Here in New York, where real estate values have risen to unprecedented levels, limited equity co-ops created under the Mitchell-Lama program are presented with the choice of either embracing their own dizzying market value by removing the restrictions imposed by the program and converting to free-market housing or remaining limited equity where both purchase and sale prices are limited to several thousand dollars a room. So how is the buy-out issue affecting cooperatives? Are they rushing to claim their share of the windfall? What are the economics of their situation? Is it even ethical to be reducing the stock of affordable housing at a time when no new affordable housing is being created?
A Short History of Affordable Housing
Ethnic and union groups were the first to develop affordable cooperatives for their members in the ’20s and ’30s. During the Depression, 75 percent of these housing efforts folded, though some, such as Amalgamated Housing in the Bronx, managed to survive. Others were built later; Penn South, a complex of ten buildings between 23rd and 29th streets and Eighth and Ninth Avenues in Manhattan, was put up by the International Ladies Garment Workers Union in 1962.
Hundreds of affordable cooperatives across the country were made possible in the ’50s and ’60s by Section 213 of the Housing Act of 1950. Albert F. Pennisi, president of the Federation of New York Housing Cooperatives and a partner at the law firm of Pennisi, Daniels, & Morelli in Rego Park, Queens, says that Section 213 housing was probably the forerunner of the Mitchell-Lama program. He explains that the Federal Housing Administration (FHA) guaranteed the mortgages granted by banks, and pursuant to that guarantee, the banks granted mortgages well below then-current interest rates, some at as low as three-and-a-half to four percent. The FHA regulated these cooperatives that did not receive any tax abatements; however, the low mortgage rates created what in effect was affordable housing. When the mortgages–usually 40-year loans–were paid off, they became free-market co-ops with no controls by any governmental agency. Pennisi says that the nationwide program was so successful they very rarely had any foreclosures. Because most of them have paid off their mortgages, there are only two-dozen or so such co-ops left.
In 1955, the Mitchell-Lama housing program–which has since become known as the most successful affordable housing program ever–was created in New York State. The program took its name from its legislative sponsors, former Manhattan State Senator MacNeil Mitchell and former Brooklyn Assemblyman Alfred Lama. James Garst, a member of the current board of the Mitchell-Lama Council, reports that a total of 422 Mitchell-Lama developments, representing about 150,000 apartments were built in New York State under the program. Of these developments, 102–representing more than 67,000 units–were co-ops.