Beginning in 2009 the city agencies HPD and HDC created and promoted a plan to encourage conversion of Mitchell-Lama (ML) cooperatives to Housing Development Fund Companies (HDFCs) through the combination of an HPD rule change and a financing scheme devised by HDC.
Both Mitchell-Lamas and HDFCs exist under the Private Housing Finance Law (PHFL). Mitchell-Lamas are Article II and HDFCs are Article XI, hence the name, ‘2 to 11’ conversion. Like Article II, Article XI of the PHFL is intended to address the scarcity of decent, habitable, affordable housing in NYS. But unlike Article II which is directed towards low, middle and moderate income households, Article XI establishes Housing Development Funds expressly to enable seriously deteriorating housing to be converted to habitable, well-managed housing affordable for low-income households, families with incomes well below Area Median Income (AMI).
This program was successfully used to convert smaller abandoned buildings and neglected rental properties into below market cooperative housing, where the residents stood to benefit by gaining autonomy and control over the circumstances of their habitation through conversion to cooperative ownership. Despite the inconsistency in intended populations, between 2009 and 2011, the city agencies HPD and HDC created and promoted this plan. Furthermore, Mitchell-Lama cooperatives do not fall within of the definition of “seriously deteriorating housing” nor are they limited to the low-income households that Article XI allows funds to be expended for.
Cooperators United for Mitchell-Lama views the proposed conversion of any ML cooperative to an HDFC organized under Article XI of the PHFL as detrimental to all the major parties involved, including:
- current cooperators who remain in residence
- new shareholders buying into the converted development
- the cooperative as shared-equity housing for a diverse community of residents
- would-be ML cooperators on the waiting lists
- New York State and its taxpayers, who have subsidized and would continue to subsidize the cooperatives by the abatement of the municipal real estate tax, and
- New York State and New York City as they work to comply with the Affirmatively Furthering Fair Housing (AFFH) mandate, and in support of Fair Housing generally.
Only a thin slice of New Yorkers would benefit from such a conversion, namely, current shareholders who move out immediately following conversion either by selling their apartments at prices much higher than ML equity or by passing them to their heirs, who thereby acquire the (now much higher-priced) apartments with no payment to the corporation. A windfall profit for such families is the principal driver of the attempts to privatize ML cooperatives, and it is inescapable that exactly the same people would reap that windfall by conversion to Article XI.
§3-14(i)(15), the entirely new clause that streamlined the process of converting from a Mitchell-Lama to an HDFC that was inserted in the NYC Housing Preservation and Development (HPD) Mitchell-Lama Rules with no public comment was a misguided attempt to sell bad public policy as a compromise. This unimaginative and pedestrian solution to the problem of the threat of the loss of affordable housing was originally touted by HPD as a way to stop privatization. It does not prevent privatization, because ML advocates do that first, and only then does HPD step in to offer 2 to 11 as a consolation prize to Boards.
At Cadman Towers, the only Mitchell-Lama whose Board is currently engaged in attempting this conversion, it has been repackaged into a way to acquire funds for capital repairs. But even there, the plan fails to provide the required influx of funds necessary to do so. Instead, pushing the conversion of successful MLs to HDFCs is a gentrification plan: it destroys the existing waiting lists, makes currently affordable housing many times more expensive, abandons the 30–85% of AMI lower and moderate income population, and contravenes AFFH by making NYC housing more segregated, not less.
Semi-privatization has the capacity to dismantle the remaining many thousands of units of affordable, integrated, successful, not-for-profit Mitchell-Lama co-ops in NYC that have housed generations of working New York families.
CU4ML advocates for the removal of this option from the HPD Rules. In the absence of such action, we strongly believe that any such dissolution not be exempt from the requirements of the Martin Act. The Mitchell-Lama Reform Bill of 2021, now in effect, raised the threshold to 80% for full privatization votes, but was weakened with regard to 2 to 11, and only requires 67%. We continue to believe that amending the Private Housing Finance Law (PHFL) to require an 80% vote to convert a ML to an HDFC is not only justifiable but is in line with precedent for other HDFC conversions, and necessary to protect the interests of all NYS stakeholders.