Expanding Housing Opportunity in Providence Through Inclusionary

Zoning:

Recommendations for Policy Discussion Purposes

Kalima RoseAssociate Director

March 16, 2006

Acknowledgments

Thanks to the Annie E. Casey Foundation for grant support for this research study. Thanks to James Lucht at the Providence Plan for data support and mapping of recent Providence development patterns.Thanks to Sandy Rose of Urban Resources Group for the financial analysis of Providence developments.Thanks to Making Connections Providence staff Juanita Mobley for logistical support of the advisory group members that

lent their expertise to this study:

• Corrine Teed Cooperativa El Sol• Brenda Clement Housing Network of Rhode Island • Elizabeth Debs Housing Network of Rhode Island• Rachel Miller Jobs with Justice• Barbara Fields LISC• Eric Shorter LISC• Pat McGuigan The Providence Plan• Garry Bliss Providence Mayor’s Office• Linda Painter Providence Planning Department• Thom Deller Providence Planning Department• Bonnie Lloyd Providence Planning Department• Robyn Frye Making Connections Providence• Elmer Stanley Making Connections Providence• Bert Cooper Making Connections Providence• Ron Butler Making Connections Providence• Aimee Olin Rhode Island Acorn• Amy Rainone Rhode Island Housing

Inclusionary Zoning:One Important Solution

Requires a percentage of housing units in new residential developments be available to low and moderate income households.

Developers receive compensation (e.g., density bonuses, zoning variances) in exchange for contributing to the affordable housing stock.

Benefits of IZ

Fosters mixed-income communities in redevelopment and growing new developments.

Ensures housing for a diverse labor force and a spectrum of households—both rental and ownership.

Provides a consistent regulatory framework to guide affordability in the market.

Inclusionary Zoning:A Widely Used Strategy

Hundreds of Localities

California

Massachusetts

New Jersey

Colorado

New Mexico

Greater DC region

What is driving national IZ expansion?

Rapid escalation of housing pricesHousing costs outpacing income growthPopulation growthRenewed focus on infill and redevelopment

in urban settingsFocus on affordable housing near jobsLoss of federal investmentSocial efficacy of mixed income

communities

Why Should Providence Consider IZ?

City reviewing zoning Mounting housing costs Need for more affordable housing Changing uses Desired infill development Promotion of mixed income development Other RI jurisdictions adopting Greater metro region includes many IZ

districts (MA) State plan calls for addressing affordability

Equitable development is achieved through policies and practices that enable low-income and low-wealth residents to participate in and benefit from local and regional economic activity.

Growing Need for Affordable Housing in Providence

Overall Population: 40% of renters, 28% of homeowners pay more than 30% of their income on housing costs.

52% of renters are very low-income (earning< 50% of Area Median Income).

67% of very low-income homeowners are severely cost-burdened.

Incomes Have Not Kept Pace with Housing Prices

Time Period

by Quarter

Housing Opportu

nity Index*

Median SalesPrice(000)

Median FamilyIncome(000)

Regional Affordabil

ity Index

National Affordabilit

y Index

Q1 2002 76.8 128 54.1 9 74

Q4 2003 58.5 174 58.4 19 112

Q1 2004 58.8 180 60 21 117

Q2 2004 52.9 196 60 21 116

Q3 2004 49.6 205 60 19 111

Q4 2004 47.9 210 60 19 111

*The Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the median income. Therefore, there are two major components - income and housing cost.

Source: First American Real Estate Solutions sales transactions data; analyzed by NAHB Economics

Rental Housing Increasingly Unaffordable

Location

Estimated Renter Median Annual Income

Income Needed to Afford 2BR Fair Market

Rent as Percent of

Renter Median

Estimated % of

Renters Unable to

Afford 2-bdm

Fair Market Rent

Monthly Rent

Affordable at Mean Renter Wage (2004)

Rhode Island $29,859 128% 60% $538

Providence-Fall River-Warwick, RI-MA $28,938 133% 62% $541

Source: National Low Income Housing Coalition

Rental Housholds, 2005

Homeownership Costs Also Rising

Change in Median Residential Sales Price,2000-2005

64%

181%

201%

179%

131%

37%

225%

191%

176%

235%

176%

292%

318%

176%

225%

164%

244%

355% 272%

219%

120%

129%

154%

102%

Insufficient sales datafor Downtown

Source: Warren Information Services(Single Family, 2-5 Family, and Res. Condo Sales)Analysis by The Providence Plan

Poverty by Neighborhoods in Providence

This map shows a breakdown for households and families that are below 150% of poverty level.

Providence Experiencing Growth

City Population Growth Compared to 10 Fastest Growing Neighborhoods, 1990-2000Top 10 Fastest Growing Neighborhoods 1990 Population 2000 Population Total Change % Growth % of City GrowthWanskuck 9,448 11,270 1,822 19% 14%Silver Lake 9,141 10,943 1,802 20% 14%West End 14,906 16,476 1,570 11% 12%Hartford 4,933 6,261 1,328 27% 10%Federal Hill 6,885 7,952 1,067 15% 8%Valley 3,722 4,765 1,043 28% 8%College Hill 8,980 9,951 971 11% 8%Mount Pleasant 9,281 10,221 940 10% 7%Lower South Providence 5,102 5,744 642 13% 5%Olneyville 5,866 6,495 629 11% 5%City 160,728 173,618 12,890 8%Top 10 Neighborhood Total 78,264 90,078 11,814 15%

Data: The Providence Plan

More than 12,000 New Residents; Immigration to Specific

Neighborhoods

Total Population Change 1990-2000, City of Providence

1990 Population 2000 PopulationNet Population Gain

Percent Population Growth

City 160,728 173,618 12,890 8.0%Top 10 Neighborhoods Combined 78,264 90,078 11,814 15.1%Share of City Total 49% 52% 92%

Data: The Providence Plan

Higher Family Poverty in Growing Neighborhoods

Poverty Status for Households and Families, 2000

Geography Households

Households below 1.5 of

PovertyFamily

Households% of Total

Households

Family Households below 1.5 of

poverty %Providence 62,389 25,193 35,859 57.5% 13,106 36.5%Top 10 Neighborhoods 29,717 13,845 18,495 62.2% 8,204 44.4%Top 10 Neighborhood Share of City Total 47.6% 55.0% 51.6% 62.6%

Larger Units Command Higher Costs

Change in Average Rents for Providence, 2000-20040 Bedroom 1 Bedroom 2 Bedroom 3 Bedroom

2000 585$ 587$ 736$ 805$ 2001 585$ 626$ 769$ 917$ 2002 592$ 727$ 884$ 984$ 2003 694$ 812$ 1,012$ 1,199$ 2004 643$ 890$ 1,066$ 1,264$

Percentage change 2000-2004 10% 50% 44% 57%

Change in Average Rents, 2000-2004

0

200

400

600

800

1000

1200

1400

2000 2001 2002 2003 2004

Year of Survey

Ave

rag

e M

on

thly

Ren

t

0 Bedroom

1 Bedroom

2 Bedroom

3 Bedroom

Larger Units Command Higher Costs

9 of 10 Growing Neighborhoods Face a Rent Burden

Rent Burden, 2000As a Percent of Household Income for Specified Renter-Occupied Housing Units

Paying More than 30% of Income on Rent %

College Hill 811 56.6%

Elmwood 1,409 50.6%

Fox Point 936 50.4%Valley 599 49.6%Lower South Providence 567 46.5%Washington Park 472 46.0%Elmhurst 659 45.2%Mount Pleasant 710 45.2%Mount Hope 899 44.8%Charles 724 44.2%Downtown 600 43.7%Olneyville 816 43.7%City of Providence 17,442 42.7%Smith Hill 751 42.2%West End 1,669 41.9%Silver Lake 1,012 41.2%Federal Hill 1,159 40.2%Manton 268 39.2%Wayland 572 39.2%Reservoir 166 36.9%Wanskuck 956 36.1%Upper South Providence 492 35.9%Hartford 460 35.8%Blackstone 338 32.1%Hope 275 31.3%S. Elmwood 122 28.0%

Homeownership Costs Also Rising

What are Providence Development Trends?

• Significant residential development

• Historic mill rehabilitations

• 18% of new construction has some affordable housing subsidy

New Residential Units Number by Neighborhood

with AffordabilityJanuary 1, 2002 – June 30, 2005

NOTE: Affordability determined by organizational contact in DIS database and designation in DPD "Development Prospects" document (or through DPD correspondence).

Analysis by ProvPlan

Source: Department of Inspection & Standards (Permit Database) and Department of Planning & Development

New Residential Projects Permitted

New Residential Projects Permitted

New Residential Projects Permitted

New Residential Projects Permitted:

Affordable Units

Mill Sites in Providence"Mill" Sites (Pre-1960 Industrial & Commercial Buildings)

What Objectives Should IZ Policy Meet?

Fair to developerConsistent in generating affordable

housingCapture of land value generated

through zoning action for public needCommunity stakeholders prioritize

compensations and delivery of benefits

IZ is One Strategy to Contribute to Housing Need

Will capture small percentage of new development

Need revenue sources to capitalize further below-market housing options

Guide land use to promote more affordable options

Market Impacts of Inclusionary Zoning

The California Experience

A study of California inclusionary housing programs found that not a single program had a negative effect on housing production.

Study covered 1981-2000, for 28 cities with inclusionary housing programs including Orange, San Diego, San Francisco, Los Angeles, and Sacramento counties, and the state in general.

Most jurisdictions with inclusionary programs saw an increase in housing production (sometimes dramatically).

Source: David Paul Rosen and Associates, Los Angeles Inclusionary Housing Study: Final Report, 2002.

Impact of Inclusionary Zoning on Property Values

The House Next Door, a study of the impact of subsidized housing on property values of private market rate housing in mixed-income environments revealed:

Presence of below-market housing in a neighborhood does NOT lower the value of the market-rate homes in its vicinity.

No significant difference in price trends between market-rate homes in the areas with inclusionary units and the market as a whole.

The presence or proximity of inclusionary housing made NO difference in housing values as measured by relative price behavior in a dynamic market.

Source: Innovative Housing Institute, http://www.inhousing.org/

Montgomery County, Maryland and Fairfax County, Virginia

Shape the Plan to Fit Specific Community

Take into account:Development DynamicsScale of built environmentWhere density is desired/tolerableUnderserved categories of housing needHistoric housing occupancy patternsFinancial feasibility

Conduct Feasibility Study

Choose neighborhoods where significant new development will be encouraged.

Identify likely building types.Apply density bonuses, other cost

reductions, and set-aside goals and run the numbers.

Recommendations for Providence

• Apply density incentives of 20% increase for all developments of 12 units or more, with the following percentage of units set aside as affordable:

– 20% of the market rate units for new construction other than mid and high rise structures

– 12.5% for mid and high rise structures (defined as buildings of 5 or more stories, of concrete and/or steel frame construction, with elevator service).

– 10% for substantial rehabilitation projects• Half of inclusionary rental units will be made affordable to residents below 60%

of AMI ($38,310); and half affordable to 60-100% ($38,310-$63,850) of AMI.• PHA/RIH to provide qualified screened candidates’ list to landlords of rental

units, including Section 8 voucher holders (to make more affordable to lower income renters).

• Half of inclusionary ownership units will be made affordable to residents below 65% of AMI ($41,502); and half affordable to 65-100% (below $63,850) of AMI.

• Allow purchase of 40% of inclusionary ownership units by RIH or qualified nonprofits.

• Ownership units affordable for 30 years, shared equity goes to HTF• Rental units affordable for life of development

Financial Feasibility of IZ Developments

Financial Feasibility analysis of condo development with IZ reveals:

12.5% of the total new units created could be made affordable through mandatory inclusionary zoning.

The developer would be able to receive a targeted market-rate financial return – 14% annual return on equity

Two tiers of affordability (60% AMI/100% AMI rental, 65%/100% ownership) would allow diversity of working families

Provision of Section 8 voucher holders to landlord will allow for deeper affordability

Site Type 1: Large Downtown Condominium Development

Type 1: Large Condo DevelopmentSummary Comparison Financials for Large Condo Development in Providence

Without IZ Requiremen

t

With 15% IZ Requiremen

ts

With 12.5% IZ

Requirements

With 10% IZ Requirement

s

Market rate units 100 105 103 110

Affordable units 0 15 13 10

Total Units 100 120 120 120

Construction costs* $19,111,733 $ 22,720,346 $22,754,274 $22,789,502

Soft costs $3,928,069 $4,206,657 $ 4,206,657 $4,206,657

Site acquisition costs $2,750,000 $2,750,000 $2,750,000 $2,750,000

Total development cost $25,789,800 $29,677,003 $29,710,931 $29,746,159

Gross sales $29,840,000 $33,545,000 $33,880,000 $34,305,000

Net profit $2,558,200 $2,213,447 $2,494,269 $2,858,591

Developer return on equity

49.60% 35.35% 40.86% 46.74%

Annualized return for 3 years

16.53% 12.43% 14.00% 16.02%

Affordable Units serving 15 units- 65-100% AMI

13 units- 65-100% AMI

10 units at 65-100% AMI

* Rerunning calculations as parking costs appear underestimated and commercial ground floor revenues not included. Could change rate of return, and therefore recommendation. 1/08/06.

Financial Feasibility of IZ Developments

Financial Feasibility analysis of condo development with IZ reveals:

20% of the total new units created could be made affordable through mandatory inclusionary zoning.

The developer would be able to receive a targeted market-rate financial return – 25.7% annual return on equity

Deeper affordability could be possible through nonprofit purchase, Section 8 vouchers

Site Type 2: Medium size Neighborhood Condo Development

Type 2: Small Condo DevelopmentSummary Comparison Financials for Small Condo Development in Providence

Without IZ Requiremen

t

With 20% IZ Requiremen

ts

With 15% IZ Requirement

s

With 10% IZ Requirement

s

Market rate units 40 40 42 44

Affordable units 0 8 6 4

Total Units 40 48 48 48

Construction costs $5,709,688 $ 6,760,144 6,760,144 6,760,144

Soft costs $1,295,386 $1,378,627 $1,378,627 $1,378,627

Site acquisition costs* $880,000 $ 880,000 $ 880,000 $ 880,000

Total development cost $7,885,074 $ 9.018,770 $ 9.018,770 $ 9.018,770

Gross sales $9,250,000 $10,440,000 10,600,000 $10,770,000

Net profit $902,426 $899.230 $1,051,230 $1,212,730

Developer return on equity

83.17% 77.03%% 78.52% 90.59%

Annualized return for 3 years

27.72% 25.68% 30.20% 26.17%

Affordable Units serving 4 units- 80-120% AMI

4 units-50-80% AMI

6 units- 50-80% AMI

4 units at 50-80% AMI

Want Deeper Affordability or More Housing? Develop Cost Offsets Relevant

to ProvidenceProjected Impacts of IZ Cost-Offsets, Los Angeles

 

Savings per Affordable Unit (assuming 15 percent-aside)

Low-Density Rental

Medium-Density Rental

High-Density Rental

High-Density Rental

(Type III)

OwnerSingle-Family

Owner attached

Owner condos

Condos (Type I)

Cost Offset

Reduce size $18,644 $19,533 $21,026 $24,565 $56,707 $35,151 $32,520 $62,472

Reduce bathrooms 3,805 4,357 4,690 5,634 2,729 9,696 9,034 15,025

Modest interior finish 9,278 8,333 8,333 8,517 16,000 13,611 9,650 10,033

Reduce parking 5,833 5,444 54,444 76,667 NA NA NA NA

Defer fees 3,842 3,876 5,318 5,318 8,446 6,960 6,887 11,238

Allow tandem parking 520 909 9,094 12,718 NA NA NA NA

TOTALS $41,922 $42,453 $102,905 $133,418 $83,882 $65,419 $58,091 $98,767

Source: David Paul Rosen and Associates, City of Los Angeles Inclusionary Housing Study, September 2002.

Want Deeper Affordability?

Layer with other subsidy:• Require % of units to be filled by Section 8

voucher holders (this could make affordable to family earning as low as $19,155)

• Apply grants, no- or low-interest loans, soft second mortgages, or rental assistance from Housing Trust Fund or other affordable programs

• Couple with Low-Income Housing Tax Credit program

Recommendations for Providence

• Apply density incentives of 20% increase for all developments of 12 units or more, with the following percentage of units set aside as affordable:

– 20% of the market rate units for new construction other than mid and high rise structures

– 12.5% for mid and high rise structures (defined as buildings of 5 or more stories, of concrete and/or steel frame construction, with elevator service).

– 10% for substantial rehabilitation projects• Half of inclusionary rental units will be made affordable to residents below 60%

of AMI ($38,310); and half affordable to 60-100% ($38,310-$63,850) of AMI.• PHA/RIH to provide qualified screened candidates’ list to landlords of rental

units, including Section 8 voucher holders (to make more affordable to lower income renters).

• Half of inclusionary ownership units will be made affordable to residents below 65% of AMI ($41,502); and half affordable to 65-100% (below $63,850) of AMI.

• Allow purchase of 40% of inclusionary ownership units by RIH or qualified nonprofits.

• Ownership units affordable for 30 years, shared equity goes to HTF• Rental units affordable for life of development

Steps to finalize policy

Formulate community priorities for implementation: Build on site Identify further cost reductions or additional subsidy to

allow for deeper affordability Which entity to administer?

Planning dept? Rhode Island Housing? RIHA? Nonprofit? Reach out to developers to help shape policy Reach out to labor groups, faith leaders, others’ whose

members need housing Finalize proposal Move into law legislatively or administratively Visit community members in new houses!

Expanding Housing Opportunity in Providence Through Inclusionary

Zoning