Workforce Housing Policy in DC Metro Region

Matthew L. Steenhoek

UAP 5604: Housing Policy Virginia Polytechnic Institute and State University Urban Affairs and Planning, Alexandria Center Professor Derek Hyra Fall 2010

Workforce households in the DC area are increasingly feeling what the Urban Land Institute calls the Beltway Burden, a function of the combined cost of housing and transportation in the region. It is generally accepted that households making between 80% and 120% of Area Median Income (AMI) qualify as workforce households. The core of this group is the school teachers, police officers, and fire fighters, and EMTs who serve and protect our communities. Policy interventions are necessary to ensure that workforce households, particularly the core group described above, can afford to live near their place of employment. According to the one-year estimate from the 2009 American Community Survey (ACS), the AMI for the Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area for a family of four is $102,340[1]. As indicated by the official name of the metro area, this AMI calculation covers an extremely large geographic area. The focus of this paper is on workforce housing conditions and policies in the District of Columbia and three of the most affluent and urbanized surrounding jurisdictions: City of Alexandria, Virginia, Arlington County, Virginia, and Montgomery County, Maryland. Within these close-in jurisdictions, there is significant variability in the AMI, where more than sixty thousand dollars separates the District of Columbia from Arlington, its neighbor across the Potomac River. This highlylocalized disparity has implications on how each jurisdiction attempts to address the issue of workforce housing affordability.

Defining the Need Nationally Historically, the focus of public housing support in the United States has not been on the workforce housing segment. Most current measures utilized by housing affordability programs, the mortgage interest deduction excluded, are only available for, or heavily weighted towards, households that are below the 80% AMI threshold. This is evidenced by the Community Development Block Grant (CDBG) program which must dedicate at least 70% of its funds to benefit low- and moderate-income programs at or below 80% AMI, the HOME Investment Partnership program which only assists households below the 50%, 65%, or 80% AMI levels, the federally-regulated multifamily housing bond

programs which must be primarily used for households with incomes up to 50% and 60% AMI, and the various housing trust fund programs that traditionally focus on households earning below 50% or 80% AMI (Schwartz 2006, 180-192). One program that featured a break from this mold was the Section 221(d)3 Below Market Interest Rate program, established in 1961 under the Kennedy administration. This program enabled developers to secure below-market rate, FHA-insured mortgages from private lenders which, in turn, allowed rentals at below-market rates to median income families whose incomes were too high for public housing qualification yet too low to meet market demands. Section 221(d)3 did not produce a great number of units during its limited lifetime. Generally an unpopular program, it was excessively expensive from a short-term accounting perspective and it was seen to be helping those who were too well off to deserve it (Schwartz 2006, 130). Today, a need remains to provide housing choices for workforce families who are too affluent to qualify for traditional housing programs but who cannot afford median-priced market rate housing in the communities they serve. While it has become possible for workforce families to purchase median-priced homes in more markets, due to the drop in interest rates between 2008 and 2009, many markets remain where core workforce families cannot afford purchase. The Center for Housing Policys Paycheck to Paycheck shows that elementary school teachers cannot afford to buy a median-priced home in 40% of national markets. Police officers are in roughly the same position, with 41% of markets falling outside of the affordability range; and licensed practical nurses are being priced out of almost 70% of housing markets. Affordability is generally better for rental products. Two-bedroom fair market rents are below median mortgage payments in 88% of markets. While this statistic is promising for workforce families, there are other contributing factors that may threaten to reduce rental affordability for workforce families in many markets. As the residual effects of the foreclosure crises continue to be felt, and as more families revert from home ownership to renting or remain renters longer due to uncertainty in the market, the available number of family-sized apartment units at a fair market rent may dwindle. This scarcity could,

in turn, drive up demand and associated pricing which will create a further reduction in affordability of rental housing. The vast majority of rental markets between 2008 and 2009 have seen steady or growing fair market rents (Center for Housing Policy 2010). One relatively new program within the CDBG regulatory framework is the Neighborhood Stabilization Program (NSP). NSP grants are structured to be utilized by programs that benefit households with earnings that do not exceed 120% AMI (HUD.gov 2010a). The institution of NSP is a signal that workforce housing is making its way onto HUDs agenda. The need for workforce housing affordability is now part of the national conversation. The Terwilliger Center for Workforce Housing at the Urban Land Institute, a non-profit real estate development think tank, has identified workforce housing and mixed-income communities as a priority and is helping to promote research, education, and outreach on the subject. By adopting the promotion of workforce housing as a national resolution in June of 2008, the U.S. Conference of Mayors (USCM) has recognized the lack of affordable housing incentives for the workers who provide essential community services, the negative effect that forced commuting can have on smart growth efforts, the impact on businesses related to job recruitment/retainment and to productivity/profitability, and the dangers associated with community services worker shortages. The USCM resolution calls for increased lobbying of Congress and the administration to consider programs that will help create economically integrated workforce housing near employment centers and transit corridors (U.S. Conference of Mayors 2008). This lobbying effort could conceivably lead to an enhancement of HUDs Good Neighbor Next Door (GNND) program, the only HUD program currently in place that is designed to provide housing assistance to essential community service providers. The GNND program allows police officers, teachers, firefighters, and emergency medical technicians a 50% deduction of the sales price of a house located in a HUD-designated revitalization area (HUD.gov 2010b). While this is a significant discount, the actually applicability of the program is limited. GNND works by providing a second mortgage and note worth half of the HUD-appraised value, which is forgiven after fulfilling thirty-six months sole residency in the house. Homes are only available

in HUD-designated revitalization areas, which are typically areas characterized by very low income, low home ownership, or high mortgage default rates; and to be eligible, ones employment has to serve the area where the home is located. Another limitation of this program comes from the availability of qualifying revitalization area homes in high-demand markets. A recent search for available homes on www.HUD.gov/HUDhomes yielded only nine homes in all of the District of Columbia, Maryland, and Virginia. Of these nine homes, only three of them were located within the Beltway. While the intentions of GNND are certainly good, the actual utility of providing affordable homes to core workforce families is limited at best.

Defining the Need Locally As noted above, HUDs GNND program does not begin to address the needs of workforce families in the DC metro region; and the needs run deep. Refer to Figures 1 and 2 in the Appendix for a snapshot of the for-sale and rental housing affordability gap in the Washington, DC market provided by the Center for Housing Policy. As illustrated, every one of the ten workforce positions included on the charts (Elementary School Teacher, Family Social Worker, Fire Fighter, Nurse (LPN), Nurse (Registered), Police Officer, Preschool Teacher, Retail Salesperson, Secondary School Teacher, and Urban Planner) falls short of the annual income required to afford the $285,000 price tag for a medianpriced home in 2009. Registered Nurses are the closest to affordability, with only a $16,745 salary gap; and Retail Salespersons are the farthest from affordability, with a salary gap that exceeds $60,000. Mindful of the national trends discussed earlier, the picture is not quite as dire for the rental market in the DC metro region. Affordability for a fair market rent one-bedroom apartment is achievable for half of the ten workforce sectors identified. However, two-bedroom affordability is out-of-reach for all but the Registered Nurses, who make approximately 14% more per hour than is required to afford the two-bedroom fair market rent apartment. This is particularly problematic in the case of workforce households with children, requiring, at minimum, a two-bedroom dwelling unit. This scenario makes dual incomes a precondition for affordability and may create acute hardships for single-parent workforce

households, households where only one member is capable of being a member of the workforce, or other non-traditional households. With 40% of the workforce households in the DC metro area consisting of three or more people, 30% being two-person households, and many defined as single-parent or multigenerational, this income gap can pose a very real problem to thousands of households in the region (Urban Land Institute 2009b). Of course, the issue of affordability for workforce households is also contingent on transportation costs. This issue of combined housing and transportation affordability is identified as one of the Metropolitan Washington Council of Governments (MWCOG) core Accessibility Targets in their Region Forward planning document. Setting comprehensive targets for the DC area on the burdensome issue of combined housing and transportation, MWCOG set a goal that, by 2020, these costs will not exceed 45% of AMI for regional activity centers. Currently, the entire DC region spends approximately 47% of the AMI on combined housing and transportation costs; and the percentage spent by households in the District is even higher (ULI 2009a). Clearly, there is room for improvement across the region. Of the jurisdictions being evaluated in this paper, households in the District of Columbia bear the highest burdens in transportation, housing, or both: slightly more than eighty percent of the households in the District suffer from one, or a combination, of these high costs. For the City of Alexandria, roughly forty percent of households bear a similar burden; Arlington County has high burdens for around twentyfive percent of households; and approximately half of the households in Montgomery County have high burdens. As an overall metro region, sixty percent of households have above-average transportation and/or housing burdens. For workforce households in the District of Columbia, local affordability is limited generally to the Northeast and Southeast sections of DC. If workforce households cannot find homes or apartments that suit their needs in these more affordable areas of the District, they are generally forced to drive til they qualify and locate in remote outer ring suburbs (ULI 2009b). Considering the fickle nature and unknown future of gasoline prices, it may only be a matter of time before these more remote suburbs are rendered unaffordable for workers making the long commute by way of single-occupancy-vehicle.

Workforce housing policies that address accessibility and transportation costs by enabling workers to live in the actual communities in which they serve or in close-in, transit accessible neighborhoods can greatly reduce the transportation burden and, in turn, increase housing affordability for workforce households.

Localized Programs: City of Alexandria, VA Alexandria has two main programs that address moderate workforce housing affordability. Both of these programs focus on improving affordability through loans that can be used for down payment or closing cost assistance. The first program is the Moderate Income Homeowner Assistance Program (MIHP). MIHP is structured to give up to $30,000 in financing through special no-interest, 99-year deferred payment financing. Recipients of this loan must be first-time homebuyers and must have lived or worked within the corporate limits of the City of Alexandria for at least the most recent six-months prior to applying for the program. This time-limit clause is removed for employees of Alexandria Public Schools and of the City of Alexandria government, a feature designed to benefit key members of the workforce. Buyers who wish to use the MIHP program must contribute a minimum of $3,000 towards the purchase and are limited to a maximum home price of $399,600. Further, applicants must complete more than eight hours of Virginia Housing Development Authority approved training and financial counseling to increase their financial home buying literacy (City of Alexandria 2008). There are two tiers of loan assistance for MIHP that are based on income limits. Currently, a four-person household with a gross household income that does not exceed $82,161 per year can qualify for the full $30,000 in assistance. This income limit falls between the 80% and 100% of AMI. The second tier offers up to $20,000 in assistance, and it is constrained by an upper income limit for a family of four or more of $102,700 which is approximately 100% AMI[2]. The 99-year deferred payment loans that MIHP will make to qualifying workforce households are subject to an equity-sharing agreement. This feature of the loan helps to ensure that some of the affordability benefit of the program is passed along to the next income-eligible homebuyer. With the

equity-sharing program, the original beneficiary of the MIHP program must share with the new purchaser of the home a portion of the equity growth of the property that is proportional to the original loan value relative to the purchasing price of the home. The loan original balance must also be repaid upon sale of the home. The second program available in Alexandria is a subsidiary to MIHP which provides special assistance to law enforcement officers, called the Law Enforcement Moderate Income Homeownership Program (LEMIHP). LEMIHP operates similarly to MIHP by offering no-interest second-trust loans for qualifying City of Alexandria police officers and deputy sheriffs. Up to $50,000 in assistance is available, only in areas designated by the Alexandria Police Department (Alexandria 2010). Both MIHP and LEMIHP are funded through the Citys Housing Trust Fund. This trust fund is composed of contributions from private real estate developers who have built in the city, and it is an example of a Housing Trust Fund that dedicates monies for workforce housing programs. Participants in the MIHP and LEMIHP programs are encouraged, but not required, to use financing through the Virginia Housing Development Authority (VHDA). The VHDA is a quasigovernmental agency that is primarily funded by the sale of taxable and tax-exempt bonds to the private sector. VHDA offers loans that are generally below market to Virginia first-time homebuyers who are within the income limits established. For Alexandria, the gross household income for three or more persons is $121,900 and permits the purchase of homes up to approximately $500,000 (Virginia

Housing Development Authority 2010). These income thresholds allow for workforce households
making up to approximately 120% AMI to qualify for VHDA loans. Alexandria households who are eligible for the MIHP program can also qualify on a first-come, first-serve basis for the Sponsoring Partnerships and Revitalizing Communities (SPARC) program which offers a % interest rate reduction below VHDA conventional first-time homebuyer loans. The combination of the MIHP, LEMIHP, VHDA, and SPARC programs help increase home purchase affordability for first-time homebuyers in Alexandria. However, none of these programs

addresses the needs of workforce households that may choose to live in rental units. Also, the shared equity restrictions that are placed on the MIHP and LEMIHP can be seen as restricting the financial growth and independence of workforce households that participate in the programs. Regardless of any potential shortcomings, the focus by the City of Alexandria on providing special support and assistance for the citys teachers, government workers, and police officers is commendable.

Localized Programs: Arlington County, VA There are many laudable goals enumerated in the annual report published by the Department of Community Planning, Housing and Development in Arlington, Virginia. However, the majority of the goals identified are aimed at supporting and providing for families who are below the 60% AMI threshold. Arlington also has the highest median housing costs of the jurisdictions being evaluated. ACS data indicates that the median cost of housing is more than 10% above the metro region for homeownership and 22% higher than regional median for rental. While this may seem to indicate a serious housing affordability problem for residents, the Arlington County median family income, which is more than 33% higher than the metro region median, more than offsets the elevated housing costs. Accordingly, Arlington County is the fifth richest county in America (Newsweek 2010). While housing burdens may be relatively low for those that can afford to live in Arlington, there remains a need for support of workforce housing to allow members of the workforce to live close to their jobs. Arlington Countys Moderate Income Purchase Assistance Program (MIPAP) is designed to increase housing affordability for moderate income first-time homebuyers. To qualify for MIPAP, homebuyers must have a maximum household income of 80% AMI, which falls at the lower end of the workforce housing spectrum, but do not have to be employed or reside in Arlington. However, the property, of course, must be located in Arlington County. Both single-family and multi-family properties are eligible for the MIPAP program, provided that the purchase price is not above $362,790 (ArlingtonVA.us 2010).

The MIPAP program works by providing a subordinated loan of up to 25% of the purchase price of the home through a shared-appreciation model. There are no monthly payments associated with the loan; but, similar to Alexandrias MIHP program, participants in the program must repay the full principal of the subsidy plus a proportionate amount of any increases in home-sale value above the original purchase price upon sale of the home. However, one component of the Arlington MIPAP program that varies from Alexandrias MHIP is that participants in MIPAP can refinance, repay the county, and then receive the full appreciation on the house going forward. This allows workforce homeowners who purchase through the MIPAP program to rid themselves of the downside of the shared-appreciation model. This loophole brings the money back to the county sooner than later and is actually suggested by the county on their website (ArlingtonVA.us 2010). Arlington maintains its ability to preserve affordable stock though MIPAP because, when a home is finally sold, the county has first right-of-refusal to purchase the home at its appraised value. Arlington County can then add the housing unit back into its affordable housing stock. This structure allows for workforce households to make the initial purchase of a home and eventually grow their equity to its full extent while Arlington County can still maintain its stock of affordable units. Another program available in Arlington is the Affordable Dwelling Unit (ADU) program, tied to bonus density increases that are granted by the County to developers who are looking for site plan approval at a density of over 1.0 Floor Area Ratio (FAR). The ADU requirements can be satisfied in one of four ways: on-site units, off-site nearby units, off-site elsewhere units, and cash contribution. The units created through the ADU bonus density program, which varies between 5% to 10% of gross floor area above the 1.0 FAR based on where the unit is constructed relative to the primary development, must be affordable at the 60% AMI level for a period of thirty years (Arlington 2009). This program does not attempt to assist workforce households in the 80%-to-120% AMI bracket, but it could be modified in the future to incorporate a workforce component in the bonus density instead of focusing on a single monolithic 60% AMI block.

The Arlington programs evaluated tend to focus on homeownership over rental programs. There also are no specific programs dedicated to assisting teachers, police, fire fighters, or emergency medical technicians. However, despite a lack of programs dedicated to supporting these key civil servants, the county does promote that through its array of programs, Arlington already has helped thousands of residents firefighters, teachers, blue-collar workers, recent immigrant and their families to find a home (emphasis original) (Arlington 2008). Arlington County appears to recognize the importance of supporting these workers but has yet to implement a program focused on their specific needs.

Localized Programs: Montgomery County, MD Listed as the sixth richest county in America, Montgomery County has long been an innovator in affordable housing policy (Newsweek 2010). In 1974, Montgomery County instituted its Moderately Priced Dwelling Unit (MPDU) program. The oldest inclusionary zoning program in America, MPDU had, as of 2008, produced 12,500 housing units which included both for-sale and rental. The program stipulates that developments of twenty or more units must provide at least 12.5% of the units to be affordable to households earning less than 65% to 70% of AMI. The affordability restriction on for-sale units is thirty years and for rentals is 99 years, with annual adjustments to ensure that affordability at 65% AMI remains. With approval of the Department of Housing and Community Affairs, developers may also elect for alternative compliance measures--including payments for the creation of affordable housing or the construction of affordable housing on an off-site location (MontgomeryCountyMD.gov 2010b). During the 30-year period, MPDU units that are sold are limited in profit to the original purchase price, adjusted for inflation, plus the cost of eligible improvements. If the MPDU unit is sold after the initial 30-year period, half of the excess profit must be given to the Countys Housing Initiative Fund. Excess profit is determined by the sales price of the unit less the base purchase price adjusted for inflation, plus the cost of eligible improvements. Initial sales of the MPDU units are managed by the Montgomery County Department of Housing and Community Affairs (DHCA), which certifies and maintains a waiting list for eligible households. Eligible households in the sales program cannot have

owned a home in the past five years, must complete a number of educational seminars, and must live in the MPDU unit as their primary residence. DHCA gives priority to those applicants who live and/or work in Montgomery County. While the MPDU program has laid the ground work for the development of a significant number of affordable units, it does not provide any housing assistance for workforce households in the 80%-to120% AMI. Montgomery County has instituted a number of other programs that are aimed at housing affordability for workforce households. One program, House Keys 4 Employees (HK4E), is dedicated to helping reduce household affordability thresholds for employees of Montgomery County, through up to $13,500 in closing cost assistance. Limits for HK4E are set by the States Maryland Mortgage Program: income limits at $124,200 for households of one or two and at $144,900 for households of three or more, and borrowers must be first-time home buyers or have not owned a home in the past three years (Montgomery County 2010). These income thresholds are set high enough to allow the full 80%-to120% AMI spectrum of workforce housing employees of Montgomery County to be eligible for closing cost assistance. The HK4E programs funding has three sources. Of the total $13,500 maximum closing cost assistance that is available, $10,000 comes from the Montgomery County 5 for 5 closing Cost Assistance Loan program. This program provides closing cost assistance for 5% of the sales price, not to exceed $10,000, through a ten-year closing cost loan at a 5% interest rate. The maximum home price for 5 for 5 is $429,619, and it sets the income limits for HK4E as described above (Montgomery 2009). The second tranche of funding is a dollar-for-dollar funding match for HK4E from the State of Maryland with a maximum of $2,500. The third and final tranche comes from the State of Marylands Smart Keys 4 Employees (SK4E) program. SK4E is an innovative program that supports workforce housing affordability, in defined high-growth areas and for homes within ten miles of a borrowers place of employment, by providing an additional $1,000 in closing cost assistance. The HK4E funding match and SK4E program are provided to borrowers as a 0%-interest, deferred payment loan that is repayable at the time of refinance or sale of the home (Montgomery 2010).

While the HK4E, HK4E funding match, and SK4E programs do not address the overall affordability of a home for workforce households, they do provide a significant form of assistance in the initial home purchasing stage and are focused on supporting key county government employees and their families. The Housing Opportunities Commission (HOC) of Montgomery County offers an additional program to help enhance workforce housing affordability. Through the Mortgage Purchase Program, below-market interest rates on first trust mortgages are offered to first-time homebuyers in Montgomery County, which are subject to the same income and sales price restrictions as the programs discussed above. As of October 22nd, 2010, HOC offered these 30-year fixed-rate loans at 4% with zero points. Restrictions associated with the HOC program include requirements for being owner-occupied, limits on the amount of the home that can be used for trade or business, and the potential to be required to pay recapture tax to the federal government if the home is sold within the first nine years of ownership (Housing Opportunities Commission 2010). In 2006, Montgomery County took another bold step towards enhancing affordability for all ranges of household AMI by developing the Work Force Housing (WFH) program. This is an inclusionary zoning measure with many programmatic similarities to the countys MPDU program, but it focuses on workforce households between 71% and 120% AMI. Another key difference between the two programs is that WFH has a geographic focus around Metro Station Policy Areas. This smart-growth measure encourages the development of workforce housing in key transit-accessible locations. Projects with more than thirty-five market rate units that are located in these transit-oriented areas must include 10% of the total proposed market rate units (excluding MPDU units or resulting bonus density units) as workforce housing units. In order to accommodate the required WFH units, additional density can also be granted (DHCA 2008). For-sale WFH units have affordability requirements of twenty years, and rental WFH units have a control period of ninety-nine years. Alternative compliance measures are also available for developers, which include building WFH units in an alternative location within the same Metro Station Policy Area, converting non-residential uses to WFH units, or purchasing WFH units whose control period has expired and maintaining them as WFH units.

The WFH units must be divided to price points that are calculated to 75% AMI (affordable to 71%-to-80% AMI), 90% AMI (affordable to 81%-to-100% AMI), and 110%AMI (affordable to 101%-to120% AMI) and which are based on the assumption of 1.5 people per bedroom (DHCA 2007). There are further subtleties in the code regarding the determination of what is considered affordable at the various AMI levels; but this formula, while complicated, should provide for the development of WFH units that fit the needs of a variety of workforce households. The Montgomery County DHCA maintains a list of eligibly households that are interested in forsale WFH units, which are prioritized by working for the county government, living and/or working in the county, already owning or renting an MPDU unit, or participating in the employer assisted HK4E program described above. Selected through a random online drawing, purchasers of WFH units have sale restrictions placed on the units for a period of twenty years. During this time, the sale price of the WFH unit is limited in growth to the original purchase price, adjusted for inflation, plus 15% of the difference between the original purchase price and the appraised value of the unit at the time of resale, plus the costs of eligible improvements made to the home. Similar to the MPDU program, units which are sold after the initial twenty-year period must contribute half of the excess profit to the Countys Housing Initiative Fund (DHCA 2008). The WFH restrictions during the initial twenty-year control period are slightly less restrictive than the MPDU program and can help WFH residents build some equity in the home and move towards a goal of traditional market rate homeownership. One other interesting aspect of both the WFH and MPDU program is that the HOC can buy or master-lease 33.3% of WFH units or 40% of MPDU units. MPDU units may also be purchased or master-leased by approved non-profit organizations. This provision allows Montgomery County to use the WFH and MPDU programs as a means of constructing new HOC-managed housing units in the county. Despite the promising potential of the inclusionary WFH program, as of the end of 2010, no units have actually been produced. The program was officially adopted in December of 2006 while the housing market in the DC metro area was still booming. However, all of the projects that were under

construction, or in planning, that actually got built at that time were grandfathered in and were not required to comply with the new mandatory WFH regulations. To date, the economic slowdown has stopped any new eligible projects in Montgomery County from proceeding; and, earlier in the year, Montgomery County changed the WFH program from mandatory to voluntary and made modifications to shift the focus of the program toward homeownership. According to one Montgomery County planner, this was done to limit the burden on private development in an already slow market in the near term but was being kept on the books so that it could be converted back to a mandatory inclusionary program more easily once market conditions changed. While the WFH program may have failed to produce any workforce housing units using traditional inclusionary zoning techniques, Montgomery County has implemented a separate program, the King Farm Workforce Housing (KFWFH) program, at the Village at King Farm development in Rockville, Maryland. Because this development was completed on land sold to the developer by the county, there were additional requirements for workforce housing that were included in the project. The 49 units subject to the KFWFH program follow the affordability and income guidelines designated by the county-wide WFH program. One modification to the WFH standards is an alternative priority points scheme that is used to determine which eligible households will be given an opportunity to purchase a KFWFH unit. In addition to the priority factors discussed above for the WFH program, KFWFH also includes enhanced priority for those applicants who live and/or work in the City of Rockville and, more interestingly, for those households that are primarily employed as first responders. These first responders include police, firefighters, and emergency medical technicians (MontgomeryCountyMD.gov 2010a). This requirement was a result of community input that recognized the value of these critical civil servants in their community and prioritized accordingly. Curiously, no special provisions are made for teachers, the third part of the holy trinity which includes police and fire fighters/EMTs.

Localized Programs: Washington, DC Here at the core of the metro region in the District of Columbia, the issue of housing affordability is most pronounced. According to the American Community Survey, the AMI for the District is more than thirty thousand dollars less than the AMI for the metro area and, as discussed above, residents of the District bear higher burdens in housing and transportation costs than residents of the surrounding jurisdictions. A simple ratio of the DC median income, $71,208, to the median monthly cost of homeownership, $2,231, shows that median-income households are paying more than 37% of their gross income on housing each month. This is well above the 30% rate commonly used to measure the housing affordability burden and is more than 40% higher than the average burden of the surrounding jurisdictions (26.6%). The median rental housing burden for median-income households in the District is less severe at 17.8%, but it is still the highest of the jurisdictions being evaluated. One program that the District Department of Housing and Community Development and its partner, the community-based Greater Washington Urban League, administer is the Employer Assisted Housing Program (EAHP). This program offers District of Columbia government employees a deferred second trust loan of up to $10,000 and down payment assistance up to $1,500. The down payment assistance is structured as a matching program, where $500 of funding is given for every $2,500 paid by an employee as a down payment. Participants in EAHP must be first-time homebuyers and have been employed by the District of Columbia government full-time for one year prior to application. Special exceptions are made to this requirement for teachers, police officers, firefighters, and emergency medical technicians that allow them to participate upon appointment. This provision indicates that the District of Columbia values these core workforce households and understands the financial strains of workforce homeownership in the District. The EAHP program is typically associated with the larger Housing Purchase Assistance Program (HPAP) which offers up to $40,000 in down payment assistance as a low-cost loan. HPAP is designed to give a Desired Purchasing Power of $218,000 to an income-eligible family of four (Department of

Housing and Community Development 2010). With a median value of owner-occupied units in the
District topping $440,000, this purchasing power calculation may leave few suitable housing options. The financial guidelines associated with HPAP place the maximum qualifying income for a family of four at $83,000, which falls just below the 80% AMI workforce level of $86,500. At the upper income levels of HPAP, down payment assistance falls to as low as $400 and is really more of a token of assistance than an actual effective tool. Recognizing the workforce housing challenge at hand, the DC Council enacted the Workforce Housing Production Program Approval Act of 2006 which ultimately resulted in the creation of a Washington, DC Workforce Housing Land Trust: Design and Implementation Plan. Proposing a 1,000unit pilot program to be undertaken by City First Homes (CFH), a non-profit subsidiary of City First Enterprises/City First Bank (CFE), the plan was approved by the DC Council; and $10 million in public funding was delivered to the program. The basis of the program is investments made through the federal New Markets Tax Credits (NMTC): CFE will leverage the $10 million grant from the city to generate $65 million in investments for a total fund of $75 million (Coalition for Nonprofit Housing &

Economic Development 2010).

CFH is utilizing a shared-equity component in the developments that creates a subsidy tied to the home through a covenant, not through the homebuyer. This covenant will constrain the price of the home for future generations without providing additional subsidy. The per-unit subsidy created will be $75,000 which comes as a second mortgage on the property. Homes created by CFH through this program will be affordable to the core workforce and will have an average affordability for households making 80% AMI, but homebuyer incomes may go up to 120% AMI. With the shared-equity structure, homeowners selling their units will receive their entire down payment, their loan repayment, the appraised value of improvements that they completed, plus 25% of any equity that is gained through appreciation. The 75% that remains will stay with the property in addition to the initial subsidy of $75,000 to help ensure that the home remains affordable for the next qualified homebuyer (Gass 2008).

This structure is designed to allow families to use the shared-equity model of homeownership as a stepping stone towards traditional homeownership. A study of a similar program in Burlington, Vermont shows this can be a viable approach. Approximately three quarters of the shared-equity homeowners who sold their homes went on to purchase homes that were not burdened with restrictive covenants or subsidies (Jacobus 2007). The use of NMTC and the creation of a permanent unit-based subsidy for these homes show the innovative ways that federal and local governments can utilize private investment to create a stable stock of affordable workforce housing units. The government of the District of Columbia has at its disposal significant acreage of underutilized land that can be disposed of for development. Much of this land is along the Anacostia River and Washington Channel, but it also includes in-land parcels such as the Walter Reed campus and McMillian Reservoir. There is currently a bill being reviewed by the DC Council that would include a requirement for mixed-income housing in all projects built upon land disposed of by the District government. This bill, the Mixed Income Housing Amendment Act, Bill 18-050, would require that 20% of the units created be affordable--with a distribution of 5% to very low income households (30% AMI or below), 5% to low income households (between 30% and 50% AMI), and 10% to moderate income households (between 50% and 80% AMI) (Council of the District of Columbia 2009). If Bill-050 is approved, the housing created through it and the disposition of public land will have an affordability ceiling too low for most workforce households. There are current regulations that provide housing affordability guidelines to projects developed on former Anacostia Waterfront Corporation (AWC) and National Capital Revitalization Corporation (NCRC) lands. Both corporations were dissolved in 2008, and control of the land was transferred back to the Mayor; but projects that were formulated under these agreements, such as the redevelopment of the Southwest Waterfront, remain beholden to the AWC/NCRC requirements. The AWC/NCRC requirements for affordable housing are that 15% of the units must be affordable to households making 30% AMI and 15% of the units to those making 60% AMI. These affordability requirements are the same for rental and ownership units, but rental units must remain affordable for 50 years while

homeownership units are limited by restrictions for 20 years (Council of the District of Columbia 2008). Again, the former AWC/NCRC projects that are developed in accordance with these requirements will have market-rate housing as well as housing that is affordable to lower-income households but no accommodations for workforce households making between 80% and 120% AMI. As much of the AWC/NCRC land is highly desirable waterfront property, the income disparity between the affordable and market-rate units is likely to be vast. In the summer of 2009, the District of Columbias new Mandatory Inclusionary Zoning (MIZ) program went into effect. DC MIZ has some structural similarities to the MPDU program in Montgomery County, but its efficacy has yet to be tested since the slow-down of the housing market has allowed but a few residential projects to move forward and none of them have been subject to the law (DC Affordable Housing Alliance 2010). In the 2010 Inclusionary Zoning Annual report, the Department of Housing and Community Development (DHCD) identifies approximately 430 MIZ units that will be constructed based on the volume of units in various stages of the Planned Unit Development process and subject to MIZ regulations. New residential buildings of ten or more units are subject to MIZ and are eligible to receive up to a 20% increase in Floor Area Ratio FAR to help offset the costs of building affordable units. The percentage of units required and affordability requirements vary by zone category and density. Low density areas in any other zones are required to provide the greater of 10% of residential FAR, or 75% of bonus density, in units that are affordable to 50% and 80% AMI. For higher density areas with residential zoning, the income requirements remain the same but amount of area required shifts down to 8% of FAR or 50% of bonus density. Non-residential zones in high density areas have the same area requirements as high density residential zones, but the affordability requirements adjust to only include units at the 80% AMI, which was done to promote a mix of housing and office use in more commercial areas of the city (DHCD.DC.gov 2010). There are a number of other high density zones which are constrained on the FAR bonuses that can be provided and are exempted from MIZ. Additionally, several historic districts

and overlay zones such as the Downtown Development and Transferable Development Right zones are exempted from MIZ. As with the old AWC/NCRC affordable housing regulations and the proposed requirements of Bill 18-050, the Districts new MIZ regulations do not have any provisions that address affordability for all but the lowest economic strata of workforce households. In an environment of growing fiscal restraint and shrinking budgets across all sectors of the District government, it is not surprising that the limited funds available are being routed to those with the most severe needs. However, in this political landscape the needs of workforce households, particularly the teachers, police, fire fighters, and EMT who give the most to our communities, must not go unaddressed. These holy trinity members of the workforce are the glue that holds our communities together and makes them safer places to live.

Recommendations and Conclusion The District should consider harnessing the private sector for development of workforce housing through modifications to proposed Bill 18-050, the old NCRC/AWC regulations, and the new MIZ regulations by adjusting the composition of the existing affordable component in each program. The programs should maintain the over-all percentage of cost-controlled units required (20% for Bill 18-050, 30% for NCRC/AWC, and 8%-to-10% for MIZ) to avoid putting unnecessary fiscal pressure on private sector developers and builders already operating in a challenging market, but they should include a balanced component of workforce housing that is affordable to households in the 80%-to-120% AMI range. Similar to the WFH program on the books in Montgomery County, the workforce component created should be further divided to provide price points affordable to workforce households at 80%, 100%, and 120% AMI. Given the particular strains seen in the existing market, these new workforce units should be designed to allow for households with children and other non-traditional households, such as single-parent and multi-generational households. Creating a stock of workforce housing units with a balanced range of unit size and price points will give workforce households at many different stages of their career and family life the chance to afford a home in DC.

Including the workforce housing component will create a more normal distribution of incomes in each project, and the workforce housing residents may even prove to serve as an intermediary group that can ease some of the potential tensions between highly-subsidized and market-rate households. Additionally, further diversifying the income mix of the inclusionary units may help to limit the perceived negative effects that inclusionary zoning can have on the marketing of market-rate units. Reducing this stigma will create better, more successful projects and will give developers the confidence to move forward with new projects which will in turn create more mixed-income units. An inclusionary zoning program that is overly burdensome on the private sector and which stops any units, market-rate or otherwise, from getting built is not a good housing policy. These programs would create workforce housing units at little to no cost to the District government. The administrative costs of incorporating a workforce housing component into existing regulatory framework should be minimal, since the infrastructure would be similar. The selection process designed for the workforce housing units should also look to Montgomery County for guidance. The priority point system, which was developed for the KFWFH program, includes enhanced priority for those already living and/or working locally and for being employed as first responders. As noted above, the KFWFHs point system does not include any priority for teachers; this is a modification that the District should consider in structuring the selection process for the new workforce units to give priority to all members of the holy trinity. Creating a direct incentive for teachers who work for DC Public Schools (DCPS) or in the flourishing public charter school system through a workforce housing priority program would be a great way to encourage the best and brightest to teach in the District, which, in turn, would help DCPS improve their system and continue to make strides towards their goal of being the best public school system in America. The resale restrictions on the workforce units should be designed to balance the need to maintain affordability for future generations of workforce households with the goal of having upwardly mobile ones eventually move to non-restricted, non-subsidized traditional homeownership. These units should have an initial affordability requirement of 15 years that limits the sale price of the workforce housing

unit to an increase determined by inflation and the level of home value appreciation seen in the immediate area. After the initial period of affordability, regulations could be modified to allow workforce households greater access to the equity gained in their home. In conclusion, the greater DC metro region has real housing affordability issues for workforce households. This is felt most acutely in the more urbanized core jurisdictions which have both a high density of jobs and high housing costs. This combination creates an environment where many workforce households are forced to choose between a long burdensome commute and unsustainably high housing costs. All of the jurisdictions evaluated have programs which begin to recognize the needs of workforce households. The District and the surrounding jurisdictions should look to the proven techniques already included in their affordable housing tool kit for further direction on how to address the mounting issue of workforce housing. In addition, it is critical that all jurisdictions place a particular focus on the housing needs of their school teachers, police officers, fire fighters, and EMTs. These workers give so much to the community and do not deserve to have their needs neglected.

[1] This differs slightly from the current HUD 2010 Median Family Income for the WashingtonArlington-Alexandria, DC-VA-MD HUD Metro FMR Area of $103,500 due to a HUD formula that utilizes data from the 2000 Census as well as 2008 ACS data and which utilizes an annual trending factor. Also, the HUD estimate makes slight geographic adjustments to eliminate some of the furthest outlying jurisdictions from the metro area definition. [2] The Alexandria Median Family Income is $102,969 according the 2009 ACS data. This value approximates the ACS and HUD Washington DC metro AMIs of $102,340 and 103,500, respectively.

APPENDIX Figure 1:

Figure 2:

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Metropolitan Washington Council of Governments. 2010. Region Forward: A Comprehensive Guide for Regional Planning and Measuring Progress in the 21st Century Retrieved From: www.mwcog.org/uploads/pub-documents/p15fX1g20100407104951.pdf MontgomeryCountyMD.gov. 2010a. King Farm Workforce Housing Program. Viewable at:

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