Mayor Michael R. Bloomberg today proposed new protections for Mitchell-Lama residents who might otherwise be vulnerable to large rent increases and potential eviction if their landlords opt to buy out of the program.  The State legislation being proposed by the Mayor would extend Rent Stabilization protections to 32,000 apartments in Mitchell Lama developments built after 1974, and provide all tenants with rent regulation protections regardless of the initial date of occupancy.  In return, owners would be entitled to real estate tax relief for those apartments that would be newly regulated, and the proposed bill would provide financial incentives to owners to remain in the Mitchell-Lama program by allowing them to increase their return on equity while maintaining Mitchell-Lama guidelines on tenant income and occupancy.  The Administration will work with its State legislators to introduce the bill in the 2004 session.

“Today, our Administration takes another important step in preserving middle income housing by proposing new State legislation to protect more than 32,000 Mitchell-Lama tenants from large rent increases and possible displacement from their homes in the event of buyouts of their buildings,” said Mayor Bloomberg. “Preserving the City’s stock of middle income housing is crucial to making New York more livable for our hard working families and more attractive to new businesses.  That’s why our Administration has developed a housing plan, which will build or rehabilitate 65,000 units of affordable housing in our City and includes $50 million in capital improvements to Mitchell-Lama developments that cannot afford conventional financing. 

“At the same time, it is critical that we provide tax relief to owners who will now be newly rent regulated.  The proposed bill would provide further incentives to owners who we hope will choose to remain in the Mitchell-Lama program.  This is a small investment that will yield a large return by preserving affordable housing for New Yorkers, especially in neighborhoods where they might otherwise be priced out, and by helping to keep owners of Mitchell Lama developments in the program for another generation of middle income families.” 

“This solution will lessen the impact of a buyout for tenants, and thereby relieve the anxiety that accompanies talk of a buyout for many Mitchell-Lama tenants, while maintaining the owner’s right to buy out of the program,” said Housing Preservation and Development Commissioner Jerilyn Perine.

Under the terms of the Mitchell-Lama statute, after 20 years owners may buy out of the program by paying off their government mortgages and increasing rents to market levels if there are no other protections in place.  In return, they must pay full real estate taxes.  The process of buying out is often mired in conflict as tenants face uncertain rent burdens, and owners are often embroiled in costly and time-consuming litigation before they can buy out of the program.  Currently, there are two primary protections that cover some tenants living in Mitchell-Lama developments:

• Those developments built before 1974 are subject to Rent Stabilization, thereby setting the post-buyout rents at the Mitchell-Lama rents and establishing restrictions on increases and evictions pursuant to Rent Stabilization.
  
  
• Mitchell-Lama developments that have federally assisted mortgages from the U.S. Department of Housing and Urban development (HUD) (as many do) in addition to State or City mortgages, are eligible for special federal Section 8 Rental subsidies (known as “sticky vouchers”) which are made available to households earning up to 95% of area median income (which is $59,600 for a family of four), thus insulating those tenants from large rent increases.

Therefore, the two groups of Mitchell-Lama tenants that are vulnerable to large rent increases, and potentially eviction, are those who live in developments built after 1974 without federally assisted mortgages, or live in developments built after 1974 with federally assisted mortgages, but whose household income exceeds 95% of the area median income.  The bill would extend Rent Stabilization protections to 32,000 apartments in Mitchell Lama developments built after 1974.  Without the proposed legislation, those Mitchell Lama’s built after 1974 could be vulnerable to large rent increases because they neither have protection under Rent Stabilization nor access to federal rental subsidies. (About 21,500 households who live in Mitchell-Lama rental developments already have protection in the event of a buyout because their buildings were built before 1974).

Without the proposed legislation, for example, the rent for a family of four earning $62,800, which is more than 95% of area median income, could rise from its current $900 to a market rate of $2,800 without the proposed legislation.  This would be a 145% rent increase, and their rent burden would be 54% of their income, far higher than the national standard that families spend no more than 30% of their income on rent.  With the proposed legislation, the family in this example would be rent stabilized at $900 per month and would be subject to annual Rent Guidelines Board increases. 

In addition, the proposed bill would give owners a tax exemption in return for tenant protections, provide incentives for owners to remain in the program, and continue to provide owners the opportunity to buy out, as of right, from the program.  The bill would remove the current 6% limit on the owner’s permitted return on equity if the owner remains in the program.  The proposed tax relief is not expected to affect the City’s budget because it has never been part of the City’s revenue projections due to the unpredictable nature of buyouts.

Mitchell-Lama housing was developed under the authority of Article 2 of the New York State Private Housing Finance Law.  Both the City and State used this statute to create moderate-income developments beginning in the 1960s and ending in the mid-1970s.  The State Mitchell-Lama Statute provided government sponsored low-cost financing in return for the development of housing affordable to middle income households.  Owners were limited to 6% annual return, had to continue to rent vacant apartments to income-eligible households from a waiting list and were entitled to a tax exemption based on the limited rate of return. 

Through the Mitchell-Lama program, a portfolio of about 140,000 units of both rental and co-op housing was developed, which was divided between State and City supervision.  The City sponsored 155 developments with 62,000 units and the State sponsored 116 developments with 77,000 units.  State law provides that owners may buy out of the program after 20 years, relieving the properties of both the rental restrictions of the program as well as the tax benefits. To date, 43 Mitchell-Lama developments with 17,000 units have bought out.  The pressure to buyout is greatest when Mitchell-Lama’s are located in high market areas.

Buyouts are pending at the following Mitchell-Lama developments:  City-sponsored - Cooper Gramercy, West Village Apartments, Hudsonview Terrace, Leader House, Independence Plaza North, and Lands End I, all in Manhattan, and Ocean Park Apartments in Queens.  State-sponsored – Central Park Gardens and Roosevelt Hospital in Manhattan and Sea Park East and Sea Park West in Brooklyn.

Should the proposed legislation pass, the effective date would be October 29, 2003, the date of today’s announcement.