- The Washington Times - Thursday, August 11, 2005

While most of the headlines about the Washington-area real estate market have something to do with skyrocketing home prices and windfall profits, another dimension of the market is also making news — affordable housing.

Because area home prices have risen much faster than incomes, affordable housing isn’t an issue for only low-income residents. Most organizations involved in affordable housing now speak of low- to moderate-income residents needing homes that are reasonably priced.

“I’ve been working in affordable housing for 40 years, and I have never seen a real estate market like the past five years,” says Walter D. Webdale, president and CEO of AHC Inc., a nonprofit developer of low- and moderate-income housing in the Washington-Baltimore region.

A study by the Center for Housing Policy found that from 1997 to 2001, there was a 67 percent increase in the number of low- to moderate-income families in the United States who spent 50 percent or more of their income on housing.

Many who study housing affordability consider 30 percent a more viable figure for a family’s housing budget.

“The 1980s were a similar market, with lots of condo conversions,” Mr. Webdale says, “but today, affordable housing is totally disappearing. It seems that any property that was rental is being converted, and the market pushes the price out of our reach.”

When it finds something within reach, AHC buys property and develops it into rental and for-sale housing that is affordable. A good example is the $100 million project in Arlington called the Gates of Ballston.

“We were able to save 464 units, but we had to bid against the private market,” Mr. Webdale says. “Fortunately, we had unbelievable cooperation from the county, plus a variety of tax credits and other financing help.”

The Gates of Ballston is under rehabilitation now, and the first units will be available next year. Seventy-five percent of the homes will be affordable units, while the remaining homes will be available at market rate.

Because the Washington region has grown so quickly — faster than the housing supply — the need for new, affordable housing becomes even more apparent.

Some 85 percent of respondents reported in a 2004 survey by the National Association of Counties that the bulk of new-home construction in their jurisdiction is designed for the middle- and upper-income buyer.

This makes sense, from a builder’s perspective. Consider sport utility vehicles, which are automakers’ favorites because their higher price tag yields more profits than compact cars or sedans. In a similar way, home builders can generate more profit from higher-priced homes, so that is what they choose to build when the market will bear it.

Yet there always will be a need for more-affordable homes for buyers and renters. How are area jurisdictions encouraging and mandating the construction of housing for low- and moderate-income buyers and renters?

Here’s an overview of recent developments around the Washington metropolitan area:

Montgomery County

On April 1, Montgomery County instituted a change to its Moderately Priced Housing Program — a program copied by other area jurisdictions, including Fairfax, Loudoun and Prince George’s counties. The strategy, often labeled “inclusionary zoning,” is also being considered in the District.

Montgomery County’s program requires that 15 percent of the homes in every new subdivision of 30 or more units be affordable for moderate-income buyers.

After purchasing one of these “moderately priced dwelling units,” the county imposes resale restrictions on the homes for a given period. The price for which the unit can be resold is controlled during this period, and the unit must be resold through the county’s program to another qualified buyer.

The April 1 change lengthened the control period to 30 years, and for rental units, the period was extended to 99 years. In addition, the program now affects new housing projects with 20 units or more, instead of 30.

Since the program began in 1973, more than 10,000 affordable housing units have been built. About 250 units are added each year, and they are extremely affordable by Washington-area standards — priced from $120,000 for a two-bedroom condo to about $180,000 for a single-family home.

To qualify for the program, a household must have an income less than 70 percent of the area’s median income, adjusted by family size. Priority is given to people who live or work in Montgomery County, and 8,000 households are on the waiting list.

For information, call 240/777-3600 or visit www.montgomerycountymd.gov.

Fairfax County

Inclusionary zoning actually was passed by Fairfax County leaders before Montgomery County’s version, but the Fairfax ordinance was struck down by the Virginia courts before it was enacted.

By 1990, Fairfax County’s inclusionary-zoning ordinance was here to stay. In 1998, some amendments were made to the program. The most significant change altered the price control period from the original 50 years to only 15 years for for-sale units and 20 years for rental units.

More recently, Fairfax County received a President’s Choice award from the Housing Association of Nonprofit Developers (HAND) in recognition of the county’s “one penny for housing” legislation.

Beginning July 1, one cent of each dollar of real estate tax revenue is devoted to the preservation and production of affordable housing. In the first year, the move is expected to generate $18 million.

“The real estate market has gone so crazy lately; it has really compelled some jurisdictions to put up some cash before they fall further behind,” says John D. Spencer, vice president of Victory Housing Inc.

The concept arose late last year, when a citizen task force developed a plan to preserve 1,000 units of affordable housing by the end of 2007. The “one penny for housing” idea was the leading recommendation of the task force, and it garnered significant support from citizens who lobbied the board of supervisors to adopt the measure.

Each year, HAND honors nonprofits and community organizations that serve low- and moderate-income residents of Northern Virginia, Maryland and the District with housing projects and service programs.

“The HAND awards show what some of the trends are in affordable housing,” Mr. Spencer says. “Creative financing is one highlight these days, because it is driving so many things in the industry right now.”

Fairfax County also received an innovation award from HAND for a 2004 pilot program that housed fire department recruits and their families in affordable rental condos at the Courts of Westcott Ridge. The program has purchased 10 condos, six of which have been leased by new firefighters. Only 23 percent of Fairfax County’s firefighters live in the county where they work — a situation that is becoming common all over the Washington metropolitan area.

Alexandria

In a move similar to Fairfax County’s, the Alexandria City Council recently announced that the city will set aside one penny of each dollar received from real estate taxes and title recording fees and devote it to affordable housing.

The pennies will add up to an expected $2.8 million in 2006, significantly boosting the $11 million the city already had devoted to housing in the 2006 budget. Money not spent in 2006 will roll over into future housing budgets.

Alexandria officials say that condominium conversions are one reason the additional funds were needed. Area home prices are so high that windfall profits are a strong incentive to those who own rental apartment buildings.

Converting apartments to condominiums has been extremely popular in the Washington area, but many of the renters cannot afford to buy the homes once they are placed on the market as condos.

For details about affordable housing programs, call the city’s Office of Housing at 703/838-4990.

District of Columbia

A housing project in the District also won a HAND award recently. Dupont Commons is a community of 147 affordable town homes that were sold to first-time home buyers. Completed last year on the site of what used to be public housing, 17 of the homes were bought by former residents of public housing.

The community was developed by the Washington Interfaith Network and Enterprise Homes Ltd., and the town homes were built by Bozzuto Homes Inc.

Also in the District, the zoning commission is considering proposals that would bring inclusionary zoning to the city. In late July, the zoning commission held hearings on two versions of the proposed zoning change, which would require a percentage of new housing units be set aside as affordable housing.

In one version of the proposal, projects with 10 or more dwelling units would be affected, with 7.5 percent to 15 percent of the units being set aside as affordable units, depending on the size of the project.

Of those units set aside, half must be made available to households earning up to 50 percent of the area’s median income — currently $42,700 for family of four. The other half would be reserved for families making 80 percent of the median income, or $68,320.

As an incentive, builders would be allowed to exceed existing density restrictions by 20 percent, which would make it possible for the builder to wring more profit out of each parcel of land.

Prince George’s County

Ten moderate-income families in Prince George’s County recently benefited from the work of County Executive Jack B. Johnson, who brokered an agreement at Forest Creek Apartments in Forestville.

Under pressure from the county to improve living conditions at the apartments, the property managers agreed to provide five apartments to schoolteachers and five to police officers — free of charge.

Charles County

Charles County schools are working with a developer to reserve 30 affordable apartments for teachers, although not rent-free. They would be sold to teachers under the Teacher Next Door program of the Department of Housing and Urban Development. In the past five years, nearly 1,000 teachers have bought government-owned homes in Maryland, Virginia and the District through the program.

Bids are accepted on homes in HUD-designated revitalization areas, which are sold to qualified buyers at a 50 percent discount.

For more on the program, visit www.hud.gov.

In January, the commissioners of Charles County adopted a housing plan that includes the unusual goal of increasing rentals in the county. The rental market is very tight in Charles County, with close to 100 percent of the rental homes occupied.

With a median income lower than that of closer-in jurisdictions, some teachers and firefighters there have an even more difficult time finding affordable housing than in other area counties.

So, even though most communities are trying to increase the percentage of residents who own their homes, Charles County plans to increase the number of renters from 22 percent to 24 percent. To do so, more than 7,000 new rental units will be needed by 2020.

To make it happen, the county will promote the construction of more attached and multifamily dwellings and publicize the allowances made in the county’s zoning ordinance for apartment development.

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