The city’s housing budget is facing steep cuts in upcoming years, agency officials announced at a City Council hearing last Thursday.

At the budget hearing on the Department of Housing Preservation & Development, First Deputy Commissioner John Warren offered the council good news and bad news. Just as the agency is moving forward on its role in the mayor’s plan to spend $1 billion more on housing over the next 5 years, it’s also busy making $324 million in cuts to its own capital spending.

HPD’s 19 percent capital budget cutback is bigger than the city’s overall 16 percent drop in capital spending, but those cuts won’t be a huge blow to HPD’s housing production and preservation efforts, Warren assured council members. Mostly, HPD is looking to hold back some of its programs. For example, the agency will cut $60 million over the next four years by slowing down third party transfer, a rehab program that gives tax delinquent buildings to private landlords or nonprofit organizations, along with subsidies to help repair them.

In another noteworthy cut, HPD is pulling $14.5 million from a $20 million program that has subsidized new homes for moderate-income families through the New York City Housing Partnership. Instead, Warren told the council, the agency has found that through its New Foundations Homeownership Program, “we have seen we can do homes just by contributing land, without subsidy.”

For their part, council members focused on the mayor’s new housing plan announced in December-and at least a few of them expressed displeasure about what they heard. Under questioning, Warren said that just 37 percent of the roughly 25,000 new apartments and condos to be built will be affordable to low- and moderate-income New York families-those earning under $37,500.

There are very good reasons for putting the bulk of the new money into homes for middle-income New Yorkers, Warren argued. HPD can build more total units that way, because each apartment requires a smaller subsidy. Warren also testified that HPD believes healthy communities must include residents with a diversity of incomes. “We would argue that community development works best in a mixed income setting,” Warren said.

That, responded Councilmember Bill Perkins, ignores the reality that residents of modest means dominate many of the city’s neighborhoods. “When the diversity is skewed against the incumbent residents,” Perkins said, “you’re not talking about diversity anymore. You’re talking about displacement.”

Council members might have been even more confrontational had they seen Independent Budget Office estimates released a few weeks ago. The IBO report on the mayor’s housing plan found it to be even less friendly to low income New Yorkers than HPD asserts-just 21 percent of the new apartments will be affordable, the IBO says, to families earning less than $37,500.