Affordable Housing Series

Part I: A national perspective

Part II: Planning and public policy

Part III: The future of affordable housing

Millions of average American families cannot afford to live in the cities where they work. Our growing service economy is producing lower wage jobs that do not support current market-rate housing prices in most markets. Families are moving farther out of urban centers, searching for lower-priced rental housing in distant communities. They commute longer distances and pay more for transportation, exacerbating traffic and pollution.

In his opening article of this series, CityView Executive Chairman and former U.S. Housing and Urban Development Secretary Henry Cisneros pointed out that now is the time for home builders to take action and prepare for the housing demands of the future. This article will explore the role of the home builder, approaches to policy change and partnership models with the greatest potential for increasing workforce housing opportunities.

Gaining National Attention

Policy in this area is gaining national attention because more people recognize that urban development can bring solutions that address serious metropolitan challenges. Recent research by a team of leading urban planners from the Urban Land Institute , the National Center for Smart Growth Research and Education and Smart Growth America concluded that urban development is a key contributor to climate change and an essential factor in combating it. In addition to offering more housing choices that are closer to major centers of employment, retail and services, more urban housing development will significantly reduce lengthy commutes.

Local policymakers have taken two basic approaches to the burgeoning need for affordable workforce housing in urban centers: (1) they offer incentives and subsidies that promote workforce housing development; and (2) they mandate workforce housing development as a component of a market-rate development.

Under the incentives approach, government agencies offer grants, loans and favorable zoning concessions, i.e. density bonuses or reduced parking requirements, to developers who develop workforce housing. At the national level, there are ongoing efforts to create a national housing trust fund. At the State level, organizations like the California Housing Consortium are tirelessly working with legislatures and governors to develop permanent dedicated fund solutions ("permanent sources") to increase the production of affordable homes.

And cities are pledging money and proposing voter-sponsored initiatives to fund affordable housing development.

Conversely, inclusionary zoning is the term used by cities to legislate that private builders create affordable housing for low-income residents as part of a market-rate development. In practice, these policies involve setting purchase prices that are substantially below market and even below a builder's real costs. The blend of affordable and market-rate housing in the same neighborhood is seen as beneficial by many, especially in jurisdictions where housing shortages have become severe.

Mandatory approaches tend to create adversarial relationships among public, private and non-profit stakeholders. Builders litigate against cities to stop implementation of inclusionary statues, or they simply decide that a project won't make economic sense. That limits development and thus impedes development. Housing advocates and local social service agencies target builders for not offering sufficient affordable housing. And local "no-growth" proponents oppose both developers and advocates who seek more housing.

Incentive-pulling approaches have more change of success but are limited in their effectiveness because the incentives often don't generate enough savings to cover the developers' "loss" on the affordable units. Without more effective collaboration, the existing strategies have limited impact.

Given the continued push for carrot-and-stick housing policy trends, savvy private developers should pursue a new hybrid model and be proactive in collaborating with local stakeholders - especially local housing non-profits - to maintain a competitive edge and to ensure profitable infill developments in major cities. Through collaboration, private developers can earn market returns and/or at least break even on affordable housing developments and comply with or exceed local mandatory affordable housing requirements. And non-profit organizations can better serve their constituents by delivering greater scale affordable housing production at lower prices.

There are two critical elements necessary to make this hybrid model work: (1) private developers must deliver efficient price points at scale; and (2) non-profit organizations must obtain the subsidies, grants and concessions necessary to fully finance affordable housing development. If these goals are achieved, the venture will maintain a competitive marketing advantage when negotiating development agreements with urban communities that have mandatory affordable housing programs. The partnership is more likely to be considered favorably for new development opportunities with cities.

At CityView, we incubated a national nonprofit, American Sunrise Communities , for the sole purpose of facilitating multiple-bottom line affordable housing development. American Sunrise unites private builders, community lenders, public institutions, major employers, labor organizations and non-profit community groups to provide genuine affordable housing opportunities for income-limited Americans throughout the United States. The organization aims to partner directly with local municipalities and developers to create, implement and manage sustainable community-based housing programs (e.g. voluntary set-aside, offer incentives and handle other zoning program development and implementation).

As a home builder, it is important for you to be aware of the following recommended actions for communities to develop and sustain new workforce housing options:

Collaborate with local cities, state and federal institutions, policy think tanks and universities to design and implement cutting-edge community-based housing strategiesEmpower local non-profits and community and faith-based groups to identify and support families and individuals who need housing opportunities to stabilize their livesMotivate business groups, employers and labor organizations to create and implement employer-assisted housing (EAH) programs for income-limited employees.Partner with Community Reinvestment Act Institutions to create and provide consumer-sensitive financial products and resources for all program stakeholders.Establish relationships with foundations and socially responsible donors to provide resources and subsides for sustainable community-based housing programs.

Sean Burton is the COO of CityView, a real-estate investment firm and developer that specializes in workforce housing. He focuses on the financial analysis, underwriting, negotiation and managing of the company's projects.