Feb 14
2023
IDA subsidizing more market-rate housing
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Under normal circumstances, market-rate housing is supposed to conform to the forces of the free market: A developer buys a piece of land, builds housing, and sells or rents it for a price that recoups their costs and turns a profit.
But in Niagara County, the Industrial Development Agency is poised to subsidize two market-rate apartment complexes — a total of 90 units — to the tune of $3.9 million.
In one project, the proposed IDA subsidy would cover 22 percent of the building costs. That project would create zero jobs. In the other, the subsidies would cover 44 percent of the costs, and the project would create two jobs. The IDA is slated to approve both tax break packages next month.
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The developers and the IDA cite rising supply costs and interest rates — as well as Gov. Kathy Hochul’s proposal to build 800,000 housing units across the state in coming years — as the reasons the subsidies are necessary. Current market conditions make building market-rate housing difficult, the developers argued last week, so they’re in need of the IDA’s assistance.
But lawmakers and housing experts have said housing rented or sold for market rates ought to withstand market forces — and shouldn’t need subsidies. Subsidizing market-rate housing is a problem, one expert argued, because the subsidies don’t come with a requirement to keep prices for buyers or renters down. When the federal government subsidizes housing, for example, developers and landlords are required to keep rents affordable for the duration of the subsidy.
“If you’re coming to the Niagara County IDA and you’re saying, ‘I need money to build market-rate housing,’ my immediate question, if I was a board member, is ‘Well then, you’re not building market-rate housing. You’re building subsidized housing,’ just the same way affordable housing developers build affordable housing,” said Jason Knight, an associate professor of geography and planning at SUNY Buffalo State.
“You are asking taxpayers to subsidize what is, I expect, higher-income, higher-rent housing,” he added.
Neither developer has disclosed what they intend to charge each month for rent. Median rent in both North Tonawanda and Lockport, according to U.S. Census data, is around $730 per month. Apartment listings on the real estate website Zillow place rents for both cities higher.
State Sen. Sean Ryan, a frequent critic of IDAs and the chairman of the Senate’s economic development committee, has also criticized subsidies for market-rate housing in the past. He’s argued that IDA’s shouldn’t give out the tax breaks because they result in very few new jobs.
For IDAs in Western New York, subsidizing market-rate housing isn’t new, but the region’s IDAs handle the matter differently. The Erie County IDA, for example, only offers subsidies for “adaptive reuse” housing projects — those that renovate a blighted building — affordable housing or housing that caters to senior citizens.
Other IDAs, though, like the Niagara County IDA and the Amherst IDA, have subsidized “luxury” apartments in the past, arguing that those projects eliminate blight and difficult-to-remediate land.
Niagara County IDA Chairman Mark Onesi has defended subsidies for market-rate housing projects in the past, arguing that developers wouldn’t build anything in the county without the IDA’s subsidies.
About the projects
In the first project, Peak Development Partners is seeking $1.7 million in property, sales and mortgage tax breaks to build a 40-unit apartment and townhouse complex on Payne Avenue in North Tonawanda. The project would result in zero new jobs, the developer said. The subsidies break down like this:
- A 10-year property tax abatement worth $1.3 million.
- A sales tax exemption worth $304,000.
- And a mortgage tax break worth $56,000
Over the course of the decade-long property tax breaks, North Tonawanda schools will lose out on $628,634 in new revenue. Instead of receiving $1.1 million in total new tax revenue, the schools will receive $465,000 in payments-in-lieu-of-taxes — known as a PILOT agreement. That’s a 58 percent reduction.
In an interview, Peak Development president Lee Crewson said “there’s been a demand” for new market-rate housing in North Tonawanda, but defended his need for subsidies. He noted the apartments are “not luxury” and are “not going to serve that market.”
He said the project was too early in its planning process to know what the units will rent for.
“Market conditions right now are difficult,” he said. “These incentives are important.”
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In the second project, LMK Realty Associates, through its related company Chase Commons, is seeking $2.2 million in property, sales and mortgage tax breaks to build a 50-unit apartment complex on High Street in Lockport. The project would convert a former Presbyterian Home to studio and one and two bedroom apartments, and would create two new jobs.
That equates to nearly $1.1 million per new job, a particularly rich subsidy for Western New York. By comparison, the Town of Niagara’s 1,000-job Amazon warehouse netted just $124,000 per job, and was among the region’s largest-ever subsidy packages.
The subsidies break down like this:
- A 15-year property tax break worth $2 million.
- A sales tax exemption worth $144,000.
- And a mortgage tax break worth $30,000.
Over the course of the 15-year deal, Lockport schools will lose out on $1.03 million in new revenue. Instead of receiving $1.74 million in total new revenue from the project, the schools will receive $706,000 in PILOT payments, a 60 percent reduction.
A recent report from the nonprofit research and advocacy group Good Jobs First showed that public schools across New York lost a collective $1.8 billion from property tax breaks in 2021 alone.
A representative from LMK Realty didn’t return a request for comment.
Criticism of subsidies for market-rate housing
Both of the developers, as well as the IDA, cited Hochul’s proposed “housing compact” as a reason why subsidizing the market-rate apartments was necessary.
But the state Legislature would have to first approve the governor’s plan to mandate construction of 800,000 new units of housing in the coming years. The plan calls for tax incentives for the new housing, as well as a state board that could overrule local planning boards if a municipality isn’t meeting its housing goal.
The local housing targets are not yet set, according to a spokesperson for Hochul.
The spokesperson added that Hochul “has proposed changes to PILOTs and other funding mechanisms to support critically needed housing development.”
Knight, however, argued that subsidies like PILOTs shouldn’t apply to housing unless the rents would be affordable. Neither developer has said what their units will rent for post construction.
“The slippery part about this that bothers me is we’re not getting any understanding of what the units would rent for absent the subsidy,” he said. “My assumption is that the units are going to rent for what the total project cost is and the subsidy is just gravy.”
Knight added that adding housing supply does not drive rents or home costs down, meaning that using Hochul’s housing plan to argue for subsidies doesn’t make sense. Rather, he said, developers are getting a freebie at the expense of the taxpayers.
“[Developers] just have realized in Niagara County, ‘We have a foolish IDA that’s willing to give us money to do market-rate work, which is just giving us profit,’” he said. “We’re robbing the public coffers to provide housing for a handful of relatively well-to-do households. It just doesn’t make sense.”
