Congress is currently considering a change to Department of Housing and Urban Development regulations that could lead to relief for thousands of New Yorkers living in government-subsidized apartments.
The rule change would allow HUD to take into account the future cost of repairs when selling one of its buildings to a local government or housing authority. Local governments have been entitled to a “right of first refusal” on HUD-controlled buildings for years, but since the 2005 Deficit Reduction Act, HUD has not been able to take the cost of repairs into account when setting the price on those sales. Factoring that cost into the sales price would make it less expensive for a local housing agency or nonprofit to rehabilitate the properties and keep rents affordable for low-income tenants.
“We felt that was not fair and it was costly to many areas, like New York, where it’s important to maintain affordable housing,” said U.S. Rep. José E. Serrano (D- Bronx), who’s been praised by many housing advocates for getting the rule change into a report attached to the HUD appropriations bill. That bill passed the House on July 24.
An aide to Serrano said that HUD had not been able to execute a “right of first refusal” sale to a local government since 2005, mainly because the asking price for these distressed buildings was too high.
The Senate’s version of the housing appropriations bill, which still awaits a vote, also includes the rule change and would allocate $5 million to cover the amount the Congressional Budget Office estimates the rule change will cost the agency. Advocates agree that the $5 million is needed to bridge the budgetary gap the rule change would create.
Serrano said he was confident that the rule change and the money would both be in the final bill that goes to President Bush.
“When you walk into a conference where both sides realize something needs to be done, that gives me a lot of confidence it will happen,” Serrano said.
The rule change would ease New York’s path to purchasing a portfolio of HUD buildings that have fallen into disrepair and could face foreclosure. Through the NYC Property Disposition Demonstration Program, a central piece of the Bloomberg administration’s housing program, HPD had sought to buy a number of distressed HUD buildings and avoid the uncertainty of foreclosure. The program has been stalled over the sale price determined under HUD’s current rules.
Patrick Coleman, preservation coordinator at Tenants and Neighbors, a tenant advocacy organization, said the rule change and $5 million would allow HUD to negotiate more freely with the city. A spokesperson for HUD said the agency would not comment on pending legislation.
The city welcomes the rule change, says Alexa Sewell, assistant commissioner for federal legislative affairs at the city Department of Housing Preservation and Development.
“This legislation will allow New York and other cities across the country to exercise our right to purchase HUD loans and properties that are entering foreclosure,” Sewell said in an e-mail. “These changes will allow us to continue our successful partnership with HUD to repair and restore distressed properties.”
According to the Partnership to Preserve Affordable Housing, an umbrella group of advocates for tenants’ rights and affordable housing, more than 60 HUD developments in the city are “distressed,” which means the buildings have fallen into physical disrepair or the building’s private owners have fallen behind on mortgage payments.
Advocates familiar with the city’s negotiations with HUD say that the portfolio will not include all of the city’s distressed HUD buildings. They estimate the eventual number of buildings that will be included in the sale to be between 20-30 developments, comprising thousands of apartments.
One of the buildings in the city that would likely benefit from the HUD rule change is the Hunts Point I complex in the Bronx. The buildings routinely fail physical inspections performed by HUD. Residents live with water leaking from their ceilings after every rainstorm. The front door to one of the buildings has been missing for months and the lack of security leads to other problems.
“A blind man could see that they’re selling drugs in there again,” said Emanuel Hickson, 49, who has lived at Hunts Point I for 23 years.
According to Coleman, who has been working with tenants at that building for three years, HUD asked HPD to pay $6.7 million for the three-building complex in a “right of first refusal” sale. Yet the cost of repairs well exceeds that. Coleman said that one estimate of the rehabilitation work to be done on the buildings put the cost at nearly $10 million – on a building that carries a mortgage of just under $7 million.
The rule change “will enable the city and HUD to come to a more ‘reality-based’ understanding of the price of these buildings,” Coleman said. While Coleman said it was impossible to guess what HUD’s new asking price might be after the rule change, he thinks it would be lower, and noted that any amount would help the city meet the $10 million needed to completely repair the buildings.
Serrano believes that having Congress change HUD’s policies should encourage Hickson and other New Yorkers living in similar circumstances not to lose hope.
“Now we will be armed with even more ammunition to be able to fight these fights,” Serrano said. “The future of this city is in affordable housing.”
Dina Levy, director of policy and organizing at the Urban Homesteading Assistance Board, agrees with Serrano, but has other worries.
“My bigger concern is the president,” Levy said, referring to President Bush’s threats to veto appropriations from the Democratic-controlled Congress, which could result in a last-minute budget scramble in the fall. “How does it all pan out if that happens?”
For more on distressed HUD housing, see the Center for an Urban Future’s recent report, Cause For Distress.