Sean KendallAffordable Housing, Development, Diversity

Affordable Housing Strategy

PLAN-Boulder County
Adopted June 12, 2017

INTRODUCTION

The Problem:

Boulder is the most expensive city in the region. With average single-family home prices near one million dollars, and many apartments renting for thousands of dollars a month, it is not affordable for most middle-, median- and low-income households. The City of Boulder has implemented a variety of affordable housing policies to address the issue, yet we continue to lose ground. Job growth continues to outpace residential growth causing upward pressure on housing prices, the local real estate market continues to skyrocket, and existing housing that is still relatively affordable is being redeveloped as high-end. If the current development trends continue, Boulder will be a place for mostly the very wealthy and a few lower income people in subsidized units.

Our Goal:

To the extent that it still exists in Boulder, preserving income diversity is critical to preserving the character of our community. Boulder must broaden and strengthen its affordable housing approach to at least retain the economic spectrum of the population that currently lives here. Boulder will not be able to completely solve the problem of housing affordability in the environment of exceptionally high housing demand, so our goal should be to keep things from getting worse.

 

The Actions:

To attain our goal, we see three major areas of action:

  • New housing options must match the existing income distribution of the city;
  • Funding for matching that income distribution must be appropriately assessed to the causes of housing unaffordability; and,
  • The affordability of existing housing must be preserved by controlling the rate of increasing prices over time.

Some critical limitations:

We must re-examine existing policies. This must be done in such a way that changes do not diminish the community characteristics that attracted many of us to Boulder in the first place. There is no value in destroying Boulder to save it.

We will not be able to maintain affordability if we keep adding jobs that create pressure on housing prices.

We need to recognize that attempting to preserve the affordability of some existing housing could be costly, so we need to be creative in attempting to address this area.

New housing creates the need for more public facilities. This requires funding additional facilities such as libraries, rec centers, transportation and utilities, and someone needs to pay these costs. Cutting impact fees does not save money in the end; it just shifts the costs from one group to another.

 Our Recommendations:

The recommendations that follow provide a pragmatic framework for PLAN-Boulder County’s Affordable Housing policies:

  1. Area Plans for non-residential areas and Neighborhood Plans for residential areas should result in the preservation of the quality of life and community characteristics of Boulder and its neighborhoods. The plans should serve as the foundation for affordable housing strategies that affect these areas, and must include significant citizen participation in their development.
  2. Most new housing should be affordable. Ensure that the price range for new housing in Boulder matches the existing income distribution to prevent new housing from accentuating the income disparity. This will require changes in the IH ordinances, as well as other areas.
  3. Preserve the affordability of existing housing to the extent feasible, with focus on currently affordable multi-unit properties. This will require significant new funding sources as well as creative financing solutions.
  4. Assign the costs of housing affordability to the causes of the need for affordable housing. This means increasing the financial contribution from new commercial and office development.
  5. Reduce the number of potential jobs by converting commercial and industrial zoning to a mix of uses, including affordable housing. This will both increase the housing supply and decrease the pressure on housing prices.
  6. Seek solutions for housing affordability on a regional basis. Though other cities are already becoming less affordable, there may be opportunities for regional planning that benefit all areas.

AFFORDABLE HOUSING POLICIES:

 

  1. Area Plans and Neighborhood Plans Should Protect Existing Values

 

Area Plans and Neighborhood Plans should be the foundation for implementing affordable housing strategies. Developing these plans should employ an inclusive process and protect our natural and built environment. Boulder citizens and civic leaders have created an attractive built environment that has been consciously designed to serve the needs of all citizens. We have protected and preserved Boulder’s natural environment and ecosystems. We have built a strong housing market and robust economy. But these factors have also made Boulder such a sought after place to live and do business, that Boulder is now a premium housing market.

Land use changes that promote greater intensity of development in neighborhoods must be preceded by effective neighborhood planning. As Boulder seeks to address housing affordability, it needs to carefully consider the impacts on different populations and community attributes resulting from amended policies and regulations. A grassroots approach is required since it has greater potential to foster creative solutions that are specific each neighborhood’s context and to foster greater agreement around those solutions.

Neighborhood planning should be facilitated. Options to facilitate development of area and neighborhood plans could include utilizing CU’s Community Engagement Design and Research Center, or by adapting Madison, Wisconsin’s neighborhood planning process where the plans were developed by the neighborhoods with City support. Bringing in third parties to help will reduce the distrust that currently exists between residents and City staff.

Enhance the mixes of uses along the interface between residential zones and other zones, but do so in the context of neighborhood plans. While the planning concept of “15 Minute neighborhoods” is being promoted locally, this concept can result in disruption of existing residential areas if implemented in strict accordance with the requirement of being able to reach neighborhood-supporting services within a 15 minute walk. In many locations, these services, along with transit, already exist in proximity to neighborhoods. Accessing them may require more than a 15 minute walk, but nonetheless they would support the objectives of services being nearby.

Evaluate allowing residential uses, with residential-supporting amenities and services, in non-residential zones. This could allow complementary uses, such as shopping housing and transit, to be reasonably near each other.

 

  1. Most New Housing Must Be Affordable

 

Require that more affordable units, as required by the Inclusionary Housing Program, be constructed on the project site. An important Inclusionary Housing goal is to integrate affordable housing units into new market rate development throughout the city, but this is not currently being achieved. Cash-In-Lieu (CiL) is key part of the City’s Inclusionary Housing Program, which allows residential developers to pay an upfront cost rather than build affordable units on the project site. For various reasons, the CiL option is more financially attractive to developers than building the units onsite, but its use is leading to very little integration of affordable units into market rate developments.

Require that CiL pay more to close the gap between an affordable unit and the actual cost of producing that unit. The City uses CiL funds to leverage other sources of money to support the development of more affordable units; however, CiL does not nearly cover the entire cost gap of constructing an affordable unit offsite (the CiL requirement is 75% of the cost gap, which is determined by a complicated formula).

Modify the CiL policy on conversions of rental properties to condos. Under current CiL policy, when a rental development converts to condos within 5 years of the development’s construction, the developer is required to meet the CiL requirement retroactively as though the development had originally been constructed for unit ownership. The City should increase the 5-year term to 15 years so that it can capture the full CiL potential regardless of changes in the rental and ownership markets.

Increase the percentage of permanently affordable housing units required by the Inclusionary Housing Program. Market rate housing prices are increasing at a greater rate than local wages, making market rate homes less affordable with each new development. The current Inclusionary Housing Program ties the development of a small number of affordable housing units to the development of a much larger number of market rate housing units. The result of this is an ever-increasing number of unaffordable units that no affordable housing program can keep up with. The percentage of permanently affordable units needs to match the economic distribution of the population, so that we can preserve our economic diversity.

Develop strategies to preserve affordability of market rate housing units to middle-income households. The City’s current housing policies result in a majority of newly created market rate housing units that are not affordable to low-, moderate- and middle-income households. This is exactly the opposite outcome of what is needed. Without positive interventions to preserve affordability, any new market rate housing that is built to be affordable to middle income residents today will not remain affordable for long in Boulder’s rapidly appreciating real estate market.

Maximize Housing Affordability From Annexations. The requirements of annexations of County land into the City are negotiated between the City and the property owner. Annexations represent a rare circumstance where the city has considerable leverage to derive the maximum public benefit. Current City policy seeks 40% to 60% of new housing units created on annexed land to be permanently affordable housing. The City policy should require that 100% of the housing approved through annexations is permanently affordable, with 50% affordable to low- and moderate-income households and 50% affordable to middle-income households. This 50/50 split will help to preserve the range of income diversity that currently exists in Boulder and is rapidly disappearing.

 

Modify the city of Boulder’s development code to encourage housing affordability. Remove incentives to build fewer, larger, more expensive housing units. For the same amount of built floor area, several smaller and more affordable units, such as duplexes, ADU’s and OAU’s, could be created. Because this will increase density of residential units, changing the development code must be part of an agreed upon area plan or neighborhood plan.

 

Revise the regulations regarding community benefit. When a development plan is given increased development potential through Site Review, that increased development potential must provide increased community benefit. The value related to the increased development potential a development is granted should be captured and applied toward specific community benefits, of which permanently affordable housing should have priority. The community benefit approach should be the exception, with the actual use of an improved by right code providing most of the housing affordability.

Prioritize development reviews for projects that provide permanently affordable housing.

Projects that meet certain prescribed requirements for predominantly permanently affordable housing could receive priority in the review process. However, current opportunities for public participation through public hearings should not be diminished. The same review processes should apply to permanently affordable housing projects as to all others.

 

  1. Preserve Existing Housing Affordability

 The City’s existing affordable housing stock should be preserved to the extent possible. The affordability of existing housing stock is rapidly eroding due to redevelopment and cost escalation in our local real estate market. The Inclusionary Housing Program alone cannot make up for these losses so the affordability of existing housing will continue to diminish. Without action to preserve this housing, affordable housing options that match the City’s current income distribution will be eliminated.

An economic analysis should be undertaken to determine the costs, impacts and efficacy of a program that decouples currently affordable market rate units from the local hyper-inflated real estate market. The goal of this analysis is to lead to proposals to preserve and enhance affordability of these units over time. For example, a new program could buy or facilitate the purchase by residents of multifamily housing complexes and mobile home parks, place those units in a rent-restricted or deed-restricted permanently affordable housing pool, then link rents and deed restrictions on re-purchase prices to the national inflation rate. This would cause the restricted housing to become increasingly affordable over time, as the local real estate market and the national inflation rates diverge.

Other options should be explored. One option that is currently being examined by the University of Colorado to preserve affordable, market rate homes is a community land trust (CLT) program. In a CLT program, a non-profit would buy or facilitate the purchase of a property by its residents, separate the land ownership from the building, and put the land in a trust managed by the City or a non-profit partner. The entity would then enter into a long-term renewable lease for the land.

Such interventions will require public funding. This could be realized through a bond issue and a related tax that would last long enough to service the debt until funds from rents and resales can take over and allow the tax to be retired; however, in order to optimize public support for such market interventions, low- and moderate-income housing should be treated differently than middle-income housing.

Subsides should be reserved for low and moderate-income households. Financial resources should not be redirected to middle-income households at the expense of those that need assistance the most. Subsidies to allow low- and moderate-income households to access existing affordable market rate housing could be in the form of “buying-down” the cost of housing so that the gap between the market price and what is affordable to those households is bridged.

Determine the potential for increasing middle-income housing affordability over time. The focus for affordable middle-income housing would be to enable affordability to accrue over time, as the restricted property appreciation or rent diverges from the inflated real estate market. This would provide a means for low- and moderate-income households to move up to the middle-income housing market as finances improve.

Protect households with limited means from the impact of gentrification. When affordable homes are sold into the housing market and expanded or demolished and replaced with larger, more expensive homes, the value of the property, as well as properties near the redevelopment increase, which generates higher property tax bills. If the incomes of nearby property owners do not keep pace with the inflation of their property value, they may not be able to afford property taxes increases and may be significantly financially burdened or even displaced. The City should help mitigate these impacts by working with county and state partners to defer property tax increases beyond a certain rate for long-term residents who are vulnerable to the impacts of gentrification, until the property is sold by the owner (or their survivors).

 

  1. Assign the Costs of Affordable Housing To The Source Creating That Need

The cost of affordable housing should be assigned to the source creating that demand. The imbalance between the large numbers of jobs in Boulder relative to the number of affordable housing units is the one of the key drivers of the unaffordability of Boulder housing. While new residential development creates some demand for supporting services, such as collecting trash, serving coffee, repairing cars, etc., the cost burden of providing affordable housing is carried almost entirely by residential development even though non-residential development and the related jobs are the cause of increased affordable housing demand.

 

Linkage fees for commercial development must be increased to better reflect the costs that this development places on housing affordability. The City recently adopted an Affordable Housing Commercial Linkage Fee that requires new non-residential developments to contribute financially toward housing affordability; however, the adopted fees are only a small fraction of the amount established as legally and economically justified by the City-commissioned “Nexus Study.” Unless linkage fees more fully offset the demand for affordable housing created by non-residential development, the cost of providing affordability requires others to bear the cost burden, which effectively subsidizes the development industry, with the benefit of the subsidy accruing to the development in the form of profit, rather than to the public in the form of affordable housing.

 

  1. Better Balance Jobs and Housing

 

Evaluate the options for limiting the number of new jobs that can be created in Boulder. The potential for job growth puts enormous pressure on the cost of housing and creates other community impacts (such as increases in commuting traffic) that have not been offset by fees and other exactions.

Consider mixed use development as a way to better balance jobs and housing in Boulder. This has long been discussed as an approach to more housing affordability. Conversion of some portions of commercial and industrial zones to residential use has been part of this discussion. These areas do not currently have the amenities and services required for residential development, and would be better served by mixed use development incorporating those facilities.

 

  1. Regional Solutions

 

Recognize that affordability is a regional issue. Boulder is a regional employment center by design. Boulder is also the most expensive municipality in the larger regional community. Everyone in the region cannot expect to occupy Boulder’s expensive real estate and also expect it to be affordable. There is greater competition and thus cost to live in the employment center where services and amenities are concentrated.

A regional approach bolstered by strong transit links between regional housing and Boulder jobs is critical. Even if the demand for housing in Boulder could be met and the number of jobs in Boulder matched to number of households, the range of types of housing that are desired at an affordable price cannot be provided due to the limited amount of land remaining for development. The larger region provides many more housing options than Boulder does. Some households will choose to live in other communities because the tradeoff of housing options versus location works for better for them. While many affordability metrics only consider the percent of income spent on housing, commuting creates additional costs that need to be factored when considering affordability.

The regional municipalities should work with elected representatives in the Colorado Statehouse to increase housing affordability. Revising one aspect of TABOR to allow a Real Estate Transfer Tax would have a huge impact on funding housing affordability. Changing the state’s prohibition on rent control would also create opportunities for preserving affordability of housing over time.

Other Supporting Actions That Could Benefit Affordability

City-owned land zoned as residential should remain under City control. This could ensure that If It Is developed, it is developed as permanently affordable housing. This is particularly important where the development has a rental component. If the City controls the project, it can impose limitations on rents, which is otherwise currently precluded by Colorado law.

The City should create a housing board comprised of members with knowledge of housing issues. Creating a citizen brain-trust that can apply focus and expertise in the areas of residential financing, housing programs and partnerships, grant opportunities, lending, transportation and real estate, will help the city develop and implement effective housing affordability strategies.

Establish the following Boulder Valley Comprehensive Plan policies as priorities:

  • Increase affordable housing as a percentage of overall housing. The city should develop regulations and policies to ensure that: 1) development and redevelopment does not result in a net percentage (of overall housing) loss of housing units or numerical loss of housing units affordable to 150% AMI households and lower; and 2) new residential development is predominantly permanently affordable to 150% AMI households and lower.
  • Prioritize affordable housing as a community benefit. The City will ensure that significant additional community benefits are derived when development potential is increased beyond that which is allowed by right according to zoning. These benefits should be durable and prioritize permanently affordable mixed income housing.
  • Increase permanently affordable housing for additional residential development potential. Regulations and policies should be developed to ensure that when additional density is provided through changes to zoning or discretionary review processes, the additional development potential for the residential use will be predominantly permanently affordable housing for low, moderate, and middle-income households.
  • Annexations should result in housing that is 100% Permanently Affordable:  The city will develop regulations and policies to ensure that 100% of new housing units developed on land annexed into the City will be permanently affordable with 50% of those units permanently affordable to low and moderate income housing, and 50% permanently affordable middle income housing.