Is ‘Affordable Housing’ ‘Smart Growth’?

JGFitzgerald -- July 22nd, 2009

A recent issue before City Council appeared for two members to come down to the “smart growth” project being “affordable housing. “ Was it? The expressions, like many used in civic discourse, do have definitions beyond the dictionary meaning of the two words used alone. And this project apparently failed the affordable housing test according to the definition in a housing study from the Housing Authority.

The distinction is not minor. One council member called the project under discussions (paraphrases) “affordable homes in a blighted area … a benefit for the community and this neighborhood in particular.” Another answered that “affordable housing is never an issue unless it is in connection with a developer wanting a variance on density requirements.”

The definition of affordable housing appears in the excerpts below from a study prepared by S. Patz and Associates, Inc., for the Harrisonburg Redevelopment and Housing Authority. The report is posted here, and here, and is also the topic of a post by Scott Rogers on the student housing issues.

The report is updated every five years. Excerpts below:

Review of Housing Issues, 2005

• The loss of new construction of higher price new homes to sites in Rockingham County, while the City continues to attract only more modest single family detached and attached homes. This trend continues.

• Changing demographics due to employment demands in the poultry industry, attracting ethnic immigration. This is continuing in service industries, as well, despite some economic reverses in poultry packing.

• A large oversupply of off-campus student apartments. That oversupply has since been significantly absorbed by slowly increasing enrollments and other sources, such as out-of-City students and movement of students from non-student apartments.

• An additional focus of the current study is the development of and implementation of housing projects in the downtown in support of Downtown Renaissance efforts for revitalization. To date this is a much discussed but as-of-yet unexplored endeavor.

Why we are where we are: 2005
• Much of the inventory of vacant R-1 land for higher priced housing in the City was identified as poorly located in the western part of the City, posing development problems. Among those problems are topography and a limestone base. Adjacent industrial and commercial uses offer a negative image and increase development costs. Some of the best R-1 land has been used for development of modest attached homes.

• Developers reported higher development costs – from 10 percent to 15 percent — in the City than occurs in the County due to stringent City requirements for infrastructure such as sidewalks, and curbs and gutters. Developers stated that the market will not permit the recouping of those costs through the further increasing of sales prices. It was not possible to adequately confirm these perceptions, which still exist.

• Much R-2 land is in effect serving the rental market, as economic conditions favor investor purchase of individual units for rental, especially duplexes and townhouses. The better R-2 sites have already been developed with a mix of moderately priced singles and towns, leaving little land available for higher priced units.

• Update: Virtually all net growth in the City since 2000 through 2005 has come from the ethnic and student populations. The apartment market over-expanded in the 1990’s to serve those markets. That oversupply has since been largely absorbed, and the apartment vacancy rate has been forced down to virtual full occupancy (about two percent in conventional apartments, five percent for student apartments). The moderate income owner housing market continues serving primarily move-up and lateral-move buyers as before.

What does “Affordable” Mean?
Affordable rents. Affordable rents can be defined as gross rents that do not exceed 30 percent of a household’s annual income. Gross rents at the better but mature market rate apartments start in the mid-$500 range. Households with incomes in the “low” ranges of $20,000 to $22,750? or less cannot afford such market rate units. Households in the $22,750 to $30,000 income range could afford (older) market rate properties renting for up to $700 per month. Most new market rate rental units rent in the $750 to $1,000 range (gross), which would be affordable only to households in the “moderate” income range of $30,000 to $40,000 per year.

Affordable prices. In general, home prices are judged affordable if total annual housing payments (“PITI”) do not exceed 28 percent of household annual income, allowing for an interest rate of 6.0 percent and 1.0 percent for taxes and insurance. Based on these parameters, a first-time buyer household would have to have an annual income of $25,000? to afford a home at $75,000, a price at which it is extremely difficult to find a new home. For this study “affordable” home prices for moderate income households – those with incomes roughly in the $30,000 to $40,000 range — are taken as those in the $100,000 to $125,000 price range.

Multi-family Homes and the Rental Market Response

• The 1990’s overhang of student apartments has been mostly absorbed, and vacancies in apartments are currently quite low, at approximately two percent. Student-occupied conventional apartments account for one-third of all student-occupied units and nearly one-quarter of the conventional apartment inventory in Harrisonburg.

• The 2,100 units of subsidized housing provided by HRHA accommodate almost three-quarters (76 percent) of the low income households in the City as defined above (some higher income households may be included). The income cut-off for this definition (based on census income categories) is at about 45 percent of the area median income.

Recapitulation and Progress

• The previous study concluded that the problem in delivering higher priced homes is a “product (supply) issue” and not a “market (demand) issue,” based primarily on development costs and limited land availability, as stated above. Consequently, since the supply of good R-1 land is not likely to increase, the City needed to find ways to stimulate better utilization of the existing land inventory. A key measure is to work to reduce development costs by offering incentives – e.g., reduced infrastructure requirements, allowance of higher densities – in return for development of higher priced homes with more on-site amenities.

There has been no apparent movement in this direction. No specific policies of this type have been implemented. This remains an unfilled challenge; it is still needed.

• While product is the major issue, stimulation of niche demand markets is also an alternative strategy, particularly the market for active adult, or “empty-nester”, housing. Innovative techniques such as zero lot lines can facilitate the development of attractive “carriage” or “patio” homes in a gated community with extensive on-site amenities to attract buyers and support a higher home price.

• Utilization of the Low Income Housing Tax Credit (LIHTC) program was advocated to increase the stock of affordable rental housing. This was considered an especially viable option because of the financial attractiveness of the program to the developer, and because of the then-oversupply of vacant apartments in the City.

While some properties have been developed or converted to the program, the subsequent absorption of those vacant units and the lack of development of new market rate apartments quickly forced the vacancy rate down. The higher rents in the tight apartment market, plus the favorable development financing situation, has reduced the attractiveness of the LIHTC program to developers.

• The oversupply of vacant student apartments was also viewed as a potential source of supply of affordable housing because the larger units in student apartments would be conducive to housing the generally larger families of the immigrant ethnic population, or, alternative, the doubling up of single immigrant men, who have made up a large proportion of that population.

This appears to have taken place to some limited extent and to have contributed to the absorption of the overhang of vacant student apartments in the City, although most units are market rate and not “affordable.”

• The City remains hesitant to allow smaller lot development in currently R-1 areas or use of cluster zoning because of resident opposition. There is a pressing need for education – the public appears not completely sold on the Comprehensive Plan. (See further discussion of the Plan, below.) Developers oppose creation of Home Owners Associations needed to implement cluster development, arguing that buyers do not want them.

• The City needs to recognize that the multi-family housing glut is over and there is a moderate pent-up need for more multi-family rental units, including some demand for market rate units. The need for affordable rental units continues but is not growing any faster than it has in the past. Since the non-residential tax base is healthy, there should not be a hesitancy to implement affordable housing due to tax base issues.

• The City should continue to work closely with JMU concerning housing as well as economic development, in the event that the maximum enrollment increases do eventuate. The construction of new dorms on planned expansion land is preferable to overloading the City’s apartment inventory. Another boom-bust cycle should be avoided; what is needed is modest but steady multi-family housing growth.

• Downtown Renaissance: the housing objective is to encourage middle income/professional residency in the downtown through the provision of upscale condominiums and single family on in-fill lots. However, there is no market support for upper income condos downtown now. Some buildings are available; upper floors in existing retail are the most promising but most are feasible only as office space due to internal configuration, safety requirements, etc.

24 Responses to “Is ‘Affordable Housing’ ‘Smart Growth’?”

  1. I’m a little unclear on what the intended take-away from this is. Are you saying we have too much affordable housing downtown, not enough downtown, or are you trying to communicate something else?

    In general, it seems to me we currently have a glut of units geared towards students, which should not be confused with affordable housing targeted for families. When my wife and I looked at moving closer to downtown we found the available units to be cost-prohibitive even for a DINK couple with decent incomes.

  2. JGFitzgerald says:

    Uh … take what you want. The problem addressed is the general misunderstanding of housing issues, partially because of a frequent failure to see the issue as a whole. More than any other development issue, housing determines what kind of city we are and what kind of city we will be pretty much forever. A bad decision on a strip mall means an ugly abandoned strip mall until the next retail boom, but a bad decision on housing lasts so long as the rivers flow and the grasses grow. Bad decisions are more likely when the terminology is used loosely and imprecisely to justify the decisions instead of precisely and accurately to make the decisions.

    The takeaway is that the information is here, for those who want to read it — summarized here (with the help of DebSF) and in total at the locations cited above.

  3. JGFitzgerald says:

    Maybe my comment above, and the post, were too long. Here’s the real takeaway.

  4. seth says:

    thanks joe,
    this is really interesting. i’ve heard that one reason we have such a high immigrant population in harrisonburg is the availability of housing (combined w/ the availability of work). while i see that unintended consequence (that has definitely had a large impact on the type of city we are) as a net positive, the idea that developers will continue to one up whatever was built last year can’t be a sustainble or intelligent way for us to be growing.

  5. Joe, when you were on Council what guided you when chose to vote for special use permits, rezoning, ordinance changes, and other variances on housing and growth issues?

    I was skimming over the City Council minutes from 2002 (just to pick one year of your term in office) and I can’t find any instances of you going against the developers on those votes.

  6. JGFitzgerald says:

    Jeremy,

    I’m tempted not to engage, because this isn’t about me, but … how many times did I go against the Planning Commission?

  7. Jeremy Aldrich says:

    Hard to say…it seems the Planning Commission is only mentioned in the minutes (from 2002, anyway) when they recommended approval, and on many issues their recommendation is not mentioned at all. The PC minutes links don’t seem to work, either.

    I guess it’s one thing to promote smart growth, and another to try to rub it in someone’s face because you don’t like them and would like to embarrass them. I assure you that’s not what I’m trying to do in discussing the issue with you.

  8. JGFitzgerald says:

    Gx,

    I’m not at all clear how a City Council vote on a Planning Commission recommendation from 2002 is supposed to embarrass me. But I’m glad that’s not what’s behind the incomplete perusal of my record.

    JF

  9. Deb SF says:

    Oh, for heavens sakes. To clarify, a variance is not a variance is not a variance here (apologies to Stein).

    IOW, on the one hand, there’s:

    a) The GOOD variance. Developer applies for a variance. Staff approves, PC approves, Council approves. The comp plan quietly rejoices. The developer makes money. Everyone’s happy, sunshine and butterflies for the city. See the example in piece Joe linked to above @9.56.

    But then there’s …

    b) The BAD variance. Developer applies for a variance. Staff says no (twice). PC says no (twice). Two of the Comp Plan’s top 10 goals indicate that council should say no.

    And council approves on a split vote, 3-2.

  10. JGFitzgerald says:

    It is not surprising that few issues turned up in the City Council minutes, 2000-2004, that had been rejected by Planning Commission. People seeking zoning changes or variances must advertise their appearance before council. If they have already been rejected by the PC, and the council generally upholds the PC, as was the case at that time, then it is a bad bet to pay the advertising costs to take it to council. If someone pays those costs despite a loss at PC, it would be reasonable to infer that they have some expectation, prior to a public hearing being held, of prevailing before council.

  11. Jeremy,

    A snide takeaway would be that Joe knows more about housing than some of our current City Council members, which, btw, is probably correct. Another is of course his link to how things work with Deb’s addition, much of which boils down to, “pay attention to and take seriously recommendations from the Planning Commission, especially when supported by the Planning staff,” which, btw, was a major issue in the recent local election and with which I tend to agree as well as being a wise approach.

    I would beg to differ with Joe on one point. He said in a comment above that “More than any other development issue, housing determines what kind of city we are.” No. The fundamental driving force is the nature of the local economic base, the industries that export and bring in money to the area. That is not the strip malls, which are secondary. It is JMU and Rosetta Stone, and so on, which is why helping RS expand here was a central issue.

    Bottom line is this. Demand determines supply in this market. People come to an area because of jobs and other things they might do, such as study. Now, sometimes it is hard to get people to move to an area for a job if the housing is too expensive, but that is a problem for LA and such places, not Harrisonburg. We get people here, or at least in the area, because they want to work here, and they will get housed one way or another, irrespective of the housing policies of the city, although whether they are in the city or the county may be affected by that. If you do not want immigrant workers here, then shut down the poultry factories and similar operations.

    Furthermore, no matter how much “new affordable housing” gets built or not, the hard fact is that the “filtering” model of housing is the main determinant of affordable housing. What does that model say? Most housing for lower income people is old housing that “filters down” to them from having been lived in previously by higher income people.

  12. JGFitzgerald says:

    Far be it from me to argue an economic point with the good doctor, but there is some nuance in that I was referring primarily and exclusively to the 17-point-something square miles within the city limits of Harrisonburg. (As I age, I shall probably narrow my focus to the Keister precinct, and then to that part of said precinct between Main and High, North of Pleasant Hill.)

  13. David Miller says:

    I think that an appropriate addition to the conversation is the following.

    Which Council Members and Planning Commissioners believe that a Comprehensive Plan for the City of Harrisonburg is a legitimate road map for development? Why or why not?

    This is a serious question by which we could steer the discussion.

  14. Lowell Fulk says:

    Well put David, thank you.

  15. Lowell Fulk says:

    And thank you also Barkley.

    And I’d also like to add that what have worked best and most dependably in most every economic trend in my lifetime have been the entities focused on “affordable”… Especially those entities which incorporate quality into affordability. “The Best Available” and “The Elite Choice” regarding purchasing usually only really come into play during a boom time for the entire population. And typically don’t survive a downturn very well…

  16. Deb SF says:

    I’d disagree with Barkley here:

    “I would beg to differ with Joe on one point. He said more than any other development issue, housing determines what kind of city we are. No. The fundamental driving force is the nature of the local economic base, the industries that export and bring in money to the area.”

    and say that the causation at this point runs in both directions, because housing and the resulting property values and the tax revenue that these places generate (and the school systems that flow from the revenue) attract the very kind of development we’d like to see drive the economic engine of the city. And a deteriorating, dilapidated housing inventory can cause valued employers to leave. the 2002 and 2005 Housing report both discuss the need to add housing (innovative housing, at that) to the high-end niche market sector.

  17. JGFitzgerald says:

    DebSF,

    Check your facts. The second report was indeed 2005, but the first was 2000, not 2002. (2002 was when I lent it to you as an excuse for a lunch date.)

  18. Oh, this is good. I get to argue with Deb. But let me first add something for Joe, which partly replies to Deb.

    So, part of the problem is that it is only once in awhile that the City Parents get to make decisions that really have an impact on the nature of the development of the economic base. The land deal with Rosetta Stone was a recent example of one of those rare moments.

    However, housing is something that is constantly going on and being dealt with all the time by the PC and the Council. Developers want variances, even small cases involving one or two houses. So, it is much in the faces of decisionmakers and thus on their minds, and very reasonably so.

    Where I agree with Deb is on the role of the school system, which may be second to the economic base in importance ahead of housing and for the reason she said, that a good school system is crucial for attracting an attractive economic base. There is clearly a strong mutual feedback on that one.

    However, housing remains further down. Nice houses will be worth nothing without a solid economic base, and the school system will suffer accordingly. It is the economic base and the jobs and incomes it brings that improve the value of the housing, which can then pay for the schools.

    A more complicated aspect of this is that this is an area where the city and county somewhat overlap. Good jobs in one increase the demand for housing in both. Which gets which housing then becomes an issue. It might look like we are getting into a classic “central city-suburb” situation, with rich whites moving to the county. But the city schools are still better, despite TA winning some award when HHS did not. But HHS is still the one that sends more kids to Ivy League colleges, and part of that is due to such things as the fact that TA still does not teach evolution in its biology classes. So, it is the dumb rich whites who are moving to the county (ooh, that was not nice, no offense to the smart people in the county, of whom I know there are many).

  19. Deb SF says:

    We’re just disagreeing about stronger vs. weaker drivers, and where specific connections between variables matters most.

    Yes, a strong economic base drives up the demand for housing, the price, and tax revenue generated. No argument. Bubbles do, too. But “where will my employees live” matters, as well, especially for firms that higher highly educated, skilled and paid employees who have very specific housing desires.

    And the filtering/trickle down mechanism only goes so far; maybe Scott Rogers can tells us to what extent filtering does or doesn’t occur.

    Because houses are built in specific neighborhoods with specific market segments in mind. That Norwood Street townhouse that got the variance last week will never sell for $500k in the high end niche of the market. And I have a hard time seeing how The Heritage Estates Circle property @$535K here filters down to the affordable segment, as defined in the housing report above: “affordable home prices for moderate income households – those with incomes roughly in the $30,000 to $40,000 range — are taken as those in the $100,000 to $125,000 price range.”

    As I said above, I don’t think it’s either/or. I think the causation runs both ways.

  20. Scott Rogers says:

    Here is the $535k house that DebSF is referring to in her comment.

    I agree with DebSF that the townhouse on Norwood Street would never (or not for a VERY long time) sell for $500k — if it did, then the high end market would be much higher than $500k.

    Additionally, the Heritage Estates property won’t filter down to the affordable segment.

    I can’t think off-hand of a neighborhood where homes used to be occupied by high income earners, and they have now filtered down to low income earners. That being said, I’ve been in real estate for less than a decade, so perhaps someone with longer institutional memory can bring one to mind…

    Also — I agree with Barkley — the city/county overlap makes this a bit muddier. The housing report cites the need for high-end niche market housing in the City. I imagine that would be to provide housing for those residents (or potential residents) that want it, and to keep those residents in the City contributing to the City property taxes, etc. I don’t think the first reason is too pertinent, because of the large supply of such high-end housing in the County immediately adjacent to the City. Thus, the high-end housing is available in this immediate area to someone who lives here or is considering relocating for employment (or other) reasons. The only caveat, I suppose, is that someone who wants high-end housing and also wants to be in the City schools…

  21. A couple of comment, and this is in danger of running in circles. First is that filtering tends to be a slow process. I can think of neighborhoods in Harrisonburg that were occupied decades ago by higher income people than occupy the houses there now, although they were probably never really high income people, but will hold off on pointing fingers other than to say “near downtown somewhere.” I think it is unlikely Heritage Estates will ever filter too far down, but the Harlem brownstones were originally built for very wealthy people.

    There is also a question of the direction of filtering. Sometimes it can go up, as with gentrification. This happened in Georgetown in the 30s, where just before then it was the worst slum in the Washington area. Old Town may have experienced this a bit, with former student apartments and frat houses now back to being upper middle class, single family houses. Of course, important for this is having nice houses in some sense to start with.

    Which provides a warning about “affordable.” If one goes out of one’s way to build “affordable housing,” one needs to be careful not to make it too affordable. It will only go downhill in quality, and if it was crummy to start with, it will never gentrify. No matter what one builds, the most affordable housing anywhere will always be that which is the lowest in quality. “But why can’t we build nice housing and keep the price (or rent) down?” Because people will be willing to pay more for better housing and less for crummier housing, whenever it was built. Given that most housing goes down in quality over time, that is why filtering is a dominating process (and I bet that 50 years from now the people in the Heritage houses will not be as relatively high income as those moving in now).

    Finally, I am going to reassert my main point. When the HQ of Rosetta Stone left Harrisonburg, they did not do so over a lack of affordable housing for their educated workers. Did they move to cheaper Staunton? No. They moved to much more expensive Arlington. Yes, there are bubbles, but even without bubbles, Silicon Valley is far more expensive than here and continues to attract high quality economic base, indeed, only really high quality economic base (paying very high salaries) can afford to locate there, and does.

    I drive all over the country, and I have seen nice towns in Ohio with very lovely housing that is way too affordable because there are no jobs.

  22. Scott Rogers says:

    I can think of neighborhoods in Harrisonburg that were occupied decades ago by higher income people than occupy the houses there now, although they were probably never really high income people

    Good point — now I see what you mean with the downward filtering.

    Old Town may have experienced this a bit, with former student apartments and frat houses now back to being upper middle class, single family houses.

    Another good example, of upward filtering. Thanks for adding these perspectives!

    When the HQ of Rosetta Stone left Harrisonburg, they did not do so over a lack of affordable housing for their educated workers.

    I don’t know the history — why did they move the HQ out of H’burg?

  23. Scott,

    I shall do some checking on the matter of the RS HQ and do not know for sure right now. But my understanding at this point is that it happened after the original (and local) founders/owners sold the company. It would appear to me to be at least partly a matter of marketing in connection with the expansion of the company into a broader global business, although more precisely certain important clients are in the Washington area, particularly in Northern VA, and proximity for such matters always helps.

    If anyone knows better than this, please correct me.

  24. RS employee says:

    The decision to move RS’ HQ is completely unrelated to housing (and probably this is not the right place to post, but since someone else asked):

    After the company was sold to private investors, the list of priorities included:
    a) Renaming Fairfield Technologies to “Rosetta Stone” (Not a family business anymore)
    b) Relocating RS’ HQ to the DC in order to change the culture of the company (from “family-owned, start-up and laid-back” to “CORPORATE;” also, “know-how” is … hmm… easier to find in the DC area)
    c) Developing a strategic plan to take the company “public” and global.” (Any global company would require its HQ in a well-known continental US city. Harrisonburg is not yet there.)

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