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FW: Localizing Affordable Housing -- from Strong Towns Blog

From: David A. Roise <"David>
Date: Thu, 1 Dec 2016 12:26:47 -0800

Dear Council Members and Staff,

See below for a great recent blog post from StrongTowns.org on the best ways
to increase affordable housing. (Or, as they point out, simply to increase
"housing", since market forces should really take care of the "affordable"

Original post is here:

Item 3 is especially relevant for a place like Menlo Park. We simply
haven't been building enough of the so-called "missing middle" housing
types. Encouraging incremental development is really the best way for us
to grow our housing supply organically and thus to come closer to meeting
the demand for it. That's ultimately the only way we will solve our
commuter traffic problems. (Oh, that and trying to limit the
overdevelopment of downtown office space.)

Think globally, act locally!

Dave Roise

Feed: Strong Towns Blog - Strong Towns
Posted on: Wednesday, November 30, 2016 3:00 AM
Author: Daniel Herriges
Subject: Localizing Affordable Housing

I live in one of those blue urban bubbles you've heard so much about since
the presidential election. So my social circles were filled with a good deal
of generalized shock and anger and dislocation in the days that followed the
surprise outcome. But I also had a good number of friends and acquaintances
with a much more concrete worry, because I'm in a graduate program in Urban
and Regional Planning, and many of my classmates are considering or plan on
working in the affordable housing industry. The common refrain I heard from
them was, "My career plans depend on HUD [the U.S. Department of Housing and
Urban Development], and now who knows what's going to happen to HUD?

It's unfortunate that we do depend so much on the federal bureaucracy to
produce housing, something that is really a quintessentially local concern.
There are reasons for it, both historical and practical, but it is
ultimately a source of fragility. It puts local entities' ability to meet
local needs at the mercy of distant decision makers whose priorities may or
may not be aligned with those needs. Cities and advocacy groups should be
thinking about how to re-localize and claim more control over the way we
tackle these problems.

How Affordable Housing Works

People who work in the field talk about capital-A "Affordable housing" as a
very different thing from lower-case-a "affordable housing." The latter
means, literally, housing that people can afford to own or rent. The former,
however, refers to housing which receives some form of subsidy: either its
rent is kept below market-rate by deed-restriction or law, and/or its
tenants are income-screened or subsidized with vouchers. And it is very much
an industry, which operates according to a pretty standard set of rules and
financing mechanisms.

Particularly in the Twin Cities region of Minnesota, there is a remarkably
large and active affordable housing industry, including several prominent
nonprofit developers and charitable foundations who frequently collaborate
to get projects done. I've been told by professor after professor,
"Minnesota is just about the best place in the nation to be if you want to
work in affordable housing."

But there's a glaring source of fragility here: affordable housing
development, as it is most often practiced, grinds to a halt without federal
The reasons for this are complex and date back to the New Deal, and they're
beyond the scope of this piece. But essentially, from the late 1930s through
the mid-1960s, most low-income housing was public housing, funded by the
federal government and administered by local housing authorities. By the
mid-'60s, the public housing program was in disarray-infamous for poor
living conditions, deferred maintenance, high crime rates and social
dysfunction, and near-total racial segregation.

With bipartisan support during the Nixon Administration, Congress shifted
housing resources toward programs that would leverage the private and
nonprofit sectors to produce low-income housing, rather than have government
do so directly. These include the Section 8 voucher program, begun in 1974,
and Community Development Block Grants, which are given to local governments
to spend nearly however they see fit, within some very basic parameters.

In 1986, the IRS, of all agencies, became the largest player in subsidized
housing when a revamp of the federal tax code created the Low Income Housing
Tax Credit (LIHTC). Nonprofit housing developers apply in a competitive
process to be awarded these tax credits; those who receive them can turn
around and sell the credits to an investor. The investor receives a
dollar-for-dollar reduction of its tax bill. The nonprofit uses the proceeds
to supply the bulk of the funding for an affordable housing development
project. LIHTC dominates affordable housing finance in the United States: it
has created nearly 3 million units since its inception. No other program
comes close to that number.

LIHTC is the biggest source of funding for new projects by far, but HUD
money is often the deal-clincher. An extremely simplified funding package
for the construction of an affordable multifamily complex looks something
like: 70% equity from the sale of LIHTC credits, 25% mortgage, 5% money from
one of HUD's various grant programs. Cities and local foundations often chip
in too at the margins to make the deal pencil out.

This reliance on a grant-based model, and specifically on federal dollars,
makes the affordable housing sector vulnerable and chronically underfunded.
It's no wonder that subsidized affordable housing meets only a tiny fraction
of the demand for it. (The Section 8 voucher program, for example, serves
only about 1 in 4 households eligible for it, with long waiting lists in
nearly every city.)
But there's not denying that, in high cost-of-living cities, subsidized
housing provides homes for a significant number of people. For just one
example, it's estimated that around 18% of the housing units in Columbia
Heights, Washington, DC are income-restricted. That translates to thousands
of low-income people who get to stay in an increasingly expensive area where
many of them have deep roots-people who otherwise might well have been
displaced by rising rents and evictions. That's not nothing. It's important.

This moment of uncertainty about the fate of federal support for housing is
a great time to put some Strong Towns principles into action. Strong Towns
is about building fiscally sound and resilient communities. Resilience means
knowing you're going to be able to finish what you started. If you've got
grand plans for your town but they will fall apart if federal money dries
up-if a recession leads to belt-tightening or a change of the party in power
alters federal priorities-you're probably not a Strong Town.

This is true in transportation and public infrastructure. It's true when it
comes to big-ticket economic development initiatives. And it's true when it
comes to housing.

How can we take a more holistic look at why affordable housing is a problem
in our cities to begin with? Why is the housing market failing to the extent
that there is such a shortage of decent housing that won't break the bank
for lower-income Americans?

And once we've taken that look, how can we fix the shortage in a way that is
fiscally sustainable and resilient to changing political winds? And
responsive to local feedback mechanisms? A few thoughts on what cities and
affordable housing developers should be doing:

1. Find local resources, and use them to leverage scarce state and federal

If HUD's budget gets slashed, housing developers are going to have to get
more resourceful. Press your city and county to dedicate what funds they
can. Use these funds to leverage and stretch the dollars from federal grant
programs-try to match them with local contributions. Build connections with
local foundations, or key business players. Affordable housing becomes not
just a social-welfare but an economic development problem in expensive
cities, where employers may struggle to attract a workforce; local Chambers
of Commerce are often deeply interested in this issue.

2. Make life easier for small landlords

Let's be clear about one thing: most affordable housing is not Affordable
Housing. Most low-income people live in units sold and rented on the open
market without any subsidy. It's a quirk of the capital-A Affordable
industry that it has even coined its own jargon for something that really
shouldn't need it: NOAH-Naturally Occurring Affordable Housing. Also known
as.... housing.

While NOAH is the most important source of affordable housing, the rule that
there's no free lunch applies: a cheap apartment is almost certainly cheap
for a reason. It may be in a high-crime neighborhood. A lot of it is in
awful condition, with severe mold or plumbing problems. Small-time,
mom-and-pop landlords may struggle to pay for routine maintenance, if they
can't bring in enough rent to justify it.

There are a few ways that local policy changes can help preserve small-scale
rental housing. One is tiered code enforcement. Aggressive code enforcement
can be a barrier to renovating old buildings that need it; they may be out
of compliance with zoning or building codes in ways that have been
"grandfathered in," but a renovation can cause that grandfathering to lapse.
Sensible code enforcement should involve a simple set of rules and
procedures, and should prioritize actual pressing health and safety issues
over things that are more cosmetic or can safely be deferred for later.
Strong Towns member and contributor Johnny Sanphillippo recently wrote about
the ordeal he went through trying to renovate and operate a small rental
property in Cincinnati. It's well worth a read. Faced with bureaucratic
obstruction, Johnny eventually gave up. That's Cincinnati's loss, and his
would-have-been-tenants' loss as well.

This kind of thing is a local problem with a local solution; no HUD

3. Unlock incremental growth in housing supply

There's a more macro problem here which shouldn't be ignored: why does
demand for subsidized housing so badly outpace the supply of subsidy
dollars? Why is the market, in many parts of the country, failing to meet
the housing needs of a large segment of the population?

A big reason has to be that we've choked off many of the avenues for housing
supply to grow organically to meet demand. It used to be that neighborhoods
in high demand would gradually intensify in land use over time: duplexes and
triplexes would replace single-family homes, small apartment buildings would
go up on individual lots. But a whole swath of these "missing middle"
housing types have been zoned out of most American neighborhoods.
This leads to unproductive, car-dependent development patterns. This
directly affects affordability, because transportation costs are a huge part
of the average household's budget. An incremental, Strong Towns model of
development would tilt the playing field back in favor of walkable

There's another way the lack of missing middle housing hurts affordability.
Without incremental growth in housing supply, what we get is two types of
neighborhoods: those that see nearly zero redevelopment, and those where
land values have risen enough to justify massive residential projects on the
scale of whole city blocks. A lot of backlash against skyrocketing housing
costs is occurring in a handful of hot urban neighborhoods in places like
San Francisco, DC, and Brooklyn, where redevelopment has produced a torrent
of rapid, disruptive change in the character and demographics of the
You hear about the Mission District in San Francisco. You hear a lot less
about the huge swaths of that city-more than half of its area, easily-that
are low-rise, almost exclusively single-family homes, and zoned in a way
that totally precludes incremental development.

Boil a pot of water on your stove with the lid on. Then crack the lid just a
little. See how intensely the steam comes rushing out of that one little
opening? The change in demographics and high cost of living in the Mission
is a direct result of the near-total lack of incremental development in the
other 80-90% of neighborhoods.

And here's the dirty little secret of the federally-funded affordable
housing model: it's part and parcel of this binary system where
neighborhoods have only two choices: no change or cataclysmic change. The
LIHTC funding model in particular, because of how it's driven by large
institutional investors, has a strong bias toward large projects-60, 80,
100, 200 units. So even affordable housing projects contribute to the
perception of disruptive neighborhood change. These megaprojects disrupt the
urbanism and walkability of a neighborhood. They are fragile and can become
costly failures.

Strong Towns has a clear set of suggestions for addressing this: Unlock the
Missing Middle. Unlock the next increment of development across a broad
swath of our cities.

4. Support novel models of shared equity

Community Land Trusts are a mechanism for making affordable homeownership
available to low-income people, and preserving a stock of affordable housing
in a neighborhood by removing land from the speculative real-estate market.
A Land Trust is a nonprofit which buys up and holds residential lots. It
then sells the houses, but not the land, to low-income households. When and
if the family sells the house, they can only reap the appreciation on the
structure itself from any renovations or improvements they may have made.
They are insulated from any fluctuations in the underlying land value.

Limited-Equity Cooperatives similarly give low-income people an ownership
stake in a home they could not otherwise buy. A co-op can be anything from a
single apartment building to a cluster of free-standing homes; the key is
that residents own a share which entitles them to a housing unit, but do not
own the underlying land: the co-op organization does. Maintenance and
management expenses are shared, and the mortgage is shared across all units
in the co-op, reducing the risk of default.

Models like this are versatile, equitable, low-risk, and not at all tied to
a particular funding source such as federal tax credits. The specifics of
how they work can be adjusted for local conditions in a way that housing tax
credits as a standardized investment product never can. I predict, in an age
of re-localization of the way we handle urban problems such as housing,
we'll see more and more things like this.

5. Create permanent local funding sources tied to market feedback

Properly-functioning feedback mechanisms are important to the long-term
solvency of any program. Localities should fund subsidized housing through
mechanisms that try to ensure the funding pool will mirror the actual
demand. A property tax surcharge, dedicated to a fund for affordable
housing, is one way to do this. If the market is hot, and there is greater
risk of displacement from rent hikes, more money comes in to address the
issue. If the market cools, there is less money, but also less immediate

Inclusionary zoning, in which developers of large market-rate projects are
required to set aside a certain percentage of units for low-income tenants,
is another option. It effectively uses property owners' windfall gains in
rapidly-rising markets to fund affordable housing to deal with the social
problems (i.e. displacement of low-income people) created by those rising

Inclusionary zoning is controversial-some argue it has a market-distorting
effect and may disincentivize new development to the point where it's
self-defeating, others that it's not scalable enough. It certainly doesn't
make sense everywhere, but in the Seattles and Austins and New Yorks and DCs
of the world it may.

That's the beauty of local solutions to local problems. They can and should
be adapted to local conditions.

6. Continue to advocate for federal policy change

None of this means that federal policy will be irrelevant to local problems.
HUD and other federal resources are important, because often the places that
are struggling locally are the places that really need an influx of
resources. If rich regions can spend more to help their poor than poor
regions, then those disparities are just going to be magnified over time.
And geographic disparities between rich and poor regions of the country are
a big part of what's causing our current political polarization.

In addition, there are federal policies that directly hamstring efforts to
reform local land-use and housing policy. We, at Strong Towns have been very
critical of these barriers in the past. FHA rules and mortgage lending
industry practices put incremental, fiscally productive forms of development
at a huge disadvantage.

The federal government matters, but ultimately, building Strong Towns means
building local economic ecosystems that are in balance and sustainable:
where local funds are able to meet local needs in ways that are responsive
to local conditions. This is as true in the housing sector as in anything
else urban planners, developers, and activists do.
Received on Thu Dec 01 2016 - 12:31:13 PST

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