The Greatest Unmet Need
Most jurisdictions across the country are grappling with an unmet need of housing that is affordable to its residents commensurate to their incomes. Also in most jurisdictions, the income bracket of zero to thirty percent of the Area Median Income (AMI) is the level of greatest unmet need.
This income bracket has the greatest unmet need in several ways: this is the income bracket for which there are the fewest available units; new construction typically almost nearly completely neglects this income bracket; and in many jurisdictions, public policy has increasingly neglected households making zero to thirty percent of the AMI.
Therefore, SMART ALEC has spent considerable time on the issue of reaching that level of affordability, which housing advocates have lately termed “deep affordability.”
Reaching deep affordability can be a challenge; and some say that it is not feasible, but that is not true.
Insisting on Deep Affordability, even if it Means Fewer Units
This page discusses one of the strategies to reach deep affordability, which is insisting on using available funding or other incentives to provide most or all units that are deeply affordable, even if it means producing fewer units with said funding or other incentives.
Establishing Appropriate Affordable Housing Goals with Sub-Goals for Each Income Bracket
Because some jurisdictions have set numeric affordable housing goals, they often feel pressured to reach those goals, and this results in a perverse incentive to produce a great many so-called “affordable units” that serve an income bracket that already has proportionally more options on the market.
Therefore, we recommend that affordable housing goals should contain a set of sub-goals for each income bracket: that is, a goal for how many units ought to be preserved or created at zero to thirty percent AMI; a goal for thirty to fifty percent AMI; and a goal for fifty to eighty percent AMI.
Legal Takings Analysis
Concerns about legal “takings” can be a related issue. Jurisdictions concerned about avoiding a legal “taking” under relevant state law often feel constrained by the availability of funding or other incentives that they can offer developers–such as zoning incentives like height or density that also have monetary values–because they are looking to fully subsidize or compensate developers for “lost rent” that they would incur by renting units for less than the market would allegedly bear.
Therefore, we recommend that jurisdictions commit to using those scarce resources to produce units that are all or mostly deeply affordable.
Understanding how these subsidies are typically calculated helps to illustrate how producing deeply affordable units can be feasible:
In each project, there is an accepted market value rent, although SMART ALEC does not concede that market value is a true reflection of supply or demand. We can calculate the monthly “lost rent” for a developer that is the difference between the affordable monthly rental price and the accepted market value rent.
This monthly lost rent then gets annualized by multiplying it by twelve.
Then, we can multiply that annual “lost rent” times the number of affordable units in the project to come up with the total subsidy required for the project.
Naysayers will often calculate this subsidy using a rental price affordable at eighty percent AMI in determining the difference between the affordable rent and the market rent. They will say that even with a large subsidy, it is unfeasible to provide units that are affordable at zero to thirty percent AMI.
However, we can always recalculate any subsidy to determine how may affordable units can be produced when a lower rental price is plugged into the calculation of the monthly, annualized, and project-wide “lost rent.”
Need for Mandatory Policy
These policies need to be specific and mandatory. The City of Atlanta, for example, adopted a non-mandatory recommendation of setting aside a portion of all publicly funded units for extremely low-income families in 2001, but that aspirational goal has never been implemented. (City of Atlanta Code of Ordinances Part II, Chapter 54 “Community Development”, Sec. 54-1).
Conclusion
Recommending that local governments produce fewer affordable housing units with public dollars and public incentives on the surface may sound counterintuitive.
However, it is important to keep in mind, the alternative is producing more units that are not deeply affordable, that fail to reach the level of greatest unmet need, and are often so close to market rate that it is questionable whether they deserve public subsidy.
Again, by adopting affordable housing goals that contain sub-goals specific to each income bracket, it is possible to have a more nuanced conversation and to make sure that all households are being adequately served.