50-unit building. There are three bidders, one at 14 units, one at 12 units and the low bidder at 10 units.

The building gets renovated. The NYCHA picks out its 40 units and the renovator gets the 10 not picked by the NYCHA.

“boot all the illegals from NYC to reduce the pressure on housing costs”

Would open up all kinds of housing.

Many in Public Housing are essentially “Wards of the State”, Incapable of competing in any real way in a market economy.
Step one above would help.

Step 2 is “No More People in Public Housing”. Can’t have more kids. Over time, folks will age out and free up the units.

Global Surplus Labor is a current problem.
What do you do with Global Surplus Humans?

First step: get rid of rent controls. Let that action work for a couple of years and I think you’ll see landlords making the decisions as to what happens next. My guess is that many people will not be able to continue living in NYC and they will be forced to live elsewhere. But, why is that a bad thing?

From the article: ...the “privatization” consists of bringing in a couple of well-connected developers to run the process for years on end. Those have been named via a non-competitive process called an RFP (request for proposals).

Francis Menton, the author, gives away his ignorance (or deception). A Request For Proposals (RFP) is not the process, it's one step in a process. And the process is competitive, hence the request for proposals (plural).

As a retired lawyer, living in Manhattan, he should know this. A city like New York City releases thousands of RFPs, for everything from garbage pickup to police radio servicing. They're public record.

The proposals are received, reviewed, scored, and a winner selected. That there are only two firms bidding, as he claims, for housing renovation is expected in such a narrow field of work that few firms are interested in - whether by design or by default. Few companies want to do renovations, especially of government housing, when they can instead do new construction from private developers. I'm sure there are companies in Russia or China that specialize in renovating government housing. New York City could open up the bidding to those companies, with the expectation that some of the building will collapse spectacularly.

On a related note, Direct Sourcing is when a company or government agency bypasses the bid process and directly contracts with a firm. This normally happens with specialized expertise or proprietary software.

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