Communities should preserve rental housing to combat shortage.

When it comes to housing in New Jersey, we're missing the forest for the trees. We can debate the virtues of fair share affordable housing obligations in the towns, but if we don't tackle the pressing issue of supply, we'll never catch up with demand. The demand is growing and expected to keep growing through 2025.

Our shortage of housing puts New Jersey among the least affordable states in the USA. We must add homes and apartments if we are to house everyone decently. This issue affects voters from nearly all income brackets. The solutions require leadership and resources from the governor, legislature and the private sector.

While we're trying to figure out how and where to build expensive new housing, let's engage in smart growth and save the "old-growth" forest of inexpensive rentals. One third of New Jersey lives in rental housing in about 900,000 rental apartments, from expensive suburban developments to overly-maligned public housing to newer seniors apartments. Neglected are the aged and aging supply of some 212,000 apartments housing low- and moderate-income folks in walk-ups and elevator apartments in our cities, older suburbs and rural towns. Some 60,000 dwelling units in New Jersey are considered substandard by one count. By another count the state's cities have lost over 80,000 rental units since 1970.

Let's recycle them. To do so, we'll have to commit significant resources--at least $25 million per year. Gradually, it will save about 2,500 units per year and impact about 11% of the stock over 10 years. Required are simple incentives to engage building owners, contractors and their lenders in the creation of an industry in renovation. Everyone benefits--homeowners and renters; city-dwellers and country denizens; auto-commuters and mass transit riders; tax payers and tax collectors; rich and poor; tenants and building owners.

Let's remember and affirm that most of are renters or were so at one stage or another in our family history in this country. Renting is often a step to home ownership, but can be a destination in itself. One third of New Jersey rent and our senior citizens are increasingly moving to rental housing created with their needs in mind. We applaud society's efforts to make home ownership more affordable, but should not ignore abandonment of our rental stock.

With all the press on combating sprawl, little attention is given to the most efficient use of land for living: The apartment building. Like new laces and soles for an old pair of shoes, apartment buildings can be recycled for generations to come with the right mix of financial incentives and maintenance. Once renovated, these apartments create much less drag on municipal services like water, police, fire and yes, schools. They maximize land use and offer low cost, affordable homes in which our citizens can live their lives with decency and respect.

Preservation costs less too. New construction costs upwards of $100,000 per dwelling unit depending on land, which is increasingly precious. Rehabilitation starts at $2,200 per apartment for a plumbing re-pipe; $1,500 for adequate electrical; and $1,200 for six new windows. We ought to think twice before we raze another high-rise and waste the original taxpayer investment. Instead, try renovation with residents coming from varied income brackets. Moderate rehabilitation costs a fraction of the cost of new, construction. This type of investment complements construction of new homes and apartments as well as restoration of nearby schools.

Vilifying landlords is counterproductive. Political ambivalence toward the so-called unsavory landlord is contributing to abandonment and putting New Jerseyans on the street. A more objective view of these owners is that some are inexperienced and have limited financial resources, and are caught in a situation where the fragile economics of their buildings is inadequate to cope with its repair and replacement needs. Old age, high utility, tax and insurance bills, regulatory requirements, un-funded governmental mandates for environmental conditions like asbestos and lead paint, crime, and low rents combine to make many of these older buildings marginally profitable. Some 32% of owners reported loss on investment properties of 10 units or less according to a 1995 Harvard University study.

In view of these realities, the prospect of significant new investment in major mechanical systems and kitchens and baths is unlikely. Many owners have little knowledge of renovation. They are unaware of, or unable to cope with, the bureaucracy of government programs designed to assist these properties. Confronting these inexperienced owners is the complexity of preserving affordable housing. The tools currently in place each have their own requirements and are often administered by separate agencies. Next comes the difficulty of obtaining private construction and permanent financing: loans are relatively small; loan feasibility requires the incorporation of the public benefits into their underwriting; and long and short term lending requirements must be coordinated. The construction process itself is rife with problems: knowing what work to do, which contractors to select, and what price to pay. Additional complications are inherent in preservation, as renovation is often done while tenants remain in occupan cy.

With such a complex system, it is not surprising that relatively little building-wide rehabilitation is done. When it does occur, the participants tend to be specialists, whose primary skill seems to be in obtaining access and navigating among the varied public programs. It is not surprising that this specialization distorts the cost, and that publicly assisted renovation is done at substantial premium over comparable private efforts. This high cost reduces the numbers of properties that can be preserved, and dissipates the impact of public programs, as most costs are paid with public funds, and relatively small amounts financed with private capital.

Government must play a role to foster entrepreneurs in this sector. New funding must be found and should not come at the expense of existing affordable housing production programs that are already oversubscribed. A proven element of success is the coordination of public and private investment. Studies by the Federal Reserve Bank of Philadelphia and New York and The Brookings Institution have already concluded as much and have been endorsed across the spectrum from affordable housing advocates to trade associations for apartment owners. Government should invest modest sums of between $5,000 and $10,000 per unit at low or no rate of interest into occupied or partially occupied buildings.

Means testing of tenant income should be avoided. The requirement has been the leading deterrent to getting funding into occupied buildings. Tenants want their privacy and as such, building owners and prospective purchasers have little access to this information that current programs require. Taxpayers can be assured that public funds go to deserving projects if the state limits funding to buildings in low and moderate-income census tracts. Eligibility and processing should be routine and non-political, recognizing the often-unsophisticated nature of building owners who avoid the current subsidy programs. The state can keep program administration costs low by investing their funds via qualified construction lenders pursuant to agreed upon rehabilitation and underwriting standards. The state already does this in its successful Uniform Homeownership Recovery Program.

Statewide mortgage insurance would also help. Top loss insurance realistically offsets the social risk of investing in low and moderate -income multifamily housing. The insurance will instill sound but flexible underwriting standards and will provide a uniform credit enhancement for individual transactions that lack uniformity.

Model programs have been successful in New York, Boston and Chicago. New Jersey must do likewise in order to reverse the. trend of New Jersey becoming less and less habitable for a wide range of people. And no ribbon cutting ceremonies are needed.