Photo by Mr.TinDC on Flickr.
As housing prices rise, the few affordable units in booming neighborhoods become even more important. But a new bill in the DC Council would cut the period of time when such a unit has to remain affordable, removing affordable housing in some of DC’s fastest-changing neighborhoods.
Right now, when the city subsidizes a new housing unit for sale, that unit has to remain affordable for at least 15 years. If an owner wants to sell the unit during that time period, he or she must sell it at a price that another similarly low-income buyer can afford. After 15 years, the owner can sell it for any price.
But a bill by Councilmember Anita Bonds would cut that affordability period to five years in neighborhoods classified as “distressed,” where the poverty rate is 20% or more. That includes neighborhoods like Mt. Pleasant, Columbia Heights, and Bloomingdale — areas that were affordable 15 to 20 years ago but have quickly become out of reach for low-income households without subsidies.
The 15 year limit helps maintain a stock of low-cost units for current (and future) low-income home buyers, and helps keep affordable housing in neighborhoods whose prices might rapidly rise.
If the bill passes, within five years much of the affordable housing being bought now in these neighborhoods could be lost. The existing affordable units cost less to build than they would today, meaning it’s very unlikely the city could replace the lost units without major additional public money.
There might be specific DC neighborhoods where the housing market is so slow that residents need incentives to buy even affordable units there, but that’s not the case in these areas. A good bill would carefully weigh the market conditions and how much affordable housing would be lost. This bill doesn’t do that.
The proposed law would also give the nonprofit developer who originally built the unit the first right to buy the unit back, but after 5 years it would be at market rate. In any of these rapidly gentrifying neighborhoods, that means the nonprofit would spend much more money to get the unit than it earned by building it. It would need an extra subsidy (on top of the original subsidy) to make the unit affordable to the next low-income buyer.
In these still-tough budget times, what jurisdiction can afford to pour brand new subsidy into the same units every five years?
Other cities and counties don’t do this
The proposed change is out of step with affordability best practices across the country, and also with jurisdictions in our own backyard. It positions DC, which has in the past been a leader both locally and nationally in affordable housing policy and funding, to have some of the most lax affordability restrictions in the region when it comes to homeownership.
Arlington imposes a 30-year affordability restriction on units developed with its Affordable Housing Investment Fund. Homeowners using the mortgage assistance program (MIPAP) have to share the proceeds of a sale to help the next low-income buyer afford the property.
Montgomery County, which notably started out with 5-year restrictions back in the 1970s, has increased its affordability period to 30 years on many of the properties in the Moderately Priced Dwelling Unit (MPDU) program. According to a National Housing Institute report, the county had lost two-thirds of the affordable units it had created by the time it enacted the 30-year requirement.
The proposed DC change also breaks rank with other progressive jurisdictions around the country like San Francisco and Seattle (King County) that have typically been DC’s housing peers.
What about truly distressed neighborhoods?
There may be places where long-term restrictions truly inhibit homeownership. Potential residents might refuse to buy a unit in such a neighborhood if they can’t sell it for a substantial profit in a short period of time. But to find them should require a much more detailed approach than looking at the poverty rate.
Plus, poverty data can be as much as five years old by the time we get it. A gentrifying neighborhood could take more than a decade to stop being defined as “distressed.” Columbia Heights, Mount Pleasant, and Bloomingdale above all began transitioning more than ten years ago. A better definition of distressed could look at current data about home values, sales price, and number of transactions.
Why have a restriction on resale at all?
Those pushing for this change argue that since a market-rate homebuyer can turn around and sell his or her house for more money when the market rises, so should anyone who purchases a subsidized unit.
If public subsidies were unlimited and the government could fund enough affordable housing for everyone, or there were enough naturally-occurring affordable housing to meet people’s needs at any income level, then there wouldn’t be a problem.
But in the real world where we have limited resources, it seems to make sense to say that if someone shares with you, you should share with the next person. In affordable homeownership terms, we call this concept “equity sharing.”
Equity sharing models don’t say that subsidized buyers walk away with no gain at all, but they don’t get to walk away with everything either. Data and research from restricted homeownership models tell us that homeowners in these units tend to sell their homes at the same rate as other homeowners, within 5 to 7 years, and that about two-thirds of them are able to build enough wealth in the process to buy their next homes at market price with no deed restrictions. Brett Theodos explained this in more detail in a previous post.
A Center for Housing Policy report about affordable homeownership strategies says that well-designed programs can both protect limited public resources while also giving buyers the benefits of homeownership. Through them, the city can both help low-income buyers build wealth and keep the unit affordable for the foreseeable future.
The Coalition for Smarter Growth and City First Homes, an affordable housing nonprofit, have weighed in with a full set of recommendations to make this proposed bill less harmful. Meanwhle, the DC Affordable Housing Alliance has drafted a sign-on letter to encourage the council to support these changes; email me to sign on as an individual or an organization.
Besides Bonds, the bill’s author, cosponsors include Muriel Bowser (ward 4), Kenyan McDuffie (ward 5), and Marion Barry (ward 8). Councilmembers will hear from the public about this bill on May 29th at 10:00 am. Contact Judah Gluckman to sign up to speak or to submit written comments.