Economists' Outlook

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Addressing the Housing Supply Shortage: Washington D.C.

Policy Initiatives: Inclusionary Zoning (IZ) and Housing Trust Fund

In 2006 Washington D.C. was facing housing affordability problems as home prices and rents were soaring. Seeking to spur housing development and construction, in response, Mayor Adrian Fenty and the District of Columbia City Council passed Law 16-275, the “Inclusionary Zoning Implementation Amendment Act of 2006” (“the Act”). The Act helped improve housing affordability in the area by requiring that new housing developments include units that are affordable for low-income households (households of one or more individuals with an Area Median Income (AMI) of 50% or less) or moderate-income households (households with an AMI between 51% and 80%). In exchange for building the affordable housing units, developers are allowed to receive up to a 20% increase in Floor Area Ratio (FAR) than what would typically be allowed. In particular, the Act requires that 8 to 10 percent of the residential floor area be set aside for affordable rental or for sale-units in:

  • New residential developments that consist of 10 or more units,
  • Rehabilitated buildings and developments that are expanding the existing building by 50% or more and adding 10 or more units.1

Inclusionary zoning is not the only step that the District of Columbia has taken. In 1988 the District of Columbia passed the Housing Production Trust Fund Act (D.C. Law 7-202. Section 4102.9(a)), which created the Housing Production Trust Fund (HPTF). This trust fund provides gap financing for housing projects for low-to-moderate income households. In particular, HPTF provides:

  • Loans for nonprofit housing developers,
  • Financing for site acquisition, construction loan guarantees, collateral, or capital,
  • Bridge loans and gap financing to keep projects in operation if circumstances change adversely during development,
  • Loans to develop housing and housing-related services for the elderly,
  • Grants for architectural designs that re-use previously nonresidential structures2

Fifteen percent of HPTF’s funding is derived from revenue from deed recordation and transfer taxes, and the renaming funds are allocated from the District’s general fund. Each year, the HPTF must:

  • Spend at least 40% of the funds for households with incomes below 30 percent of the AMI,
  • Spend at least another 40% of funds for households between 30 percent and 50 percent AMI,
  • Spend remaining funds on households that earn between 50 and 80 percent AMI.3

The District of Columbia is not the only government in the Washington D.C. metropolitan area to create trust funds for affordable housing development. The states of Maryland and Virginia also have their own trust funds, although much of their funds are dispersed for housing development of areas which are not located in the D.C. metropolitan area. In addition, various counties and municipalities in the area have their own housing trust funds, including Arlington County, Fairfax County, and the City of Alexandria in Virginia and Prince George’s County and Montgomery County in Maryland.

Based on expected population and job growth over the next several decades, the Washington D.C. Metropolitan area would need to add 690,000 housing units by 2045.4

Outcomes

Bar chart: Projected Housing Units Needed

Since 2011 the IZ program in the District of Columbia has yielded 102 developments and 782 units of affordable housing (Figure 2). Much of the lack of housing development during the late 2000s and early 2010s can be attributed to the burst of the housing bubble and subsequent recession in 2008, but as the economy has improved throughout the 2010s IZ developments have steadily increased.

On the other hand, from 2001 to 2016, the HPTF was responsible for creating or preserving 10,081 units5 and 1,626 units in 20186 (data for 2017 was unavailable).

Latest Indicators

Bar chart: Produced Developments and Units Through IZ by Fiscal Year
  • Households that earn 100k in the Washington D.C. Metropolitan area can afford 25.8% of all homes which are currently listed for sale as of 2019 Q17

  • 48 percent of renters and 26.8% of homeowners with mortgage spent at least 30 percent of income on housing8


1District of Columbia, Department of Housing and Community Development (DCHD). Inclusionary Zoning Residential Developers Affordability Requirements. dhcd.dc.gov/service/inclusionary-zoning-affordable-housing- program

2Ibid. Housing Production Trust Fund. dhcd.dc.gov/page/housing-production-trust-fund

3Ibid.

4The 690,000 unit projection is based on National Capital Region Transportation Planning Board (TPB) estimates, and the additional housing ‘needed’ estimates are additional units that the Metropolitan Washington Council of Government believes will be needed in addition to the TPB projections. For more information, see: https://www.mwcog.org/documents/2018/09/12/regional-housing-memo-to-cog-board-cog-board-affordable- housing-housing/

5Office of the District of Columbia Auditor. Stronger Management of the Housing Production Trust Fund Could Build More Affordable Housing. March, 2018. https://www.dcauditor.org/wp- content/uploads/2018/09/HPTF.Database.Report.3.20.18.FINAL_.pdf

6DCHD. Housing Production Trust Fund Reports. The 1,626 units were the sum of the units produced during FY Q1–Q4, which the DCHD indicates in their 2018 Quarterly Reports.

7NAR/Realtor.com REALTORS® Affordability Distribution Curve and Score, 2019 Q1

8United States Census Bureau, American Community Survey. 2017.

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