Rules as boundaries, and adaptive behavior
Every affordable housing program — whether homeownership or rental — ends up by its terms taking legal and contractual positions on several core policy questions:
- What does it mean to be low-income?
- For whom are we creating affordable housing?
- What happens if a household who was low-income no longer is?
Who deserves to live here?
“Buildings like this one, at
Because affordable housing measures its social payback in years and decades, who occupies it first is sometimes of less important than who occupies it last, and the rules governing who moves in, who moves out, and who makes what money on transfer. Moreover, because we tend to think the future will look like the past — just faster and shinier — affordable housing programs are often caught spectacularly unawares by market and demographic changes, as this complex story from
GRACE ADAMS and her family have seen the worst days of
They moved in after the landlord absconded in the mid-1970’s, leaving the city to foreclose on the building for unpaid taxes.
The value of locally taxing urban property is worth noting, and less remarked than it should be. Having meaningful real estate taxes means …
… owners have to stay invested in their property. Having them prime any debt financing means that if a property is abandoned, it will revert to the locality, which may be the best interim owner to see the property redeployed into the developed marketplace.
They endured corrupt managers and broken pipes. They stuck around when rape suspects were arrested nearby, and when the police shot a gun-wielding man a few doors down.
Ms. Adams was there in 1983, when the tenants organized themselves, began managing the building and, with help from the city [Got to be soft debt or soft equity. -- Ed.], converted it from derelict property into a co-op for low-income homeowners.
They paid $250 per apartment and managed it modestly.
Now 73 years old, Ms. Adams is witnessing 870
Low-income or limited-equity co-op’s have long been a staple of a small subset of affordable housing. The concept is straightforward — give tenants ownership in a shared-control entity. But then the question arises, what happens if the property appreciates in value?
But now that these neighborhoods are in big demand, the apartments are drawing buyers who can slide in under the co-op income caps but who have significant assets because they are middle-class retirees, or young people getting help from their families.
For the co-op’s purposes, “low-income” was defined as precisely that: not much earnings. That’s not the only definition — indeed, it’s merely a subset, because assets are excluded (except as they generate current income), which means some people who can pay big prices are nevertheless eligible as ‘low-income’:
So which buyers can meet the demands of a bank and the limits of a building? Recent retirees. People who have just sold a home. Anyone who’s inherited money recently. Students with wealthy parents. Self-employed buyers whose income varies year to year.
The definitions are specific to each building:
· Some are set against the city’s median income, at 80 percent, 120 percent or 150 percent of median.
· Others are calculated by a formula multiplying maintenance costs by resale costs and other factors.
`When I use a word,’ Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean — neither more nor less.’
`The question is,’ said
`The question is,’ said Humpty Dumpty, `which is to be master — that’s all.’
Typically the income definition, like a pre-fight weigh-in, is applied only once: at inception:
“Weight until I count my trust fund income!”
The income caps apply only to new buyers, meaning that owners can remain in their apartment if their incomes rise past the restrictions.
Are these people whom we wish to benefit from these co-op apartments? Depends on whom you ask:
“If someone has a trust fund, and they don’t have a big income, that’s great,” said Holly Price, an agent selling a housing corporation co-op in Ditmas Park, Brooklyn, for $325,000. “That would be perfect because it’s so easy.”
Why would high-net-worth people (for this post, we can call them ‘rich people’) move to
Because of the demand for these apartments, firms like Halstead Property and the Corcoran Group are listing them for $250,000, $400,000 or as much as $950,000.
Is this a good thing?
From one perspective, every boat is lifted. Buyers can snap up spacious apartments for below-market prices. Sellers who endured hard years in the buildings can get their reward – cash out to retire or send their children to college.
Thus, those who lived through the tough years are now reaping a substantial benefit — they are capturing the appreciation — except that the original purchase agreements contained a provision whereby some of that upside is recycled back into the building as ‘flip taxes’:
Through flip taxes, or fees paid when an apartment is sold, the buildings get a slice of the rising sales prices to pay for paint jobs, roof repairs or new boilers.
These provisions are specific to each building, and ‘constitutional’ in that they are written into the co-op’s establishment documents.
In nearly every housing corporation building, catches and caveats are buried in the bylaws, and no two buildings share the same rules and restrictions.
Enter the circular firing squad:
· Some have high flip taxes, with the sellers having to remit a portion of their profits to the co-op board.
· Some flip taxes are constant; others diminish the longer a resident has lived in the building.
· Some buildings even prohibit reselling an apartment for two to five years.
In policy terms, each of these might well be a good idea, for a particular building or community. It’s just that they have very different long-term consequences, especially when the demographic and economic shifts are as dramatic as
But housing advocates and some longtime residents recoil at those arguments. They say that Housing Development Fund buildings are supposed to be immune from the fluctuations of the real estate market, with its bidding wars, bubble talk and $800,000 asking prices.
Where does that leave us? The final word belongs to the co-op’s board chair, the Cheshire Cat:
`But I don’t want to go among mad people,’
`Oh, you can’t help that,’ said the Cat: `we’re all mad here. I’m mad. You’re mad.’
`How do you know I’m mad?’ said
`You must be,’ said the Cat, `or you wouldn’t have come here.’
