Montgomery County's embattled housing authority suffered its most severe setback this week when the County Council imposed strict requirements on how and where the agency can locate public housing.

The Housing Opportunities Commission, which has been under severe attack recently, now will be required to hold public hearings 15 days before making decisions about most projects and will be restricted to placing units only in those areas approved by the County Council in an annual housing plan.

The new restrictions were included in legislation implementing a wide-ranging housing policy approved late last year by the council. The 84-page policy is aimed at increasing the supply of housing for low- and middle-income residents in Montgomery, where officials say the average sale price of a home is now nearly $110,000.

The council's unanimous action represents the most severe restrictions placed on the independent agency to date.

A group of 15 bills aimed at limiting the authority of the agency has been introduced in the state legislature, but earlier this week, four of those bills--including two vehemently opposed by the agency--were defeated by the county's House delegation.

Two bills--one allowing a county audit of the agency and another requiring the HOC to publish its annual financial report in local newspapers--were approved by the House delegation and will go to the county's Senate delegation for consideration. A bill giving the council budget review of the agency was one of the four defeated. The remaining bills were held for further consideration by the Montgomery House delegation.

Democratic Del. Jerry H. Hyatt, chairman of the delegation's housing committee, said only one of the remaining bills, a measure similar to the public hearing requirement imposed by the County Council, is still under serious consideration. He predicted that the others will be killed by the delegation.

The council's action caps nearly six months of often-vitriolic debate over the agency's role in overseeing subsidized housing in the county. Some citizens claimed the commission disregarded neighborhood opinion in deciding where housing projects should be placed. Initially, the commission opposed any additional restrictions, but it began to capitulate when public pressure grew for some limitations.

First, state bills were introduced in October in delegation meetings and then the council moved to include some of the citizen requests in its housing policy. HOC representatives then began to meet with both bodies to attempt to work out some compromises.

The council's actions this week were seen by most housing advocates in the county as not so much a welcome compromise as an inevitable one. Currently, more than 6,000 families and individuals receive some type of housing assistance from the agency. Another 9,500 households are on waiting lists.

"We've been falling back in retreat ever since (public housing opponents) got a look at the original housing plan," said Peg McRory, a longtime public housing advocate and an author of one of the county's first housing policies five years ago. "The idea of the original policy was to make (acquiring) housing more possible. This has been amended to make it more difficult."

Under the council's new policy, all publicly assisted housing units, excluding projects for the elderly, will be subject to public hearing and must comply with an annual housing map prepared by the county executive. The map will place priorities on areas where the county wants assisted housing; areas with already high concentrations of public housing will be at the bottom of the list.

Homeowners receiving specially funded low mortgages will not be subject to public hearing, but all scattered site projects--including those with only one house per block--will be covered by the council's legislation.