Inclusionary housing policies -- the increasingly common practice of requiring affordable homes linked to new market-rate residential development -- need constant follow-up and careful record-keeping to ensure lasting affordability, according to new research published by the Lincoln Institute of Land Policy.
Achieving Lasting Affordability through Inclusionary Housing, available for downloading as a Lincoln Institute working paper, is the largest research study of inclusionary housing programs to date. The research, by Robert Hickey, Lisa Sturtevant, and Emily Thaden, was conducted in partnership with the National Housing Conference’s Center for Housing Policy and the National Community Land Trust Network. A special webinar detailing best practices in inclusionary housing is being offered today at 2 p.m. Eastern time.
Inclusionary housing, which link approvals for market-rate housing to the creation of affordable homes for low- and moderate-income households, are in place in 27 states and the District of Columbia, and in 482 jurisdictions overall. Nearly 80 percent of established programs are in three states – California, Massachusetts, and New Jersey – but interest is increasing, from North Carolina to Colorado.
A typical program is to require that 15 percent of a residential development be affordable, with the affordable homes built on-site, off-site, or in some cases created through an affordable housing trust fund to which developers contribute. To ensure long-term affordability, jurisdictions must not only set a time frame for the homes to remain affordable – 30 years, for example – but closely monitor those homes to make sure they stay affordable.
Good stewardship, the researchers say, requires strong legal mechanisms, effective monitoring for both for-sale and rental homes, and well- designed resale procedures to ensure that homes don't fall through the cracks, end up being offered on the open market at unaffordable prices, become lost to foreclosure, or fall into disrepair.
Ultimately, the researchers say, effective administration and stewardship necessitates adequate staffing. The study identifies the growing practice of forming partnerships with outside organizations, such as community land trusts, nonprofit agencies, for-profit firms/consultants, affordable housing developers, and housing authorities.
The researchers closely analyzed a set of 20 inclusionary housing programs, and for the 307 programs for which affordability period data was available, found that 84 percent of homeownership inclusionary housing programs, and 80 percent of rental programs require units to remain affordable for at least 30 years; and that one-third of inclusionary housing programs require 99-year or perpetual affordability for rental and/or for-sale housing.
The case study analysis of 20 programs provides additional insights on the evolution of affordability terms over time, and the mechanisms needed to ensure the lasting affordability of inclusionary units. As inclusionary housing programs have matured, local jurisdictions typically lengthened, rather than shortened, affordability periods. In addition, almost all of the programs studied that have less than perpetual affordability periods restart their affordability terms whenever a property is resold within the control period. This requirement is helping to achieve lasting affordability in places that have not adopted “perpetual” affordability periods for legal or political reasons.
But as the 20 case study programs revealed, achieving lasting affordability requires more than simply setting long affordability periods. Strong legal mechanisms, carefully designed resale restrictions, pre-purchase and post-purchase stewardship practices, and strategic partnerships are important for ensuring that inclusionary properties continue to be sold or rented at affordable prices, and are not lost due to illegal sales, foreclosure, or lax rental management practices.
Key legal mechanisms help jurisdictions stay notified of illegal sales, improper refinancing, over-encumbrance with second loans, and defaults that could jeopardize the continued availability of inclusionary homes. These mechanisms include not only deed covenants, but also deeds of trust, the preemptive right to purchase, the right to cure a foreclosure, the right to purchase a home entering foreclosure, and requirements of notice of default or delinquency.
Resale formulas are being designed to balance the goals of ensuring lasting affordability for subsequent homeowners and promoting wealth-building among homeowners. The most popular resale formula used by case study jurisdictions ties the resale price to the growth in area median income (AMI) over time. But other approaches were reported, including fixed-percentage, appraisal-based, and mortgage-based resale formulas, as well as hybrids of two or more of these approaches.
Monitoring and stewardship activities are critically important for ensuring lasting affordability of inclusionary housing units. Effective stewardship of a program’s homeownership inclusionary portfolio includes preparing homebuyers for the responsibilities of homeownership, helping owners avoid pitfalls such as delinquencies or foreclosure, monitoring resale and refinancing activities, encouraging and enabling ongoing investment in property maintenance and repair, and staying in regular communication with homeowners. Effective stewardship of a rental inclusionary portfolio includes regular oversight over the leasing and tenant selection process. In some case study programs, this administration involved regular review and training of property managers, while others used in-house management of a centralized waiting list and tenant selection process.