Mayor driving developers to save the city's middle income housing.

More city-subsidized housing developments for families earning close to $100k provide further evidence that the middle classes are being priced out of the market by skyrocketing costs and the housing squeeze.

"It is very hard for developers to afford rising land costs and construction costs and make affordable housing pencil," said Dan Hollander, senior managing director for the Clarett Group, a developer of primarily high-end homes.

"I think that is why developers are tending to shoot for the high end of the market and build luxury housing where the high prices do make numbers pencil."

Population growth has far exceeded new housing being built over the years. The city is currently 100,000 units short of housing, according to New York University's Fuhrman Center. The million people expected to relocate to New York in the next two decades will not help alleviate this problem.

"There is certainly recognition by the Mayor that, in a city like New York, the need for affordable housing is also felt by middle-class families. That's why he announced his middle-class housing initiative designed to encourage moderate and middle income families to stay in New York City and allow the City economy to grow," said Neill Coleman spokesperson for the New York City Department of Housing Preservation and Development.

Recent construction of middle class housing at Arverne by the Sea, a development in Far Rockaway, and sites assigned to developers in Queens and Chelsea, prove Bloomberg is working towards trying to solve the problem. The bulk of this housing is being created as part of the Middle Class Housing Initiative, which promises to generate 22,000 units for families earning approximately $50,000--$100,000 per year and accounts for 1/4 of the units to be created under the total $7.5 billion New Housing Marketplace plan.

Hollander believes the plan is a step in the right direction and could help encourage developers to integrate middle-class housing into properties.

"The plan is a good one, but it doesn't go far enough," he said. "There is a tremendous need for It is going to take a lot more resources and creative approaches to financing privately built moderate income housing."

One creative solution was recently offered by private developers already reaping the fruit of the Mayor's plan. Benjamin-Beechwood, LLC's Arverne by the Sea, took advantage of some of the city's programs for the 13% affordable housing in the development.

Additionally the developers came up with unique ways of developing affordable housing for middle income people who won the city's lottery: Purchase prices on "dual unit" houses start at $169,000, slightly below market rate--and allow homebuyers to rent out an extra housing unit attached to their property to offset the costs. 20-year tax abatement programs which require owners to pay land tax help keep homes affordable.

"The Mayor's affordable housing initiative has given us the ability to expand our development to incorporate substantial middle income housing," said Russel Mohr, project executive for Arverne by the Sea. "We have teachers, police officers and civil servants living at Arverne who might not have been able to afford to buy their own house otherwise."

The $7.5 billion overall plan draws its money from multiple sources including City capital funding, money used previously to manage rem stock of city seized properties, and revenue from the Battery Park City Authority.

Jack Freund, vice president of the Rent Stabilization Association, also recognizes that the plan gives needed support to developers.

"The Mayor's Housing Initiative recognizes that the private market cannot meet all housing needs and that the costs of providing the needed subsidies should be borne by all taxpayers. The Mayor's approach is clearly distinguishable from, and superior to, the other large source of affordable housing: the rent stabilization system which places the subsidy burden on the backs of property owners with potentially disastrous consequences, such as the housing deterioration and abandonment witnessed in the past," Freund said.

Last week, the development team of the Bluestone Organization, L&M Equity Participants, and Triangle Equities was appointed to create another phase of the Rockaways initiative called Arverne East. Located adjacent to Arverne by the Sea, it will include 1600 middle income units, a nature preserve and commercial space.

These announcements followed on the heels of the purchase of land for a Rockrose Development Corporation 5,000-unit middle class complex at Queens West.

Other middle income developments in the pipeline include a 435-unit development of the Chelsea Yards and west Chelsea rezoning areas.

Hollander believes that more programs like the ones offered through the New Housing Plan could help sway developers away from building luxury properties exclusively.

"The idea that makes a lot of sense is that you have some combination of market and middle income that gives you economic diversity and gives some comfort to the developer that they are not putting all their eggs in one basket," Hollander said. "What is critical is that we come up with creative, market-based solutions."