Washington Regional Network for Livable Communities
Housing Policy for the City: Proposals to Meet the Crisis in Affordable Housing in the District of Columbia
February 2001

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HOUSING POLICY FOR THE CITY:
Proposals to Meet the Crisis in Affordable Housing in the District of Columbia
February 2001

In the wake of a welcome economic turn-around and a boom in residential and commercial real estate, the District of Columbia faces a crisis in affordable housing, as do other cities across the country. Safe, healthy, reasonably-priced housing is simply disappearing from some sections of our city as market prices skyrocket. We welcome the return of households, investments and jobs to the city. This is "smart growth," and it builds the tax base essential for DC's further growth. But it should not take place at the expense of long-time neighborhoods and residents who stayed on in the city during all the hard years.

Of special concern is affordable rental housing. In DC the fair market rent for a two-bedroom unit is $863. A low-income household can afford a monthly rent of no more than $652. A minimum wage earner can afford no more than $320. A one-bedroom apartment costs $735 at fair-market rates. An SSI recipient living on $366 a month can afford no more than $110 for rent. Thirty-two per cent of DC renters are unable to afford the fair market cost of a two-bedroom home. Displacement threatens long-time residents of limited means, both renters and home-owners. We seem to be headed for an uneasy city with a deepening chasm between the rich and the poor.

A number of factors feed this crisis. Older public housing has been demolished and replaced by fewer units. Federally-assisted housing constructed 15-20 years ago for low-income families is being returned to market rents. Though federal funds for affordable housing have increased slightly in the last three years, available funds still cannot keep up with demand, and in cities lice Washington that are experiencing large rental increases, the gap grows wider. The city has spent little of its own money on affordable housing during the past 20 years. Our rent-control law is seriously flawed and has not protected tenants in some markets from recent huge increases. Other outdated tenant protection laws and poor administration of existing laws and regulations have resulted in unsafe and unsanitary conditions leading to evictions by the city.

Neither the Mayor nor the City Council has acknowledged the seriousness and the extent of the situation. Nor do they seem to have in place the kinds of policies and programs to deal with it in a comprehensive way - though many other cities, facing similar problems, have long since recognized and are struggling with the problem. So Washington residents themselves have started talking about what is required to address the problem.

What follows is a list of policies and programs that will help the District take advantage of our growing prosperity to build the kind of diverse, livable communities we all desire. Some combination of these proposals could constitute a comprehensive, city-wide, community-based strategy for saving the city's existing low- and moderate-income housing and increasing the supply of such housing. Most of these suggestions are based on successful experience elsewhere around the country.

The following list is not complete, but we hope it will stimulate discussion of what measures will best serve the District. Some of these suggestions are meant to help preserve the remaining supply of affordable housing; some to expedite creating more. Some are short-term measures; some, long-tens. Some require new funding; others do not. Some will need legislation (and Congressional approval), but many can be accomplished by administrative fiat. Each of these suggestions will help in some small way, but none by itself can provide a full solution.

The city faces opportunity to build anew -- an opportunity that may not come again -- to create the model city the nation's capital should be.

To Protect Low-Income Tenants and Home Owners:

1. Strict, timely code enforcement and meaningful penalties. A long-standing dismal record of enforcement has contributed to widespread bad management practices in rental properties, and to some that can only be described as criminal. Penalties for delinquents must be meaningful and exceed what bad landlords save by neglecting repairs. The city also needs more housing inspectors and timely services to assist residents when evictions, for reasons of safety or health, cannot be avoided. The Council should legislate a vigorous program of "repair and deduct," whereby tenants -- after the landlord has failed to correct deficiencies -- can have the repairs done and deduct the cost from their rents. And legislation is required also to improve the city's ability to take over and repair the properties of negligent landlords who are in default on taxes or maintenance.

2. Rent-Control Revisions and a Tenant Safety Net. Rent Control, which many of the 60 per cent of the city's residents who are renters consider the single most important protection for their homes, must be strengthened by plugging loop-holes in the law. The law must be kept in place until the city is able to offer an adequate supply of decent housing for all its citizens. We support the suggestion entertained by Councilwoman Sharon Ambrose at the October hearings on rent control that the Council impose a moratorium on all rent increases above the allowed annual minimum increase while it studies and repairs the law to protect renters from the phenomenal increases now taking place under unused caps. For elderly and other low-income families who currently face such increases and possible homelessness, the city and apartment owners need to create an emergency fund to help possible extreme cases temporarily. In Boston, when the end of rent control threatened many with eviction, the Mayor created such a fund to assist the most vulnerable.

3. Tenants' Advocate. Residents who are renters -- a majority in this town -- should have an official Tenants' Advocate office to serve as advisor and protector of their rights and interests. Appointed by the Mayor and funded by the city, such an advocate would be independent and responsible to his or her clients, operating much as the Peoples' Counsel office and the Consumers' Utility Board. This office would provide information, training and support for tenant associations, help tenants to improve the management of their buildings, and assist where appropriate in raising the capital to convert rental buildings to tenant ownership.

4. Expiring Use. Many affordable-housing units built in Washington 15-20 years ago with federal money will become market-rate units within the coming months. Hundreds of elderly, disabled, and other low-income residents will not be able to stay in their buildings without assistance. The Mayor should assess the extent of the problem and the number of people actually facing displacement. (See below.) Two kinds of action could help. The city should negotiate a restructuring of the 30-year mortgages that the owners received in arrangements originally made with the city, the federal government, and mortgage companies, and restructure the financing to allow the most vulnerable tenants to stay on at affordable rents. Alternatively, the city will have to find additional money to subsidize the rising rents of the most vulnerable tenants.

5. Section 8 Vouchers Program. Section 8 vouchers, the federal government's main program for assisting low-income householders, has great promise for providing eligible families with real choice in where they want to live, and may also help dilute the concentration of poverty commonly found in cities. The national program's potential is limited by an administrative balkanization in implementing the programs and widespread inadequacy in services provided to help voucher recipients find appropriate housing. And in the Washington area, a tight and increasingly pricey rental market and lingering racial discrimination often make the voucher recipient's search difficult. While improvement of the overall administration of the program will require federal action, local administrators of the voucher program need to provide eligible families (in DC and throughout the region) with vigorous and persistent help in finding appropriate alternative housing.

6. Special Fund to Facilitate Tenant Ownership. Elected officials in partnership with the private sector should create a special fund and provide ongoing technical assistance to help tenants where appropriate to purchase, renovate, and manage long-neglected properties. Existence of such resources is essential to give meaning to any right of first refusal.

7. Tax Relief for Low-Income Home Owners. Elderly people living on limited incomes and other low income home owners who may have been living in a home owned by the family for more than one generation may also need greater protection in this booming real estate market. Tax relief should be enacted for such homeowners, along with tax credits or other assistance to keep their homes in repair and safe and healthy for occupancy. Council member Jack Evans said at a tenant sponsored candidates' meting last September that this kind of tax-relief was feasible. Help in weatherizing such homes could also help make staying in them more affordable.

8. Task Force on Displacement. As one walks through parts of the city experiencing rapid gentrification, one can see the signs of displacement, but no one has reliable, up-to-date data on the extent of displacement and what is happening to those displaced. The Housing Department admitted at the October rent control hearings that its computer system is not capable of generating the data necessary for assessing the current situation. The Mayor should commission a study with recommendations. A study designed by a goad statistician and door-to-door survey of households in a sample of affected neighborhoods could provide within a few months the hard information on which to plan legislation and budget to deal with the situation. In Arlington VA this was accomplished in the city's recent Rent and Vacancy Survey; in Portland by a broadly representative citizens' task force.

To Increase the Supply of Affordable Housing:

Ultimately, no amount of tenant protection or improved regulatory enforcement can meet the problem unless the inadequate supply of affordable housing is effectively tackled. The city must therefore develop policies and programs to increase the supply of affordable housing, especially for low-income households. Many of the following measures were designed originally to increase home ownership, but we have been convinced by builders of affordable housing that they can be adapted for rental housing as well.

9. Smart Codes. The city should amend housing codes to provide more flexible rehabilitation codes for existing buildings and infill developments to reduce the cost and encourage the building of scattered-site low- and moderate-income housing. The State of Maryland, following the example of New Jersey cities, has recently enacted "smart codes" legislation to create a Building Rehabilitation Code Program and Models and Guidelines Program for Infill and Smart Neighborhood Development. When Newark NJ adopted similar smart codes in 1997, it experienced a 60 per cent increase in investment in rehabilitation in just one year.

10. Inclusionary Zoning. The District should use zoning regulations and tax incentives to require new developments to compensate for the affordable housing lost to rising rents and gentrification. This can be done in a variety of ways. Developers can be required to include 15 percent of affordable units in any project over a certain number of units - we suggest 10 units or more. (Under a similar policy, Montgomery County has built 10,000 affordable units in the past 25 years and is considered a national model. Developers are assured a reasonable profit by awarding them density bonuses in exchange for including affordable units. A recent executive order in Boston requires 10 per cent affordable units in any housing development larger than ten units.) In neighborhoods undergoing rapid redevelopment, such as Shaw and Columbia Heights, where developers are eagerly and profitably rehabilitating old single-family stock, we propose that developers be required also to contribute a modest percentage of the sale price to the Housing Trust Fund for budding smaller, scattered, affordable-housing units, especially rental units, so that low and moderate-income residents may stay in their neighborhoods. At the same time the city must designate some of the vacant properties it owns in such neighborhoods as affordable-housing opportunities, especially for family rental units lost in the process of gentrification.

Other examples of inclusionary zoning include allowing accessory units such as "granny flats" or other rental units within single homes, encouragement of mixed-use developments in more neighborhoods (combining retail, office and housing), and linkages between commercial and housing development.

This kind of imaginative use of local regulations requires no new taxes, no Congressional approval. The city would partner with private developers who are benefiting handsomely from the current high demand in selected areas of the city.

11. Taking Advantage of Metro Stations. The District now has a one-time-only opportunity to build quality transportation-oriented development, including affordable housing units, around Metro stations. The recent rapid increase in Metro ridership underlines how valuable station areas have become. Taking advantage of Metro-owned land that is being sold to developers (who have to have city approval of what they do on these highly desirable sites), city leaders need to make clear their commitment to transit and pedestrian-oriented development and designs that reach Metrorail's full potential to enhance surrounding communities, reduce automobile dependency, and accommodate regional growth. At each site the mix of housing, offices, shops and public spaces should include a reasonable number of affordable units. To this end, the DCOP should dedicate substantial resources to working with the surrounding neighborhoods, planning better station development. They should conduct visioning exercises to help residents see how different development strategies could enhance their communities, making them safer and providing more amenities and services.

12. Split-Rate Taxation. By lowering the taxes on buildings and improvements and shifting a greater portion of real-estate taxes to the land, the cost of housing renovation can be reduced and investments in vacant and underutilized parcels encouraged. Split-rate taxes favor the developer who is investing and building, over the speculator who hangs on for years to vacant or derelict properties waiting for a higher offer -- after the city, more enterprising developers, and homeowners raise the value of his property through their investments and improvements. Pittsburgh and a dozen smaller cities in Pennsylvania have implemented this kind of tax structure and report real rewards accelerating new investment while reducing the cost of that redevelopment. Pittsburgh restructured its property taxes in 1979-80, raising the rate on land more than five times the rate on buildings. That year Pittsburgh's building boom outpaced all other cities in the region. This way of taxing property has considerable political advantage in that it offers a slight tax reduction to most homeowners, while making it tougher for speculators to hold onto unused valuable land. In the Pennsylvania cities under the split-rate tax, 85 per cent of home owners pay less than they did under a single-rate system

13. Tax Increment Financing (TIFs). On the premise that well-planned and designed development projects produce increased real estate and other taxable income for municipalities, some U.S. cities have made wide use of tax-increment financing. Though usually applied to commercial development, TIFs have been used in both Chicago and Kansas City to help finance affordable housing. DC should do the same.

TIFs are a mechanism by which a city's anticipated increase in taxes is used to pay off a bond for a desirable project that has specific public benefits, and that would not be built without the TIF. Typically they finance infrastructure such as water and sewer construction or transportation access, up to as much as 15 per cent of the total project cost. Chicago, Pittsburgh, Kansas City, Minneapolis and many California cities have decades of experience with T1Fs. Chicago is the leader with 2 per cent of its tax base and 7 per cent of its land financed with TIFs. DC has one project under way at Gallery Place and another under negotiation. Chicago has also set up a find to provide "micro TIFs" for home improvement and small businesses. DC could combine a major development project, such as the Home Depot store to be built in NE, with TIFs that could be used to jump start development in blighted areas. Micro TIFs could be used to add affordable housing in priority areas receiving assistance from the National Capitol Revitalization Corporation, or to include affordable units in upscale downtown housing construction.

DC has been very slow in using TIFs (authorized by DC Law 12-143 in 1988) and cannot possibly use up the $300 million cap by its expiration of the law in 2003. The Council should extend the law and specifically encourage their use for affordable housing. And because a city needs to have a critical mass of development in one area for a neighborhood to take of; the Council should amend the law to allow for the establishment of "TIF zones" within which developers, not-for-profit home builders, and businesses are eligible for TIF assistance.

14. Location-Efficient Mortgages (LEMs) are another market-based strategy. The Mayor's office should begin now to negotiate with local lending institutions who can be persuaded to create a new class of mortgages that factor in the location of a borrower's residence when calculating the level of a loan they would make. Recognizing that home owners who can walk, bike, or use transit to most of their destinations save money -- as much as $7,000 a year for households living and working close to the city core -- LEMs qualify buyers for bigger mortgages and allow them to purchase homes in otherwise unaffordable urban areas, rather than in distant suburban developments. In addition to boosting housing purchases in critical areas of the city, these mortgages can increase transit ridership, reduce energy consumption and local air pollution, support local shops and services, and help build viable neighborhoods. LEMs require no public subsidies, but elected officials must take the lead.

LEMs are now being tested in five cities under a $100-million lending program funded by Fannie Mae. They appear to be most helpful to low- and moderate-income families, and also could be used to find rental housing. Fannie Mae will assess its pilot program in March 2002, after which we can expect a major expansion of their availability in housing markets around the country.

15. Employer-Assisted Housing (EAH). City officials should work with selected companies to get them to assist their employees to find affordable housing close to their employment. All across the country, employers have used housing to attract and keep good workers. Typically, the employer offers grants of forgivable loans that may be used for down payments or closing costs. Others may offer subsidized or below-cost second mortgages, mortgage guarantees, or matched-savings programs. Some companies include home buyer education and financial literacy components. A few employers offer home-improvement assistance as well. Though less common, some employers subsidize rents to help employees locate close to work, and a few develop and manage rental properties. Public-private partnerships have been widely used to promote revitalization in priority neighborhoods. Although most EAH efforts have been funded wholly by the employers, some have been supported by local governments, non-profits and philanthropic organizations. Maryland has an EAH matching find. DC has used federal Block Grant funds. EAH leverages private funding, uses little or no public finds, and helps build communities.

One form of EAH is city housing assistance to key employees, especially police, firefighters, and teachers, encouraging them to live where they work. This has been done in Alexandria, VA. DC should do likewise, and when the budget allows it, the city should offer this benefit to all DC employees. In Seattle, using a carrot and stick approach, the city persuaded a local bank to write off closing costs or a part of the down payment for key city employees purchasing homes in designated areas on the grounds that the bank, which already held many mortgages in the neighborhoods, would be protecting its own interests in attracting police, firefighters, and teachers to live in those sections of the city. Applying the stick, city officials may also have reminded the bank that the city also had large deposits in that particular bank.

16. Fair Share through Neighborhood Planning. The Mayor should direct the DCOP's Neighborhood Planning Office to give immediate high priority to housing needs in implementing the Mayor's Neighborhood Action Initiative. Each neighborhood plan should include goals -- based on their share of a city-wide goal -- for the number of affordable housing units to be protected or produced, making this housing effort a truly city-wide enterprise. Each community and jurisdiction in the region should accommodate a fair share of affordable housing. This fair- share policy would govern placement of affordable housing, making sure it is scattered across the city and the region and not concentrated in one area. This approach is used in Seattle and is proposed in the Chicago metropolitan region, using inclusionary zoning as the chief lever.

In this planning effort, the DHCD must be fully involved with the Planning Office functions -- just as the safety, health, and sanitation services have been integrated in the ongoing work of the Neighborhood Planning Coordinators of the DCOP. Only as the DCOP staff develop an extensive public process that engages and informs neighborhood and city residents can we expect public support for the full array of policies and strategies necessary to create affordable housing and preserve and create mixed use and mixed-income neighborhoods. Planning should include small-area planning efforts around Metro stations as these areas are ripe for an increased focus of activities that combine more housing, shopping, and job opportunities within walking distance of our $10-billion regional rail system.

17. Budget. However laudable the goal of home ownership, every expert in the affordable housing field recognizes that housing for a large segment of really low-income households must be rental and cannot be built or maintained without public subsidies. The Mayor and Council need to figure out how much and where the money is going to come from and develop a plan and schedule to get it underway. Funds from the current budget need to be used now for analysis of the problem and planning. Modest funds should be put in the FY2002 budget to finance the various tax incentives that could be put in place quickly to protect and stimulate building of affordable housing, to fund more housing inspectors, emergency assistance for displaced families, and the Tenant Advocate's office.

18. Regional Cooperation. Even the most extraordinary efforts by the District cannot resolve the affordable housing dilemma without cooperation within the region because all the surrounding jurisdictions also have a big gap between the need and supply of affordable housing. Mayor Williams and Prince Georges County Executive Curry are to be commended for calling last year for a regional approach. County Executive Duncan wants to double the inventory of affordable housing in Montgomery County. Arlington has adopted affordable-housing goals and principles. Mayor Williams should convene a region-wide "Summit" at which elected leaders develop a region-wide strategy, pledge their efforts to specific goals, and determine to take concerted action to increase state and federal assistance in the task.

Part of their discussion should be about race, a topic that our leaders never discuss frankly. Unfortunately, racial discrimination is still a barrier to finding housing in some parts of the region, especially for families in the lower income brackets. Recent immigrants to the region - sometimes unaware of their rights, lacking language skills and wary of authority -- face special problems in finding housing. In DC we have long since lost our older African-American neighborhoods in Georgetown, Foggy Bottom, and most of Capitol Hill, and east of the river abandoned housing is being bought up by New York land companies. More recent prosperity -- and an influx of new, richer, mostly white residents into choice locations in the city - carries with it the threat of displacement of long-time residents in those neighborhoods and a new kind of segregation by class and race. Our political leaders need to help the community talk about these divisions in constructive ways. Political leaders throughout the region should seek to implement policies that create and maintain racially and economically diverse neighborhoods, policies such as inclusionary zoning, tenant assistance and vouchers that work, and aggressive enforcement of anti-discrimination laws.

19. Renegotiating with Wall Street. The Mayor needs to renegotiate with the Wall Street bond underwriters the restraints required on DC budgeting authority in order to recover our bond ratings. Under the agreement made at that time, the city was forced to pledge 70 per cent of its yearly real estate revenues to paying off general obligation bonds and to set aside another 10 per cent for the reserve, leaving the Mayor and Council with discretion in spending only 20 per cent of the real-estate taxes the city collects. With the city's administration improving and prosperity growing, our leaders should now be able to negotiate a better deal and free up some money for affordable housing and other city needs.

Conclusion. Above all, Mayor Williams and the Council need to communicate to all their constituents the seriousness of the affordable-housing shortage in the District, tell us what their intentions and time line are, and how affected residents can participate in the process. Residents of the city need to know that our elected leaders are committed to addressing the problem with some urgency. Change in our city may be inevitable, but displacement is not. The city has an extraordinary opportunity to make changes that will benefit everybody -- if we can marshal the right policies, resources and programs.

A Note on Sources. These tools for an affordable-housing strategy have been compiled with the help of many colleagues and from public hearings, meetings with city officials, non-profit affordable housing builders, lectures at the National Building Museum and other meetings and conferences, and newspaper articles. Parts of this paper lean heavily on publications of the Chesapeake Bay Foundation; Redefining Progress, Policy Options for Reducing Sprawl, Feb. 2000; Natural Resources Defense Council, Location Efficient Mortgages, 2000; Urban Institute, Toward a Balanced Housing Strategy for the District of Columbia and Its Region, 2000, Section 8 Mobility and Neighborhood Health, 1999, Who Should Run the Housing Voucher Program? A Reform Proposal, 2000; Fannie Mae, Reinventing the Company Town: Employer Assisted Housing in the 21st Century, Summer, 2000; Arlington VA, Affordable Housing Task Force, Report to the County Board, 2000; and WRN, Making the Most of Metro, 2000. We are especially indebted to Allan Borut, Tracie Roberts, and Margery Austin Turner for their assistance. For further information, contact Janet Welsh Brown (202-332-0789) or the WRN office (2026675445; E-mail: staff@washingtonregion.net)