NEW YORK CITY—For the March 2017 Full Nelson, I had the pleasure of sitting down with Seth Pinsky, Executive Vice President and Investment Manager of the RXR Metropolitan Emerging Market Strategy, to discuss New York City's affordability crisis.

James Nelson: New York City has seen a great deal of prosperity since overcoming September 11^th and Sandy much in part to the Bloomberg administration, and yet recently, there seems to still be a great deal of concern from New Yorkers when it comes to the subject of housing. What would you say is driving this?

Seth Pinksy: We in New York are suffering from the symptoms of success. If you think back to 9/11, the City was facing an existential crisis where people were not sure if the City would be able to recover. We did recover and then we had the body blow of 2008, and the collapse of Lehman Brothers which raised questions about the viability of the city, and then had the same yet again with Hurricane Sandy. The amazing thing about NY is that after each one of these crises we were able to come back, and come back even stronger than before. Today we have record population, record employment, and record tourism. All of the macro indices are positive. The challenge though that we are facing, is that as all of that prosperity in turn has driven demand. Our supply has not kept pace. We are not producing enough housing to meet the growth of our population, or office space to meet the growth in employment. The challenge that we are facing today is that people are finding it difficult to afford to live in New York City even though more and more people want to be here. This problem is a grave problem at the low end of the income spectrum. It has impacted all New Yorkers and it certainly is harder for the middle class to afford to be in New York than is was historically, but where it is truly at crisis proportions is among low income New Yorkers.

Nelson: Please tell us about de Blasio's “Housing New York” initiative. Has it been successful? How would you change or expand on it?

Pinksy: The Mayor deserves a lot of credit for a couple of things. First of all, he has given voice to a number of the challenges that New York is facing, that perhaps the general public was not focused on. And I think that focusing people and their energies on tackling those challenges is a very important achievement. You cannot solve a problem unless you first identify that the problem exists. I think the Mayor also deserves a lot of credit on the housing front for being very aggressive. His 200,000 unit goal, 120,000 units preserved and 80,000 new units, is an enormous undertaking. To date, he has been quite successful in meeting the goals he has set for himself. However, what is important in evaluating the success of his initiatives is not just whether he is hitting the milestones he has set for himself, but whether those milestones are the right milestones or even whether they are the complete set of milestones. The argument that I would make is that what the Mayor is doing is an important part of the solution set but is not the entirety of the solution set. What I mean by that is a few things, and to understand them, you have to start with an understanding of, which is really the issue that we are facing. It is determined by a ratio, the ratio of incomes to costs. Income is an important part of this issue. The problem is not just that housing is too expensive, the problem is that people are not earning enough to afford it and we need to have as aggressive an economic development agenda as we do an affordable housing agenda. In addition to that, we have to recognize that the crisis in affordability that we are facing today affects different people differently. Not surprisingly, wealthy people are generally not that impacted by the affordability crisis. People in the middle class are, but to an even greater extent, it is people at the lower end of the income spectrum who are really in crisis. And if I had one bone to pick with the Mayor's approach to affordable housing that I think is the most significant one, it is that the Mayor is not focusing enough on those in crisis as opposed to those who are simply hurting. In other words, to the extent that we are spending significant sums of money on trying to address the problem, we should be focusing those sums on where the problem is most intense.

Nelson: How do we go about creating more affordable units?

Pinsky: The problem that we have is a fundamental imbalance in supply and demand. Even at 200,000 units as the Mayor's plan currently stands represents an addition of only a tiny fraction of the overall supply. We have over 3 million units of housing, and adding the 80,000 new units to that 3 million unit supply over 10 years proposed by the Mayor is barely going to make a dent. Therefore the real solution to this problem comes with more development. Although I understand why people in many neighborhoods do not want to see higher density in their neighborhoods, and why people are very protective of the character of their neighborhoods, the bottom line is you cannot be pro affordability and anti-development.

Nelson: How will public/private partnerships, and the new 421a Program as it is being proposed, help generate the housing we need?

Pinksy: Our real estate tax system is frankly a bit of a mess, and we need band aids to make certain types of development possible. 421a is one of those band aids. In an ideal world, you would start over and reform the tax system, and then you probably would not need a program like 421a. So I understand why there is an argument that 421a is important. However, I think that the way it has been proposed and is currently envisioned to be structured raises several questions that our elected leaders should be answering as they move towards enactment. First, is it going to result in housing that is not only affordable in name but is affordable in fact? Are we actually encouraging developers to choose options where they are creating the kinds of units that are directed at the population that is most in need, which are low income, very low income, and extremely low income New Yorkers? The second questions is about the length of the tax abatement, relates to its 35 year term. Again, there are arguments for why you need to extend this term if you are going to be asking more from developers on the affordability side, but I do think it is important for us to evaluate the opportunity cost of those lost tax revenues. For every dollar that we are abating taxes in order to get these affordable units this represents a dollar, that at some point in the future, we are not getting for education, parks, health and hospitals, and those are also important parts of the equations in terms of addressing affordability. So again, it is hard to say whether the 421a proposal or 421a in general is a good program versus a bad program. What is important, though, is that, as the legislature advances the program, they ask the right questions and do the right analysis.

Nelson: What is RXR currently working on in New York City and the suburbs? How would you view New York City versus the suburbs?

Pinksy: The city and the suburbs do compete, but they can also be complementary. The reason for that is that this affordability crisis that we are facing is a crisis that is based in a mismatch between supply and demand and the place where that mismatch exists is in the City. Population in the City is growing faster than our creation of new housing. The answer to that problem has to be more development. Politically, it is hard to get the kinds of changes that are necessary through the political process to allow this development to occur. The only answer, if we want to create enough new supply to meet the demand, therefore, is to spread that supply out. But, we have to do it in a way that is not like how we used to do it, which was just by creating suburban sprawl. What we need to do is to do it in a way that is intelligent, that is focused on and around our transit nodes. RXR is currently looking at suburban transit nodes where there has been under development, where there is vacant land, where you can develop to a level of affordability that works for people who are economically challenged. We are looking to work with municipalities in the suburbs to try to create significant amounts of housing and other uses. For example, we are master developer in New Rochelle where they recently entitled over 11 million square feet of new development, 5,500 new residential units. In Yonkers, we are building a 440 unit rental building. In Stamford we are building 325 units in a 25 story tower. On Long Island in Glen Cove, we are master developer of a 56 acre waterfront site where we recently broke ground on three new buildings, and we are also master developer on a project in Hempstead and Hunting Station. This is an opportunity that is not only good for the region but is one that can be good for developers. I think that if we want to succeed as a region, developers and municipalities need to recognize that they should be doing more of this. It is good for the region because it will eventually create supply that will lower cost and it is good for the municipalities as well because it will attract to them populations that currently they are having trouble attracting, especially young people and aging baby boomers.