Greater Greater Washington

Inclusionary Zoning making slow progress

After a rocky start, DC's new affordable housing program, Inclusionary Zoning (IZ), is getting on track. It's one of many policies needed to address DC's growing affordability gap. In many affluent parts of town, it may be the only new affordable housing available.


Photo by dan reed! on Flickr.

IZ requires developers to set aside 8 to 10% of new housing in projects with more than 10 units for households making between 50 and 80% of the area median income (AMI), or incomes of $42,778 and $69,530 for a household of two. One-bedroom apartments in the program rent for between $1,006 and $1,610 a month, while similar condos sell for between $116,600 and $220,100. It's similar to Montgomery County's Moderately Priced Dwelling Unit program, which began in 1974.

Of 28 available units, one for-sale unit had been sold and 14 rentals had leased by July. According to the Office of Planning, another 262 IZ units are in the pipeline as part of 24 different projects, and more than 1,000 IZ units may enter the market in coming years.

How it works

Inclusionary Zoning, a national best practice, uses a zoning bonus to pay for additional affordable units in new residential developments. The subsidy for the affordable units is created through a density bonus, allowing more units than could otherwise be built there. This compensates the developer while saving the city money.

IZ also integrates below-market-rate homes into a larger, market-rate development as a matter of course. Mixed-income housing has long been recognized as having many advantages over exclusively affordable developments. Mixed-income housing in high-demand areas offer lower-income residents access to a higher level of services and amenities than is usually available in areas where affordable housing is concentrated.

It offers an important tool for creating and sustaining economically integrated neighborhoods. It helps ensure some level of diversity of housing choices in areas where demand is strong and growing, such as close to Metro stations, major bus or streetcar corridors, areas with good public schools, or close to downtown DC. The policy is designed to create below-market rate units wherever new housing is being built and keeps them affordable for the life of the building.

Unlike many other affordable housing programs, where low income housing tends to cluster in high poverty areas, IZ units around the country are predominately located in low-poverty neighborhoods. In DC's Ward 8, home to many low-income residents, as much as 90% of the housing in some census tracts is subsidized. But a 2012 study of Montgomery County demonstrates that IZ enables children from low-income families to live in more affluent neighborhoods and have access to high-performing schools.

Barriers to implementation

For all its benefits, DC has struggled to implement IZ since units began coming onto the market two years ago. The program's rigid implementation regulations made it cumbersome for the Department of Housing and Community Development (DHCD) to administer, and the program was severely understaffed as well. In addition, more restrictive Federal Housing Administration (FHA) lending standards made it next to impossible for buyers to obtain mortgages for affordable housing. The first two units to come on the market didn't sell after sitting on the market, and the developer responded by suing the city.

But today, the city is making progress. DC has changed the standard covenant in mortgages for IZ units that release any price constraints in the event of a foreclosure, as required by the FHA. DHCD is considering measures to recoup the public subsidy in the unit that would be consistent with FHA rules.

The city is also making the process for marketing and awarding IZ units to buyers and renters more flexible. Today, DHCD awards units through a lottery, which the agency has struggled to implement, finding it to be a time-consuming process, and has failed to build a sufficient list of eligible and interested applicants. Under the new regulations, developers can use the lottery or create their own DHCD-approved marketing plan to find and select applicants for IZ units.

Finally, the city is moving to address the program's staffing issues by getting additional assistance from nonprofits. DHCD plans to add capacity from experienced nonprofits to give low-income home buyers more help during the buying or renting process as well as long-term stewardship of the units. DHCD hopes to have new nonprofit assistance in place by October 1.

The construction pipeline is swelling with residential projects subject to IZ requirements, and IZ units are starting to enter the market in large numbers. We have proof that private residential projects with IZ units can get financed, and that IZ units can be leased and sold. While the program still faces many challenges, we can learn how to make it perform better and deliver more mixed-income housing opportunities throughout the city.

Looking ahead

Like other IZ programs across the country, DC's faces many challenges. Montgomery County's nearly 40 years of experience shows that programs need adjusting and refining over time. One of the key concerns for future action in DC is getting more deeply affordable housing.

In the current pipeline, just 15% of IZ units will be set aside for households making less than 50% of AMI, far short of the 50% housing advocates had originally hoped for. Once the program is running smoothly, the Zoning Commission should consider ways to create more "very affordable" units.

Some of the program's challenges don't have easy fixes, but DC can find reasonable solutions. Addressing these challenges will take the hard work and good will of activists, developers, and public officials. Given the benefits of mixed income housing in walkable, bikeable neighborhoods close to transit, and the growing need for more affordable housing choices, making IZ in DC work is worth the effort.

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. 

Comments

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Interesting article, but I think the headline is misleading. How can we tell if IZ is a success without the numbers of unsold and unleased IZ units?

As noted above, most IZ units were sitting empty the last time DCHD released numbers. If that trend continues then IZ is making the housing situations worse by removing units from the market.

by Michael Hamilton on Sep 24, 2013 10:28 am • linkreport

Condos as IZ make little sense, and even less sense with the new foreclosures rules.

(it's also something that proponents of the no RPP buildings should consider -- if the owner goes into bankruptcy I'm not sure the restrictions would apply)

However it does seem more of the IZ units in dc are going rental, but they aren't even popular then.

How does IZ do income verification?

by charlie on Sep 24, 2013 11:08 am • linkreport

See paragraph 3: "Of 28 available units, one for-sale unit had been sold and 14 rentals had leased by July." All IZ units are additional units that would not have been built but for a density bonus - allowing more affordable & market rate units to be built than otherwise allowed by zoning. IZ increases the overall amount of housing being built, thus will help increase supply and improved affordability.

by Cheryl Cort on Sep 24, 2013 11:13 am • linkreport

I still think the headline is misleading for using "slow progress". The numbers on their face are more "no progress" than anything resembling progress -- slow or not. My two cents. This is a good intention bill yielding almost no real world results in DC. Sound familiar? Look across all the Districts low and moderate income housing efforts, policies, and programs and let me know when you find something you think is actually working (for the intended beneficiaries as opposed to developers and others who have muscle with the elected and appointed local officials).

by Tom M on Sep 24, 2013 11:37 am • linkreport

IZ tracks the market, so most of the production has been rental. The slow start of IZ where IZ units havent sold or leased immediately is mostly due to the barriers of FHA lending requirements (now fixed), cumbersome regulations for a lottery (but regs are being revised to allow development-based selection process), and understaffing (soon nonprofits will be brought in to do more). Once these issues are smoothed out, lease up & sales will move quicker.

Income verification is done through the Dept. of Housing or by an authorized nonprofit. The Dept. of Housing has to do these kinds of eligibility verifications for many federal or local programs.

by Cheryl Cort on Sep 24, 2013 11:48 am • linkreport

Thanks for this article and update on the program, Cheryl. I definitely agree that DC has made steps forward in changing foreclosure clauses on IZ units and that DC needs to tackle the staffing/administrative issues connected with the IZ program. Also, on the ownership side of the program, the city needs to rethink a lot, and there are good ideas out there (see recent report on lessons on IZ from comparable cities: http://hatdc.org/?p=1205).

I would like to caution on comparing DC to Montgomery County, including using the conclusions of the 2012 study of Montgomery County that demonstrates that IZ enables children from low-income families to live in more affluent neighborhoods and have access to high-performing schools. Currently, the size of IZ units that are being created are dependent upon what a developer is building, and in DC that is mostly studios and one-bedrooms, with fewer two-bedrooms. These size units are much smaller than the housing stock in Montogomery County and are not very conducive to families or couples wanting to have children. What we've seen with ADU owners who were integrated into market-rate condo buildings in the 2000s (similar to IZ) is that families are growing out of their units and affordable options for them are in poorer parts of the city or outside of the District in Prince George’s County and elsewhere. In addition to owners being priced out of their units by rising condo fees, they also have the issue of the small amount they make on the resale of their unit and not having access to DC’s downpayment assistance program again. In essence, this means they will not be able to stay in the part of the city they are currently raising their children in...again, there are solutions out there (some are detailed in the previously mentioned report: http://hatdc.org/?p=1205), but we need to move fast and creatively in order to not perpetuate horrible situations that current ADU owners in DC and other IZ owners in high-priced cities have experienced.

by Sarah Scruggs on Sep 24, 2013 11:50 am • linkreport

I'm slightly surprised at some of the skeptical comments on here. IZ is absolutely essential for creating a cohesive District with social diversity and equal opportunity.

I think it's great that people are doing the hard work of figuring out all the cumbersome red tape to enable the program to move forwards. I wish them well in making the District a place that works for all sections of society. I would like to see the program expanded and given more resources to ensure it succeeds.

by renegade09 on Sep 24, 2013 12:06 pm • linkreport

Fortunately, the city has learned from its earlier mistakes with condo fees in some of the public land developments that didnt account for them very well. Now IZ and all public land developments include the condo fee cost in the overall cost for the buyer.

As for the current market production of housing - we are seeing smaller units meeting the big demand from smaller households. As the needs of households change, they'll need different kinds of housing. The cost savings from renting an IZ unit, or the shared appreciation from owning an IZ unit can help people trade up into the market as their needs change. Also, let's remember that IZ is one program, but we need and have many other housing programs to help different kinds of households. IZ takes advantage of a strong market.

by Cheryl Cort on Sep 24, 2013 12:07 pm • linkreport

@renegade09 - thanks for your comment. We'll need continued engagement from thoughtful residents to ensure that this program meets its potential.

by Cheryl Cort on Sep 24, 2013 12:09 pm • linkreport

There's still a lot of wiggle room in IZ and little oversight. Let's say a large project is being planned, and the configuration of the site means that certain units (near the loading dock or with dark exterior views because they face a nearby wall) will fetch cheaper selling prices or rents. With bonus density for IZ, the developer can build more higher margin units and yet designate as "affordable"/IZ the lower margin units that it would have been stuck with anyway. I had once thought that IZ required that the affordable units not all be clustered in the less-desirable parts of the site, but that's not the reality.

by Jasper on Sep 24, 2013 12:15 pm • linkreport

@Cheryl Cort: Including the condo fee cost in the overall cost for the buyer up front does not address condo fee escalation in the future, which is a problem in other high-priced markets like Boston and San Francisco. We need to deal with this issue or owners will continue to be priced out.

And as far as smaller households, I agree that statistics show there are an increasing number of smaller households in DC. However, the statistics also show that 3,000 people leave DC each month; I would be curious as to the size of those households. Are we losing families, and not just because of the price and size of units in DC but a whole other host of factors (schools, etc.)?

And as far as IZ owners (not talking about IZ renters in this case) trading up into the market, particularly in the same neighborhood with access to better schools, how are they going to do that, particularly those making below 50% AMI? The amount you make off of the sale of an IZ unit, once you take out closing and sales costs, is not enough to venture into the market. And if someone already used an HPAP loan to purchase their IZ unit, they won't have access to that loan again for another 3 years...we really need to face these issues head on and look into available solutions.

by Sarah Scruggs on Sep 24, 2013 12:20 pm • linkreport

@Jasper - IZ requires IZ units to be not overly concentrated in the development. If developers were already building these units we wouldnt need a law. But they are not.

@Sarah Scruggs: as DC continues to gain rather than lose population (only after 2000 did DC have a net gain), strengthening all tools that create and sustain affordable housing serving different kinds of households will be critical to the well-being of the city. For homeownership, for those who dont think they can stay about 5 years, they might consider renting instead. It's possible that condo fees could be a problem in the long term. This is something we need to look to see how we might address the issue beyond the current approach to head it off. Fortunately, we have good nonprofits like City First Homes (www.cfhomes.org), a housing land trust, that is working to ensure that affordable homeownership is a viable long term option for DC residents, including in mixed-income condo buildings.

by Cheryl Cort on Sep 24, 2013 1:24 pm • linkreport

The fact that the city does not properly staff their housing office to properly manage this program says a lot about the problems. The politicians always promise affordable housing, but have not interest in backing up their words with action and commitment. They don't care.

The ADU program we came into, we found out later, was a mess. Every ADU building had different sets of rules and regulations making it nearly impossible for the city to implement and sustain.

I am not sure why DC spends decades figuring out things. They are doing the exact same thing with the bike lanes. It has been done for centuries in other cities. Go learn from other cities' mistakes instead of trying to reinventing the wheel.

The rules and regulations are way to restrictive preventing owners from being able to move out, rent their place, or even sell to get a leg up on their next property. In a way, it ensures the poor will stay poor, while allowing politicians to include your property as part of ALL the 'affordable' housing they are so generously providing to citizens.

by ADU owner on Sep 24, 2013 1:25 pm • linkreport

@ADU owner - starting in the early 2000s, DC generated affordable dwelling units (ADUs) with no real plan or program and made a number of mistakes. The city recognizes that now and is trying to get a handle on the ADUs that pre-date the IZ regulations that standardized the approach. The city even has a remediation program to help owners who find themselves owning "unaffordable ADUs". See: http://dhcd.dc.gov/node/619912. I agree the city should have acted much sooner, but it is making an effort to fix these past mistakes now. I also agree that elected officials often want something for nothing, which is why insufficient staffing was provided for management & stewardship of ADUs and IZ units. However, we are hopeful that the planned new capacity for homeownership counseling & ongoing assistance by nonprofits will address these strains on the programs so everyone has a better experience.

by Cheryl Cort on Sep 24, 2013 1:47 pm • linkreport

The IZ program is producing (and will produce) shockingly few units but it does allow elected officials to get off the hook by having a "Golly gee, feel good" program to point to. When the multi-family market cools - as it surely will - the attempted shifting of the affordable housing burden to multi-family residential developers without a meaningful economic offset will render most if not all IZ-burdened projects infeasible. It's actually starting to happen already. It is possible to be in favor of a major affordable housing program in the District but remain clear-eyed about the IZ program and its unsustainable economic model.

by Catfish on Sep 24, 2013 1:49 pm • linkreport

You could probably check their website and then contact the people listed in the "about" page and get a direct answer. Or read their annual report posted in the same section.

by drumz on Sep 24, 2013 1:54 pm • linkreport

CSG has a fiscal sponsorship with the Piedmon Environmental Council.

Should they be doing this -- no. They are large enough and have enough paid staff to handle the minimal paperwork. Why they won't file for a their own c3 status is a mystery.

Fiscal sponorship is good for small temporary projects. Or if you have something to hide. Tell Willy I say hi!

by charlie on Sep 24, 2013 1:57 pm • linkreport

Wait. Is that picture with this post of the Babe's site development that CfSG supported? Oh no, that's right. Douglas Development took the tax cut to the bank and hasn't announced or committed to starting construction. Thanks for your services. Does this benefit the neighborhood or the developer? Which side of that equation is Coalition for Smarter Growth actually on? BTW does CfSG take donations from developers or related LLCs?

by Tom M on Sep 24, 2013 1:58 pm • linkreport

"The Coalition for Smarter Growth is grateful to its fiscal agent, the Piedmont Environmental Council. Piedmont Environmental Council is a 501(c)(3) nonprofit organization based in Warrenton, Virginia, provides accounting, tax reporting, and human resources support to CSG, and segregates contributions made to CSG. To learn more about the financials of the Piedmont Environmental Council, visit their finances page. CSG’s financial supporters include foundations, individuals, and corporations."

This has been made clear over and over.

There is nothing wrong with constantly deleting troll comments.

by AWalkerInTheCity on Sep 24, 2013 2:00 pm • linkreport

@ AWalkerInTheCity: What is NOT clear is whether CfSG has a financial interest in the issues or decisions it advocates. Are those corporate contributions including or excluding financial donations (payments) from developers or related interests and LLCs? I am not a troll.

by Tom M on Sep 24, 2013 2:02 pm • linkreport

"Douglas Development took the tax cut to the bank and hasn't announced or committed to starting construction."

Do you promise, on your mother's grave, to donate $100 to PEC IF Douglas starts construction in the next 12 months?

by AWalkerInTheCity on Sep 24, 2013 2:02 pm • linkreport

Someone who insists on posting something over and over again inviting deletion is a troll. This blog is private property, and has the right to establish terms of use for comments, and to delete what they wish to (and I presume in their email to you they told you the reason for deletion). Doing battle with mods is trolling whatever your reason is.

It certainly does not earn respect for your position.

by AWalkerInTheCity on Sep 24, 2013 2:04 pm • linkreport

Hi GGW!

Comments on CSG's non-profit status have occasionally come up on other posts, and as we have said there, we are covered under the 501c3 status of our fiscal agent, the Piedmont Environmental Council.

While I don't find Tom's question directly relevant to Cheryl's post on IZ here, since it's been raised, you can find more information as drumz pointed out on our website, as well as on the PEC website. I'm our Communications Manager, not our financial person, but anyone who has other questions is always welcome to call our Managing Director, Alex, at (202) 675-0016 or alex@smartergrowth.net. Thanks!

by Aimee Custis on Sep 24, 2013 2:06 pm • linkreport

Yes, constantly asserting something that is off topic to what's being discussed even after having the comment deleted is by definition, trolling. The site asks that any issue with the comment policy be worked out directly with the site staff (info@ggw.org) rather than the commments.

Speculating on conflicts of interests or financial entanglements of a particular group to a particular project without any evidence on a story about an affordable housing strategy isn't really constructive to either the issue you care about or the issue actually being discussed.

by drumz on Sep 24, 2013 2:06 pm • linkreport

The "solution" is pretty simple. DC needs to create an integrated marketing and financing operation for affordable units that handles all the units across properties, rather than expecting each developer to deal with it. I've been meaning to interview David Mayhood in an attempt to develop the concept. I talked to him a few months ago about it, and he thought it was an interesting solution.

David Mayhood Companies is probably the leader in the DMV wrt handling condo sales for medium and large developers.

From the standpoint of my writing/theories, it's an illustration of how to do "action planning," or integrating program delivery with policy and planning goals.

by Richard Layman on Sep 24, 2013 2:19 pm • linkreport

To date, IZ has served the interests of developers. What has it yielded for people who need affordable housing? One unit sold and 14 units leased. The eligibility limit and the prices are troubling for those with real need. At $42k/year (half earn much less in this region) and rent at over $1,000/month, that accounts for just below half of all take home income after taxes, social, cost of health care, etc.

by Tom M on Sep 24, 2013 2:26 pm • linkreport

So developers are to blame for too-rigid rules developed by city government?

by drumz on Sep 24, 2013 2:35 pm • linkreport

"It helps ensure some level of diversity of housing choices in areas where demand is strong and growing, such as close to Metro stations, major bus or streetcar corridors; areas with good public schools, or close to downtown DC."

Again, is this a good thing? it seems as if we need investments in area that aren't popular -- and bring new housing there -- rather than trying to maintain "economic diversity" in popular areas.

by charlie on Sep 24, 2013 2:37 pm • linkreport

There are only 28 units available so far. If the same percentage of those in the pipeline are occupied that would be another 131 units. But Ms Cort has explained the barriers to occupation and how they are being dealth with.

by AWalkerInTheCity on Sep 24, 2013 2:37 pm • linkreport

"At $42k/year (half earn much less in this region) and rent at over $1,000/month, that accounts for just below half of all take home income after taxes, social, cost of health care, etc. "

better someone earning 40k a year should pay 1000 a month for a basement, or for a unit in aged complex far from transit? I mean do you have any data on what people earning 40k typically DO pay in DC and the inner suburbs?

by AWalkerInTheCity on Sep 24, 2013 2:39 pm • linkreport

DC would be smart to learn from some of the problems in Montgomery County's program for renters.

With each property setting its own rules for how to advertise the availability of MPDUs it is very difficult for anyone who both (a) has limited availability during regular work hours and (b) is not internet and social media savvy to end up in one. My family was able to approved for two different MPDUs in new buildings primarily due to my being on both building's FB feeds and spending a lot of time calling the sales staff of the one we ended up in. A centralized system with some form of seniority would be more just/fair.

BTW, try getting a straight answer from some DTSS buildings about availability and getting on waiting or email lists; it is an exercise in futility.

by eitan on Sep 24, 2013 2:41 pm • linkreport

@ Drumz -- As to developer influence on DC city government, if you are willfully not looking at what is right in front of you, i'm sure you won't see it.

by Tom M on Sep 24, 2013 2:42 pm • linkreport

@CC,

The only issue is that i get nervous when NGOs and lobbyist get their hands in policy and other aspects that should be handled by government. For politicians and government employees, it is easy: let someone else 'help' or do your work for you. But it can cause special interest to get a foot hold and influence laws, that we may not know the consequences for decades. Didn't Luchs do this with his law firm? Lobbyists do this everyday with the federal government and we can see how it is harming our country.

Government should do its job and act as a neutral agent between the developer and the low income family who needs housing. IMHO, the party that in many case looses is that family in need.

by ADU owner on Sep 24, 2013 2:47 pm • linkreport

@ Richard Layman - Yes your solution is simple and would work. There is one problem, however. Developers would oppose it and have the power to squash it. That is another example of how developers are benefiting. The benefits to lower income people who need housing is far less clear.

by Tom M on Sep 24, 2013 2:48 pm • linkreport

Surely it'd be easier to use that influence to just get the extra density and sell the units for what they're worth rather than have a government agency create bizarre rules that really only don't involve the developer once the project is approved.

The theory that developers want to make IZ ineffective for some as yet, undefined purpose (besides: "influence") doesn't really line up with Occam's Razor.

by drumz on Sep 24, 2013 2:50 pm • linkreport

@Richard Layman: It's possible that a group like City First Homes, a housing land trust, could do just as us suggest - market and steward all the affordable homeownership units created through IZ, Zoning Commission actions in PUDs, or ADUs created in public land dispositions. This is what the City of Burlington VT did with its IZ program by having a community land trust manage the units (Champlain Housing Trust).

by Cheryl Cort on Sep 24, 2013 2:50 pm • linkreport

IZ also integrates below-market-rate homes into a larger, market-rate development as a matter of course. Mixed-income housing has long been recognized as having many advantages over exclusively affordable developments. The largest development on Capitol Hill, the Hine Jr. High project, segregates most of the affordable units in a separate building, in order to assure that residents in affordable units cannot use the amenities in the rest of the development.

The policy is designed to create below-market rate units wherever new housing is being built and keeps them affordable for the life of the building. The affordable units in the Hine development revert to market rate in a generation, far short of "the life of the building."

The Hine developer was exempted from both the inclusionary elements of IZ (segregating most of the affordable units) and the requirement that the units remain affordable for the life of the building.

This author, Cheryl Cort, testified in favor of both exemptions. Why? Who benefited from those exemptions from the law?

by Trulee Pist on Sep 24, 2013 3:13 pm • linkreport

@eitan

I can sympathize. Earlier this year, I only tried to take a tour of some MPDU units at a couple of the new buildings being built in downtown Silver Spring that didn't have waitlists yet. One building never got back to me. The other two asked me to basically commit to a unit, do a credit check and put down a deposit before even seeing one! I gave up when I saw the rates: $1000-1100 for a studio (compared to maybe $1600-1700 for market-rate). I ended up renting a house with roommates instead, which was dramatically cheaper.

As for the photo: it's of the CityVista development at 5th & K Streets. I took the picture and, as the editor, I selected it because it's an example of new construction in DC, albeit one that doesn't have any IZ units.

by dan reed! on Sep 24, 2013 3:20 pm • linkreport

The zoning code should exempt affordable units from mandatory parking minimum requirements. This would make building affordable units more attractive to developers and encourage more people to use transit.

by Steve on Sep 24, 2013 3:34 pm • linkreport

@Jasper

Putting these units in less desirable locations within the building seems more than reasonable to me. The idea is to have these units in the same building/location as market rate, but not equal. IZ units should have access to amenities/schools that market rate has, but they absolutely should not get a view of the river/capital/whatever, imo.

I think the purchase option is terrific, especially if there is downpayment assistance available. These are people who otherwise would have no chance of purchasing within DC, and this allows them to buy a home, put down roots, and start to gain some equity. Homeownership for low-income people in DC shouldn't strictly be from your presence here since 1991, or from the house passing on from your grandmother etc.

by Kyle-w on Sep 24, 2013 4:08 pm • linkreport

There also seems to be an issue as to whether "micro-units" qualify as affordable housing. From what happened with the JBG proposal at 9th and Florida it seems DC doesn't like micro's being used as affordable.

At least for single people, a micro unit should be able to qualify as an affordable unit. While we should have a policy of inclusionary housing in all neighborhoods for many income levels, I don't know if that should extend to requiring more space than a single can afford (providing it meets code). And the nice thing is micro units are permanently affordable.

And providing free off-street parking to affordable units happens way too much in DC.

by Tom Coumaris on Sep 24, 2013 4:11 pm • linkreport

@Trulee - The Hine school public land disposition project is a great example of mixed income housing development in the heart of a highly desirable neighborhood. The development consists of 2 buildings - one market rate with 12 IZ-equivalent units (at 80% AMI), and one that is all affordable using low income housing tax credits ("LIHTC"). This building includes 5 deeply affordable units (30% AMI), along with 29 60% AMI. It's common for LIHTC deals to be 100% affordable due to the complexity of mixed income deals. Using LIHTC is a good way to leverage the discounted (public) land value to get more affordable units on site. Getting this many affordable units amid such an amenity-rich environment is a big benefit. The Hine school public land disposition is helping to build a mixed income community even if both buildings do not have the same range of mixed income units. While I know you are concerned about whether residents in the affordable building have access to the other building's extra fancy amenities, I think this is not such a problem. The real amenity is living in a nice new apartment building at Eastern Market - next to a pool/recreation center, Metro station, library, decent schools, historic market, etc.

While the term "exempt" is used for the IZ equivalent compliance for this PUD, it's misleading because the project will deliver benefits in the short & long term that are better than what IZ would deliver if this project were not a public land or Planned Unit Development (PUD) deal. For the market rate building, the IZ equivalent units (12 @ 80% AMI) will exist for the life of the building. For the affordable building, the required IZ set aside will apply for the life of the building to that subset of units once the terms of the LIHTC have expired.

by Cheryl Cort on Sep 24, 2013 4:13 pm • linkreport

@Kyle-w The issue with IZ ownership units currently are the economics and the typical smaller size of units. With permanent resale restrictions, you're not gonna build much equity (and you won't have access to equity while you're living there) and currently the District doesn't have a way to control escalating condo fees that price out IZ owners. And if you use downpayment assistance to purchase the IZ unit, if you resell you won't have access to that assistance again for another three years. So, what you make on the resale could be less than the downpayment assistance you used to purchase the IZ unit to begin with. And my question is, where does that person/family move to if they haven't had a huge bump in income and savings (which is definitely not usually the case for 50%-60 AMI, first-time homebuyer - we have worked with this population at Manna for the last 30 years - www.mannadc.org)? Do they buy another IZ unit? Do they go back to renting, an affordable/IZ rental? And with many smaller IZ units that people can grow out of, this is not an issue to take lightly.

by Sarah Scruggs on Sep 24, 2013 4:21 pm • linkreport

@ADU owner: I think there's no one right model, but we have evidence of not great performance by the city, and some great examples of a jurisdiction working with a nonprofits to work more closely with homeowners. Check out the detailed assessment done by the Champlain Housing Trust that is the city of Burlington's community land trust and steward of IZ units created by the city's ordinance. http://www.champlainhousingtrust.org/_literature_107814/Lands_In_Trust_Homes_That_Last

by Cheryl Cort on Sep 24, 2013 4:27 pm • linkreport

How can people say that IZ is a bad program? Yes, it has some operational issues at the moment but they are exploring solutions to remedy that. Be it a non profit or by other means. I think what people fail to understand is that this is not a program for everyone,depending on what your need is.

@Sarah Scruggs: you say that the economics and the small size of units don't work. Wouldn't that be the same with a market rate unit? If you need a single family home( affordable or market)and all that's available is condo's, then you wont buy it. If you do end up buying a condo(affordable or market) then the condo fee would be something you have to deal with either way. I do agree the the higher the fees get the more unaffordable the monthly cost of living there gets. By the way, from what I've seen,some of these units are pretty big and priced way below market compared to other units in the same building. In the case of 2910 Georgia Ave,the IZ units (2b/2bth) are priced at $145,200, the market rate units with the same sqft(2bd/2bth) are selling for $350,000. That's a $204,800 price reduction, and your saying the economics don't work? Plus, how don't you build equity? If you live there for 5 - 7 yrs and decide to sell, what you've saved from not paying high rent and paying down a a mortgage should be enough given the fact that you didn't have to put down much up from in the first place. I believe that the IZ issue and the condo fee issues should be two separate issues instead of grouping everything together to paint a nightmare picture.That's fluffing. IZ also creates lifetime affordable units in areas where nonprofits or other organizations might not be able to create affordable units without deeper subsidies in the first place. As you can see, gentrification is in overdrive in dc and the brakes on the train are jammed.

@ADU owner: I agree with you. The staffing issue with the DC Govt is an issue. They just don't seem to have the capacity. Not been able to assist ADU owners review their restrictions and help with other issues is a serious problem but they are trying to work on it. Plus, ADU's have different restrictions depending on which DC Agency created them. If a nonprofit can help resolve some of these issues, I don't think there will be any politics involved.

You all have to give this program a chance to grow and come up with actionable solutions instead of never ending criticism. Remember, when elephants fight, its the grass that gets hurt.

~Kevin

by Kevin on Sep 25, 2013 6:00 am • linkreport

I agree that good organizations like MANA can do great things to help DC, but it only takes one bad apple to spoil it for the rest. I think that if this is a program that DC wants to push, then they should fully support it and get proper staffing. Seeing how much we pay in taxes every year, and how much DC rakes in, and how much the surpluses have been, I REALLY THINK that we can afford a dozen employees to staff this office. I just don't like outside influence in government; though of course, it is better when you can at least see it. Most influence has been under the table and back room deals struck between city officials and developers for way too long.

by ADU owner on Sep 25, 2013 6:49 am • linkreport

@ADU Owner: MANNA doesn't support IZ or long term affordability housing in general which this program was designed to create. So how are they going to help? Ponder this thought, if a non profit has the experience and knowledge to make IZ work and be successful, you're saying the DC Govt shouldn't hire them to solve this issue?

~Kevin

by Kevin on Sep 25, 2013 8:23 am • linkreport

And why exactly can't DC hire its own experts??? I don't see how they can 'hire' an NGO? The NGO has its own agenda. I see this as a conflict of interest. It is exactly the same thing as to when the government get 'advice' from corporations to write laws. They get unchecked input into the outcome, often slanted toward their advantages.

DC should run independently, looking at both the developers and NGOs, AND low income and other taxpayers and see what is best for the entire city, with the goal to slow down gentrification, and help low income residence move into the middle class. Is that too much to ask for? I just want the city to do its job...

Interesting to note how key individuals in this office have been 'hired away' to other positions. Perhaps certain government officials have no intention on supporting this program and hope to slow it down to encourage gentrification.

by ADU owner on Sep 25, 2013 8:42 am • linkreport

@ADU Owner: Is it me or do I sense some bias here (other readers please chime in). So, on one hand you say you agree that good organizations like MANNA can do great things to help DC but on the other hand you say an NGO might have its own agenda and you see this as a conflict of interest. So, how can Manna (Which is a non-profit) help IZ? Remember, they don't support long or short term affordability with any type of restrictions. ???

by Kevin on Sep 25, 2013 9:14 am • linkreport

"I agree that good organizations like MANA can do great things to help DC, but it only takes one bad apple to spoil it for the rest. I think that if this is a program that DC wants to push, then they should fully support it and get proper staffing. "

Not sure what was not clear about that. If an NGO did not have to do what DC government should be doing, it could be spending its resources elsewhere, doing something more beneficial.

by ADU owner on Sep 25, 2013 9:49 am • linkreport

@ADU owner: Mayors Williams & Fenty were originally reluctant to create & implement IZ, but eventually came around. (I note that developers have generally opposed IZ, as expressed by the DC Building Industry Association, though others have expressed a willingness to live with it). Mayor Gray has always been a strong supporter and, when council chair, forced the Fenty administration to implement the delayed law. The problem of not having as many staff as we wished is not unique to IZ or ADUs. While we would like to see more inhouse staff, we see particular advantages to expanding the kind of work the the city already contracts with housing assistance nonprofits to do. For homeownership, it's especially important to support participants through the education, buying and follow up post-purchase assistance. Nonprofits have played this role well in other jurisdictions. Given the many problems the city has encountered getting IZ going, and ongoing needs with ADUs, we agree that it's time to bring in some nonprofit talent that is likely to do a far better job than the current one done by city staff who would be better used to monitor and provide oversight for implementation.

by Cheryl Cort on Sep 25, 2013 10:12 am • linkreport

While I agree IZ is absolutely essential for addressing the affordable housing issue in DC, one glaring sticking point is the 50-80% of AMI. If IZ truly is going to provide an affordable option and address the affordability gap, AMI must be changed to the District's median income (and the percentages must be lowered).

by DC Renter on Sep 25, 2013 10:28 am • linkreport

@DC Renter: The place to focus on income targeting is on the income target rather that if it's measured in Area Median Income or DC Median Family Income. Councilmember McDuffie has introduced a bill to try to show the relationship to clarify this issue. We've written a paper dealing with this issue to combat efforts by the business community to justify higher income targeting, see: http://bit.ly/16IT7nG

We are disappointed that we arent getting more than 15% of IZ production at 50% AMI. Originally, we proposed splitting income targeting so that we could reach down to the 50% AMI level with this kind of program. Unfortunately, developers convinced the Zoning Commission to cut off the 50% AMI set aside for high rise zones (which now only requires 80% AMI). While in some neighborhoods like Dupont Circle & upper NW, 80% AMI is substantially below market, but in other areas, it's too close to market rate. Also, the greatest need is at the lower income levels.

We'd like to further assess how we can get more units at the lower end of the income range. The challenge is how to get more affordability using this tool that provides a non-monetary form of compensation through a zoning density bonus to pay for the below market rate units.

by Cheryl Cort on Sep 25, 2013 12:30 pm • linkreport

There are far, far simpler solutions to the lack of affordable housing in the District than IZ.

The base problem is that DC law restrains the construction of new housing stock. IZ is just a drop in the bucket. If we really want to make housing more affordable, we need to increase the supply of housing units.

by Potowmack on Sep 25, 2013 1:27 pm • linkreport

@Potowmack: I agree we need to increase the housing supply. But one strategy alone wont produce enough housing for housing for people at moderate & low wages. Given the growing shortfall in housing affordable to people earning low and moderate incomes, we need many policies that help correct for the market failure of not producing housing at those income levels. DC has done many of these policies already -- a housing trust fund that produces on average 700 affordable units per year, public land developments that produce 100-200 units per year. IZ will be producing in the 100-200 units per year average as well. It's about 9 percent of the total number of units in projects subject to IZ (which is anything that doesnt got to the Zoning Commission or is more affordable). IZ also keeps the units affordable for the life of the building, which means that we wont lose them the way other programs have & do.

DC is producing a record number of housing units right now (3825 in 2012), but is that causing prices to fall? No. We are seeing more "move in specials" because the last thing developers will do is drop their prices.

The zoning update will be helpful by reducing parking minimum requirements & allowing accessory units in lower density zones. But high rise construction is very expensive and wont produce a lot of affordability on its own, even if the height limits are opened up. The value of IZ is that it produces additional affordable AND market rate units in nearly all new residential development.

by Cheryl Cort on Sep 25, 2013 3:55 pm • linkreport

@ADU Owner: Public/private partnerships have been viewed as a best practice for a while now. While not perfect, these arrangements have the benefit of of allowing the more nimble private entities to carry out the specific mission identified by the government. The government, on the other hand, plays a critical oversight role and has the ability to terminate contracts and retain alternate entities if the work being performed is not satisfactory. District government housing entities currently have private enterprises providing home buyer education and program management for the City's home purchase assistance programs.

@Kevin: We wholeheartedly agree that there are many wealth building facets that remain unaffected by housing covenants, such as tax savings, "forced saving" through mortgage principal repayment, and stable housing costs as opposed to consistently increasing rental payments.

by City First Homes on Sep 25, 2013 4:40 pm • linkreport

@ Potowmack
I agree. One easy thing that could be done is to simplify rules for creating a rental unit within a home. Most rental units are unofficial. There are too many hoops to jump through. Similarly, the city should push for a certain percentage of bigger apartment with rental units integrated. Example, a nice two bedroom apartment, would have a studio/one bedroom attached to it. Unit could be completely separated by a locked door (that could not be walled off). Condo docs would allow owners to rent out this unit, or whatever. This would give owners complete flexibility to adjust according to their current needs. They could place elderly adult, teenager, rent it, place a nurse, or house keeper. Plus this would allow mixed income within a building.

Second, landlord tenant laws need to be cleaned up. It should be easier to evict a bad tenant. But on the flip side, tenants laws should be enforced. Currently, dc is 'tenant friendly' on the books, but since the city turns a blind eye to many abusive landlord, the current system both hurts landlords and tenants.

by ADU owner on Sep 26, 2013 7:49 am • linkreport

Another issue, most buildings prevent renting more than a certain % of the building's units, due to rules by lenders. Get rid of these absurd rules, and again, allow greater flexibility in ejecting bad tenants, and you would probably reduce rents by immediately increasing stock.

I can bet that there are many vacant units in this city because owners are afraid to rent, or have been burned before by a bad tenant, and 'tenant friendly' laws.

by ADU owner on Sep 26, 2013 7:54 am • linkreport

@CherylCort
The Hine school public land disposition is helping to build a mixed income community even if both buildings do not have the same range of mixed income units. ...The real amenity is living in a nice new apartment building at Eastern Market - next to a pool/recreation center, Metro station, library, decent schools, historic market, etc.
No, the idea of IZ is BOTH to provide affordable housing in all 8 wards AND to have affordable units forever that are indistinguishable from the market-rate units within each development. Providing #1 does not let the developer off the hook for #2, although that's what Cort favors in the Hine development. If Cort's so-called Smarter Growth group does not like those dual requirements, why not lobby to change the law, rather than testifying on a piecemeal basis for exemptions?

by trulee_pist on Sep 26, 2013 9:54 am • linkreport

@Kevin Manna supports IZ, but believes the ownership program needs serious revision.

Condo fee escalation cannot be separated from IZ ownership units. I am not being alarmist. Everything else is controlled in regards to IZ ownership units, but condo fee escalation and special assessments are wild cards, and particularly problematic in high-priced markets like DC. This issue came to light publicly in San Francisco in 2007 (http://www.beyondchron.org/news/index.php?itemid=4144) and the San Francisco Housing Office is still being contacted by IZ owners experiencing these issues and they are trying to figure out how to deal with the issue. Boston has also experienced condo fees pricing out IZ owners and there was a piece of legislation that was introduced in the MA legislature to address condo fee increases (it didn’t end up being adopted; don’t know why, but here’s the latest info on it: https://malegislature.gov/Bills/187/House/H388). If we are going to continue to create on-site IZ ownership units, this has to be addressed. Why would we want to continue the possibility of IZ owners having to move out after 5-7 years with much of their savings eaten up by condo fee increases and special assessments? This makes no sense.

And it behooves us to look into why other high-priced markets that have had IZ programs in place much longer than DC have adapted/changed their resale guidelines. Both San Francisco and Boston include a 5% realtor fee into their resale price calculations; DC does not, which has been problematic for ADU owners trying to resell. San Francisco gives options to IZ owners who haven’t been able to find another buyer for 6 months, including allowing them to sell to someone in a higher income category. Montgomery County also has a similar 6-month provision; this indicates IZ owners have had issues finding others in their same income category that qualify and want to purchase their unit. We need to explore these dynamics and adapt.

Boston includes certain increases to the resale price of IZ units (special assessments, sales costs, etc.). If these increases to the resale price go beyond what is affordable to the targeted income levels, then Boston has three options: 1) purchase the unit and sell at a lower price; 2) permit a higher income buyer to purchase the unit; or 3) give downpayment assistance to the next buyer. A reserve fund exists for the Boston to buy back units; part of this fund comes from in-lieu fees that they collect from developers who pay large fees instead of building on-site IZ units. Boston collects these fees in certain cases because they don’t think the economics in certain expensive buildings will work for IZ owners (potential for condo fee increases, etc.) and they want to flexibility to build larger units for families in more residential parts of town. DC should look into this as well; do we always want the size of IZ units to be dictated by what a developer is building?

I don’t have time to run the numbers on the exact priced unit you mention from Georgia Ave, but here are numbers I have:

Buyer making $40,000 purchases 50% AMI 2-bedroom IZ unit purchased in 2009 for $120,000; they qualified for a $40,000 HPAP loan and have a first trust loan of $80,000

In 2015, that same original buyer is making $43,000 (assuming 1% increase per year). They sell their IZ unit at the maximum resale price of $139,2000
Seller closing costs at 3% are $4,176 and a realtor fee of 5% is $6,960; this means the total gain on resale is actually $8,064.

The amount they paid down on their mortgage was $8,552; adding that with gain on resale, the original buyer walks away with $16,616.

In 2009, that buyer had access to $40,000 to help the afford home. In 2015, buyer does not have access to HPAP again and has $16,616 to put toward another purchase ($23,384 less then they had in 2009). This is a best case scenario, and it’s possible that folks could walk away with less.

These are simple economics that we need to analyze, especially when targeting lower income households whose incomes don’t tend to rise as quickly.

Finally, with the IZ ownership program we have now, we should be as straightforward as San Francisco is with theirs. When people hear ownership they think traditional homeownership, and that is not what IZ is. DC should clearly state that on all official websites and put up a resale calculator so folks can look at the numbers and decide whether this makes sense for them or not; and then we still have all the other issues that I mentioned above (and condo fees are the biggest problem and wild card). There are solutions and we need to be creative.

by Sarah Scruggs on Sep 26, 2013 10:26 am • linkreport

@ Sarah Scruggs: As much as I agree with you on some things, I simple cannot agree with you on others. I agree that DC's IZ program is not perfect and can be tweaked a bit,but,its not all bad. You highlighted some issues that can be remedied. Now, my comment about condo fees been a separate issue is meant to say that condo fees are not the reason IZ is slow rolling. Now, from the example you have on here about buyer making 40K a year, I don't think all those facts are correct, or at least some are missing. So I decided to run the same numbers myself. Sooooooo, here we go. A Buyer making 40k a year buys an IZ 2bd/2bth condo for 120k (market rate unit is 250k plus). Gets HPAP of 40k (deferred payments for 5 yrs)and a first trust loan of $80,000. In 2015 this buyer decides to sell after living there for 6yrs. Here's what they've been able to pay for those 6yrs compared to their market rate counterpart or if they used hpap on a market rate building. Lets also not forget the benefits they get from annual tax returns. The benefit of IZ is that these units would not be available in these amenity rich areas otherwise. It would cost non profits or other organizations much more money to do these projects. Good Example, JBG companies have about 4-5 projects coming up in metro accessible areas which have so many amenities around them. If not for IZ,none of these units would have affordable units in them. Same for other projects in other neighborhoods. So, people making 50%-80% of income shouldn't be able to live in these areas is what you're saying?

By the way, I'm an Urban Planner living in VA but very tuned in to DC housing Issues.

DC IZ Market Rate w HPAP Market Rate
Price $120,000.00 $250,000.00 $250,000.00
HPAP $40,000.00 $40,000.00 -
Loan $80,000.00 $210,000.00 $250,000.00
Mortgage $454.23 $1,192.00 $1,419.47
Taxes $80 $210.00 $250.00
Insurance $67.00 $67.00 $67.00
PMI $65.00 $172.00 $204.00
Monthly $666.23 $1,641.00 $1,940.47

Savings compared to same buyer purchasing a market rate unit with HPAP or Market rate unit with no assistance.

Monthly Savings $974.77 $1,274.24
Annual savings $11,697.24 $15,290.88
6yr savings $70,183.44 $91,745.28

Mortgage interest @5.5%.

~Kevin

by Kevin on Sep 27, 2013 8:19 am • linkreport

Well it's obvious that IZ is cheaper than market rate for the people participating in it!

The question is, could we serve more people if we just charged developers for extra density bonuses (instead of making them build IZ units) and then used that cash to just build affordable housing. I think we could serve more people even if that affordable housing were built in the same neighborhoods, just not on the most desirable plots.

by MLD on Sep 27, 2013 8:26 am • linkreport

@MLD: the point of IZ is to offer a new tool that complements other tools. The Housing Production Trust Fund, which is funded by diverting 15% of the recordation & transfer taxes is the most productive (~700 units/yr). IZ does offer an off-site option if it's not feasible to do the units on-site (but no fee in lieu), but noone has tried that. Finding a nearby suitable nearby site is very difficult. Integrating the affordable units into the same development ensures the units get built and that mixed income neighborhoods are fostered. For additional height, through a change to the city's Height Act, perhaps, this might be a place where some off-site provision might yield a greater value than on, but would have to assess. A key point is that there isnt one single solution, or one program that addresses all housing needs. We need many different approaches. IZ is only one inventive tool that adds to a core set of policies and funding commitments, that all need to be strengthened.

by Cheryl Cort on Sep 27, 2013 9:53 am • linkreport

How can it be that DC has missed an opportunity to place those in need of affordable housing. Does this mean that the new developments have not utilized the mixed use population. Someone dropped the ball on this.

by M. Jones on Nov 20, 2013 3:29 pm • linkreport

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