The Fight to Save Affordable Co-ops

A trio of bills recently introduced to New York City Council seeks to centralize information about co-ops that were born under the auspices of the Housing Development Fund Corporation (HDFC). The bills’ sponsors say they want to preserve housing for low-income New Yorkers.

Many HDFC co-ops are struggling, even facing foreclosure – while others, ironically, are cashing in and essentially leaving the system. The new bills would require the Department of Housing Preservation and Development (HPD) to pinpoint HDFC co-ops with tax arrears and maintenance-code violations, and examine any regulatory agreements with the city, as well as tracking average sale prices. But are these measures sufficient?

“It’s a good start. Kind of a small step,” says Brooklyn Law School professor Debra Bechtel, an authority on low-income housing and a member of a task force fighting to preserve HDFC co-ops, which were created under New York State’s 1966 Housing Development Fund. As part of that program, the city took over neglected buildings and sold apartments for as little as $200 each to low-income New Yorkers. The thinking was that the newly minted homeowners would self-manage and improve buildings they now had a stake in, preserving housing stock and solidifying blighted neighborhoods.

But some of the city’s estimated 1,271 HDFC co-ops, comprising 25,850 units, themselves are blighted with dysfunctional or corrupt boards. One extreme case, the Hamilton Heights co-op at 501 West 143rd Street, has made news with its recalcitrant board, 405 open violations, and $3.2 million in unpaid back taxes and other city debts.

“HDFCs are a critical element of New York City’s affordable housing stock, yet this program has been allowed to languish and falter under lack of oversight that has put [such] co-ops in financial distress,” says Tyrone Stevens, spokesman for City Councilman Mark Levine, who is among the sponsors of the new legislative proposals.

At the other end of the spectrum, some HDFC co-ops, through a loophole, are selling for market-rate prices. The Wall Street Journal reviewed 540 HDFC co-op sales in Manhattan since 2005, and in November reported that 220 – nearly 41 percent – went for more than $500,000 each. One, a three-bedroom apartment at the Grinnell, 800 Riverside Drive at West 157th Street, sold for $2.025 million in 2014.

How does this happen with co-ops that are reserved – by legislation – for low-income buyers? Because the income of the buyer may indeed be under the allowable ceiling, but the buyer’s well-heeled parents or other benefactors can give the buyer cash, thereby driving up prices beyond what a genuinely low-income person could afford.

Part of the issue is that while HPD says it expects co-op boards to “set and enforce sales prices that are affordable to people within your HDFC’s target income range,” there are no regulations actually requiring that for any except a tiny sliver of HDFC co-ops.

Will moneyed buyers inevitably buy out eager-to-sell homesteaders’ apartments? What about low-income shareholders who want to stay, even as more well-to-do residents move in and desire expensive amenities, raising maintenance? Can HDFC co-ops survive today’s market pressures?

The trio of bills now before City Council could help provide the answers. “(They) could change the game and begin reforms that set us on a path toward preserving (HDFCs) into the future,” says Stevens, councilman Levine’s aide. “To do that, we first need appropriate oversight and robust transparency so this program doesn’t continue to spiral downward.”