BPI's affordable housing tools fall into three primary categories:

• Strategies for Creating and Preserving Affordable Housing
  • Inclusionary Housing
  • Other Zoning and Subdivision Strategies
  • Employer Assisted Housing
  • Expedited Permitting
  • Vacant/Abandoned Property
  • Building Code Modifications
• Funding Mechanisms
  • Affordable Housing Trust Funds
  • Real Estate Transfer Taxes
  • Other Taxes and Fees
• Preserving Long-Term Affordability
  • Resale Restrictions
  • Community Land Trusts

 

STRATEGIES FOR CREATING AND PRESERVING AFFORDABLE HOUSING

 

Inclusionary Housing

Two affordable homes designed to look like a single-family home created under Montgomery County, Maryland's Inclusionary Housing Program

 Inclusionary housing promotes the production of affordable housing by requiring developers of new housing to make a portion of the homes they build affordable to low- and moderate-income households.  (It is distinguished from “exclusionary zoning,” where municipalities use provisions of the zoning code – like large lot size requirements or restrictions on development of multifamily housing – to limit construction of affordable housing.)

 

An inclusionary housing program can take many forms.  The policy can be mandatory or voluntary; the affordable housing units can be built within the development or at a different location; the developers can be required to build the affordable housing units directly or in some circumstances, may be allowed to contribute to a housing trust fund or to donate land in lieu of building affordable units. 

 

The developer may often receive benefits or incentives to help offset the cost of the affordable units.  These incentives or benefits can include: density bonuses, an expedited permit process, the waiver of certain fees, relaxed design standards, tax breaks or direct subsidies. 

 

Inclusionary housing programs have been growing in popularity for a variety of reasons, including:

• They provide affordable housing at much lower cost to a municipality than most other alternatives;
• They produce affordable housing that is dispersed throughout the community, including in most neighborhoods where new housing is being built, rather than concentrating affordable housing in isolated communities;
• Since private developers typically produce the affordable units within larger market rate developments, there is a strong incentive to produce high-quality affordable housing, indistinguishable from its neighbors; and
• They have successfully created a large number of homeownership opportunities for low- and moderate-income households.

 

An affordable quadplex designed to look like a single-family home under Fairfax County, Virginia's Inclusionary Housing Program

More than 200 communities around the country have adopted inclusionary housing programs.  This broad national experience demonstrates that inclusionary housing can be an effective policy tool in a wide range of communities.  For example, inclusionary housing is working well in older cities, like Boston, Massachusetts and growing towns, like Longmont, Colorado; and from affluent communities, like Fairfax County, Virginia and Montgomery County, Maryland, to more economically diverse places like Sacramento, California and Cambridge, Massachusetts.

 

BPI has produced numerous reports on inclusionary housing programs from around the country, as well as materials on how to create an inclusionary housing program.  BPI has also worked with develop and implement inclusionary housing programs in Chicago, Illinois; Evanston, Illinois; and Highland Park, Illinois.

 

 Other Zoning and Subdivision Strategies         

Flexible Zoning

Even without an inclusionary zoning program, municipalities can use their zoning power to produce affordable housing at little or now cost to taxpayers by providing some zoning flexibility for developers who incorporate affordable housing in a project.  For example, affordable housing developers can receive density bonuses, increased floor area ratios and reduced parking or setback requirements.

 

Multi-Family Districts

Municipalities can make it easier to build affordable housing by increasing the number or size of districts zoned for multi-family housing.  Similarly, in some cases, they can create districts where multi-family housing is permitted if an affordable component is included.

 

Mixed-Use Districts

Municipalities can permit or encourage mixed residential and commercial uses in downtowns, commercial centers and commercial corridors.  In such districts, housing can be interspersed with or above commercial uses.  This is can be an effective way to revive interest in a downtown or to expand a commercial corridor.

 

Use Changes

When land zoned for industrial, corporate or retail uses is rezoned to permit residential uses, municipalities can mandate that new developments include affordable housing.  New York is now using such an approach to great effect. 

 

Employer Assisted Housing

A growing number of employers are developing programs to help their employees find and afford housing closer to work.  Such programs may include homebuyer counseling and financial assistance to homebuyers or renters.  Most programs offer down payment assistance for homebuyers, which is often structured as a forgivable loan secured by a lien on the new home.  Employer Assisted Housing programs are available throughout the Chicago region: cities like Evanston and St. Charles particiate.   In Illinois, employers who offer such programs are eligible for generous state and federal tax credits and matching funds.  These tax incentives make Employer Assisted Housing incentives a very attractive and cost-effective program.  For example, if an Illinois employer contributes $50,000, as a result of a state matching program, employees will receive benefits worth $100,000.  The employer will get a $46,000 tax deduction – a $25,000 state tax credit and (assuming an effective federal tax rate of 42%) a federal tax deduction of $21,000.  Thus, employees will get a benefit worth $100,000, while the employer’s net cost is $4000.

 

Expedited Permitting

A number of states and municipalities offer programs where those who are proposing developments that include at least a specified percentage of affordable housing can take advantage of an expedited permitting process.  That may mean that affordable housing developers get to go to the front of the line for their permits, or that they have access to a comprehensive, “one stop” permit, which includes all local approvals needed to build a real estate project.  Such programs save affordable housing developers time and money, and they come at no cost to the local government.

 

Vacant/Abandoned Property

Many cities have programs to acquire vacant, abandoned or substandard property and make it available for affordable housing.  They may involve acquiring property through tax foreclosure, tax reversion, eminent domain and/or purchase from a willing seller.

 

Building/Rehabilitation Code Modifications

Some local building codes make it prohibitively expensive to rehabilitate existing affordable housing.  For example, some require that rehabilitation meets new construction standards, or are triggered by factors such as the total cost of the work rather than factors related to safety.  Several model codes have been developed to address safety concerns, and encourage affordable rehab. 

• HUD Nationally Applicable Recommended Rehab Provisions
• International Code Council
• National Fire Prevention Association

 

FUNDING MECHANISMS

The most significant source of funding for affordable housing development is federal programs such as the Low Income Housing Tax Credit, Community Development Block Grant and HOME.   In addition, however, several types of funding programs can be established at the local level that may be used in combination with federal funding programs to increase the supply of affordable housing.

 

Affordable Housing Trust Funds

Housing trust funds are distinct funds established by legislation, ordinance, or resolution to receive monies which can then only be spent on affordable housing or related programs or services.  Housing trust funds may draw revenue from many different sources, but most have at least one dedicated funding source, committed by law to generate money for the trust fund.  This guarantees a regular (though potentially fluctuating) source of funds.

 

The first affordable housing trust funds were established more than 30 years ago.  There are currently at least 38 state housing trust funds and more than 350 city and county housing trust funds across the United States.  They dedicate in excess of $750 million each year to help address critical housing needs throughout the country.  Trust funds have the following advantages:

 

1. Flexibility – While many state and federal programs have lots of strings attached, a trust funds has only the restrictions that its creators chose to impose.  State, county and local governments have found trust funds to be especially useful in helping to address a wide variety of critical local housing needs, including those that aren’t sufficiently addressed by other programs (e.g., rental support for very low income households; gap financing for affordable housing development and preservation).
2. Local control – Trust fund programs are designed and implemented locally, so can effectively focus on specific community needs and build on unique local opportunities. 
3. Leverage – Trust funds have been very successful at leveraging additional resources for affordable housing programs.  They generate a consistent stream of funds that can be used flexibly to serve a variety of local affordable housing initiatives. 

 

Real Estate Transfer Taxes

This tax is either based on the sales price of a property or is a fixed amount, and it is paid every time a property changes hands.  Real estate transfer taxes are imposed at the state, county and municipal level.  Currently, 36 states and the District of Columbia have transfer taxes, as do numerous county and local governments.  In some states, real estate transfer taxes are the primary source of revenue for affordable housing programs.

 

Other Taxes and Fees

Some communities now impose “tear down taxes” whenever residential structures are demolished.  Some earmark the proceeds from such a tax for affordable housing.  Such a tax is imposed most commonly in communities where tear downs are substantially reducing the existing stock of affordable housing and where the tear downs are making way for relatively expensive new construction.  Evanston, Highland Park and Lake Forest, Illinois have all instituted tear down taxes.

 

In some cities, commercial linkage fees are assessed on new commercial, retail or industrial property and the revenue is used to support affordable housing initiatives.  The rationale is that the new development creates a need for affordable housing and so the fee helps to correct the jobs-housing imbalance to which the development contributes.

 

PRESERVING LONG-TERM AFFORDABILITY

When communities work to create affordable housing, they must consider at the outset whether they want the affordable units to remain affordable and if so, for how long.  Some communities want to ensure that units remain affordable because they want to preserve their investment and maintain a resource that can continue to meet the needs of low- and moderate-income workers, seniors and other intended beneficiaries.  Other communities are more interested in helping affordable homeowners to build equity and create wealth the same way other homeowners so, and so do not work to maintain long term affordability.

 

BPI supports programs to preserve long term affordability.  In the communities where we work, it is safe to assume that land and construction costs will continue to rise, the supply of available land will continue to decline, and the demand for affordable housing will rise.  That means that if new affordable housing isn’t preserved, local communities are only providing a short-term solution to a long-term problem.  And over time, it will only become more difficult and more expensive to address the problem.

 

There are a number of mechanisms for preserving long term affordability, which fall into two main categories:

• Resale Restrictions
• Community Land Trusts

 

Resale Restrictions

Resale restrictions can take many forms, including deed restrictions, legal covenants and contractual agreements between a municipality and a developer.  These approaches have a few things in common.  They specify who is eligible to purchase and live in an affordable unit, how much the owner will be eligible to receive if the unit is sold, and how long the restrictions will be in force.

 

There are three basic approaches to resale restrictions:

1. Strict restrictions. When an affordable home is sold, the seller is entitled to a relatively small amount of a building’s equity increase.  For example, the seller may recoup his or her initial investment plus an inflation adjustment and an allowance for improvements. 
2. Middle ground.  When an affordable home is sold, the seller and the local government share the approach increase.  For example, the local government gets a percentage of the appreciation at the time of sale, usually based on how long the seller was in the home.
3. Maximization of wealth building.  When an affordable home is sold, the seller captures all increase in value.

 

Community Land Trusts

Six affordable town homes created through the Highland Park Illinois Community Land Trust

A commmunity land trust (CLT) is a private non-profit organization created to acquire and hold land and to ensure that the land is used for the benefit of the community.   CLT's generally own the land on which a particular home sits, which they lease to income-eligible homeowners who own the "improvements" to the property; i.e., the house itself.   The land leases are long-term, and homeowners get many of the benefits traditionally associated with homeownership, including, in many cases, some or all of the appreciation in the home’s value.  Since the CLT continues to own the land, however, the homeowner may not capture all of the benefits of rising land values.  When a homeowner chooses to sell, the home must be sold either back to the CLT or to another income-qualifying family. The CLT can use its ownership of the land to limit the resale price of a home so that it remains affordable to future low- or moderate-income buyers. 

 

More information about how BPI has helped local goverments use these tools:

• Affordable Housing Tools in Action