Waiting in Harlem

The recent New York Times article "In East Harlem, 'Keep Out' Signs Apply to Renters" showcases the struggle in redeveloping formerly derelict areas, even in a place like Manhattan, where - as the author states - the vacancy rate is nearly 1 percent. While it is easy to look towards property owners as the main culprits in stalling such redevelopment, there may be another factor.

Current federal housing finance regulations discriminate against the mixing of uses in residential buildings with a commercial component. For example, to qualify for financing under HUD's 221(d)4 program, a project must have no more than 10% of its gross floor area dedicated to and 15% of its gross income derived from commercial property. Outside ultra-dense neighborhoods like New York's Upper East Side, such restrictions impede owners of forlorn properties to rehab their units, forcing them to sit on the property or wait for developers of high-rise condominium buildings whose plans exceed the gross floor area requirement to make an offer.

Rational building owners understand that federal restrictions that disallow the mixing of uses disincentivize any action. They are better off simply extracting the value from their parcel as best they can - maintaining an income stream from the commercial unit(s) while allowing the residential units to remain vacant. With such a low maximum threshold for mixed-use per the federal programs, these owners wouldn't be able to find financing to deliver the rehabbed residential units. Waiting for a high-rise developer to come along with a plan that far exceeds the floor area ratio restriction is a better bet. Unfortunately, such high-rise condo developments threaten the livability of Harlem just as much as vacancy does, undermining the mid-rise fabric of the neighborhood and potentially spurring gentrification.

CNU's FHA, Fannie Mae and Freddie Mac Reform initiative is working with a coalition of homebuilder associations to raise and/or eliminate the restrictive covenants on commercial space in traditional neighborhood districts. Such reform will work to jumpstart much-needed economic growth by allowing for the rehabilitation and restoration of mixed-use apartment buildings and maintain the fabric of mid-rise neighborhoods like Harlem.

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