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June 30, 2009 @ 5:15 pm

Crisis and Opportunity: The ongoing tale of politicians and real estate moguls

Photo Credit: pdx3525

It is by now a cliché that every crisis is an opportunity. The Obama administration is using the nation’s multiple crises to transform virtually every aspect of domestic and foreign policy. Whether or not one agrees with the policies, the public is in broad agreement that the president is acting out of what he regards as the country’s best interests.

Regrettably, the crisis-opportunity formula as applied to the city’s perpetual housing crises yields very different results. The crisis is real enough but the opportunities are all about maximizing profits, and entrenching cooperative politicians in office. That’s the real meaning of the public-private partnerships that theoreticians and government officials are fond of talking about. If further proof is needed, we would only point to the transparently bogus claim that “continued leadership in this moment of crisis” requires the mayor and city council members who otherwise would be term limited to serve at least another four years.

Because my wife and I have lived for many years at Independence Plaza, formerly a Mitchell-Lama development, I studied that program’s history closely. It stands as a kind of Rosetta Stone for how things work between real estate interests and incumbent politicians. Only the names have changed.

First the crisis — then the opportunity. It was 1955, ten years after the Second World War ended. An estimated 200,000 families were doubled up, 215,000 housing units needed major repairs, 97,000 had no running water, 305,000 had neither private toilets nor baths, and 115,000 were without hot water. The city was losing apartments faster than they could be replaced.1

A family had to earn about $9,000 a year to afford unsubsidized housing.2 500,000 New York City households earned from $4,500 to $7,500 a year — too much to qualify for public housing and too little for private housing. Families—mostly white—could buy single-family homes with FHA-insured mortgages, small down payments, extended terms and low interest rates. They could deduct their real estate taxes and interest payments.3 They could put their kids in good schools. They were leaving the city in large numbers. At the same time, unemployed, mostly black and Puerto Rican people were migrating to the city in ever-greater numbers.

The city was already losing its manufacturing base. There were few jobs for the newcomers and not much housing. Governor Averill Harriman pushed the Mitchell-Lama program through a reluctant state legislature.
The state financed 90 percent of a development’s costs for up to fifty years at below-market interest rates. Municipalities awarded developers property tax abatements and the federal government subsidized land costs. The developers set up ownership entities known as limited profit housing companies. They were restricted to a maximum 6 percent return. Rents were regulated to ensure that moderate-income households could afford the apartments.4 The various subsidies and profit limitations enabled builders to produce two-bedroom apartments to rent for as little as $70 a month.

The program’s mechanics were simple: When the housing commissioner approved a developer’s application, the housing agency issued a mortgage loan commitment. The developer then got a construction loan from a commercial lender. When the project was completed, the state took out the lender and held the long-term mortgage itself. The program was funded through a $50 million bond issue, which the voters approved.
Unions and nonprofits flooded the housing commissioner’s office with more than $300 million in applications to build cooperatives5. The tenant-cooperators made bank-financed down payments, generally ranging from $300 to $600 a room. They became owners.

Upstate and suburban legislators, spurred on by the powerful Real Estate Board of New York (REBNY), opposed the program. They called it “socialism.” Puts things in perspective about what Obama is trying to do and the opposition to it.

During the McCarthy-era, the charge of socialism was a killer. At a groundbreaking ceremony for one Mitchell-Lama cooperative, Harriman announced,

I am astonished that there is an organized opposition to this measure … They have even dredged up that old scare word “socialism” which has been used against every good housing program that was ever passed. How can you call it socialism when the projects are conceived by private enterprise and built owned and operated by private enterprise? This shows the ridiculous distortions in the propaganda being spread around.6

The next year, 1956, the legislature authorized the owners to dissolve the limited profit housing companies and exit the program after thirty-five years, but only at the government’s discretion and only after the owner prepaid the outstanding loan, accrued interest, and repaid the full amount of the property tax abatements.

Harriman wanted a second, $200 million bond issue. The legislature authorized $100 million and when the question was put to the voters, REBNY ratcheted up the campaign against it, arguing the tax abatements would cost municipalities too much money and would underwrite housing for people who could afford to rent or buy their own homes in the marketplace.7 The voters rejected the bond issue. But it wasn’t the end of the story. Nelson Rockefeller would soon come on the scene.


[1]Middle Income Housing Responsibilities,” a 1956 report to Governor Harriman from Joseph P. McMurray, Commissioner of Housing.
[2]It was thought then that a family of four shouldn’t have to pay more than 20% of their income for rent.
[3]Following the practice of the Home Owners’ Loan Corporation, a New Deal agency set up to revive the housing industry during the depression, FHA redlined large swaths of the city. The agency wouldn’t insure mortgages in areas that it deemed risky. Multiple dwellings and neighborhoods that contained immigrants and minorities were deemed risky. Their inhabitants couldn’t get FHA insurance. Without it, they couldn’t get mortgages.
[4]The Housing and Redevelopment Board, the agency that administered city-based Mitchell-Lama projects, and the State Division of Housing and Community Renewal, the state agency, established maximum average monthly rental and carrying charges. The limits were $30 per room for rentals and between $27.50 and $28 for cooperatives.
[5]The 1926 Limited Dividend Housing Companies Law, pioneered by New York Governor Al Smith, was based on bank financing. The Mitchell-Lama program gave the developers direct government financing and allowed for rentals as well as cooperatives.
[6]The Public Papers of Governor Averell Harriman (1956), p. 1400.
[7]To ensure that the program didn’t compete with sales of unsubsidized housing that builders were marketing to higher-income buyers, eligibility for admission into a Mitchell-Lama was restricted to households whose incomes didn’t exceed six or seven times the rent or maintenance payments depending on household size.

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