Poll: Should cities and municipalities mandate the development of affordable housing?

WASHINGTON, DC—A poll by GlobeSt.com finds that a significant percentage of the commercial real estate community does not like the idea of cities and municipalities mandating the development of affordable housing. In fact, 36% of respondents called it a “horrible idea” because it “will only stymie building by holding developers hostage.”

The survey findings come at what could be a pivotal point for affordable housing finance in the US. This week the draft Housing Finance Reform and Taxpayer Protection Act of 2014 will be debated by the Senate Banking, Housing, and Urban Affairs Committee. Among other things, the bill would provide an estimated $3.75 billion for the National Housing Trust Fund each year-a trust fund for affordable housing established during the financial crash but never funded.

The move comes just in time as far as advocates are concerned. In general funding for affordable housing is becoming more difficult to attain; that is one of the reasons behind Freddie Mac’s new tax-exempt loan program, Shaun Smith, senior director, Targeted Affordable Production with Freddie Mac, tells GlobeSt.com. “There is less and less soft money, such as grants, available for these projects,” she says.

This is not to say the end of municipal-mandated affordable housing is upon us. Indeed, New York City major Mayor Bill de Blasio is expected to provide details for his plan to build 200,000 affordable-housing units during the next decade within a matter of days.

Increasingly, though, developers are becoming louder and louder as they clamor for a change to how affordable housing is approached by city planners and by the federal government. At the federal level, as the GSEs’ fate continues to be discussed, there is a receptive ear to these complaints. And what exactly are these complaints? The overarching one, as the GlobeSt.com poll found, is that cities are too rigid in their requirements and by not allowing developers to sell enough units at market rates they are being priced out of projects.

But what of the other side-the side represented by affordable housing advocates and city planners? To them, these requirements are necessary if they want to see low and middle-income residents able to afford decent housing.

This argument also resonates with a portion of the commercial real estate space, as the GlobeSt.com survey also indicated. While 36% of respondents declared the practice “a horrible idea” 22% said it was “a necessary truth”—and that major cities are quickly pricing out average Joes. Another 21% said it works only if it’s executed correctly while 13% agreed it was a good way to keep the cities from pricing out the middle and lower class, but it should be elective. Another 7% believe such mandates work, but only if the affordable units are built on a separate site.

The conversation around these suggestions is bound to intensify this week as the Senate discusses housing reform on Tuesday. In a statement released last week, National Low Income Housing Coalition president Sheila Crowley urged Congress to keep this portion of the proposal intact.

Briefly, the Johnson-Crapo bill would provide for a 10 basis point fee on all transactions that go through the new Federal Mortgage Insurance, estimated to generate $5 billion a year. The National Housing Trust Fund would receive 75% of these funds.

“Once funded, the National Housing Trust Fund will build, preserve, rehabilitate, and operate rental housing affordable to extremely low income families,” Crowley says.

“There is a nationwide shortage of seven million rental homes that are affordable and available to households in this income group.”