Greater Greater Washington

A few steps can fix Inclusionary Zoning

DC's Inclusionary Zoning (IZ) affordable housing program has suffered from serious administrative problems in its start-up phase. As a policy, however, it is still sound, and is the right policy for DC's future.


Photo from 2910 Georgia Ave.

A handful of IZ units are on the market, along with over 900 units in the pipeline. There are also 1,000 units that came through the Zoning Commission's Planned Unit Development (PUDs) process since 2000, using the same policy standards as IZ.

Unfortunately, 2 early IZ units sat on the market for more than a year, and the developer has sued the city to get out of the IZ requirement. This doesn't reflect a fundamental flaw in IZ; rather, it arises from understaffing at the DC government and rigid local and federal regulations. There's not much time to fix the sputtering implementation of this important affordable housing policy tool.

IZ brings many benefits

IZ sets aside 8-10% of new housing construction for households earning 50-80% of Area Median Income (a 50% AMI household of 3 earns $49,250 per year, a 80% AMI household earns $78,221 per year). IZ is worth fixing because we have plenty of evidence that this kind of program can produce results beyond what other housing programs can. IZ provides affordable housing in mixed-income and wealthier neighborhoods throughout a jurisdiction rather than concentrating it in a few neighborhoods.

This benefit of economic integration has been documented. Low-income children in programs like IZ perform better in school than their peers, because they live in low-poverty neighborhoods and attend local low-poverty schools. Another other advantage of IZ is that it does not require a direct subsidy from the government to construct the affordable unit, but rather lets the developer to build extra market-rate units, and uses that value to pay for the below-market ones.

Other than a nominal administrative cost, IZ is a very cost-effective way to sustain the city's production of new moderately-priced homes. There are many successful similar programs throughout the country, including Montgomery County's long-running IZ program, Moderately-Priced Dwelling Units (MPDUs).

DC IZ also has a sister program which creates affordable dwelling units through PUDs and public land deals. (Confusingly, these are often called ADUs, which is the same acronym, but not the same thing, as Accessory Dwelling Units, market-rate basement or garage units inside someone's house). This program does not appear to have problems filling units at the same income levels. That success shows that IZ can also overcome its challenges with some concerted attention.

Three problems have stalled IZ

Three debilitating problems with the program's administration can be fairly easily corrected and get it back on track: severe understaffing, rigid regulations, and rigid FHA lending rules.

Severe understaffing: Only 1-2 people administer the program inside DC's Department of Housing and Community Development (DHCD). Without a few more staff people, IZ and the sister affordable dwelling units (ADUs) cannot be administered effectively. The Mayor and DC Council need to provide a few more staff positions to manage these programs.

An alternative to administering the program entirely inside the DC government would be to give responsibility for the for-sale units to a nonprofit experienced in managing permanently affordable homeownership programs. CityFirst Homes is already doing a similar job with the District's first major housing land trust. Evidence suggests that more hands-on assistance from a non-profit like CityFirst Homes can drastically cut foreclosure rates and yield more successful homeowners.

The other component that requires sustained support is the housing counseling agencies who educate applicants and help them through the process. Ensuring the city's budget provides for this is another key ingredient to success. In all, these administrative costs amount to a modest budget item and are a fraction of what it costs to subsidize new affordable housing construction.

Rigid IZ regulations: DHCD manages a process for connecting a person who qualifies for affordable housing to available units. This involves a centralized application and lotteries. Details of that process have proven too rigid to accommodate the realities of matching housing seekers and available units.

The city is in the process of revising the regulations to give the program necessary flexibility. This revision should be in effect in a few months.

An alternative to the current lottery system would be to let the developers market the units to qualified households, and simply have the District housing agency certify the applicants as qualified and provide general oversight. This is already the process for the PUD and public land "ADUs."

With sufficient support from housing counseling agencies, residents in search of an affordable home should be able to get enough help to conduct that search, especially with the city's useful website, dchousingsearch.org.

Rigid FHA lending rules: The Federal Housing Administration has emerged as the predominant mortgage backer in the post-2008 affordable homeownership world. Nationwide, most local housing programs have encountered a critical conflict with FHA rules where local programs (like IZ and ADUs) often require that the affordability provisions survive foreclosure. FHA does not allow for this.

The only way to deal with FHA mortgage lending standards that conflict with local program requirements is to change the program to conform to FHA's standards, and get FHA to sign off on the changes. DC is acting to change its standards to comply with FHA. The timeline for receiving FHA's approval is uncertain but the city hopes it will happen shortly, we hope in the next month or so.

If a unit goes into foreclosure and then sells on the market, the city would lose its investment in an affordable home. There are other safeguards the city could put in place that do not conflict with FHA. They would at least allow the city to recover the value of the affordability of the unit, should a foreclosure occur and the unit sell on the market.

With these three administrative fixes in place, DC should be ready to smoothly operate a program to place the right applicant in the right unit as 900 more IZ units come online.

Mend it, don't end it

IZ's growing pains have led to some calls to more fundamentally modify or scrap the IZ program. We should consider and debate these suggestions only once DC fixes the immediate problems and the program administration is running smoothly.

Some opponents continue to question the policy itself, but experience across the country points to IZ as a valuable and effective tool to create moderately-priced housing in strong markets with virtually no direct cost other than a small budget for staffing the program.

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Cheryl Cort is Policy Director for the Coalition for Smarter Growth. She works with community activists, non-profit groups and government agencies to promote transit-oriented development, housing choices, economic development and pedestrian safety, especially in less affluent communities. 

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One thing I do not understand, that relates to the FHA issue. Most new construction in DC (and most multifamily new construction in the region generally) is rental, not condos. The unit financing issues do not come up for the rental units. While I am glad proposals are being made for creative ways around the financing issues, should those not pan out, would it not be possible to modify IZ so that only rental buildings would have to actually provide on site affordable units, and condo buildings could instead contribute to an affordable housing fund?

by AWalkerInTheCity on Feb 1, 2013 10:15 am • linkreport

Yep, walker hit it. I think those 2 units that aren't moving are the ONLY two IZ condo units for sale. So I don't see how the FHA rule change would make a difference for the rest of pipeline.

And funny, I though we arguing a few days ago that "filtering" was the best way to get more housing units into the lower price tiers.

Exactly how you are going to get a FHA loan with bad credit, spotty job history, part-time status, etc is also not addressed.

by charlie on Feb 1, 2013 10:19 am • linkreport

What changes will be made to make the units FHA-eligible? Is the city going allow them to go market rate following a foreclosure? From the City Paper article, that seemed to be the sticking point.

by coffee on Feb 1, 2013 10:26 am • linkreport

What would be the mechanism to "allow the city to recover the value of the affordability of the unit, should a foreclosure occur"? Recover it from whom?

by jimble on Feb 1, 2013 10:30 am • linkreport

"And funny, I though we arguing a few days ago that "filtering" was the best way to get more housing units into the lower price tiers."

they both are ways to do so. Filtering alone will bring some, but filtering plus IZ will bring more.

by AWalkerInTheCity on Feb 1, 2013 10:35 am • linkreport

The article says that builders are allowed to build additional market-rate units to help diminish the cost of having IZ units.

How? Every development in DC I've dealt with reaches it's maximum size or FAR without any IZ bonus. There are plenty of bonuses available to get to Maximum FAR from By-Right FAR.

by Tom Coumaris on Feb 1, 2013 11:04 am • linkreport

And funny, I though we arguing a few days ago that "filtering" was the best way to get more housing units into the lower price tiers.

This is the problem with us using fuzzy defintions of 'affordable housing.'

Filtering and an efficiently functioning housing market would over time lower the market rate price of housing.

That doesn't mean we still would not need subsidized housing. We have needs for subsidized housing in this region. We also have housing costs that are so high that even those earning incomes sufficient to count as middle class are spending too much of that income on their housing needs.

by Alex B. on Feb 1, 2013 12:03 pm • linkreport

@alexB; well, the imprecise word seems to be "middle class" And as far as I can see, even the well-off in DC (say two gs-14) are overspending on housing. But yes, basically middle class means "you can afford housing plus a little more" and rich now mean "I have a lot of money that isn't tied into housing."

Left unsaid is why DC, as a submarket, needs IZ. And frankly I'm not sure it does.

And since Iz is mostly working on the rental market, I doubt it is having much counterweight to continued in-migration. It isn't DC's fault that this has been the only(?) decent job market for non-technical college grads in the past 10 years, but it sure does mess up the starter rental markets.

by charlie on Feb 1, 2013 12:23 pm • linkreport

charlie

Arlington has affordable housing density bonuses - its voluntary though because Va law does not allow ArlCo to mandate IZ. If it did so allow, I am sure ArlCo would so mandate.

by AWalkerInTheCity on Feb 1, 2013 12:42 pm • linkreport

Everything in this article is utter non-sense. It shows a total lack of inquiry into the details of the failures of the DC IZ program and reflects the continuation of the IZ echo chamber where proponents cheer each other on wifthout seeking input or data from the programmatic reality. This writer has not interviewed the builder of th first two IZ units or sought any additional information into his experience. No one from DC has, either

by 2910 ga av builder on Feb 1, 2013 3:10 pm • linkreport

@AWalkerIntheCity: I don't think we need to give up on ownership, though currently a small part of the pipeline but t.hat is changing. Montgomery has already solved its FHA problem and DC is almost there. I understand rental financing also has problems in the post-2008 world.
@coffee: see zoning commission case no. 04-33F: termination of affordability controls upon foreclosure. Name sums it up.
@jimble: recover from bank holding the mortgage. see the record at the Zoning Commission. Office of Planning said that in the administrative regulations the city can "use soft second mortgages that enforce liens to recoup the loss of the value of the affordable unit for deposit in the District's Housing Production Trust Fund". See Zoning Commission Case no. 04-33F.

by Cheryl Cort on Feb 1, 2013 3:42 pm • linkreport

I definitely understand the benefits of mixing incomes, not concentrating poverty, etc.

I can't say I understand the benefit of owning an IZ unit. Does that give you access to the equity in the unit? Who benefits from an increase in value?

There is a lot of focus in this country on home ownership, but for some people it might be better to have the flexibility of movement that renting offers, or not having to deal with repair issues yourself. Of course that's counterbalanced by the tax breaks this country hands out for having a mortgage.

by MLD on Feb 1, 2013 3:58 pm • linkreport

In NYC the mitchell lama program involved owned coops, but no participation in price appreciation (units must be sold back to the coop at the original price, IIUC)

The advantage was that owners democratically managed the building rather than dealing with a land lord, which was considered something important in NY (where theres more of a socialist heritage than down here)

I assume in the case of DC IZ, the issue is not so much wanting to have affordable condo units, as it as avoiding the degree of segregation that would be created by having all affordable units in rental buildings, and none in condo buildings.

by AWalkerInTheCity on Feb 1, 2013 4:03 pm • linkreport

Re: Cheryl's comment, to find a ZC case, go to http://app.dcoz.dc.gov/content/search/Search.aspx and enter the number (04-33F in this case). Unfortunately their otherwise-great tool doesn't let you link directly to a case.

Also, I'd point to my piece Urbanist economists should cheer inclusionary zoning which basically suggested thinking of these IZ units not as "housing with some price controls" but "housing where the city owns some of your mortgage."

An IZ unit is like a little company where the city owns a share. You get to control the unit itselfthe city has no voting stockbut if you sell, you can only sell your share, to someone else who can come in and assume the same business arrangement you had.
I think the way to think of IZ is this. The city gives the developer extra density but requires the developer create special units that have 2 kinds of shares: a controlling "live in the unit" share and a "silent partner" share; the city keeps the latter.

Then, the non-city shares in the units get sold (now, by the city, but it might be easier for the developer to do it, as Cheryl suggests), and if someone moves, they just sell their share to the new owner.

FHA rules say you can't get a federal mortgage for a unit under this arrangement if, when the owner of the "live in the unit" share goes into default, the city's "silent partner" share remains. However, it sounds like it would be legal to structure the city's share so that at least it gets paid out when the unit goes to auction.

It's like if you own stock in a company, and the company sells to another company for cash, sometimes you don't get a share of the new company, but you do have to get paid out for your share.

by David Alpert on Feb 1, 2013 4:09 pm • linkreport

So the builder at 2910 Georgia Avenue was allowed to build two extra units over what they could have otherwise ?

by Tom Coumaris on Feb 1, 2013 4:34 pm • linkreport

Should be real fun seeing to see someone in those income guidelines having the cash to pay for these units at auction. Unless, of course, the price goes low enough...

by charlie on Feb 1, 2013 4:50 pm • linkreport

Tom,

The builder at 2910 did not get the "benefit" of increased density. There were not 2 additional units.

by 2910 ga av builder on Feb 1, 2013 7:41 pm • linkreport

@Tom Coumaris: IZ provides a 20% bonus density in most zones throughout the city. It is possible to get a larger density increase through a PUD. As for the Geogia Ave. case regarding the developer not taking a bonus density, this appears to be a dispute over grandfathering. The developer did not want to redesign the project because he believed he was too far along to incorporate the added units. In most other cases, under IZ the project adds more density above matter of right zoning and includes IZ units. In fact, one project (now known as the Louis at 14th and U St NW) planned for IZ units and the bonus density but had to remove them because the Fenty administration had not finalized IZ regulations.

by Cheryl Cort on Feb 2, 2013 2:13 pm • linkreport

@Cheryl Cort- The Arts Overlay for 14th provides all the bonuses a builder needs to get to Maximum FAR pretty easily. There are bonuses for housing, for cafes, and for a number of other items. I can't imagine any building, especially the Louis, could benefit from IZ in getting more FAR than they have. There was a remarkable rush on BZA to get permitted before the IZ regs took effect.

by Tom Coumaris on Feb 2, 2013 5:47 pm • linkreport

It is really disheartening to see the deafening silence in this article of escalating condo fee issues that current ADU owners in mixed-income buildings in DC are facing and that have plagued IZ ownership programs in similar housing markets to DC (see http://hatdc.org/wordpress/wp-content/uploads/Learning-From-Experience-Affordable-Homeowners-in-Washington-DC-Oct-2012-.pdf). The IZ ordinance does not address this issue and DHCD officials have confirmed this. We have to be honest about these issues and not put more folks at risk of the same.

Use of FHA and DHCD's administration of the program are issues, but they are not the sole issues. ADU owners have said this publicly over and over. There is a huge difference between IZ rental and ownership units, and the costs and benefits. One City Council staff recently termed IZ ownership as "half ownership", which is a very good categorization. "Half ownership" may work for some, especially those without a growing family or those with higher incomes that have a higher education to fall back on as far as economic advancement (though many ADU owners in that category now wish they had never purchased). Why should DC put so many of its eggs as far as affordable homeownership into a program with some very large issues that doesn't allow families to access equity or achieve any sort of economic advancement? I believe DC can do better and that there are different tools at our disposal than permanently restricted ownership units. For rental, by all means. For ownership, I wouldn't dare purchase an IZ unit right now in this city.

by Sarah Scruggs on Feb 4, 2013 4:24 pm • linkreport

I've managed the sales and marketing of 500+ affordable and workforce for sale units within DC, MD and VA and have yet to see a program that works efficiently and as intended. There are a myriad of problems, which I can't fully address here, but when you get down to it you end up creating a very complicated asset that's extremely difficult to manage for all parties involved - the builder, the municipality and the homeowner. In particular, the homeowner often doesn't end up with the full benefits of homeownership, but bears all of the risks. Not to mention, affordable purchasers are often first time homebuyers and purchasing an asset that is significantly more complicated than the average home as they're subject to complicated ownership covenants and regulatory processes that are poorly designed and defined.

This includes MoCo's workforce housing program, which was envisioned as a complement to the MPDU program but was subsequently scrapped due to lack of demand and public support. In this case the units were extremely difficult to sell (2+ years for 48 units in King Farm) partially due to the FHA-related issues, but primarily due to consumers being turned off by the onerous regulation and ownership covenants imposed by the county. Many buyers felt that they could get a better value by moving farther out and avoiding the covenants - This is contradictory to the general perspective of Greater Greater Washington, but was very true for many consumers in this case.

Affordable and workforce housing is certainly beneficial and has a place in the marketplace, but it ends up being exceedingly complicated when imposed upon for-sale product. We'd be better served letting condo and home builders contribute to a trust fund to fund effective home buying programs, like HPAP, or subsidize affordable rentals across the region that can be maintained as affordable housing stock units for the duration of their useful life.

by vahoya on Feb 4, 2013 4:33 pm • linkreport

MoCo's "workforce" housing program suffers from pricing too close to market values. MoCo's MPDU (IZ) program targets 65% of area median income (AMI) while the "workforce" program targets 70 and 120% of area median income. DC's IZ program targets 50-80% AMI but mostly offers 80% AMI. While 80% AMI is high, and might be getting close to market rates, we see that other DC programs (ADUs & housing land trust) are selling in that price range with long term affordability resale restrictions. Thus this points to an administrative program rather than a pricing problem for IZ.

Shared appreciation - this is what leading affordable homeownership thinkers are documenting and refining as a way to balance to sustain the public's long term investment in keeping neighborhoods more affordable and providing the buyer with a financial benefit to homeownership (see: http://affordableownership.org/ & http://bit.ly/11L651i). For a program to work, we must offer a homeownership opportunity to someone who is not otherwise able to enter the market. This is a mainly price targeting question. Many moderate to low income buyers bought through a housing land trust or other permanent affordable homeownership program like IZ were able to graduate to the market unassisted.

As for complexity, having a group like CityFirst Homes manage for-sale IZ units would be ideal to provide ongoing support to the homeowner and at the time of resale, but once DHCD gets the staffing it needs to run the program, DC IZ should replicate the success of MoCo's program. Either way, a little more capacity through DHCD or CityFirst Homes should make this program work smoothly.

by Cheryl Cort on Feb 4, 2013 5:03 pm • linkreport

Why not push for more co-ops?

by Alex B. on Feb 4, 2013 5:06 pm • linkreport

@Sarah Scruggs - this has been an ongoing debate that many of us have had with Manna Inc. which provides affordable homeownership in DC. We certainly appreciate Manna's work to help moderate and low income residents become owners but Manna's belief about how to share appreciation is not the only way to balance the preservation of affordability while providing a good return to the homebuyer. IZ as a policy has made important improvements to the earlier ADUs produced by the city by assessing realistic condo fees and incorporating them into the overall cost to the buyer.

by Cheryl Cort on Feb 4, 2013 5:13 pm • linkreport

Cheryl - you're right, a lot of the issues with MoCo's workforce program were due to price point relative to market. That being said - the complexity of the program was still the major obstacle. We had 60%, 80% and 110% units there and even the 60% units didn't fly off the shelves.

There's a broader question here with regards to what you're trying to accomplish with the for sale side of the IZ program. Is the goal to create sustainable mixed income housing stock, wealth creation for the underprivileged or a mix of both? Many programs struggle with these questions and end up creating something overly complex to prevent a windfall to the homebuyer and preserve affordability. In my opinion the resulting programming doesn't even end up being for sale housing, but rather some weird hybridized market. The homes are encumbered, can only be sold through a managed system (as you're advocating), the buyer has to use a complex formula to calculate what they can sell the home for and only gets a share of the proceeds. What results is more like a forced savings plan with the buyer getting appreciation based on CPI, since that's what the homes appreciation is usually indexed to. On the other side of the coin, the buyer is responsible for all of the maintenance and risk - for example, what happens when condo fees triple after 15 years in a multifamily building when major repairs and maintenance is needed? This happens all the time and for someone on a fixed income could be devastating.

If your goal is simply to develop and maintain a long standing inventory of mixed income housing, you'd be better off doing it in the form of rentals, which you can better control, manage and preserve without overly burdening the intended user (no 3 day home buyer seminar classes, no risk upon resale, all the benefit). I'm not advocating you get rid of the IZ program - it'll work fine on the rental side as long as the economics still support development with this new burden. I'm just saying that in practice what you get on the for sale side never works as intended and isn't really even home-ownership after you have to jump through all the hoops that the programs require.

With regards to CityFirst I've never worked with them directly, but I sat through several pitches and always came away very skeptical. Honestly, it seemed like a terrible deal for homeowners - buyers would have to give up a significant share of appreciation in their homes in exchange for bridge financing to get from 80% to 100%. Buyers would be better served using HPAP and FHA to cover the gap financing and own their homes free and clear. Every developer that I worked with ultimately ended up passing on using the program because of that reason.

That being said, I totally agree with you - the city absolutely will need an agency to manage whatever program they end up with to make sure that the stock of affordable housing is protected and adequately maintained.

by vahoya on Feb 4, 2013 6:12 pm • linkreport

@vahoya: Thanks for your thoughtful comments. I think that especially in the post-2008 world, more people are considering the variety of ways people can be homeowners that is inbetween the binary of renter or fee simple. There are and should be many ways to provide affordable rental and ownership housing resources using different sources of subsidy. IZ and ADUs (ADUs are affordable units created through PUDs and public land dispositions in DC) should be part of the menu. Cornerstone Partnership (www.affordableownership.org) has put together a technical assistance program to support and replicate sustainable models of permanent affordable homeownership in the US. It's not easy but we are seeing good models from around the county which are optimizing preservation of affordable housing while providing benefits to individual owners.

by Cheryl Cort on Feb 4, 2013 9:57 pm • linkreport

I don't understand why an IZ condo unit can't be sold to a low-income provider who can rent it out.

by Tom Coumaris on Feb 4, 2013 11:50 pm • linkreport

@alexB, again financing. I think Bank of America is the only lender who would do a co-op loan right now -- or at least that what my mortage broker told me.

" I think that especially in the post-2008 world, more people are considering the variety of ways people can be homeowners that is inbetween the binary of renter or fee simple. T"

Maybe they shoudl consider this, but back in the real world that isn't happening. People with good credit and jobs can access the cheapest loans of the century. People with bad credit and/or spotty jobs are frozen out.

by charlie on Feb 5, 2013 9:24 am • linkreport

I think Bank of America is the only lender who would do a co-op loan right now -- or at least that what my mortage broker told me.

I should have been more clear: limited-equity co-ops. Or some kind of co-op system where a public entity controls condos and then administers them through a limited equity program, avoiding the hassles of mortgages.

by Alex B. on Feb 5, 2013 9:31 am • linkreport

Cheryl,

I appreciate your position. I'm simply trying to give the perspective of someone whose seen these programs implemented at the consumer level. Admittedly, there are plenty of success stories in for sale affordable housing, but my experience is that these programs often don't work and aren't as effective as intended.

For example, they can be rendered functionally obsolete by changes in lending practices - like in the case of FHA rule changes that occured recently and effectively put a stop on the sales of MPDUs due to the fact that the target buyer could no longer qualify for an end loan.

On it's face, the idea of for sale affordable housing seems like a no brainer, but in practice you end up with something that isn't as intended. I'm simply advocating that we stop trying to fit a square peg and a round hole and implement policy that better compliments the strucutre of the broader for sale housing industry rather than creating a complicated one-off hybrid. You'd be more effective with your dollars by supporting programs like HPAP that provide bridge financing at low or no interest rates, work relatively seamlessly within the existing system and guarantee a return of the funds to the city. This will provide a leg up to those looking for homeownership without unduly burdening them with an ownership structure that few, even seasoned homebuyers and industry veterans, fully understand.

I certainly don't have all the answers, but this is something that policy makers need to fully think through before creating a system that's unwieldy and hard to manage.

by vahoya on Feb 5, 2013 9:37 am • linkreport

I am an owner of an affordable dwelling unit in DC and there are additional major concerns with the program. Although the issues you noted may help the overall program, none of them would address the unfortunate situation of many ADU owners in DC. I definitely think it would be worth while to obtain input from participants in the program prior to reaching conclusions on how to solve the problems. I truly believe that the reason there are so many problems with the program is that decisions are often made by individuals who don't obtain input from the people who are directly affected. In theory, the idea of creating mixed-income condos is great! But in practice, as an ADU owner with condo fees that have risen more than 60% in 5 years, this program has placed me, and so many others in a situation where we are trapped and almost destined for foreclosure due to unrealistic restrictions on the sale and rental of our homes.

by Ebony W. on Feb 5, 2013 1:25 pm • linkreport

Since buying my 80% AMI unit based on a $40,000 income, my condo fees have gone up. That means that no one in my same income category will qualify to buy my unit. Additionally I don't have the $21,000 cash I would need to pay a realtor and do background checks and closing costs. AS I can't make a "profit" on my unit, I would have to pay the realtor. I don't have the money. I lost my job 2 weeks after I bought the place. Additionally my father has been very sick. Any normal property OWNER would move home to take care of their parents and get a job at their old company back home and rent their condo until such time as they could move back to their condo. Instead, I am being held prisoner in a condo that is impossible to sell. I am not allowed to rent it. The only thing being discussed currently in City Council is to maybe let ADU owners rent at their mortgage cost (which does not include, condo fees, upkeep and maintenance, rental damages, property taxes and payment to any rental companies). In other words, I would have to pay someone to live there. I would be better off getting foreclosed on. It is all the responsibilities of ownership without the benefit. It's worse than renting because I am policed and trapped in the unit. I don't want to flip it. I just want the same rights as normal owners when life circumstances occur. Some people have married, family size has increased, incomes have decreased. Something needs to be done. And the only one who knows how to fix it if City Council and the DHCD will let them is Manna. http://hatdc.org/wordpress/wp-content/uploads/Learning-From-Experience-Affordable-Homeowners-in-Washington-DC-Oct-2012-.pdf

by Unhappy owner on Feb 5, 2013 2:04 pm • linkreport

The last two posters are perfect examples of what I'm talking about. And I must say, I'm sorry that you all have had to deal with this reality.

I'm guessing that no one adequately explained the potential pitfalls that could result when you originally purchased? And I'm fairly certain that even if DC had a support structure or department to deal with all of the issues that you're presenting here you'd still feel that the ADU program is more trouble than it's worth as currently structured?

It's nearly impossible to create a for sale program structure that can adequately address all the potential issues that might crop up when you put in place strigent ownership controls. It's way too restrictive in practice. The best programs that I've seen out there are ones that put a note in place on the property that must be repaid upon sale, but don't overly limit the home buyers ability to sell the home or benefit from market appreciation - For example, the programs put in place at Capitol Quarter and Capitol Gateway both used such a structure. These types of programs prevent the purchaser from receiving a windfall, but gave them flexibility if they needed to move, upgrade, etc. The tradeoff is that you limit your ability to preserve the affordability of the units.

It's very hard to have it both ways without creating a program that traps the homeowner and eliminates any real benefit. Like I said, you'd be much better off with funding strong, well run home-buyer purchase assistance and financing programs and putting the rest of the money towards creating a substantial stock of affordable rental units that can be perserved for the long term.

The current programs seem great in concept, but don't really function for any of the parties - the city, the developer and most importantly the homebuyer.

by vahoya on Feb 5, 2013 2:22 pm • linkreport

I don't understand why an IZ condo unit can't be sold to a low-income provider who can rent it out.

Maybe I'm missing something, but how would that further the goal of promoting "housing for all" in DC? It seems like you might as well just pay dividends to anyone who has ever lived in DC.

by oboe on Feb 5, 2013 2:40 pm • linkreport

@vahoya "We'd be better served letting condo and home builders contribute to a trust fund to fund effective home buying programs, like HPAP, or subsidize affordable rentals across the region that can be maintained as affordable housing stock units for the duration of their useful life".

I completely disagree with this statement you made. This only leads to people being priced out of choice neighborhoods. You can fund HPAP all you want but if you have no affordability in Key neighborhoods, even with the funding assistance, people can only buy in the least desirable and less convenient part of the city.Or just move outside the city. I've read your comments and you seem to know what you're talking about a bit but you seem lack the vision and creativity that these type of programs require. Policy makers always miss the mark when it comes to things of this nature. That's why partnerships are important. Managing sales and marketing is different from Policy making and program design.

by Maxwell on Feb 5, 2013 4:32 pm • linkreport

I agree that it's important to have affordable housing in key neighborhoods which is why just a fund isn't good enough. But we also have to get over this idea that home ownership is the be-all and end-all. Long-term leases would probably as helpful as these part-ownerships where you can't really benefit from selling. Of course in a condo building who knows how you would manage that - I guess through a city agency.

by MLD on Feb 5, 2013 4:45 pm • linkreport

MLD,

I don't know how long term leases would work in DC. Most CLT's do that where you lease the land for a fee. If we look at what really drives people to purchase homes, Tax benefits, Stability, freedom, equity and appreciation. I ask all homeowners responding to this article to ask themselves, if I had been paying rent for the past 5 years, how much would I have lost by not having access to tax benefits, Improvements,equity, appreciation and stability. If the number you come up with is worth you been a homeowner then I ask you, why shouldn't other low income families have those benefits as well. I know the program is not perfect and needs tweaking from time to time but that's why you have council people and tasks forces and mayors and governors. Even if your resale windfall is restricted, you still come out ahead in the end. We have to curb our greed as a society~ Maxwell

by Maxwell on Feb 5, 2013 5:00 pm • linkreport

Tax benefits -- at the income levels we are talking about significant is tax ownership? I can see it helping a bit with DC income but not federal.

Improvements, equity: you are not getting them in IZ. as others have said, it is captured by the city.

appreciation: same.

stability: I am pretty sure GGW ran a report yesterday than ownership "stability" is a myth. And the builk of Iz is all rental anyway.

by charlie on Feb 5, 2013 5:11 pm • linkreport

Maxwell,

I completely understand your point regarding maintaining affordable housing options in key neighborhoods and agree with you that this is a worthwile policy goal. And you are correct, HPAP and similar programs will not be able to solve the issue of creating affordability in more expensive parts of the city.

The question begs though - should FOR SALE housing be the vehicle to solve this issue? In my experience, I've yet to see a for sale "program" that truly works for all stakeholders. In crafting the program, you're attempting to reverse market forces. What you end up with is not really for sale housing and doesn't work, least of all for the homeowners that you're trying to help. See the comments above as my backup...

The IZ units (even in condo buildings) should all be rentals so they can be effectively maintained, preserved and managed for the long term. That is the primary goal here - providing inclusionary housing across the city/region. For sale affordable housing is not the way to effectuate this reality. It's extremely difficult to implement and maintain over the long term, mainly because you are dealing with a disparate number of owners all with different circumstances that no program is flexible enough to accomodate.

As for my experience, I've worked on 8 projects, representing hundreds of affordable units in 4 jurisdictions. I was involved in these projects from predevelopment through sale and settlement and consulted closely with the agencies and developers to craft these programs. On the King Farm project I worked hand in hand with DHCA and HOC for 2 years to adapt that program so the units were actually saleable. It's easy to dismiss this experience as trivial and beneath policymaking, but my perspective provides important feedback. If the program doesn't work at the point of sale, it isn't going to work going forward for the owner. You can't create these programs in a vacuum without listening to the needs of the intended buyers, which is what happens more often than not.

by vahoya on Feb 5, 2013 5:33 pm • linkreport

In the District high home prices and the continuing foreclosure crisis exclude many low‐ and moderate‐income families from homeownership, threatening community stability, school systems, and urban economic health. The challenge is worsening: as the gap between incomes and housing prices grows, the amount of subsidy required to fill the gap spirals upward. This serious problem poses a no-win choice for the city between continuously raising the subsidy or leaving out and losing working families. In response, working with DC government, City First Enterprises – developed a better approach, launching City First Homes (CFHomes) to coordinate a replicable, large‐scale workforce housing solution that responds to the challenge of gentrification in the District.

IZ is an important and kindred program designed to preserve affordability, especially in areas that lower income individuals are increasingly priced out. Launching a new program is not simple. We saw @vahoya’s comments about our earliest days when we still developing the concept and want you to know that CFHomes has refined and advanced the program which we are glad to say has been very successful at creating permanently affordable homes, finding homebuyers, and providing post purchase support to help ensure ongoing family success.

In fact, we were recently honored with a federal Social Innovation Fund Award, an initiative of President Obama’s to identify and support the nation’s most innovative and high impact nonprofits. CFHomes was one of only 10 affordable homeownership organizations in the country to win this award.

The post purchase stewardship is essential. Studies from 2008 to 2011 consistently show that programs using the post purchase support stewardship model have default and foreclosure rates that are 1/8th the national rates. This means that while families do share a bit of the upside to keep the home affordable for the next generation, they are also significantly protected from the downside risks of homeownership. Other studies show, 70% of shared equity homebuyers who receive stewardship support go on to buy their next home on the market. @vahoya is right shared equity ownership is not the same as traditional ownership, but the model does show that families who would otherwise only be able to rent are able use shared equity ownership to access the conventional market.

City First Homes has helped many DC residents become homeowners and access the stabilizing and wealth building benefits of homeownership that they otherwise would not have been able to attain. We encourage homebuyers to weigh the cost and benefits of all the resources that are available.

When you weigh the benefits of shared equity homeownership to the very high cost faced by DC renters, City First Homes is a financially smart solution for a number of homebuyers.

@vahoya also mentioned other good affordable housing programs: FHA and HPAP.

Compared to FHA, City First Homes has a lower upfront cost. We require that the homebuyer contribute 2% of the purchase price either as down payment, closing costs or some combination of the two. Because our purchase assistance is offered upfront up, the homebuyer’s loan amount is smaller and this reduces their monthly cost. In addition, homebuyers typically save several hundred dollars a month as private mortgage insurance is not necessary .

A loan from HPAP is a wonderful option for many homebuyers but there are several restrictions that CFHomes does not require. For example in order to use HPAP, a purchaser must be first-time homebuyers and a current DC resident to be considered competitive. There is also no minimum amount of time you must live in a City First Homes property to avoid recapture of funds. Finally, the limited amount of subsidy available through HPAP to moderate-income households is a small percentage of actual cost. HPAP is a wonderful program for those who qualify, but does not help to preserve home affordability for DC tax payers.

Neither FHA nor HPAP comes with the post purchase stewardship that CFHomes offers.

Having gained experience in selling (and re-selling) permanently affordable homes on a model similar to IZ, we know how challenging it can be to get something like this off the ground, especially with limited dedicated staffing. We are glad to support the city’s IZ program in any way we can, to help ensure it is a success that works with the market and for low and moderate income homebuyers. We recognize that DHCD staff are doing remarkable work with limited resources.

by Stephen Seed at City First Homes on Feb 5, 2013 5:49 pm • linkreport

One other point - Given the type of units that IZ is producing in DC, mostly studios, 1BRs and 1BR/Dens, should we really be pushing people into homeownership anyway? Many of the financial benefits of homeownership don't start to kick in until you've owned the home for 5+ years. This product type isn't designed to serve people for the long term (seniors excluded). People get married, have families - their lives change and this product isn't designed to change with them.

I can at least understand Montgomery County's MPDU program because a lot of their stock is large enough to accomodate families who can grow with the product. That's not the going to be the case in DC.

You're setting people up for failure - it's already happening. They're going to get into a unit and find that they need to move in 5 years when something in their life changes. Then they're going to be stuck in place (see Richard Florida for the potential pitfalls there) because they're in a product that's highly illiquid. On top of that, they will be saddled with heavy transaction costs that they won't be able to recuperate because the limited appreciation that they receive won't be enought to fully offset it.

This is the practical reality that needs to be considered and could all be avoided if you stuck with affordable rental which gives people the benefits that the policy-maker wants and flexibility that the intended occupant needs.

by vahoya on Feb 5, 2013 6:18 pm • linkreport

Vahoya,

Thanks for sharing your experience and background with us. So, how have you tried to help DHCD or the DC govt solve this complicated issue except from comments on blogs? I do appreciate you insight though. ~Maxwell

by Maxwell on Feb 5, 2013 9:56 pm • linkreport

You mean besides spending the better part of a decade advising clients on this very issue?

And regardless, didn't you know that random comments on a niche policy blog are the best way to get anything done these days?

by vahoya on Feb 5, 2013 10:56 pm • linkreport

@vahoya Would love to pick your brain briefly on this issue. Please email me at sscruggs@mannadc.org

by Sarah Scruggs on Feb 8, 2013 6:03 pm • linkreport

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