Affordable Housing

Buy a co-op at a discount: All about HDFCs and how to snag one

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New York's affordable housing—or rather, its extreme lack thereof—is a near-constant topic of conversation, but one key question often gets glossed over: What about options for buyers? Other than exceptions like Mitchell Lama co-ops—which are hard to find and even harder to get into—the bulk of the city's affordable housing options are geared towards renters.

Yet, there's another "budget" route to home ownership: HDFC co-ops, which have strict income caps for buyers, sell for well below the market rate, and have been sought-after in recent years as an appealing option for low- and middle-income buyers. "[HDFC co-ops] are hard to find, and there's this mystique about them," says Warburg Realty broker Jason Haber

Below, our guide to what you need to know about HDFCs and, if you qualify, how to get one for yourself:


There are plenty of Housing Development Fund Corporation (hence the shorthand, HDFCs) buildings across the city—including rentals—but co-ops are usually what garner interest. The original, best-known types were created several decades ago when the city allowed tenants in buildings with derelict landlords to form co-operatives, take over their buildings, and buy their apartments for $250 apiece, as the New York Times reported last summer (yes, that's the correct number of zeroes.) 

Naturally, the price of the apartments has risen substantially since then—you most often see HDFCs on the market for a few hundred thousand dollars apiece—but in most cases, they're still far cheaper than the going rate in their surrounding neighborhoods (hence the mystique). While they're similar to Mitchell-Lama co-ops, says Dean Roberts, a real estate attorney with Norris, McLaughlin & Marcus, the two types of housing vary slightly in that they're created under different articles of state regulations known as the Private Housing Finance Laws. And while Mitchell-Lamas are beholden to a certain body of laws and regulations, the provisions in regulatory agreements for HDFCs can vary depending on the building.

Because of this, HDFCs often function like typical co-ops; rules and regulations differ significantly from building to building depending on the bylaws and the board. What sets them apart, primarily, is the financial structure. It works like this: HDFC buildings receive tax breaks and subsidies to help keep operating costs—and maintenance charges for shareholders—at a minimum. Buyers in HDFCs must meet strict income caps either tied to the area median income (aka AMI) or a formula based on the apartment's utilities and maintenance fees.

"Most HDFCs have the Division of Alternative Management tax cap, so they're charged taxes based on a lower assessed value than if they were a regular building taxed based on market value," explains Hilary Glaus, a senior project associate with the Urban Homesteading Assistance Board, a housing organization that works extensively with HDFCs. "They pay about a third of the taxes they would otherwise."

To keep would-be speculators at bay, HDFC owners are hit with a significant flip tax when it comes time to sell. "It varies from building to building, but in a lot of buildings, it's 70/30—so a shareholder would be forgoing 30 percent of the profit on the sale of the unit," explains Glaus. While there's generally not a cap on resale price, income restrictions and flip taxes function to keep prices relatively low. 

And as a whole, HDFCs are designed to act as affordable housing for families, rather than investment properties. "It can be hard for people to think of property outside of the context of 'how can I make as much money as possible off of this,'" says Glaus, who also notes that shareholders in HDFCs aren't paid out dividends, as any extra building funds go directly back towards operating costs. "Instead you’re seeing the savings over a lifetime with lower maintenance fees."

This East Village one-bedroom in an HDFC co-op on East 3rd street between Avenues C and D is asking $489,000, with an income cap of $97,020 for a single buyer, or $110,880 for two buyers.


Besides the obvious restrictions like income caps and flip taxes, like everything else in New York's housing market, prices of HDFC co-ops have been creeping up (especially in newly gentrified neighborhoods like Harlem and the Lower East Side), presenting prospective buyers with a frustrating conundrum: how to come up with a down payment worth tens of thousands of dollars, while still earning less than a building's income cap. (Some units actually are advertised as all-cash transactions even.)

As the Times pointed out last year, this state of affairs ends up favoring buyers with low(ish) incomes but significant assets, like retirees, young buyers whose parents are helping them out, or those with trust funds or an inheritance to lean on—not exactly the demographic one thinks of when talking about affordable housing. "In determining income eligibility, the city does not require HDFCs to look at assets," says Gregory Barrett, the director of NYC HDFC, an organization that represents HDFC tenants and shareholders across the city. "So if you’re a schoolteacher earning $50,000 a year, but have a $2 million trust fund," you can potentially qualify.

As for seeking out all-cash buyers, HDFCs often do so because they need the cash to cover repairs or debt. And even if the building does accept a buyer with financing, locking down mortgage approval for an HDFC building can be difficult, as banks are wary of financing limited equity co-ops. (In the event of foreclosure, the bank would be bound to the same resale and income restrictions as the shareholder, notes Glaus, not exactly an appealing financial prospect.)

Case in point: Haber's colleague Rebecca Brooksheralso an agent with Warburg, represents a buyer who's spent the past three years on the hunt for an HDFC three-bedroom. "A lot of times he's ruled out because they can't do financing," she says. "But even if they do accept financing, people come in with an all-cash offer, usually parents who are gifting their kids the money."

Another uptown option: this Hamilton Heights three-bedroom with an in-unit washer/dryer in a walk-up building on 140th Street. The asking price is $374,999 for buyers with incomes ranging from $30,250 to $72,600 for a single buyer, up to a $57,000 to $136,800 range for a family of eight.

Even with higher prices and some eager speculators circulating, most HDFC co-ops are still primarily family- and community-oriented affairs with residents in it for the long haul. "The vast majority of people in HDFCs are not interested in flipping them for market prices," says Bagget. "They want to preserve them as low-income properties for members of their own families." 
Such has been the experience of Alice (who asked to be quoted using a pseudonym), a twenty-something florist who, with the help of an inheritance, recently bought into a fixer-upper Williamsburg HDFC she's been. "I really like my neighbors," she says. "As a born-and-bred New Yorker it's really refreshing to be in a building where almost everyone is older and been here for a long time (especially in a neighborhood like Williamsburg). My downstairs neighbor grew up in her apartment, and a girl on the first floor is living in the apartment her mom bought in the 80s. There are a lot of interesting characters and everyone is laid back." 
As with many HDFCs, Alice's apartment was in less-than-mint condition when she moved in, lacking basics like a stove and kitchen sink (to complicate matters further, the unit was an estate-sale that had sat empty for years). "Oh god, it was a dump," she tells us. "It had been vacant for 10 years before I had moved in, so it was completely infested with roaches." (With that in mind, she's set aside around $9,000 for a renovation she's doing largely by hand and over a long period of time.) 
Even more so than in most co-ops, being an active participant is often a key part of life in an HDFC. "It's really important for people to know the history of the program, and to be willing to participate in the governance of the building—to do their sweat equity," says Glaus. "Respect where the people who formed the tenant association and brought the building to where it is are coming from."

This railroad two-bedroom in Greenpoint—going for $449,000—specifically advertises itself as a rare HDFC that accepts financing, and has income caps of $99,825 for an individual, $128,205 for a family of two, and $142,395 for a family of three.


If you want to find an HDFC, you'll need to do some digging. However, some are listing on typical listing sites; as of this writing, searching Streeteasy for sales with "HDFC" in the description pulls up 74 apartments, and Alice found hers incidentally while searching for market rate apartments via Kline Realty.

Additionally, UHAB has its own listings (you can find them on the "Homeownership" section of their website), some of which are sponsored by the organization, and require you to participate in their Homeownership Workshop in order to be eligible. The organization also puts a cap on its resale listings, and will only feature apartments asking $30,000 per room or under.

If you need to lock down a mortgage in order to buy, Glaus notes that some credit unions like the Lower East Side People's Federal Credit Union have specific packages geared towards HDFC buyers, and that UHAB also educates buyers about options available via the New York Mortgage Coalition, a group of community financial organizations that provide free financial counseling and help finding first-time homebuyer grants.

As for the rest of the sale process, it's more or less like a slowed down version of what happens when you buy any other co-op, but with a bit of extra paperwork involved. "In most cases, there is more paperwork needed," says Brooksher, "and the window between handing in the board package and getting approved can be up to a month longer than normal because usually the package is sent to the government agency who handles these properties first."

After the government agency signs off, your package goes to the board for approval, and then your interview is scheduled.  "All that can take two months, and you haven't even scheduled closing yet," Brooksher adds. "But, it's worth it if you can make it happen."

**This story originally ran in May 2015.**


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