"As a community with below-average housing prices, a percolating downtown, and renewed focus on redevelopment, it may appear Lexington is looking to get ahead of the curve in addressing housing affordability today. But in looking at how other cities have been tackling the issue for decades, Lexington may find it has some catching up to do.
While housing affordability has not had a place among Lexington's highest priorities in recent years, it has been recognized as a contributing factor for the city's future growth and economic development. In this way, Lexington is like many other communities that see housing affordability as an essential factor in staying competitive, said Sylvia Lovely, president of the Kentucky League of Cities.
"If you start exploring how you are going to create jobs in the 21st century, (housing affordability) always comes up," Lovely said. "There are a lot of innovations that are taking place out there that are largely hidden from view."
Communities that have been successful have developed long-term strategies, garnered unified public and private support, and established local programs to address both current and future affordability needs.
In this final installment of Business Lexington's three-part series on housing affordability, we take a closer look at three very different communities that have taken some bold steps in addressing their local housing needs.
Louisville, Ky.
Lexington doesn't need to look far for an example of what a unified strategic vision for affordable housing can accomplish. The results are visible in Louisville.
More than $430 million in public and private funds have been invested in Louisville's mixed-income developments Liberty Green and Park DuValle, which has become a model nationally for the replacement of outdated public housing. In the city's formerly neglected Russell neighborhood, a public-private urban renewal effort has resulted in several hundred new homes, as well as economic development investments in existing small businesses and an African American Heritage Center.
Louisville's affordable housing strategy has been years in the making, said Kimberly Bunton, director of the city's Department of Housing and Family Services.
"The beautiful thing about Louisville is that it consistently has had the same leadership for a long time, and so we have reaped the benefits of having a mayor with a housing vision," Bunton said.
Louisville has seen considerable support for its housing strategy from the private sector, Bunton said, and the result has been a well-coordinated affordable housing program that leverages public investments.
While the affordable housing trend in recent years has been to focus on new development, Louisville has been working to turn attention to its existing stock of affordable homes and neighborhoods, Bunton said. And like many cities, Louisville has recognized the importance of building its own funding sources for the effort. In February, Mayor Jerry Abramson announced the creation of the metro area's own affordable housing trust fund, the first initiative of its kind on the city level in Kentucky, funded with $1 million in seed money from a mid-year adjustment of the city's general fund. The eventual goal is for the fund to invest $10 million annually in local affordable housing initiatives.
Louisville is looking for private sector support to fund the program, and Abramson also said he plans to work with the state legislature to develop a continuing funding source for local affordable housing trust funds across the state.
Louisville operates its own land bank to make the best use of vacant properties belonging to Louisville, the state and Jefferson County Public Schools. Land bank property is made available to private developers for a variety of uses, and the land bank's commission, made up of representatives of the three land-contributing groups, evaluates submitted development proposals to see if they fit the overall priorities and needs of the community.
And, as foreclosure rates have risen recently, Louisville has responded with a mortgage assistance program that provides loans of up to $5,000 for households needing temporary financial help to avoid losing their homes. The fund, which is run through the city's Department of Housing and Family Services, is financed with money from the general fund.
"We felt like we needed to address (rising foreclosure rates) in a monetary fashion," Bunton said. "When we're looking at trying to keep people in affordable lifestyles and in homes, we need to look at retention as well."
Montgomery County, Md.
When mandatory inclusionary zoning enters the affordable housing conversation, proponents all seem to point to Montgomery County, Md.
For more than 30 years, the affluent community on the outskirts of Washington, D.C., has enforced a mandatory inclusionary zoning ordinance, which currently requires all residential developments of more than 50 units to set aside between 12.5 and 15 percent of their inventory as Moderately Priced Dwelling Units, or MPDUs. In return, developers are awarded a 22 percent density bonus. Since the program was initiated, more than 11,000 of these units, which typically serve those earning between 50 and 80 percent of the area median income, have been produced. In December 2006, the median market rate in Montgomery County was $520,000 for a single-family detached home and an estimated $400,000 to $600,000 for high-rise condominiums. By contrast, single-family attached MPDUs are available for $170,000, and the high-rise condo units cost $190,000.
The original ordinance, introduced in the 1960s, was hotly debated, but today it enjoys widespread support from the housing community, according to Scott Reilly, chief operating officer for Montgomery County's Department of Housing and Community Affairs.
The associated density bonus allows developers enough extra units to cover the affordable housing requirement and add additional market-rate units as well, Reilly said. The program also offers allowances for a component of attached homes, which offer more cost savings in development. Inclusionary zoning has also garnered support from local businesses, Reilly said.
"Our business community realized that we had two choices: we could either build lanes on highways to get people to their jobs in Montgomery County because they can't afford to live here, or we could build some affordable housing," he said.
To ensure long-term affordability, the MPDUs remain price-controlled for a 20-year period, and if sold during that time, the 20-year period starts anew for the next buyer, Reilly said. In addition, as of 1989, MPDU homeowners are required to share with the county any windfalls from the first sale of the property after the price control period expires.
Beyond ensuring that units are being built as required and certifying qualified purchasers, the county has little involvement in the actual sales transactions, and therefore its administrative expenses for the program are minimal, Reilly said. In addition, the local housing authority can purchase up to one-third of the MPDUs, which allows the units to stay in the county's affordable housing inventory in perpetuity.
While inclusionary zoning creates provisions for affordable housing at little or no cost to local governments, opponents in other cities have pointed out that the ordinances merely shift the costs of affordable housing to developers, and ultimately consumers.
"Inclusionary zoning is something pretty much that our industry as a whole has not been supportive of," said Todd Johnson, vice president of the Home Builders Association of Lexington. "Housing affordability and affordable housing aren't all about new construction, but that's where inclusionary zoning focuses."
When developers have to sell some homes at a below-market rate under inclusionary zoning mandates, the cost break for affordable homes is ultimately absorbed by the development's market-rate buyers, Johnson pointed out. As a result, homes become less affordable for those households with incomes above the program's limitations.
As the cost of building increases, some builders hold that it is becoming more difficult to accommodate affordable units in multi-family construction, Reilly said. While in some cases, builders can opt to pay fees or provide affordable units at offsite locations if the inclusionary zoning requirements prove to be unfeasible, the county strongly discourages those exceptions, Reilly said.
The county also operates a housing trust fund to preserve the existing affordable housing stock and leverage funds in the development of new affordable housing. The county has been able to accomplish a six-to-one leveraging of its housing initiative funds with outside financing from private and other public sources, Reilly said.
Inclusionary zoning efforts in general depend on having room to build. The county has relied on new development to bolster its affordable housing stock, and now it estimates that it is within 25 years of building itself out.
"Once we reach build-out, then about the only place we're going to find new inclusionary zoning units being built would be in substantial redevelopment of under-developed sites," Reilly said.
Portland, Ore.
In the early 1990s, Portland, Ore., was among the most affordable housing markets in the country. By the end of the decade, it ranked among the least affordable.
During that time, the city was making an effort to ensure housing affordability for its citizens by incubating a network of local community development corporations and investing heavily in new construction and housing rehabilitation. However, the benefit of hindsight has shown that while Portland was actively addressing the issue, it was not necessarily addressing the need.
"I think one of the things we didn't think a whole lot about was where the cost burden of housing was highest," said Andy Miller, deputy director for programs at Portland's Bureau of Housing and Community Development. "Instead we took a look at how we could get the most units for the least public dollars."
That approach resulted in deals with thin margins targeted toward the lower end of the workforce housing segment, with incomes in the range of 50 to 80 percent of area median income. Today, the majority of the roughly 12,000 rental housing units financed with the city's help are occupied by households with significantly lower incomes than intended, Miller said.
"More isn't always more," he said. "On the one hand, we were developing a robust inventory of affordable housing. On the other hand, we were increasingly seeing our public resources drained by serving a homeless population that was growing very steadily and who were essentially locked out of the affordable housing we were developing."
Now Portland has switched gears. The city is dedicating roughly 75 percent of its housing resources for households at or below 30 percent of area median income, with a particular focus on those who are homeless.
Home prices in Portland are still appreciating significantly, making home ownership increasingly less accessible. The city has targeted home ownership programs at underserved local minority communities, but has also concentrated on its rental market.
Rising home prices have also driven more families out of the city, putting added pressure on the local school district. To address the concern, Portland has launched a schools-family housing initiative to bring families back with affordable rental and home ownership options and also to stabilize those families at risk of being driven out of the district.
One of the city's primary tools in bringing home ownership to lower-income residents has been the Portland Community Land Trust, a nonprofit initiative started in the mid '90s to promote housing affordability. The Land Trust retains land ownership for its projects while participating homeowners hold equity in the structure built on it, essentially taking the cost of land out of the purchase price of a home and allowing the community to retain its public investment over the long haul.
Money for Portland's affordable housing initiatives comes from a combination of federal and local funding, and local elected officials have made housing programs a priority. In the last year, the city council voted to set aside 30 percent of the tax increment financing from its urban renewal efforts for housing affordability initiatives.
"That's going to effectively almost double our capacity to develop affordable housing," Miller said.
The key lesson learned in Portland's affordable housing efforts over the past two decades, Miller added, is the need to understand where a community's development efforts are headed and what its long-term needs will be.
"You need to have within your jurisdiction a watchdog that is looking at the overall policy implications of the trends," he said. "I think a lot of communities are intensively revitalizing their downtowns with the high-end glass towers and condos and the national trend of people moving back to downtown. The question there is, who's that going to put the squeeze on? What's going to be your overall effect over time?"