When housing developers take on a new project, they are often tasked with
implementing affordable housing mandates into their development. Affordable
housing mandates are placing undue pressure on developers by forcing them
to include affordable housing units in their projects to their detriment.
As construction of low-income housing has become an increasing priority
for many communities, local governments are seeking ways to place the
burden of such construction on the backs of developers.
Seen as a blow to developers, the U.S. Supreme Court recently decided not
to review the California Supreme Court case of
Building Industry Association v. City of San Jose. In that case, the Building Industry Association sought relief from the
court from a city ordinance that required all housing developments with
over 20 units to include a percentage of low-income units.
Affordable housing mandates are becoming more prevalent across the country
as cities attempt to force the requirements into private housing developments.
The mandates are burdensome in that they force the developer to sell a
portion (typically between 10 - 20%) of the project at a discounted price
well below market value. This can be bad for developers and homebuyers
because some of the cost will have to be recovered from the remaining
85% of the units. Depending on the type of development, the mandate could
also drive down home prices if higher-end homes are required to be mixed
in with low-income units.
As demand for affordable housing becomes a priority across the United States,
especially in major metropolitan areas, some municipalities that have
little in the budget allotted for subsidized housing are shifting the
responsibility to meet the demand to private developers. Many cities are
now utilizing ordinances that require new developments to include an affordable
housing component. When the developer applies for a project permit, they
are told they have to comply with the requirement or their project may
not get approved.
Developers who work in areas that have affordable housing requirements
need to engage with local lawmakers to ensure that the ordinance benefits
the city, the landowner, and the developer. Working with city officials
early in the process can help shape how the affordable housing rules are
drafted; and can be the difference between completion of a profitable
development and a project that never gains any traction. Many times, it
is important information provided by concerned stakeholders that creates
a policy that will work for all involved.
Navigating through Affordable Housing Mandates
Because local communities have goals on affordable housing that they want
to meet and alienating the builder will not get them closer to their goal,
most are open to a modification or alternate solution that works well
for all involved parties. By working with council members, local leaders,
and city planners, a developer can most likely find a solution that will
allow their project to move forward while still helping to address the
community’s need for affordable housing.
Many city councils have ordinances that allow developers to pay a fee in
lieu of a developer incorporating affordable housing into its project.
A local ordinance often defines the amount of the fee, which can be tied
to various factors, including using standard housing metrics or a variable
percentage based on market value. The fee in lieu of building affordable
housing units often presents a win-win situation since developers can
calculate the fee when creating a project budget and the municipality
reserves funds that it can use for the good of the community in its discretion.
Another possible solution to working with affordable housing requirements
is to work with another developer that specializes in constructing affordable
housing. Affordable housing builders often are aware of and have access
to government funding, tax credits, and lines of credit that can help
reduce the cost of the overall project, which can make a nominally profitable
or unprofitable project profitable.
Finally, a developer can work with the municipality to construct the affordable
housing units on a different location. Under this approach, the developer
can to complete its project per their original plans, while still meeting
the affordable unit mandate. The municipality will also benefit from the
development of two housing projects.
Although affordable housing mandates are often viewed by developers as
a burden, working with local governments to help them meet their goals
on low-income housing can be a beneficial endeavor for all parties. Communication
with the local government and an open mind to alternative solutions are
the keys to success when dealing with affordable housing requirements.
It is important that a developer is aware or works with somebody that
is aware of the applicable affordable housing laws in each city where
the developer intends to build early in the process, so a solution can
be identified early in the process and when possible, the solution can
be factored into the developer’s assessment of a project. Failure
to know and understand applicable affordable housing requirements can
result in lost time, lost profits, and a failed project.
Contact Geraci Law Firm at (949) 298-8050 today, for more information.