US cities and builders face hurdles in efforts to meet affordable housing needs

Municipalities make zoning changes, offer subsidies and tax credits to encourage developers to incorporate affordable units into mixed-use projects


THE Wharf is a gleaming US$2.5 billion development that has transformed a long-stagnant waterfront into a major destination in Washington DC.

Along a mile of the Potomac River is an array of high-end hotels, entertainment venues, shops, restaurants and apartments.

They include the 6,000-capacity Anthem concert venue, an InterContinental hotel and Vio, a luxury condominium where prices have soared up to US$2.9 million for a single unit.

But the city has also required the developer to include affordable housing on the project's 24 acres. Of the 761 units in the first phase of the development, 26 per cent are listed as affordable and more are promised in the second phase.

From Washington to San Francisco, municipal leaders are facing increased pressure to provide affordable housing.

Using a combination of government subsidies, tax credits and zoning changes, they are encouraging developers to incorporate affordable units into mixed-use projects.

The Wharf development is a partnership between PN Hoffman and Madison Marquette, developers based in Washington. Monty Hoffman, the chief executive of PN Hoffman, takes great pride in the affordable housing.

To make the Wharf project profitable, the partners sought to adjust the mix and build more units overall. The District of Columbia lowered its price for the land and reduced the percentage of lowest-cost housing while permitting more below-market, moderate-income "workforce" units.

"It allowed us to avoid residential offerings only at the extreme ends - deep affordable and waterfront market rate," Mr Hoffman said.

Without such concessions, he said, he would have needed more office, hospitality, retail and market-rate housing to make the numbers work. "We did not want to create a tourist or office-centric park," he said. "We wanted a balanced community."

Developers across the nation are finding that economics are crucial in determining how many and at what price such units may be included for a mixed-use project to be both socially responsive and financially profitable. And they are working with community leaders to find the right equation.

To further construction of multifamily units, Minneapolis recently moved to rezone most of the city to ban new single-family homes.

Several Sun Belt cities, including Atlanta, Austin, Texas, and Houston, now encourage a percentage of affordable units in any mixed-use project.

California's landscape is more challenging. Its residential property tax cap, an amendment to the state constitution passed in 1978 and known as Proposition 13, forced localities to push for commercial development to generate revenue needed for schools, parks, police and other public services.

Still, developers there are including moderate-income units in the mix, said Michael Covarrubias, chief executive of TMG Partners, a developer based in San Francisco.

But, he added, the high cost of land has made that difficult. And the developer has to contend with residents opposed to gentrification in their neighbourhoods.

"Affordable housing has been unavailable," Mr Covarrubias said. "It's a hornet's nest and a complicated road you go down to get the volume you need."

To help address the problem, the tech giant Google has pledged to invest US$1 billion in land and money to build homes, including those deemed affordable in the Bay Area. In Northern Virginia, JBJ Smith has raised US$78 million from investors for housing aimed at those who earn too much for government help but not enough to afford market rates.

The firm is the dominant landlord in Crystal City, the section of Arlington where Amazon is locating its second headquarters, with 25,000 new jobs.

In Washington, market forces threaten to overtake government efforts to slow the gentrification of previously low-income neighbourhoods, making them less affordable for longtime African-American residents and leading to cultural clashes.

The Metropolitan Washington Council of Governments has said the region needs to build more than 100,000 housing units by 2045, of which 40 per cent should serve the lowest-income residents.

Separately, the District of Columbia has set a goal of 36,000 units by 2025, of which 12,000 would be affordable.

To reach that goal, the district's mayor Muriel Bowser has offered solutions that include a US$100 million annual housing production trust fund, regulatory relief and a higher building height limit.

"We just have to do many different things," said Brian Kenner, a former deputy mayor for planning and economic development, who left district government on July 2 to work for Amazon. "Things we did before we have to alter, whether it's making inclusive zoning even more robust or limited setbacks," he said.

The challenge for local governments is to find incentives like tax breaks that encourage developers, Mr Kenner said, adding that governments cannot buy their way out.

But government, he said, remains concerned about the negative impact of development, which can displace residents as it alters neighbourhoods. NYTIMES

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