Purpose

To determine whether housing developers participating in the Housing Finance Agency’s 80/20 Program complied with Program requirements regarding the number of designated affordable units and tenant eligibility; and to analyze the cost and resources used to achieve program results at four participating developments. The audit scope included the 68 developments in the 80/20 Program, that were occupied and had allocated 20 percent of their apartments to low-income tenants, between January 1, 2012 and December 31, 2015.

Background

Homes and Community Renewal (HCR) is an umbrella entity consisting of all the State’s major housing and community renewal agencies and authorities, including the Housing Finance Agency (HFA). HFA’s mission is to create and preserve high-quality, affordable, multifamily rental housing. Its 80/20 Program (Program) provides low-interest financing to multifamily rental developers who commit to designating at least 20 percent of a development’s units to low-income households. The federal government provides income tax credits, and municipalities provide real estate tax abatements, as incentives to developers. In New York City, participating Program developers receive tax abatements through Section 421-A of New York’s Real Property Tax Law. As of December 31, 2015, 68 developments, mostly in Manhattan, were occupied and had allocated 20 percent of their apartments (approximately 4,500 units) to low-income tenants. The remaining 80 percent are rented at market rates, but are subject to rent stabilization.

The U.S. Department of Housing and Urban Development defines very low-income (low-income) as 50 percent of an Area’s Median Income (AMI) adjusted for household size. For a New York City family of four, the 2016 income eligibility limit was $45,300. Applicants must earn less than the income limits for their respective household size to qualify for these low-income units. Also, once tenants move into an affordable apartment, they may continue to reside in their unit regardless of their income and continue to pay the affordable rent amount.

If the household income of a tenant in a low-income unit exceeds 140 percent of the allowable income, the next available unit in the building, of comparable size (whether affordable or market rate), must be rented to a low-income tenant to maintain the 80/20 ratio. However, developers in New York City have opted to offer 15 percent of their designated low-income units to households with incomes below 40 percent of AMI. These units are referred to as “deep rent skewed.” Under this option, if the income of a tenant in a low-income unit (including deep skewed units) exceeds 170 percent of the income limit, the next available low-income unit must be rented to a deep skewed tenant. Thus, under the deep rent skewed option, the next available market rate unit does not have to be offered to a low-income tenant. Tenants who exceed the 170 percent income limit continue to pay the low-income rents and additional units are not made available for other low-income parties.

Key Findings

Based on the rents charged and the regulatory agreements for our four sampled developments, we concluded that the proper numbers of affordable apartment units were made available to low-income tenants.

• We reviewed a sample of 43 low-income tenants and found that, in most cases, the developments used “reasonable judgment” in determining eligibility, based on the information in the files. However, for four of the 43 tenants sampled, we question whether the developers exercised reasonable judgment in evaluating tenant file information.
• While the Program requires all applicants and adult family members to sign consent forms authorizing developments to collect information to verify applicant incomes, not all developments took this step. For 18 (42 percent) of the 43 tenants reviewed, applicant incomes were not verified with the Internal Revenue Service (IRS).
• The incomes of about one-third of the original tenants in the 68 developments exceeded the income eligibility limits, in effect during the audit period, for an applicant to move into a unit. In fact, as of December 31, 2015, more than 160 households occupying low-income units reported incomes of greater than $100,000.
• The total benefits to developers to create the 363 affordable units in our four sampled developments could not be fully calculated. Benefits that could be quantified (local tax abatements per Section 421-A and federal tax credits) amounted to almost $427.3 million for the four sampled developments. This did not include the benefits of HFA low-interest loans. for utility consumers.

Key Recommendations

• Require Program developments to verify the incomes of all prospective tenants, prior to moving into an apartment, with the IRS.
• Work with the management staff at participating Program developments to develop sound and consistent methodologies to project applicant income when determining eligibility.
• Ensure that adequate information is collected to enable decision makers to adequately assess the costs and benefits of the Program.

Other Related Audits/Reports of Interest

Affordable Housing Corporation: Affordable Home Ownership Development Program (2013-S-31)

New York City Department of Housing Preservation and Development: Enforcement of Mitchell-Lama Surcharge Provisions (2015-N-3)