Housing Complex

What Should D.C. Learn From Other Cities’ Inclusionary Zoning? (Not Much.)

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

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

It seems to be in vogue these days to attack inclusionary zoning. Josh Barro did it yesterday in Business Insider. Georgetown Business Improvement CEO Joe Sternlieb did it in our recent "How to Fix Everything" issue. And the low-income housing group Manna is out with a new report highlighting everything that's wrong with D.C.'s IZ program.

On its face, the program appears to be a neat solution to the affordable housing crunch. The problem, in short, is this: D.C. (like other cities) needs more affordable housing, but it's expensive to build. So rather than just build it, the city—through the inclusionary zoning program—requires developers of new, large residential buildings to set aside a certain percentage of the units for low-income residents, in exchange for a density bonus that allows the building to be larger than zoning would otherwise permit. D.C. residents get affordable housing, the city doesn't spend a cent, and everyone wins.

Except it doesn't work out quite so neatly. Everyone seems to have some gripe or other with the program. I've noted before that four years after the IZ program took effect, the city has been struggling mightily to get for-sale IZ units sold and occupied. Through December, zero IZ units had been sold, and the program had earned the city a lawsuit from the developer of the first two (unoccupied) for-sale IZ units. Last month, the first IZ unit finally sold, and the program does appear to be very slowly picking up.

Sternlieb's complaint is that IZ is expensive for developers, and it'd be cheaper for the city simply to buy apartments and put affordability covenants on them. Barro also rails against the economic inefficiencies of IZ, arguing that cities should simply require cash from developers in exchange for more density, and use that cash to subsidize affordable housing elsewhere.

Manna's central argument is not a new one for the organization: It finds it unfair that owners of IZ units aren't allowed to sell their units at a profit if they appreciate in value. But the report also contains an instructive comparison of D.C.'s IZ program to those of other major American cities.

Manna draws a few lessons from these comparisons. Like San Jose, Manna writes, D.C. should have a "recapture" model that allows IZ owners to pay back the initial city subsidy for the IZ unit upon sale but pocket the profit. Like San Francisco, D.C. could allow developers to spend extra to build affordable units offsite rather than in the same building as the market-rate units. And like Boston, D.C. should have a more flexible system to maintain affordability.

Except that none of these cities looks like a great model for D.C. In San Jose, a more expensive city than D.C. according to the report, residential developers can get away with pegging their IZ units to 80 and 120 percent of area median income. In other words, people making up to 120 percent of the average income in the area get to claim some of the so-called affordable units; people making up to 80 percent get the rest. Defining 80 percent of AMI as low-income is a stretch: In D.C., that's $86,000 a year for a family of four. But 120 percent is just ridiculous.

San Francisco likewise defines affordability as limited to families making up to 120 percent of AMI. San Francisco's median income for a family of four, according to the report, is $101,200. That means a family of four earning $121,000 can claim these "affordable" units. And the report states that the city's off-site IZ units often suffer from "shoddy" construction—one of the principal reasons that D.C. requires the units to be in the same building as market-rate units, where shoddy construction presumably wouldn't be tolerated.

Boston suffers from the same lax affordability standard as the two California cities. IZ ownership units there are split between 80 and 100 percent of AMI.

Certainly, D.C.'s IZ program is far from perfect. But compared to these so-called model cities, it actually comes off looking pretty good.

  • Sarah Scruggs

    Thanks for your coverage of Manna's paper on the Inclusionary Zoning ownership program. Unfortunately, you really missed the point of the paper...the study and recommendations are meant to build a stronger program, and for you to disparage the other cities highlighted in this paper does not make much sense. They are all thoughtful city administrators and policy makers that care about their IZ programs and have adapted their policies in order to build a something better and handle issues that many people do not want to speak about. I cannot put it any other way than what is written in the paper itself:

    The structure of the District’s IZ program is often compared to Montgomery County’s program. Such comparisons are inappropriate as the District’s economy, housing market, size of IZ units, available land, and population are different The most comparable cities to the District are San Jose, San Francisco, and Boston. Helpful lessons from each city include:
    San Jose Instead of permanent restrictions, San Jose employs a recapture model that recaptures “subsidy” in the unit upon resale but gives the owner access to any equity appreciation. This model helps maintain homeownership as an asset for households that purchase. It also allows owners to easily sell in the case of rising condo fees they cannot afford.
    San Francisco Over time, San Francisco has adopted an in-lieu fee system, which generates funding for off-site ownership development instead of IZ unit creation within market-rate buildings. Though not San Francisco’s expressed purpose, this kind of system allows the creation of larger units for families as well as a way to avoid quickly escalating condo fees, which is a serious issue in San Francisco. Boston has a similar in-lieu system, with even higher fee amounts.
    Boston Boston’s program highlights flexibility, both in regards to development and resale. If the allowed increases push an owner’s resale price beyond what is affordable to targeted income levels, the Boston government will either 1) purchase the unit and sell at a lower price; 2) permit a higher income buyer to purchase the unit; or 3) give downpayment assistance to the next buyer. Massachusetts has also attempted to pass legislation capping condo fee increases for IZ owners living in market-rate buildings.
    Ultimately, the recommendations of this paper are made with flexibility and success in mind, for both the owners and the District government. Without change, the following three things are in jeopardy: 1) the financial well-being and economic advancement of lower-income households; 2) the administrative capacity and costs for DHCD; and 3) successfully meeting affordable housing development goals. The District has a golden opportunity to make the ownership side of Inclusionary Zoning not only work, but excel.

  • outraged

    DC's IZ or ADU program is kind of a scam, taking advantage of the poor, uneducated, and the unaware. Residents enter into these units thinking it will be a great deal, and will have a stable place to stay. Unfortunately, it is a ball and chain. It does not allow for any kind of personal changes in a family's life (marriage, birth of children, divorce, etc...)

    It is unreasonable to force people to sell a unit because their life takes a turn. If DC is 'claiming' to help residents, then it should do so no strings attached.

    Plus, the units are often overpriced, then discounted accordingly. If you are in the higher income bracket, you wold be crazy to chain yourself into an IZ or ADU.

    DC Politicians use this to score points as affordable housing, but it really is more of a scam. Politicians and developers are the only ones to make out.

  • Sarah Scruggs

    Also, as far as the AMI categories served, Manna is supportive of DC building units for lower AMI categories. This paper is not suggesting that DC change that. If DC wants serve the current targeted AMI categories (50% or 80%) or even lower, the issues mentioned in the paper and the recommendations need to be seriously considered. The same factors that exist in these others cities exist here and are even more magnified when building units for lower AMI categories

  • http://www.washingtoncitypaper.com/blogs/housingcomplex/ Aaron Wiener

    Sarah,

    Thanks for your comments, and for the interesting report. I don't think I "missed the point" of your paper. Instead, I chose to focus on a different element than you did. It's often difficult for me to make cross-city comparisons of housing programs, and your paper allowed me to do so. As you point out, there's much D.C. can learn from these cities -- but there's also much D.C. can avoid, and can be thankful that it's already avoided.

  • Sarah Scruggs

    There is definitely much that DC can avoid (including issues that have already happened to ADU owners in DC), and this paper is geared toward making sure DC does avoid those things and build a stronger ownership program. We're not there yet, but we can get there.

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

    Thanks for the thoughtful observations. The high income targeting was one of the things that stood out to me too when I looked at the latest Manna paper.

    DC IZ does allow off site compliance, but it's granted by the BZA with proof of hardship rather than given as a option to the developer. Fees in lieu and off site compliance arent the aim of DC's IZ program. Building and sustaining an affordable housing stock in growing neighborhoods throughout the city is a key benefit of DC's IZ program. DC's IZ program, and other IZ programs have grappled with many challenges, but we have successes too. We have the potential to fine tune this program to be an important contribution to an overall strategy to make our city more inclusive. DC IZ's program needs work, but it's improving. At least 14 units have been leased and one sold. More than 1,000 are in the pipeline.

  • Tadina Ross

    I think your article does "miss the point" of Manna's work. Instead of using the report to truly understand the problems with DC's IZ program, which are rarely covered, you spent your entire article pointing out why DC is different than other cities. Manna's work focuses on what we can learn from other cities. No where in the report does it claim any other city's program is perfect. Clearly there is a lot wrong with the current system of IZ. I really wish you would have taken the time to offer your own solutions or a better approach to the problem versus attacking an organization who is only advocating for interests of those in need of affordable housing.

  • T

    The housing claims to be affordable, but does not take into considertion thatwhen the condo fees go up, the low income people can no longer afford to live there. And it does not allow the supposed owner to have any benefits of ownership. If they outgrow the unit, or need to move for a job or to care for a sick relative, they cannot rent the unit. They are forced to stay a prisoner in the unit. They have all the headaches of ownership such as repairs with no benefits of ownership, and no access to equity for emergencies. They cant sell the unit so any time in the prison doesnt count toard the "whole sentence" and they lose anything they put in. The recapture method is the best solution.

  • Quinn Pregliasco

    Manna's paper on the Inclusionary Zoning (IZ) ownership program provides 3 possible solutions to the stagnation that has plagued DC's IZ program. The DC program has sold 1 IZ unit, whereas the 3 programs in the report have sold thousands of IZ units (even when you only look at their 80% AMI and below numbers).

    It seems the policy analysis of successful IZ programs in cities with hot housing markets could serve as guidance in addressing the stalled DC IZ program. If DC is going to preserve 8,000 units of affordable housing and produce 10,000 new units of housing by 2020 it seems we'd want the IZ program to have sold to thousands of lower income buyers rather than one.

  • BB

    Aaron, you cite various folks' views and reports in this article. I'd be interested in your recommendations for building stronger housing programs in DC that allow hardworking, middle and low income residents to purchase homes, build equity and not be forced to live in one area of the city? Thanks!

  • Mrs. D

    I'm not being snarky, but I fail to understand how a subsidy recapture program preserves affordable housing *throughout* the city. If home prices are rising faster than incomes for those in the target income groups, then giving the subsidy to the next buyer doesn't fully cover the difference in pricing. And that's only if the resale value is still capped at the average price appreciation of the building/neighborhood as a percent of original purchase price.

    Yes, I understand that this allows the city to have that subsidy available for another unit. However, in this city, with height and density limits galore, that means that affordable housing will only be offered in neighborhoods that are actively being built up. Once a neighborhood is "full," very few new affordable units can be created in that area. Now, it's not the worst thing in the world to give folks a chance to buy in "hot" developing neighborhoods, but it still prices people out of neighborhoods systematically.

    Buying the property for the higher price, subtracting the original subsidy out of the seller's profit, and putting the unit back on the market at an IZ-reasonable price is probably the best solution offered here, but it's only moderately helpful. The city will ultimately spend *much more* in preserving affordable housing in this manner, which limits the amount available to create new affordable housing or preserve other affordable housing.

    Ultimately, when it comes to affordable housing for *sale,* it might just be best to directly subsidize the buyer. I understand that this is also an expensive ap

  • Mrs. D

    whoops...approach, but making below-market loans, subsidizing down payments, waiving property taxes, etc., at least creates opportunities throughout the city on an ongoing basis, while still allowing owners to build wealth through homeownership. We could combine this help with subsidy recapture plans (the city gets a certain percentage of resale profits up to the amount of the subsidy) to help keep funding up.

    As for rentals, IZ seems a reasonable approach. Affordable units are spread through many neighborhoods in the city, and there's no reason to release them from affordability down the line, the renter has no equity to lose. Of course, until the growth of the city, and consequent new building decline, and in more established neighborhoods where new building is slim.

  • TSG

    In the beginning, DC saw ADU and IZ as a way to help the low-income community but fail to look at how it will effect not only them, but the owner, financially, mentally, physically and even more. The clauses are not a "realization" because situations change: additions to the family, marriage, new jobs. God forbids a owner passes away, how would the city go about handling the home. Life is not without change and DC needs to understand the strain it has caused those who put their trust in them to make a better more comfortable life. In the long run, it has caused much confusion. Now, DC has to reevaluate their rules and regulation with regards to the ADU and IZ so all parties can live comfortable, with being penalized for the homebuyer decision.

    I also believe renting out IZ or ADU would even help both Owners and DC because the hours being put into work to place a home on the market, find a qualified party, inspections, closing and other steps needed would be minimized if you decide to find a renter. Military reasons and schooling should not be the only legitimate reason to rent a home.

  • rdb

    Thank you for highlighting Manna's report on IZ. The report a great resource for the city moving forward and ultimately helping homeless and low income families find not only economic stability but economic success.

  • BB

    Hmmm...Aaron has no views or recommendations of his own.

  • js

    Only in America would we be pushing people making 50% of the median income to buy a house. What's so bad about renting? This false "American Dream" brought the economy down once, why tempt fate?

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  • Sarah Scruggs

    js - what you are talking about is a fallacy. It was not lower income folks buying homes that brought down the economy; this has been discussed extensively in research and by the head of the US Federal Reserve Bank in several Congressional testimonies. The issue was the toxic loan products that were allowed on the market: see http://hatdc.org/?p=653 and http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm. A home is often the largest asset that lower income and minorities have, and with safe, fixed-rate loan products (and other programs - downpayment loans, tax, financial education) can offer much more stable payments than rent. Probably half of Manna's buyers from the past 30 years have made 50% AMI or lower, and they've collectively built millions in equity; less than a 2% foreclosure rate for more than 1000 buyers. Buying their homes allowed many of them to stay in neighborhoods that they would've been pushed out of by now due to gentrification and rising rental prices. I'd encourage you to look a little more closely into the positives of homeownership for lower-income folks who are educated and ready.

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