Middle class may be developers' 2nd shot

NEW YORK -- Cities that have high housing costs are trying to make lemonade out of real estate lemons: turning failed developments into affordable housing for the shrinking urban middle class.

New York City elected officials are working on a plan to subsidize unsold or half-built apartment towers to make them affordable to middle-income residents. "We love the idea. Now we're trying to execute it. Now we're trying to come up with the money," says Robert Lieber, deputy mayor for economic development.

Development has stalled at more than 20 condominium buildings in the city, according to The Real Deal, a real estate trade magazine. A 67-unit building in Queens has been rented by the city to house homeless families.

The city announced last week that it had acquired land for 3,000 units of middle-income housing, the largest single development of its kind in the city in 30 years. City-financed, it will be aimed at families earning between $55,000 and $158,000.

Seattle will vote in November on a property tax that would generate money to buy market-rate real estate developments that have stalled and convert them. "We are seeing opportunities right now to purchase properties," says Adrienne Quinn, city housing director.

Seattle offers a 12-year property-tax exemption on developments that include middle-income housing, for families who earn $67,440- $101,160. Last year, the city expanded the program to 39 neighborhoods and approved more than 678 middle-income units.

The recession has brought a renewed focus on affordable housing for middle-income residents as well as the poor.

"The downturn in the economy is making people realize that there's definitely a continuum" of need, says Michael Andrews of the Portland, Ore., Housing Authority.

Rising housing values in cities that prospered during the last economic boom priced out the middle class. Cities also lost middle-class residents when manufacturing jobs disappeared.

Cities need middle-class families because they support public schools and fill essential jobs such as teachers, police and firefighters, says Alan Berube, research director of the Brookings Institution's metropolitan policy program.