A six-year federal experiment in condominium and cooperative ownership by poor families has shown that projects in only two of six trial cities were successful in keeping costs low enough for low-income buyers, according to a Housing and Urban Development Department report.
The successes, moreover, were achieved with the aid of high federal and local development subsidies and long-term housing assistance to help families cover mortgage payments, according to the report. The two metropolitan areas are New York City and Los Angeles.
In the other four cities -- Baltimore, Buffalo, Phoenix and St. Louis -- development or rehabilitation costs were so high that prices of the units were set at levels affordable only by households with incomes from 20 percent to 40 percent over the median for their areas.
The main objective of the experiments was to determine whether cooperative and condominium ownership could be made possible for low- and moderate-income Americans with a minimum of federal money and assistance for the local governments, community groups and private developers who rehabilitated the buildings and put together the program. Another purpose was to reclaim abandoned buildings and "stimulate neighborhood revitalization," the report said.
Despite apparent failure to meet the ownership goal in the four cities, HUD last week announced another batch of experiments in ownership for low- and moderate-income households. Eighteen communities across the country, including the District, were selected to take part in a HUD demonstration in which 1,300 public housing units will be sold to the poor families who live in them. In many cases, the local housing authorities will convert multifamily buildings into cooperatives and condominiums.
The recently completed experiments in co-op ownership began in 1979 under the Carter administration, said June Q. Koch, HUD assistant secretary for policy development and research. "Probably we wouldn't have designed it that way," with so many costs, "but we learned something that will be of use in other co-op conversions."
According to the HUD report, however, the demonstration started with three neighborhoods in New York City in 1979, and was expanded to five other cities two years later, after the Reagan administration had taken office.
A big reason for the high cost of the co-op conversions was that the structures used were "seriously deteriorated," said Howard Sumka, director of HUD's division of community planning and neighborhood studies. "They were buildings that were foreclosed on years ago and needed substantial rehabilitation." For the new public housing home ownership experiments, HUD is requiring local authorities to select structures that do not need major rehabilitation, he said.
"The viability of the multifamily co-op approach was demonstrated very clearly" in two Los Angeles projects, Crenshaw and Hollywood, and in the Clinton building in New York City, which are functioning successfully, Sumka said.
Clinton's success, however, was largely the result of heavy government assistance. "Conversion of the 50-unit apartment building required subsidies for nearly two-thirds of the development costs and long-term Section 8 subsidies for a majority of the co-op buyers , who could not otherwise afford the monthly payments for operating costs and mortgage repayment," the report said. HUD gave New York City $225,000 for the project and the city used more than $1 million in federal Community Development Block Grant funds.
"As a whole," the co-op ownership "was a difficult program to administer and consequently the three New York City projects vary considerably in their success rate," said Valerie Ascuitto, deputy commissioner with that city's housing preservation and development department. Successful facets of the experiments will be used in other city programs, she said.
"Using tax syndication for the benefit of low-income tenants" is a technique New York authorities will use again, she said. The HUD demonstrations provided for private developers of Section 8 projects to receive several units in cooperatives being converted. In return, the developer pledged to the reserve fund of the co-op a portion of the proceeds from the sale of tax benefits on his units, Ascuitto said.
Units developed at costs ranging from more $24,000 to more than $40,000 per unit, are being sold to poor buyers at prices ranging from $650 to about $5,500. The co-ops are paid for by the welfare system for buyers receiving Aid to Families with Dependent Children, she said.
Block grant funds and Section 8 certificates were widely used in the three New York projects and the two in Los Angeles, the only conversions that were in the price ranges of low- and moderate-income families when completed. Buyers in these projects will continue to need subsidies to help pay the mortgages, the report said.
The ownership demonstration being completed now and the new experiments in selling public housing point up a conflict that proponents have failed to resolve.
One aim of the programs is to help low-income families to move up the economic ladder by benefiting from the appreciation of their property when they want to sell their units, say HUD spokesmen.
On the other hand, most local governments point to the need to keep the housing prices down so that other poor families can have a chance at home ownership.
In the New York and Los Angeles conversions, authorities have imposed restrictions including "limiting resale price, owner returns to equity or the ratio at which appreciation is shared by the owner and the cooperative association," according to the report.
In Baltimore, St. Louis and Buffalo, properties chosen for conversion were unoccupied and needed major repairs. Local governments and developers were not required to provide subsidies that would make ownership possible for poor residents already living there. As a result, "the objective of meeting low- and moderate-income standards was subordinated to the need" to keep down outlays by the cities and developers, according to the report.
Buildings in Buffalo and St. Louis were converted to condominiums and resale restrictions were not imposed. The Baltimore conversion became a rental when increasing costs could be met only by syndicating the project, according to the report. The city has an option to buy the property in 10 years and sell it to the tenants.
In Phoenix, 72 single-family homes are being constructed for outright ownership. No multifamily housing was available, and participants had no experience with rehabilitation and conversion to cooperatives. "This project also failed to serve low-income families and, all things considered, was an unsuccessful effort," HUD concluded.
The report notes that "the federal government did not incur long-term financing obligations" in the projects, "in contrast to many previous housing programs." Costs to the cities, on the other hand, were high in land and buildings donated and in subsidies of development costs.
The high cost to local government indicate that the homeownership program is as costly or more expensive than current rental housing assistance, according to an expert in the field.