Increasingly, Mitchell-Lama Beneficiaries Are Opting Out

Responding to a strong real estate market and rising maintenance costs, residents of a co-op apartment complex near City Hall are considering opting out of an affordable-housing program.

Tenants at the 1,651-unit Southbridge Towers, who moved in for as little as $3,000, have completed a feasibility study for leaving the Mitchell-Lama program and could pocket more than $400,000 for the sale of an average apartment.

The debate has been long and divisive, residents say, with ideological defenders of affordable housing pitted against those who say the program allows for them to go private, an option that many find very appealing in the current market.

Due to a lengthy regulatory process, it could be a couple of years before Southbridge holds a final vote on the issue (leaving the program requires approval of two-thirds of residents), and residents say the community seems to be split at the moment.

Regardless of the eventual result, the debate at Southbridge is representative of a larger trend throughout the city, with the Mitchell-Lama program's co-op tenants and apartment owners opting out in great numbers, buoyed by rising land values that make leaving the program worth the added risk of the open market.

Since its peak of around 149,000 Mitchell-Lama units in the 1980s, the city has lost more than 30,000 such apartments and co-op units, most of which have left in the past decade.

City and state officials express worry about this trend, and have developed incentives to keep buildings within the program. Even so, housing analysts say that if the market stays strong, so too will the desire to leave Mitchell-Lama, a force that works in contrast to the mayor's plan to create some 92,000 new affordable-housing units by 2013.

While many renters are given rent stabilization after leaving, affordability supporters contend that form of affordable housing is far less secure than Mitchell-Lama. Housing advocates and elected officials have also voiced concern that when the program's 5,800-unit Starrett City is sold (bids were due yesterday), owners will overpay and have to opt out of the program to be able to support the deal financially.

"It's absolutely affecting the affordability" of the city's housing, the policy director at the Association for Neighborhood and Housing Development, David Hanzel, said. "It's like for every one unit that we're gaining, we're losing one out the back door."

The Mitchell-Lama program was started by the state in 1955 as a means of spurring private development of affordable housing. In exchange for low-interest loans from the state or city and a low tax rate, developers were required to build housing for low- and middle-income residents, subject to income requirements and regulation.

Under early legislation regarding the program, owners of the buildings and co-op tenants are allowed to opt out of Mitchell-Lama after 20 years within the program, putting their units on the free market.

For those in neighborhoods where land values are rising, such as at Southbridge, the move can bring in a considerable amount of cash — a tempting idea, especially as many of the co-op buildings need maintenance work.

An attorney who did Southbridge's feasibility study, Stuart Saft, said that when he was asked by buildings to study opting out of Mitchell-Lama a few years ago, he didn't even bother getting them appraised because the land values were too low to make leaving the program worth it.

Today, things are changing in many neighborhoods. "Over the last couple of years, because the values have escalated to such a degree, it frequently makes sense," Mr. Saft said.

At Southbridge, supporters of opting out say that the amount of money people stand to gain if they sell their apartments makes it a no-brainier.

"Costs are rising, and will continue to rise," a Southbridge resident, John Ost, said, adding that bringing in private money from sales would help keep the building well maintained. "The Mitchell-Lama program — if you look at it — it was designed to go private." Still, others contend that they were given the opportunity to live in affordable housing and thus shouldn't take that away from the city.

"I am baffled, bothered, and bewildered," an 85-year-old tenant Catherine Rourke, yelled to about 300 fellow Southbridge residents at a meeting on the subject last week. "We need affordable housing today."

In 2004, the city put in place incentives to keep owners from leaving the program. By offering low-interest loans to do maintenance and mortgage restructuring, the city has lured owners of 14,000 units to commit to an additional 10 or 15 years in the program.

Even since the incentives took effect, though, more than 6,000 units from the city have left the program, and the state — which operates tens of thousands of Mitchell-Lama units in the city — has no similar incentive program to encourage owners to stay in the program.

Numerous city and local elected officials said they agree that the Mitchell-Lama buyouts represent a threat to the availability of affordable housing, but there is no clear plan on how to proceed. Many call for greater incentives, and uniformity between the city and state programs.

Mr. Hanzel, the policy analyst at ANDH, said there should also be guards in place to prevent owners from leaving the program, that the city and state should use a carrot-and-stick approach.

However, the spokesman for the city's Department of Housing Preservation and Development, Neill Coleman, said that would set a poor precedent for current city programs, suggesting that the city could just change the terms of deals 25 years down the road. "I don't think it would inspire much trust in all the other programs we're offering," he said.