IDEA 12: ACCESSORY DWELLING UNITS & BASEMENT CONVERSIONS
Seattle, Vancouver & Santa Cruz • Helping the Elderly to Comfortably & Affordably “Age in Place”
INNOVATION IN A NUTSHELL
An Accessory Dwelling Unit is a small, self-contained residential structure sharing a lot with an existing house. In Seattle, Vancouver and Santa Cruz, legislation was enacted to permit ADUs on sufficiently sized lots in one- and two-family zones. Building regulations were also relaxed to allow formerly illegal subdivisions to be safely brought to code without facing severe fines.
City Council authorizes Accessory Dwelling Units, mandating minimum lot size and maximum floor area ratio (FAR)
Department of Planning pre-approves design standards
Design competitions, targeted primarily for elderly-specific needs, stimulate cost-effective plans
Manuals and workshops are prepared to help homeowners take advantage of a one-time “grace period” to bring their illegal units to code without penalty
Increase the affordable housing stock
Regulate formerly illegal and unsafe subdivisions
Allow the growing elderly population to comfortably “age in place”
By 2030, New York City is expected to add an additional 600,000 residents. The elderly will account for two-thirds of this growth. While these figures confirm New York’s increasing appeal and vitality, it raises important questions: Can New York’s housing market keep up with this growth and how will the city accommodate the growing number of seniors who wish to live near family members?
Seattle’s experiment with Accessory Dwelling Units (ADUs) offers an intriguing solution. One- and two-family homes are permitted to build a self-contained residential structure on their lot, provided it does not exceed 800 square feet of interior area and covers no more than 40 percent of the rear yard. Seattle first piloted an Accessory Dwelling Unit program in 1994. Fifteen years later, its zoning code was officially amended to allow detached ADUs throughout the city. The application and development process was streamlined by the Department of Planning—articulating precise design standards, approving permits within six weeks, and organizing a design competition to spur creation of reasonably priced units.
In Vancouver, efforts to expand the affordable housing stock have been even more aggressive. In 2007, the building code was relaxed to allow detached ADUs (not exceeding 500 square feet, a size more appropriate for New York) and to legalize basement conversions (“secondary suites.”) From 2010 to 2012, the City issued permits for 778 ADUs, 932 new homes with secondary suites, and legalized 608 existing secondary suites. To implement these reforms, the City of Santa Cruz offers an appealing strategy. The City provides loans to homeowners as well as incentives for keeping the units affordable. Manuals, design guides and workshops were prepared to help homeowners take advantage of a one-time “grace period” to bring their illegal units to code without penalty.
Encouraging the construction of Accessory Dwelling Units will provide affordable housing options for all New Yorkers, particularly the elderly. Affectionately referred to as “granny flats,” they offer a proximate, but still independent space to house elderly family members—and a welcome substitute to nursing homes. Alternatively, the elderly can rent their increasingly oversized homes and move into a newly built ADU. Transitioning to a “backdoor cottage” behind one’s own or a family member’s home allows the elderly to “age in place;” staying enmeshed in their informal support network and providing childcare, help with chores and possibly financial support to their family.
To assure units are consistent with neighborhood character and design standards, New York could organize a competition to design prefab ADUs. Special consideration could be given to modular units manufactured in New York, spurring economic development. Modular ADUs can be customized for the aged, with wall sockets higher off the ground, hallways wide enough for a walker, bathrooms with support rails, and no stairs.
In New York, the boroughs outside of Manhattan provide an excellent terrain for Accessory Dwelling Units. One-and two-family residences account for 34 percent of total lot area in Staten Island, 35 percent in Queens, 18 percent in Bronx, and 23 percent in Brooklyn. The average lot size for these homes is 4,300 sq ft in Staten Island, 3,400 in Queens, 3,100 in the Bronx, and 2,400 in Brooklyn. Even under Seattle’s generous 4,000 sq ft minimum lot size, a significant number of locations in New York could accommodate ADUs.
The demographic figures provide an even stronger case for ADUs. While only 7 percent of Manhattan dwellings house three generations, the outer borough average is 10 percent (not counting, of course, illegal subdivisions). Excepting Manhattan, every borough has experienced an increase in foreign-born residents over the last decade. For many of these immigrants, ADUs provide a welcome opportunity to remain close to their extended family in a safer, more comfortable and more cost-effective manner. As Sujatha Raman, the director of Development for Chhaya CDC, recognizes, “In Queens and other parts of the city where our community is mainly low- and middle-income, the family structure of the Asian clients we work with is larger and the housing model in New York City doesn’t quite fit.”
For low-income immigrant families lacking appropriate and affordable housing, illegal subdivisions have provided a shadowy, unspoken “safety valve.” Housing advocates estimate 100,000 illegal dwellings in New York City. But with fire and health hazards arising from unregulated subdivisions and the impossibility of legally binding lease contracts, “safety” is a severe misnomer. To ensure regulatory compliance, increased tax revenue, and the allocation of educational, sanitation and police resources according to actual population figures, Accessory Dwelling Units offer a smarter, safer and more equitable solution.
For many housing experts, simply legalizing basement subdivisions is considered the path of least resistance because it does not alter existing FAR. While this is an appealing strategy, there are compelling reasons to consider ADUs as well. Construction costs for ADUs in Seattle are approximately $50,000, similar to the $10,000-$50,000 cost of bringing illegal basement subdivisions up to code, according to Sujatha Raman. ADUs are also less vulnerable to flooding than basements; a real concern in our post-Sandy environment. Finally, with no stairs and the opportunity to design them according to the needs of the elderly, ADUs are better suited to our aging population.
For NYC, zoning for ADUs and permitting basement conversions provides a rare opportunity, simultaneously addressing some of the city’s most pressing and nettlesome problems. They would increase our affordable housing stock; attenuate the city’s reliance on unsafe, illegal subdivisions and allow our growing elderly population to comfortably “age in place.”
IDEA 13: PRIZE-LINKED SAVINGS
Michigan • Incentivizing Savings Accounts in Underbanked Communities
INNOVATION IN A NUTSHELL
Under a new model, cash prizes are used to incentivize underbanked individuals to open and make regular deposits into a traditional savings account. The initiatives aim to dramatically increase the number of low-income families enrolled in the banking system.
A nonprofit organization or government agency coordinates the program in partnership with a reliable banking institution
It includes a marketing plan and a push for state legislation to allow cash, raffles and other incentives to ensure wide participation
Underbanked households open and maintain a savings account, increasing their access to financial products and services, while offering paths to better money management and greater financial stability
About 20 percent of US households, or 51 million adults, are underbanked. In the years following the recent economic downturn, many families were forced to tap into retirement funds and nest eggs. While the benefits of creating and maintaining a traditional savings account are difficult to popularize through marketing, prize-linked savings (PLS) programs have become a widespread and effective tool to encourage families to save money and use the banking system.
In the past, public awareness campaigns to promote the creation and maintenance of savings accounts have faltered because they have relied on simply advocating the virtues of having a savings account. But prize-linked savings have had greater success because they have leveraged new and enticing incentives—cash prizes, raffles and lottery-like prize entries. Countries such as the United Kingdom, Sweden and United Arab Emirates have widely instituted these programs. In the US, Indiana’s Central Credit Union first piloted the program and enrolled more than 1,000 new accounts, accruing more than $500,000 in savings deposits in the first five months. Based on the success of Indiana’s pilot, an asset-building nonprofit, Doorways to Dreams (D2D), spearheaded a highly successful program in Michigan that serves as the current model for PLS in the US.
In 2009, D2D partnered with the Michigan Credit Union League to launch Save to Win, the country’s first large-scale, prize-linked credit union savings account. This program enters account holders into raffles for cash prizes with each savings account deposit of $25 or more. Michigan credit unions boosted public interest in the program by offering an annual $100,000 jackpot in addition to smaller prizes to encourage people to create a savings account and fund it regularly.
Most states ban privately run lotteries and Michigan was no exception. But Michigan’s Credit Union Act included a provision that specifically allowed credit unions to run promotional programs like Save to Win. In partnership with local governments, D2D and their partners launched aggressive public awareness and enlistment efforts.
Through Save to Win, the number of low-income residents enrolled in the traditional banking system has spiked. Three years since the program launch, 25,000 unique accounts have been created, with over $40 million in accrued deposited savings. Because of PLS administered through Save to Win, the demand for credit union memberships has increased, totaling more than one million people in Michigan and Nebraska. In addition to driving people to create a savings account, average savings account balances have grown from $817 to $1,779, since one of the conditions of the raffle entry requires long-term maintenance and regular deposits. Account retention remains fairly high, with an average 60 percent of members maintaining their accounts for more than a year.
Replicating the Michigan PLS model in New York would not be difficult since the City already has established the Office of Financial Empowerment, a widely effective asset-building agency at City Hall that works closely with both government and financial institutions. The major hurdle for New York to implement PLS would be the legislative ban on non-state institutions’ ability to offer cash prizes. But if legislation were secured and a well-designed program tailored for New York were devised, the city’s large underbanked population could be spurred to save money reliably and accrue other financial benefits with credit unions or other qualified financial institutions.
IDEA 14: IMMIGRANT EXPORT INITIATIVE
Los Angeles & Chicago • Helping Immigrant-Run Businesses Grow through Exporting
INNOVATION IN A NUTSHELL
Immigrant entrepreneurs account for a disproportionate share of new businesses, and given their language skills and established networks in their native countries, there is clear potential for many to export their goods and services. Chicago and Los Angeles are targeting these enterprises in order to double citywide exports, thereby boosting local economic growth.
Coordination between government, business and education institutions to extend training, loans and insurance to export-ready immigrant-operated businesses
Multinational Export Forums encouraging immigrant entrepreneurs to share country-specific expertise and collaborate on new export ventures
Increasing city exports
Engaging immigrant business owners
Inspiring collaboration between diverse immigrant entrepreneurs
Immigrants have long been entrepreneurial sparkplugs. Just 13 percent of the nation’s population, the foreign-born operate 18 percent of small businesses. But while immigrant entrepreneurs have become increasingly important to the nation’s economy, too few immigrant-run firms ever grow into medium or large businesses, limiting their economic benefits to the local economy. Economic development officials in a number of cities are betting that immigrant-run businesses have significant potential to grow through exporting. With established networks in their home countries, an understanding of local markets, and shared languages and culture, immigrants are endowed with easier access to foreign markets. In Los Angeles and Chicago, export assistance programs are helping these businesses expand domestically by venturing abroad.
In the fall of 2011, Los Angeles Mayor Antonio Villaraigosa launched the Los Angeles Regional Export Council (LARExC), an independent, not-for-profit partnership of government, business and educational institutions. Charged with doubling exports from small and medium-sized companies, LARExC devotes special attention to immigrant-owned businesses that either 1) do not export, but have strong business ties to their country of origin or 2) already export to their home country and have the know-how to pursue additional destinations.
Companies are assessed and screened through an online intake form, ensuring that resources are targeted toward companies with the highest export potential. For novices, the city port and airports conduct seminars in trade financing, documentation, logistics and identifying appropriate overseas markets. The Export Champions Program, for the more export-ready, matches companies with a team of UCLA and USC MBA students who provide market research and devise an export plan. Finally, trade missions to East Asia and western Latin America allow companies to meet with local importers, government officials and U.S. Department of Commerce service officers stationed abroad.
Chicago is also targeting export promotion programs to the city’s foreign-born business owners. Chicago’s Office of New Americans and the Department of Business Affairs believe cross-national collaboration is the cheapest and most effective method for harnessing existing expertise. At their co-sponsored export forums, immigrant entrepreneurs share their country-specific knowledge and collaborate in forging new markets.
Instituting a similar program in New York makes sense. In the five boroughs, the foreign born comprise 36 percent of the city’s population but a hefty 49 percent of all self-employed workers. Directing them to training, networking opportunities, loans and insurance to help them export to their home countries or seek new markets beyond their home countries could help more of these firms grow and provide a boost to the New York economy. Exporting provides one of the best opportunities for small businesses to expand and add employees. Companies that export pay 15 percent higher wages and are nearly 9 percent less likely to go out of business than non-exporting companies.
As it is, too few of New York’s small businesses export their goods and services. Exports account for only 7 percent of New York’s total metro GDP, ranking it 93rd among America’s 100 largest metros.
New York City currently lacks any meaningful program to help local businesses export. In today’s global economy, it would be wise for New York to undertake an export-assistance strategy. Targeting immigrant-owned businesses is a natural place to start.
IDEA 15: COMMUTER TAX BENEFIT
San Francisco • Expanding Access to Federal Pre-Tax Transit Benefits
INNOVATION IN A NUTSHELL
The City of San Francisco now requires businesses in the city with 20 or more employees to provide employees with tax-free commuter benefits.
Legislation mandates that businesses offer tax free transit benefits to their workers
As much as $245 each month can be exempted from federal, state and city income taxes, Social Security and Medicare taxes, and federal unemployment insurance
Incentivizes people to use public transit
Decreases payroll tax for employers
Significant cost savings for commuters
Decreased greenhouse gas emissions
The federal government has long allowed businesses to offer their employees the opportunity to save hundreds of dollars a year in transit costs by using pre-tax dollars to pay for subway, bus or commuter rail commutes. However, beginning in 2009, the City of San Francisco went a step further and mandated that businesses in the city with 20 or more employees offer their workers tax-free commuter benefits, which are currently capped at $245 a month.
San Francisco’s law has greatly increased the number of people taking advantage of the federal tax-free transportation program, a development that benefits both employees and employers and has no meaningful cost to the city. Individual workers can greatly reduce their monthly expenses, while businesses save in payroll taxes because employees are deducting income on a pre-tax basis. By offering the benefit, employers also become more attractive to potential employees. Even the San Francisco Chamber of Commerce supported the measure, saying: “While the Chamber generally opposes mandates on business, the City’s requirement that businesses with 20 or more employees working in San Francisco establish a program to promote the use of public transit can be an economic benefit. In addition to helping to reduce greenhouse gas emissions by getting people out of their cars and onto transit, the law can be a money-saver for business.”
While a healthy number of San Francisco residents were already using the transit benefits prior to the 2009 law, a significant share of small and medium-sized companies had not offered the program to their employees. The law appears to be working. Since the ordinance was rolled out, 64 percent of San Francisco businesses have complied and companies with fewer than 100 employees have the highest participation rates—more than 60 percent.
New York City could benefit from similar legislation. Although a large share of New Yorkers already commute to work by public transit—700,000 people in the New York metro area, according to New York Public Interest Research Group—hundreds of thousands of New Yorkers currently are not taking advantage of the federal benefits, mainly because they are unaware of the program. Currently, only about a quarter of large and medium companies in the city offer the federal tax-free transit benefits.
Expanding the number of businesses that offer these benefits would lead to a higher participation rate among workers, giving at least some financial relief to New Yorkers at a time when so many others costs—including transit fares—have continued to rise. According to the MTA, New Yorkers who are in the 15 percent tax bracket would save around 29 percent on every subway or bus ride if they participate in the transit benefit program. Prior to the recent fare hike, the average cost of a ride for those using a bonus pay-per-ride MetroCard was $1.49 for participating employees, compared to $2.10 for those who don’t take advantage of the federal tax benefit.
It would also encourage more New Yorkers to take transit, a huge plus at a time when traffic congestion across the five boroughs remains a major problem, and ensure that more of the income earned in New York stays in the local economy rather than being sent to Washington—a noteworthy benefit for a city that routinely sends more tax dollars to the federal government than it gets back in return.
“Tax-free transit benefits save transit riders hundreds of dollars a year on commuting costs, give businesses a no-cost fringe benefit to offer their employees and reverse the flow of federal tax dollars from Washington to back home,” says Gene Russianoff, staff attorney for the NYPIRG Straphangers Campaign.
In preparation for this report, we held two roundtable sessions to critique and refine our policy proposals with a group of leaders from the city’s business, philanthropic and nonprofit sectors. We would like to thank all those who participated. While they have not necessarily endorsed the recommended ideas, their constructive criticism was extraordinarily helpful in improving Innovation and the City and their input was greatly appreciated.
Juanita Ayala Vargas
Henk de Jong
Michelle de la Uz
Jennifer Jones Austin
Alexander Gail Sherman