Creating affordable housing

Before making investments in this strategy, city and county leaders should ensure it addresses local needs.

The Urban Institute and Mathematica have developed indicator frameworks to help local leaders assess conditions related to upward mobility, identify barriers, and guide investments to address these challenges. These indicator frameworks can serve as a starting point for self-assessment, not as a comprehensive evaluation, and should be complemented by other forms of local knowledge.

The Urban Institute's Upward Mobility Framework identifies a set of key local conditions that shape communities’ ability to advance upward mobility and racial equity. Local leaders can use the Upward Mobility Framework to better understand the factors that improve upward mobility and prioritize areas of focus. Data reports for cities and counties can be created here.

Several indicators in the Upward Mobility Framework may be improved with investments in creating affordable housing. To measure these indicators and determine if investments in these interventions could help, examine the following:

• Housing stability: Number and share of public-school children who are ever homeless during the school year. These data are collected by local public school districts.

• Housing affordability: Ratio of affordable and available housing units to households with low, very low, and extremely low income levels. These data are available from the Census Bureau’s American Community Survey and the U.S. Department of Housing and Urban Development’s Local Income Bands.
  

• Economic inclusion: Share of people experiencing poverty who live in high-poverty neighborhoods. These data are available in the Census Bureau’s American Community Survey.

• Racial diversity:Index of people’s exposure to neighbors of different races and ethnicities. These data are available through the Census Bureau’s American Community Survey.

• Encouraging or requiring affordable units in new developments: Inclusionary zoning (IZ) policies incentivize or require developers to “set aside” a portion of the units in a new housing development at below-market rates affordable to low or moderate income households. The design of IZ policies varies widely across jurisdictions. However, IZ policies generally define the conditions under which a development is covered by the policy, set aside requirements, and the level of affordability at which units must be offered. Experts advise that the most effective IZ policies typically offer developers flexibility in meeting set aside and affordability requirements. For example, a policy may allow developers to opt to create fewer, more heavily subsidized units or a larger number of moderately affordable units. For more on IZ policy design, see the Economic Mobility Catalog’s IZ program brief or Local Housing Solutions’ IZ resource page.

• Providing incentives for affordable housing production: Jurisdictions can offer a range of incentives to encourage the development of dedicated affordable housing. These incentives may be included as part of an inclusionary zoning (IZ) policy to offset the cost of setting aside affordable units in a new development. However, most incentives can also be offered separate from or without an IZ policy in place. Density bonuses, which allow developers to build more units than otherwise would be allowed by a jurisdiction’s zoning code, are one of the most common incentives used to encourage affordable housing production. Other common incentives include offering streamlined approval for zoning variances, reducing or waiving permitting fees, and reducing parking requirements for qualified projects.

• Offering a menu of financial subsidies: Local and state governments can also offer developers capital subsidies to offset the cost of affordable housing developments that otherwise would not be financially feasible. Low Income Housing Tax Credits (LIHTCs), which are typically awarded by state housing finance agencies, are the largest pool of capital subsidies available for affordable rental housing in most communities. However, LIHTCs are typically insufficient on their own for housing projects to “pencil out” (and do not support the construction of affordable, for-purchase units). To address this, local jurisdictions may offer their own subsidies to supplement LIHTCs and support projects that do not receive or are ineligible for them. Other federal funding sources, like HOME and CDBG grants, are distributed by local governments and can typically be used for project-based subsidies. In addition to federal sources, local jurisdictions can self-fund subsidies. Common local funding mechanisms include allocating general purpose funds, issuing bonds, creating tax increment financing (TIF) districts, offering tax abatements or exemptions, among others. Publicly-owned land may also be sold to developers at below-market rates as a form of subsidy.

• Preserving affordability over time: In addition to policies designed to generate affordable housing, jurisdictions need mechanisms to ensure new units remain affordable over time. For rental units, affordability is typically preserved through a regulatory agreement between the property owner and the government entity that provided an incentive or subsidy to support the project. An emerging alternative is the construction and operation of social housing directly by public authorities (see PolicyLink’s report for examples). For owner-occupied units, shared equity models, like community land trusts and limited equity cooperatives, are effective approaches for preserving affordability. Typically, these approaches include restrictions that limit the resale price of the property, balancing the need to maintain the affordability of the unit with the opportunity for homeowners to build wealth. For more information on shared equity homeownership models, see Grounded Solutions Network’s policy resources and the Economic Mobility Catalog’s community land trust program brief.

• Understanding prohibitions around race-based targeting: Racial disparities in housing-related outcomes persist across the United States. However, the Fair Housing Act precludes federal funding from being used for affordable housing projects that consider race in the rental or sale of units. Targeting benefits based on income, however, is permitted. As racial disparities in income persist, income-based targeting has the potential to increase both racial and socioeconomic equity in a community. (For more on how to use inclusionary zoning (IZ) to advance racial equity in accordance with the Fair Housing Act, see this resource.) Jurisdictions interested in explicitly considering race as part of affordable for-purchase housing projects can leverage Special Purpose Credit Programs (SPCP). For guidance on SPCPs, see the Consumer Financial Protection Bureau’s resources.

• Avoid concentrating affordable housing in disinvested areas: Access to key community resources, like jobs, healthcare, and education, not only improve residents’ quality of life, but their chances of upward economic mobility. Despite this, affordable housing is often concentrated in low-income neighborhoods with fewer amenities. Local leaders can design housing policies to increase the share of affordable units sited in high-opportunity areas. For example, more stringent IZ requirements may be set and larger incentives or subsidies offered for affordable housing developments in high-demand neighborhoods.

• Incorporate inclusive procurement practices: When designing affordable housing programs, local governments can include inclusive procurement provisions to increase the share of women- and minority-owned businesses (WMBE) involved in developing affordable housing projects. Even in jurisdictions where inclusive procurement practices are preempted by state law, local governments can often still increase WMBE participation through race- and gender-neutral policy changes. Hosting pre-bid vendor meetings and simplifying application processes, for instance, are race- and gender-neutral practices that can nonetheless foster more diverse and competitive vendor pools. For more on this strategy, see Results for America’s inclusive procurement resources.

• Residents: In many jurisdictions, residents oppose new affordable housing developments due to concerns that affordable housing increases crime and reduces nearby property values. However, evidence suggests that affordable housing is, in fact, associated with reduced crime and increased property values. To build public support for affordable housing, experts advise engaging community members early, evenly distributing affordable housing across a jurisdiction, and highlighting affordable housing as a means to addressing pressing local issues (e.g., homelessness).

• Private and non-profit housing developers: In most communities, private and non-profit developers play a key role in designing, building, and operating affordable housing units. Developers can provide feedback on the design of inclusionary zoning policies, particularly around set-asides and affordability requirements and the offsets that may be needed to make developments financially feasible. Similarly, when designing financial subsidy programs, feedback from housing developers can be key in calibrating the size and terms of grants, below-market financing, tax abatements, and other incentives.

• Social services and other non-profit organizations: As jurisdictions set their affordable housing priorities, community-based organizations with strong connections to low-income households can serve as partners during community engagement efforts. Additionally, these organizations may be supporters of any push for policy changes that advance affordable housing.

• Local government staff: Local planning and housing departments often lead the development of inclusionary zoning policies, with the latter typically responsible for overseeing affordable housing incentive and subsidy programs. As housing developments impact local infrastructure and transportation patterns, public works and transportation officials (e.g., municipal departments, but also public transportation agencies, metropolitan planning organizations, and others) can be key partners in ensuring affordable housing is sited and designed in line with broader community priorities.

• Using data to assess local housing conditions: Housing needs assessments can help local leaders determine if more affordable housing is needed in their community and, if so, what policy changes are needed to meet local needs. When examining affordability, in particular, special attention should be paid to how housing affordability varies across different income levels (e.g., at 30 versus 80 percent of AMI). For example, to identify where affordability issues are most acute, a needs assessment might break down the share of renter households by income level alongside the share of rental units affordable at each of the same points on the income distribution. To access a high-level assessment of housing conditions in your county, see Local Housing Solutions’ Housing Needs Assessment resource.

• Accounting for variation across submarkets: Housing conditions can vary significantly across submarkets within the same jurisdiction. Generally, experts advise that local leaders create policies that support the production of affordable housing jurisdiction-wide. This approach reduces the likelihood that policies will perpetuate existing patterns of segregation. However, inclusionary zoning (IZ) and other incentive- and subsidy-based programs should “flex” based on the market conditions in different neighborhoods. For example, developments in areas with strong existing demand may be able to accommodate more stringent IZ requirements than a similar development in a disinvested context.

• Weighting community engagement efforts toward policies relative to projects: Jurisdictions should conduct robust public engagement when creating new affordable housing policies. When a policy reflects local priorities and has a high degree of public support, future proposed developments that are in line with that policy may themselves enjoy greater public support. To the extent that consensus-building during policy development can reduce public opposition to individual projects, it can shorten and create more certainty around affordable housing development.

• Planning for ongoing stewardship of units: Affordable rental units generated through inclusionary zoning or other incentive- or subsidy-based programs are generally operated and maintained by private or non-profit property management companies. Jurisdictions should monitor and manage these properties as assets to ensure units receive necessary investments and remain affordable over time. Similarly, affordable, for-purchase properties need oversight at resale to ensure affordability requirements remain in effect. Shared equity programs, like community land trusts and limited-equity cooperatives, are well-established mechanisms for providing this type of stewardship.

• Area median income: Area median income (AMI) is the midpoint of a geographic area’s income distribution. AMI is commonly used to define affordability levels for housing developments and to set eligibility criteria for prospective tenants and homeowners. See the U.S. Department of Housing and Urban Development’s website to look up AMIs by county.

• Affordable housing supply: The total number of affordable housing units represents a jurisdiction’s affordable housing supply. Tracking this number over time and disaggregating it by affordability level (e.g., by AMI) can provide insight into a community’s affordable housing needs. For individual affordable housing initiatives, the number of units produced may also be a key indicator of impact.

• Cost and subsidy per affordable unit: The total development cost and total public subsidy provided per affordable unit can help local officials contextualize the impact of affordable housing programs relative to their cost.

• Location of affordable developments: Access to key community resources (e.g., job centers, public transportation, education) can contribute not just to a household’s quality of life, but to their chances of upward economic mobility, as well. Tracking where affordable housing is being sited allows jurisdictions to assess whether affordable housing programs are advancing low-income households’ access to these resources.

• Wealth building: For programs that create affordable, for-purchase units, the equity that households build through homeownership may be a key metric of success.