Provides that the rental rates for housing accommodations within limited-profit housing company projects in the city of New York which are municipally aided, shall be set by the rent guidelines board; repealer

Summary of provisions

This bill amends sections of Article 2 of the Private Housing Finance Law to enable Mitchell-Lama developments to continue to be a resource for affordable housing by allowing the developments to broaden admissions eligibility criteria, have a reliable annual maintenance and rental increase system, and increase the existing surcharge requirements with such funds being placed in a development's capital replacement reserve.

This bill will raise the income limit for all Persons and families seeking to reside in a Mitchell-Lama development to 125% of the income limits determined pursuant to Private Housing Finance Law Section 31(2)(a) and (b). In municipally-aided projects in cities with a population of one million or more, any person or family with incomes above the income limits determined pursuant to Private Housing Finance Law Section 31(2) shall, with the approval of the supervising agency, pay a surcharge in accordance with a surcharge schedule to be promulgated by such supervising agency, capped at no more than 200% of the existing rent. The bill provides that all surcharges imposed on or after the effective date of the amendments in such municipally-aided projects shall be placed in the relevant housing company's capital repair and contingency reserve unless the supervising agency approves the application of such surcharges to the relevant housing company's operating expenses.

This bill would also provide a rent increase procedure for municipally-aided Mitchell-Lama projects in cities with a population of one million or more. The rental rates would be increased annually in an amount equal to the one year renewal lease guideline promulgated by the New York City Rent Guidelines Board, no further procedures would be required to effectuate rental rate increases. However, such projects could instead notify the supervising agency in accordance with established procedures that they do not want an increase in their rental rate or are making an application for a project-specific rental rate increase. The supervising agency also has authority to determine that a particular project needs an increase in rental rate other than the Rent Guidelines Board rental rate increase. In such cases, the supervising agency can vary such rental. rates on no more than an annual basis so as to secure, together with other income of such Mitchell-Lama housing company, sufficient income to meet within reasonable limits all necessary payments to be made or projected to be made of all expenses including fixed charges, sinking funds, reserves and dividends on outstanding stock as authorized by the supervising

agency. Letting, subletting or assignment of leases of apartments at greater rental rates than those established in accordance with these procedures shall be unlawful. This rent increase procedure would not apply to projects that have a mortgage loan held or insured by the federal government, are owned by the federal government, or that have an interest reduction contract pursuant to Section 236 of the National Housing Act.

Finally, the bill removes the statutory provisions that mandate, in certain circumstances, the removal of occupants in all Mitchell-Lama developments who remain above the income limits.

Justification

The Mitchell-Lama Program was established in 1955 to provide affordable housing to middle income New Yorkers. There have been expanded efforts to preserve the physical and financial health and affordability of Mitchell-Lama developments through various mortgage refinancing options and interest repair loans from the City of New York Department of Housing Preservation and Development (HPD) and the Housing Development Corporation. Approximately 35,000 Mitchell-Lana dwelling units have been preserved under the City of New York Mayor's New Housing Market Place Plan.

Currently, the supervising agency sets base rents and increases at Mitchell-Lama developments according to that development's budgetary needs. Unlike in other affordable housing, a Mitchell-Lama tenant is not required to pay 30% of his or her income towards rent, although there is a surcharge capped at 50% of base rent assessed against tenants earning more than the maximum allowable income. The current Mitchell-Lama Program also allows residents with two or more dependents who earn up to 125% of Housing and Urban Development (HUD) Area Median Income upon lease up to reside in a Mitchell-Lama unit.

The proposed legislation would impose regular increases in rental rates based on the same one year renewal lease guideline promulgated by the New York City Rent Guidelines Board on municipally-aided projects in cities with a population of one million or more, other than those that have a mortgage loan held or insured by the federal government, are owned by the federal government, or have an interest reduction contract pursuant to Section 236 of the National Housing Act. Under current law, most rent increases only occur upon an owner's or cooperative board's request, who are often reluctant to seek such increases. Accordingly, such rent and maintenance increase requests are often delayed for many years, preventing a development from meeting monthly operating expenses. Consequently, each increase tends to be very large. By imposing regular, automatic increases that mirror other rent guidelines board increases, this bill seeks to ensure that occupants will experience more gradual payment increases and Mitchell-Lama housing companies will continue to meet their expenses. Furthermore, a development can still make a project-specific rent increase request, where necessary, or apply to HPD to opt out of an increase entirely if it can otherwise meet its financial needs.

The New York City Rent Guidelines Board establishes annual guidelines for rent adjustments subject to the Rent Stabilization Law of 1969 and to the Emergency Tenant Protection Act of 1974. In fulfilling its

func- tion, the New York City Rent Guidelines Board must consider: (I) the economic condition of the residential real estate industry in the affected area, including such factors as the prevailing and projected real estate taxes, sewer and water rates, gross operating and mainte- nance costs (including insurance rates, governmental fees, cost of fuel and labor costs), costs and availability of financing (including effec- tive rates of interest), and the overall supply of housing accommodations and overall vacancy rates; (2) relevant data from the current and projected cost of living indices for the affected area; and (3) such other data as may be made available to it. Mitchell-Lama developments utilize these existing analyses to ensure that their annual increases will be sufficient to meet their operating expenses.

Rent Guideline Board increases are applicable to Mitchell-Lama developments because the two categories of housing are both non-luxury multiple dwellings, which axe physically similar, have the same kind of management, and the same maintenance and utilities costs. A study conducted by HPD comparing the average increase in rents for one-year rent stabilized leases and Mitchell-Lama developments over a ten year period, demonstrated rent increases in these two housing categories were approximately the same.

The proposed legislation also restructures the surcharge provisions for municipally-aided Mitchell-Lama developments in cities with a population of one million or more. The maximum surcharge for both rental and cooperative developments would be increased from 50% to 200%. This surcharge income would be dedicated to a restricted capital replacement reserve used to fund repairs and improvements to the development.

The proposed legislation also modifies the eligibility criteria for initial occupancy in all Mitchell-Lama developments by allowing anyone who earns up to 125% of HUD Area Median Income, whether they have dependents or not, to move into a Mitchell-Lama apartment. This will help Mitchell-Lama developments expand from lower income households to reach the middle income range. This would also enable middle income singles and couples to move into Mitchell-Lama housing.

Finally, the proposed legislation removes the provisions that require, in certain circumstances, the removal of occupants in all Mitchell-Lama developments who exceed the income limits. Allowing occupants who exceed the income limits to remain in occupancy benefits the Mitchell-Lama development through cross-subsidization. Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.

Legislative history

2013:S.5094 Advanced to third reading 2012:S.7723 Advanced to third reading

Fiscal implications

None.

Effective date

This act shall take effect immediately.