Distressed Housing: Implementing New York City's Anti-Abandonment Agenda

Issue Brief No. 9, February 1998

Despite New York City's tight rental market and the dwindling supply of affordable housing, there is a persistent, high concentration of distressed housing in low-income, African-American and Latino neighborhoods.  Long-term property tax arrears for this stock mean city revenue losses and risks of owner abandonment that echo the massive housing losses of the 1960s and 1970s.  By 1994, early in the Giuliani administration, these concerns -- compounded by the costs the city incurs to manage owner-abandoned housing it takes over through tax foreclosure -- prompted the city to reshape its tax and housing policies.  One thrust was an anti-abandonment agenda to prevent further housing deterioration and loss.  This effort still remains to be fully implemented.

Causes and Effects of Housing Distress

Owner disinvestment and abandonment stem largely from the widening gap between rising building operation costs and the limited, albeit unaffordable, rents tenants can pay.  In low-income areas, the profit squeeze presses owners to cut essential services, defer repairs, and, at the extreme, incur serious defaults on property tax and mortgage payments, the prime predictors of owner abandonment.  A 1993 CSS study found that one out of six rental properties,  primarily in minority, low-income districts, were at risk because of imminent tax or mortgage foreclosure.

Housing disinvestment means losses all around. Once owners cut their losses and depart, the consequences for affected tenants and communities, and for the city, can be disastrous and difficult to reverse.  Despite the city's large stock of assisted housing, three out of five poor households live in unassisted private rental housing.  (See chart 1.)  Many face daily hardships: seriously deteriorating, uninhabitable conditions; unsecured, under managed buildings with crime and drug trafficking threats; and a forced move out.  A study of city shelters found most homeless families come from homes in neighborhoods with high abandonment.
 
Housing abandonment means heavy costs for the city: for replacing lost housing, for homeless shelter and services, and for managing the housing it owns through tax foreclosure.  In 1994, the city managed about 30,000 units in 3,000 occupied abandoned buildings, at costs close to $200 million annually, using most of the annual federal Community Development Block Grant (CDBG) the city receives from Washington for low-income community development programs.

The City's Emerging Anti-Abandonment Agenda

By late 1994, the city began to overhaul its approach to rising tax arrears and distressed housing.  At the announcement of its Building Blocks! initiative—to accelerate repair and sale of city-owned housing—the city projected that resulting savings in CDBG funds would be targeted to preventive anti-abandonment efforts to preserve at-risk housing.

In 1995, an unannounced city moratorium on taking over tax-delinquent housing became official policy, relieving the city of new housing management burdens.  As a result, in thousands of properties in serious tax arrears, "tenants in limbo" faced deteriorating conditions under uncertain ownership or management, without prospect of city intervention. (See chart 2.)

A new Neighborhood Preservation Consultant Program (NPCP) funded 53 community-based organizations in high-risk areas to focus on abandonment prevention activities.   The NPCP groups were to identify distressed housing and mount strategic plans to assist owners and tenants in stabilizing and preserving at-risk buildings.

By late 1995, the mayor announced the Breaking the Cycle initiative, a two-track approach to housing in serious tax arrears.  On the first track, the tax liens on "marketable" properties—those with high market value compared to tax arrears—were to be sold in bulk to private entities that would collect the debt or, if owners defaulted, undertake private foreclosure of the lien.  The city claimed that distressed properties were unlikely candidates for tax lien sales and that high-risk neighborhoods would be largely unaffected.  This initiative was passed into law in early 1996, with the first lien sale scheduled in May.

The second track dealt with distressed housing.  The Department of Housing Preservation and Development (HPD) was to develop an Early Warning Information System, an integrated citywide data base on the city's 875,000 residential properties, to enable the agency to identify distressed housing and develop strategic approaches to preventing abandonment and preserving the threatened stock.

HPD's infrastructure of "carrots and sticks" programs to promote owner compliance with local housing code standards has been in place for decades:

• Code Enforcement System:  HPD is the agency designated to assure owners comply with the housing code. It inspects buildings, cites owners for violations, and, if the owner fails to correct violations, it can levy fines and take court action.  If violations threaten tenant safety, the city can contract for emergency repairs and bill them to the owner.
  
  
• Receivership: Through the city's "7A" programs, housing court can, at the request of HPD or tenants, appoint a receiver to temporarily manage buildings and make repairs when owners are chronically negligent.  HPD monitors and counsels "7A" receivers and can advance loans for building repairs.
  
  
• Low-Interest Rehabilitation Loans: HPD provides low-interest loans to qualifying owners as an incentive to repair and maintain housing conditions.

New Anti-Abandonment Tools

New tools under the anti-abandomment agenda consist of:

• Early Warning Information System: The anti-abandonment agenda articulated in the "Breaking the Cycle" initiative is based on the principle that early intervention can stabilize at-risk housing and prevent further deterioration or loss.  A computerized information system, integrating fragmented information from multiple city agencies, would provide up-to-date information on all residential properties such as code violations, tax arrears, and mortgage debt, making it possible to analyze patterns of housing distress and identify at-risk buildings for strategic interventions.  The system has two components: 1) a comprehensive database for all residential properties with graphic mapping capability, and 2) a statistical "predictor model" that estimates abandonment risks for any property.  The system was envisioned as serving the city, community-based organizations, and others engaged in housing preservation.  Users could flexibly query the system, based on their own information needs and housing or neighborhood contexts.  Similar systems are operationing in Chicago and in Minneapolis-Saint Paul.
  
  
• Neighborhood Preservation Consultant Program: In August 1995, HPD initiated the NPCP, under which it contracted 53 community-based organizations to provide assistance to owners and tenants in distressed housing.  Designed to replace a broader citywide Community Consultant Program, NPCP targeted intervention to neighborhoods with heavy concentrations of at-risk housing.  Once distressed buildings were identified, NPCP groups were to intervene at the neighborhood level, making owners aware of available program assistance and promoting owner compliance.
  
  
• Third Party Transfer: Where owners are unresponsive and fail to repay tax arrears, Local Law 37 enables the city to accelerate tax foreclosure and rapidly transfer title directly to a qualified "third party" selected by HPD.  Under this program, the new owner is responsible for upgrading and maintaining the building, presumably with financial assistance from the city.

Assessment of City Efforts to Date

In the more than two years since its launching, the city's anti-abandonment effort has progressed on some fronts, but implementation of key components is lagging and fragmented, far short of the coordinated community-agency strategy first projected.  High turnover among top staff, including three commissioners, as well as inadequate or declining budget allocations to HPD preservation programs, played some part in slowing progress.  City commitments to fund anti-abandonment at appropriate levels are still uncertain. Anticipated savings in federal CDBG funds to maintain city-owned housing have only substituted for city funding in several programs, rather than augmenting preservation efforts.  Preservation programs remain underfunded, compared to the need, particularly in code enforcement, which suffered severe budget and staff cuts since the early 1990s, and now operates in permanent "crisis" mode, stretching its resources simply to respond to emergencies.

The city's anti-abandonment agenda articulated the notion of targeting resources where they are most needed.  To date, HPD preservation programs have not been targeted to distressed housing and high-risk neighborhoods in new, strategic ways.  This is partly because of organizational problems within HPD that impede its ability to coordinate agency efforts across program and division lines.

HPD's capacity to integrate and analyze key information has visibly increased, mostly in its new Building Evaluation Unit, created to centralize data on distressed housing.  This unit has periodically provided NPCP groups with "problem building lists" containing data on distressed buildings.  Although the HPD Early Warning Information System has been under development since 1995 and the design is now completed, the city administration has blocked implementation.  It appears HPD will not play an ongoing role in maintaining the full range of relevant data for open access by NPCP groups and other involved community and citywide organizations.

The NPCP has enabled many contracted community-based groups to sustain housing preservation activities, but it falls short of its potential on a number of counts:  HPD program requirements have been rigid, focusing groups narrowly on specific quotas for various categories of owner assistance.  Many groups have been hampered in their flexibility to implement alternative strategies, particularly where tenant organizing is appropriate.  In this respect, HPD fails to recognize and capitalize on variations among the NPCP groups and the neighborhood contexts in which they work.  The program has also been plagued by poor communication, stemming from high turnover of HPD program staff and the agency's lack of clarity about program goals.

Accelerated foreclosure and third-party transfer has been disappointing slow.  The plan is barely underway in a single pilot area of the South Bronx where the city has reinitiated pending actions against seriously tax-delinquent properties.  Final transfers to new third-party owners will not occur until late 1998 at the earliest.  HPD has not yet promulgated the required regulations or issued a Request for Qualifications for prospective third-party owners.

The city's policy shift articulated in the "Breaking the Cycle" initiative represented a dual-track approach to two related but very different concerns: stepping up city tax collection and revenues during a period of fiscal strain and targeting distressed buildings for HPD intervention to avert housing loss and tenant hardship.  In the ensuing two years, while tax lien sales have gathered accelerating momentum, HPD anti-abandonment efforts have seriously lagged behind.

CSS Recommendations

• The city should prepare a multi-year plan for implementation of a comprehensive anti-abandonment strategy, including planned use of preservation tools, funding commitments, a timeline for third-party transfers, and specifications for any new preservation tools needed.
  
  
• The city should implement the Early Warning Information System, with open access to NPCP and other housing preservation groups, along with training and technical assistance needed to enable them to use the system for strategic planning.
  
  
• The city should increase the housing preservation budget for code enforcement and other key  programs.  CDBG funds saved by shrinking the city-owned stock can be used to finance expanded code enforcement efforts.
  
  
• HPD should adopt a more flexible approach to preservation strategies under the NPCP recognizing diversity among the groups, the neighborhoods they serve, and the housing situations they face.
  
  
• The city should immediately assess conditions and intervene in the most distressed stock.  "Limbo" properties such as those over three years in arrears must be systematically inspected and evaluated.  Expedited tax foreclosure and third-party transfers to responsible owners should be effected immediately wherever necessary.
  
  
• The state must strengthen its preservation role by reinstituting local assistance for code enforcement and other anti-abandonment efforts and by expanding support for Neighborhood Preservation Companies.

For more information contact Victor Bach or Sarah Hovde at 212-614-5492 or 5541, the Housing Policy and Research Unit of the Department of Public Policy. For additional copies, contact the Office of Information at 212-614-5314.