In Sunset Park, Demise of Affordable Units Feared

Melissa del Valle Ortiz has been warning her Sunset Park neighbors that their affordable housing, part of a federal program known as project-based Section 8, might not last. The for-profit owners, despite getting subsidies for fair market rent, might leave the program, tempted—as some owners of similar buildings in the neighborhood have been—to transition those units to new programs and, possibly, market rents.

Amid uncertain federal funding for Section 8, the owners of the Sunset Park portfolio—some 408 units in 40 buildings, several occupying Sixth Avenue between 49th and 55th Streets—might not renew long-term contracts coming due this year, and instead take advantage of the gentrifying neighborhood, Ortiz has warned.

Ortiz, a tenant leader who formerly worked for the advocacy group Neighbors Helping Neighbors, told her neighbors that, should the owners choose to opt out of project-based Section 8, tenants get only one year’s warning that their situation might change. And those owners, represented by E&M Management, have not been forthright about their plans.

This week, Ortiz confronted alarming news, revealed in filings this reporter found in New York City’s ACRIS register of property records: Most of those project-based Section 8 units, in renovated apartment buildings that exemplify the neighborhood’s transition from 1970s blight to working-class sturdiness, are slated to leave the program in October 2016 once a mortgage is paid off.

“I’m afraid,” she says. “There’s 400 families now on the brink.”

Actually, many families likely will be able to stay in their units with subsidized rents. But all face prospects less reliable and forgiving than the project-based Section 8 program.

That means that Ortiz and Neighbors Helping Neighbors (an affiliate of the Fifth Avenue Committee) face limited options. Advocates often try to get “a preservation purchaser” to buy buildings that are slated to leave the program as a contract expires.

However, “I don’t know how many nonprofits have $60 million,” Ortiz says, tossing out a ballpark sum for the two portfolios, limited partnerships named Neighborhood Stabilization Associates I and Neighborhood Stabilization Associates II. (They have not been put up for sale, though some buildings that previously left the program were sold.)

“If a three-family brownstone [in Sunset Park] is going for $1 million, how much do you think he can get for one 20-unit building?” she adds.

Declining units, new risks

Sunset Park, the city’s second-most crowded neighborhood, has significant poverty even as certain blocks gentrify. In a neighborhood with no public housing, project based Section 8 has served as a crucial anchor for poor and working-class families.

In the program, federal subsidies pay the owner the difference between 30 percent of household income and market rent. In New York, it’s a less-known component of affordable housing, with some 45,000 units citywide; nationally, however, project-based Section 8 houses more people than either the better-known voucher-based Section 8 program or public housing.

Dozens of Sunset Park buildings—Ortiz estimates there were once some 2,000 units, though there’s no solid documentation—have left project-based Section 8 in the past ten to 15 years, as for-profit owners have pursued new opportunity in a changing market. (Project-based Section 8 buildings have both for-profit and nonprofit owners.)

As the city gentrified, the number of project-based Section 8 units declined, from 52,578 in 1990 to 45,120 at the end of 2012, observed the Community Service Society (CSS), in a 2013 policy paper aimed at the next mayor. “Section 8 can be really important in preserving part of a low-income community in the face of gentrification,” comments CSS housing policy analyst Tom Waters.

Project-based Section 8 housing “provides strong incentives for owners,” CSS (which is City Limits’ parent organization) said in the report. But that depends on funding keeping up with cost increases, and “[t]he budgeting dynamic in Congress today will make it harder to sustain these appropriations, ultimately placing the housing stock in jeopardy.”

Shift could hurt tenants

In Sunset Park, the existing incentives apparently have not been enough, given how many buildings have left the program. When buildings exit Section 8, residents on the lease should get an enhanced Section 8 voucher—a so-called “sticky voucher”—to subsidize their rent so they pay the same. However, as New York State Tenants & Neighbors explains, tenants may no longer qualify for vouchers, if the unit doesn’t pass a new inspection, if any household member has committed a felony in the past five years, or if the apartment size is no longer appropriate for the household.?
Ortiz notes that the voucher program will offer less protection to those living doubled up or with incomes that fluctuate. Some residents have taken in relatives or friends, but if those newer residents aren’t on the lease, they won’t get a voucher, and the household size of the leaseholder may not match up with the apartment.

In some cases, when new leases are issued, families will have to move to smaller apartments within the overall contract—which includes numerous buildings—rather than their own building. “Who’s going to pay their moving expenses?” Ortiz asks. (While residents whose household size changes might have to move during a lease renewal under project-based Section 8, the program in practice is often less stringent.)

Also, project-based Section 8 is more forgiving than voucher-based Section 8 for those whose income fluctuates. If those in the project-based program see their income rise, they’d just pay “ceiling rent.” But under the voucher system, they’d lose their sticky voucher once they reported new, higher income—and then, if they lost that job and experienced a lower income, would go to the end of the line for vouchers, Ortiz points out.

And if residents with sticky vouchers leaves the building, they only qualify for a regular Section 8 voucher, which has a lower income eligibility: 50 percent of Area Median Income vs. 95 percent of AMI for the enhanced voucher that residents remaining in the building would receive.

Empty units, depending on the age of the building and original contract terms, likely go into rent stabilization, which has been the pattern in Sunset Park. (Advocates are pushing in Albany to make rent stabilization the rule.)] But even if the unit becomes rent-stabilized, vacancies coupled with capital improvements can cascade it to market rent. Some tenants in former Sunset Park project-based Section 8 buildings were harassed so badly they left, Ortiz says.

A perusal of Sunset Park buildings on StreetEasy identified as having recently left project-based Section 8 shows few advertised listings. Still, the advertised rent for a duplex one-bedroom unit near the neighborhood’s namesake park rose from $1,295 to $1,750 over three years.

The federal puzzle

The increasingly erratic pattern of federal funding surely is noticed by landlords.

“He told me, ‘I want to stay, it’s a good program,'” Ortiz says of a conversation she had last year with Irving Langer, whose firm manages the buildings and also shares an address with one of the entities owning the buildings. “I fully expected some kind of notice. But why would they give us more reason to fight them?”

(Langer’s firm, E&M Associates, did not respond to requests for comment.)

Actually, there is money, but it’s just not reliable. About 8,000 of 17,000 project-based Section 8 contracts coming up for renewal this year won’t be funded for 12 months but rather will be “short-funded.” That means that the new contracts—which don’t require immediate full funding because they come up for renewal well into the calendar year—will be paid for eight months in the current budget. The rest would flow when the next fiscal year begins. The budgetary gimmick allows the Department of Housing and Urban Development (HUD) to get through the year with less cash.

In the current fiscal year, Congress approved $9.92 billion for Project-Based Rental Assistance though the president requested $10.27 billion. Even that was well below the $11.3 billion needed to avoid short-funding.

The pattern is troubling, says Linda Couch, research director for the Washington-based National Low Income Housing Coalition. Last year, the short-funding was for nine months. This year it’s for eight months.

“We don’t know what kind of impact short-funding by four months will have on owners,” Couch says. “A lot are certainly in hot markets, where rents are going up, but I don’t believe it will be the reason they leave the program.” At some point, if short-funding becomes more extreme, there will be a tipping point, Couch suggests, and more owners will choose a more reliable path.

Tipping point reached?

That tipping point, compounded by the increase in local housing values, may have been reached in Sunset Park.

The neighborhood has changed enormously in the past 35 years. At its offices, Neighbors Helping Neighbors (NHN) displays large posters showing the graffiti, broken windows, and other building dilapidation that characterized many blocks in Sunset Park before federal funds helped rehabilitate damaged buildings.

“It’s kind of like that diamond in the rough that’s finally starting the shine,” Ortiz says of Sunset Park’s emergence, “but we’ve lived here, for a long time.”

If a community “can be built on the backs of low income tenants,” she wrote in 2009, “why shouldn’t those same tenants get to reap the reward and hand it down to their children and other needy families who could use a leg up?”

It’s been difficult to organize tenants, given that they’re in multiple buildings and in large part have believed the program was permanent. Moreover, the landlord, Ortiz says, has not been particularly accommodating to organizing. Now, she says, she hopes the latest developments wake up the “sleepyheads.”

Ortiz plans to strategize with Neighbors Helping Neighbors and talk with elected officials. But there’s little leverage beyond public suasion. “There is nothing we can do,” given that the owners have chosen to opt out, says NHN tenant organizer Marcela Mitaynes. “NHN will continue to educate the tenants on their rights during this transition.”

“Many families will end up in the shelter system,” warned Jackie Del Valle, Director of Organizing and Advocacy for the Fifth Avenue Committee. “ The landlord will profit tremendously from the stabilization and desirability of the neighborhood while the tenants, who endured through violent times and often poor building conditions, will be displaced. HUD also deserves blame for this situation.”

Ortiz’s own building, actually, was not listed in the documents recently filed with ACRIS. “We’re on a different contract,” she notes, but if the landlords plan to have the bulk of the buildings leave Project-based Section 8, she knows the clock is likely ticking.