Kalima Rose Associate Director March 16, 2006

1. Expanding Housing Opportunity in Providence Through Inclusionary Zoning: Recommendations for Policy Discussion Purposes Kalima RoseAssociate Director March 16, 2006

2. 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

3. 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.

4. 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.

5. Inclusionary Zoning:A Widely Used StrategyHundreds of Localities • California • Massachusetts • New Jersey • Colorado • New Mexico • Greater DC region

6. What is driving national IZ expansion? • Rapid escalation of housing prices • Housing costs outpacing income growth • Population growth • Renewed focus on infill and redevelopment in urban settings • Focus on affordable housing near jobs • Loss of federal investment • Social efficacy of mixed income communities

7. 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

8. 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. 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.

9. Incomes Have Not Kept Pace with Housing Prices

10. Rental Housing Increasingly Unaffordable Rental Housholds, 2005 Source: National Low Income Housing Coalition

11. Homeownership Costs Also Rising

12. Change in Median Residential Sales Price,2000-2005 Insufficient sales datafor Downtown Source: Warren Information Services(Single Family, 2-5 Family, and Res. Condo Sales) Analysis by The Providence Plan

13. Poverty by Neighborhoods in Providence This map shows a breakdown for households and families that are below 150% of poverty level.

14. Providence Experiencing Growth Data: The Providence Plan

15. More than 12,000 New Residents; Immigration to Specific Neighborhoods Data: The Providence Plan

16. Higher Family Poverty in Growing Neighborhoods

17. Larger Units Command Higher Costs

18. Larger Units Command Higher Costs

19. 9 of 10 Growing Neighborhoods Face a Rent Burden

20. Homeownership Costs Also Rising

21. What are Providence Development Trends? • Significant residential development • Historic mill rehabilitations • 18% of new construction has some affordable housing subsidy

22. New Residential Units Number by Neighborhoodwith 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). Source: Department of Inspection & Standards (Permit Database) and Department of Planning & Development Analysis by ProvPlan

23. New Residential Projects Permitted

24. New Residential Projects Permitted

25. New Residential Projects Permitted

26. New Residential Projects Permitted:Affordable Units

27. Mill Sites in Providence "Mill" Sites (Pre-1960 Industrial & Commercial Buildings)

28. What Objectives Should IZ Policy Meet? • Fair to developer • Consistent in generating affordable housing • Capture of land value generated through zoning action for public need • Community stakeholders prioritize compensations and delivery of benefits

29. 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

30. Market Impacts of Inclusionary ZoningThe 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 increasein housing production (sometimes dramatically). • Source: David Paul Rosen and Associates, Los Angeles Inclusionary Housing Study: Final Report, 2002.

31. Impact of Inclusionary Zoning on Property Values Montgomery County, Maryland and Fairfax County, Virginia • 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/

32. Shape the Plan to Fit Specific Community Take into account: • Development Dynamics • Scale of built environment • Where density is desired/tolerable • Underserved categories of housing need • Historic housing occupancy patterns • Financial feasibility

33. 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.

34. 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

35. Financial Feasibility of IZ Developments Site Type 1: Large Downtown Condominium Development • 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

36. Type 1: Large Condo Development Summary Comparison Financials for Large Condo Development in Providence * 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.

37. Financial Feasibility of IZ Developments Site Type 2: Medium size Neighborhood Condo Development • 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

38. Type 2: Small Condo Development Summary Comparison Financials for Small Condo Development in Providence

39. Want Deeper Affordability or More Housing? Develop Cost Offsets Relevant to ProvidenceProjected Impacts of IZ Cost-Offsets, Los Angeles Source: David Paul Rosen and Associates, City of Los Angeles Inclusionary Housing Study, September 2002.

40. 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

41. 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

42. 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!

43. Expanding Housing Opportunity in Providence Through Inclusionary Zoning