Photo by the author.
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.
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.