Alexandria — While the city has implemented some measures from its plan to expand affordable housing, other measures remain undone.
These measures could affect the city’s overall health. “The lack of affordable housing is the ground zero of need in the city,” according to the Alexandria Council of Human Services Organizations in 2015. The shortage is “the most significant factor affecting progress across the broad range of human services issues.” Affected issues include disabilities, early childhood education, economic and workforce development, emergency assistance, health, immigrant services, senior services, and youth development. This assessment remains valid today, “without question,” said ACHSO’s Glenn Hopkins.
The city’s 2013 Housing Master Plan (HMP) recommended 23 specific measures — or “tools” — to increase affordable housing. These tools include zoning ordinances, funding assistances, and other city programs. Eight have the highest potential to expand affordable housing, some proponents say. Of these high-impact tools, the city has implemented four so far, according to a Jan. 5 progress report from the Office of Housing.
“The costs associated with developing affordable housing are the same as if you were building market rate housing [but] the lower rents do not cover the cost,” said Jon Frederick, a nonprofit developer, in an email. “High impact tools are those that most improve this economic reality.”
Two such tools eased requirements for parking, a major development expense.
Beginning 2014, the city let developers overhaul more existing affordable housing without also upgrading parking. In 2015, the city decreased parking requirements for new construction. “Market-rate” units, whose rents are unrestricted, now require a ratio of 0.8-1.0 parking spaces per unit. A tiered system requires only 0.50-0.75 spaces per unit for “committed” affordable units, whose prices are capped at or below 60 percent of the area median income.
Residents of affordable developments predating the new rules do not use, on average, 28 percent of available parking, according to the HMP. The Station at Potomac Yard is a case in point. “We ‘parked’ that facility at about a 1.25 or 1.5 ratio, and we have a whole floor of underground parking that’s not being used,” said Frederick. “At $50,000 a space, you think about the cost of that.”
By building parking more in line with utilization statistics, the savings “can be reinvested to provide deeper subsidies or additional units,” according to the HMP. Tamara Jovovic of the Office of Housing compared four hypothetical 100-unit scenarios. They show that a developer could save roughly $2-4 million in parking construction by building affordable rather than market rate units.
The third tool, passed in 2014, lets the Office of Housing finance $5,000 per unit of “predevelopment” costs. “These expenses might include engineering studies, architectural design or other types of professional consulting services,” accordig to the HMP. They “are typically hard to finance [privately] due to the risk that the project won’t go forward and the funds invested will not be recovered.”
“I think that the city deserves some praise for this,” said Frederick. “There [are] not many places in the country where they’ll commit $5,000 a unit … [T]hree, four, five hundred thousand dollars [for 60-100 unit projects] is really the tough money to get.”
A fourth tool, passed in 2014, amended Section 7-700 of Alexandria’s Zoning Ordinance — better known as the bonus density/height provision.
Under 7-700, the city allows a developer to build a building with a larger footprint or more floors than what zoning would otherwise permit. A bigger building means more units, which in turn means more rents and more profit for the developer. In exchange, the developer agrees bindingly to cap some bonus units at affordable price points for a certain period.
The revamped ordinance allows bonus units off site, or cash instead of bonus units. These options enable the city to stretch resources farther at another location if possible. The amendments also “increase the bonus density standard from 20 [percent] to 30 [percent] if authorized by the relevant small area plan,” said the Jan. 5 progress report. The Alexandria Housing Affordability Advisory Committee will consider a proposal on Feb. 2 to raise the standard to 30 percent for the whole city.
“The [7-700] amendments would fall into the ‘high impact’ category in that with them there is a greater potential to produce more units from new housing developments,” said Michael Butler, CFO of Paradigm Management, in an email.
The city has not fully or permanently implemented four other high-impact tools.
Among these are three tools under the shared heading “general fund direct allocation support.” These tools could bolster “a consistent, reliable source of annual funding,” which the HMP says is the “best” means of accomplishing its goals.
“[P]redictability and regular, local funding that’s set aside specifically for housing would be one of the best things that an individual could advocate for, or that they could request of [their] government officials,” said Hilary Chapman of the Metropolitan Washington Council of Governments. “Real estate development takes a long time … You can’t solve it quickly in the space of one budget cycle.” Regular funding would help developers “plan ahead” for the “scale and scope of those resources,” giving them “some confidence that [the money] will be there.”
“[A] dedicated source of revenue … might bring in more activity. But … [i]t’s hard to say. If we have the money I suspect we’ll get more projects,” said Helen McIlvaine of the Office of Housing.
But the city mainly takes a project-first rather than a funding-first approach. “[I]f you bring us a good project, we will do all that we can to … take it forward,” said McIlvaine. “That’s kind of been the environment in which we’ve worked.”
The city has reasons for its project-first approach. Other demands — schools, sewers, Metro — compete for limited dollars. Some City Council members prefer being “flexible in terms of making funding decisions” to making “forward allocations,” said McIlvaine. The city also risks “overinvesting” up front and becoming uncompetitive for federal tax credit subsidies, says Eric Keeler, also of the Office of Housing.
Even so, Keeler believes two local revenue streams — the Housing Trust Fund and a dedicated portion of the real estate tax — are sufficiently consistent and predictable.
“The city … is figuring out a way to get $4 million on a pretty straight [trend] line” through 2021, largely “between the Trust Fund and dedicated [tax] revenue.” It’s more complicated than simply adding the two budget line items together. This figure takes into account other sources and fluctuation from year to year. But, on average, “We would have confidence that every year we could come up with about $4 million.”
The Housing Trust Fund combines voluntary developer contributions, the repayment of city loans, and other monies. The Office of Housing can forecast HTF revenue about two years out. That’s about the same lead-time that developers need to plan ahead, says Keeler.
The city also dedicates 0.6 cents of the real estate tax rate — more than $2 million annually — to subsidize affordable housing. Around 80 percent, or more, goes to pay out existing bonds for past projects. This debt service is a steady city investment in housing, only amortized, says Keeler. And the remainder — up to several hundred thousand dollars —c an go to new projects.
But anticipated development needs exceed the city’s reliable $4 million. The Office of Housing expects a cumulative $12 million deficit for projects already “in the pipeline” through 2021.
Michelle Krocker of the Northern Virginia Affordable Housing Alliance estimates that the city should dedicate $7-8 million per year to affordable housing. This would require about $3-4 million in new revenue per year to top up existing predictable revenues, says Keeler.
“[A]ffordable housing is a big thing, it’s not the only thing,” said McIlvaine. Still, “everything that … has ended up in the city’s strategic plan, in terms of being inclusive and diverse, depends on them maintaining and adding to the city’s stock of affordable housing. Those are truly empty words if we don’t get the funding for affordable housing.”
The general fund direct allocation tools could provide additional consistent and reliable funding, according to the HMP.
The fourth would-be high-impact tool is “tax abatement for substantial rehabilitation.”
Financing from the city for a given affordable housing project will “be paid out of cash flow over 20-30 years,” said Butler. “But to some extent the biggest expense that any of these properties have … is real estate taxes. …. So to the extent that you can reduce the expenses of that affordable unit, then … a third party lender would provide more financing .… [T]he city would have to advance less money, and theoretically would have more money to put into more properties.”
Readers interested to learn more about the master tools should consult Appendix 7 of the Housing Master Plan, available online at www.alexandriava.gov/HousingPlan.