MANHATTAN — Heather Horgan is worried her family may soon be priced out of their two-bedroom Hamilton Heights rental, so she's looking for a nearby apartment to buy.
Horgan has spent the past year focusing on Housing Development Fund Corporation (HDFC) co-ops, a once under-the-radar form of affordable housing that has caught the attention of bargain hunters trying to buy in booming neighborhoods like Hamilton Heights and the Lower East Side.
Although the incomes of HDFC buyers are usually capped, the sale prices of these co-ops often are not, and housing advocates say prices have crept up as sellers look to capitalize on the desirability of their locations.
Advocates said the rising prices go against the spirit of the program, making it virtually impossible for many buyers to afford some of these homes without help from a trust fund or relative.
"I make the income limit and do not have half a million dollars lying around," said Horgan, 35, a grants administrator at Columbia University, noting that many of the HDFC apartments she's seen were seeking all-cash offers. "I think we have only once come across one building where the income restrictions and asking price made sense."
A city-appointed task force is set to recommend legislation to keep prices in check, said Oscar McDonald, of the Urban Homesteading Assistance Board (UHAB), which develops, trains and assists residents in HDFCs.
"We are trying to save them," McDonald said of the roughly 1,000 HDFC buildings with approximately 35,000 units across the city. "Even though there are income guidelines, [you] have a lot of people now walking around with pockets full of money, but [who] qualify on paper."
How buildings become HDFCs
The program started nearly 40 years ago, when the city took over derelict rental buildings, often with deadbeat landlords, and then sold the units to tenants for $250 an apartment. The city, with groups like UHAB, then assisted tenants in forming boards to run the building themselves.
Buildings are still joining the program. Those that become HDFCs now charge tenants $2,500 per apartment to buy-in, McDonald said.
What are the income restrictions for HDFCs and how do they match up with prices?
Buildings often limit buyers to 80 to 165 percent of the area's median income, requiring that buyers present their previous two years of tax returns.
Of the nearly 100 HDFC co-ops for sale, according to a recent search on StreetEasy, the cheapest is a one-bedroom in East Tremont for $50,000. In the mid-range is a nicely renovated $300,000 three-bedroom in Harlem, at 100 W. 141st St., limited to one person earning $70,500 a year or a family of four, for instance, earning up to $100,650.
The priciest is a four-bedroom unit that needs work, listed for $875,000 on the Upper West Side, at 72 W. 88th St. A family of four would need an income no higher than $141,735 but have monthly costs of $4,300.
"There are no longer affordable once you reach a price like that," McDonald said, estimating that roughly 10 percent of HDFCs now charge prices that are out of line with buyers' income restrictions.
Where can you find HDFCs?
Central Harlem has the heaviest concentration of these buildings, McDonald said. Many are also in Williamsburg, Bedford-Stuyvesant, Crown Heights, Hell's Kitchen and the Lower East Side.
"They don’t change hands a lot — many stay in the original owners' families for decades or generations," said Tracie Hamersley, of Douglas Elliman, who has worked on 15 HDFC sales over the past decade.
The co-ops' "flip tax" sometimes dissuades buyers
Most HDFCs have a "flip tax" on the profit of a sale that can be 30 percent to the co-op and as much as 40 percent to the city.
In general, the seller gets to keep the original sales price. The net profit — after commission, attorney fees and renovation costs — is then divided among the seller, the co-op board and possibly the city, which sponsored the HDFC, Hamersley explained.
"It's very important to look over [a building's governing] documents carefully and understand if you're going to move out whether you're going to take a big hit," he said, noting that for a certain period of years, the city is often due a chunk of profits.
But once co-ops no longer have to pay transfer fees to the city, their boards can set whatever flip taxes they see fit, he added, explaining how there's wide variety in the way HDFCs are run.
Getting a mortgage for an HDFC unit can be difficult
Because HDFCs can be seen as riskier investments, some loans may have slightly higher rates.
"Financing is somewhat more limited but not off the table," said Lee Williams, of Rutenberg Realty, who tends to take only HDFC buyers who are financially solvent.
Why some buildings charge all cash
Some HDFCs have serious tax arrears and have no choice but to do cash sales, since buyers would not be able to get a mortgage on the units, McDonald said.
His group, UHAB, is trying to help those buildings so they don't have to do all-cash sales, he noted.
Housing advocates look to keep HDFCs affordable
UHAB encourages buildings to maintain affordability through tight subletting policies and restrictions on sales for residents in place for less than five years in order to discourage "flippers" looking to make a quick buck, McDonald said.
The nonprofit also wants boards to tighten the vetting process to weed out buyers with a lot of wealth or assets, he said.
"Once you open the door [to higher prices], you're on the way to lose this particular stock of housing," McDonald said. "It's not an investment where you should expect a windfall."
