Greater Greater Washington

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Keep inclusionary zoning housing affordable

Inclusionary zoning, a new affordable housing tool in DC, has a long and successful track record in other (and adjacent) communities to create mixed income housing. However, pockets of resistance to DC's inclusionary zoning (IZ) law remain. In a recent Washington Post Capital Business commentary, Manna, Inc., a non-profit housing developer and the D.C. Building Industry Association aired incorrect claims about the DC's IZ program.


Photo by the author.

The specific debate here is about how to sustain an affordable housing stock while giving assisted buyers wealth-building opportunities through homeownership. Many financially subsidized affordable housing programs let assisted buyers resell their homes at market prices after 5, 10 or 15 years. The homeowner gets to keep a portion of the profits from the market-price sale, usually after repaying original subsidies. Taking a subsidized unit to market price creates a big jump in price. This is profitable to the first buyer, but converts the affordable unit into a market rate unit, reducing the overall amount of affordable housing in the city.

DC's IZ program, like many land-based subsidies such as bonus density or land trusts, requires the owner to sell at an affordable price, yet allows the price to rise as overall incomes in the region rise. This rise in price is then shared with the owner. Keeping the unit affordable but sharing appreciation with the homeowner based on rising area incomes is a national best practice. According to the Center for Housing Policy, this is an effective approach that balances individual wealth-building with community goals of ensuring long-term affordability.

IZ requires new housing developments to set aside a small portion of units at more affordable rates. In exchange, the developer gets to build additional units than the zoning would otherwise allow. The widespread affordable housing policy became DC law in 2006, but implementation was delayed until last summer, well after the housing market crashed. Thus, we must wait for a new housing development pipeline to start producing again.

In the case of for-sale units, IZ offers opportunities for lower income families to build wealth while realizing the other important benefits of homeownership. DC's IZ program uses the change in the HUD Area Median Income (AMI) to calculate a maximum resale price an owner may receive for his or her unit. It uses the annual rate of change over the previous ten years to smooth out fluctuations in the AMI. For example, an IZ owner who bought her unit in 2006 for $200,000 and sold it in 2008 could potentially sell it for approximately $211,800 (plus any capital improvements made). This equals an appreciation of almost 3% per year. Over the same period, an owner of a market-rate home would have had to deal with the 11-percent decrease in the area median home values. Programs like DC's IZ can help families who buy at affordable, below-market prices weather downturns in the market better than those owning market-rate homes. IZ homeowners may even have the opportunity to sell for a gain when the market is flat or down.

IZ helps low- and moderate-income residents keep living in emerging neighborhoods, even as land prices rise. This inclusive policy is a direct way to ensure that lower income residents share in the positive effects of the District's revitalization. It also helps reduce commuting costs and times for workers who serve vital roles in DC's communities.

Manna suggests lifting all resale price restrictions from an IZ unit after 5 years. Montgomery County abandoned this policy years ago after losing most of its affordable IZ units when these short-term affordability restrictions expired.

Learning from Montgomery and other jurisdictions around the country, the DC IZ law is designed to build a permanent stock of affordable housing for future generations of buyers and renters. Still, it also allows homeowners wealth-building opportunities and protects them on the downside in declining housing markets.

Manna cites problems with mixed income developments that predate IZ. Many of these problems stem from the way the programs were administered. Now that the IZ program will create many similar units across the city, the DC Department of Housing and Community Development is creating a more effective stewardship framework to address many of the shortcomings of these earlier ad hoc efforts.

DC IZ's approach to long-term affordability is based on successful, time-tested efforts across the country. Hundreds of local governments are using such tools to balance affordability with asset-building opportunities for lower income families. Since low- and moderate-income DC residents and workers still face formidable barriers to affordable homeownership despite the downturn in the housing market, we need all the tools we can muster to provide more housing choices in transit-accessible and amenity-rich neighborhoods.

Cheryl Cort is Policy Director for the Coalition for Smarter Growth and spokesperson for the D.C. Campaign for Mandatory Inclusionary Zoning.

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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As a realtor I've had clients so confused by the "affordable housing" rules that they walked away from the deal. Many suggest that the rules require them to keep the property for up to 20 years, and even then they must share the profits with the city when they sell. Perhaps you could clarify this. I don't believe other juridictions have suggest strict rules that require 20 years of "recapture tax" restrictions plus sharing of profits.

by Lori on Sep 22, 2010 10:56 am • linkreport

What I've seen other locations provide is down payment assistance which does not required set-asides or affect existing affordable housing stock. The homeowner repays the subsidy when they sell the home, and the money is recycled back into the program. This seems like a simpler system than IZ.

by smoke_jaguar4 on Sep 22, 2010 11:08 am • linkreport

The political problem here is multi-fold.

By doing a permanent set aside, you are reducing overall stock. this is especially true of DC where we have legislative NIMBYism limiting heights. You can't build more land. Ergo, set asides for this up the prices for other stock in the area.

So you effectively raise the bar for entry to market rated housing.

At the same time, you protect people from being underwater...while other people who buy at the prices which were inflated by the set aside reducing market stock are underwater.

So you piss off two groups. First, the people on the margins, who make too much to get in on the set asides, but not enough to afford to buy market. Try being someone who is almost able to buy in, say Columbia Heights but not quite enjoying the experience of being told to go move into a sketchier area, while others get subsidized space...that the person bumped is paying for with their taxes. Fun!

Ditto on market underwater. Someone is stuck in a location as they can't sell, while they pay taxes to insure someone else sees a profit. Fun!

Tough sell.

by John on Sep 22, 2010 12:14 pm • linkreport

Cheryl: I appreciate that you have added a different perspective to that in the pages of the Washington Post. My only criticism is that you did not state up front that you are a spokesperson for the D.C. Campaign for Mandatory Inclusionary Zoning. I think that it helps readers to assess your position more fairly when they know that that any editorial is coming from a particular position. Conversely, a failure to note such a vested interest suggests an attempt to mislead, even if unintentional.

by SJE on Sep 22, 2010 12:23 pm • linkreport

It's on the bio you get to if you click on the name. Cheryl actually had this info on the copy she sent me, but I put it on the author page instead of on the post itself.

Generally, I don't put info about who everyone is on every post from them. My thinking was that everyone has some background and if people want to know why people are saying what they are, they can click on the author info. But maybe we need a clearer policy about it.

Meanwhile, I'll put the info that's on the author page on the post as well.

by David Alpert on Sep 22, 2010 12:35 pm • linkreport

I think the words used to promote this are a bit loaded - after all, who would be in favor of unaffordable housing, or exclusionary zoning? Without subsidies - and I think subsidy is the key word to what you are proposing - seller and buying settle for the most fair price. The person willing to pay the most for a property is the one who moves in. (Or, conversely, the seller willing to sell for the lowest amount is the one who achieves a sale.) When some government agency decides to subsidize housing stock, who decides who gets to buy? If the price is artificially lowered, presumably you'll increase the number of people who want it. This talk about income levels means there will be some complicated and political formula to determine who is even eligible - how do you pick a level? How is it fair to even do this? And then how do you determine who the lucky winner is? A lottery? Sob stories? Political connections? I can't think of any formula that is as satisfactory as just letting the market determine the value of the property, and not using the tax dollars of people above this magic-number income level to subsidize the housing of people below the magic-number income level.

People get too distracted by the high-profile examples of luxury buildings going up in poor neighborhoods. In my view, these projects bring important income diversity. But DC still has wide swaths of "affordable" housing; it's just that no one gets excited about these neighborhoods. And then there's Detroit, where it sounds like the entire city is "affordable."

Things like location, size, quality of materials, etc are the honest way to determine price. I don't see any need for a government agency to inject public money and political favoritism into the mix.

by M.V. Jantzen on Sep 22, 2010 12:39 pm • linkreport

Thanks David. The Washington Post will put "Barak Obama is President of the United States" at the end of his op-eds. I don't think anyone needs to go that far for a well known person, such as your very regular writers. For others I don't think that putting relevant information in the bio is sufficient especially when there is a pretty clear interest. Here, Cheryl's JOB is as a spokesperson for this program. This means that her facts should come from someone who knows a lot about the program, which is good to know. It also means that she will be expected to have a certain perspective. It recalls the situation about a year ago when GGW offered a multipart series about metro, written by someone whose job includes representing the union. Unsurprisingly, none of his recommendations included labor issues. So, instead of being upfront, allowing us to read his opinion as a useful contribution to the debate, the omission of his interest (and especially the response to those who called him (and GGW) out on it) made it look like someone was trying to hide something, and weakened the impact.

BTW: I do not want to imply any nefarious purpose. Only, that in a town full of con men and professional spinners of truth, its good to at least to be upfront about where you are coming from so that people can see where you stand.

by SJE on Sep 22, 2010 1:58 pm • linkreport

@M.V.: To an extent correct.

The problem is one of macro vs micro. At the macro level, the idea of being inclusive, "X" neighborhood shouldn't be closed out to some folks is something most people agree sounds fair. But at the micro level, no one wants to be the schmuck in the middle, seeing themselves priced out of a location, while paying taxes to subsidize someone else to live in the location.

I had that problem for years...too much income to qualify for all of the programs, too little to afford to buy at market. So from personal experience, it's an utter piss off to find your self on the double whammy. You have units pulled out of the market, driving up prices, while you get taxed to pay for the programs you don't qualify for so people who make less than you get to buy in. You find yourself in a spot where if the prices were knocked back my more market units and you got to keep your part of the subsidy payment, you could afford to buy on your own.

This also leaves aside that the process drives the upscale condo market to an extent. If you are a developer, and you are forced to sell x % at effective cost on an inclusionary zoning situation, you tend to build higher end units so you can max margin on what you sell at market. In turn, also pricing out the middle.

by John on Sep 22, 2010 6:25 pm • linkreport

@John & M.V.: IZ increases the overall supply of housing - both market and affordable. It uses a density bonus - gives developers the right to build more housing on site -- to compensate for requiring the below-market rate units. Given it is a zoning trick (increases buildable space) that uses no monetary subsidies (i.e. tax dollars), the affordability levels are fairly high for DC - meaning a lot of young professionals will qualify. A single person earning up to $57,500 can qualify for a unit (affordable up to 80% of area median income [AMI]). Some of the units will be affordable to households at lower incomes - half of the region's median income. A 2 person household earning half of AMI is $41,100.

1 in 3 DC residents are low income and 20% of DC households pay half of their income in housing costs. Housing affordability is a huge problem in DC and we need all the help we can get. Other housing programs serve lower income families, but much of DC's housing funds have dried up. The Housing Production Trust Fund is way down - meaning all sorts of tenant purchase deals and affordable housing projects in the pipeline are stalled or dead.

@SJE - I forgot to make more prominent my role in years of work with the Campaign for Mandatory Inclusionary Zoning and Coalition for Smarter Growth (www.smartergrowth.net), since 2003 to win IZ for DC. Believe me, I want everyone to know it. Not a lucrative career, but very satisfying.

Get the lowdown on DC IZ at: http://tinyurl.com/2b7xajd

Remember we didnt invent IZ - IZ has worked in Montgomery County successfully for over 30 years, and hundreds of other places around the country. DC had the benefit of learning from all this experience to design a good program.

by Cheryl Cort on Sep 23, 2010 12:05 pm • linkreport

1 in 3 DC residents are low income and 20% of DC households pay half of their income in housing costs.

Which is completely unsustainable, and symptomatic of the city's dysfunction in particular, and a legacy of the worst historical policies in American history (red-lining, the establishment of cities as de facto ghettos, the disenfranchisement of District voters, etc...)

Sorry but if 1 in 3 DC residents *are* at or below the poverty line that's an argument for MD and VA shouldering more of the burden of regional poverty. Not an argument for DC implementing policies with the end goal of, what, cornering the market?

by oboe on Sep 23, 2010 12:53 pm • linkreport

Say a couple buys a 1BR IZ home in lovely Columbia Heights. They have a kid - mazel tov. 3 years later they need to move, their max value goes up 3%/year, but Columbia Heights prices jack up 15%/year. So, they can't stay in their community.

Then, interest rates go up, so the next low-income couple can't even afford what the first couple paid. (Yes, interest rates do go up, and then people at the same income get smaller mortgages). And, worst of all, the new buyer's lender can't figure out how to underwrite the IZ restriction, so that buyer walks.

So, there is downside risk, without much upside. Maybe it's worth it. But there are two unintended outcomes. The first family can't sell, and you have overcrowding which isn't good for them or the neighbors. Or, they just rent it out against the rules, make a little money off that intern from Texas who is working for the Republican Congressman. Not really what was intended, though.

The headaches matter, especially to a practitioner like Manna, who has some affordable homes for sale if you're intersted.

by mtp on Sep 23, 2010 6:38 pm • linkreport

Isn't the DC version of IZ simply a form of glorified renting that's dressed up as actual homeownership?

When it comes to greater credibility on this issue, I go with Manna since they actually have to deal with this on a practical basis.

by Fritz on Sep 23, 2010 7:40 pm • linkreport

I appreciate the work of Manna to help people buy homes in DC, but Manna's model is not the only one true way to do affordable homeownership. There are other models with merit. DC's CityFirst Housing Trust is one, IZ is another, both using different approaches to sustained affordability with equity sharing. Take a look at the extensive research done with practitioners all over the country - see Center for Housing Policy's report section "
Shared Equity, Powerful Results:
Helping One Generation of Homeowners After Another,"
http://www.nhc.org/shared_equity_suite.html

by Cheryl Cort on Sep 24, 2010 4:55 pm • linkreport

Cheryl Cort-
I think you are mistaken on a number of fronts. Presuming that this policy will work here in the District because of land trusts models elsewhere is simply baffling. Manna seems to have a pretty solid track record in this field and I highly doubt that their claims are incorrect. Their approach seems grounded in actual experience whereas yours relies on "time-tested models across the country". Calling a "rent-controlled" policy ownership is unfair. You are misleading people. I highly doubt that if you were in the financial situation that some of these families are in, that you would actually participate in this program yourself knowing full well the negative impact that it will have on your future.
For me the CityFirst model isn't ownership either because the buyer has to give up 75% equity to CityFirst upon resale. That just seems bizarre.

by JD Stein on Sep 26, 2010 9:12 am • linkreport

As Cheryl indicated above, Inclusionary Zoning does not reduce the overall housing supply -- developers are provided a density bonus of up to 20%, but half of that density bonus must be used for affordable units. The debate that the Post referenced about the term of affordability was discussed at length at the numerous public hearings the Zoning Commission held before adopting IZ. In the end, the Commission looked at the fact that the Montgomery County program had generated 12,000 affordable units over many years, but only 3,000 remained because of time limits and sales/recapture provisions. And they felt that, if the density bonus was going to be there in perpetuity, the affordable housing should be as well. It was hard to justify requiring developers to provide an affordable unit, and then have it be affordable only to the initial lucky purchaser, who could then sell it at market price. MANNA wanted the unit to be kept affordable, by having the District pay to subsidize the second purchaser, which, to the Zoning Commission, defeated the whole purpose of having IZ as a tool to supplement other DC affordable housing programs.

We certainly agree that the suburban jurisdictions should be shouldering more of the "burden" of providing affordable units, but the need is so great throughout the region, that is not a reason for DC not to provide a level of affordable housing; it merely indicates that the suburban jurisdictions should do their share as well. It's not like DC is obviating the problem with a handful of units.

Also, sure one could obtain cheaper land in low-income neighborhoods and build more housing there, but the idea behind inclusionary zoning is to spread affordable housing to all kinds of neighborhoods. The idea of concentrating low-income housing in communities that are exclusively low-income has not been a success. Projects all across the country have found that, when incomes are mixed in an invisible way (all the units look alike from the outside)and there is strong management of the housing complex, including kicking out people who are violating rules, no matter what income, the project can be extremely successful.

A key factor in IZ's success will be continuing to make sure that the ratio between affordable units and bonus units is set at a level that provides adequaate compensation for the lower rents/sales price of the affordable units, and to have the administration of the program from the government side be as streamlined and clear as possible.

Disclosure: I was the Deputy Director dor Development Review (zoning) and Historic Preservation of the Office of Planning when Cheryl and the other members of the Coalition for Mandatory Inclusionary Zoning brought their zoning petition to establish an inclusionary zoning program. After initially opposing a mandatory program in favor of the voluntary approach we had been pursuing for all developers who had requested increased density, we were persuaded to support mandatory inclusionary zoning because it was more predictable and would help keep land prices from rising as they had been, since sellers and buyers would know in advance the requirement that some of the units had to be set aside as affordable.)

by Ellen McCarthy on Sep 27, 2010 12:43 pm • linkreport

To JD Stein, Fritz and mtp, you are missing a couple fundamental points. Without this program, a low or moderate income family would not even have access to the IZ unit. So, first of all, an affordable unit is created. Then, if it is a homeownership unit, that owner is subject to the same vicissitudes of the market as everyone else -- if the interest rates go up, that endangers resale values for all sellers. Since the price of the unit can rise in proportion to the Consumer Price Index or whatever index is being used to set the level of affordability, experience over the last 25 years is that incomes, even at the lower end of the spectrum, do go up, and so some price appreciation is likely, even within affordability constraints. As to the family renting out the unit, there is an enforcement mechanism built into the program to make sure that the family who qualified for the unit is the one living there. Most importantly, the family who has been paying the mortgage, when the unit is sold, gets all of its investment back. Had the unit not been created by IZ, the family would have been renting, in which case, none of that rent money would come back to them when they move. And they have the peace of mind that, no what what kind of housing price increases the neighborhood around them is experiencing, they will not be kicked out because their landlord wants to rehab and sell/rent to a higher-income person.

by Ellen McCarthy on Sep 27, 2010 1:06 pm • linkreport

Ellen McCarthy- Your comments about Manna are mistaken. We never advocated for more subsidies going to the second buyer of an ADU, rather we pointed out that additional subsidies would be necessary because of these restrictions (in the form of maintenance, closing costs assistance, etc.). Manna is not a fan of that and had only attempted to highlight the unforseen cost that will fall back upon the City. I am sorry that this was not clear to you. Here is a link that might explain further the concerns we have about the unexpected costs that crop up because of these restrictions: http://www.cp-dr.com/node/1640.

I also have a list of other jurisdictions that have had similar problems with their long-term restritced programs.

Also, as some of the other commentators have alluded, Montgomery County's program should not have been a solid basis for DC to implement permanent restrictions partly because Montgomery County has only recently implemented them as well. And while there are vast differences in the volume of homeownership units produced in Montgomery and size of those units when compared to what can be produced in the District, there is no actual data supporting how these lengthy restrictions can work.

Finally, to your point about CPI increase, please read DCFPI report on incomes for low and moderate households in the District. In the past decade, neither have gone up.

I don't anyone is arguing against the creation of these units by IZ. I think the point is that many feel that this isn't a true form of homeownership because the restrictions have such severe consequences on the buyers. Permanently restricted units should be rentals. Aside from land trusts in suburban/rural parts of the country, there is no substanative data that proves this balance of wealth creation and unit preservation can be achieved in more urban settings like the District.

by Shiv Newaldass on Sep 30, 2010 9:28 am • linkreport

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