Hundreds of low income families around the country could be forced to leave their federally subsidized apartments in the next two years, thanks to an old provision in the Section 8 federal housing law.
The owners of 5,800 apartment buildings who receive subsidies under the Section 8 Housing Assistance Payments Program have the option to stop accepting the federal funds five years after entering the program. Termination of the subsidies would force tenants to pay market rate rents for their apartments without subsidies or to look for other housing. It would allow project owners to raise rents or convert their projects.
In Bethesda, 44 elderly tenants occupying 38 subsidized apartments at the 238-unit Chelsea Towers may be among those who lose the federal rent subsidies. Their fate hinges on attempts by the project's Chicago developer, who plans to convert the building to condominiums next spring, to work out an arrangement with the county government to continue the units as low-income rentals.
County officials are negotiating to buy the low-income units but have not been able to agree on a price with developer Aaron Michaelson. If the county cannot buy the units, it will be left to Michaelson to decide whether to continue to receive subsidies for the units when the first five-year term of the subsidy contract expires on Nov. 7, 1984.
"The danger is down the road, but one would have to assume it will happen, [that] he will not renew," said Irving Hurwitz, manager of conservation programs for the Montgomery County Housing Opportunities Commission, which is negotiating to buy the units. "Those tenants definitely will be displaced if they don't renew."
Conversion of the project also raises questions about government efforts to increase the supply of low-cost rental housing. Construction of Chelsea Towers began in 1977 under an exemption from a county sewer moratorium on the condition that 15 percent of the 238 units would be subsidized under Section 8. The project was financed under the Government National Mortgage Association tandem program, a federal program which offers more advantageous terms than conventional financing.
"In the absence of these subsidies and the exemption, the present owners would not have been able to construct Chelsea Towers," according to the county Office of Consumer Affairs. "Even though all the legalities are on the side of the owner, conversion does frustrate the intent of the programs," said Joe Giloley, program manager for the Office of Consumer Affairs. "It's a kind of situation that points a bad finger at the federal programs."
As the program was first written, contracts for Section 8 subsidies were renewable at the owner's option every five years, for a total of 20 years. In 1979, Congress mandated minimum contract terms of 20 years, but all projects that signed up earlier retained their option to quit.
So far, only 20 of the 5,800 project owners who have the five-year renewal option are planning to stop their assistance, according to a survey by the Department of Housing and Urban Development, which administers Section 8.
A HUD official said the survey might not be completely accurate since it was conducted while the housing market was in a severe slump, which would encourage owners to keep the subsidies. Also, many owners would not disclose their plans.
In a separate report, HUD said the owners of eight projects that received subsidized financing under the tandem program did not plan to renew their Section 8 contracts. The report said HUD cannot require the project owners to repay the $17 million in subsidies they received. The owners "will continue to enjoy the benefits of below-market financing even though the public purpose for which it was originally extended ceases," the report said.
HUD is neither encouraging nor discouraging owners from renewing their contracts after five years. HUD sources said that the Reagan administration would like to terminate long-term commitments under the program and that HUD is trying to find a legal basis to allow owners who do not have five-year renewal options to stop participating in the program before the expiration of their contracts. HUD Assistant Secretary Philip Abrams denied, however, that such a policy change is under consideration.
HUD plans to provide housing vouchers to tenants of buildings for which subsidies are terminated.
Chelsea Towers developer Michaelson said he wants to preserve the Section 8 units by selling them to the county, which could then renew the Section 8 subsidy contract for another 15 years.
"I want to sell to the county. The county is the most logical choice to buy them," he said. "I don't want to throw anybody out, but I can't take a million dollars out of my pocket. So I think a happy compromise will be reached."
Michaelson said he offered to sell the units to the county at a price that did not include a profit but the county's counter-offer was "silly."
County officials are optimistic about the possibility of buying the units.
"We are certainly asking him to make allowances to us that are greater than he would make for in-place tenants," said Hurwitz. "Of course, he's a businessman, but we're still hopeful he will also feel a public purpose."
Michaelson said he will probably sell the units to the public at prices beginning at $72,000 for a typical one-bedroom unit, with a 15 percent discount for tenants. He said he plans to make some improvements in the building, including new lobby furniture and amenities such as an exercise room. "It's going to be a class building," he said.
The county wants to resolve the issue now, largely because the average age of the tenants of the Section 8 units is 76.
"You potentially have 44 people on the streets in 15 to 18 months," Giloley said. "I don't think, given the age of the people involved, we should take the cavalier attitude that we'll deal with it in 18 months. We're getting calls now."
Under county law, the owners of a project converted to condominiums must set aside up to 20 percent of the units to provide lifetime tenancy to tenants who are at least 62 years old or handicapped and who meet the county's income standard.
Giloley said it is doubtful any of the tenants could pay the market rent for their apartments if the Section 8 assistance is terminated. Under that program, the tenants pay only about 25 percent of their income for apartments that rent for $500 or more a month.
Giloley added that the county also would lose the low income units, since the Section 8 subsidies cannot be transferred to any other apartments.
If the county cannot buy the units, Giloley said his office might ask Michaelson to renew the Section 8 subsidies on the grounds that termination would frustrate the intent of the lifetime tenancy requirement.
Michaelson purchased an option to buy the building from the current owners, Lake Vista Associates, a partnership that includes Giant Food President Israel Cohen and Treasurer Emanuel Cohen. Bernard Lubcher, who handles the partnership's business, said sale of the building for conversion was consistent with Lake Vista's agreements with the federal and local governments. "I think we kept all the promises that were made," he said. "Certainly we're in compliance with local and federal law."
Michaelson said it should not be surprising that the building is being converted. "The building was built as a condominium and anybody would know within two to five years they were going to sell it."