Perspective & Experience: Affordable housing: what every developer needs to know
I’ve worked in affordable housing for many years, mainly in helping to get affordable housing projects approved. I’ve also worked with those needing affordable housing and those who provide it. Through my experiences, I have heard the stories and journeys of those in need and have learned the system, with its rules, regulations, and requirements for building, providing, and renting affordable housing. There are many benefits to these programs. There are also some things I wish could be changed.
Many cities have affordable housing programs that require new housing projects to include affordable units. These programs are often called “Below Market Rate” (BMR), “inclusionary” or “affordable” housing programs. The percentage and designation of units as well as the minimum number of total units needed for the project to require affordable units varies by city and sometimes from year to year within a city depending on current need.
For those who are new to affordable housing, it is categorized by the US Department of Housing and Urban Development (HUD) based on the following income levels: extremely low, very low, low, or moderate income and the rent limit and income limits are set annually and available through county housing departments. Designations are based on a percentage of Area Median Income (AMI), which varies by metropolitan area and changes each year (annual changes are generally issued in the spring around April). Extremely low income is less than 30% of AMI, very low income is income less than 50% of AMI, low income is less than 80% of AMI and moderate income is less than 120% of AMI. Rents for income-restricted apartments correspond to the income designation and also very each year with a maximum allowable rent. Allowances are made if the tenants also pay for utilities.
Another term people use frequently in the industry is “workforce housing.” The definition of workforce housing also varies from city to city and by organization or agency. HUD refers to workforce housing as 80% to 120% of AMI. The Urban Land Institute refers to it as 60% to 120% of AMI, still other designations are 100% to 140% of AMI. Because it varies so much, I don’t refer to it in this post.
Who are those needing affordable housing? In the Bay Area, they are retail and restaurant workers, Uber and Lyft drivers, transportation operators (bus drivers, ticket office staff, etc.), maintenance workers, hospitality workers, and government workers, such as parks and recreation assistants, landscapers, and those in public works, car rental associates, some teachers, professors and those working for colleges, universities, and school districts, owners of beauty shops, nonprofit professionals, some first-responders, some trades workers, laborers and construction workers, delivery drivers, medical assistants, clerical workers, entry-level corporate employees, and many more. Many people seeking affordable housing have college degrees.
Thoughts expressed herein are my own and are based on my experience in the San Francisco Bay Area.
Studios are a challenge: the truth is that no one really wants to live in a studio, even those who can’t afford to live anywhere else. Yes, they are less expensive, but they are really hard to rent even to those in need. People view them as temporary solutions and most people looking for affordable housing are looking for a permanent solution and once they get the apartment, they are not going to want to give it up unless they are forced to do so. The message for developers and cities: re-think how many studios you require to be built and remember that most people want at least one bedroom.
Recognize that many people don’t understand what gross annual income is: When a worker is paid an hourly wage, they think in terms of hourly rate, over-time rates and take-home pay, not gross annual pay. Many people don’t actually know their gross annual income until the last step in qualifying for affordable housing: the income certification process. In some cases, this mistake can mean they are no longer eligible for the unit or building for which they were on a waiting list. The message for cities and owners/developers is to make sure your interest and wait list instructions request gross annual income and explain the difference between gross and net.
Affordable housing is not always affordable: it is better described as income-restricted housing. Affordability is a relative term, and for many low-income families living in an “affordable unit” with a maximum income limit well above their own income designation or in a higher income designation, the rent is not affordable. Too frequently, someone in a moderate-income unit actually qualifies for very low- or low-income unit, or someone whose income is extremely low is in a low-income unit. If it’s not the right fit for their income level, it’s not affordable. While most programs have minimums when tenants initially move in, their income can drop below the minimum required in subsequent years.
There aren’t enough moderate units being built/designated: many jobs that include experienced teachers, workers in the building trades, and first responders don't qualify for low income but can’t afford market rate housing. Many of them fall in the moderate-income category, yet there are very few city programs with moderate income designations. The message for cities and developers: designate more moderate-income units.
Consider building flexibility into the program to help those in need now and in the future as their circumstances change or improve: to be effective in the long run, the industry and government entities should consider how they can offer incentives for people to move up and out of affordable housing by providing graduating rates. If someone is required to vacate their unit because they make too much money for the apartment that they are in based on its maximum income restriction, they may still not be able to find an affordable apartment. If the goal is to house people and not to displace them, then we must look at the bigger picture. The fact that the unit’s designation cannot be adjusted, along with the rent, creates a disincentive for the tenants to do better. Because of the current system that creates disincentives, tenants in affordable housing might try to hide income, or turn down promotions or better opportunities because they don’t want to lose their income-restricted housing and there is nothing in between what they’ve got now and market rate housing. The fact that there is no flexibility on the income restriction and rent restriction creates a broken system that holds people back from growth and opportunity.
Consider building flexibility into the program to truly help those in need: turning people away who deserve to be in affordable housing is heart-breaking. There has got to be a better way. When a potential tenant who has been on a waiting list for years is over the limit by just three thousand dollars per year in income, is hardworking, and has a good job that pays well anywhere else in the country, but not here, it is very upsetting to inform him that he has to continue to wait for a different apartment with a higher income limit and that wait could take months or years. There has got to be a better way.
If the goal is to house people who need housing, it would seem that some level of flexibility in the income restriction and associated rent is needed. A better way would be to have a list of those in need, to qualify them based on their current income, and to restrict the rent based on their current level of income, rather than require them to make under a certain amount for that particular apartment. Whatever their income is - the rent level corresponds for that year. And once their income rises to a certain percentage of AMI (such as 140%), then they pay market rate and the next apartment available becomes an affordable unit. This way the below market rate units within market rate projects could fully serve those in need, not just the lucky few who knew how and when to get on the waiting list and make just the right income.
While changing state and federal affordable housing programs is more challenging, local governments have the flexibility to change the system to make their programs more effective. Through well-thought out policy adjustments and input from their communities, they can achieve their goals to house those in need in their communities and create systems flexible enough to meet changing needs.
