Expanding Housing Opportunity in Providence Through Inclusionary
Zoning:
Recommendations for Policy Discussion Purposes
Kalima RoseAssociate Director
March 16, 2006
Acknowledgments
Thanks to the Annie E. Casey Foundation for grant support for this research study. Thanks to James Lucht at the Providence Plan for data support and mapping of recent Providence development patterns.Thanks to Sandy Rose of Urban Resources Group for the financial analysis of Providence developments.Thanks to Making Connections Providence staff Juanita Mobley for logistical support of the advisory group members that
lent their expertise to this study:
• Corrine Teed Cooperativa El Sol• Brenda Clement Housing Network of Rhode Island • Elizabeth Debs Housing Network of Rhode Island• Rachel Miller Jobs with Justice• Barbara Fields LISC• Eric Shorter LISC• Pat McGuigan The Providence Plan• Garry Bliss Providence Mayor’s Office• Linda Painter Providence Planning Department• Thom Deller Providence Planning Department• Bonnie Lloyd Providence Planning Department• Robyn Frye Making Connections Providence• Elmer Stanley Making Connections Providence• Bert Cooper Making Connections Providence• Ron Butler Making Connections Providence• Aimee Olin Rhode Island Acorn• Amy Rainone Rhode Island Housing
Inclusionary Zoning:One Important Solution
Requires a percentage of housing units in new residential developments be available to low and moderate income households.
Developers receive compensation (e.g., density bonuses, zoning variances) in exchange for contributing to the affordable housing stock.
Benefits of IZ
Fosters mixed-income communities in redevelopment and growing new developments.
Ensures housing for a diverse labor force and a spectrum of households—both rental and ownership.
Provides a consistent regulatory framework to guide affordability in the market.
Inclusionary Zoning:A Widely Used Strategy
Hundreds of Localities
California
Massachusetts
New Jersey
Colorado
New Mexico
Greater DC region
What is driving national IZ expansion?
Rapid escalation of housing pricesHousing costs outpacing income growthPopulation growthRenewed focus on infill and redevelopment
in urban settingsFocus on affordable housing near jobsLoss of federal investmentSocial efficacy of mixed income
communities
Why Should Providence Consider IZ?
City reviewing zoning Mounting housing costs Need for more affordable housing Changing uses Desired infill development Promotion of mixed income development Other RI jurisdictions adopting Greater metro region includes many IZ
districts (MA) State plan calls for addressing affordability
Equitable development is achieved through policies and practices that enable low-income and low-wealth residents to participate in and benefit from local and regional economic activity.
Growing Need for Affordable Housing in Providence
Overall Population: 40% of renters, 28% of homeowners pay more than 30% of their income on housing costs.
52% of renters are very low-income (earning< 50% of Area Median Income).
67% of very low-income homeowners are severely cost-burdened.
Incomes Have Not Kept Pace with Housing Prices
Time Period
by Quarter
Housing Opportu
nity Index*
Median SalesPrice(000)
Median FamilyIncome(000)
Regional Affordabil
ity Index
National Affordabilit
y Index
Q1 2002 76.8 128 54.1 9 74
Q4 2003 58.5 174 58.4 19 112
Q1 2004 58.8 180 60 21 117
Q2 2004 52.9 196 60 21 116
Q3 2004 49.6 205 60 19 111
Q4 2004 47.9 210 60 19 111
*The Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the median income. Therefore, there are two major components - income and housing cost.
Source: First American Real Estate Solutions sales transactions data; analyzed by NAHB Economics
Rental Housing Increasingly Unaffordable
Location
Estimated Renter Median Annual Income
Income Needed to Afford 2BR Fair Market
Rent as Percent of
Renter Median
Estimated % of
Renters Unable to
Afford 2-bdm
Fair Market Rent
Monthly Rent
Affordable at Mean Renter Wage (2004)
Rhode Island $29,859 128% 60% $538
Providence-Fall River-Warwick, RI-MA $28,938 133% 62% $541
Source: National Low Income Housing Coalition
Rental Housholds, 2005
Homeownership Costs Also Rising
Change in Median Residential Sales Price,2000-2005
64%
181%
201%
179%
131%
37%
225%
191%
176%
235%
176%
292%
318%
176%
225%
164%
244%
355% 272%
219%
120%
129%
154%
102%
Insufficient sales datafor Downtown
Source: Warren Information Services(Single Family, 2-5 Family, and Res. Condo Sales)Analysis by The Providence Plan
Poverty by Neighborhoods in Providence
This map shows a breakdown for households and families that are below 150% of poverty level.
Providence Experiencing Growth
City Population Growth Compared to 10 Fastest Growing Neighborhoods, 1990-2000Top 10 Fastest Growing Neighborhoods 1990 Population 2000 Population Total Change % Growth % of City GrowthWanskuck 9,448 11,270 1,822 19% 14%Silver Lake 9,141 10,943 1,802 20% 14%West End 14,906 16,476 1,570 11% 12%Hartford 4,933 6,261 1,328 27% 10%Federal Hill 6,885 7,952 1,067 15% 8%Valley 3,722 4,765 1,043 28% 8%College Hill 8,980 9,951 971 11% 8%Mount Pleasant 9,281 10,221 940 10% 7%Lower South Providence 5,102 5,744 642 13% 5%Olneyville 5,866 6,495 629 11% 5%City 160,728 173,618 12,890 8%Top 10 Neighborhood Total 78,264 90,078 11,814 15%
Data: The Providence Plan
More than 12,000 New Residents; Immigration to Specific
Neighborhoods
Total Population Change 1990-2000, City of Providence
1990 Population 2000 PopulationNet Population Gain
Percent Population Growth
City 160,728 173,618 12,890 8.0%Top 10 Neighborhoods Combined 78,264 90,078 11,814 15.1%Share of City Total 49% 52% 92%
Data: The Providence Plan
Higher Family Poverty in Growing Neighborhoods
Poverty Status for Households and Families, 2000
Geography Households
Households below 1.5 of
PovertyFamily
Households% of Total
Households
Family Households below 1.5 of
poverty %Providence 62,389 25,193 35,859 57.5% 13,106 36.5%Top 10 Neighborhoods 29,717 13,845 18,495 62.2% 8,204 44.4%Top 10 Neighborhood Share of City Total 47.6% 55.0% 51.6% 62.6%
Larger Units Command Higher Costs
Change in Average Rents for Providence, 2000-20040 Bedroom 1 Bedroom 2 Bedroom 3 Bedroom
2000 585$ 587$ 736$ 805$ 2001 585$ 626$ 769$ 917$ 2002 592$ 727$ 884$ 984$ 2003 694$ 812$ 1,012$ 1,199$ 2004 643$ 890$ 1,066$ 1,264$
Percentage change 2000-2004 10% 50% 44% 57%
Change in Average Rents, 2000-2004
0
200
400
600
800
1000
1200
1400
2000 2001 2002 2003 2004
Year of Survey
Ave
rag
e M
on
thly
Ren
t
0 Bedroom
1 Bedroom
2 Bedroom
3 Bedroom
Larger Units Command Higher Costs
9 of 10 Growing Neighborhoods Face a Rent Burden
Rent Burden, 2000As a Percent of Household Income for Specified Renter-Occupied Housing Units
Paying More than 30% of Income on Rent %
College Hill 811 56.6%
Elmwood 1,409 50.6%
Fox Point 936 50.4%Valley 599 49.6%Lower South Providence 567 46.5%Washington Park 472 46.0%Elmhurst 659 45.2%Mount Pleasant 710 45.2%Mount Hope 899 44.8%Charles 724 44.2%Downtown 600 43.7%Olneyville 816 43.7%City of Providence 17,442 42.7%Smith Hill 751 42.2%West End 1,669 41.9%Silver Lake 1,012 41.2%Federal Hill 1,159 40.2%Manton 268 39.2%Wayland 572 39.2%Reservoir 166 36.9%Wanskuck 956 36.1%Upper South Providence 492 35.9%Hartford 460 35.8%Blackstone 338 32.1%Hope 275 31.3%S. Elmwood 122 28.0%
Homeownership Costs Also Rising
What are Providence Development Trends?
• Significant residential development
• Historic mill rehabilitations
• 18% of new construction has some affordable housing subsidy
New Residential Units Number by Neighborhood
with AffordabilityJanuary 1, 2002 – June 30, 2005
NOTE: Affordability determined by organizational contact in DIS database and designation in DPD "Development Prospects" document (or through DPD correspondence).
Analysis by ProvPlan
Source: Department of Inspection & Standards (Permit Database) and Department of Planning & Development
New Residential Projects Permitted
New Residential Projects Permitted
New Residential Projects Permitted
New Residential Projects Permitted:
Affordable Units
Mill Sites in Providence"Mill" Sites (Pre-1960 Industrial & Commercial Buildings)
What Objectives Should IZ Policy Meet?
Fair to developerConsistent in generating affordable
housingCapture of land value generated
through zoning action for public needCommunity stakeholders prioritize
compensations and delivery of benefits
IZ is One Strategy to Contribute to Housing Need
Will capture small percentage of new development
Need revenue sources to capitalize further below-market housing options
Guide land use to promote more affordable options
Market Impacts of Inclusionary Zoning
The California Experience
A study of California inclusionary housing programs found that not a single program had a negative effect on housing production.
Study covered 1981-2000, for 28 cities with inclusionary housing programs including Orange, San Diego, San Francisco, Los Angeles, and Sacramento counties, and the state in general.
Most jurisdictions with inclusionary programs saw an increase in housing production (sometimes dramatically).
Source: David Paul Rosen and Associates, Los Angeles Inclusionary Housing Study: Final Report, 2002.
Impact of Inclusionary Zoning on Property Values
The House Next Door, a study of the impact of subsidized housing on property values of private market rate housing in mixed-income environments revealed:
Presence of below-market housing in a neighborhood does NOT lower the value of the market-rate homes in its vicinity.
No significant difference in price trends between market-rate homes in the areas with inclusionary units and the market as a whole.
The presence or proximity of inclusionary housing made NO difference in housing values as measured by relative price behavior in a dynamic market.
Source: Innovative Housing Institute, http://www.inhousing.org/
Montgomery County, Maryland and Fairfax County, Virginia
Shape the Plan to Fit Specific Community
Take into account:Development DynamicsScale of built environmentWhere density is desired/tolerableUnderserved categories of housing needHistoric housing occupancy patternsFinancial feasibility
Conduct Feasibility Study
Choose neighborhoods where significant new development will be encouraged.
Identify likely building types.Apply density bonuses, other cost
reductions, and set-aside goals and run the numbers.
Recommendations for Providence
• Apply density incentives of 20% increase for all developments of 12 units or more, with the following percentage of units set aside as affordable:
– 20% of the market rate units for new construction other than mid and high rise structures
– 12.5% for mid and high rise structures (defined as buildings of 5 or more stories, of concrete and/or steel frame construction, with elevator service).
– 10% for substantial rehabilitation projects• Half of inclusionary rental units will be made affordable to residents below 60%
of AMI ($38,310); and half affordable to 60-100% ($38,310-$63,850) of AMI.• PHA/RIH to provide qualified screened candidates’ list to landlords of rental
units, including Section 8 voucher holders (to make more affordable to lower income renters).
• Half of inclusionary ownership units will be made affordable to residents below 65% of AMI ($41,502); and half affordable to 65-100% (below $63,850) of AMI.
• Allow purchase of 40% of inclusionary ownership units by RIH or qualified nonprofits.
• Ownership units affordable for 30 years, shared equity goes to HTF• Rental units affordable for life of development
Financial Feasibility of IZ Developments
Financial Feasibility analysis of condo development with IZ reveals:
12.5% of the total new units created could be made affordable through mandatory inclusionary zoning.
The developer would be able to receive a targeted market-rate financial return – 14% annual return on equity
Two tiers of affordability (60% AMI/100% AMI rental, 65%/100% ownership) would allow diversity of working families
Provision of Section 8 voucher holders to landlord will allow for deeper affordability
Site Type 1: Large Downtown Condominium Development
Type 1: Large Condo DevelopmentSummary Comparison Financials for Large Condo Development in Providence
Without IZ Requiremen
t
With 15% IZ Requiremen
ts
With 12.5% IZ
Requirements
With 10% IZ Requirement
s
Market rate units 100 105 103 110
Affordable units 0 15 13 10
Total Units 100 120 120 120
Construction costs* $19,111,733 $ 22,720,346 $22,754,274 $22,789,502
Soft costs $3,928,069 $4,206,657 $ 4,206,657 $4,206,657
Site acquisition costs $2,750,000 $2,750,000 $2,750,000 $2,750,000
Total development cost $25,789,800 $29,677,003 $29,710,931 $29,746,159
Gross sales $29,840,000 $33,545,000 $33,880,000 $34,305,000
Net profit $2,558,200 $2,213,447 $2,494,269 $2,858,591
Developer return on equity
49.60% 35.35% 40.86% 46.74%
Annualized return for 3 years
16.53% 12.43% 14.00% 16.02%
Affordable Units serving 15 units- 65-100% AMI
13 units- 65-100% AMI
10 units at 65-100% AMI
* Rerunning calculations as parking costs appear underestimated and commercial ground floor revenues not included. Could change rate of return, and therefore recommendation. 1/08/06.
Financial Feasibility of IZ Developments
Financial Feasibility analysis of condo development with IZ reveals:
20% of the total new units created could be made affordable through mandatory inclusionary zoning.
The developer would be able to receive a targeted market-rate financial return – 25.7% annual return on equity
Deeper affordability could be possible through nonprofit purchase, Section 8 vouchers
Site Type 2: Medium size Neighborhood Condo Development
Type 2: Small Condo DevelopmentSummary Comparison Financials for Small Condo Development in Providence
Without IZ Requiremen
t
With 20% IZ Requiremen
ts
With 15% IZ Requirement
s
With 10% IZ Requirement
s
Market rate units 40 40 42 44
Affordable units 0 8 6 4
Total Units 40 48 48 48
Construction costs $5,709,688 $ 6,760,144 6,760,144 6,760,144
Soft costs $1,295,386 $1,378,627 $1,378,627 $1,378,627
Site acquisition costs* $880,000 $ 880,000 $ 880,000 $ 880,000
Total development cost $7,885,074 $ 9.018,770 $ 9.018,770 $ 9.018,770
Gross sales $9,250,000 $10,440,000 10,600,000 $10,770,000
Net profit $902,426 $899.230 $1,051,230 $1,212,730
Developer return on equity
83.17% 77.03%% 78.52% 90.59%
Annualized return for 3 years
27.72% 25.68% 30.20% 26.17%
Affordable Units serving 4 units- 80-120% AMI
4 units-50-80% AMI
6 units- 50-80% AMI
4 units at 50-80% AMI
Want Deeper Affordability or More Housing? Develop Cost Offsets Relevant
to ProvidenceProjected Impacts of IZ Cost-Offsets, Los Angeles
Savings per Affordable Unit (assuming 15 percent-aside)
Low-Density Rental
Medium-Density Rental
High-Density Rental
High-Density Rental
(Type III)
OwnerSingle-Family
Owner attached
Owner condos
Condos (Type I)
Cost Offset
Reduce size $18,644 $19,533 $21,026 $24,565 $56,707 $35,151 $32,520 $62,472
Reduce bathrooms 3,805 4,357 4,690 5,634 2,729 9,696 9,034 15,025
Modest interior finish 9,278 8,333 8,333 8,517 16,000 13,611 9,650 10,033
Reduce parking 5,833 5,444 54,444 76,667 NA NA NA NA
Defer fees 3,842 3,876 5,318 5,318 8,446 6,960 6,887 11,238
Allow tandem parking 520 909 9,094 12,718 NA NA NA NA
TOTALS $41,922 $42,453 $102,905 $133,418 $83,882 $65,419 $58,091 $98,767
Source: David Paul Rosen and Associates, City of Los Angeles Inclusionary Housing Study, September 2002.
Want Deeper Affordability?
Layer with other subsidy:• Require % of units to be filled by Section 8
voucher holders (this could make affordable to family earning as low as $19,155)
• Apply grants, no- or low-interest loans, soft second mortgages, or rental assistance from Housing Trust Fund or other affordable programs
• Couple with Low-Income Housing Tax Credit program
Recommendations for Providence
• Apply density incentives of 20% increase for all developments of 12 units or more, with the following percentage of units set aside as affordable:
– 20% of the market rate units for new construction other than mid and high rise structures
– 12.5% for mid and high rise structures (defined as buildings of 5 or more stories, of concrete and/or steel frame construction, with elevator service).
– 10% for substantial rehabilitation projects• Half of inclusionary rental units will be made affordable to residents below 60%
of AMI ($38,310); and half affordable to 60-100% ($38,310-$63,850) of AMI.• PHA/RIH to provide qualified screened candidates’ list to landlords of rental
units, including Section 8 voucher holders (to make more affordable to lower income renters).
• Half of inclusionary ownership units will be made affordable to residents below 65% of AMI ($41,502); and half affordable to 65-100% (below $63,850) of AMI.
• Allow purchase of 40% of inclusionary ownership units by RIH or qualified nonprofits.
• Ownership units affordable for 30 years, shared equity goes to HTF• Rental units affordable for life of development
Steps to finalize policy
Formulate community priorities for implementation: Build on site Identify further cost reductions or additional subsidy to
allow for deeper affordability Which entity to administer?
Planning dept? Rhode Island Housing? RIHA? Nonprofit? Reach out to developers to help shape policy Reach out to labor groups, faith leaders, others’ whose
members need housing Finalize proposal Move into law legislatively or administratively Visit community members in new houses!
Expanding Housing Opportunity in Providence Through Inclusionary
Zoning