The Buffalo News
Wednesday, March 29, 2017
Poloncarz, Developers battle over tax breaks for Buffalo lofts
Developers shouldn’t get tax breaks to build downtown lofts that only affluent people can afford, Erie County Executive Mark C. Poloncarz said.
So Poloncarz intends to back a new policy that would require developers seeking local tax breaks for downtown residential projects to include some cheaper apartments in their projects.
“If downtown is only available to people who are very wealthy, then we, as an entire community, are poorer,” Poloncarz said.
Trying to make downtown lofts affordable for more people – not just the rich – will be one of his proposals at Wednesday’s State of the County speech at the Burchfield Penney Art Center.
Increasingly, he said, downtown luxury apartment builders are charging rents of up to $2,000 a month, making it impossible for middle-class residents and families to live in the city.
“I think it’s important that we set the standard,” he said, suggesting that up to 10 percent of available apartments be subject to an affordable housing policy.
Poloncarz can expect resistance from developers and some city leaders, even those who agree with the concept of an economically diverse downtown.
Developers, who assume the financial risk for these residential projects, say that demanding a percentage of apartments be leased at below-market rates would result in fewer apartments being built downtown unless the county comes up with alternative ways of subsidizing them.
“It’s a great policy, but how do you finance it?” asked Rocco Termini, who has developed 10 apartment complexes throughout the city, a majority of them downtown. “It’s easy to come out and say what we should do, but try and make the numbers work.”
The only apartments developers are building downtown are ones that qualify for historic tax credits, said Termini, who redeveloped the Hotel @ the Lafayette and the Webb Lofts downtown.
Offering a percentage of apartments at below-market rates affects building appraisals and what banks are willing to loan, he said, adding that while New York City has rent control policies, that market is not comparable to Buffalo’s.
“People have to think of what the implications of all this is,” he said. “It works fine in New York City when you’re getting $5,000 a month in rent.”
Poloncarz, however, said it’s clear that residential developers seeking an assortment of tax breaks from the Erie County Industrial Development Agency also enjoy a higher rate of return on their projects. Five years ago, he said, developers would hope to command rents of $1,200 a month.
“Now, they’re getting $2,000 a month in rent – like that,” he said, snapping his fingers.
For a growing number of downtown residential projects coming before the ECIDA, he said, the rents charged for apartment dwellers exceed what many middle-class homeowners pay on their mortgages.
“We just approved an adaptive reuse project, where a one-bedroom is $1,600, and a two-bedroom is $1,900,” he said. “I have a nice house in the City of Buffalo that’s 2,500 square feet, and my mortgage is $1,300 a month. These are high rates.”
That must change, he said. He referred to a study the ECIDA is doing this year to review the adaptive reuse policy for all the county’s industrial development agencies. He expects that study will recommend policy changes and will affect the standards under which apartment and mixed-use projects qualify for tax breaks in the future.
Project tax breaks range from sales and mortgage tax breaks to city property tax breaks and limited county tax breaks in some cases. Termini said that if the county offered more tax breaks for mixed-use projects, that would help.
Erie County is not the only entity looking into this issue. So is the City of Buffalo and community groups.
Buffalo Common Council President Darius G. Pridgen, a member of the ECIDA, echoed Poloncarz’s concerns about access to affordable city housing at a recent ECIDA meeting. He and other board members discussed a plan to turn the former St. Paul’s Episcopal Cathedral parish house at 128 Pearl St. into seven apartments that will rent for between $1,150 and $1,900 a month.
That project won $79,000 in ECIDA tax breaks last week.
Some city community groups have previously requested that up to 30 percent of new projects downtown include affordable housing for lower income residents.
The Buffalo Niagara Partnership, however, has said such “inclusionary zoning” restrictions would more than double the financing gap in the Buffalo market for developers who already face difficulty scraping together the money to get a project off the ground.
Mayor Byron W. Brown, also an ECIDA member, noted Tuesday that the city has embarked on a comprehensive housing study, which also looks at “inclusionary” strategies designed to improve economic diversity. City leaders are asking the ECIDA to look at the recommendations in that study before coming up with its own policy recommendations.
“I think before any arbitrary percentages are set that could create a chilling effect on the development activity that we’re seeing, we really need to study the entire housing picture in the City of Buffalo and its various neighborhoods,” Brown said.
He disagreed with Poloncarz that the city is increasingly becoming a place where only the rich can live.
“We have done, in the downtown footprint and the edge of the downtown footprint, a number of affordable housing developments,” he said. “And more are coming. But we are certainly very committed to partnering with others, partnering with members of the community and certainly the county executive to work to make sure that downtown and other neighborhoods in the city stay affordable to our residents.”
He said he’s interested in the final details of the ECIDA study’s adaptive reuse policy recommendations.
Brown said it may be more useful for “inclusionary elements” to be negotiated on a project-by-project basis. If two projects are in close proximity, for instance, and one project has ample units for lower-income residents, then the second nearby project may not need to have as many, or any at all, Brown said.
Poloncarz said he doesn’t expect any recommendation issued by the ECIDA to be a deterrent to future development.
“It still has to make economic sense,” he said.