The Very Basics of Housing Affordability in Raleigh
Like other fast-growing cities across the country, Raleigh is struggling with housing affordability. There is no question that housing costs in the City have risen dramatically over the last few years. Relative to the cost of housing nationally, however, Raleigh remains “comparatively” affordable. But what does that really mean? Though it depends on the audience and context, most experts suggest that housing is “affordable” when a person or family spends less than 30% of gross income renting or buying a home (including utilities). Though, it’s worth noting that some housing advocates argue that transportation costs should be included in this calculation.
If we accept this commonly used measure as a reasonable “affordability” target and acknowledge that no city (including Raleigh) has enough housing to accommodate all residents, what are the most commonly used affordable housing tools and techniques to expand supply?
Overview of tools and techniques:
Traditional Public Housing
Section 8/Housing Choice Vouchers
Low-income Housing Tax Credit Program
Market Rate Affordable Housing
Naturally Occurring Affordable Housing (NOAH)
Filtering
Conditional Use Zoning
Inclusionary Zoning
Development Agreements
Community Land Trusts
Government Financing
Public housing was established to provide decent and safe rental housing for eligible low-income families, the elderly, and persons with disabilities. Public housing comes in all sizes and types, from scattered single-family houses to high rise apartments for elderly families. HUD administers Federal aid to local housing agencies like the Raleigh Housing Authority ("RHA") that manage housing for low-income residents at rents they can afford. RHA currently administers approximately 1,400 public housing units.
Section 8/Housing Choice Vouchers
The Housing Choice Voucher (“HCV”) program is the federal government's major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses and apartments.
Residents using HCV’s can choose any housing that meets the requirements of the program and is not limited to units located in subsidized housing projects.
HCVs are administered locally by RHA and RHA receives federal funds from HUD to administer the program. Currently RHA administers approximately 3,920 Housing Choice Vouchers.
A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family's choice where the owner agrees to rent under the program. This unit may include the family's current residence. Rental units must meet minimum standards of health and safety, as determined by RHA. Unfortunately, most private landlords are not required to accept Housing Choice Vouchers, so most housing authorities across the country have long waiting lists for people seeking to use an HCV.
In terms of eligibility, a voucher holder’s income may not exceed 50% of the median income for the county or metropolitan area in which the voucher holder chooses to live. By law, RHA must provide 75 percent of its vouchers to applicants whose incomes do not exceed 30 percent of the area median income. Median income levels are published by HUD and vary by location.
Recently, the Raleigh City Council adopted a policy requiring all private developers/owners accepting City money to build affordable housing to also accept HCV’s. The same is true of developers/owners that use Federal subsidies to build affordable housing.
Once a suitable unit is identified, RHA pays a housing subsidy to the landlord directly on behalf of the participating family. The family then pays the difference between the actual rent charged by the landlord and the amount subsidized by the program.
Low-income Housing Tax Credit Program
The Low-Income Housing Tax Credit (LIHTC) program is the most important resource for creating affordable housing in the US today. Created by the Tax Reform Act of 1986, the LIHTC program gives State and local LIHTC-allocating agencies the equivalent of approximately $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. An average of almost 1,400 projects and 106,400 units were placed in service annually between 1995 to 2018. Since the creation of the program, numerous LIHTC communities have been built throughout Raleigh.
Market Rate Affordable Housing
There are also non-profits that built affordable housing for specific populations like the disabled, chronically homeless or people recovering from addiction. While these communities often receive government grants and donations from private foundations, they typically have more flexible income criteria than those that fall within the categories described above.
Naturally Occurring Affordable Housing (NOAH)
NOAH is a term to describe existing housing in a city that is affordable to lower income residents without public subsidy. These housing units are a critical factor in the supply of affordable housing in every community. But in fast growing cities like Raleigh, these properties are prime targets for redevelopment. As these properties are redeveloped, the former owners are typically unable to find reasonable replacement housing in the same community which is a primary cause of gentrification.
Filtering is an economic theory suggesting that in cities experiencing rapidly rising housing costs, adding new supply (regardless of rental or price point) will gradually dampen demand for housing which will eventually lead to lower housing costs.
In North Carolina, cities are authorized to create conditional use zoning districts. Unlike general use zoning districts that can’t be tailored to a specific project, conditional use zoning allows a rezoning applicant to essentially negotiate with elected officials, neighbors and other stakeholders in crafting a “customized” zoning district tied specifically to a proposed development. So when a developer seeks approval for a conditional use rezoning, it could agree to build a certain number of residential units that will be rented at some defined affordability level either permanently or for a defined period of time.
Inclusionary zoning, though similar to a conditional zoning case that includes some commitment to include affordable units, describes a regulatory framework some cities use to mandate private developers include affordable housing within projects on property being rezoned. Inclusionary zoning can be either mandatory or voluntary. Most lawyers in North Carolina agree that mandatory inclusionary zoning is not legal. Voluntary inclusionary zoning involves offering developers a menu of incentives to encourage the inclusion of more affordable units within projects on property being rezoned.
An alternative to voluntary inclusionary zoning is a development agreement (“DA”). DAs have been used extensively across the country by cities and developers as a way to memorialize public benefits and public infrastructure improvements that are to be included in new developments as part of the entitlement process. It is essentially a legal form of “contract zoning.” Although North Carolina legalized DAs in 2005, they were originally limited to developments of 25 acres or larger so they were not useful in urbanizing cities like Raleigh. However, several years ago the 25-acre limitation was removed so that now there is no minimum size requirement for utilizing the DA statute. Moreover, Raleigh recently enacted text change incorporating DAs into its UDO permitting and entitlement processes so the tool is more likely to be used. Now, Raleigh and developers can use DA’s to negotiate specific ways of financing, building and administering affordable housing within the large mixed-use communities that have become the primary development pattern as the City’s growth accelerates.
Although community land trusts have been used across the country to expand housing affordability, they are new to Raleigh. According to the Lincoln Land Institute, community land trusts are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. The Raleigh Area Land Trust is a local non-profit seeking to preserve and build permanently affordable housing for Raleigh residents.
Government Financing
The most obvious way to build permanent affordable housing is for the federal, state and local governments to fund the acquisition of land and the construction of new affordable housing in key locations served by diverse public services like transit, community health and employment opportunities. Until very recently, the federal government had been reducing the funding available for affordable housing programs. The North Carolina General Assembly has never been a huge source of funding for affordable housing so the issue of housing affordability has really been left to local governments. Facing that reality, the Raleigh City Council made housing affordability a priority by implementing a number of text changes to make building diverse housing options easier across the City and in nearly every zoning district. It also placed an $80 million housing bond on the ballot in 2020 that passed with overwhelming support of the community. Finally, the City owns property that it can either sell outright through a public bidding process to fund future affordable housing or it can seek public/private partnerships with developers and/or nonprofits to build more affordable housing.
In future posts, we will delve into these tools and techniques in more detail.