As soon as Starrett City went on the auction block in December, the possible sale of the massive complex with nearly 6,000 apartments grabbed housing headlines. By February, a buyer had won the bidding with a $1.3 billion price. He said he would remove the east Brooklyn complex from the state’s Mitchell-Lama program, which makes housing more affordable by subsidizing buildings and lowering the costs that landlords pass on to tenants.
Housing advocates and politicians swung into action mode to try to save the middle-income community. And they won a victory early this month, when federal Housing Secretary Alphonso Jackson announced the bid would not be accepted – because the would-be buyer, Clipper Equity LLC, had not shown a commitment to maintaining the complex’s affordability.
But during December and January – while the spotlight shone bright on the potential loss of the 5,888 apartments at Starrett – 1,042 apartments in four buildings actually did leave the Mitchell-Lama program in New York City. Because of current laws and how the state and city interpret them, all of those apartments can go to unregulated rents. It remains to be seen whether current tenants will be able to afford them.
Owners of Mitchell-Lama developments have the right to exit the Mitchell-Lama program after a certain period, often 20 years. Over the past decade and particularly just in the last three years, a surge of owners has made those exits, lured by the higher rates they can charge outside the program. But a new chapter has opened in this years-in-the-making story: Tenant organizers, politicians and housing advocates are challenging the rapid conversion of Mitchell-Lama housing from publicly subsidized to private. Advocates are calling for an outright moratorium on owners’ exits until the city and state can certify that no laws are being violated and until officials can offer a Mitchell-Lama preservation plan. In addition, an array of program-strengthening bills is pending in Albany.
The bulk of the city’s Mitchell-Lama apartments are still in the program. There were roughly 140,000 apartments in about 270 developments built by 1978, according to figures from the city comptroller’s office, and today there are roughly 111,000 remaining, according to calculations based on figures from the comptroller’s office and the Community Service Society, an antipoverty group.
Housing losses have been notable for both co-ops and rental developments in the Mitchell-Lama program, but more dramatic for rentals. From 1990 to 2005, the stock of Mitchell-Lama rental housing in the city went from about 67,000 apartments to about 44,000 apartments, a loss of about 23,000 apartments, according to the Community Service Society.
Last year, the rental losses deepened, with another 3,691 apartments leaving Mitchell-Lama. Overall from 1990 to 2006, more than 60 rental developments have come out of the program, and the annual loss of rental units has topped 3,000 apartments every year from 2004 on.
“I think the state needs to recognize this is a housing emergency,” said Ellen Davidson, a staff attorney at the Legal Aid Society who focuses on legal reform for Mitchell-Lama.
Tom Waters, a housing policy analyst with Community Service Society who closely tracks Mitchell-Lama housing, says he hasn’t calculated the number of co-ops still in the Mitchell-Lama program, saying co-op owners typically keep their apartments after they leave the program. But some large co-ops are emerging from Mitchell-Lama – for example, East Midtown Plaza in Manhattan, with over 700 apartments, has taken steps toward exiting the program. While co-ops are more likely to remain affordable to existing residents, they could become unaffordable to families trying to buy in, as apartments get sold at market rates.
Walter Hauser, a resident of East Midtown Plaza who bought into the co-op more than 30 years ago, said Mitchell-Lama housing made it possible for him to remain in New York. “I could have never lived in the city without this,” said Hauser, an actuary.
And Mitchell-Lama continues to be a low- and middle-income program. Waters says the middle 50% of Mitchell-Lama rental households make from $11,700 a year to $50,000 a year, according to 2005 statistics. The median income for all rental households is $22,500 a year. “People would be pretty hard-pressed” to find an affordable market-rate apartment on that income, he says.
The buyout buzzer goes off
There are two big reasons for the uptick in buildings leaving the program: Most of the Mitchell-Lama developments were built and first occupied decades ago, meaning that owners now have the legal right to exit the program because of the built-in expiration provision. And New York’s super-heated real estate market is making the buyout or purchase of a Mitchell-Lama building – and subsequent raising of rents to market rate or selling of co-ops at market rate – look like a great business deal.
“We’re in a real hot real estate market with no signs of slowing down,” says Scott Stringer, the Manhattan borough president and a Mitchell-Lama supporter. Such activity has been positive in some ways, but “it can’t be at the expense of” affordable housing, he says.
Stringer organized a half-day Mitchell-Lama conference on March 3, which attracted roughly 700 Mitchell-Lama advocates and residents plus a speakers list that looked like a roll call of New York politics. Stringer opened the conference, which included City Comptroller William C. Thompson Jr. The keynote speaker was Deborah VanAmerongen, the commissioner of the state Division of Housing and Community Renewal, which directs much of the Mitchell-Lama program. City Council Speaker Christine Quinn spoke briefly, as did U.S. Rep. Charles Rangel.
To some the high-powered political presence was a sign that Albany, with a new governor at the helm, and the city, with its own housing development plan, may be ready to stanch the loss of Mitchell-Lama buildings – by giving rent protections to all buildings leaving the program, for example.
That’s a key issue, because while some Mitchell-Lama buildings are shielded from market-rate rents post-buyout, others are not. And the reason some buildings may not go under rent stabilization, though the law says that they must, is that some Mitchell-Lama buyers use legal finagling to get out of rent stabilization, which caps the amount by which rent can increase each year.
Mitchell-Lama was conceived as a solution to a 1950s housing shortage for low- and middle-income residents. Named after state Senator MacNeil Mitchell and Assemblyman Alfred Lama, the 1955 law offered owners and landlords tax breaks and favorable loan terms in return for keeping rents within the range of low- and middle-income residents. It also permits owners to “buy out” of the program by paying off the mortgage and other debts. Once the developments exit the program, they either can go to market rate or go under rent stabilization, which is sometimes defeated by owners.
In an interview some 30 years after his law was enacted, Mitchell said buyouts weren’t part of the original concept. “Legislature never intended to convert the developments to private ownership,” he was quoted as saying in a 1986 article in the New York Times. He added that “in hindsight, we should have looked at what would happen in the future. Frankly, we didn’t give it much thought.”
Today, says Frank Ricci, director of government affairs at the Rent Stabilization Association (RSA), “The fact of the matter is, the deal is the deal.” The RSA is a lobbying group representing 25,000 of the city’s managing agents and real estate owners, and Ricci says, “A lot of [owners] want out because of the market.”
The convolutions of Mitchell-Lama laws and regulations make it a difficult program to understand, much less to reform in Albany. Here’s how it works:
• Developments can exit the program after 20 years or 35 years, depending on when their loans were made.
• Exiting the program, or buying out, is governed by when the building’s loans were issued and when the building was first occupied. No two buyouts are alike, because each buyout is affected by the deeds, covenants and other legal documents of that development and because each is negotiated with New York state or city government.
• In some cases, the deed or covenant governing the development – or the land it is built on – may stipulate the development has to remain in Mitchell-Lama for longer than the 20-year or 35-year period.
• What happens to the rents in a development post-buyout is determined by when it was first occupied. Rental developments don’t fall under rent stabilization laws if they were occupied after Jan. 1, 1974. However, tenants and landlords can negotiate a Landlord Assistance Program agreement, which governs how quickly rents can rise. Also, if the buildings got federal assistance while under Mitchell-Lama, tenants may receive “sticky vouchers” or “enhanced vouchers” from the federal government post-buyout to cover rent increases.
• Rental developments do fall under rent stabilization laws if occupied before 1974. That doesn’t translate into low rents for all of the pre-1974 buildings, though. Some owners apply to the state for relief under the “unique or peculiar” provision of the Emergency Tenant Protection Act of 1974. Getting that exemption lets owners set the new rents at a higher level than under Mitchell-Lama.
Housing advocates say the intent of the “unique or peculiar” provision is to allow building owners to set a new rent without having to base it on a truly unusual one – say, a modest amount the owner was charging his mother-in-law. But advocates say a real-estate developer buying a Mitchell-Lama building and removing it from the program can use “unique or peculiar” to raise rents on all apartments.
It is this crazy quilt of city, state and federal regulations that makes each buyout process a headache for Mitchell-Lama tenants and organizers, especially if their funds for legal representation or research are limited. This is also the reason behind the call for a moratorium: Activists claim city and state officials don’t research the developments’ documents to find out whether they contain exceptions that could keep developments in the program and let residents keep their low rents. Activists say their private research can’t keep up with the pace of buyouts.
New laws to fix the old
Legislative activity on Mitchell-Lama is picking up steam in Albany. One piece of pending legislation, known as the “Starrett City bill” because of its relevance to Starrett, would allow Mitchell-Lama developments built in 1974 or later to fall under rent stabilization. (Starrett was first occupied in 1974.) The bill is sponsored by Assemblyman Vito Lopez, a Democrat from Brooklyn and the chairman of the Assembly’s housing committee.
Eliminating “unique or peculiar,” which housing advocates and some politicians view as a legal loophole, is the goal of another piece of legislation. Assemblyman Jonathan Bing, a Manhattan Democrat, is sponsoring that bill, which would make the last rent authorized for the building before the buyout to be the figure post-Mitchell-Lama rents are based on. (This would apply only to Mitchell-Lama developments that are rentals.) The bill would take effect as soon as it’s passed.
Bing is also sponsoring a bill to standardize proxy voting and forbid the use of proxies in a building’s vote on whether to go with a buyout. Proxy voting is currently leading to unscrupulous voting practices at Mitchell-Lama developments, housing activists and residents claim.
And last week, Bing introduced legislation to change the language in the state housing law governing Mitchell-Lama “from may to shall,” as housing activists put it. The bill would force the agencies supervising Mitchell-Lama developments – the state’s Division of Housing and Community Renewal and the city’s Department of Housing Preservation and Development – to follow up on violations by owners. Currently, the agencies “may” follow up at their own discretion. Housing advocates say that doesn’t always happen.
These legislative initiatives are largely supported by housing activists, including a group going under the moniker “P.I.E.,” which stands for protections, incentives and enforcement. This coalition of housing organizers from groups such as Tenants & Neighbors and the Urban Homesteading Assistance Board (or UHAB, which is City Limits’ landlord) plus tenants associations wants state and city government to protect tenants from outsized rent increases when their buildings exit Mitchell-Lama, provide incentives to owners to remain in the Mitchell-Lama program rather than sell their buildings, and enforce regulations that would keep landlords with Mitchell-Lama violations or building violations from selling.
The P.I.E coalition has begun a postcard campaign directed at Gov. Eliot Spitzer, with two goals in mind. They are calling on Spitzer to address the unique or peculiar interpretation from the bully pulpit of his administration. And they are calling for a moratorium on Mitchell-Lama buyouts until the state and city come up with what they consider an adequate preservation plan for Mitchell-Lama developments.
“There are forgotten and neglected Starrett Cities quickly disappearing at every corner of New York,” the moratorium postcard says.
Dina Levy, director of organizing and policy at UHAB, says the moratorium should be enacted “at the state level, with the very strong support of” Mayor Michael Bloomberg.
Levy and other housing advocates say the moratorium is needed because there are cases where Mitchell-Lama developments shouldn’t be taken out of the program, but are still at risk. That’s because sometimes a building’s deed or covenant forbids owners from taking the building out of Mitchell-Lama for an extra length of time. For example, a deed might specify the building has to remain in the program for 50 years rather than the usual 20 years. But because of the copious time and money needed to unearth those restrictions, they can go overlooked and buildings end up leaving the program, Levy said.
Real estate owners don’t think the rules of the game should change. They say they don’t understand why tenants can’t accept that their rents should go up, considering the costs of maintaining a building. Plus, a lot of owners want out because of how much money they can earn on the real estate market.
“Everything was predicated” on owners being able to take buildings out of the program after 20 years, says Ricci of the RSA. Now, if the government says that buildings can’t come out of Mitchell-Lama and go to the open market, that “is really reneging on the deal,” says Ricci. “It sends a chilling effect to anyone else who wants to be in the city: ‘You can’t trust government.'”
Preserve and build
Providing incentives for owners to stay in the Mitchell-Lama program is also getting a lot of discussion in public-policy circles. At the city level there are financial incentives to keep owners in the program. The New York City Housing Development Corporation (HDC) is running a refinancing program that lets Mitchell-Lama developments restructure their mortgages and get additional money for capital improvements. In return, the owners commit to staying in the Mitchell-Lama program for an additional 15 years.
According to Neill Coleman, spokesperson for the city’s Department of Housing Preservation and Development, that program and a Mitchell-Lama repair loan program have kept nearly 15,000 Mitchell-Lama units from exiting since those two programs began in 2004.
Waters, the Community Service Society analyst, says he would like to see the New York State Housing Finance Agency – the state’s equivalent of HDC – enact a similar program.
And some supporters of Mitchell-Lama say there needs to be creation of new Mitchell-Lama-type housing in addition to preservation.
In an interview at the March 3 conference on Mitchell-Lama, where politicians and activists had spoken for hours about how to buttress the existing program, Assemblyman Bing said building new state-funded affordable housing is also a necessary step.
“We do need a large influx of money to build more affordable housing,” Bing added in an interview later. He and Assemblyman Lopez are discussing various ways to address the housing losses, he said, from building new Mitchell-Lama-type housing to creating a fund that residents in a Mitchell-Lama buyout could dip into in order to stay in their buildings.
Stringer doesn’t agree with the idea that building additional developments is the more practical solution or that preservation is a limited one. Stringer says there are “a number of ways to preserve the housing we have,” such as pushing to extend rent stabilization to post-1974 Mitchell-Lama buildings.
For Stringer, the conference earlier this month was the latest round in a familiar fight. As a local district leader on Manhattan’s west side in the 1980s, Stringer took notice of the 25 Mitchell-Lama buildings then in his district, he recounted in an interview.
They were microcosmic cities, says Stringer, and extremely diverse. “I just thought, ‘Wow, why would we want to lose that?’” he recalls.
“I always felt that losing this housing is like losing a part of New York that we can’t replace.”
