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In 2007, the D.C. Council passed an inclusionary zoning ordinance, which requires residential developers to price between 8 and 10 percent of units in a new building below market rates. Modeled off a Montgomery County law that has generated thousands of affordable condos and apartments since the 1970s, it’s one of D.C.’s key initiatives to mitigate the effects of gentrification, since it leverages private construction to create housing for folks with low incomes—-even in the priciest neighborhoods.
It took a while to get off the ground, though. The District didn’t publish regulations until August 2009, when most of the buildings you see rising today had already secured their permits. In fiscal year 2010, the program had still generated no affordable housing, while rents were headed skyward.
This year’s annual report, scheduled to be released next Friday, will finally show some movement. The Department of Housing and Community Development is even hiring somebody to oversee the administration of all the new units. Most of them will be apartments, since that’s mostly what’s getting built these days. But some of them will be condos, and unless the regulations are tweaked, they likely won’t sell—-no matter how many people want to buy them.
How do we know? It’s already happening. The very first two condos created through inclusionary zoning are in a building at 2910 Georgia Ave. NW. While the rest of the units have sold out, these two have been on the market for almost a year now. Acquiring them requires filling out a tall stack of paperwork, but it should be worth it: One costs $130,000 (compared to the market rate of $250,000) and the other is $220,000 (compared to a market rate of $350,000).
The problem is, you can’t get a mortgage—-or not very easily, at least. Most low- to moderate-income buyers want to get a Federal Housing Administration-backed loan. But the banks that FHA works with don’t want to issue loans on properties that can’t be resold at market rates in the event they go into foreclosure. As currently structured, the District’s IZ program keeps those affordability restrictions in place, so FHA is a non-starter.
Department of Housing and Community Development head John Hall hesitates to frame the issue as a “problem,” exactly, saying that buyers could get loans from independent community banks that don’t sell their mortgages on Wall Street. “The mortgage products that are being chosen are really what’s driving the challenge to selling the units,” Hall says.
But FHA loans are a really important part of affordable homeownership, and there will have to be some changes in order to make sure all the units coming down the line actually end up selling. To that end, DHCD has opened up the IZ program for comments, and the Comprehensive Housing Strategy Task Force will talk about how to revise them, along with the Metropolitan Washington Council of Governments. They may end up allowing IZ units be sold at market rate if they go into foreclosure, as the city of Glendale, Calif., recently contemplated. Or they may find a way to expand the availability of loans from community banks.
Either way, developers just want to see something happen soon—-they’re not thrilled about having to include affordable units at all, but unsold condos are even worse. And yes, it would have been nice if the city had figured this out five years ago.