A Reflection on HDFC Coops -- Join the NYCBA Conversation May 1st

On May 1, 2018, the Housing and Urban Development (HUD) Committee of the New York City Bar Association is hosting an event on affordable housing entitled, “Affordable Housing for Whom and for How Long – Balancing Individual Property Rights and Preservation.”  Any conversation on affordable housing and individual property rights must include a conversation about housing development fund companies (HDFC), which is exactly what the HUD Committee plans to do at this event.


My interest in HDFC coops was piqued during my time at the Pratt Area Community Council in Brooklyn (now known as IMPACCT).  My job was to protect low to moderate-income and senior homeowners from predatory lending and from losing their homes to foreclosure.  As a lifelong fan of homeownership – having watched my family of second generation affordable developers build affordable homes for families – I began to worry that single-family homes may not be the best model for low to moderate-income families in New York City. Many of the homeowners I worked with needed someone to help them manage their homes and safeguard them from speculation.  The idea of doing it alone seemed too great a task.  The HDFC coop appeared to be a wonderful alternative housing model to single-family homes, believing there is at least strength in numbers.


My quest for an alternative to the single-family homeownership model led me to the Urban Homesteading Assistance Board in 2003. Although the HDFC coop model seemed like a vast improvement over single-family homes, I soon learned it was not entirely without fault.  Although wildly successful, not every HDFC coop is perfect.  A few HDFC coops don’t always serve the population they were intended to serve, while a few sometimes fall into disrepair and to speculation, almost always due to the lack of oversight by a third party. These issues were evaluated in a 2006 report issued by the National Housing Institute entitled, “Shared Equity Homeownership” by John Emmeus Davis, which ultimately held that shared equity housing only works if there is some form of third party oversight.[1] So I continued to look for additional solutions to make affordable homeownership better for future generations.


The possibility of government improving the HDFC coop model led me to the New York Attorney General’s office in 2007, with the goal of raising awareness of the need for greater oversight and better disclosure about the ongoing obligations to operate HDFC coops as such.  My thought was if government did a better job of explaining the purpose of HDFC coops to shareholders before they bought, there would be less ambiguity in the future.  This led to improved offering documents for HDFC shareholders, regulatory agreements with resale price caps, and disclosures about the ongoing obligation to operate an HDFC coop as affordable housing permanently.  We also tried to stem the tide of the loss of apartments and buildings wholesale, by making clear that HDFC coops are not the same as Mitchell-Lama coops.  The Attorney General issued a memo in 2015 that laid out the various limitations on being able to sell HDFC assets.[2]  We have yet to see what the impact of these efforts are and whether they will be successful in preserving HDFC coops, but at least there is better disclosure and some guidance on what the law requires.  I remain optimistic that new HDFC coops are better informed about their corporate purpose, and that they understand the restrictions they are subject to.


In New York City, the question of wealth creation vs. on-going affordability is an especially critical one.  We live in one of the hottest real estate markets in the world.  While some of my developer clients sell HDFC coop apartments to tenants for $2,500, others sell new luxury condos for upwards of $2,000,000.  Should the original tenant that bought their apartment for $2,500 be able to sell it on the open market with no restrictions, just like the buyer of the $2,000,000 condo unit?   What is the appropriate give-back to society when we are talking about a social investment such as affordable housing?


I personally continue to grapple with these issues, and believe the best solution is one that makes the rules clear from day one, and if we want affordable housing in perpetuity, we better plan on providing a permanent framework to support those homeowners in perpetuity.  We also cannot expect people to comply with the rules if the rules are not clear. That is one reason why I love the community land trust model.  It makes abundantly clear that a purchase of a home on a CLT is permanently affordable; the CLT provides for ongoing monitoring and stewardship for decades to come; and wealth creation is permitted, but within reason and in balance with the need to preserve affordable housing for future generations.


So if you have ever asked yourself these questions, please join the HUD Committee and our guests as they discuss these ongoing issues.  We have been grappling with these questions since my time as Chair of the HUD Committee in 2012, and we will continue to for many years to come.


Information on the program is available here.

[1] A copy of the NHI report is available here.

[2] A copy of the AG memo is available here.