Affordable Housing For Who? HDFC Helps Trust Fund Kids
HDFC helps those with net worth but low incomes. Seems to have a slant towards those with money in the bank.
It’s a conundrum that faces many a potential New York City buyer who isn’t a millionaire with a hedge fund: How can one own a personal slice of the Big Apple? One answer may lie in the magical ‘Housing Development Fund Corporation’ or HDFC for short. Nothing shy of a Fairy Godmother, the HDFC allows those without the means to put down $150,000 on a co-op at market price, to buy their apartments under market value. There are also rental options available to those who qualify, but the co-ops are the magical fairy that everyone wants to capture.
Imagine if you will, a newly renovated two-bedroom under $300,000 in a great neighborhood with an eat-in kitchen. “Impossible!”, you may shout out your $2500 a month, 300 square-foot-studio rental window. But not so fast- if you’re looking at an HDFC apartment, it’s quite possible. However, like all too-good-to-be-true- things, there are a few ‘catches’—like income restrictions. Potential buyers for HDFC units must meet strict income caps that are linked to what’s known as the ‘area median income’, or AMI. That’s why a lot of the HDFC housing is found in Harlem, Hell’s Kitchen or the East Village in Manhattan, where income levels are historically lower. Other HDFC buildings tend to lie in outer boroughs.
But like a street fair on 5th Avenue, for those in the know, there’s a way around the boundaries. In an article in the New York Times last August, the tragic plight (sarcasm emoji here) of a young woman who just couldn’t seem to find an apartment that satisfied her massive requirements, wound up using a cash gift from her parents’ to score an HDFC co-op in, wait for it… Williamsburg. This article made a significant amount of lower to middle-income city-dweller’s blood boil. How can this 20-something get away with this?
The answer is that restrictions are based on income, not assets. In other words, the trust fund from Mommy and Daddy doesn’t count, but your internship at Conde-Nast, does. Most deposits on HDFC co-ops must be done in cash. Why? Because getting a mortgage in an HDFC building is challenging as most banks don’t comprehend the idea of regulated housing. Some HDFCs actually require an entire cash purchase. This is so buildings can re-coup depleted reserve funds for such things as repairs because the turn-over in an HDFC building is infrequent at best.
So who the heck are these people with a low annual income who are able to fork over a hefty amount of cash at whim?
Real estate agent Lee-Ann Pinder with Citi Habitats says, “I’ve seen every permutation that included buyers who had a change in circumstance in their life and buyers who had sold property and were going back to school. Otherwise, if you’ve got an income cap of $72,000 for an individual, and they are supposed to buy a property for $400,000, how’s the math going to work?”
Great question Ms. Pinder. Gregory Barrett, the director of NYC HDFC says, “In determining income eligibility, the city does not require HDFCs to look at assets. So if you’re a schoolteacher earning $50,000 a year, but have a $2 million trust fund you can potentially qualify.” Who said anything in New York was fair? We’re the ‘city that never sleeps’, not the city who’s ‘fair and balanced’.
“Vet their assets!”, some might say. However, HDFC co-ops are strictly run by volunteers so vetting assets is significantly harder with the high factor of fraud being a possibility. Each HDFC building differs in their structures, functioning like regular co-ops. This includes what caps there are on income and future sales, as well as flip taxes. Standardizing these laws might make some confusion disappear, but it would also narrow potential buyers who are seeking a profit in a few years. Would that be a bad thing or would standardizing work to keep out the trust-fund babies? Who knows? Either way, if you have the great fortune to move into an HDFC building, don’t go anywhere for a while and enjoy your version of Tinkerbell on the Island of Jealous Gothamites.
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