Sustainable affordable housing isn’t a zero-sum game
$2 billion. That’s the commitment Amazon has made to investing in affordable housing in its biggest employment markets. These include Seattle, Nashville, and our home, the D.C. area. Amazon seems to have recognized the economic wake it left behind in the Pacific Northwest when its presence and growth pushed demand and prices for housing into the stratosphere.
In Amazon’s defense, having started as an online bookstore meant they probably didn’t include much future-proof planning focused on housing affordability concerns 20 years down the road. And they certainly aren’t the only large corporation calling Seattle home and contributing to the affordability crisis there.
To Amazon’s credit, they are taking proactive steps in the DMV to help solve a problem they know follows them. They won’t solve our housing affordability alone, nor was it a problem that has only surfaced since their arrival. However, with the tens of thousands of high-paying jobs that Amazon will be creating and have committed to already in the near term, as well as the hundreds of thousands of jobs created through their indirect sphere of influence, pressure on housing supply in this market will continue unabated for years.
COVID and remote working may have blunted that slightly, but the fact remains we have a long-term housing under-supply problem. Especially as it relates to anyone not earning a six-figure salary. You can expect to see every state and local jurisdiction continue to clamor for Amazon grant money. We’ll also see programs to stimulate investment from public and private entities alike. Because without major sustained efforts, the Greater D.C. market may reach a San Francisco-level of housing affordability crisis.
My personal opinion, having participated in this conversation and efforts to solve it as both an elected official and real estate professional, is that our local jurisdictions collectively are as best positioned as any in the country to come together to solve this problem. That is, IF they begin to look at housing affordability through a multifaceted lens. Here are my top 3 recommendations that will have lasting impact and help accomplish our affordable housing policy objectives.
Preserve permanent affordable housing by implementing property tax credits and PILOT programs that provide incentives to owners of existing market rate affordable housing to set aside units as committed permanent affordable. Property taxes are a property owner’s biggest line-item operating expense. The tradeoff between market rate and committed affordable housing does in fact cost money. Offsetting the property tax burden helps shrink the delta in cost of that trade-off when operating units as affordable versus market rate. Giving up future property tax streams that don’t yet exist is a creative way for local governments to incentivize private owners to preserve ADUs.
Offer density bonuses to developers and property owners willing to include higher numbers of affordable units. Offering developers bonus density in a new development for including committed affordable housing is another creative way for jurisdictions to offset the investment tradeoff developers face while achieving their affordable housing policy goals.
Real estate pundits argue that offering developers and owners bonus density doesn’t cost a jurisdiction anything. In that line of thinking, such measures should be a no-brainer when effecting policy through private markets. But let’s be clear, that assumption is false. Added density always costs a jurisdiction something. The question is: what is the net cost and what are the tradeoffs? Added police, fire, and general government services are needed for every new dwelling unit added to a town or city. And when you’re talking about ADUs that draw families, schools will incur added costs to educate new enrollments. Many jurisdictions in the DMV spend between $15,000 and $20,000 per child per year to educate kids.
The cost of added density is very real. But there is an objective calculus to understand where that fiscal breakpoint is for any project. It’s simply a matter of tradeoffs. Which brings me to our third point.
Come to terms with the fact that choosing to build committed affordable housing as opposed to market rate housing does in fact cost more. At a policy level, we spend much of our time talking around this issue. In real estate investment terms, developing and investing in committed affordable housing costs more than market rate housing. Not in actual operating or development costs but in terms of opportunity cost, and that is what matters most.
Put simply, real estate investments center around risk and return. Equalizing the risk and return fundamentals of developing or preserving affordable housing is why so many policy tools have been implemented to accomplish this task. Without policy, the private market simply will not deliver enough on their own. The point is that policy makers, affordable housing advocates, and others must accept this fact, discuss it openly, and craft solutions in collaboration with the private market to deliver much-needed ADUs.BACK TO ARTICLES