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Smart Growth Can Deliver Affordable Housing

Solutions mix public values, community investment

April 29, 2003 | By Jim Lively
Great Lakes Bulletin News Service

MLUI Staff

Traverse City is among the most attractive small cities in the Midwest, in part because handsome dowtown homes are available and affordable to families of all incomes levels.

Smart Growth’s critics — particularly homebuilders — have claimed during meetings of the Michigan Land Use Leadership Council that any policy that discourages the ever-outward march of new subdivisions will make new houses more difficult to build and more expensive to buy. They also say that revitalizing inner city neighborhoods drives the poor out of the only housing they can afford.

Michigan Governor Jennifer Granholm formed the leadership council in February to recommend steps the Legislature and her administration should take to cure sprawl. Affordable housing has emerged as an issue during the leadership council’s first two meetings in March and April and may prove to be a formidable barrier to progress even though critics have scant data to back up their arguments. Rather, accumulating academic evidence by several researchers, including Arthur C. Nelson of the Georgia Institute of Technology, shows that it is competition for homes in great places — in other words market forces not land use restrictions — that is the primary factor in driving housing prices up.

For example, home prices are indeed going up in Portland, Oregon, which does in fact have a growth boundary. But they are going up even more quickly in metropolitan Washington, D.C., which has no such boundary and much less rigorous land use restrictions. What is driving prices in both places is the fact that each is a great American city where people want to live.

There are good examples in Michigan, too. Neither Traverse City, nor Ann Arbor, nor Saginaw has a growth boundary or other highly restrictive land controls. But because the first two are among the most attractive small cities in the nation, their housing prices continue to soar while in the third, which lacks such a reputation, housing prices are rising much more slowly.

Growth Management and Affordable Housing
Critics also insist that Smart Growth exacerbates the affordable housing shortage. But the plain truth is that Smart Growth can actually help solve what has been an enduring problem across much of the country.

Long before there was a Smart Growth movement, there was an affordable housing crisis. The crisis has worsened as sprawl has simultaneously whisked people of means away to suburbia’s Elysian Fields and left behind those who can’t afford to move. With such disinvestments, the poor only get poorer: No jobs, no tax base for schools or services, no money for a decent bus system to get them to where all the jobs have gone: the suburbs. The ultimate result has been a stubborn, burgeoning affordable housing crisis.

So, while Smart Growth clearly did not create the affordable housing crisis, can it do anything to solve it? Not in the short term, even its most ardent proponents would agree. But can it help? Absolutely. While shifts in land use policy alone cannot do much, they can definitely maximize whatever investments society does make in affordable housing.

A Housing Crisis
America’s housing crisis has been worsening since the 1970s and today there is little relief in sight. The 2002 Millennial Housing Commission’s report to Congress found that one in four American households spends more on housing than the federal government considers sustainable — 30 percent of family income.

“Even working full time no longer guarantees escape from severe housing affordability problems,” the report said. “In 1999, one in eight lower-income working families earning at least the full-time equivalent of the minimum wage reported spending more than half their incomes on housing.”

People with low incomes face two bad choices: They can either live in extremely low-rent, usually crime-infested, urban neighborhoods that come with all of the attendant problems, or they can leapfrog over the suburbs to cheap, rural plots that are many miles from jobs and social services such as vocational training, childcare, and other social services. Stuck so far from the things that could help them break the poverty cycle, they become homesteaders for the sprawl that will eventually reach and overwhelm them.

Avoiding the Real Issue at the Homebuilders Association
Despite their crocodile tears of concern for affordable housing, the homebuilders and realtors busily criticizing Smart Growth are not doing much — or suggesting any action plan — that would solve the problem.

Back downtown, affordable housing advocates admit that free markets will never develop adequate supplies of affordable housing. They know that, whether a state’s land use policies are smart or dumb, affordable housing simply is not very profitable. That is why metropolitan regions, backed by local, state, and federal funding, must invest in affordable housing, just as they do in roads, schools, parks, and utilities.

“We really need to be looking at housing as a regional metropolitan responsibility, “ said Jonathon Bradford, Executive Director of Inner City Christian Federation in Grand Rapids. “Local governments and industry need to work together to ensure enough housing for the work force of their community.”

There are some ongoing efforts to address this stubborn problem in Michigan. Affordable housing advocates are championing a state Affordable Housing Trust Fund that would guarantee public dollars for investment in new housing projects for low and middle-income families. The need is great: Michigan ranks 48th in per capita spending on housing subsidies, and 49th on subsidy spending as a percentage of personal income.

The Michigan State Housing Development Authority (MSHDA) offers a glimmer of hope because it is one of the most innovative agencies of its kind. It is trying hard to make something out of almost nothing. It is redistributing the meager federal housing funds that come its way, as well as selling bonds, and then lending the proceeds at below market interest rates to qualified buyers of single family homes and the few developers interested in building low-income housing.

Tony Lentych, executive director of the Community Economic Development Association of Michigan, a nonprofit association of community development corporations, insists that the know-how and the local political will to attack the problem are there. What’s missing is state support.

“Developers of affordable housing are well educated about how to construct necessary housing,” Mr. Lentych said, “and most local municipalities are also doing a lot by delivering tax abatements or infrastructure extensions to promote more affordable housing. But Michigan doesn’t put any general fund money into affordable housing at all.”

Mr. Lentych says that most Midwest states have trust funds that spend between $20 and $30 million annually. Michigan is one of 13 states that have no such fund. He says such a fund is critical to any affordable housing progress.

“Smart Growth policies that encourage rehabilitating urban housing are always more expensive to the developer than building new housing on cheap rural land,” he explained. “That’s why a revenue source with more flexibility to fund affordable housing is critical.”

Public Investments Needed
But agreeing that states must fund adequate stocks of affordable housing raises other questions: Where and how do we invest those dollars? Do we build affordable housing in suburban-style developments on the fringe of the metroplis, which lack just about everything a struggling family needs to bootstrap itself? Do we help low-income families merely pay the rent for cheap, run-down housing in deteriorating inner-city neighborhoods?

The far wiser approach, affordable housing and Smart Growth advocates agree, is to invest in innovative in-town approaches that revitalize urban and rural communities by rehabilitating and building a variety of centrally located housing that, among other things, makes quality housing available to low-income families. This eliminates the infamous, ill-fated “housing project” syndrome of the 1960s that everyone, including Smart Growth advocates, abhor almost as much as the people who have been forced to live in such places over the years.

Smart Growth proponents insist that affordable housing be blended into communities, rather than stuck on the other side of the tracks. They insist that blighted urban communities should be improved by revitalization projects, but not at the expense of displacing low-income residents. History and common sense say nothing else will work.

Establishing this mix of upper, middle, and lower-income housing requires a complex mix of programs and policies that increase public and private investment in cities and protect low-income residents from being priced out of the market.

Other State Programs
Maryland has such a program; it not only works, it is good for everyone involved. The program protects rural open spaces, redirects new growth toward urban areas, and provides low- and middle-income families with affordable housing.

One major tool is a market-based “transfer of development rights,” or TDR, program. It allows developers to buy development rights from farmers, and then directs their development to participating communities that want higher-density housing.

With TDR, everybody wins. Developers gain access to an increasingly lucrative, “new urbanist” development phenomenon; farmers are rewarded financially for the permanent protection of their land from development. Most strikingly, people in need of affordable housing get some, because the program requires reserving a certain percentage of that development for them.

Smart Growth Tools
Communities across the country have developed Smart Growth tools that favor affordable housing. Backed by sufficient funding, they can ensure that no one is left out as states redevelop their urban areas:

  • Inclusionary Zoning requires large housing developments to dedicate about 15 percent of their units to low-income families.
  • Smart Housing Zoning Codes simplifying urban redevelopment process encourage mixed use and income levels, and expand housing choices.
  • Community Land Trusts allow communities or non-profits to own the land beneath affordable units, making purchase of the units more affordable.
  • Mutual Housing Cooperatives provide ownership structures that limit profits from an owner’s sale of a unit. This assures current and future affordability for that unit, as well as direct community self-management of the development.
  • Location Efficient Mortgages expand homebuyers’ purchasing power by granting them income credits for living close to public transportation, which greatly reduces their automobile expenses.
  • Aggressive government programs that either tear down or rehab vacant properties prevent blight and increase investment in housing and small businesses.
  • Special housing rehabilitation codes spur greater urban renovation activity by eliminating some newer building standards that cannot be reasonably applied to physically sound, older structures.
  • Regional “Fair Share” agreements ensure that local governments contribute to affordable housing costs to meet the overall metropolitan demand.

Mr. Lentych says his organization favors Smart Growth because it reinforces urban revitalization.

“But the conversation cannot stop there,” he cautioned. “Not only do we need additional funding targeted at maintaining affordable housing in urban communities, we also need to make sure that there’s funding for affordable housing in small, rural villages. There’s a growing need for this kind of housing in both areas.”

In other words, applying Smart Growth principles to affordable housing programs accomplishes two good things: It helps cure sprawl and it assures that people of moderate means can live in decent homes located in viable, not ghettoized, communities.

Jim Lively is the planner at the Michigan Land Use Institute. Reach him at jim@mlui.org

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