Financing Affordable Housing with the LIHTC [External]

by CUI Staff

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Recently, CUI’s Graduate Research Assistant Chris Thayer was published in the Federal Reserve Bank of Atlanta’s Partners Update feature. The article, “Financing Affordable Housing with the LIHTC,” covers the basics of the LIHTC program, the operation of LIHTC’s sometimes underutilized 4% Credit, and discusses the benefits and challenges of working with this less common credit type.

The availability of affordable housing in the Southeast is an increasing challenge, especially in areas of opportunity that have jobs, good schools, public transit, and so forth. The Atlanta Fed’s Community and Economic Development discussion paper “Declines in Low-Cost Rented Housing Units in Eight Large Southeastern Cities” puts some numbers to the depth of the problem, with metro Nashville showing a loss of over 7,700 low-cost rental units between 2010 and 2014.

In light of these challenges, sources of funding for affordable housing are more important, and competitive, than ever. One of the best-known and most competitive sources of funding for affordable housing construction is the Low-Income Housing Tax Credit program, or LIHTC. The most common form of the program, the 9 percent credit, is already a highly sought-after affordable housing construction subsidy, but LIHTC also offers a noncompetitive 4 percent tax credit. This 4 percent credit, typically paired with the development of affordable housing financed with state or local government-issued tax-exempt bonds, is a less often utilized financing strategy and still an important tool in the affordable housing tool kit (Novogradac, 2016e).

To read the article in full, please visit its Federal Reserve page.

Holiday Reading: UN Habitat III in Quito

As the Northern Hemisphere braces for the holiday season and its accompanying wintry weather, we at CUI wanted to offer up an option for reading material through our break, December 12th through January 9th. While we’ll  still have two more blog posts before going on hiatus, below is the summary (and some links for further reading) on a recent development in an important topic to all cities, housing.

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Image courtesy Pakhuis de Zwijger and Global Policy Journal

The United Nations Conference on Housing and Sustainable Urban Development (Habitat III) was held from 17 to 20 October 2016 in Quito, Ecuador, and concluded with the adoption of the New Urban Agenda as the primary product of the one-every-20-years Conference. This Agenda acknowledges the speed and importance of the increase in urbanization worldwide, and cities’ unique ability to guide and support sustainability efforts going into the future. The Agenda sets global standards for truly sustainable urban development that also focuses on equity.

 

 

To learn more, try some of the Suggested Reading:

Read the Adoption of the final outcome of the Conference (English), and learn more about the New Urban Agenda here.

The Habitat III press kit contains concise, intriguing information on the conference, Habitats I and II, and more.

Press coverage, such as by CityLab and the BBC was generally positive, though global development organization Devex criticized the New Urban Agenda’s lack of specificity, while The Guardian questioned equity of Quito residents’ inability to participate.

The U.S. State Department also offered its thoughts on Three Reasons Habitat III Matters for Successful and Sustainable Urbanization.

Within the industry, Smart Cities-oriented organization 100 Resilient Cities released a post discussing how the work done at the conference ties into other urbanization concerns, such as gender equality.

 

 

Mortgages, Data, and Disclosure: Current Research on Homeownership in New Latino Destinations

An interview of Allen Hyde by Todd M. Michney

With the passage of the 1975 Home Mortgage Disclosure Act (HDMA), Congress required American banks to disclose data about where they lent for homes, in order to determine patterns of investment after mounting evidence emerged indicating that discriminatory lending and disinvestment since the 1930s (“redlining”) was negatively impacting the quality of life for urban areas and exposing residents to potentially abusive credit terms. HDMA’s disclosure requirements were updated in 1989 to include the reporting of race and ethnicity on the level of the individual borrower, and the resulting data serves as a useful measure of progress toward more equitable lending. Legislation like the HDMA, the 1974 Equal Credit Opportunity Act, and the 1977 Community Reinvestment Act (CRA) were intended to tackle structural inequalities difficult to remedy using 1960s civil rights laws, and originated in grassroots campaigns by neighborhood activists like Chicago’s Gale Cincotta. To this day, some local groups have succeeded in leveraging improved credit access through HDMA and CRA, and an estimated $1.7 trillion was redirected to urban areas already by 2004 as a result of such legislation.

Nevertheless, studies indicate that African Americans and Latinos continue to be disadvantaged in home mortgage markets. Especially in the wake of the Great Recession and subprime mortgage crisis in the United States, it is important to understand how housing policy continues to produce unequal outcomes. HDMA and CRA have had their shortcomings and limitations, but still serve in protecting the opportunities for minority homeowners to build wealth. Whether they will continue to do so is an open question, with even stricter reporting requirements debuting through 2018 currently meeting considerable pushback from the banking industry.

Allen Hyde is an Assistant Professor in Georgia Tech’s School of History and Sociology, who along with coauthor Professor Mary Fischer of the University of Connecticut, analyzes HMDA data to study the seemingly counterintuitive relationship between increased Latino access to mortgage financing in the lead-up to the 2008 housing crisis, and higher observable levels of segregation. Whereas existing research on Latino homeownership has been largely limited to historic areas of residency, Professor Hyde focuses on newer destination cities in the country’s interior and the South, of which Atlanta is one. He answered several questions on what this data can tell us and about national and local patterns of Latino homeownership.

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Plaza Fiesta, a Latino-oriented mall in metro Atlanta, a “new destination” city. Image via the Federal Reserve Bank of Atlanta.

TM: What are Latino “new destinations,” and what does it mean that we seem to be seeing simultaneously rising homeownership among Latinos alongside increasing segregation rates in these cities?

AH: Starting in the 1980s, changes in immigration policy and the economy shifted Latino migration away from cities in established destination areas like California, Texas, and Florida to “new destinations,” often located in the South and Midwest. Latino communities have been developing over the last few decades in medium to large Southern cities like Atlanta, Charlotte, Raleigh, Greensboro, and Washington, D.C., meaning they moved into areas that have historically been overwhelmingly either black or white. Because Latinos were a small percentage of the population and thus were less likely to be pushed into racialized neighborhoods, they tended to be less segregated in new destinations in the 1980s and 1990s. However, other scholars like Daniel Lichter, Matthew Hall, and colleagues note that Latino-white segregation in such cities has increased rather dramatically over the last decade or so. Interestingly, this has simultaneously come at a time when Latinos have seen rising incomes and increased homeownership as a result of the Housing Boom of the early-mid 2000s. Given that homeownership signifies higher status and the achievement of the American Dream, one would predict that Latino homeowners may be less segregated from whites than their Latino renting counterparts. My colleague Mary J. Fischer and I are conducting research to determine if new Latino homeowners, as opposed to renters, still find themselves in segregated neighborhoods in new destination cities during the Housing Boom.

TM: How has this played out in Atlanta? Will you give us more of a sense of the Latino population dynamics and homeownership pattern here?

AH: Our research can speak to what is happening in Atlanta in several ways. First, Latinos are the largest ethnic grouping within Atlanta’s immigrant population, after Asians. Second, Atlanta, and Georgia more generally, has experienced dramatic growth in its Latino population. Most Latino Atlantans have origins from Mexico; however, there are sizable Puerto Rican, Salvadoran, and Guatemalan populations, as well as communities from other parts of Latin America. Furthermore, Atlanta is a diverse but segregated city. As of 2010, Latino-white segregation was substantially lower than black-white segregation, but was still moderately high.

Overall, Atlanta is emblematic of Latino migration patterns for new destinations, which comes with both good news and bad news according to our research. Increased socioeconomic status and homeownership should decrease segregation between whites and Latinos, thus policies that promote homeownership can be used to promote integration in the metro area. However, subprime loans, predatory lending, and other real estate practices can potentially negate the positives of homeownership. Local real estate agents and mortgage lenders should be required to provide full disclosure on the details of fixed versus adjustable rate mortgages to their customers, and they should be trained to recognize and avoid racial and ethnic biases that may seep into their everyday practices.

At the same time, Atlanta’s relatively high levels of racial residential segregation raise questions about where Latino newcomers fit into the existing racial/spatial hierarchy. It is unclear whether we can expect homeownership to reduce segregation for Latinos in the future. This depends on the extent to which racialized housing markets for Latinos develop, as well as the neighborhood ethnic preferences of whites in response to demographic changes in their communities (which are especially difficult to address through policy). Finally, escaping to the suburbs no longer means upward mobility in economic and social status. Poverty rates have been increasing in the suburbs while we have seen middle class whites begin to return to the city through gentrification. These patterns will shape the neighborhood compositions of the Atlanta metropolitan area over the next decade or so.

TM: How has HMDA data traditionally been used by researchers, and do you have any general thoughts on the particular usefulness of such public data sets, in what they can tell us about lending and homeownership patterns and policymaking?

AH: HMDA data have traditionally been used by economists to look at patterns of loan denial, subprime lending, and “redlining.” These studies are more in line with the original intent of HMDA, which was to aid in the enforcement of fair lending laws. We are using these data in a somewhat different way to look at the neighborhood characteristics of new homebuyers. This type of detailed, individual level data is not publicly available at the neighborhood level of geography through other data sources with housing information, such as the U.S. Census, American Community Survey, and American Housing Survey. The annual nature of it in addition to the fact that it is whole population data (e.g., not a sample), makes it a particularly powerful dataset to test theories of neighborhood access and assess changes over time. While longer historical perspectives on race, ethnicity, and homeownership are important, we decided to focus on the period 2000 forward because this included the peak of the housing boom, as well as the bust so that we could see whether neighborhood access for Latinos changed in the wake of broader housing market shifts.

Voluntary Inclusionary Zoning & Subsidies in Atlanta: The Legal Environment

By Chris Thayer

 

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Example of a Density Bonus from an inclusionary ordinance.

Last April, this blog covered the legal environment of mandatory inclusionary zoning in Atlanta. This companion piece considers the situation faced by voluntary affordable housing measures, in particular, voluntary inclusionary zoning policies and subsidy programs.

While voluntary inclusionary zoning can take many different forms, these policies essentially form the “carrot” to mandatory inclusionary zoning’s “stick,” offering developers optional but enticing benefits in exchange for producing affordable units within their developments. These benefits can range from minor administrative boons like fee waivers, to zoning variances of a reduced parking requirement, to increasing the permissible density of units, or even monetary incentives like tax abatements — a form of voluntary inclusionary zoning that begins to overlap with supply-side subsidies.

Subsidies, rather than mandating or coercing developer action, represent a monetary outlay from the government to encourage the desired behaviors, and come in three major forms: demand-side subsidies, public housing, and supply-side subsidies. Demand-side subsidies operate by extending a benefit directly to individual lower-income families in need of housing, generally in the form of a voucher intended to cover the gap between the market-rate and an affordable one (at 30% of the recipients’ income). These subsidies make up HUD’s Housing Choice Voucher program, funded at the federal level and administered by subordinate localities. While still the largest affordable housing program nationwide, it has come under fire for its notoriously long waiting lists, concentration of poverty (due to a flaws in rent calculation and higher-end landlords often refusing vouchers), and upwards pressure on market rents.

Vouchers were initially designed to take over for the second subsidy approach, public housing. Public housing projects were an attempt on the government’s part to directly provide the lower-income housing needed. Like vouchers currently, in their heyday public housing project were notorious for concentrating poverty, as well as for unhealthy building conditions, high crime, and stigma. Because of these failures, HUD discontinued these programs in the late 1980s (though some public housing developments continue to operate), and instead turned to the third and final category of affordable housing support: supply-side subsidies.

Supply-side subsidies are a monetary incentive given to developers to produce affordable units within their otherwise market-rate developments. Unlike inclusionary zoning as such, these programs explicitly serve as part of the funding stream for the project and are often subjected to a ‘but-for’ analysis (the project could not otherwise be built without the subsidy). There are a variety of such programs at the federal, state, and local levels, the largest of which is the Low-Income Housing Tax Credit (LIHTC), but all of which share the essential character of funding unit construction through developers.

Compared to the difficulties mandatory inclusionary zoning faces, the way is far clearer for voluntary policies. Indeed, Atlanta already has several policies that fall under this umbrella, one of which is the Affordable Housing Impact Statement (Atlanta, GA Municipal Code § 54.2). While not affecting developers directly, it requires a statement indicating the number of affordable units added or lost be made publicly available for any legislation that might impact the housing stock, increasing transparency and lobbying power. Within the region, Fulton County adopted a voluntary inclusionary zoning program that lasted two years and offered a wide range of benefits for developers, who participated either by building units or paying fees-in-lieu during the 2007-9 ordinance activation window (Fulton County, GA Municipal Code § 4.26). Invest Atlanta offers an attractive tax abatement schedule and fee waivers for developers who include workforce housing in projects constructed in Urban Enterprise Zones, and also waves impact fees for affordable units (GA Municipal Code § 19.1001-24). The Atlanta City Council passed a voluntary zoning ordinance in 2013 that provides incentive “points,” scheduled by the number of affordable units, the extent of the affordability, and the presence of other amenities. These points can be exchanged for benefits including a density bonus (up to 120% of the existing maximum), removal of parking requirements, and reduced yard requirements (Atlanta, GA Municipal Code § 16.37). This option seems to have been largely unused by most developers, especially the density bonus, which goes unneeded as many Atlanta developers do not currently max out their ordinarily allowed densities — a similar problem to the history of failure seen in Atlanta’s attempts at Transferable Development Rights programs.

Subsidy efforts also have a good legal outlook. Vouchers are fully supported by law, and the recipients thereof are protected from administrative discrimination. However, like most of the nation, Atlanta does not have any source-of-income protections and it is therefore perfectly legal for landlords to refuse voucher-holders — leaving recipients trapped in the few low-income, high-crime neighborhoods that will accept vouchers, despite the program’s best intentions.

As previously mentioned, public housing construction has been discontinued for roughly thirty years. However, many developments are still in active operation nationwide, and the federal government’s HOPE VI and RAD programs offer grants to renovate and rehabilitate aging public housing facilities, meaning that these remaining complexes could continue to provide affordable housing for years to come. The Atlanta Housing Authority (AHA) is the largest Housing Authority in Georgia and one of the largest nationally, overseeing 8,200 units (and more than 18,000 voucher recipients). This status persists despite AHA having torn down all existing public housing projects over the last decade, redeveloping into mixed-income residences with about two-fifths the number of affordable units as the prior public housing structure offered and “vouchering out” the remaining residents with all the problems that housing vouchers entail, thereby earning the dubious distinction of being “the first U.S. city to demolish all of its low-income family public housing.” This pattern of redevelopment — which not only reduces the total of affordable units, but has shown itself to increase gentrification in the surrounding area, to the point that “in and around areas redeveloped through the AHA, the assessed value of property has increased by some $1.1 billion since 1998” — is entirely legal and up to the discretion of the current director of the AHA. This redevelopment trend is hardly new to Atlanta — indeed, Charles Palmer, who built the first public housing project in the nation in the form of Atlanta’s Techwood Homes, stated that he first became interested in ‘slum clearance’ out of concern for the effects of nearby slums on the value of his Downtown commercial properties. However, typical of Atlanta or not, it is a matter of great concern for affordable housing advocates due to the current impossibility of constructing any new publicly-owned housing ventures.

Finally, supply-side subsidies are the most popular and politically palatable form of affordable housing instrument available in Atlanta. While each source of funding has its own programmatic rules, there is relatively little other legislation in effect on subsidies. The only major legal change of note for federal subsidy provision is the recent (2015) case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc, in which the Supreme Court ruled that disparate impact claims are cognizable under the Fair Housing Act (576 No. 13-1371 2015). This means that plaintiffs may sue a housing department or other jurisdiction for distributing those funds to proposed developments in a way that would have a disparate impact, such as by clustering low-income housing in only a few neighborhoods. This increased scrutiny could have substantial implications for the subsidy allocation process, as jurisdictions must now re-evaluate their project approval criteria for discriminatory outcomes, especially in the area of income mixing. This in particular is contrary to established practice, which encouraged 100% affordable (if privately owned) projects to be built, a unit-mixing structure that is now considered unsuitable and concentrating of poverty. It remains to be seen if housing advocates will actively pursue this newly open legality to increase the level of mixed-income communities being funded through supply-side methods.

What, then, are some practical routes for pursuing affordable housing in Atlanta? There are a number of measures local politicians could put into place. First, the city council might approve zoning measures to downzone maximum acceptable densities in hot neighborhoods, forcing developers there to use the voluntary inclusionary measures to make a better profit. Next, a source-of-income protection ordinance could be passed, protecting voucher-holders from rejection due to voucher use. Thus far, there have been no successful challenges to such ordinances in any of the 44 locales and 11 states that have this protection, suggesting that Atlanta would likely see success with such an ordinance. Third, Atlanta might consider a measure parallel to House Bill H.R. 2231 (the Public Housing Tenant Protection and Reinvestment Act of 2015), which would mandate an equal number of new units of public housing be constructed for every unit torn down. While this measure seems a bit too-little, too-late for Atlanta, it would protect the 8,200 units that still exist, which are a unique, non-renewable resource. By employing any, or ideally all, of these legally defensible changes, Atlanta could take concrete steps to ensure an affordable future for all residents.

Signaling in Policy Documents: The Case of Georgia QAP Incentives for Mixed-Income Projects

by Chris Thayer

Affordable housing is well-known as a powerful factor in economic development within cities, both directly and through enticing corporations’ headquarters to take advantage of the concentrated pool of employee talent, undisbursed to the less-expensive suburbs. One of the major tools for the provision of this affordable and workforce housing is the Low-Income Housing Tax Credit, as governed by each state’s Qualified Allocation Plan.

The Qualified Allocation Plan (QAP) is, necessarily, a policy document. Each state has its own version, in theory updated yearly, which covers the rules for the competitive allocation process for that state’s allowance of the federal Low-Income Housing Tax Credit, currently the largest supply-side affordable housing subsidy in the nation at approximately $6 billion per year in foregone tax revenue. The Credit is allocated to states on a population-based formula, whereupon each state organizes its own competitive application process, granting the Credits largely in accordance with its own preferences, rather than any federal mandate. Those preferences are laid out in the QAP, and typically change at least slightly year-to-year. Georgia is noted for having one of the lengthier and more detailed QAPs nationwide and a history of vigorous competition for the subsidy, as about half of projects that apply will be funded – granted the right to claim a specific number of Tax Credits. These Credits are sold to investors (called syndicators) in exchange for part of the funds needed to construct the proposed housing development, which will contain an agreed-upon number of long-term affordable-rent units. As the QAP’s contents are largely directed by the states, this allows for illuminating differences in policy approaches and results.

The Mixed-Income Project QAP Incentive
29 augAs part of a larger process of quantitative QAP change analysis for Georgia’s QAP between 2000 and 2016, it was observed that the provisions for incentivizing Mixed-Income Projects fluctuated substantially over time. The incentive appears in the first QAP on record, for 2000, as a sub-category of a larger scoring section, Tenancy Characteristics. It remained there through 2005, until in 2006 it became its own independent scoring category, perhaps reflecting the increased attention it merited in the policy development team’s priorities. It remained as such until 2009, when it dropped out of the QAP entirely and did not reappear until this year, 2016, as a sub-category of Stable Communities.

Recession & Reconsideration
This abrupt change in direction was in large part intentional. In a recent interview, Director Laurel Hart of the Housing Finance & Development Division at DCA (the Georgia Department of Community Affairs, Georgia’s allocating agency for Low-Income Housing Tax Credits), described the agency’s response to the 2008 financial crisis.

“We really changed our entire model after the crash… It really was a whole change in philosophy. We went towards less lending, we used options to increase cash flow, we changed our HOME requirements… We became much more risk-averse around that time. [The driving question became], ‘how do we make these properties sustainable?’”

This change in direction has persisted to this day thanks to the insights granted by existing properties’ experiences during the crash, which included elevated vacancy rates (due to renters’ inability to pay), unpaid water bills, and sometimes even foreclosure. DCA found that in many cases, nominally mixed-income properties featured market-rate units serving the same population as the 60% AMI (Area Median Income) affordable units, but without any form of subsidy to ease those renters’ burden–not mixing income groups at all. Director Hart emphasized the importance of integrating “what’s standard and what’s common in the industry” with an intimate understanding of Georgia economics in order to craft incentives that would let truly beneficial project rise, and prevent inefficiencies such as those seen with these earlier versions of the income-diverse properties. She also discussed the rebirth of the incentive in the 2016 QAP and the importance of its place within Stable Communities-winning (generally wealthier and more racially diverse) areas only, preventing the issue of too-low market rate rents from making the Mixed-Income Project points be essentially in vain.

Effects of QAP Incentive on Unit Mix
The appearance and disappearance of this incentive offers a unique opportunity to examine the relative effects of point incentives for Mixed-Income Projects on actual observed unit mix, both for applied and awarded projects, and to draw some potential conclusions for QAP development in the future. For the 2000-2016 period covered by available QAPs, full data was available for 2003-2016, and partial data for 2002, though there was nothing for the years prior. This data range, while less than ideal, is still robust enough to allow for correlational observations to be made about the units and incentives present. Upon analysis, this data pool reveals that the incentive has a very weak, possibly non-existent, effect on the competitive process itself.

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The above figures demonstrate that there is not a meaningful difference in percent of market rate units, number of market rate units where present, or total units between the pool of all applicants and the applicants selected for an award. This means that any effect the Mixed-Income point incentive could be having rests not in the competitive process – one project edging out another for a part of the limited funding – but rather in the signal it might send to developers. But does it send such a signal?

Signaling Developers
29 aug 4To answer that question, the research took a slightly broader view, looking at each project’s status as either Mixed- or Single-Income – essentially, a Yes/No question of the project’s structure. Comparing the projects’ status with the incentive over time, it becomes clear that there is a strong signaling effect in the presence, or absence, of some mixed-income provision, evidently independent of the actual point value of its percentage of all possible points. This relationship is shown in the chart, and further analysis reveals that during incentivized periods, the average percentage of Mixed-Income projects applying for funds was 62, while in non-incentivized periods it was only 35, with a similar gap for awarded projects, clearly demonstrating the strong signaling effect of the QAP point incentive.

This research does bear several caveats. There were no 2000 or 2001 datasets available, and 2002 contained only a yes/no indicator for Mixed Income. 2007’s data was heavily cleaned due to a reliability issue, and is still likely to be somewhat skewed. Finally, this only reflects the experience of one state. It’s possible that the trends observed were caused by outside forces, such as the 2008 Recession, and more research is needed to support, or disprove, these conclusions.

Recommendations
However, the correlation between trends observed appears to be strong enough to merit some initial recommendations for QAP development. First, given that the Mixed-Income points themselves appear to serve as a signal, rather than a competitive factor, it could be useful to reduce the point amount given to only one, rather than the two it currently features. The point is symbolic, and a reduction here would make other categories – ones in which points awarded drive the competitive decision – have more impact by virtue of a smaller total number of points available. On a related note, the second recommendation this research suggests is a closer look at the total available points. This total has shifted wildly over time with no immediately apparent effort at consistency, making the relative value of a given section’s points vary in difficult-to-detect ways even if the section hasn’t been intentionally changed. Careful attention to this total and strategic point allocations thereof can somewhat regulate the swift-changing nature of the QAP, simplifying future fine-tuning efforts by having a relatively consistent base year-over-year.

Looking Forward
Reflecting on the future of mixed-income housing as a priority for DCA, Director Hart observed that its greatest potential successes are in cities, especially Atlanta, where the can be a meaningful differential between assisted and market rents. She also indicated that the recent resurgence is in part due to industry changes from the recent Supreme Court decision on Fair Housing, and said “Our properties shouldn’t just be warehousing people of a certain income, a certain color, into a certain area… I think that the Mixed Income [section] is coming back in part with that idea of ‘how do we make sure we’re not segregating the poor, segregating the people by color, into certain areas.’” This insight points to the power of mixed-income properties to encourage positive social developments. Indeed, the introduction of Mixed-Income Project incentives to competitive application processes could form a significant portion of initial Assessments of Fair Housing (AFH) that participating jurisdictions are now required to submit to HUD. As a feature of the new HUD Affirmatively Furthering Fair Housing rule, jurisdictions must submit their AFH plans to HUD for review, but HUD has notoriously scanty requirements or even suggestions for such plans. Developing and implementing a Mixed-Income incentive effort could prove a fruitful strategy for otherwise unsure jurisdictions, not only easing their regulatory burden but also increasing the presence of Mixed-Income communities, strengthening the affordable housing environment and promoting greater inclusivity nationwide.

Mandatory Inclusionary Zoning In Atlanta: The Legal Environment

By Chris Thayer

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From Burke Law’s Public Law Update

In the increasingly complex legal environment featuring conflicts between state- and city-level policies — many of which are enacted specifically to circumvent the intended operation of one another — it is more important than ever to understand the circumstances in which any advocate of affordable housing interventions must operate. Affordable housing, also known as ‘workforce housing,’ is intended to cost no more than 30% of the net income of those making roughly 60% of the Area Median Income (AMI), and may be pursued through a number of policy mechanisms, each with their own legal implications. One of these approaches is mandatory inclusionary zoning.

Within the broad category of mandatory inclusionary zoning (IZ) approaches, there are three main types of instruments: unit set-asides, monetary-or-other compensation, and rent control. This post regards rent control as a mandatory inclusionary zoning policy instrument, although there is an ongoing debate on its inclusion in that category, most recently addressed in Palmer v City of Los Angeles in 2009, which held that mandatory inclusionary zoning was indeed a form of rent control. While rent control is often criticized as an affordable house method for its tendency to drive down housing quantity and quality over the long term, temporary rent control measures can be an extremely effective way to slightly cool the overheated markets of rapidly-gentrifying areas and give residents a chance to adjust while other affordable housing measures attempt to catch up. However, Georgia law OCGA § 44-7-19 makes rent control illegal statewide, making it ineligible for consideration in Atlanta.

There are three broad types of legal challenges to mainline mandatory inclusionary zoning measures: equal protection, due process, and takings. Of these, equal protection claims are the easiest to defeat. They assert that by forcing developers to undertake certain actions (paying money, building units, etc), they are not being treated equitably under the law. However, real estate developers are not a protected class, and therefore are subject to the highly deferential ‘reasonableness’ review, wherein courts accept that as long as the government’s need is reasonable, the unequal treatment is justified. Also relatively easy to refute are due process claims, which assert that a given law’s affordable housing requirements constitute unreasonable interference with a developer’s business activities. In the broadest sense, this argument was struck down by the original zoning case Euclid in 1926, wherein land-use regulation was decided to be an appropriate use of the police power. In the face of subsequent due process claims, cases such as 1988’s Pennell, in which “the United States Supreme Court held that protecting consumer welfare is a legitimate goal of price regulations, and that preventing unreasonable increases in housing prices is a legitimate governmental interest” have further supported the legitimacy of such regulations from a due process perspective. This is possible due to the deferential stance the courts take to legislatively-enacted requirements and the correspondingly low level of scrutiny employed, which accepts affordable housing as a public good the government is authorized to pursue. Indeed, it has been successfully argued that exclusionary zoning — zoning to discourage or prevent residence in an area by lower-income persons — is itself a violation of those citizens’ due process protections, as seen most famously in the Mt. Laurel cases.

By contrast, the most extensive — and contentious — strain of zoning challenges (and therefore inclusionary zoning challenges) is takings jurisprudence. Takings concerns are fundamentally different from those of due process or equal protection because they do not assert that the government has engaged in an inherently inappropriate action, but rather that it has failed to provide the Fifth-Amendment-mandated just compensation for an otherwise entirely legal action. For several decades, the test for takings claims in cases of government regulation of property was 1980’s Agins v. City of Tiburon “substantially advances” test — namely, that a regulation was not a taking if it substantially advances a legitimate government interest (similar to the two relatively-light standards used for equal-protection and due-process claims). This strain of thought was employed, or at least referenced, in a number of subsequent landmark takings cases — including Nollan (the “essential nexus” standard), Dolan ( “rough proportionality”), Penn Central (the “balancing” test), Lucas (the “total takings” test), and Loretto (the “permanent physical invasion” test) — to determine elements of a takings test in various circumstances. The “substantially advances” test was explicitly rejected for being suitable for due process concerns — not takings concerns — in 2005’s Lingle v Chevron, in which an entirely new schema is laid out. In it, the Court divides takings into per se takings (such as Lucas and Loretto), regulatory takings (handled using the Penn Central method), and the “special context” of land-use exactions (a condition placed on development to attempt to mitigate subsequent impacts of that development).

This final “special context” of exactions functionally covers all mandatory inclusionary zoning, thanks to the 2013 expansion of what constitutes an exaction by Koontz v. St. John’s River Water Management. Previously, exactions were either real property or the rights thereto (such as to refuse access), which mandatory set-asides — but not fees-in-lieu or other monetary mandatory inclusionary zoning methods — would fall under. The Koontz decision expanded the definition of exactions to include money as well as real property, and in doing so put fees-in-lieu, housing linkage fees, and similar mechanisms under sharply increased Constitutional scrutiny. The exact implications of the Koontz decision are still a matter of active debate — there are some readings that indicate it could be used to threaten the very legitimacy of property taxes — but it clearly raises the importance of administrative versus legislative takings.

This ambiguity — if legislative exactions (including mandatory IZ) are takings and are subject to the same strict scrutiny as administrative exactions are — is shaping up to be the next sea change in exactions law. At present, the matter is still under active consideration with the U.S. Supreme Court, most lately in the form of California Building Industry Association v. City of San Jose, which was rescheduled three times before finally receiving a denial of certiorari by Justice Thomas in late February 2016. In it, he expressed concern that “property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively.” There is a strong Constitutional argument that legislative exactions are inherently more defensible for being equally applied and put into place by the duly elected agents of the citizens’ collective will, in contrast to ‘ad-hoc’ administrative exactions which deserve greater scrutiny for their potential to single individual property owners out for abuse. This point was recently argued in San Remo Hotel v San Francisco, in which the Supreme Court of California asserted that any “city council that charged extortionate fees for all property development, unjustifiable by mitigation needs, would likely face widespread and well-financed opposition in the next election. Ad hoc individual monetary exactions deserve special judicial scrutiny mainly because, affecting fewer citizens and evading systematic assessment, they are more likely to escape such political controls.”

Currently, state-level case law is split. Until a Supreme Court decision is made, it seems that mandatory IZ policies, even if legislatively enacted, would not be practical to pursue in the Atlanta context. The San Jose case affirms for California that mandatory inclusionary zoning is a) not a taking, b) not rent control, and even adds that c) legislatively-enacted exactions are explicitly not subject to the Nollan/Dolan test. However, traditional mandatory zoning policies in Atlanta or Georgia will likely be challenged in the same way as the San Jose case, with a much less sympathetic State Supreme Court and a US Supreme Court that appears to be extremely open to a sufficiently ripe case on this issue. Even housing linkage fees, which have been both effective and politically palatable elsewhere, and which could potentially be supported as a legitimate use of the police power to offset the negative effects of development (discussed in Parking Assn. of Georgia v City of Atlanta), are likely to be successfully challenged as an illegal expression of impact fees. Given the presence of Georgia’s Development Impact Fees Act, which requires that all such fees be used for capital improvements to a specified range of public facilities and moreover must be used to maintain the current level of service, not increase it (OCGA. § 36-71), impact-fee mechanisms would likely be overturned as unconstitutional for attempting to improve on the current state of affordable housing provision, as both an unacceptable type of and level of service improvement. Furthermore, as Georgia’s State Constitution requires a “literal balancing test” for all land-use regulations to weigh the public benefit against private loss, any mandatory IZ effort would have to offer “substantial cost offsets” (making it functionally a voluntary ordinance) and would essentially rule out the possibility of mandatory set-asides. Therefore, given the current state of the law, it seems prudent to pursue other paths to affordability for Atlantans than any of these mandatory inclusionary zoning approaches.

Big Data, Local Data, Counter Data: A Contested Outlook for Housing

 

by Yanni Loukissas and Firaz Peer,
Program in Digital Media; School of Literature, Media and Communication

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Every day, Zillow.com, an online housing marketplace, reassesses the value of your home. In fact, the company is continuously updating its ‘zestimate’ — the name for Zillow’s proprietary approach to generating a market-based estimate — for about one hundred million houses and apartments nationwide, whether or not they are for sale. Their business relies on data from public records as well as privately held multiple listing services. Because of the widespread availability of these data, Zillow doesn’t need complex financial models of the housing market to assess your home’s worth. They can use simple algorithms to fit the details of your property to comparable listings in the same area. Zillow doesn’t create these listings or sell access to them. Like most successful web companies, Zillow survives off of advertising revenue—a kind of surplus value created when it aggregates existing data into a new form of context for understanding the housing market.

The value of property has long been assessed in relation to its context; however, the scale and visibility that Zillow provides is unprecedented. Their zestimate is what Nick Seaver calls an “algorithmic system.” It combines computational modeling with human steering from both experts and the crowd (you can also update the details of your home’s listing). It is one of many examples of how data might take a more direct role in shaping perceptions of property value, and thus development. From Zillow’s perspective, the future of housing — and of cities — will be shaped by Big Data.

In Atlanta, this version of the future is not going uncontested. Trent, an Intown real estate agent, confronts an uncertain outlook for his job. How can he continue to justify the cost of his services (commission in Metro Atlanta is typically 6%) at a time when almost anyone can access listings for sale and rent online? “I can’t hold data hostage,” he jokes. But Trent’s situation is serious, and one he equates with the circumstance of the travel agent a few decades ago. Orbitz, Travelocity and Expedia, among others, have all but put an end to that vocation. “In the past, someone needed my services,” Trent recalls of his early days in the business just ten years ago. “Buyers and sellers wouldn’t know what houses were on the market without agents.” Today, Trent must find leverage elsewhere. It is no longer access to data that realtors provide, he argues. Rather, it is context: “the context necessary to understand what it might be like to actually live in a neighborhood or an apartment complex.” From Trent’s point of view, access to data isn’t going away — but local agents will play an important role in interpreting it.

Both the developers of Zillow and the agents that resist its encroachment into real estate believe that making sense of housing data requires an understanding of context. But they disagree on what context means. In terms outlined by Paul Dourish, Zillow’s definition of context is “representational,” relying on statistics and algorithms to assess the housing market. In contrast, Trent’s definition is “interactional.” His sense of what a house could go for on any given day is contingent on the dialog he is able to establish between buyers and sellers. In an interactional model, writes Dourish, “context isn’t something that describes a setting; it is something that people do.” As such, the interactional context of the housing market can vary enormously depending on who you talk to and when.

Oscar, an organizer based in Atlanta, talks mostly to people of color, renters who have been driven out of communities they grew up in. These residents are being priced out in the immediate sense and, ultimately, pushed out by financial speculation and gentrification. In Atlanta, there are almost no regulatory policies that protect low-income residents from the inevitable outcomes of a market on the rise. “A crisis is hitting renters. We need data to declare a renters’ state of emergency,” asserts Oscar urgently. He sees a broader context for the data available on what is for sale or rent; they are only part of the picture. “Whenever any information or data is created, it is created in the interest of a group,” he explains. “Zillow serves the wealthy.” But a critical reading of existing data isn’t enough to change the tide. Oscar needs “counter data” to fight gentrification. “How can we produce data to serve the oppressed?” he challenges. Oscar contends that collecting data on “the truth of the system” can give rise to a new sensibility for Atlanta’s development. “We need data on how many people are being displaced. We need data on their mental, emotional, and physical health. Who’s being displaced and what is the consequence of that? We need data to show that there is mass displacement that is causing great suffering.” Part of Oscar’s work is filling in that missing context, which shows that the 2007 housing crisis is not over.

While technologists and realtors are working to define the context in which their clients might make the best possible choices in a local market, Oscar seeks to reveal another condition: one which calls the logic of the market into question. These three ways of approaching the question of context — aggregating Big Data, interpreting that data using local knowledge, and generating counter data — are competing strategies for imagining the future of Atlanta. All of these strategies implicitly accept that data are now a necessary medium for understanding urbanism, which has reached a scale that would be difficult to contemplate otherwise. Nevertheless, data have become a site of contestation, which will determine how cities evolve and for whose benefit.

With support from the Georgia Tech Center for Urban Innovation, the Local Data Design Lab is intervening in this contest by prototyping new tools for thinking critically about data and their role in urban change. Our tools are meant to serve education, journalism, activism, and even art — practices that have the power to reshape the social image of the city. In a course hosted by the lab in the fall of 2015, students worked with our new code library to reflect on what gentrification in Atlanta looks like through data. They developed projects to test a variety of approaches: analyzing implicit discourses on gentrification embedded in Zillow listings, visualizing patterns in home values affected by the new BeltLine, and gaming out the implications of luxury development for the sustainability of low-cost housing. As our underlying toolset is refined, the lab will work with communities in Atlanta to question housing data and the context for their interpretation. It is not enough for data “to be free” — a platitude opined by Stewart Brand in the late 1960s and appropriated by enterprising technologists ever since. The Local Data Design Lab is building new capacities for data literacy, so that not only housing experts but the broader public can confront the social and political implications of this medium for shaping perspectives on the future of the city.