Meeting DC’s Challenges, Maintaining Fiscal Discipline: Preserving and Expanding Affordable Housing| February 1st, 2007 |
According to the U.S. Department of Housing and Urban Development, housing is considered affordable if it consumes no more than 30 percent of a household’s income. This means, for example, that a household earning $20,000 per year can afford to spend no more than $500 per month on rent and utilities. While the number of apartments in DC below this level is very small — and shrinking — there are thousands of households with incomes this low, and their ranks have grown. This comparison highlights the severe lack of housing that is affordable in DC, especially to low-income households.
A review of housing trends in the District reveals the following:
Housing cost burdens are concentrated among DC’s lowest-income households. (See Fig 1) Housing costs have risen for everyone since the beginning of the decade, but low-income households have been the least able to absorb the increases. In 2004, households with incomes below 30 percent of the area median (AMI) — $25,600 for a family of four — made up 47 percent of the 93,000 DC households who spent more than 30 percent of their income on housing costs. These low-income families account for 73 percent of the 43,000 DC households with severe housing burdens — meaning they spend half or more of their income on housing.
The affordable housing stock has drastically declined. Between 2000 and 2004 the District lost 7,500 rental units costing less than $500 per month. The loss of these low-cost rental units is significant because there are still many District families for whom anything above $500 per month is unaffordable. In 2004, there were 47,000 renting households earning less than $20,000, but only 27,000 rental units under $500.
One sign of the worsening affordability crisis is the growing number of households on wait lists for subsidized housing. Over 46,000 households are on the DC Housing Authority’s wait list for Housing Choice Vouchers. This represents a 92 percent increase over FY 2002, when 24,000 applicants were on the wait list.
The affordable housing crisis also has affected moderate-income households. Between 2000 and 2004, the District lost 15,000 rental units costing between $500 and $1,000 per month. These units would have been affordable to households earning between $20,000 and $40,000 per year.
A similar trend took place among owner-occupied units, with median home values increasing by 91 percent between 2000 and 2004, and the number of homes valued below $150,000 falling by more than 27,000 during the same period.
The high-cost housing stock has increased. While the District was losing affordable apartments and homes, the number of rentals costing $1,000 or more per month increased by 38 percent between 2000 and 2004 ― a gain of 13,000 units. At the same time, the number of homes valued above $500,000 increased by 240 percent ― a gain of almost 24,000 homes.
The term “severe housing burden” does not tell the whole story for extremely low-income households. Households with incomes under 30 percent of AMI spend an average of 63 percent of their income on housing. High housing costs force families to live far away from job centers; cause many families to move frequently, which disrupts employment stability and children’s school performance; and make it harder to pay for other necessities, including work-related expenses such as transportation.
The District has taken a number of steps to address the rapid loss of affordable housing. The District has increased its investment in the Housing Production Trust Fund (from $5.5 million in 2003 to $58 million in 2007) and increased overall funding for affordable housing initiatives. Even with these increases, however, the overall stock of low-cost housing has continued to decline.
In 2004 the Mayor and Council appointed a Comprehensive Housing Strategy Task Force (CHSTF) to devise a plan to direct the city’s housing efforts over the next decade. The Task Force report, released in 2006, recommended creating an additional 19,000 affordable units, preserving 30,000 existing affordable units, and increasing the city’s annual investment in housing by $200 million per year. The District began implementation of the plan in the FY 2007 budget, but still has much progress to make. The new administration should:
- Continue to Aggressively Implement the CHSTF Recommendations: The District established a rent subsidy program in 2006, following a Task Force recommendation, and provided funding for approximately 1,000 households. Continued expansion will be needed to meet the Task Force recommendation of rent subsidies for 15,000 households. Further, the District has made only modest progress toward the goal of 6,000 units for homeless families under its "Homeless No More" plan.
- Fund the CHSTF Recommendations. While the District began implementation of these recommendations in 2007, the additional funding totaled $56 million, well below the $200 million expansion recommended by the task force.
- Improve Coordination of Housing Programs. At least eight different independent, District, and federal agencies produce, preserve, and/or provide affordable housing. The Housing Task Force recommended the appointment of a “housing chief.” This office could foster agency cooperation, coordinate housing funding streams, and oversee a central waiting list for housing programs.
- Preserve Affordable Housing in the Project-Based Section 8 Program. There are roughly 10,000 affordable housing units in DC in the project-based Section 8 program, under which private building owners contract with the federal government to provide affordable housing. As many as half of the District’s project-based section 8 units are at risk of expiring within the next year. While many expiring contracts will be renewed, owners of buildings in the hottest real estate markets may not wish to renew. Units in some other buildings are at risk of losing their contract due to failed HUD inspections. The District should take a more proactive role in tracking at-risk units, encouraging owners to extend contracts, and taking steps to preserve the affordable housing when contracts expire.
For more information, see the following DC Fiscal Policy Institute reports:
- Squeezed Out: The Worsening Shortage of Affordable Housing for Low-Income DC Households January 2005 (http://dcfpi.org/?p=54)
- Trends in Funding for Affordable Housing in the District of Columbia (http://dcfpi.org/?p=53)
- New Census Data Show DC’s Affordable Housing Crisis is Worsening September 2005 (http://dcfpi.org/?p=67)
Issue I: Implementing the Recommendations of the Comprehensive Housing
Strategy Task Force
In 2006, The District’s Comprehensive Housing Strategy Task Force released a set of recommendations to guide the city for the next decade. Many of the recommendations concern the creation and/or preservation of affordable housing for low-income households:
- subsidizing the production of 19,000 new affordable units;
- preserving 30,000 existing affordable units (including the city’s 10,000 project-based section 8 units and other affordable rentals in danger of condominium conversion);
- creating a new rent supplement program to help 15,000 very-low income households pay the costs of private rental housing, and to help non-profit and other housing developers bring rents down to levels that are affordable to the poorest households;
- reviving an emergency assistance program to prevent evictions for households facing severe rent, mortgage, and utility arrearages;
- maintaining 10,000 federal section 8 vouchers, particularly if federal funding is reduced;
- creating 6,000 units of permanently affordable housing to meet the city’s Homeless No More goals; and
- dedicating $200 million in funding to these and other efforts annually.
The District began implementing some of these recommendations in FY 2007, but further progress is needed to both produce and preserve affordable housing.
Producing Affordable Housing
Affordable units for very low-income households will require deep subsidies to produce and operate. The Housing Production Trust Fund and other resources will need a greater infusion of funding, particularly to focus more on activities such as helping tenants purchase their buildings and helping affordable housing developers acquire properties.
- Some 80 percent of the 19,000 new affordable units recommended by the task force are for households with income under 50 percent of the area median income (AMI) ― $45,150 for a family of four. Creating affordable housing for families at this income level often requires substantial subsidies.
- The District created a new rent supplement program in FY 2007, with funding that should allow it serve approximately 1,000 households in the first year. The program needs to continue to grow to reach the Task Force’s goal of 15,000 units.
- The District’s Homeless No More Plan was adopted in 2004, yet to date very few of the 6,000 planned housing units have been produced. These units will be costly because they will serve extremely low-income households, many of whom will need supportive services.
The Housing Task Force also recommended steps to expand the affordable housing stock that would not require tax resources, including the following
- Inclusionary Zoning: Under IZ, developers of new housing are required to set aside a specified portion of the new units for lower-income families, in return for being allowed to build more densely. The District adopted an IZ program in 2006.
- Using Public Land for Affordable Housing: The legislation adopted to create the Anacostia Waterfront Corporation requires that 30 percent of all housing built in the AWC must be affordable. The affordable housing set aside can be supported by selling land to developers at below-market prices. Legislation to apply the same requirement to all public land was proposed in 2005 but not adopted.
Preserving Affordable Housing
To get a net gain in affordable housing, the District also has to preserve existing affordable units that otherwise would be lost to market pressures.
- The District revived its emergency assistance program in FY 2007. The program was funded at $7.5 million, however, well below the Task Force’s recommendation of $20 million per year.
- Preserving project-based section 8 and other at-risk affordable units will require the District to be proactive in ways that it has not been ― tracking units with expiring contracts and those that have failed HUD inspections. (This is discussed in more detail in another section of this report.)
Funding Affordable Housing
The Task Force recommended adding $200 million per year to DC housing programs for each of the next 15 years. Among other things, the Task Force recommended:
- raising the deed recordation and transfer tax rates from 1.1 percent to 1.5 percent (and dedicating all of the increase to housing);
- dedicating 20 percent of deed taxes to the Housing Production Trust Fund, compared with 15 percent today;
- dedicating five percent of new real estate taxes from new residents to housing; and
- creating a commercial linkage fee program.
The FY 2007 budget made progress toward some of these recommendations by increasing deed recordation and transfer taxes to 1.45 percent. This raised $101 million in new revenue, but $45 million was dedicated to non-housing purposes. The net gain for housing was $56 million, far below the Task Force’s recommendation of $200 million.
Issue II: Improve Coordination of DC’s Housing Programs
A number of agencies in the District of Columbia are involved in efforts to create affordable housing: the DC Housing Authority; the Department of Housing and Community Development, the Housing Finance Agency, the Department of Human Services, the Department of Mental Health, the National Capital Revitalization Corporation, and the Anacostia Waterfront Corporation.
These agencies use a variety of tools ― such as federal grants and subsidies, locally funded rent supplements, the Housing Production Trust Fund, and low-interest financing. Because most efforts to create affordable housing require combining several of these tools, multiple agencies need to work together. Yet there is no entity in the District to ensure that this coordination happens and that the various housing tools are used most effectively. To address this, the District should:
Appoint a Housing Chief. The FY 2007 budget allocated $250,000 to create such a position, following a recommendation of the housing task force. That office has not yet been established. A housing chief is needed to foster cooperation among agencies, particularly since the District has created or expanded a number of housing tools in recent years — such as the Housing Production Trust Fund, local rent supplements, and inclusionary zoning. A housing chief would work to maximize the use of these tools and would monitor affordable housing development to ensure that a variety of needs are met throughout the city.
Design and Implement a Consolidated Funding Process for Extremely Low-Income and Supportive Housing. Producing housing for extremely low-income households requires many resources. Often projects need subsidies for the production phase — acquiring and rehabilitating existing housing or building new housing. Many also need ongoing "operating subsidies” to cover expenses like maintenance and utilities, mainly because the rents that are affordable to very low-income households are generally not enough to cover these costs. Finally, some projects require ongoing funding to cover supportive services, such as mental health services, life skills training, and job training.
A number of agencies have tools to support housing production ― particularly DHCD, HFA NCRC, and AWC. A different set of agencies provide funds to cover operating expenses and support services ― DCHA, DMH, DHS. While these agencies work together already in some ways, there is no official blueprint. This can be problematic for organizations looking to produce affordable units with resources pulled from different agencies.
Create a centralized wait list combining multiple programs. A number of District housing programs support development of affordable housing through for-profit and non-profit developers — such as inclusionary zoning and the Housing Production Trust Fund. The District needs a simple way for residents to apply for housing under these multiple programs. A centralized waiting list managed by the District would allow residents to seek assistance from all programs through one application. As units from various programs become available, the District could use the central waiting list to identify and contact the next eligible family on the waiting list. A centrally managed list also would help ensure fairness and integrity in the selection processes.
Issue III: Preserving Affordable Housing in the Project-Based Section 8 Program
To address the District’s affordable housing crisis, resources are needed to preserve existing affordable housing units in addition to creating new affordable housing. Even with expansions of DC housing programs, the number of housing units costing less than $500 a month fell 7,500 between 2000 and 2004, and units with rents between $500 and $1,000 declined by 15,000.
Housing units subsidized under the "Project Based Section 8" program are particularly at risk of being lost. In this program, apartment owners contract with the U.S. Department of Housing and Urban Development to provide housing that is affordable to very low-income households. The Urban Institute estimates that nearly half of the District’s 10,000 project-based section 8 units are at risk of expiring within the next year. Even more units could be at risk of losing their contracts because of failed HUD inspections.
District officials are notified of expiring section 8 contracts and failed inspections, but there is no coordinated monitoring or process for responding. The District should implement a process to ensure that there is an appropriate response ― which could include requiring owners to make repairs to prevent failed inspections, helping tenants to purchase their units, or having the District purchase the units to keep them affordable.
Mandate City Inspections and Repairs for Units that Fail HUD Inspections. Project-based section 8 units are subject to HUD-ordered inspections — Real Estate Assessment Center (REAC) inspections. If buildings repeatedly fail these inspections, the contract can be cancelled by HUD. If this happens, however, the owner is then free to sell the building for market-rate development. This creates a perverse incentive for owners to defer needed maintenance on their buildings.
The District can be expedient and proactive in preserving these units. Upon notice of failed inspections, the District should conduct a local inspection and then mandate needed repairs. In this way, the District could limit the ability of owners to terminate their HUD contracts early.
Strengthen Tenant Purchase and Exercise the District’s Own First Right to Purchase. The District should increase the capacity of non-profits that assist with tenant purchases. This would enable more tenants of project-based section 8 units to buy their building when owners’ contracts expire, and it also would help tenant groups in other apartments facing condominium conversion. The District could also coordinate and exercise its own first right to purchase these buildings (guaranteed by the Low Income Housing Preservation Act of 2002) if tenants are not able to do so. The District could maintain those properties as affordable.
 Homes for an Inclusive City: A Comprehensive Housing Strategy for Washington, D.C.., April 2006 (http://www.brookings.edu/metro/gwrp/200509_housingstrategy.htm)
 Commercial linkage fees are assessed on new commercial development and dedicated to affordable housing initiatives, the logic being that the jobs created by new development squeezes affordable housing options. A jurisdiction must conduct a “nexus study” to determine the appropriate fee level before assessing.