How Mitchell-Lama Works: Not-for Profit Housing or What’s So Great About Mitchell-Lama

What IS Mitchell-Lama?
Often called the best of New York State’s affordable housing programs, Mitchell-Lama cooperatives are NOT-FOR-PROFIT. ML shareholders sell their apartments for what they put into them, without making a profit and without the risk of taking any loss.

Simply put, it is a housing program for working New Yorkers. It was envisioned by community groups and created by the New York State legislature in the 1950s and has successfully housed hundreds of thousands of New Yorkers in stable homes and communities since that time.

How does Mitchell-Lama work?
Intended as a place to live and not as real estate speculation, the design of ML cooperatives is particularly brilliant for long-term, sustainable, affordable housing ownership for diverse communities. Better, we would argue, than even the ‘limited-profit’ models, ML cooperatives maintain affordability over generations because costs are kept low when no one makes a profit which would increase costs with each sale. This allows the next family on the waiting list to own an apartment affordable to moderate-income New Yorkers.

In a ML co-op, an eligible purchaser (based on income and family size) pays:

  • the ‘limited-equity’ price (based on the actual cost of paid-in capital) to purchase the apartment’s shares in the housing corporation
  • the amortization (money paid by previous owner each month toward the building mortgages)
  • any assessments paid by the previous owner
  • ‘double equity’ in some developments — the extra equity is dedicated to funding building repairs

Other benefits that ML cooperators enjoy include the ability to easily move within the development
as their family composition changes — for example, moving from a one-bedroom to a two-bedroom
when a child is born, or to a three-bedroom when more children are born or when an aging parent
moves in — then back to a smaller apartment when the children are off on their own and the cooperator
wants to save money by downsizing in their retirement.

To assure compliance with the public purpose of the ML program, oversight of ML co-ops is provided either through supervision by the State HCR or the City HPD and with extensive rules that spell out occupancy standards, income ranges, succession rights, etc. Depending upon eligibility, ML residents may apply to either the Senior Citizen Rent Increase Exemption (SCRIE) or the Disability Rent Increase Exemption (DRIE) program to help them remain in their apartments in an affordable manner.

A lottery process for, and government supervision of the waiting lists assures a level of diversity and
non-discrimination in these developments that make them some of the most integrated in the nation.
These diverse, affordable communities are exceptionally stable, with the vast majority of apartment
turnovers occurring when the shareholder dies. When the owner leaves, they (or their heirs) get their
money back from the next purchaser — no more, no less — including:

  • the original limited-equity they paid
  • amortization — the money they have been paying toward the building mortgages
  • any assessments they paid
  • those who paid double equity also get this back

Initial purchase prices remain well below market rate (a one-bedroom costs about $30,000–$50,000)
and maintenance costs are also kept low by the structure of these not-for-profit cooperatives.

  • First, since the initial purchase price is low, most buyers do not need to take a mortgage and, therefore, have more affordable monthly charges.
  • Second, ML developments are exempted from regular real estate taxes and instead pay Shelter Rent — about 15–20% of regular taxes. This is the main government subsidy of both ML co-ops and rentals.
  • Third, many developments have far below market rate mortgage and repair loan deals with government entities.
  • Fourth, shareholders who are “over-income” in any given year are not required to leave, but instead pay a surcharge for that year. This surcharge income goes to operating costs and helps keep monthly charges low.

The specific not-for-profit design and the government supports of tax exemption and beneficial loans are the reasons that Mitchell-Lama cooperatives have rightly been called the most affordable of the affordable housing programs.

Monthly charges to shareholders are based on the operating budget of the cooperative and not, like many other so-called affordable housing programs, on the flawed formula of paying 30% of gross income for housing.