For decades, Housing Development Fund Corporation (HDFC) co-ops have been providing affordable homeownership opportunities for low-income families across New York City. These income-restricted cooperatives now comprise some 30,000 apartments in more than 1,300 formerly abandoned or distressed multi-family buildings. Eligible for special tax abatements and government grants, HDFC co-ops have helped increase civic engagement among residents, enable greater educational achievement for children and bring more financial stability to families. This has improved not only troubled neighborhoods but the city around them. Yet, the future of this housing stock is in jeopardy.
Apartments in some HDFCs are beginning to sell for market-like prices, far beyond what lower-income people can afford, and other buildings are experiencing problems with their leadership or finances. To tackle these challenges, the city has proposed a deeper property tax break for HDFC co-ops in exchange for increased regulation. The new regulatory agreement, however, is extremely controversial among both HDFC shareholders and the organizations that serve them.
With many reactions fueled by inaccurate information, the reasons for the uproar vary. It’s worthwhile to take a look at some of the issues involved in HDFCs retaining or regaining their financial and physical stability while maintaining their affordability for the low-income New Yorkers they are legally required to serve.
Residents of hundreds of HDFC co-ops across the city would be affected by the new regulatory agreement, but some shareholders have felt left out of the process of creating it. Others are resentful that, after paying little attention to this housing for decades, the city is now offering a punitive-seeming proposal instead of gratitude and support to residents for stabilizing these once-distressed buildings and neighborhoods. Some believe that price caps on apartment re-sales are unfair and that some of the city’s requirements would be overbearing or paternalistic. Other shareholders are questioning the need to have any regulation or oversight at all.
Most affordable housing that receives government subsidies operates under a regulatory agreement to ensure that the residents, the community, and taxpayers all benefit. HDFC co-ops should be no different. Many are already under the kind of regulation that the city hopes to implement across the board, and the success rate of these cooperatives is high. Any new regulation, however, must be reasonable and respectful of the unique history of HDFCs. It must not be onerous or seem demeaning to residents, who already work so hard to run and maintain their often aging buildings.
Among the most controversial elements of the proposed new regulatory agreement is the price caps on HDFC co-op re-sales. Some shareholders ask, “Why shouldn’t I be allowed to get market value for my apartment when I move out? We stayed in this neighborhood when it got so bad that hardly anyone else wanted to live here. Now that there’s a Starbucks on the corner and a movie complex down the block, we should be rewarded with a nice profit just like other homeowners who sell.”
It is crucial to remember, though, that since these affordable co-ops are special purpose corporations incorporated under Article XI of the Private Housing Finance Law, they are legally required to provide housing to low-income people. In exchange for complying with income restrictions and other rules designed to preserve current and future affordability, HDFC co-ops have been eligible for ongoing tax breaks, grants for renovations, low-interest loans and technical assistance, all paid for by taxpayers. Allowing apartments to sell at high prices defeats the purpose of this subsidized housing.
A key point to understand about living in an HDFC co-op, as well as in other income-restricted co-ops such as Mitchell-Lamas, is that residents do not have to wait until they sell their apartments before they realize the greatest benefits. With monthly HDFC maintenance often just a fraction of the rent for nearby market-rate apartments, shareholders enjoy the value of HDFC co-ops every single day that they live in them.
Re-sale prices are a critical component of maintaining HDFC co-op affordability, so that these buildings can remain an option for future lower-income residents. More than 90 percent of HDFC co-op apartments are owned by the people who originally purchased them—for only $250. There is no question that shareholders are entitled to (and will certainly receive) a substantial return on their initial investment when they sell. It is essential, however, that whatever profit people make as they move out does not compromise the ability of the next generation of low-income New Yorkers to afford these apartments. Fortunately, as the city’s Independent Budget Office report on HDFC co-op re-sales indicates, most units have sold at affordable prices. But increasing numbers of these apartments have gone for market-like prices.
Running a healthy co-op while maintaining low operating costs takes a lot of effort. Residents of most HDFCs have done an impressive job managing and governing democratically. As an incentive to continue preserving the current and future affordability of these buildings, through re-sale price caps and other means, shareholders should receive a new full property tax exemption, along with a clearer set of expectations for keeping their HDFCs on solid ground.
Monitoring has proven to be a useful and proactive way for affordable housing nonprofits to work with HDFCs to help their boards and other shareholders devise and maintain sound fiscal and leadership strategies, whether they need to sustain successful co-ops or to turn their buildings around. Of the 150 buildings with regulatory agreements that the Urban Homesteading Assistance Board (UHAB) monitors, less than 1 percent have serious financial or organizational problems while 27 percent of unmonitored and unregulated HDFC co-ops are in financial distress. The deeper property tax cut that buildings would receive for signing the new agreement is intended to cover the cost of monitoring.
Yet the city’s proposed new requirement that every building hire a monitor is another vigorously debated issue. To address shareholder concerns, the city could consider funding the monitoring directly, so that the low-income residents of these buildings would not have to pay for it themselves. The city could also allow buildings more flexibility in selecting their monitors.
For the HDFCs that have been performing well, reporting their success to the city should not be a problem. This process should be as hassle-free as possible, perhaps including a provision for HDFCs themselves to report their financial and organizational information each year. But without some form of reporting, it is difficult to determine whether a co-op is healthy or at risk of falling into financial distress.
Clearly, there are HDFCs that do face financial and organizational trouble: Buildings that can’t keep up with repairs, where property tax and water bills are mounting, the leadership does not hold regular board meetings or generate financial reports, a handful of people have been running the HDFC for many years without democratic elections—buldings that are governed by shareholders who allow non-transparent apartment re-sales or let relatives illegally sublet their apartments through Airbnb. For these co-ops, monitors are effective in promoting solutions that help them back on the right track.
Preserving strong HDFCs benefits people of all incomes, because stable housing means an improved city for everyone. The continued loss of this housing threatens the future of all affordable co-ops in New York City, including the nearly 30,000 HDFC co-op apartments and more than 61,000 units of Mitchell-Lama co-ops. The residents of one Brooklyn Mitchell-Lama co-op recently voted to reject privatization and high re-sale prices. As a shareholder put it, “Why would you not want to leave somebody the blessing that you were given?”
Andrew Reicher is the executive director of the Urban Homesteading Assistance Board