Earlier this year, a speaker at the National Inclusionary Housing Conference noted that the performance of a housing policy or program can no longer be measured simply by the number of homes created or preserved. These days, the measure of a successful housing program must also account for effective multitasking, strategically leveraging every dollar and opportunity to simultaneously achieve multiple goals.
This has special relevance in communities planning to develop or expand light rail and other public transit systems. While working families often have the most to gain from access to low-cost transportation alternatives, experience has shown that land costs near planned stations often escalate rapidly in anticipation of new transit investments, and failure to act early and build in affordability at the outset can make it extremely difficult and costly to preserve and expand housing affordable to working families and others along transit corridors. A similar dynamic may apply to the areas around existing transit stations — and to village and town centers — that are the focus of reinvestment and redevelopment.
Fortunately, several policies that have long been part of the traditional affordable housing toolbox can also be employed to ensure that affordability is “built in” to development within walking distance of new transit stations, as well as to other areas experiencing reinvestment and redevelopment. With careful planning, these tools can be incorporated into the framework for new development, ensuring that individuals and families at all income levels can benefit from improved access to transit and the other amenities that are offered in these emerging communities of opportunity.
Inclusionary housing policies and ordinances require or provide incentives to encourage developers of market-rate homes to set aside a share of newly-built or substantially rehabilitated units for low- and moderate-income households. Inclusionary housing is an especially useful tool for promoting affordability around new or redeveloping transit hubs, which typically require compact development to achieve ridership goals. In exchange for including affordable units, developers commonly receive a density bonus that entitles them to build more units than would ordinarily be allowed on the site.
The board of supervisors in Fairfax County, Virginia, recently amended the county’s land use plan and zoning ordinance to prepare for a transit line extension that will bring four new rail stations to suburban Tysons Corner. The board’s updates for the newly-designated “Planned Tysons Corner Urban District” call for concentrating higher-density development within one half-mile of planned transit stations and setting aside 20 percent of new residential units for housing affordable to families with incomes between 50 and 120 percent of the area median income, up from the 12 percent required countywide. Linkage fees, assessed on a per square foot basis, will also be levied on most new non-residential development to ensure that the housing demand generated through economic development can be met.
Some practitioners recommend adopting a citywide or regional inclusionary housing policy, rather than limiting affordability requirements to neighborhoods adjacent to transit stations, to avoid creating disincentives for developing near transit. On the other hand, where the market demand for housing near transit is very strong or when the density bonuses or other offsets provided to property owners in exchange for the inclusionary requirements are so strong that there is little likelihood of discouraging investment near transit, a more targeted approach like that taken in Tysons Corner may be workable. A more targeted approach may also be easier to achieve politically.
Tax Increment Financing
Tax increment financing (TIF) enables communities to pay for public improvements within a district targeted for redevelopment or revitalization using the incremental tax revenue generated as property values rise. Recognizing that these investments often drive up housing costs, some states or localities require a portion of the TIF proceeds to be set aside for the creation or preservation of affordable housing within the TIF district. The state of California, for example, requires local redevelopment agencies to reserve 20 percent of property tax revenues from TIF districts in a separate affordable housing fund.
In the context of transit-oriented development, creation of a TIF district often helps to cover the cost of roads, sewers, bike paths, and other infrastructure needed for new growth around a new or redeveloping transit station. As these improvements are made, land prices often rise, reflecting the greater desirability of the neighborhood, but also pricing out many families. Setting aside a portion of these TIF revenues for affordable housing helps to minimize displacement as land prices rise and preserve affordable housing for families with a range of incomes. In Atlanta, for example, some $240 million in TIF proceeds will be directed into an affordable housing trust that will support, among other activities, up to 5,600 new workforce housing units near the Atlanta BeltLine, a 22-mile redevelopment corridor that rings the city’s core and will be served by a new light rail line. (See related articles here, here, and here.)
While many states will be able to use existing statutory authority to create tax increment districts near transit, some states may need to broaden eligibility requirements that limit the creation of TIF districts to areas designated as “blighted,” or extremely distressed, to include areas near transit regardless of whether they have blight.
Joint Development Agreements
Many communities have long made available underutilized or surplus publicly owned land for affordable homes. Joint development agreements with local transit agencies formalize this process for transit-oriented development, helping to create opportunities for affordable housing near transit stations while building in increased ridership. In Washington’s King County, for example, the Department of Transportation worked with the local housing authority and private developers to create affordable housing on top of an existing park-and-ride structure in the city of Redmond, near Seattle. The Village at Overlake Station project includes more than 300 tax credit units and a day care center, as well as access to a major transit hub. Residents also receive subsidized bus passes.
Land banks can be used to assemble strategic parcels of land for affordable housing near proposed transit stations or areas slated for redevelopment. These governmental, quasi-governmental, or nonprofit entities acquire and maintain desirable property until it can be sold or transferred and put to productive use in accordance with local land use priorities. Communities that act early may use a land bank to acquire property around proposed or redeveloping transit stations at a relatively low cost, thereby ensuring that developers of affordable housing can work in the area even after land costs rise.
With five new light-rail lines planned for the Denver region, the city, together with a variety of quasi-governmental organizations, nonprofits, foundations, and banks, has established the Denver Transit-Oriented Development Fund, a land banking initiative intended to raise more than $100 million to purchase land within one half-mile of current and planned light rail stations and one-quarter mile of frequent bus routes for the development and preservation of affordable housing. The TOD Fund’s sole borrower, the nonprofit Urban Land Conservancy, acquires and preserves “opportunity sites” near transit, and may hold them for up to five years.
In considering whether to establish a land bank, communities should bear in mind the risks associated with purchasing land far in advance of firm plans to use it. What if development financing does not materialize? What about the general difficulties in “out-
competing” private-sector developers who may quickly bid up prices in desirable areas? So long as transit system expansion plans are firm, however, the risk associated with purchasing land for affordable housing may be lower than for other land purchases, as the viability of this development does not depend on further increases in land values.
Shared Equity Homeownership
Shared equity homeownership is an important strategy for ensuring that affordable homeownership opportunities remain available in specific areas — such as within walking distance of planned transit stations — even if home prices increase significantly. Subsidy retention, one approach to shared equity homeownership, works by providing an initial public investment to bring the cost of a home within reach of families in a target income range. Each time the home is sold, a resale formula is used to determine the new price, limiting the need for additional subsidy to help the next family while permitting the seller to realize a share of any home price appreciation. Common examples of subsidy retention strategies include community land trusts, limited-equity cooperatives, and deed-restricted homes.
Some local jurisdictions establish community land trusts to provide affordable homeownership opportunities near public transit. When a family buys a home that sits within the land trust, they only purchase the building and the trust retains ownership of the land which is leased to the family, helping to keep costs low. When the family later sells the home, the land trust uses a resale formula to determine the price at which it sells the home to another qualifying family or repurchases the home. In Atlanta, a coalition of public, private, nonprofit, and community partners established the Atlanta Land Trust Collaborative to prevent displacement of low- and moderate-income households along the Atlanta BeltLine redevelopment corridor. The Collaborative’s goal is to support the establishment of a series of local community land trusts to create permanently affordable homeownership opportunities throughout the BeltLine.
When applying these tools, communities undertaking the creation or expansion of a public transit system may also wish to consider three guiding principles.
- Prioritize preservation of affordable rental housing near planned transit stations and existing stations in revitalizing areas. According to the National Housing Trust, thousands of affordable unassisted units and subsidized rentals are located within one-half mile of existing public transit stations. Many more affordable units are located near planned stations. Preserving these homes as affordable housing gives low- and moderate-income tenants the opportunity to benefit from the amenities and access being offered to incoming residents, and enables them to reduce their transportation costs. In many cases, the preservation and rehab of existing units is less costly than new construction, and without a focus on preservation, irreplaceable affordable rentals may be lost to subsidy expiration or prepayment, condo conversion, or other changes in the housing market.
- Ensure that affordability requirements last as long as transit investments. Transit lines are not designed to last for 20 years or even 40 years, but are essentially permanent amenities. In contrast, housing affordability requirements often operate on a much shorter time horizon. A 20-year affordability requirement may initially seem long, but what happens in year 21? The affordable units are lost while land values have likely appreciated many times over. Even if communities could gain site control, they would find it difficult to afford replacement of the lost units. Accordingly, to protect against the loss of affordable homes and valuable public subsidy dollars over the life of the transit system, communities making major infrastructure investments to develop or expand public transit lines should work to ensure that homes near transit made affordable through subsidy or inclusionary housing strategies remain affordable over the longest possible time frame — ideally, in perpetuity.
- Provide opportunities for families at all income levels. To reach the lowest income families, the policy tools described above will likely need to be layered or supplemented with additional rental subsidies, such as project-based vouchers and public housing. These programs target very and extremely low-income households, providing federal assistance to bring rents to levels these families can afford.
The development of affordable housing is often complex and time-intensive, involving multiple layers of funding and compliance with numerous program guidelines. In most cases, adding the goal of providing housing opportunities near transit does not simplify the process. Fortunately, these extra efforts pay dividends, not only for the families who have the opportunity to live in desirable, amenity-rich neighborhoods, but also through reduced traffic congestion and greenhouse gas emissions and stronger transit systems.
As more communities pursue equitable and sustainable transit-oriented development, policy innovations and lessons learned will help to pave the way for others.