During the Great Depression of the 1930s, most of the high-income housing cooperatives failed. This was partly due to excessive mortgaging and promoter profits, but also it was due to high vacancy rates in these high cost apartments.
By 1934, over 75 percent of the real estate promoted co-ops in New York and Chicago had gone bankrupt.
The second major inducement for the development of low and moderate income housing cooperatives in New York was the passage of the 1955 New York State Limited Profit Corporations Laws, popularly known as the "Mitchell- Lama Act."
If a household's income exceeds the income limit, which is set at eight times the monthly carrying charge for households of four or more, that household pays a premium over the base monthly carrying charge, but this premium can not exceed 50 percent of the base charges (Garst, 1996).
There has been strong pressure for deregulation of some these Mitchell-Lama cooperatives, that is for the members to convert them to market-rate cooperatives or condominiums after the 20 or 40 year time limit on restrictions as affordable housing expires. A "case study" of a specific Mitchell-Lama co-p illustrates some of the problems of sustaining the affordability of these co-ops. When this specific co-op was built in the early 1960s, a membership share cost $2,300. By the early 1990s, as a limited equity share, it was worth about $10,000, and the base monthly carrying charges for a living unit in the co-op were $325. Therefore, this co-op would still qualify as affordable housing in the 1990s. (Twenty percent of the income of this cooperative comes from renting out street-level store fronts.)
Because of the shifts in the national real estate market since the 1960s, and because of gentrification in the neighborhood around this cooperative, in the early 1990s, these units were appraised as having a market value of over $200,000 each. As a result, many members of this cooperative wanted to convert the co-op into a market-rate co-op. On the other hand, some of the members argued for permanent preservation of the co-op as affordable housing. During the debate over the issue among co-op members, it was discovered that this cooperative is in an urban renewal area, and consequently it will remain as an affordable co-op for 40 years (Garst, 1994).4
New York City became the owner of thousands of occupied buildings taken from private landlords who failed to pay their real estate taxes, mainly during the city's fiscal crisis in the 1970s. These buildings contain about 69,000 dwelling units (Task Force, 1993). Finding themselves with an undesired inventory of housing, City officials wanted to sell as many as possible of these properties to private owners. To do this the City's Department of Housing Preservation and Development invests some funds in repairing these buildings, and then it offers them for sale at essentially the cost of the repairs.
Many of the buildings have strong tenant organizations which pre-dated the City's foreclosure. These tenant groups, working with community organizers, proposed that they be eligible to buy the buildings themselves as limited equity cooperatives.
n 1996, about 20 percent of the approximately 1,000 former New York City owned properties that had been converted to LECs are experiencing some financial difficulties. Forty four of these co-ops are in severe financial crisis, that is, the co-op is close to bankruptcy. Problems for these co-ops include: 1) Inadequate structural repairs in some of the buildings before they were turned over to the co-ops; 2) Other City agencies treat these LECs as if they were for-profit privately owned rental properties. As a result, these LECs experienced large increases in property taxes and in water and sewer charges; 3) The failure of the sponsoring City agency to adequately oversee these projects; 4) UHAB's lack of formal power and funding needed for it to give technical assistance and to oversee these co-ops once they gained independence from the City; 5) Efforts to create a secondary co-op of the LECs has been hindered by the City.
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