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Here's Why a Fight Is Brewing Over 30,000 Affordable Co-ops in NYC

By Amy Zimmer | September 27, 2016 5:50pm
 Residents from the HDFC at 601 W. 136th St. at a building-wide Memorial Day party in 2015.
Residents from the HDFC at 601 W. 136th St. at a building-wide Memorial Day party in 2015.
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601 W. 136th St./Facebook

MANHATTAN — When April Tyler moved into her West Harlem apartment in the 1980s — a former crack den with blown-out windows and big holes in the kitchen floor and ceiling — it took her and neighbors years to transform the wreck that had been abandoned by its landlord.

Her building at West 138th Street and Amsterdam Avenue became a co-op in 1991 through the city’s Housing Development Fund Corporation program to give low-income tenants an opportunity for home ownership, allowing her to buy the unit for $250 while providing tax breaks to keep maintenance affordable.

As the tax breaks are set to sunset in 2029, the city is using the opportunity to revamp not only the tax breaks but also the rules governing the HDFCs. Building shareholders have to opt into to the regulatory agreement to receive the tax benefits.

Proposed rules include keeping income restrictions for buyers, setting caps on the sale prices of units and on asset for buyers, and requiring a third party monitor and management to oversee operations, among other changes.

Tyler and many other shareholders across the city fear the proposal would take away much of the autonomy that many HDFCs now enjoy, and they want to see the tax break extended without the other onerous oversight.

“There was no shareholder input,” said Tyler, who recently launched a petition to fight the agreement, garnering nearly 300 signatures as of Tuesday. “A management company and monitor will serve the purpose of an overseer or police officer. We bristle at the notion that buildings that have been operating fine all of these years will now have this imposed upon them and have to pay for it.”

But the city says it's trying to achieve several things with its new agreement, like addressing issues of mismanagement at some buildings and trying to ensure that HDFCs in gentrifying neighborhoods remain affordable.  

► Why HDFCs Are an Important Path for Affordable Housing Ownership

There are more than 1,200 buildings with more than 30,000 HDFC units across the city. Maintaining their affordability would help Mayor Bill de Blasio’s goal of preserving 200,000 units of affordable housing.

Many are in neighborhoods like Harlem and the Lower East Side, where buildings were neglected until residents took them over, but are now seeing skyrocketing real estate prices.

Still, while many co-ops in Tyler’s area of Harlem are now selling at $1,000 per square foot, the HDFCs are going for less than $500 a square foot, she noted.

“It’s the last bastion of affordability,” said Tyler, who co-chairs the housing committee of Community Board 9.

Of 900 HDFC co-op sales between 2011 and 2015, nearly 84 percent sold for $500,000 or less, according to a recent analysis from the Independent Budget Office.

There have, however, been some outliers, including a unit at the Grinnell House, at 800 Riverside Drive in Washington Heights that sold for $2.025 million in 2014, and another than that sold for $1.6 million last year.

The city is concerned that these prices set a precedent threatening the future affordability of the program — which is why it’s calling for price caps.

► Why the City Believes a New Regulatory Agreement Is Needed

Besides tackling the issue of high sales prices in some buildings, the city has struggled to find ways to help mismanaged HDFCs that owe back taxes and water bills. The city also wants to intervene when there may be co-op board corruption, including illegal subletting or other activities where board members are potentially enriching themselves at the expense of their buildings.

An estimated 27 percent of HDFCs are physically or financially troubled, according to city data.

“While the majority of HDFCs operate smoothly, some are in a state of physical and financial distress or are no longer providing affordability for low and moderate income New Yorkers,” said a spokeswoman from the city's Dept. of Housing Preservation and Development.

“The proposals on the table would include restrictions that allow sufficient oversight to ensure HDFC co-op buildings remain viable and affordable for another generation or more, as intended under the law."

And while the third-party monitor would be required, buildings can get a waiver to be self-managed if they can demonstrate capacity to comply with the law, city officials said.

Also, buildings would be allowed to opt out of the agreement— but they would no longer receive tax breaks.

For the last two years, HPD worked closely with a task force — including representatives from the offices of elected officials, about a dozen nonprofits that assist low income people with housing issues, and pro-bono attorneys that represent HDFCs — to address the various concerns.

Now city officials are meeting with community boards and planning borough-based outreach events for the coming months.

► Why Residents Believe the Agreement Will Cause a Two-Tiered System of Shareholders

In buildings with high-priced sales, the agreement would let those owners have their unit “carved out” of the price cap restrictions if they resell the unit. They would be limited, however, to selling only to people who earn 165 percent of Area Median Income, or $134,640, for a family of three.

The rest of the shareholders would not be able to sell their homes for prices higher than 110 percent of AMI, or $89,760 for a family of three.

READ MORE: What is AMI?  

The "carve out" would prevent shareholders who bought at high prices from being unfairly penalized, city officials said. It would also discourage these residents from blocking the rest of the building from signing the new regulatory agreement.

Michael Palma Mir, an HDFC resident at 601 W. 136th St. — whose family has lived in the building since 1938, long before it went co-op — fears this policy would create rifts between original tenants who put their sweat equity into repairing the buildings and new buyers.

“It’s almost like creating a rich door and a poor door,” said Palma Mir, of the HDFC Coalition, a member organization for HDFC homeowners.

But Ayo Harrington, an original shareholder at her East Village co-op on East Fifth Street, near Avenue D, said instead she wanted the city to include a “carve in” option for buildings that decline to sign the regulatory agreement but may still have low-income residents, who would be unable to afford their homes if the taxes went up.

“For seniors and those who are economically distressed, there needs to be a 'carve in' that acknowledges their sweat equity," she said. "We really put a lot of time, money and labor into renovating these buildings."

► Why the Price Caps Are Such a Sticking Point

Under the new regulatory agreement, there would be a 30 percent "flip tax" on a unit’s profit that would go to a building’s reserve fund.

Many buildings already have such a flip tax, and shareholders say it helps cover operating costs since maintenance fees are low.

They worry that the price cap would then hurt their building’s ability to run efficiently.

“We find ourselves facing a regressive policy,” Palma Mir said. “This is a one-size-fits-all regulatory agreement — not something we expected from a so-called progressive mayor.”

Andy Reicher, whose organization, the Urban Homesteading Assistance Board (UHAB), develops, trains and assists residents in HDFCs, believes the price caps didn’t go far enough.

Reicher, who was on the city's task force, hoped to see prices capped at what’s affordable to those earning 60 percent of AMI, or $48,960 for a family of three, and he wanted the buildings to pay zero taxes.

He thought it was "bad policy" for HDFCs to rely on flip taxes for upkeep.

“You have to make sure someone moves every year," he said.