Affordable Housing and Public-Private Partnerships

Nestor M. Davidson, Robin Paul Malloy, Robin Paul Malloy

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317184621
• Edition: 1
• Topic: Droit
• Subtopic: Jurisprudence

With distressing statistics about rising cost burdens, increasing foreclosure rates, rising unemployment, falling wages, and widespread homelessness, building affordable housing is one of our most pressing social policy problems. Affordable Housing and Public-Private Partnerships focuses attention on this critical need, as leading experts on affordable housing law and policy come together to address key issues of concern and to suggest appropriate responses for future action. Focusing in particular on how best to understand and implement the joint work of public and private actors in housing, this book considers the real estate aspects of affordable housing law and policy, access to housing, housing finance and affordability, land use, housing regulation and housing issues in a post-Katrina context. Filling a critical gap in the scholarly literature available, this book will be of particular interest to policy-makers, academics, lawyers and students of housing, land use, real estate, property, community development and urban planning

Chapter 1
Affordable Housing and the Conflict of Competing Goods: A Policy Dilemma

Michael Diamond

My purpose in this chapter is twofold; first to set out some broad concepts related to affordable housing production; and second, to note some of the dilemmas associated with governmental housing policy. In particular, I want to discuss what I have called the conflict of competing goods, that is, the conflict between various housing goals that most people would agree, at least in the abstract, are socially and morally desirable. The conflict arises because, in a world of finite resources, it is impossible to maximize for each of the competing goals. Society, therefore, is put to the choice among incommensurables. The question is how to make the choice. In this chapter, unfortunately, my goal is limited to pointing out the conflicts and suggesting some of the ways society has, or might, attempt a resolution of these conflicts. Since each of the methods I mention has significant flaws, identifying or creating the perfect resolution will have to wait for future authors.

To begin, there is a wide range of goals that might underlie the promotion of affordable housing and I would like to discuss some of them. Many are obvious while others are much less so, often visible only upon close analysis. Let me suggest some of the major goals sought to be accomplished by policymakers and by advocates of decent, affordable housing. Among the obvious ones are the provision of shelter and the potential creation of wealth.

Perhaps less obvious goals are the growth in psychological well-being due to a resident’s sense of “home” and its resulting stability,1 the improved physical health of the homeowner’s family,2 the resident’s increased participation in civic society,3 and the improved educational performance of their children.4 Another goal might be to achieve racial and economic integration in order to allow a wider range of residents to partake of the benefits often associated with mixed race and/or mixed income communities, such as greater cultural diversity, more and better municipal services, greater social amenities and the social connections that might lead to better employment opportunities.5 Still others might be to enhance housing accessibility for those with disabilities,6 to create environmentally friendly housing,7 or to preserve the historical and cultural value of the property.8

The provision of shelter is probably the most fundamental aspect of affordable housing policy. Yet as of 2005, the Department of Housing and Urban Development estimated a shortage of nearly six million units of affordable housing in the nation and this estimate applies only to worst case needs.9 The shortage of decent affordable housing is actually much greater than this and the shortage is growing.10 To add to the problem, the private market, under current conditions, has only a limited ability to produce sufficient units to make up the deficit or even to stem the increasing gap. The shortfall results in such societal problems as homelessness, overcrowding, inadequate conditions, and the payment by many households of a disproportionate amount of their income for housing.

Moreover, in the current economic climate, there does not seem to be a viable way to construct sufficient numbers of new affordable units. High land costs, significant local resistance to affordable housing units being placed in certain communities and current political priorities all militate against new construction. So do the economics of unsubsidized units, particularly the limited ability of the poor to pay the actual costs of decent, newly constructed housing. Thus, some attention has been given by policymakers to rehabilitation of existing units. While some of the problems associated with new construction, for example, the placement of affordable housing units, are reduced by calling for rehabilitation of existing units, many other problems, including escalating land costs, persist. In addition, other issues, such as the potential entrenchment of concentrated poverty, may be exacerbated by rehabilitating units to house the poor in existing low income communities.

Because of these realities, government policy has had to create incentives for the construction and rehabilitation of affordable units. While there is wide variety in the form of the incentives, they cluster around direct subsidy payments to owners or renters,11 income and real estate tax forbearance,12 zoning concessions,13 and land write-downs.14 Unfortunately, because the goals associated with affordable housing policy are so varied, the overall array of policies is incoherent and, in many cases, contradictory. Policies favoring one goal often work, presumably unconsciously, in opposition to others. This characterizes the conflict of competing goods.

One set of conflicting goals that I mentioned earlier is the competition between the provision of decent, affordable shelter and the creation of wealth for homeowners. While each of these goals is laudable, they cannot each be maximized in any particular project. To the extent society seeks to preserve an affordable housing unit for the long term, it must restrict the wealth that an owner can derive from the sale or rental of that property. To the extent the owner is able to demand full market value for the unit, it would likely be too expensive, either as a purchase or as a rental, for a low income resident. However, if the owner is restricted from deriving maximum financial benefit from the property, that owner’s wealth creation is restricted, often severely. If the owner does sell the property subject to the restriction, the net proceeds may not be sufficient to buy another unit in the unsubsidized market.

This begs the question of who is the intended beneficiary of governmental housing subsidy programs. It might be the resident who is lucky enough to get the subsidy, either the difference between the market rent and what the resident actually has to pay for the unit or the difference between what a buyer had to pay for the unit and the amount he or she could sell it for. In the homeownership model, the subsidy might be captured by the individual resident which might give that resident the capital to escape poverty. On the other hand, such a sale would take the particular unit out of the pool of affordable housing forever, leaving potential future residents and society one more step away from closing the affordability gap.

Alternatively, the beneficiary could be a class composed of all potential current and future low income residents. This is not unlike what many Native American groups believe about natural resources, including land.15 They believe each person is merely a steward of such resources for all future generations, using what he or she needs and leaving the rest for those yet to come. To protect subsequent users of the property, a deed restriction could be used to limit the equity that each successive owner could take from the sale of the property. In this way, society would be able to preserve the pool of affordable units available to future eligible residents. The cost of such a policy, however, is to leave low income homeowners in these units without the tool that is most likely to raise their living standard; the equity from their home. When residents leave an equity restricted homeownership unit, will they have the wherewithal upon the sale of their unit to purchase a comparable unit in the unsubsidized market?

Another conflict concerning the rehabilitation of existing units is the question of de-concentrating poverty. The literature is replete with examples of the social problems in communities with very high concentrations of very low income residents.16 To the extent society desires to de-concentrate poverty and to create mixed income neighborhoods, the result will also be to break up existing communities and to dissolve the ties and local networks that are fundamental to the well-being of many people. On the other hand, to leave high concentrations of poverty intact is to risk misery for many residents of such neighborhoods and further social deterioration. Efforts to repair existing high concentration communities would require very large expenditures while offering only uncertain outcomes. For example, efforts to attract higher income residents to the re-developed, formerly low income areas risks the type of gentrification that results in the involuntary displacement of the lower income residents. The displaced residents often have very limited prospects as to where to move. They often go to other communities with high poverty concentrations or they create new such areas as the influx of lower income residents results in the departure of many current moderate or middle income residents.

Since these policy conflicts have received a good deal of attention in several scholarly outlets, I would like to discuss some of the other, less obvious, policy conflicts. Two have recently created difficulties for affordable housing development in the District of Columbia and have implications for doing so nationally. One is the requirement that projects funded, in whole or in part, by the local government include, at a minimum, 5 percent of the units developed be fully accessible to persons with handicaps. The second is that such buildings include environmentally sound elements, that is, they utilize “green” materials and techniques in their construction. A third conflict is a bit more abstract. It deals with the relationship between historic preservation and the provision of affordable housing. This conflict arises very graphically when buildings in historic districts, although not themselves historically noteworthy, are to be renovated for the purpose of creating decent and affordable housing for the poor. The historic designation requires that the renovations be done in compliance with the historic nature of the district. This means the materials and designs utilized must be compatible with the historic norm. In many cases, compliance causes the cost of the renovation to rise dramatically.

To put these issues into context, let me refer to a recent experience I had with a client. Not too long ago, I represented a resident association in purchasing the building, which was in one of the poorest neighborhoods in the District of Columbia, in which the members resided.17 The association wished to purchase the building, renovate it, and then convert it into an affordable cooperative. As the association developed plans for the acquisition and renovation of the property, we began estimating the cost associated with these plans. We determined that the only way the residents could afford the project would be to finance the acquisition and renovation through programs operated by the District of Columbia’s government.18 Since the loan terms available from the government were so favorable, borrowing from the City would reduce the financing costs of the project significantly in comparison to the costs associated with a market rate loan. The City loan, however, came with a range of requirements including a deed restriction mandating long-term affordability, the requirement to provide a fully accessible unit in the 15-unit building, and a variety of “green” elements.

Each of these requirements, accessibility, environmental soundness, and historic preservation (which was an issue in another building in which I worked), are laudable elements of public policy. Most would agree, I think, that people with handicaps should be able to participate in all elements of civic society without unnecessary barriers that limit their access to societal involvement and to the broad range of housing available to others. Similarly, most would agree that protecting the environment is a worthwhile goal and that society should take steps to do so. Finally, many who consider the question would say that it is important for society and communities to recognize and preserve their history and culture, including through the maintenance of the traditional appearance of historic neighborhoods. The problem, of course, is that achieving these goals has costs. The costs are not merely the expenditure of additional funds, although all of these goals involve costly elements. There are also opportunity costs associated with each choice society makes. Each choice, as with many policy choices, involves costs to other laudable social goals in that they reduce resources available to satisfy such other goals.

Let us examine in turn each of the conflicts I mentioned. The requirement of accessibility, particularly in renovations of ex...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Contributors
• Editors’ Preface
• Acknowledgements
• 1 Affordable Housing and the Conflict of Competing Goods: A Policy Dilemma
• 2 Our Pluralist Housing Ethics and Public–Private Partnerships for Affordable Housing
• 3 The Value of Lawyering in Affordable Housing Transactions
• 4 Another Model of Low Income Housing Tax Credit Development: Building Housing and Building Capacity
• 5 The National Housing Trust Fund: A Challenge and an Opportunity for Creative Public–Private Partnerships
• 6 Putting Community Equity in Community Development: Resident Equity Participation in Urban Redevelopment
• 7 Constructing the Social Impact Statement to Measure the Full Cost to Public Housing Tenants of Urban Renewal
• 8 Homeownership, Debt, and Default: The Affective Value of Home and the Challenge of Affordability
• 9 Accessible Housing and Affordability
• 10 Managing the Risks of Natural Disasters in Public Housing
• Table of Cases
• Bibliography
• Index