Mitchell-Lama Buyouts: Policy Issues and Alternatives

The Mitchell-Lama program, which provides loans to developers in exchange for those developers providing affordable housing, faces a serious problem as developers attempt to take advantage of a provision in the program that allows them to opt-out by repaying the government loans ahead of schedule. This creates a conflict between the developer and the tenants but also between the developer’s desire for maximizing profits and society’s desire to provide affordable housing. The author argues that simply preventing developers from leaving the program could violate the Contracts Clause as well as discourage future developers from participating in government programs. Rather, the author contends that developers should still be allowed to exit the program but that tenants should be protected through rent stabilization, rent subsidies, and eviction protection.

Moreover, cooperatives should not be allowed to exit the program in the same manner as rental projects.