Housing Complex

Georgia Avenue Developer Sues City Over Inclusionary Zoning

2910 Georgia Ave. NW

A Georgia Avenue NW developer is suing city officials for depriving it of "any economically viable use of its property without providing any form of compensation whatsoever" as a result of the city's Inclusionary Zoning program.

The IZ program, which was passed by the D.C. Council in 2007 and took effect in 2009, requires developers of large new residential buildings to set aside 8 to 10 percent of the units for low- to moderate-income households at below-market rates. But because the recession froze much construction, most of the buildings that were recently constructed received their permits before IZ took effect, and only two IZ units have actually been built as of this summer.

Both of those are in a building at 2910 Georgia Ave. NW. And both, after 18 months on the market, are still unfilled. So the developer, 2910 Georgia Avenue LLC (affiliated with ASL Development Corp.), is suing the city, Mayor Vince Gray, and Department of Housing and Community Development Director Michael Kelly over the IZ regulations that it says are depriving it of the value of its property.

"Despite years of legislation, rulemaking, debate, and planning for the implementation of inclusionary zoning in the District, not a single household has taken possession of an inclusionary unit under the Inclusionary Zoning Program," the lawsuit states. "The only effect that the Inclusionary Zoning Program has had is to discourage residential development and to deprive developers like Plaintiff of the economic value of their land."

The developer bought the property from Howard University in 2009, when few housing starts were taking place, to build a 22-unit condo building. According to the lawsuit, zoning approval was initially granted in 2010 but then revoked due to the new IZ ordinance, taking the developer apparently by surprise and requiring it to supply two of the 22 units at a below-market price.

The lawsuit states that DHCD began marketing those two units in May 2011 and held lotteries for the units, but they produced "no qualified household ready, willing, and able to purchase these units." Meanwhile, the other 20 units all sold within four months, for between $225,000 and $404,000. ASL's Art Linde then asked DHCD for relief from IZ but was told that DHCD lacked the authority to release him from the IZ requirements.

According to the lawsuit, the developer's counsel sent a letter to Kelly alleging that the IZ rules were depriving the developer of its constitutional property rights. DHCD's counsel replied that DHCD couldn't offer a solution at the time, and so the developer filed suit yesterday.

Kelly was not available for comment, but I expect to discuss this with him soon and will provide updates.

Photo from 2910georgiaave.com

  • Caroline Petti

    Why did no qualified "household" emerge "ready, willing and able to purchase these units"?

  • http://leftforledroit.com Left for LeDroit

    Is the issue of the affordability covenant still a problem? Back in June, this column reported that DC's IZ laws place covenants on IZ properties to keep them affordable if resold. The problem is that these covenants survive foreclosure, meaning that lenders are reluctant to issue loans on DC IZ condos.

    If this is the case, IZ needs some reform. An IZ condo is useless if you can't get a mortgage on it.

  • sp

    the city needs to take a hard, critical look at the IZ policy. There are better ways to support affordable housing.

  • Policy Nerd

    The issue with the covenant has been recently changed but hasn't taken effect yet. I think the problem is the entire management process of the program. There's a lottery, then you have to be notified, then you have to find a lender, then you can use a realtor, then you cant understand the resale formula. For someone making 50% AMI ($37,652) and a first time home buyer, this can be very overwhelming with no one helping them. Plus these properties are not even being marketed. They need to find a non-profit to managed this program while the dc gov has over sight. I think the policy is good. it's the management thats lacking.

  • Policy Nerd

    Sorry, I meant "Can't use a realtor.

  • tntdc

    Basically you're not allow to make any profit when you sell.

    What's the point of "buying".

  • http://urbanplacesandspaces.blogspot.com Richard Layman

    wrt Policy Nerd's points, that's the rub. For IZ to work, a process has to be constructed to prequalify potential residents and direct them to available units, helping them all the way, not unlike how Habitat for Humanity "prequalifies" potential residents through classes/training and sweat equity requirements. (I am not saying people who want to buy IZ units should have to do sweat equity.)

    It's unreasonable to expect developers to develop the expertise to do this for a couple units.

    And if the mortgage is an issue, then maybe DCHFA needs to be making these loans--ultimately protecting the city if the units go into foreclosure--and that system needs to be set up, etc.

    Some developers argue it's best for these units to just be rental and run through local affordable housing programs, such as how Montgomery Housing Partnership has the option to buy a percentage of AH units constructed in new housing developments. Of course, that precludes a resident from being able to develop equity in such units and contribute positively to their household wealth portfolio.

  • W Jordan

    This situation actually goes to a fundamental flaw in so-called new urbanism and the economics behind it. $400K for a tiny condo on Georgia Ave. of course the system is broken, the problem has been covered up for years in this area of the city, by giving property tax abatements to luxury condo developers like Donatelli Development and Level 2.

  • http://westnorth.com Payton

    IZ has worked in Montgomery County since 1974 -- it's not that hard, people.

    @tntdc: you can't speculate on gains on an inclusionary unit because the government negotiated the lower price for you; it's not your gain to begin with. Instead, when you sell, you get the money you paid down on your mortgage (not "throwing it away"), and as long as you live there you get the financial stability of ownership.

    @W J: Huh? 20 people willingly paid up to $400K of their own money for "a tiny condo on Georgia Ave." and both the developer and Howard University was able to profit by selling those. All of that has nothing to do with "so-called new urbanism and the economics behind it."

  • Alan B

    Their website shows only 16 of the 22 units sold. Are we sure IZ is the only reason they havent been snapped up yet? What about the other 4 market units?

  • AWalkerInTheCity

    What Mr Layman said - DC may have to finance the purchases.

    When I think of affordable purchased units, with resale limits, I think of the Mitchell Lama program in NY. IIUC purchasers did not normally get private lender financing for those units (of course those were coops, where the entire building took a mortgage, and individual units were quite inexpensive - I wonder if that isnt a better model for guaranteed affordable owned housing than the the condo model)

  • AWalkerInTheCity

    "Some developers argue it's best for these units to just be rental"

    that also strikes me as reasonable - while it may be desirable to encourage working class residents to use housing to build wealth, its not clear to me that is compatible with the IZ model.

  • http://www.twitter.com/AdamLDC Adam L

    There are many subsidized units separate from the new IZ program with similar restrictions that have had no problem selling. My friend bought a place with a similar program where you only get a certain % of the appreciated sale price back. The mortgage options were limited but available. Perhaps the DC Housing Finance Agency can help here instead of leaving this all up to DHCD?

  • Tim

    Odd the author never mentions the name of the mystery developer. Why?

  • Tim

    My bad, I see developer identified.

  • http://www,smartergrowth.net Cheryl Cort

    DC Dept. of Housing and Community Development has certainly not been able to administer the sales of these units - either due to inadequate staffing or lack of knowledge. Perhaps contracting with an experienced non-profit that does this kind of work with homeowners and lenders is the best way to get this program back on track.

  • JB

    I agree with CCort and the other comments on here. IZ is not difficult to implement but the DC Govt have to be willing to do whats necesary to make it work. There is demand for affordable homes in DC and IZ is a very viable option for that. I think people have to understand that it's not for everyone. If you fine with spending $2000 on rent a month with no equity then go ahead. Families that need the wealth building mechanism of home ownership will benefit from the program. I don't see any other 2br/2bth units in dc for $145k. 2br/2bth in Bloomingdale sells for $350K upward. So, tell me how IZ is not a good program again? This is simply a program design flaw that's not to late to correct. DO SOMETHING DC.

  • Sarah Scruggs

    There are several issues that IZ does not address and that have been an issue in other cities. The first is rising condo fees, which has happened in other mixed-income buildings and has made people's units unaffordable. There is also the issue of building wealth and how permanent resale restrictions affect building wealth and access to equity. Homes are often the largest asset that lower income folks have, and restricting access to equity in this way may not be the best option for them. These things need to be considered very carefully as the city moves forward. Currently, with what someone would make on the resale of an IZ ownership unit, it may be better for them to move into an affordable or IZ rental situation, save their money, save their first-time homeownership HPAP loan benefit, and purchase a home/unit with less restrictions on equity. There are other models that I believe offer better benefit to both the individual owner and the city, such as the recapture recycle model outlined in this paper Manna published in October (see http://hatdc.org/?p=773). This paper also outlines the earlier issues I mentioned. We can't ignore these issues nor the concerns of current lower income owners.

  • Quagmire (Giggity)

    Hi Sarah, based on your argument there should be no resale restrictions on this property. So what happens when a low income buyer purchases this property @145k which is way below what the other market rate units are going for and decide to sell 5yrs later. If it sells for 250k (which is still below market) they should keep the 105k profit from the appreciation, plus the equity from their mortgage, plus the tax benefits they've receive for 5yrs, plus the money they've been able to save from buying a 350k unit for 145k. Not to mention that the unit no longer will be affordable to another low income buyer after the first person buys it. Do you think that's the right way to promote affordable housing? There are tons of low income families who would benefit from the reduced price of the unit and the pay down of their mortgage and the tax benefits plus the limited appreciation at resale that would love a 2br/2bth condo. Realistically, they can try and save and pay rent for the next 5yrs but that's 5yrs of wasting money on rental with no return on their investment. We Americans have such a sense of entitlement Nd feel that the government should be in the business of making low income people rich. I strongly advise that we look at other countries with housing issues and be glad that we have a govt that's at least doing something about housing for low income families. Simply put, this program is not for everyone. If you don't like it, don't buy it. You cant complain about rising home prices and then complain about a housing strategy that's designed to produce affordable homes for generations to come. Think about the future and not just today. We need to walk with vision and not be so shortsighted. Just my 2 cents ( and its below market as well).

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