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Posts about Affordable Housing

Development


Can anyone build affordable housing without public money?

The US has less affordable housing than it needs, and that's because of a fundamental problem: the cost of building and operating affordable units adds up to more than what those units bring in in rent. The Urban Institute launched a tool that illustrates this problem first-hand.

The tool, which uses housing data from the Denver area, summarizes the affordable housing problem while explaining the associated layers and technical terms in an intuitive, easy-to-understand manner. At the bottom right, you see a theoretical development whose cost changes based on the variables you, the theoretical developer, are facing.

The unsustainable math behind developing affordable housing

There are many costs that go into building affordable housing units. In developer speak, these costs are referred to as "uses." Uses include the cost of purchasing the land itself, the cost of construction, and future operating expenses (such as hiring and paying building staff), among other things.

How do developers cover these costs? The uses are funded through various sources such as debt (taking out a loan) and tax credits. However, there are limiting factors when it comes to both of these.

When developers go to take out a loan, the amount they get and the interest they pay is determined based on projections for how much revenue a building's rent will generate. But it can be tough to predict whether or not a building could wind up being vacant, or for how long. Obviously, if nobody is paying rent on a building a loan helped build, the lender is not going to be happy.

Tax credits can also help developers. There are variables involved in determining the amount of tax credit a builder is eligible for, such as the cost of land and rent prices. Even if a developer is eligible to receive tax credits, there's no guarantee they'll actually receive them because the funds are limited at the national, state, and local level.

Closing the gap

To close the gap between the cost of developing affordable housing and the revenue it generates, why don't developers just apply for bigger loans, increase the amount of units in a building (generating higher rental revenue as a result), or charge more for rent?

As described above, lenders determine the loan amount based on projected revenue, and for affordable housing, that revenue is low by its very nature. Building more unites would also means needing to make sure more unites are filled, and charging more for rent defeats the entire purpose of affordable housing to begin with.

The bottom line is that subsidies are the only way to close the gap between cost and revenue; they're the only way to build enough affordable housing. Such subsidies can come in varying forms, such as vouchers, more tax credits, and grants.

Emily Badger at the Washington Post sums it up pretty well:

To the extent that government should step in when the private market can't, affordable housing is a prime example. The larger problem, though, is that we hardly devote the kind of public resources to this market failure that it demands.

Development


Housing beats out office space in NoMa, which could mean more affordable units

A development in NoMa called Washington Gateway could bring 30 new affordable units to the area. They'd be part of a larger proposal to change course away from building office space and toward building residential units.


A rendering of the planned North Tower in Washington Gateway from the New York Avenue bridge. Image by MRP Realty.

Washington Gateway is the first major development in NoMa that you see if you come over the New York Avenue bridge on your way into the the District. Located on a triangular lot between New York Avenue NE, Florida Avenue and the Metropolitan Branch Trail (MBT), the first tower of the eventually three-tower mixed-use development, the Elevation, opened in 2014.


The Washington Gateway site, the location of the North and South towers is highlighted in red. Image by MRP Realty.

Developer MRP Realty is now seeking DC Zoning Commission approval to build the planned North Tower as a residential building instead of offices, and for the option to convert the planned South Tower to residential in the future.

The 16-story North Tower, which would front New York Avenue, would include about 372 units under the revised plan, the developer says in its latest filing with the zoning commission on 18 July.

MRP would designate 8% of those units for households with incomes up to 80% of area median income (AMI), or about $87,300 based on the AMI number for 2015.

While not a large increase in the number of affordable units to the area, the developer rightfully points out that none would be created if the tower were an office building.

When asked whether MRP had considered the impact of offering the units at 60% AMI at an Eckington Civic Association meeting in May, representatives of the developer said they had not looked at the "economics" such a move.

Housing is in demand in NoMa

Housing is hot in NoMa. The population of the NoMa Business Improvement District (BID), which includes Washington Gateway, grew to more than 6,000 people at the end of 2015. This represents a compound annual growth rate of more than 30% since 2008.

MRP says its 400-unit Elevation was fully leased within 11 months of opening in 2014 and remains fully leased with regular turnover, in its filing.

This is in contrast to office space in NoMa. The vacancy rate stood at 14.8% at the end of June, higher than for offices in any other neighborhood in the District, a second quarter market report by real estate firm Colliers International shows.

This is evident to anyone who has regularly waited for a train at the NoMa-Gallaudet Metro station, where riders have had a view of unfinished, empty office space immediately adjacent to the station and MBT for the past few years.

MRP still plans to build some offices, maybe. The 13-story South Tower is still planned as an office building, however, the developer says it may change this building to residential in the future as well.


Rendering of Washington Gateway looking from across Florida Avenue NE with with the planned South Tower on the right. Image by MRP Realty.

Development


DC makes some of its affordable housing serve less wealthy residents (but not the poorest)

DC requires new apartment and condo buildings to include a number of affordable housing units, in a program called Inclusionary Zoning. Wednesday night, DC's Zoning Commission voted to make Inclusionary Zoning serve the group of residents who most need the housing this program can provide.


Photo by Ryan McKnight on Flickr.

What is inclusionary zoning?

Inclusionary Zoning (IZ) is a market-based tool for creating affordable housing that serves people of moderate incomes. Private developers still build housing as they wish, but have to rent or sell a small percentage of units to people making less money. It's had some success, but debate about the program continues.

IZ proposes to diversify our region's housing stock. In a high-demand area like ours, the market will naturally provide more expensive housing for higher-income people rather than cheaper housing. This is not a simple case of developer greed. The owner of a piece of property in a desirable, expensive area will want to sell it to whoever will give them the most money. If one group offers the land owner more money for the land (because they plan to build and sell luxury units), that group probably wins the sale over other groups looking to build moderately priced housing, or who want to use tax credits to build below-market housing.

Right now, in DC, many people who use tax credits to build lower-income housing can't win the bidding for enough land to build on. Where land is cheap, there is enough to go around for people to build units with diverse cost and meet diverse demand, though even then, without tax credits they can't sell units for less than it costs to construct them. But where land is scarce and demand is high, the market, on its own, won't provide housing for even moderate-income people.


Photo by Sharron on Flickr.

IZ tackles affordability and supply

When I walk around town talking about our region's housing shortage, many stop me and say, "What do you mean?! What about all of those luxury apartments and condos going up EVERYWHERE?" Land values explain a piece of that. Yes, we are building more housing than most other periods of DC's history, but there is a lot of pent up demand for housing at different cost levels that currently isn't being met.

Say I want to build a 5-story building with 50 units in it. To buy the land, get financing, and cover construction costs, I have to plan to rent the units at luxury prices. IZ changes two things. First, it forces me to build a number of units for people at lower incomes. That increases costs and could make my building unprofitable to construct, so IZ sweetens the deal: I can build my building higher and denser than normally allowed (about 20% larger, though it varies by zone).

When it's all said and done, my new plan after IZ is a 6-story building, and 5 of those 60 units are going to be rented at more affordable levels.

It's a compromise, yes. But is also unique in that it addresses the issue of housing supply (we just added 10 more units to the region!), as well as housing affordability (we just built 5 otherwise non-existent affordable options).

Other reasons IZ is exciting

The fact that IZ tackles our housing shortage from both a supply and affordability standpoint is one reason why advocates are for this policy tool, but there are other good things about it.

For one, if we are serious about building an inclusive city and region, this tool helps to do just that. People of different incomes can live (and afford to live!) in the same buildings and neighborhoods when IZ is applied well.

Recent studies by Raj Chetty and Eric Chyn show that low-income children who grow up in mixed-income neighborhoods make more money throughout life—16%, in Chyn's study—than those in entirely low-income areas. Keeping poverty concentrated is a recipe for more poverty, while mixed-income living (which IZ pushes) could show a way out.

Another reason to like IZ is that it leverages the resources, knowledge and power of the private sector. There is an immense amount of money and expertise in the development field, and they are very interested in building more housing. IZ attempts to align for-profit development interests (build more) with broader community interests (build affordable), and advocates hope to harness the productive energy and capacity of the development field to meet the needs of a diverse and growing city.


Photo by Tim Evanson on Flickr.

Spoiler alert: Not everyone is a fan of IZ

IZ offers both extra density (more money for property owners) and an expensive housing requirement (forced affordability constraints). Depending on the details of the program and the particular neighborhood or market conditions, the bonus could pay for the added expense, or not.

Further, IZ creates bureaucratic hurdles for the developer to go through. The process, paperwork, and the many legal and other experts required can add costs.

The early years of DC's IZ program saw problems with how the government was implementing it, including federal rules which made it impossible for buyers of IZ condo units to obtain mortgages. (DC changed the rules to deal with that obstacle.)

It's not just the developers

Developers are not alone in their criticisms of IZ. Some other affordable housing and low-income advocates are concerned about the program.

For some, it is simply a question of scale. Even in the hypothetical situation above, you can see this argument play out: we get 55 units of luxury housing, and 5 units of more affordable housing? For some that is simply not good enough, especially if there is a tool that would allow the original 50 units to be all affordable, or some significant percentage affordable.

Over that last few years since its inception in DC, IZ has created over 900 below-market price housing units, which is great. It's also true that in that same amount of time 21,000 total units have been created, and as noted earlier in my street conversations, many, many of those units are at luxury prices.


Map of IZ Production under old rules

Another concern some have about IZ is that it does not create "affordable enough" units. IZ laws mandate that a unit be affordable for people making a certain amount of money based on the Area Median Income (AMI). DC's current rules require some units at 80% of AMI and some at 50% of AMI, but the vast majority were 80%.

For a typical one-bedroom unit, an 80% AMI unit would rent for around $1,600 a month, while 60% would be around $1,100 a month. For many groups working alongside the poorest of our community (for example those making 30% or less of AMI), this does not serve the people in greatest need.

It's unlikely that IZ can create units at 30% of AMI, since those are so expensive to create and maintain compared to 50-80%. So IZ advocates mounted a campaign to create more deeply affordable units than before.

What has changed

This new change now requires all new rental units to be 60% of AMI (while condo units would be 80%). Currently, most new rental units being built were at 80%, but three-fourths of people on waiting lists for IZ units were around 60%.

Members of the Zoning Commission recognized that this was not serving the needs of many lower-income residents. During one hearing, Commissioner Michael Turnbull remarked, "[80% median family income] is basically market rate. People are saying, we can't afford that. The city is being gentrified. The people who grew up in the city are being kicked out." Commissioner Peter May agreed: "The house is on fire, and we are using a garden hose."

Yet there was opposition from the Bowser administration and the DC Building Industry Association to the proposal to lower the income targeting percentage to 60%. They put forth an alternative proposal. Under current rules, not all zones in DC have to incorporate IZ; the alternate option would add IZ to four zones (two of which, C2A and C2B, have some significant development potential, and two, SP1 and W2, that have very little) while keeping other zones as they have been.

Late Wednesday night, the Zoning Commission voted in favor of the 60% requirement. There will then be a 30-day period of public review before a second, final vote. For many of the thousands of residents who apply for the lottery to get access to these units each year, this drop will add greatly to their affordable options.

Government


In its attempts to provide affordable housing, DC has struggled to set clear goals

In 2006 and 2012, DC set clear numbers for how many affordable housing units either needed to be built or needed to be preserved by a specific date. In both cases, there wasn't enough data to actually track progress, and the goals fell by the wayside. Today, there still isn't a plan for providing affordable housing for everyone who needs it.

Advocates and District officials often find themselves jumping from crisis to crisis. At Museum Square, for instance, residents are scrambling to prevent landlord Bush Companies from evicting half of Chinatown's remaining ethnically Chinese population, after tenants (and many District officials) were notified of Bush's plans via demolition notices.

As the DC Fiscal Policy Institute wrote in a 2015 paper, "While there have been some very important successes, the lack of a coordinated, proactive policy for [affordable housing] preservation has led to many missed opportunities, resulting in the loss of whole communities to sale [and] large rent increases."

Meanwhile, too many DC residents don't understand how big the problem of affordable housing is. They hear about crises like Museum Square, but are left to cobble the bigger picture together through disparate facts like "there are over 70,000 families on DC's affordable housing waitlist," or "there are effectively zero market rate units left in DC that are affordable for low-income workers."

Here is an overview of the District's past targets, and some ideas for new ones.

There have been attempts to set clear goals and stick to them

Two-dozen representatives from District agencies, local housing nonprofits, and research organizations helped author a 2006 report that then-mayor Anthony Williams commissioned. At the time, developers were starting to pour money into new projects west of the Anacostia River; DC's housing problem in Wards 1-4 was less that development dollars were scarce, and increasingly that the new projects were raising rents, making it hard for low-income families to stay.

District leaders and the authors of the 2006 report were beginning to realize this, and they set these goals:

  • Produce 55,000 new units by 2020.
  • 19,000 of those units should be affordable (7,600 below 30% of AMI; 5,700 between 30-60% of AMI, and another 5,700 between 60-80% of AMI).
  • In addition, preserve 30,000 currently affordable units.
  • Adopt a local rent supplement program and reach 14,600 households.

Of course, goals don't matter if nobody takes them seriously.

In 2007, Mayor Fenty appointed Leslie Steen as "housing czar" to implement the 2006 plan. She was supposed to cut through red tape and coordinate the many District authorities that touch on affordable housing, including DCHD, DCHFA, DCRA, DMPED, and DCHA. But she ended up being marginalized within the administration, and ultimately resigned in frustration.

In 2007 and 2011, Alice Rivlin wrote two follow-up reports; she praised the District's progress on some fronts, and basically threw up her hands on others; in 2011, nobody had the data to track progress towards the 2006 targets.

Another report was released in 2012 under the auspices of the Grey administration, and laid out these goals:

  • Preserve 8,000 existing affordable units.
  • Produce and preserve 10,000 net new affordable units by 2020 (I couldn't find a detailed AMI breakdown for these 10,000 units).
  • Support development of 3,000 market rate units by 2020.

Grey made a public commitment to reach the "10 by 20" goal, but since 2012 talk of these goals has faded. The Coalition for Nonprofit Housing and Economic Development has worked hard to get the District to commit to an investment goal: $100 million a year in the Housing Production Trust Fund. But Mayor Bowser has yet to adopt specific goals for the number of affordable units she wants to preserve and produce.


Mayor Bowser announcing affordable housing initiatives in January of last year. Photo by Ted Eytan on Flickr.

Setting numerical goals might be worth another look

If we establish another set of city-wide goals, they must be clear, and we must be able to track progress towards them. Such goals could accomplish at least two things:

  • Helping focus our collective efforts. Once we've agreed on a set of targets, we can get creative with solutions. Maybe it's up-zoning some parts of Ward 3; maybe it's strengthened Inclusionary Zoning, maybe it's more preservation and accessory dwelling units. (If we set respectable goals, it'll probably require some combination of all of the above).
  • Having a clear, public goals can help District residents hold their government to account. We could ask, "Why are we missing our targets?" We cannot ask that question now.

Here's an example of a measurable goal, just as food for thought: "The District should have no net loss of affordable units, relative to our current stock and distribution of affordability."

So if we have 40,000 units affordable to people who make below 40% of Area Median Income, we should still have that many in 2030. That's a clear goal, which the public could use to hold their representatives accountable.

An equally clear, less conservative goal might be, "The District should ensure that 30% of its total rental units are affordable to people making below 40% of AMI."

Today we're closer to having the data to track progress towards city-wide goals. The Urban Institute, in conjunction with the DC Preservation Network, has compiled currently available records (you can find a report from December here). The city's trying to improve its own data collection.

Clear goals and stringent data collection have helped the District come close to ending veteran homelessness. As Kristy Greenwalt, head of DC's Interagency Council on Homelessness, told the City Paper, "In the past, there was no systematic approach. We're in a very different place now, so we can actually track what's happening and why."

Goal setting alone can't build or preserve housing, and planning isn't execution. But without precise goals, it's hard to know if we're falling down or making progress—ensuring that new people can move to DC, existing residents can stay, and low-income people can live close to good jobs, schools, and public amenities. A comprehensive, strategic solution to our housing crisis begins with knowing what it would mean to win.

Links


National Links: From Florida to California

Miami is moving forward with big transit plans, Connecticut towns have a unique model for building affordable housing, and many have trouble seeing LA as urban because of how car-centric its past is. Check out what's happening around the world in transportation, land use, and other related areas!


Photo by Humberto Moreno on Flickr.

Sunshine State expansion: Six rapid transit projects are now part of Miami's Metropolitan Planning Organization's long range plan. Many of these lines have been in previous plans, but they're now being made top priorities, which bodes well for their future completion. (Miami New Times)

New Affordability, CT: Cities in Connecticut are required to have 10% of their homes be affordable. If that isn't the case, developers can effectively ignore the zoning code as long as they build 30% affordable. This has led wealthier communities pushing for affordable housing. (New York Times)

Dirge for dingbats: The "dingbat," an infamous Los Angeles architecture form that's basically just a box-like apartment stuck on top of an open carport, is slowly disappearing for more aesthetically pleasing, dense, and safe structures. Are they worth restoring and preserving? (LA Weekly)

Edge City redux: Outside of Miami, the Atlantic Ocean and the Everglades make it so there isn't space to keep sprawling out, so buildings are going upward. Translation: Urban city centers are going up in the suburbs. (The Economist)

LA through #nofilter: Many still see Los Angeles as an ugly ode to cars and endless concrete, even as the city shifts toward becoming more traditionally urban, dense, and walkable. Why? It's hard for people to see beyond LA's built origins as a car-centric city. (Colin Marshall)

Uber exit: Uber is threatening to leave Houston if the city does not repeal regulations that require drivers get fingerprints taken and go through a licensing process. The company has already left three cities in Texas and is threatening to leave Austin as well. (Texas Tribune)

Tashkent trams: The capital of Uzbekistan, Tashkent, is shutting down its tram system. Opened in 1912, it is one of the oldest in central Asia. A lot of locals say the city is losing both a convenient and green form of transport, and a piece of its charm. (BBC)

Quote of the Week

"The idea is that by using a cryptographically secured and totally decentralized authority that can work at the speed of a computer, we should be able to keep power distribution, water treatment, self-driving transportation, and much more from ballooning beyond all practical limits as cities continue to grow." Graham Templeton on using Bitcoin Blockchain to run smart cities. (Extreme Tech)

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