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Posts about Inclusionary Zoning

Development


A few steps can fix Inclusionary Zoning

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


Photo from 2910 Georgia Ave.

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

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

IZ brings many benefits

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

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

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

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

Three problems have stalled IZ

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

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

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

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

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

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

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

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

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

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

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

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

Mend it, don't end it

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

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

Development


Inclusionary zoning will soon be making a difference in DC

Nearly 3 years after regulations were finalized, DC's inclusionary zoning (IZ) program is beginning to have a positive effect on affordable housing stock in the city.


1919 14th Street, a project with IZ units. Image from Level2 Development

While the program has suffered a slow start up because of grandfathering and the recession's effect on residential development, the program's 3rd annual report suggests that IZ in DC will follow the success of neighboring Montgomery County.

Inclusionary zoning is an affordable housing policy which mandates that new rental or condo buildings over 10 units include 8-10% of the total number of units as affordable to households earning 50-80 percent of area median income (AMI), in exchange for being allowed to build more units than would otherwise be allowed (a "density bonus").

IZ policies have been widely practiced around the country for decades, and very successfully in Montgomery County. Beginning in the early 2000s, the District of Columbia government recognized that it needed more tools to address the growing shortfall of affordable housing for DC residents in a revived housing market. The IZ policy is one of the new tools the city adopted to address its growing affordability problem.

IZ became DC law in 2006, but implementation was delayed until summer 2009, well after the housing market crashed. Thus, the effect of IZ has been minimal because the market has taken time to re-energize, and clear out restarted projects approved before IZ rules were finalized. The city's robust recovery has generated a full pipeline of residential developments, many of which will produce IZ units as part of the larger project.

IZ and affordable housing by the numbers

According to the IZ annual report, as of December 2011, there are 82 projects in the IZ pipeline: 3 under construction, 29 in planning phases, and 50 in conceptual phases, slated to produce a total of 930 IZ units when complete. In addition, there are 120 IZ-exempt residential projects in the pipeline, slated to produce an additional 5,645 affordable units.

StatusIZ applicable projectsIZ exempt projects
ProjectsIZ unitsTotal units%ProjectsAffordable unitsTotal units%
Under const.32323510%361,9488,04424%
Planned293823,23212%542,03916,59412%
Conceptual505255,11710%301,6587,89721%
Total829308,58411%1205,64532,53517%
Source: DC Office of Planning. This shows projects under construction as of December 31, 2011.
Notes: The majority of numbers are estimates and subject to change. Of the 3 IZ projects under construction, only 2 have filed a CIZC. CIZCs are not required until above-grade construction.

There are several reasons residential projects currently in the pipeline might be exempt from IZ requirements. The biggest category of exempt projects are grandfathered—projects that would have been subject to IZ, but were approved prior to IZ regulations going into effect in late 2009. There's a big list of grandfathered projects because the Fenty administration delayed final regulations during the height of the housing market boom. Those projects are now getting going again.

Approximately 53 projects and 16,000 units in the city's development pipeline were approved before IZ regulations went into effect. This means that upwards of another 1,000 IZ units would also have been produced but for the Fenty Administration delay in issuing regulations by more than two years after the DC Council and Zoning Commission put the IZ policy in place.

While these projects are "exempt" from IZ regulations, many of them will nonetheless provide affordable units through a mechanism other than IZ. In some cases, this means an all-affordable or largely affordable project that exceeds IZ standards. Other projects are exempt because they are providing affordable units similar to IZ through an alternative zoning review process called a "Planned Unit Development" or PUD.

A PUD is a special review process where the Zoning Commission gives a development greater flexibility including more density in exchange for additional public benefits and features. Approximately 5,645 affordable units are in the exempt projects pipeline, yielding 17 percent out of a total 32,535 units. See Table 1 for the tally of IZ and other affordable units in the pipeline, as of 2011.

On a policy level, IZ is working as designed

As of 2011, the DC housing market's strong recovery is in full swing. The third annual report on IZ notes that DC's overall development pipeline is going gangbusters with permits to build 4,726 units issued in 2011, which far exceeds 2010's total of 1454 units, and is nearly double the number of residential building permits issued during the last peak year of 2005. Many of these projects are Planned Unit Developments (PUDs) and will meet IZ requirements, though technically outside the program.

In the future, as IZ takes full affect, the program will cover most residential development outside PUDs and geographically-exempted areas, providing 8 to 10 percent moderate and low cost housing for DC residents in these developments. The city's remarkable acceleration of residential development projects seems to indicate that IZ won't be holding it back as some critics had suggested.

The city's IZ report also tells us that only one project in the pipeline is receiving full relief from IZ regulations under unique circumstances. This is another important early sign that IZ is already generally accepted by the development industry.

In contrast to projects being exempt because they are grandfathered, in an exempt geographic district (e.g. downtown, two historic districts), too small, or are providing the same or greater amounts of affordable units through an alternate process (PUD or affordable housing development), zoning relief means the project is let out of providing any affordability due to extraordinary circumstances.

The one project that has requested and received relief is the West End Library PUD project which is providing a new library and fire station. These new public facilities were recognized as a significant public benefit for the Planned Unit Development that qualified the project for IZ relief. Additionally, the city has also committed to funding a 52-unit building all at 60 percent of area median income (AMI) above the fire station.

One piece of information missing from the brief report is the expected income split between 50 and 80 percent AMI. For 2011, 50 percent AMI was $53,050, and 80 percent AMI was $84,900 for a family of four. DHCD has struggled to provide accurate information on affordable housing unit production, and getting the details on income targeting appears to be even more elusive.

As IZ units come online, we can expect to get specific information about the income split with the IZ law's reporting requirement. The report does tell us that of the 2 for-sale IZ units on the market, one is at 50 percent and one at 80 percent AMI. We expect to see that most future IZ-covered projects will be providing affordable units at the 80 percent AMI level, given most new development is high rise multifamily.

Development


Urbanist economists should cheer inclusionary zoning

Is inclusionary zoning just another inefficient government subsidy? Not at all. It's actually a clever program that creates some permanent affordable housing and also builds political support for more density.


Photo by afagen on Flickr.

Last week, Matt Yglesias expressed reservations about DC's inclusionary zoning law. IZ lets develo­pers of apartment and condo buildings over a certain size build more density than they otherwise could. In exchange, they have to set aside some of the units as affordable.

People must earn less than a certain income level to be eligible for these affordable units. In DC, that level is 80% of area median income (AMI)—not that low of an income. People eligible for the units can enter a lottery for them. Someone who rents such an apartment will pay lower-than-market rent in perpetuity. Someone who buys such a condo can resell it later, but at a rate that keeps the unit at a below-market level, while still letting the seller enjoy some gains.

Is this economically inefficient? Yglesias wrote:

But the fundamental issue here is that IZ is an extremely cumbersome way to try to help people. Instead of giving one family a $120,000 discount on a condo and giving another family a $130,000 discount on a condo the city could just hold a lottery. Look at the list of DCPS students eligible for free school lunches, select two of them randomly, and cut each family a check for $125,000.

There'd be little need for paperwork, no need for loans, and the families could decide for themselves how they want to use their bounty. If the city wants to obscure the cost of the lottery, they could simply say that developers of market rate housing projects need to stage the lotteries.

It's true that unlike IZ, my "give lots of money to people in need" initiative would not ensure the existence of economically diverse neighborhoods. But a question people have to ask themselves is what's the purpose of these policies. Are they supposed to help low-income families or are they supposed to make upscale yuppies feel better about their neighborhood?

I think the giveaway is that the lucky inhabitants of these "affordable" units aren't allowed to sell the units at market prices. Imagine a low-income family faced with high medical bills. Luckily for the family, it actually owns an apartment that's pretty expensive. But perversely, no matter how badly they need the money they're not allowed to sell the apartment to raise it.

The encumbered sale is perfectly reasonable

Yglesias' last argument is the simplest to address. Certainly a family owning an IZ unit could sell the apartment. They simply have to sell it at a discount to the current market price, just as they bought it at a discount. That's not really that strange.

We can draw an analogy to a small company. Say you have a business idea but you need to buy some equipment. You could borrow money from the bank, or you could get investors and sell them part of the company. Let's say someone agrees to invest $250,000 in your company for 50% of the equity. Your company is now worth $500,000 and you own half.

You and your employees do a good job and the market opportunity turns out to be a good one, and your company grows in value to $1 million. Your share is worth $500,000. Say you need money for the medical costs in Yglesias' example. You can sell some or all of your share. But you couldn't say that it's not fair you can't sell the whole company for a million; you only own half.

An IZ unit is like a little company where the city owns a share. You get to control the unit itself—the city has no voting stock—but if you sell, you can only sell your share, to someone else who can come in and assume the same business arrangement you had.

There's nothing intrinsically wrong with this, other than that it's not the way housing has traditionally worked. But the condominium (and before that, the co-op) was unheard-of for a long time, as well, and then it existed, because it met a particular need.

Anyone who doesn't like this kind of arrangement doesn't have to buy such a unit, just as the company owner could borrow money, or put in his or her own money, or try to make the business work with less capital, if they don't want to give an investor such a big share.

Why not give people cash instead of housing?

Yglesias' first point basically asks, instead of subsidizing housing, why not just give some poorer people some cash, and then they can buy housing on the open market?

This is a fairly common economist response to a government program giving something away. If having a free market is generally better than not, then rather than giving people some good, why not give them money and let them make the choice? Maybe they can actually consume less of the good, and this creates an incentive to do that.

This is the argument for a parking cash-out. Rather than giving a bunch of office workers free parking, why not give them money equal to the cost of renting that parking in a garage? Given the money, the office workers have an incentive to take transit or carpool instead, and keep some of the money. The cash option doesn't cost the employer any more, and transportation gets more efficient.

On the other hand, we don't do this with, say, food stamps. The government has a certain interest in making sure people buy food instead of buying booze or drugs and going hungry. Moreover, food is a basic necessity and the food stamp money doesn't go so far that people will end up overconsuming food (unless it's overconsuming junk food, which is excessively cheap thanks to corn subsidies).

The main difference between IZ and the "give them cash" principle is that "give them cash" requires the government to come up with some money, which it might not make back in taxes. IZ takes the cost of some affordable housing out of the producer surplus for the developer. The developer is making some profit on each unit. The bonus density adds additional units and thus additional profit, but IZ restricts those so that much of the profit goes to the homeowner rather than the developer.

As long as the amount the buyer pays for the affordable unit exceeds the incremental construction cost and taxes, the developer will still make money on these additional units, all of which they wouldn't have been able to otherwise build.

The building industry negotiated on the original IZ law to reach levels that didn't wipe out all their producer surplus and turn affordable units into a net cost. They probably pushed for more than necessary, so that some producer surplus remains, giving them some buffer and giving us confidence that the law isn't excessive.

Unlike cash, IZ protects affordable units in perpetuity

Yglesias suggests alternatively having the developer run a lottery to give out the difference between the market-rate and affordable unit. This would take the money out of the producer surplus, and have the same effect as IZ... at first. But unlike cash, this unit has restrictions on sale—that "investor" who owns some of your "company."

If I give you $25, it's yours. If I invest $25 in your company, such as by buying some stock in a public offering, you still get the $25 to spend today and can use it toward equipment or hiring or office rent, but I got something of value back in return.

The net result of this policy is that someone gets to live in some housing while shelling out fewer dollars, but the city also keeps some of the value of the transaction for itself in the form of this equity. That serves the social goal of maintaining a stock of affordable housing over time as well. In the end, IZ creates affordable housing but at lower cost to society than by other means.

Some affordable housing organizations don't like this system. They prefer to have a juris­dic­tion create affordable housing, lottery it off to needy families, and then let those families resell in the future at market rates. When the family sells, they have to pay back the subsidy, but they keep most of the appreciation.

The problem with this system is that it doesn't preserve the affordable housing in the long run. People who receive units can flip them after a number of years and pocket at least a large percentage of the difference. Meanwhile, the unit stops being affordable for the next person. In this way, it actually is more like the lottery in Yglesias' hypothetical, or to extend our analogy, it's like financing the company with a loan instead.

Under that kind of system, you create affordable units, but they quickly evaporate out of the city's stock of affordable units. IZ creates a pool of these units that stick around, keeping at least some inventory of less expensive housing for the future.

IZ is a way to get extra density

Inclusionary Zoning is a program that Yglesias and other economically-minded urbanists should actually be very excited about. Yglesias wrote a whole book on how restrictions on supply are holding our cities back. These restrictions stem mainly from resident opposition to added density.

IZ builds political support to do what might otherwise be impossible: allow more density under zoning. The political calculus might not favor such a change on its own. Just upzoning a property gives extra value to the property owner, creating a producer surplus, but little benefit to residents beyond the vague promise of more "eyes on the street" and more shops and restaurants.

But there is some political power behind doing more to create more affordable housing, and a group of people who stand to benefit from such a policy. Add that to the equation, and it becomes possible.

In other words, even if IZ is imperfect, it might be the most politically feasible way to achieve higher density.

Yes, IZ is somewhat imperfect

There are indeed some challenges with IZ. Like any program, has some transaction costs, which the "give them cash" hypothetical alternative largely avoids. There have been some obstacles to getting mortgages for IZ condo units, though this problem is actually easily solved: other jurisdictions simply agree to let the affordability policy expire if the property goes into foreclosure. The city agrees to give up its "call option" in this case to get lenders to buy in.

Some IZ units may be going to people who are just temporarily low income, like recent college graduates who have every ability to soon earn much more than the area median income. Appropriately tuning the law could probably address most of these abuses, and while it does increase administration costs, it shouldn't be a deal-breaker.

IZ also has only limited impact. DC is only creating a small number of IZ units so far, largely because Mayor Fenty delayed the program for years while many new buildings gained permits without IZ. Those buildings are just now being built.

Also, the federal height limit constrains the amount of bonus density that DC can grant. IZ can only let developers build more when local zoning is more restrictive than the height limit, which is the case for most of the District but not in the densest areas with the most growth. Other jurisdictions can grant far more in incentives, as in the White Flint plan.

Is there a free market solution to housing affordability?

It would be much more satisfying to devise an economic system that creates housing choices at all points on the income spectrum inherently, by market forces, rather than through government mandate. I simply don't believe that removing all zoning caps would do this, however.

Buildings cost a lot to construct, and taller buildings cost more per unit than smaller ones because they require more expensive materials. Lenders only want to fund the projects with the highest return, and capital is scarce, especially now. There is enough demand near the top of the income spectrum to consume all of the units that could get financing.

As it is, developers tell me that there is considerable development, already approved, that is just not happening yet because of financing constraints. If things aren't getting built which have no zoning barriers, then removing zoning barriers won't solve all problems.

It's still worthwhile to push to reduce barriers for the long term, and there are plenty of examples where zonng rules or historic preservation limits do indeed take away needed housing opportunities.

But in the meantime, there is indeed value in creating mixed-income communities. It's far more than just a way to "make upscale yuppies feel better about their neighborhood." In a future part, I'll discuss the many advantages to mixed-income neighborhoods, for both wealthier and poorer residents.

Development


Montgomery a prime example of "how housing matters"

It's not often that 2 members of the Presidential Cabinet sit down for a morning chat before a crowd of several hundred spectators. Last week, however, at the National Building Museum's "How Housing Matters" Conference, Secretary Shaun Donovan of HUD and Secretary Kathleen Sebelius of the Health and Human Services did just that.


Photo by evmaiden on Flickr.

The keynote conversation, centered around the impact of the built environment on individuals' well-being and development, set the tone for a productive day of interdisciplinary discussion and debate. Throughout the event, leading experts from around the nation discussed the significance of housing and its role in education, economic development and public health.

The Washington area's own Montgomery County came up as a headliner during the panel on housing and education.

The Maryland county served as the setting for a recent study by Heather Schwartz, of the Rand Corporation, and based on Heather's findings, it may be a model for other areas in search of a new and effective strategy for raising educational standards.

In her study, Heather sought to uncover the impact of economically integrative housing on academic success among elementary-aged students. In short, she was able to track the progress of a cohort of highly disadvantaged elementary students whose families, previously tenants of traditional public housing, had been randomly assigned to low-poverty areas affiliated with low-poverty elementary schools.

Over a period of five to seven years, she was able to track significant improvements in math and reading scores among the transplanted population. Furthermore, not only did the students placed in low-poverty schools outperform their moderate-poverty peer group, but they had also played catch-up to their peers. By the end of elementary school, the resettled population had narrowed the achievement gap with their non-poor peers by one-half for math and one-third for reading.

While it may come as no surprise that placing kids into more stable environments and sending them to wealthier schools has an effect on their academic performance, the rate and consistency of academic improvement among kids in the study is nothing short of impressive.

Given the success and simplicity of the approach, it is astounding how uncommon it is for US cities or counties to implement such a strategy.

I had a chance to sit down with Heather following her presentation, and one of the first things that I asked her was, "Why Montgomery County?"

As it turns out, the DC suburb is currently the single largest community to feature a policy of inclusionary zoning, without which Heather's study could not have been possible.

Inclusionary zoning amounts to a set of laws that require developers to set aside housing for lower income families. In Montgomery's case, the Moderately Priced Dwelling Unit (MPDU) program means that approximately 15% of homes built are to be sold or rented at below-market value. More often than not, the right of first refusal to purchase the home falls to the Housing Authority. Nestled within otherwise affluent communities, these dwellings provide stable, high-quality housing and unrestricted access to community resources for families that would otherwise find themselves in poor public housing developments.

Although, as Heather pointed out, inclusionary zoning has been around since the early 1970's and many studies have indicated the model is highly successful, relatively few communities have embraced it in the same way as Montgomery County.

While there are likely many reasons that this is the case, one concern that may arise is whether integrating schools to include variable poverty levels may actually decrease the performance of students hailing from low-poverty homes. Heather's finding's indicate that no such trend exists, and that the effects of mixing up an elementary school population through inclusionary zoning yields only positive effects for the economically disadvantaged students.

Of course, inclusionary zoning policies are not limited to Montgomery County. Heather is following up on her original research with a new study that will examine 11 cities and over 15,000 addresses.

For the time being, effective and enforced inclusionary zoning is predominantly a highly local movement that lacks widespread popularity. With research initiatives like Heather's and forums like the "How Housing Matters" conference, coupled with growing, bipartisan alarm regarding the state of education and child welfare in the US, perhaps we'll see more interest and more implementation of inclusionary zoning in the future.

Development


Understanding the tools in the affordable housing toolkit

Smart Growth advocates want to make it possible for people of all income levels to benefit fully from living in an urban area. It's helpful to know what we mean when it comes to affordable housing and how America got to where we are today.


Urban renewal on DC's Southwest waterfront. Photo by Mr. T in DC on Flickr.

On a day when we pause to remember a man who dedicated his life to both racial and economic justice, it is appropriate that we understand the background of today's approaches to lifting up the least fortunate.

Two urban planners last week gave an overview of the history of affordable housing policy in the United States at a monthly meeting of Jews United for Justice's Fair Purple Line Campaign.

The campaign supports the Purple Line's construction as light rail, but is working to prevent low-income residents and small businesses in Langley Park from being displaced. There's a significant risk of this, since the area is expected to add many transit-oriented developments once the line opens.

The center of Langley Park is at New Hampshire Avenue and University Boulevard. It straddles the border between Montgomery and Prince George's Counties, and is known for being a very diverse, but lower-income community.

The planners, one of whom is an asset manager at a Bethesda-based nonprofit housing developer, explained that the need for public housing assistance arises from the fact that so many workers aren't paid enough to be able to afford market-rate housing. This is especially severe in high-cost areas like metropolitan Washington.

An often-overlooked remedy to the underlying problem is to increase the minimum wage across the board so that working people can live off of their income without needing other assistance. But this has not been the chosen approach, for the most part, in the United States.

A historical perspective

The first federal housing programs grew out of the Great Depression and the need to house the thousands that the economic crash left on the street. In later years, these programs focused on replacing "slums"—many of which were thriving, though poor, neighborhoods.

The resulting development often took the form of high-density apartment buildings in non-urban configurations. Construction of much of the Southwest Waterfront neighborhood is the result of this urban renewal planning.

Public housing was not intended to house families indefinitely, but rather to support them to get back on their feet. The programs that eventually came to be overseen by the U.S. Department of Housing and Urban Development (HUD) were intended not only to house people, but to sustain the economy by encouraging bank lending and to support the housing industry.

In the 1970s, HUD moved from being a financier for the development of traditional public housing projects to using Section 8 of the Housing and Community Development Act of 1974 to create an alternative approach. This new approach took the form of vouchers for private housing.

Policy tools

Section 8 payments are made to landlords on behalf of individuals in need of housing who meet legal residency and income requirements. They may only act as a subsidy to keep prices or rents low, or they may cover most or all of the cost of rent or a mortgage. Generally, income tests mean that households must make no more than a certain percentage of the average median income for their metropolitan area.

Disappointingly, the process for qualifying for a Section 8 voucher has become long and tedious. Over 20,000 District residents currently sit on the waiting list, representing a casework backup of two years or more.

Only 7,000 people nationwide receive vouchers each year. As this 12-minute documentary from the Maine Affordable Housing Coalition illustrates, wait-listed people without stable homes face much greater challenges finding work, healthcare, childcare and other necessities, while many who have gotten vouchers have become productive members of their communities.

Governments also offer tax credits to nonprofit developers of affordable housing. This amounts to a dollar-for-dollar reduction in the developer's tax bill, up to an annual limit of 90% of development costs for ten years.

Nonprofits—which don't pay corporate income taxes anyway—sell these credits to banks, which then give 70 cents for each dollar of tax credit the bank can apply to its own tax bill back to the nonprofit. This helps banks comply with the Community Reinvestment Act of 1977.

More recently, state and local governments (with some HUD assistance) have worked to include minimum affordable housing set-asides in new mixed developments. Hope VI, established in the early 1990s, aimed to replace the most derelict traditional public housing with mixed-use communities. But of the nearly 70,000 public housing residents displaced under Hope VI, only 24% were able to return into the units that replaced their original homes.

Another tool local governments use is inclusionary zoning (IZ): a zoning requirement that a certain percentage of units in developments of certain sizes must be reserved for those of lesser means. In Montgomery County, this means Moderately Priced Dwelling Units (MPDUs). Montgomery had one of the country's first inclusionary zoning ordinances. It was adopted in 1974.

Developers are generally offered enhanced incentives in exchange for their acceptance of IZ. Montgomery County has set a standard for IZ policies [PDF page 19]. A new Montgomery County policy mandates that greater percentages of units within one of the county's nine Metro Station Policy Areas be made affordable than in other parts of the county.

The District enacted an inclusionary zoning policy about two years ago. Unfortunately, however, Prince George's County lacks many of the policy tools that could help the residents of Langley Park stay put.


The heart of Langley Park. Photo by thisisbossi on Flickr.

The sustained level of citizen involvement in the effort to preserve Langley Park's cultural identity while supporting transit improvement and smarter development is encouraging. It should serve as a model for other cases where low-income communities can be disadvantaged by the types of changes that will inevitably increase in our region.

If you support the Fair Purple Line Campaign's goals and want to see it succeed, please learn more about the Campaign.

Development


Urban hipster? Long-time resident? We all need an affordable place to live

How does a growing city ensure that affordable housing is available to its population? As DC gains population for the first time in decades, we must take advantage of creative new tools and cross class and cultural boundaries if the city wants to be affordable for all.


Photo by thisisbossi on Flickr.

Tuesday's Coalition for Smarter Growth forum, "Urban Hipsters and Long-time Residents Unite! Housing Strategies to Preserve Mixed Income Neighborhoods as DC Grows," featured David Bowers of Enterprise Community Partners and DC planning director Harriet Tregoning.

The speakers discussed the city's changing demographics, various affordable housing tools at the city's disposal and the role transportation plays in ensuring affordability. The bottom line is that, as Bowers said, "whether you've been here 40 years or if you just got off the Bolt Bus from New York... we all have the need for safe, decent affordable housing."

David Bowers is a minister, and his oration shows it. Standing before the audience, Bowers told stories: of an African American couple in their 70's that moved to the District five decades ago, when they were redlined out of certain neighborhoods; of growing up all too aware of the 8th & H gang; of his coworker, a 25-year-old Georgetown graduate who lives with friends and volunteers at her church. He punctuated the end of each anecdote with, "And that's DC!"

The point? As Bowers says, "DC is a diverse city that has changed over time and will continue to change." That change includes housing. "People have been priced out of neighborhoods, not by some nefarious plan, but by the market... It's not going to be static."

Bowers also serves as the vice president and impact market leader for Enterprise Community Partners, Inc., which through its Continuum of Housing Campaign, works to promote a diverse mix of housing that can accommodate low- and moderate-income earners.

During his presentation, he asserted three key points critical to that end: acknowledging that all people have inherent worth and deserve dignity and respect; all people have the need for safe, decent affordable housing; and that all housing is affordable, but the question is, "for whom?"

Tregoning's presentation, in contrast to Bowers', was filled with data points on the District's demographics. Since 1960, the District lost 200,000 people, with some neighborhoods in the city's core losing up to 50 percent of their population. Within the past decade, however, DC has been regaining population. The release of 2010 Census data later this month is expected to show the population again surpassing the 600,000 mark.

"I like to think of Washington as the city of the future," Tregoning said. With our smaller household sizes and concentrations of both recent college graduates and retirees, "we already have the demographics of the United States in 2050," she said. "Part of the challenge is to right-size our housing stock so we can have the type of housing that matches the needs of our residents." For example, Tregoning pointed out, the multi-unit building she inhabits in Columbia Heights used to be a single-family home.


Photo by smartergrowthdc on Flickr.
Along with this changing population comes a change in how District residents get around. When compared to our region, DC residents are three times less likely to own car and three times more likely to walk to work. And while the city's population grew by 1.7 percent between 2005 and 2008, the number of motor vehicle registrations dropped by nearly 6 percent during the same period.

What does transportation have to do with affordable housing? First, the cost of parking is usually bundled with new housing, even if homeowners or tenants don't have cars. In DC, only 65 percent of households own a car, and in neighborhoods like Columbia Heights that plummets to only 20 percent. Developers often overestimate how much parking is actually needed, and in other cases parking minimums require developers to spend lots of money to build parking spaces. Structured parking, for example, costs between $35,000 and $50,000 per space. That's a high cost to include in the price of housing.

Second, reducing transportation expenses to households makes living in our region more affordable for everyone's bottom line. Washington-area households in neighborhoods well-served by transit spend an average of $9,000 per year on transportation, while the regional average is closer to $19,000. In some car-dependent areas of our region, households spend up to $25,000 per year on transportation.

Don't believe it? Ask AAA, which estimates the annual cost of car ownership at over $9,500. It's easy to see that car-free and car-lite households save money on transportation, and households in denser areas like the District have access to more transportation options.

Because housing and other land-use issues are inescapably linked to transportation, these related costs should be factored together when considering affordability. Especially in DC, where the median income is lower than the region at large, increased transportation costs have a dramatic impact.

Already, 90,000 households in the city pay more than a third of income to housing, while 47,000 households spend more than 50 percent of income on housing. Ensuring low transportation costs is especially important for these families.

Tregoning said that the city's transportation efforts—such as more transit options and better places to walk and bike—aim to reduce household expenses. 40 percent of all DC auto trips are 3 miles or less. "Those trips can be converted to walking, biking, or transit trips," Tregoning said. "I don't expect anyone to make an extraordinary effort" to bike, walk or use transit, she said. It's up to the city to ensure that "for many trips, it should make more sense and be easier" to use modes that save residents money.

Both speakers mentioned inclusionary zoning (IZ) as the primary tool that could be used to keep housing in the District affordable and diverse. The city's IZ policy was enacted in 2006, when data demonstrated that, as Tregoning said, "we were either re-segregating the city or reinforcing the segregation" through development patterns. Currently, all new construction of 10 or more units must set aside 8-12% of those units as affordable housing.

In the future, and when the economy rebounds, Tregoning suggested that as many as, if not more than, 170 units per year would be set aside for households earning between $32,000 and $80,000. And, per the Anacostia Waterfront Initiative's mandate, new construction in some East of the River communities must comprise of at least 30% affordable units.

Though inclusionary zoning has its detractors, it's not just a hot topic for the Office of Planning. Mayor-Elect Vince Gray has repeatedly referenced IZ as a way to mitigate potentially skyrocketing housing costs. IZ is here to stay for the foreseeable future. If wielded effectively, it should keep the District more affordable than it would be otherwise.

Beyond the statistics and the programs, the most important takeaway from the forum was Bowers' call for engagement. "Get informed and get involved," he told the audience. "These conversations about the urban hipster vs. the long-time resident, black vs. white, black vs. Latino—that divides." The city's chances of overcoming these challenges, he said, hinges on involvement from a cross-section of its population.

Bowers encouraged forum attendees to substantively engage in places where not everyone looks or talks like them. He counseled the audience never to be apologetic in the face of hostility as they attempt to bridge the city. As complex as housing policy can be, it begins with simple discussions. "Start talking with people," Bowers preached, "instead of about people."

Development


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.

Development


Vince Gray talks IZ, New Communities, and rent control

At the recent blogger roundtable, Mayoral candidate Vince Gray talked about his goal to unite residents in "One City."


Photo by Geoff Hatchard.

He noted that while DC is currently "very divided by geography, age, gender, and race," ultimately "people have got to feel like there's a place for them." While education, economic development, and workforce education are pieces of this puzzle, without suitable and ample housing for all, we will continue to struggle as a divided city.

Gray noted that he pushed for inclusionary zoning from the start of the two-and-a-half year struggle to get the regulation on the books, working through one emergency legislation after another while the Fenty administration delayed implementation. Lamenting the loss of potentially hundreds of affordable housing units during the hold-up, Gray says that if elected mayor, he will "aggressively implement" IZ.

Another housing issue we discussed was rent control. Under current legislation, which Gray co-sponsored, rent control is up for re-authorization every five years. Gray promised that, as mayor, he would work to make rent control permanent, though he acknowledged it could potentially be challenged as unconstitutional.

Avoiding displacement is perhaps one of the most daunting challenges to housing equity. Under federal programs like HOPE VI, new mixed-income, and sometimes multi-use, developments are built with the intention of providing homes for both current and new residents of the community. A hiccup comes when low-income residents "temporarily" move to make room for new construction.

Under the New Communities Initiativeestablished at the end of Anthony Williams' administration—Barry Farm (Ward 8), Lincoln Heights/Richardson Dwellings (Ward 7), Northwest One (Ward 6) and Park Morton (Ward 1) are to "transform [from] highly concentrated low-income neighborhoods into healthy mixed-income neighborhoods." Perhaps the most important component of this initiative is the guiding principle of "build first" which "calls for new housing on publicly-controlled lands to be built prior to the demolition of existing distressed housing to minimize displacement."

When asked how best to retain current residents while improving housing, education, and economic opportunities, Gray pointed immediately to New Communities. While not a new initiative, it is one we seem to have lost track of as the economic boom turned into a bust. The reality is that while most of us are facing challenges in the current climate, many residents in our city who were struggling at the peak are in further distress now.

Gray, at least on the campaign trail, is able to recognize this gulf that continues to divide DC, and he seems to be genuinely interested to continue to push for solutions that have been staring us in the face for years now. Issues like inclusionary zoning, rent control, and New Communities are all ways the city can help bridge that gulf—they just need to truly be championed in order to work. It will take serious sustained effort from all the city's leadership to accomplish these goals.

Cross-posted at The District Curmudgeon.

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