January 24, 2023
CONTACT: Meg Maguire, NW Opportunity Partners CDC
email@example.com or 202-546-4536
Mayor Bowser’s goal of creating 1990 new units of affordable housing in Rock Creek West (RCW) by 2025 is a meaningful step towards racial and economic inclusion. Yet current housing policies and programs, coupled with expensive land, will produce little affordable housing.
- Public land on which to create affordable housing is exceedingly scarce in Ward 3.
- Inclusionary Zoning (IZ) produces very little affordable housing and almost no family-sized units.
- New development is creating many new service jobs in Ward 3 below the Median Family Income (MFI), and the people who fill these jobs will not be able to live here.
- Development incentives in the Future Land Use Map (FLUM) are fueling land speculation along Connecticut and Wisconsin Avenues. Expensive land in RCW makes the economics of creating new affordable housing prohibitive even as there is no program to acquire commercial land for new affordable housing in a timely manner.
- The situation is urgent. Land for affordable housing is scarce and expensive in this built-out city, especially in areas like Ward 3. Unless this land is purchased now, it will not be available in the future.
The Affordable Housing Property Acquisition Fund (the “Fund”) will fulfill Mayor Bowser’s goal announced in the 2023 Economic Strategy Initiative to “explore land/property acquisition as a tool to create and preserve affordable housing.” The Fund will enable qualified mission-driven affordable housing developers to move quickly to acquire non-residential public-purposed property[i] to accelerate private sector production. Properties eligibile for the Fund will be in the four planning areas defined in the 2019 Housing Equity Report: Creating Goals for Areas of Our City[ii] that are high in opportunity and high in need of affordable housing: Rock Creek West, Rock Creek East, Capitol Hill and Upper Northeast. The Fund will affirmatively further the Fair Housing Act of 1968 by taking meaningful actions to overcome patterns of segregation and foster inclusive communities.[iii]
Establish an Affordable Housing Property Acquisition Fund[iv] for the four HANTA areas at $100 to $120 million for purchase of non-residential properties including vacant land, commercial properties, former private schools, vacant churches, or other non-residential buildings in high-or-medium density mixed-use zones as shown on the FLUM that are suitable for conversion or redevelopment as permanently affordable mixed-income housing. At a minimum, appropriate $25 million for RCW, the most deficient area of the city in affordable housing.
The Fund should:
- Produce permanently affordable housing communities with amenities and services; family-sized and deeply affordable rental units for those 0-50% MFI; social housing; affordable homeownership opportunities including Limited Equity Cooperatives (LEC), rent-to-own and other forms of innovative wealth building.[v] Development might include mixed-uses fully compatible with housing that are not covered under other District property acquisition or pre-development loan programs. Existing residential properties could be considered for acquisition only if the number of units would substantially increase by adding floors and extensions and did not incur any temporary or permanent displacement of existing tenants.
- Permit qualified mission-driven development teams to compete with private market-rate purchasers to act quickly and without delay to buy non-residential properties suitable for affordable housing when the properties come on the market or are otherwise determined to be available for sale and will serve as a catalyst to attract private and other public investment.
- Require an affordability covenant or restriction of 99 years to run with the land[vi] on all properties acquired with the Fund including fee-simple acquisitions and property acquired under a full term 99-year lease. The covenant will only come into effect at the close of construction financing so as not to place the property into non-compliance during the interim acquisition period.
- Provide for loan forgiveness up to 30% where exceptional levels of affordability are achieved if funding uses the loan option. Permit Fund borrowers to accrue interest of up to three years with the possibility of a one year extension if a zoning variance or map amendment is required or if the project is a planned unit development (PUD). Delay repayment until the project is occupied to avoid incurring extra carrying costs.
- Cover pre-development expenses associated with the construction or rehabilitation of affordable rental or homeownership homes.
Funding Options [vii]: To avoid competition with existing housing programs, there are several funding and administrative options.
Option I – One-Time Grant Program – Dedicate $91 million of the $101 million proceeds from the sale of the Marriott Marquis ground lease + $9 million general revenues = $100 million.[viii] It is in the city’s greater interest to provide housing for the event workers who are so important to the economic health of the city than it is to pay off Events DC’s debt.
Option II – Loan Fund Similar to Housing Preservation Fund – Allocate $30 million general revenue for each of five years to be matched by the private sector 3:1 = $120 million. Acquisition could be fee-simple or a leasehold for no less than 99-years. Takeout financing and ongoing operating support could be provided by a combination of Low Income Housing Tax Credits (LIHTC,) Housing Production Trust Fund (HPTF) loans, Local Rent Supplement Program (LRSP) subsidies, and other existing financing sources awarded through the District’s competititve Consolidated RFP process. While a revolving loan fund would replenish the program, this mechanism may be too slow to move swiftly in a competitive market to acquire land.
Option III – Reinstitute DC’s Site Acquisition Funding Initiative (SAFI) and Amend to Permit Commercial Land Acquisition: Substantially increase funding to provide access to acquisition and pre-development funding for nonprofit affordable housing developers. SAFI could be used for site acquisition and pre-development expenses associated with the construction or rehabilitation of affordable rental or homeownership homes.
Option IV – Establish the Fund through the FY23/24 Budget Support Act: Allocate $100 million in the first year. The advantage of this method is that it is simple, would not require entirely new legislation as in the options above, and could operate with any of the options above.
Administrative Options: Under all administrative options, the administering entity would promptly review and approve eligible funding requests within 60 days, subject to the availability of funds.
Administrative Option I – Community Development Financial Institutions (CDFI)[ix] such as LISC, LIIF, Capital Impact Partners, CityFirst, Enterprise and others that are experienced in public fund administration and raising financial capital would administer the program. The disadvantage might be that their requirements for return on investment would not sufficiently reduce the price of the land to make an affordable housing project financially feasible.
Administrative Option II – Douglass Community Land Trust would administer the program on a contract with the city to ensure that the land purchased with the Fund would remain in public trust in perpetuity.
Administrative Option III – DC Government would administer the Fund only if it could make funds available to qualified developers quickly to meet the demands of the market.
Characteristics of eligible entities and partnerships[x] should include:
- Proven expertise in producing and managing high quality affordable housing. Teams would include partners who could receive grants; take advantage of tax credits and loans; provide corporate loan guarantees against other corporate assets; and invest some equity in the deal.
- Mission-aligned community organizations with demonstrated accomplishments including: 1) engagement of both neighborhood residents and potential future residents in formulating proposals; 2) significant affordable housing accomplishments; 3) strong local support; 4) inclusion of small or relatively new “apprenticeship development partners” that are CBE certified to help them gain experience; and 5) a portfolio of projects exemplifying high standards of design excellence and environmental sustainability.
- If relevant, experience with mixed-use buildings where revenue from non-residential uses can offset operating expenses for the affordable residences. (Note: Lenders and investors are frequently reluctant to rely on commercial revenue which has much greater risk as a source to repay loans unless the property is developed as a condo with residential units and a separate condo for commercial spaces, or the developer or partner is master-leasing the property and guaranteeing lease payments.)
- Optional team pre-qualification so that sellers would have a list of those that have expressed early interest in acquiring properties.
If permitted under Federal and District law, the Fund would give preference for occupancy of both rental and ownership units to those who have lived in the District for 10+ years or whose families have been historically displaced throughrestrictive covenants, racial segregation, urban renewal, escalating property taxes, and relocation through land redevelopment.[xi] Portland, OR, Austin TX and San Francisco, CA all have preference programs for affordable housing (see Endnotes below).
Other District entities and programs should be aligned to help accomplish Fund goals such as:
- The Zoning Commission could adopt a text amendment to prioritize any necessary zoning changes for Fund projects including upzoning that is compatible with the 2021 Comprehensive Plan amendments to the Future Land Use Map (FLUM), thus providing some assurance in advance that the property could be developed for affordable housing. Given that the FLUM shows large sections of Wisconsin and Connecticut Avenues as high-density mixed use, the probability of rezoning is likely.
- HPTF funding would give some priority to Fund project to fill gaps for construction that may occur when using local, Federal and private funding sources to build or convert properties to affordable housing.
- Fund projects would be eligible for takeout financing through a combination of LIHTC and other existing financing sources awarded through the District’s competitive Consolidated RFP process.
Accountability and Oversight
The program should establish:
- Comprehensive criteria to ensure that applicants applying for funding have exemplary business records regarding financing and development of mixed income and affordable housing; compliance with federal and DC law, particularly in regard to housing and nondiscrimination; absence of complaints or legal actions regarding predatory rental, sales or management practices; and proven financial records regarding real estate financing.
- Procedures for accountability and oversight for properties acquired through the Fund, including provisions to identify and evaluate program accomplishments as well as problems that are encountered.
- Requirements for full public transparency for all real estate financial documents including cash flow projections, information on all developer and management fees, and projection of anticipated profit.
- A plan to aggressively promote the use of the Fund to achieve its purpose of adding substantial affordable housing units in the four deficient planning areas. Once the Fund is operating effectively in the four deficient HANTA areas, consider expanding it to other areas within the District.
- Annual evaluation of Fund program performance by DMPED and the Council to assess the ease of acquisition, the extent to which racial equity is achieved, environmental sustainability, financial stability, and resident satisfaction to name a few criteria. In addition, the DC Auditor will audit the Fund on a regular basis.
Extended Comments on the Case for An Affordable Housing Acquisition Fund
- Ward 3, which makes up all but a small area of RCW, is a highly desirable place to live and raise a family. Extensive public resources have been invested in the ward resulting in excellent schools, good public transportation, beautiful libraries and playgrounds, all of which attract long-term residents.
- Job creation is higher in Ward 3 than in any other area outside the central core. Yet Ward 3 is woefully deficient in affordable housing, and many people who work here cannot afford to live here. To illustrate, the Wegmans grocery store at City Ridge is creating 450 full- and part-time jobs but only 60 affordable housing units through IZ will be available in the development. In fact, three unusually large sites – City Ridge, Mazza Gallerie, Wardman – will produce a total of only 163 IZ rental units and no ownership opportunities.
- Development incentives in the Future Land Use Map (FLUM) are expected to fuel major land speculation along Connecticut and Wisconsin Avenues. In Ward 3’s robust real estate market, when a non-residental property goes up for sale, it is virtually impossible for affordable housing development teams to assemble deals quickly enough to make a timely offer within the closing window that sellers demand. In FY 2023 budget testimony before the City Council, Patrick McAnaney of Somerset Development stated the problem:
“While the District has made it clear that it views this goal (1990 units of new affordable housing) as a top priority and is willing to devote significant resources to this effort, one of the key missing pieces of the puzzle that we still need to solve is the timing of site acquisition. When a site comes on the market, sellers generally look for a deal that can close as quickly as possible, similar to a person selling their home. However, our affordable housing finance tools, such as Low Income Housing Tax Credits, FHA-insured loans, and Housing Production Trust Fund dollars can take multiple years to assemble for a closing. As a result, affordable housing projects struggle to compete on the private market to acquire land, losing out to deep-pocketed buyers who can move quickly to acquire properties.”
- Expensive land in RCW makes the economics of creating new affordable housing prohibitive when added to the development costs. Even with assistance from other existing affordable housing program, the revenues will not support the financing. Other affordable housing assistance mechanisms will still be needed even with acquisition assistance. For example, the recently approved HPTF senior housing project at the Lisner Home was economically feasible only because the organization already owned the land.
- Public land on which to create significant amounts of affordable housing is exceedingly scarce in Ward 3. Without public-purposed land, the cost will be too high to produce permanently affordable housing.
- Relatively few affordable units will be created through Inclusionary Zoning (IZ)[xii], threatening to perpetuate a well-documented history of racial and economic inequity in Ward 3 and other HANTA areas. While Inclusionary Zoning (IZ) produces some affordable housing, most units are studio or one-bedroom units to serve renters at 60% of Median Family Income (MFI) or condominium owners at 80% of MFI.[xiii] Unless and until IZ requires developers to address priority needs for deeply affordable family-sized units, and to provide opportunities to build modest generational wealth through limited equity cooperatives (LECs), the program will have an unacceptably low impact.
- While the purchase of existing rental housing properties is permitted under the Tenant Opportunity to Purchase Act (TOPA) and the District Opportunity to Purchase Act (DOPA), these programs are not available to purchase office, commercial, or hotel properties that could be converted or redeveloped as affordable housingand are the most likely to be for sale along major corridors in Ward 3 and other HANTA-eligible neighborhoods. Under TOPA, a residential property program, tenants, their agents and developers have both a right of first refusal and a fixed time period during which to purchase the property, giving everyone time to assemble deals and organize residents.
- The Housing Production Trust Fund (HPTF) and tax abatement programs such as Tax Abatements for Affordable Housing in High Needs Areas (HANTA) are important affordable housing tools, but they are not structured to acquire additional public-purposed land in a timely manner.
- Existing District programs do not give preference for residency in affordable housing to long-time District residents whose families for generations may have been heavily impacted by restrictive covenants, racial segregation, urban renewal, escalating property taxes, gentrification, and displacement through ongoing redevelopment. The Affordable Housing Property Acquisition Fund would include this preference.
The Affordable Housing Property Acquisition Fund will be successful to the degree that it:
- Permits qualified, mission-driven public-purpose development teams to compete with private market-rate purchasers to act quickly and without delay to buy non-residential properties suitable for affordable housing when the properties come on the market or are otherwise determined to be available for sale
- Serves as a catalyst to attract private and other public investment
- Operates smoothly and transparently
- Breaks new ground with innovative forms of housing
- Delivers a significant amount of affordable housing for those in the 0-50% MFI range
[i] The term “public-purposed property” is defined here as land and buildings that are acquired with the Affordable Housing Property Acquisition Fund for the public purpose of creating affordable housing and that are covenanted for that purpose.
[ii] Projects in these areas are eligible for HANTA, the Tax Abatements for Affordable Housing in High-Needs Areas Amendment Act of 2020.
[iii] See HUD guidelines: https://www.hud.gov/program_offices/fair_housing_equal_opp/affh
[iv] Acquisition funds for affordable housing have been established in New York City https://www.nycacquisitionfund.com/partners, Motgomery County, MD https://apps.montgomerycountymd.gov/BASISCAPITAL/Common/Project.aspx?ID=P762101 and other jurisdications.
[v] Projects relying on the Housing Production Trust Fund (HTPF) or Low Income Housing Tax Credits (LITHC) would only be able to fund housing for up to 50% MFI.
[vi] See Grounded Solutions Network model language: 2021 Model Declaration of Affordablity Covenants with Refinance and Resale Restriction and Purchase Option https://groundedsolutions.org/tools-for-success/resource-library/2021-model-deed-restriction
Covenants to Run with the Land. The Homeowner intends, declares, and covenants (a) that this Declaration, including all restrictions, rights and covenants contained herein, shall be and are covenants running with the land, encumbering the Home for the Term, and are binding upon the Homeowner and the Homeowner’s successors in title and assigns, (b) are not merely personal covenants of the Homeowner, and (c) shall inure to the benefit of and be enforceable by the Program Manager and their successors and assigns, for the Term. Because the Declaration runs with the land, it shall encumber the Home for the Term and be binding upon the Homeowner’s successors in title and assigns regardless of whether such successors in title and assigns agree in writing to be bound by the Declaration or execute a new Declaration at the time of resale, as provided in Article VIII.
[vii] Precedents exist in DC law for many of the specific provisions necessary to structure the proposed program including land acquisition, qualification of criteria-based development teams, eminent domain, dedicated revenue bonds, waiver of taxes and requirements for permanent affordability including covenants and land trusts. In addition, funds from Federal sources could be used to fund all or part of the program. Ex: The City of Ann Arbor, MI allocated $3.5 million for property acquisition for affordable housing from its 2021 allocation from the American Rescue Plan. https://www.a2gov.org/departments/systems-planning/Pages/American-Rescue-Plan-Act-Funding–.aspx
[viii] Events DC has announced that $10 million of revenue from the sale will be dedicated for grants to arts organizations.
[ix] Both LISC and Enterprise play this role in the NYC Acquisition Fund. https://www.nycacquisitionfund.com/partners
[x] See San Francisco’s Community Opportunity to Purchase Act of 2019 (COPA). The Mayor’s Office of Housing and Community Development provides sellers a readily accessible list of qualified nonprofits as potential buyers on their website, with contact information as well as guidance on potential federal tax benefits. Amended tax regulations exempt rent-restricted affordable housing from increased rates of transfer tax. https://sfmohcd.org/community-opportunity-purchase-act-copa
10 Preference policies for resident selection consistent with the Fair Housing Act are becoming more common.
- Portland, OR: “ The Preference Policy is an effort to address the harmful impacts of urban renewal by giving priority placement to housing applicants who were displaced, are at risk of displacement, or descendants of households that were displaced due to urban renewal in North and Northeast Portland. The policy is a tool used to sort the waiting list for City-sponsored housing opportunities in North and Northeast Portland….Priority status is given to applicants who previously owned property that was taken by Portland City government through eminent domain, and/or their descendants. Eminent domain refers to the right of a government agency to take private property for public use and relocate and/or compensate the owner of the property. Examples of eminent domain actions include the construction of Memorial Coliseum and the expansion of Emanuel Hospital.” https://www.portland.gov/phb/nnehousing/preferencpolicy
- Austin, TX has a preference policy for a particular neighborhood:
Austin’s Guadalupe Neighborhood Development Corporation is a longstanding community development organization providing affordable rental and homeownership opportunities and working to prevent displacement of vulnerable residents in several East Austin neighborhoods. GNDC’s community preference policy gives priority on GNDC’s housing waitlists to applicants with historic ties to the neighborhood and who are vulnerable to displacement. For home sales, GNDC has six different levels of priority, with the highest priority given to current tenants and then to applicants who have lived in GNDC’s service area for 25 or more years. https://sites.utexas.edu/gentrificationproject/9-tools-for-combatting-displacement-in-texas/community-preference-policy/
- San Francisco, CA has a Lottery Preference Program with a number of different preferences. The highest preference is something called Certificate of Preference (COP) that is for SF residents displaced in the 1960s and 70s during SF Redevelopment Agency’s federally funded urban renewal program. Specific addresses are included and all available units can be set aside for those with a COP. Other categories are detailed on the web site: https://sfmohcd.org/lottery-preference-programs#city
[xii] Inclusionary Zoning (IZ) will make only a modest contribution to affordable housing as shown in the IZ Calculator developed by Dr. Jean Johnson and Dr. Pat Johnson. See https://nwopcdc.org/is-it-feasible-to-reach-the-mayors-goal-of-1990-affordable-units-in-rock-creek-west-rcw-by-2025/