Housing Complex

Report: Zero Inclusionary Zoning Units Sold or Rented as of December

The developer of the first two for-sale IZ units at 2910 Georgia Ave. NW recently sued the city.

The latest report on the city's inclusionary zoning program, which compels developers to include affordable units in large residential buildings, shows that as of the end of last year, none of these units had been bought or rented.

The Department of Housing and Community Development quietly released its Inclusionary Zoning Annual Report in April, but it's received no media attention, and I wasn't aware of its release until I was recently alerted to it by a reader. The report shows that 18 inclusionary zoning units had been built by December 31, 2012. Seventeen of them are "moderate-income" units, while only one is set aside for "low-income" residents. (Moderate income is not all that moderate for many D.C. families: It's defined as up to 80 percent of the area median income, which was $107,500 last year for a family of four.) Fifteen are rental units; three are for sale. None of the 18 units has been rented or sold.

But it seems things have picked up in 2013. According to DHCD spokesman Marcus Williams, 14 units have been rented so far in 2013, and while none have been sold, one has a ratified contract on it and is moving toward settlement.

The inclusionary zoning program was initiated by a vote of the D.C. Council in 2007 and took effect in 2009. It requires developers of large new residential buildings to set aside 8 to 10 percent of the dwelling units for low- to moderate-income households at below-market rates. The program got off to a slow start due to the recession, and took another hit in December when the developer of the first two for-sale IZ units, which it was unable to sell, sued the city for depriving it of the value of its property.

But the program could soon take off. According to the report, there are 104 IZ-applicable projects that are under construction, planned, or in the conceptual stage, which should bring a total of 1,079 IZ units to the market. There are also 89 projects with a total of 26,692 units that are exempt from IZ, many because they got approval before IZ took effect.

So will developers have an easier time filling these units than they've had thus far? According to Williams, the answer is yes. The central difficulty in selling the units has been that lenders were unwilling to provide loans for IZ units because those units would remain affordable in the event of foreclosure, limiting the bank's ability to recoup its money. But recently, the rules changed to allow the units to return to market prices.

"The Zoning Commission voted in early 2013 to adjust the IZ program to allow inclusionary units to be released at foreclosure," Williams says. "That should allow lenders to make loans on IZ units. We continue to amend the covenants that are not consistent with this change." Williams says DHCD is actively reaching out to lenders to provide information on the program.

As for the rental units, Williams says that IZ has lacked "a clear marketing strategy," but DHCD is working to implement one.

So what will next year's IZ report look like? It's too early to say, but one thing's clear: Unlike this year, the bottom-line figure will be bigger than zero.

Photo from 2910georgiaave.com

  • Actually

    Makes absolutely no sense to purchase an IZ condo unit since there is minimal upside for the purchaser.

  • VADC

    Is it also the case that the IZ for-sale program requires the District to have first lien in the event of foreclosure? I can't see how any bank would be willing to lend if it's forced to be subordinated to the District. I could be wrong about this stipulation, though.

  • name

    Clear marketing strategy: Provide them to well connected constituents.

    If you dig, I'll bet most of this type of housing goes to "relatives" of connected district bigwigs.

  • art

    2013 max market prive is 15% below 2012, a trend likely to continue. IZ is a total failure of a program. They may capture a few uninformed buyers but over time it will be a great shame on DHCD. These few buyers will never get out, in my humble opinion.

  • Tadina

    The way these units are set aside is so misguided. The developers get no restrictions on the financial incentives they get for setting aside these units, however IZ units are permanently restricted for owners. It makes no sense to buy one.

  • tntdc

    If the summary of the changes is accurate, then of course the buyer will walk-away from the unit when they move because they can make no profit anyway and then it will "return to market rate".

    So it will only be IZ for the first owner?

  • SWS

    It seems like IZ would be great for homeowners -- versus investors who want to flip. If I don't make that much and want to own my own home, and build wealth by paying a mortgage...is that unwise?

  • BB

    Homeownership is a path to build generational wealth and stable communities--especially for those of low and moderate income. I'll certainly be glad when DHCD modifies these covenants to reflect this philosophy and protect hard working, long time DC residents who purchase or are seeking to purchase such units. As it stands now, these programs are not a win-win situation--the developers are the winners, never the homebuyer in these situations!

  • disgruntled

    We bought an ADU from the city a few years ago. I would not recommend it to my worst enemy. There is no reason to put yourself through that. The whole affordable housing gig is a scam perpetuated by politician, in an effort to gain votes. In the end, they don't care about low income people, they just want to pretend to care and help. They do nothing to help owners stay in these units and make sure developers or others take advantage of them.

    The Onwers are under a false impression that they own the unit, but in reality, they are weighted down by ridiculous restriction that prevent them from doing anything like renting or selling or worse. Condo boards can also become hostile toward these low income owners as they hike condo fees. And the city's politicians just turn a blind high and pat each other on the back for a job well done and get more votes.

    And just to make things more of a challenge, every building has different rules, managed and set up by different government agencies.

    If they really cared, they would simply give grants and let owners live their lives. Instead, they give lubricious tax incentives to developers, who line their pockets at election times. It is sad.

  • http://www.smartergrowth.net CherylCort

    No doubt DHCD (Dept of Housing) has really struggled with IZ implementation. Now that several IZ units have been leased and one sold, we know its getting implemented, but progress is too slow. Beyond the obvious severe understaffing, the rules for connecting an applicant to an affordable home are too cumbersome. DHCD has been trying to revise the rules but seems to be doing it at a snails pace - as if it isnt urgent! We continue to hammer on the city to fix the apparent glitches. Some have been fixed -- like the FHA problems, others seem to be getting close. For example, DHCD issued a request for proposals asking nonprofits to help administer parts of the program, especially helping make the homeownership part work better. The right nonprofit is in a much better position to market the units, help match the right buyer to the right unit, and help the buyer stay in the unit or sell it if needed. Get a move on it DHCD! Note: I'm a member of the Campaign for Mandatory Inclusionary Zoning.

  • disgruntled

    Perhaps. but the city is getting too involved in this. If it is understaffed, and not willing to follow through and make sure that these new owners are protected, then get out of the business. The city is creating huge messes with people lives.

  • http://www.smartergrowth.net CherylCort

    @disgruntled: I'm sorry that you've had a bad experience with your Affordable Dwelling Unit (ADU) (which was created through a zoning commission action or a public land deal). ADUs created before the IZ policy was in place were not created with enough care. The city has said they will go back and help the earlier ADU owners where condo fees out of proportion and work out a solution to ensure the units are saleable. Moving forward, we still need to do more work on condo fees as developers consistently low ball them for all buyers. Long term rises in condo fees are also a concern that needs to be addressed for affordable units in market rate buildings. These are challenges, but fixing the program problems is worth it because the benefits are huge - a tremendous amount of below market rate housing is being created through PUDs, public land dispositions and IZ. This is happening in neighborhoods unlikely another affordable housing unit produced. HPAP is the city's downpayment assistance program to first time homebuyers. But HPAP cant do it all.

  • Billie Tyler

    Dear Gentrifiers: Not everyone is trying to flip a condo for profit. At one time, DC actually had wonderful neighborhoods where people lived their entire life.

  • http://www.federalhomebuyers.com Federal Home Buyers

    Hopefully it does take off - the policy makes sense.

  • http://alexblock.net Alex B.

    It seems like IZ would be great for homeowners -- versus investors who want to flip. If I don't make that much and want to own my own home, and build wealth by paying a mortgage...is that unwise?

    The problem is that if you want to build that wealth, you need to sell eventually.

    The main point of IZ is to create permanently affordable housing. To do this, they restrict the deed so that an affordable buyer cannot rent or sell the property at market rate. Which means the same problems that prevent buyers from buying now will also apply when the affordable owner tries to sell.

    This kind of affordability in perpetuity is probably better served by a model other than home ownership - limited equity co-ops would be one model that makes far more sense.

  • Elizabeth

    I bought an ADU condo seven years ago, and I'm pretty happy with it. Sure I'm not going to make a killing in the real estate market--my condo's value goes up only with the median income of the greater DC area, as when I eventually sell I want to play by the rules and sell it as an affordable unit (though my covenant would actually let me sell it at market and keep 30% of the extra at this point--and the covenant runs out entirely at 20 years). On the other hand, my investment didn't evaporate in the housing crash, as many market-rate purchasers' did.

    Bottom line: I couldn't afford to rent in this neighborhood, but I can afford my mortgage plus condo fee; I'm invested in the neighborhood and secure in my housing; I'm building up equity instead of pouring rent money down the drain; and I can paint my walls whatever color I want.

    As far as I'm concerned, the ADU model should not be thrown out entirely, just tweaked (to give people greater flexibility if they move and to address the problem of rising condo fees--I can afford my condo fees because I got a couple raises in the past seven years).

    I didn't have a problem getting a loan for my condo, so I'm not sure why the IZ units are having issues with that. It's not like you're trying to borrow enough money to buy a market-rate unit. I did work with the mortgage arm of Manna Inc., an excellent local affordable-housing nonprofit, so maybe their knowhow enabled my positive experience.

  • disgruntled

    I think Alex B. sums it up nicely, and this is what i have an issue with. DC is trying to get it all. Is the purpose of the program to get people upwardly mobile? or simply to keep them where they are, living in the community. If you buy the ADU, you get stuck if you need to move. You can't sell your unit and buy in the same neighborhood. If you were free to sell, you could upgrade as needed.

    The program does not allow for natural changes in people's lives. (birth of children, having to house a relative, etc...). We quickly outgrew our unit, that by the way was sold to us as a more square footage than it actually was.

  • BB

    1) I know of at least one developer who has a staff person's family in an ADU!
    2) To build wealth, you DO NOT have to sell eventually. There is such a thing as borrowing from the equity--even if it 20 years later. Children or grandchildren, or your heirs, can certainly borrow money to purchase more property or start businesses.
    3) Let's continue to advocate for fair and just housing...there is much 'tweaking' to be done.
    4) Remain positively active in your quest to own property that's affordable.

  • Carolyn Nicholas

    Can purchased Inclusionary Zoning units be passed on heirs on the death of the owner?

  • http://www.4brothersbuyhouses.com/ 4 Brothers Buy Houses

    Curious- Why is it difficult for owners of these units to sell? How do the developers make it difficult? One person mentioned you can't sell and buy in the same neighborhood. How does that work? I've heard this before but don't understand the details.

    Have a friend who is doing a big development in MoCo and has had to deal with some issues surrounding the requirements of affordable low-income units. Is this as big of a deal in MoCo?

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