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Mayor Anthony A. Williams’ Housing Initiative Preservation, Rehabilitation and Production
Position Paper
April 2, 2001




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Mayor Anthony A. Williams' Housing Initiative "Preservation, Rehabilitation and Production"

The District's economy continues to surge and the real estate market establishes record high prices for many of the city's hottest neighborhoods. Housing sales have jumped by seven percent just in the last year, and prices are at an all-time high. Recently released property assessment data show large increases in certain neighborhoods. For example, between 1999 and 2002, property assessments rose 46.4% in Cleveland Park and 15.7% in Mount Pleasant.

A quick look at the city's demographics reveals a tremendous need for additional measures to meet the growing demand for housing. Among our poorest citizens, 75% are paying more than 30% of their income on housing, which is more than they should by any objective standard. More than 1,000 of the city's most affordable rental units could lose their rent protections this year, with as many as 10,000 apartments at risk by 2005 because of expiring section-8 contracts. And while the homeownership rate is rising in the District, at 41 percent, it is still much too low. The median unit costs more than $145,000, which is far more than a working class family earning $60,000 in a year can afford to buy.

Many of our neighborhoods need investment in housing and infrastructure. There are approximately 4,000 abandoned and tax delinquent buildings and lots in the city, creating blight and representing wasted resources for a city expected to grow in population by 130,000 by 2025. With 44 percent of the housing stock more than 60 years old, many homes, particularly in our historic neighborhoods, require investment for rehabilitation and modernization. And with a growing population and a resurgence of interest in downtown living, the opportunity has arrived to create a vibrant, populous, 24-hour downtown.

Current Affordable Housing Initiatives

Mayor Williams is doing more to help low-income families afford housing than any of the surrounding jurisdictions. The District houses more than 54 percent of the region's affordable rental units, but only 23 percent of the regions total rental units. The DC Housing Authority (DCHA) provides 25,000 very low-income individuals with public housing, and another 25,000 with privately owned subsidized housing. The DCHA is using the HOPE VI program to develop an additional 1,600 units over the next several years. The Department of Housing and Community Development and the District of Columbia Housing Finance Agency have helped to develop and finance thousands more units of below-market housing. In FY2000 alone, we financed the development, rehabilitation, or conversion to homeownership of 2,532 units serving very-low, low and moderate-income families.

Additionally, the city has several programs targeted to working families to assist them to become first-time homebuyers. First-time homebuyers can receive a federal tax credit equal to $5,000 to reduce purchasing costs. The District government provides down-payment assistance through the Home Purchase Assistance Program to approximately 400 families a year. Another 500 families were assisted through low-interest mortgage loans provided by the DC Housing Finance Agency. The District government augments its purchase assistance programs with the very popular Homestead program. This program enables moderate-income first time homebuyers to purchase vacant, city-owned properties for $250 and helps them to finance rehabilitation. Families obtain a very low cost opportunity to renovate and own their own home. The neighborhoods lose sources of blight and crime and the city gains homeowners with a real stake in their communities, in addition to properties back on the tax roll.

Legislation and Regulatory Initiatives to Strengthen Our Affordable Housing Program.

Mayor Williams is expanding the District's efforts to address the affordable housing crisis. As part of his Administration's housing initiative, the Mayor transmitted a bill, entitled "The Housing Preservation, Rehabilitation and Production Omnibus Amendment Act of 2001," to the Council for introduction. This Act, and the accompanying regulatory initiatives, expands the city's existing programs that finance the construction and rehabilitation of rental and ownership housing, provides low cost mortgage and home repair loans, and provides support for community development and neighborhood-based initiatives.

The Mayor's housing initiative is aimed at three objectives:

  • Protect Existing Affordable Housing and Reduce Displacement
  • Convert Vacant and Dilapidated Buildings into New Housing
  • Promote New Housing for People of All Incomes

I. Protect Existing Affordable Housing and Reduce Displacement

In many of the city's historic neighborhoods, a vibrant real estate market means that long-neglected properties are being fixed-up and repositioned for rental or sale to higher income households. Where housing investment in a neighborhood is intense, property values throughout the neighborhood can shoot up dramatically: putting pressure on long-time residents, threatening some of them with displacement and rising costs. The Act addresses the problems facing longtime residents through three measures.

Support Low-Income, Long-Term Homeowners

Provide low-income, long-time homeowners a break on their property taxes. All District homeowners who live in their homes already qualify for a $30,000 homestead deduction to lower their property taxes. Additionally, 26,200 seniors receive the senior citizen tax deduction, which cuts their property taxes in half. We propose giving low-income families who have lived in their homes for at least ten years an additional protection. A family of four earning up to $49,000 per year would qualify for a rebate if their property taxes rises by more than 5% over the previous year's bill. We expect that families living in the "hottest" real estate markets -- Shaw, Adams Morgan, Logan Circle and others -- will benefit the most from this provision.

Example 1: Support Low-Income, Long-Term Residents

Since the new Metro Station opened in Columbia Heights in the Fall of 1999, many homeowners have experienced dramatic increases in their property values and taxes. For example, three years ago a house was assessed at $83,000, but is now assessed at $137,000. The homeowner's property taxes increased from $800 to $1,300 - an increase of 65%. We propose that if a family owned and lived in the home for more than 10 years and earned less than $66,000, then it would receive an income tax credit equal to $460, which is the difference between $1,300 and $840. $840 is the permitted five percent increase over $800.

Notify the District and Residents of Expiring Use

Many of the most affordable apartment buildings in the city were developed using federal mortgage insurance and Section 8 subsidy contracts. These contracts guarantee that low-income residents pay only 30 percent of their income towards rent, with the federal government making up the difference. The contracts last 20 years. Over the next four years, the Section 8 contracts on about 10,000 rental units across the city will expire and the owners will have the opportunity to opt out of the program, ending their obligation to provide housing to new low-income renters.

The city has allocated $1.5 million in the current budget year for technical assistance and predevelopment costs so that tenant associations or tenant-supported purchasers can buy the buildings and preserve their affordability. However, while the funding is necessary and important, for our efforts to be successful, the city needs to know that the owner might opt out of the contract, so we can begin working with the tenants quickly. Thus, we propose requiring owners to notify the city and the tenants of their intent to leave the Section 8 program.

Example 2: Expiring Section-8 Contract

In 1982, a developer received section 8 project based assistance in exchange for providing affordable housing. In 2002, the current owner plans to sell the building to a developer who would convert it into condominiums. Under this policy, the current owner would have to notify the District government and current residents nine months before it would be sold to a developer. The notice period would give the current tenants and the District government an opportunity to examine ways of maintaining the building's affordability.

Provide Targeted Historic Housing Tax Credits

The city's historic districts are full of beautiful, well-constructed, but run-down homes. The poor condition of many of these homes, together with the higher costs associated with historic restoration, has discouraged purchasers from considering these properties and led to disinvestment in the historic neighborhoods. Families of modest means have found it particularly difficult to acquire these properties, or if they own such properties, to renovate them.

We propose helping working class residents who wish to upgrade their properties and new purchasers willing to take on the challenge of historic restoration by providing an income tax credit equal to 25 percent of the cost of the renovation. Thus, a $100,000 renovation would cost a homeowner just over $75,000 to complete. Eligible families earn up to 120% of area median income (approximately $98,000 for a family of four). Lower income families that would otherwise be unable to take full advantage of a tax credit may sell the credit for cash.

Homes in historic districts on the eastern side of the city qualify, including LeDroit Park, Mount Vernon Square, Shaw, Anacostia, Greater U Street N.W., Greater 14th Street N.W., Capitol Hill, and Mount Pleasant.

In order to control the District's tax liability, we are proposing a cap on the amount of tax credits that can be awarded. Each year, between 2002 and 2007, the Mayor may preapprove up to $1.25 million worth of tax credits.

Example 3: Targeted Historic Housing Tax Credit

It is often difficult for a moderate-income homeowner to rehab their historic home. For example, a family who earns $60,000 a year and purchased an historic home 10 years ago, might owe $50,000 on the original mortgage. Their house might require $130,000 worth of rehabilitation costs, but they can only borrow an additional $100,000.

The District will provide an income tax credit equal to 25% of the rehabilitation costs. With the tax credit, the family can borrow $100,000 and receive $30,000 in cash, which is 25% of $130,000 worth of rehabilitation costs. Rather than actually use the tax credit against their income, the family can transfer the credits to the bank, which will sell them to an investor for a small transaction fee.

II. Convert Vacant and Dilapidated Buildings Housing

A drive around Washington, D.C.'s older neighborhoods reveals an abundance of abandoned and dilapidated buildings and vacant lots. Many of the city's older homes, though occupied, are in need of repairs. The city's building code, geared toward new construction standards, discourages home renovations. The city needs better tools to convert vacant properties into housing opportunities.

Although the unclaimed properties are a nuisance today, they can be valuable assets for community development in the future. The city needs better tools to convert these properties into housing opportunities. We need to be able to acquire properties in order to clear up title problems before reselling them for redevelopment. We also need to streamline and update the city's building code and inspection process so that the private sector can get to work to rehabilitate the city's older buildings.

Update the Rehabilitation Building Subcode

The District's building code governing substantial rehabilitation has not been changed in some 20 years. Many provisions are now out of date, adding to the time and expense of completing a renovation project. Other jurisdictions including New Jersey and Maryland have recently revised their subcodes, providing a model from which to begin. As part of this initiative, the Mayor will establish a committee to redraft the rehabilitation subcode for the District.

Streamline the Demolition Process

Some properties are too dangerous to be rehabilitated, and require demolition before they can be sold for redevelopment. The current process for doing so is too cumbersome. It results in properties sitting abandoned for years, blighting their communities. We propose providing DCRA the authority to demolish vacant buildings after the Historic Preservation Review Board has determined that the building is not historically significant, the Department of Housing and Community Development has studied the building and determined that it cannot be rehabilitated, and notified all interested parties of the District government's intent to demolish the building.

Modify Quick Take Procedures

Title IV of the "Abatement and Condemnation of Nuisance Properties Omnibus Amendment Act of 2000" expanded the District's condemnation authority to include certain abandoned and deteriorated properties. The provisions were based on laws implemented in Baltimore, MD. We propose several modifications so that the law more clearly defines "abandoned" and "deteriorated" properties by referencing objective criteria to ensure its defense in District Court. We propose amending the process so that it references existing statutes and procedures that have been Constitutionally tested, rather than creating a new process. Rather than requiring a plan for the disposition of the properties, we propose giving the District more flexibility to dispose of the property through the Homestead Program or selling the property to a neighbor who will convert it into a side lot. We also propose eliminating the whole block remedy because, unlike Philadelphia and Baltimore, it is unnecessary in the District of Columbia.

Modify the Homestead Program

To speed up neighborhood revitalization, we propose strengthening the Homestead Housing Preservation Program by allowing properties to be developed as rental housing as well as for homeownership and permitting developers to propose unsolicited proposals. These modifications will enable certain buildings to be brought back into productive use that otherwise would not be feasible for redevelopment as owner-occupied housing.

Example 4: Housing Production Trust Fund

A housing developer seeks funds to create housing targeted toward very-low income renters. Another developer wants to build a mixed-income housing development that will include units for low- and moderate-income families. Both developers can apply to the Housing Production Trust Fund for project assistance toward the affordable units in their developments. Because of the program's streamlined rules, they can obtain low-cost funding to acquire land and develop housing faster than they could if they sought federal funds.

III. Promote New Housing for People of All Incomes

The District government administers several programs that assist working families purchase homes, including the Home Purchase Assistance Program, low-interest mortgages, and a $5,000 federal income tax credit. These programs are helping, and we are seeing a rise in the city's homeownership rate. However, at 41 %, the rate is still much too low.

The District's fiscal stability depends on a strong economic base, which means attracting new taxpayers back into the District. By 2025, we hope the District's population will grow by 130,000. Rising land values and market dynamics primarily support development for upper income markets. Absent public subsidy, new residential developments are nearly impossible for low-income and working class families to afford. At the same time, construction costs are increasing and homeowners are having difficulty maintaining their properties, especially the older housing stock which is more expensive to rehabilitate. In addition, zoning regulations make it difficult for developers to build housing in the downtown area.

Expand the Housing Production Trust Fund

The Housing Production Trust Fund is a local tool that can be used to vastly expand the city's housing production efforts. Unfortunately, the Fund has been woefully underutilized: since 1989, only four loans have been disbursed. But, in the Fall of 2000, the William's Administration negotiated the sale of the Department of Employment Services building to the Freedom Forum, which included an unprecedented $25 million contribution to the Trust Fund.

With an infusion of capital and relaxation of some of the regulatory hurdles contained in the original legislation, the Williams Administration envisions a reinvigorated Housing Production Trust Fund serving as an engine for housing development in the years to come. We anticipated investing the $25 million in affordable housing over the next two years and therefore propose dedicating 15 percent of the real estate transfer tax and deed recordation tax to the Trust Fund. This will provide between $10 and 12 million a year in local tax revenues to affordable housing.

The Williams Administration anticipates devoting 32% of the Fund to preserve and rehabilitate rental housing, such as those buildings with expiring section-8 funding. Another third of the Fund will be used for homeownership programs; such as providing downpayment assistance and writing down interest rates on mortgages for low income first time home purchasers to as low as 3.75 percent. The remaining third of funds will be used for housing production. At an average investment of $15,000 per unit, this would provide another 333 affordable homes a year.

Modify the Commercial/Housing Linkage Formulas

The city is seeing a resurgence in commercial development that matches any period in its recent history. For many years, the District has had a linkage policy in place that requires commercial developers, in exchange for zoning variances, to either build affordable housing or contribute to the Housing Production Trust Fund. However, loopholes in the policies have allowed commercial developers to make minimal contributions. We propose modifications that will close these loopholes and require developers to either build the affordable housing or pay $4 per square foot to the Trust Fund.

Example 5: Modified Linkage Policy

The developers of the Solar Building paid a non-profit housing developer $280,000 to fulfill its affordable housing obligation. If the commercial developer had made a contribution to the Housing Production Trust Fund, it would have to pay half of the assessed value of the increase in gross floor area, or about $1.3 million. Under the proposed modified formula, the commercial developer would be able to fulfill its affordable housing obligation by paying $720,000 to the Trust Fund.

Establish an Inclusionary Development Policy

As our neighbors in Montgomery and Fairfax counties know, one of the best ways to assure that the housing needs of low and moderate income residents are met is to require affordable units to be included in new market-rate developments. Inclusionary policies promote income integration and improve the social fabric of neighborhoods. They harness market forces to ensure that affordable units are built in desirable locations and in appropriate quantities. They also provide a low cost alternative to public subsidies without imposing an unreasonable burden on the development community.

We propose requiring developers of multi-unit housing projects that request zoning relief, a street or alley closing, are build on public land, or are publicly subsidized to set-aside at least 10% of the units of the units as affordable housing. At least 50% of the units must be affordable to families earning less than 60 percent of the Area Median Income, or about $49,000 a year for a family of four, and the remaining for families earning less than 80 percent of ANT, or about $66,000 per year for a family of four. In lieu of setting aside these units, developers may build 15% of the units off-site or may contribute the equivalent value to the Housing Production Trust Fund.

Example 6: Inclusionary Zoning Plus Tax Abatement

If a housing developer requests additional density for a 100-unit apartment building in the Navy Yard in South East, then the District will require the developer to set aside 10% of the units for low and moderate-income families. The District will benefit tremendously from having more mixed-income communities.

We estimate that the developer will have to forgo approximate $75,000 in annual rents because of the requirement to provide affordable housing. The developer will only be able to charge low and moderate-income families about $1,100 an apartment, which is about $800 a month less than the developer will be able to charge for a market rate two-bedroom apartment.

To help offset the rents for low and moderate-income families and to address the inherent risk in building housing in South East, the District will abate 75% of the project's property taxes for 10 years. We estimate that the District will forgo approximately $112,500 in property taxes a year, or about $1,12,500 over ten years. However, the city will quickly be able to make up the foregone tax revenue from new income, sales, and other taxes. Even if we assume that only 3/4 of the occupants are new residents, they will bring in $450,000 in taxes a year and the property tax abatement will be paid off if three years.

Provide Tax Abatement Incentives for New Residential Development Throughout the City and New Homeownership Opportunities in Enterprise Zones

To encourage residential growth in certain neighborhoods, and to promote the development of low income housing by the private sector, we propose four targeted property tax abatements.

  • Abate 50 percent of property taxes for 10 years for new multi-unit housing projects in downtown Housing Priority A, which is primarily the area North of Massachusetts (NoMA).
  • Abate 75 percent of property taxes for 10 years for new mufti-unit, mixed-income housing projects where low- and moderate-families can afford 10% of the units. Abate 100 percent of property taxes for 10 years for new mufti-unit, mixed-income housing projects where low- and moderate-families can afford 20% of the units.
  • Abate 50 percent of property taxes for 5 years for new homeowners who renovate their homes in Enterprise Zones and phase in full taxes over 5 years.

In order to receive the mixed-income tax abatements, the owner must make at least 50% of the set-aside units affordable to families earning less than 60 percent of the Area Median Income, or about $49,000 a year for a family of four. The remaining set-aside units must be affordable to families earning less than 80 percent of ANT, or about $66,000 per year for a family of four.

In order to control the District's tax liability, we are proposing a cap on the amount of tax credits that can be awarded under each tax abatement proposal. Each year, between 2002 and 2004, the Mayor may approve up to $750,000 worth of tax abatements to Housing Priority A, $500,000 worth of tax abatement to each of the mixed-income tax abatements, and $125,000 to new homeowners in Enterprise Zones. If the Mayor does not award the maximum amount of tax abatements during one of the years, then he can award it over the next five years.

If the Mayor approves the maximum amount of tax abatements each year and property assessments stay relatively stable, then the District will forgo approximately $55.1 million worth of property taxes over the next 12 years. In three years, this tax abatement will help produce 6,500 market rate and affordable housing units.

Property tax abatements are an investment into future tax revenues. The District will quickly be able to make up any foregone property tax revenue from new income taxes, sales taxes, and other revenues. The Office of Tax and Revenue estimates that a family earning $75,000 a year brings in approximately $6,500 in new sales, income, and automobile tax revenues a year. A moderate-income family earning $50,000 a year brings in approximately $3,700 a year. Therefore, the abated property taxes will be paid off in about a year and a half year.

Modify the Combined Lot Program

The combined lot program permits commercial developers to sell certain zoning rights and restrictions to housing developers. The current combined lot program requires the developer to obtain a Certificate of Occupancy for the housing before starting on the commercial construction. This policy makes it unduly difficult to finance the commercial construction and consequently, both sides of the project suffer. In response, we propose new regulations that will permit the developer to post a bond for the construction of the housing and escrow money that can only be accessed when a building permit has been issued for the housing. Then the developer may commence the commercial development while still being held to a commitment to develop housing.

(April 2, 2001 at 10:34 AM)

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