Oh rats.

On March 23, Wendell Walters plead guilty to two counts of racketeering and bribery. As the assistant commissioner for development at the city’s Department of Housing Preservation and Development, he oversaw billions of dollars in city contracts to build and repair the city’s vast stock of private affordable housing. The projects only grew over the past decade as Mayor Bloomberg launched a program to create or rehabilitate some 165,000 units of affordable housing.

During that time, the kickbacks to Walters also grew, totaling some $2.5 million over the course of a decade involving at least 10 different affordable housing developers in the city. Some payments were made in coffee cups, others in thick envelopes stuffed into Walters’ golf bag as he and the builders took in a round of golf. Among the gifts received was a brownstone on 139th Street in Harlem, free renovations to the townhouse and a honeymoon in Greece.

When he was arrested last October, Walters was paraded in front of the Brooklyn Federal Court House. Like so many perps, he was caught by surprise and still wearing his morning clothes, a black fleece pullover and black sweatpants. Tall and handsome with a shaven head, the 49-year-old Walters looked shocked, embarrassed, dismayed.

So was Matthew Wambua. Appointed exactly a year and two days before Walters’ plea deal, the new commissioner of HPD looks remarkably like his former colleague—trim, tall, of clean pate. He has spent a good deal of his term trying to clean up after Walters, implementing new measures to bring transparency and accountability to his agency. With an an annual budget of more than $1 billion, HPD touts itself as the largest municipal housing agency in the country.

“I will be the first one to tell you we are not perfect—far from it,” Mr. Wambua said during a recent interview in his office overlooking the on-ramp to the Brooklyn Bridge. “But we take these matters extremely seriously and are working everyday to address them.”

But the actions of Walters and other bad actors at the agency and at its work sites has brought considerable scrutiny to HPD. It has led to exposés and editorials, hearings and harangues. The most significant consequence so far is a new bill at the City Council, Intro 730. Known as the HPD Transparency Act, the bill requires the department to make public a number of its operational procedures. Sunshine is the best disinfect.

It might also be a disaster for the department. As currently constituted, the bill would impose millions of dollars in costs on the agency and, more significantly, the firms that do the building for it. The big dog developers would have limited problems covering these costs—though it would still eat into the funds available for building new affordable housing projects—but the smaller firms, the new businesses and the women- and minority-owned firms, argue they could not afford the onerous wage reporting requirements within the bill.

“We’re about housing, but we’re also about economic development, about lifting up the community,” Mr. Wambua said of his agency. “We’re building housing in the community, and, as much as possible, we’re building it with firms from the community, we’re building it with workers from the community.”

This may become less and less the case. The bill passed the council in July, but the mayor vetoed it the following month. Today, the council is expected to override the veto, and it will go into effect on January 1.

When that happens, housing insiders fear it could open HPD up to renewed attacks from labor unions, as they interrogate the books of the department and its contractors and developers, looking for any opportunity to score political points and, more importantly, win work. The unions have never much bothered with affordable housing jobs. The work is neither very technical or sexy. But as a recession that has eviscerated the industry drags on, any job is a good one.

This may help explain why some of the city’s biggest construction union groups, including the Building and Construction Trades Council, the District Council of Carpenters and the Mason Tenders District Council, helped to conceive and deliver Intro 730 at the council. “Doesn’t it seem strange to you that unions that have never had any involvement with HPD have suddenly taken such a keen interest in it?” one affordable housing expert said. “And not just the legislation, but almost every news account, where there is a complaint about HPD, there is a union rep there doing the complaining.”

Indeed.

“Somebody has to have the courage to stand up, blow up HPD and rebuild the way we do affordable housing,” said Richard Weiss, communications director for the Mason Tender’s District Council. He was referring to mayoral candidates, but he just as soon could have been talking about his guys.

There are three pieces to Intro 730. The first requires HPD to post on its website the standards it uses in selecting contractors who are pre-qualified to do jobs with the department, as well as what firms have been qualified and those who have been disqualified for a myriad of issues, from bad work to bad wages. The second requires the department to list all of its projects on a quarterly basis, who is working on the project, how much subsidy it is receiving, any problems with the project and so on.

HPD has already taken steps to comply with these parts of the law, putting the information online with the plans to update it on a regular basis, though not every quarter, as currently requested by the council. As for the issue of responsible actors the bill is meant to target and root out, the department launched its Enhanced Contractor Review Procedure earlier this year. It has since identified 11 contractors who either had issues with construction quality or wage issues. They undergo increased monitoring of their work, though HPD also stresses that they are not immediately 86’d, because mistakes happen and everyone deserves a second chance.

“It’s not like we want to work with bad contractors, they’re just as bad for us as everybody else,” Mr. Wambua said. “They hurt our bottom line and our work. And we are working to root them out.”

It is the third prong of Intro 730 that HPD and its partners take issue with. It requires all contractors on the department’s jobs to file detailed wage reports for every employee on a job. This includes not only how much money is paid to every worker but also a job description, details about the work performed, what jobs are being worked on when and so forth. Despite language in the bill to suggest otherwise, this goes beyond the level of reporting required by the State Department of Labor, requiring detailed accounting from both the department and its contractors.

It is the complexity of affordable housing that makes this especially challenging. On each of the hundreds of job sites around the city, a contractor hires subcontractors to address each part of the project—demolitions, foundations, plumbing, heating, ductwork, and so on. In turn, these subcontractors may bring on additional subcontractors to assist them with different parts of their work, to speed things up. Three different subs may be used to hang drywall, and then they might hire two additional subs among them to do half that work part of the time if they need assistance.

This is done to encourage local hiring, a mandate of HPD, to keep costs down and to speed up work. For a contractor to gather up all this information would require at least one dedicated full-time accountant, constantly monitoring the wages on a site from day to day. It is a cost many of the smaller firms fear they would be able to afford.

“I’m barely competitive with my bigger peers,” Karim Huston, principal of the Genesis Companies said. “Any added costs, and I won’t be able to compete.”

According to the New York State Association for Affordable Housing, an industry group known as NYSAFAH, the new requirements could add some $40 million in costs to the field of affordable housing in the city. With 200 to 250 jobs going on a year, wage monitoring would cost about $150,000 per job, with the addition of some to track them at $50,000. “And we think that is a conservative estimate,” Alison Badgett, NYSAFAH’s executive director said. HPD predicts it would cost the department an additional $2 million a year to collect and store all this data through the hiring of new staff and the implementation of a system to track it.

The fact is, this level of reporting approaches that required for union jobs. On some of its more complex projects, known as prevailing wage jobs, HPD actually does do this level of accounting, but both the department and the contractors get additional funding from the federal government to do the work, which accounts for less than 20 percent of all HPD jobs.

Critics of the department, and particularly the labor unions, argue that a lack of reporting allows contractors to take advantage of the workers on their site. “Look, why would they be fighting this so hard if they weren’t trying to hide something,” Mr. Weiss said. “These guys are trying to cheat the system, and they’re not going to get away with it any more.”

It seems possible that as the wage requirements get closer to that of the unions, the bigger contractors may decide it is easier to simply work with them than deal with the problems of doing non-union work and then potentially being hassled by the unions, which have a history of picketing sites they find unsuitable to their standards. Think of all the inflatable rats that have been deployed across the city over the years

This is one of the greater fears of the wage reporting requirements within the bill. There is no clear explanation of what the information will be used for or even why the council wants it. The belief among the affordable housing industry is that it will allow the unions to dig through the documents looking for firms who have made reporting errors—even a simple mathematical mistake can get a firm put on a list of disqualified firms, also a new provision of the bill that would bar them from working with HPD in the future.

Even for developers and contractors willing to spare the expense of compiling all the necessary wage statistics, the threat of having your work stalled and even being disbarred from working with HPD almost makes it not worth the trouble. Especially when working with a unionized shop would simply solve that problem. But is it really worth it to give in?

Former Comptroller Bill Thompson, who is running for mayor next year, believes the idea is to complicate matters for everyone but the unions. "It just doesn't make sense why you would want to add additional red tape, especially during difficult financial times," he said in an interview. "Why add to that burden at this time?"

There are two cardinal arguments for excluding unions from affordable housing. One is that it will cost more. Union labor generally costs a 30 percent premium over non-union jobs. This means either fewer projects are built or building the same number costs more money. HPD insists that it is not seeking to underpay anyone, but simply the jobs are less technical, and even more problematically, union work rules make it hard to hire all the subs to get the projects done in the time frame required. “When we are spending public funds, we ought to get the best value for our money,” Mr. Wambua said.

The other issue is diversity. “I want people on these sites who look like me,” Mr. Wambua said. “Frankly, the unions do not have a good habit of hiring locally, of hiring minorities, of hiring women. I see that as as much a part of my mission as building affordable housing, to help these people find work and get jobs.”

The unions argue from the other side. Better wages are better for workers, and their workers  provide a level of quality not found on non-union jobs. (Mr. Weiss also bridled at the notion that his workers were not from the community. “At least 50 percent of my guys are minorities,” he said.)

This issue of quality has been the underlying argument for the bill. A number of developments have been revealed to have suffered from poor craftsmanship, particularly some associated with the Wendel Walters schemes. There are particularly problems with a number of home-ownership projects. Owners have had problems with leaky roofs and cracked foundations, issues that have gotten considerable play in the press. But they only account for some 598 units. That is 11 percent of all home-ownership developments (though it happens to be largely contained to three troubled developments), but also less than 1 percent of the 141,000 units HPD has developed over the past decade.

The unions argue that wage reporting will help put a stop to such construction problems. “Bringing transparency to projects that receive enormous sums of public funds and tax breaks will promote better housing construction, safety and economic opportunity for tenants, taxpayers and workers,” Building and Construction Trades Council president Gary LaBarbera said. But so far no one has explained how knowing whether a guy gets paid $12 and hour rather than $13 an hour to hang sheet rock will ensure better construction.

“We’re the ones who have to fix these mistakes, so it is an issue for us,” Mr. Weiss said. The question is, are things really as bad at HPD as he and his union buddies insist, or are they capitalizing on a few bad actors, like Wendell Walters, to win entree to billions of dollars in construction jobs.

"The whole place is corrupt," Mr. Weiss insisted.

In July, the council voted unanimously for Intro 730, but reservations persist about the wage reporting issues. A number of council members spoke about the potential for adversely affecting minority and women owned businesses, but they voted for it anyway. After all, Council Speaker (and mayoral hopeful) Christine Quinn strongly supports the bill, and the unions play a critical role in city elections.

“These are not people you want to cross, especially with the elections coming up next year,” one City Hall source said.

In a statement, Speaker Quinn dismissed complaints about the bill: "It's preposterous to suggest that requiring developers to report payroll information that they're already required by law to collect and keep would hurt small businesses. The Council voted unanimously to bring transparency to how taxpayer dollars are spent on affordable housing. We will override the mayor's veto on Monday."

HPD maintains that the reporting standards go beyond those required by law, nor would they somehow ensure quality work is done. When asked about this, a spokeswoman for the Ms. Quinn only said that more transparency would lead to more accountability.

So is this transparency for transparency’s sake? The mayor has already said he may challenge the bill in court if it becomes law. In the meantime, the little guys are scrambling.

“I guess we could try and partner up with some other guys and muddle through,” Mr. Huston said. “But you have to wonder what’s in it for them? And what’s in it for me if I’m not the one calling the shots anymore.”

The city will try and build a building for micro-apartments on a lot along First Avenue and East 27th Street. (Bing Maps)

Dream house? A model of a 300-square-foot apartment. (Matt Chaban)

It has long been a cliche that New York City apartments were no bigger than shoeboxes, even as sprawling units and reconstituted townhouses quietly replace them in this booming, bourgeoisie town. Still, every so often a YouTube video goes viral showing someone making due in 150 square feet or less. As the city continues to grapple with a shortage of apartments, the Bloomberg administration has embraced the less-is-more approach. They're trading Gracie Mansion for Malibu Stacy's Dream House.

The mayor wants to adAPT the city's housing stock to the 21st Century, as a new pilot program announced today is known, by allowing developers to create smaller apartments than regulations currently allow.

For much of New York's history, landlords and developers were building small, often substandard apartments to serve the city's soaring population—a fact anyone who has ever lived in a Lower East Side tenement can attest to. Zoning and building regulations rose up to combat these unfit dwellings, but now there is a demand for more apartments than the city, either through publicly financed housing projects or privately built developments, can afford to build.

The new adAPT program takes a plot of land in Kips Bay and a few zoning modifications to try and solve these problems.

Currently, construction codes only allow a certain number of apartment units per building, a ratio having to do with its size, and none of those units can be smaller than 400 square feet. (For those thinking they have lived in smaller, that is quite possible, though those were units built under old codes and grandfathered under the new ones.) With adAPT, the city will increase the density ratio for a building and reduce the size of those units, which the administration is calling micro-apartments, to somewhere in the range of 275 to 300 square feet.

This regulatory sleight of hand can only occur on city owned property at the moment, so the administration has taken a plot at 335 East 27th Street to use as a testing ground. A request for proposals will be released for the site on First Avenue, seeking a developer to construct a rental building where at least 75 percent of the units are comprised of these micro-apartments.

Were the building to be built entirely out of micro-apartments, it would accommodate up to 88 units, while a traditional layout would allow around half as many. The idea is to create more affordable apartments while allowing developers to still see a profit because in the aggregate, these small apartments would add up to a larger return than a traditional building.

"This is about creating housing that meets the needs of today's New Yorkers," Mayor Bloomberg said. "We want people to come here to start their careers here, to start out here, to start their families here. If they can't afford to live here, then that's a problem."

Similar programs have been attempted in perennial rivals London and Boston, and The Times just last week reported on some Silicon Valley entrepreneurs trying to create "tech dorms" of a mere 150 square feet to offset the exorbitantly expensive quarters in the Bay Area.

The Kips Bay pilot site invites developers to propose other zoning changes that could make micro-apartments work better, with potential applications citywide, such as the possibility of moving some amenities to common spaces or toying with standardized dimensions—while still maintaining the light and air associated with quality housing. Housing Development and Preservation Commissioner Matthew Wambua described it as "a total let's see what happens, let's see what we come up with situation."

Design is also an important part of the pilot. The RFP will be judged not only on the financials but also the innovation developers bring to their compact apartment layouts and the appearance of the entire building. "This is an opportunity to use design to provide more housing options for New Yorkers," Planning Commissioner Amanda Burden said. "The statistics show we don't have enough housing for the people who want to live in this city, and designers can help us figure out the best ways to address these problems."

But the program is not simply meant to address a shortage in affordable smaller units but also problematic situations that have arisen from them. The city is concerned about people who subdivide larger units that they could not otherwise afford—who does not have a cousin or niece, freshly graduated from a Midwestern college, living in a walled off living room Uptown somewhere?—and otherwise cram people into apartments.

Commissioner Wambua pointed out that four single New Yorkers could afford a three-bedroom apartment priced at $2800 a month far more easily than a family of four, two working parents and two kids. It also so happens that it is illegal to live in a living room, or for four unrelated adults to occupy the same apartment, issues the city would like to put an end to. (Consider yourself on notice, Bushwick.)

Should the pilot work out, the administration hopes it has broad implications for a wide swath of residents, from the recently arrived Harvard grad to the single mother to the vet returning from war. "It's also good for divorcées," one city official remarked.

The biggest challenge may be getting developers to come along. In recent years, in the city's plushest districts, the mantra has been bigger is better, a fact that is generally true across New York City real estate: 1+1=2.5. With space at such a premium, people are willing to pay extra for more of it. That is partly the reason the city needs to go to extra measures to counteract these forces. "We've gotten a lot of interest from developers," Mr. Wambua said. "They are just as interested as us in creating housing where there is a clear demand for it."

Update: At today's announcement, city officials had said the current minimum size on apartments was 450 square feet, though it is in fact 400 square feet. The story has been edited to reflect this change.

You know that people care about something when they're willing to sit in sweltering heat for it. (Jess Schiewe)

Last Friday morning, Felix Guzman woke up early, grabbed his fishing pole, and headed over to the East River for some catch and release fun. For 40 years he has lived in the same building on Academy Street in Inwood and in that time he has “seen a lot.” So when he got back to his apartment around 11 am and saw that his street was teaming with newscasters, elected officials, cameramen, and local community members, he wasn’t surprised. They’d been there before. “It’s always been tough here,” Mr. Guzman said. “I’m glad they’re doing something about it.”

The building in question was 552 Academy Street, a crumbling 72-unit brick building located across the street from Mr. Guzman’s apartment. A year ago he had stood outside and watched as dozens of tenants dragged their belongings onto the sidewalk, confused and frightened and wondering where they would relocate to next.

The building, the city told them, was unsafe, which was why they had to vacate the premises. Although Mr. Guzman had never been inside, he heard rumors that at times the units lacked gas, running water, and electricity. “This is what happens when you get these slumlords and all they care about is the money,” Mr. Guzman said, referring to the building’s landlord, Rachel Arfa, whom the City blames for the hazardous conditions.

With the help of the Department of Housing Preservation and Development, the tenants—31 families in total— were relocated to temporary apartments around the city, in neighborhoods like Hillside, Thayer, and Elmwood.

But on Friday, many of the tenants were back in their old neighborhood, rubbing shoulders with the suits and construction workers who were there to announce the good news: 552 Academy Street would be rehabilitated and open for residency in the next 18 months. As part of Mayor Michael Bloomberg’s New Housing Marketplace Plan, the structure has received $21.1 million in funding that will be used to rebuild, stabilize, and improve the old, defunct building.

“This is a really big step for us,” said Iris Bertoni, a representative of the building's tenant association who had lived in the same apartment on the third floor for 50 years. "We're coming back home."

In addition to improved mechanical, electrical, and plumbing systems, the building, which was formerly a walk-up, will be redesigned to include an elevator line, a community room, and new kitchens, bathrooms, and laundry room. The renovations, which will modernize the building and bring it up to code, are the result of a lengthy  battle between the City and Arfa for possession of the building. According to the Department of Building's website, Arfa was charged with allowing "structural stability and egress issues" to develop over the last ten years, and has since been removed as the building's owner.

"This building has a history that is unfortunately not as uncommon as we would like," HPD Commissioner Mathew Wambua said,"but one thing that it has in its favor is a support network equal to no other." The rehabilitation of the building, Mr. Wambua said, as well as the selection of a new owner, will be spearheaded by the Community League of the Heights (CLOTH) and Alembic Development Corporation.

Council Member Ydanis Rodriguez, who donated $1 million to the project from his discretionary funds, was at the event on Friday, donning a plastic hardhat and black suit. “I feel great,” he said minutes after plunging a golden shovel into a pile of dirt as part of the symbolic groundbreaking ceremony. Not only was he glad that the tenants would be able to return to their former homes, he said, but he hoped that the event would serve as a warning to inept landlords throughout the city. “We have no tolerance for negligence,” he said. “This is a message to any other landlord who doesn’t reflect what they are supposed to be doing in terms of providing decent living situations for their tenants.”

The new units, which will not only be affordable, but top quality, also excite Mr. Rodriguez who hopes that it will encourage more people to move to the Inwood neighborhood. In the last 10 years, “we have lost 18,000 residents,” he said. “People can’t afford to pay the rents.” The average annual income of residents in the neighborhood is $30,000 a year, he said, adding that he hopes the revamped and reasonably priced 552 Academy Street building will be the start of a new housing trend.

Across the street, wearing a black “I Love Inwood” tee shirt, Mr. Guzman mused about the past, present, and future of his neighborhood. “A lot has changed,” he said, referring to the demographics and socio-economic levels of his community. Inwood has had its ups and downs, he said, and although he still loves it (hence his shirt), the neighborhood is due for a change. Improving the conditions and affordability of the residences is a first step, but Mr. Guzman hopes to see more improvements.

“For one thing,” he said, leaning on his fishing pole, “it would be nice if some of these people hired the people in the neighborhood to do some of the work, like labor and construction. A lot of us are unemployed and it would be nice to be a part of the community.”

Home sweet home. (Property Shark)

It used to house cast offs from some of the city's oldest buildings, but soon it could house low-income New Yorkers.

The city's Department of Housing Preservation and Development is seeking a developer to turn a  Williamsburg warehouse that served as storage for the Landmarks Preservation Commission into an affordable housing development with 50 apartments. The development, at 337 Berry Street, sits on a 15,000-square-foot lot and calls for commercial or community space on the ground floor, as well as about 1,200 square feet of open space for residents.

The views are not too bad, looking out on the Williamsburg Bridge and Manhattan, though the rumble of the J-Train just might intrude on the apartments, as well, barring some good windows.

“This RFP is a prime example of City agencies working together to put our resources to the best use while continuing the growth and revitalization of this community,” said HPD commissioner Mathew Wambua said in a statement. “The new apartments that will be created at this site will transform it from a forbidding façade into a resource of affordability for the neighborhood and provide safe, quality housing to hardworking New Yorkers.”

The city decided the landmarks warehouse was ripe for redevelopment as the commission's need for storage has dwindled. In the past, it would collect historical architectural detritus from abandoned and demolished buildings, saving them for future resale to other builds. The program ran from 1980 until 2010, when it was cancelled due to budget constraints and the entire stock of the warehouse was sold off. Rather than waste a vacant building, LPC teamed up with HPD to turn it into a new mixed-used building.

"We are thrilled that this site, through a new use, will continue to give back to the city,” preservation commission chair Robert Tierney said.

Submissions to the RFP, which is part of the mayor's New Housing Marketplace Plan that seeks to add 165,000 units of affordable housing to the city's stock, are due by August 31. All units must be affordable for families making 80 percent of the area median income, orabout $66,400 for a family of four.

Down boy! We're clean.

To combat the city's growing bed bug problem, the Department of Housing Preservation and Development has gone to the dogs. Say hello to Nemo and Mickey, the latest members of the department's Maintenance Code inspection team. And rather than the vet, the two Beagles were fortunate enough to get their tags—we mean badges—from Council Speaker Christine Quinn and Housing Commissioner Mathew Wambua.

"Awww, look at their little jackets," cooed Ms. Quinn when she first set eyes on the dogs.

Indeed, there was so much baby talk and photo snapping, the scene shared more than a passing resemblance to a new-borns room in a maternity ward, as much as a City Hall press conference.

City Hall is clean.

Behind all the joie de pooch was the serious and very nasty issue of actually being bitten by those pesky bugs. Commissioner Wambua revealed how in the last fiscal year the department had received some 13,000 complaints and 3,500 violations.

"After you use the dogs you will really feel good about sleeping and you won’t have any mental health anguish," said Council Member Gale Brewer. The dogs, she said, have a 98% success rate, which should help put New Yorkers' minds at ease. "Bed bugs create, not a physical, but a major mental health problem," Ms. Brewer said.

With just two dogs, private contractors can also sleep soundly tonight. They have had the bed-bug-sniffing market pretty much cornered, but there is only so much the department can do. "I want to make clear that there is more that needs to be done," Speaker Quinn said. "Two dogs is clearly not enough for 8.4 million people, and god knows how many bed bugs.”

On the topic of private firms Ms. Brewer added, “Unfortunately some dogs aren’t highly trained when you call a private contractor. These dogs the HPD have are very highly trained.”

Speaker Quinn tags the dog.

Today’s announcement has been a long time coming—cities like Seattle and Chicago already have sniffer beagles in place. “In 2009, 1,000 people showed up in Washington Heights for the first meeting with the HBD to talk about this,” Ms. Brewer said. For the representatives at City Hall and residence of New York City, it’s a case of better late than never.

After thanking Commissioner Wambua, Ms. Brewer and everyone who has been part of the bed bug advisory board Ms. Quinn paused, giving her voice an air of gravitas, “Mickey and Nemo, thank you very much.” Mickey had nodded off by this stage. “Mickeys still asleep, I won't take personal offense."

Just resting up for a tough weeks of sniffing ahead, no doubt.

realestate@observer.com