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New York Post

 

Affordable BribesFor Banks

September 07, 2009

By Nicole Gelinas

Gov. Paterson and City Council Speaker Christine Quinn want to spend tens of millions of dollars in taxpayer money to turn market-rate homes into subsidized “affordable” homes. It’s a stupendously bad idea.

Quinn wants to spend $20 million giving real-estate developers up to $50,000 per condo if they’ll slash prices in Harlem and Brooklyn. In one example, a developer would sell a home supposedly worth $500,000 for $300,000.

Meanwhile, the governor’s housing officials want to use the state’s credit to guarantee mortgages for condo buyers; in return, developers would cut prices. The state would also spend $5 million giving $40,000 grants to families to help them buy apartments.

What makes this so awful?

For starters, these plans are huge taxpayer gifts to politically connected developers and banks -- who’ll have to cut their prices anyway, without any government bribes.

Developers and their financiers can hang on for a while, keeping condos empty. But eventually, they’ll have to throw in the towel and sell off the units at prices that somebody will actually pay -- which isn’t likely to be half-a-million bucks for a no-frills Harlem box.

Second, even if these programs really did benefit a few home buyers, it’s at the expense of everyone else.

More than three-quarters of New York families would qualify for an “affordable” apartment under the government’s income guidelines -- $108,000 a year for families in the state program.

But the programs wouldn’t produce more than a handful of subsidized apartments. (And you can bet political insiders will reserve many of those units for their kids and girlfriends.)

The cost, to the millions of people who won’t get lucky, is higher housing prices. (If you’re bidding on a condo against someone with a $40,000 grant from Albany, you have to bid $40,000 higher -- keeping prices up.)

Middle- and working-class people would do better waiting for market forces to work. As prices for “luxury” condos plummet, they’ll also pull down prices of older-stock housing down -- making more homes affordable in all price ranges.

The pols’ plans just slow this cycle, which is happening all over the country. Plus, they’ll make the real problem worse.

What’s choking the mortgage market right now now is uncer tainty. Lenders won’t approve loans for buyers in a building where most units are empty: The lenders worry (for good reason) that, without enough owners to pay upkeep fees, the property will deteriorate.

But it just takes time for developers and their financiers to capitulate. Eventually, buyers will collect money from investors to purchase entire blocks of units in a building at super-low prices. (This is going on now in other cities across the nation).

The investors can then sell the units, providing their own mortgage financing for would-be homeowners. Once the investors reach a magic number sold, regular mortgage lenders will return.

But with Quinn and Paterson to the rescue, investors will have fresh worries. They’ll wonder if lower-income buyers will deter other buyers from buying units in the rest of the building. And they’ll worry that these lower-income buyers won’t be able to pay the upkeep charges without more government subsidy, which is unpredictable and comes with strings attached.

Plus, the condos’ current owners -- the developers and the banks -- now have another reason to wait, and wring more taxpayer bailouts to pay for their misjudgments.

Finally, Paterson and Quinn would waste money that’s needed elsewhere.

Quinn’s $20 million for developers and banks could fund all but $5 million of the MTA’s five-year plan to fix ceilings in subway stations. Using state credit to guarantee mortgages leaves less debt available for other worthy infrastructure projects.

So City Hall and Albany will spend your money to keep real-estate markets frozen at ridiculous levels -- which discourages people from coming to New York or staying here to start a business.

Meanwhile, the infrastructure that supports the real economy will keep falling apart.

Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/ny_housing_grab_IsVdZZCxABD2R9yAES1fjL

 

 
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