Montgomery County, Maryland Moderately Priced Dwelling Unit (MPDU) Program

1. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

2. The MPDU Program In Brief: a portion of the housing units built in subdivisions/rental complexes with 20 units or more must be priced at a level that is affordable to moderate income individuals and families Enacted in 1974, it has produced approximately 11,700 housing units An “inclusionary zoning” technique - in exchange for setting aside “affordable” units, the developer may increase the density allowable under the base zone MPDU sales prices controlled for 30 years; MPDU rents controlled for 99 years After the control period expires, the County and the owner/seller split the “windfall” profit on the market rate sale Believed to be the first inclusionary zoning program in the country Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

3. Background - Geography: The most populated jurisdiction in Maryland Within one hour drive of Washington, D.C. and Baltimore During the 1970s and 80s, changed from a “bedroom” community for the Nation’s Capital to an urban county where over 60% of the County’s residents find work in the County. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Chesapeake Bay Montgomery County, Maryland

4. Background – Demographics (2000 Census): Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program A relatively diverse, higher income population with children A county of predominantly single family homes and home owners Montgomery County, Maryland

5. Background – Development Factors in the 1970s and 1980s: Interstate highway system and the METRO resulted in exploding growth Adequate Public Facilities Ordinance - Limited development in various portions of the County depending on existing transportation network and school capacity New growth, plus limited developable land, increased concern about housing for families with moderate incomes that could not afford the market rate units that were being built Major Transportation Improvements Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program I-270 built in 60’s and 70’s I-495 (Beltway) METRO, built in 70’s and 80’s Montgomery County, Maryland

6. Background - Current housing situation: 2004 Median Housing Sales Price NewResale SF Detached $666,540 $450,000 SF Attached $427,501 $283,500 All Single Family $395,000 Average Rent (2004) HUD/FMR (2004) Efficiency $ 887 $ 913 1-BR $1,027 $1,039 2-BR $1,211 $1,218 3-BR $1,526 $1,660 HUD limit for family of four (2005) @ 50% of median…………$44,650 Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

7. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The legislative environment in the early 1970s: • Period of rapid growth • Large increase of young families wanting to move into the County • Increasing shortage of housing affordable to low-to-moderate income households • High demand for building lots increased the price of land which raised the cost of housing • Sewer and water moratorium restricted the number of new water and sewer connections, adding to the supply/demand problems faced by housing developers and further increasing the costs • Developers began building the largest, most expensive and most profitable houses to compensate for the limited supply of lots • Even with the lifting of the development moratorium, the problem with affordability still remained Montgomery County, Maryland

8. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The pressure for affordable housing legislation: • Civic pressure came from such groups as Suburban Maryland Fair Housing and the League of Women Voters • A concept was forwarded to have builders supply a percentage of houses in each development that would be “affordable” • Several members of the County Council introduced a local legislative bill that • was countywide • introduced “inclusionary” zoning • provided density bonuses Main legislative concerns: • Taking property without just compensation • Successful economic integration of neighborhoods • “Marketing” developments with mixed incomes • The economic impact of affordable units on housing values • Density bonuses undermining pristine zoning practices Montgomery County, Maryland

9. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Legislative History: • County Council worked on first bill for over one year • After a number of substantive amendments, the bill was passed unanimously on October 23, 1973 • The County Executive vetoed the bill - he believed it to be unconstitutional, invasive public policy, and too difficult to administer • The Council overrode the veto and the Moderately Priced Housing law became effective on January 21, 1974 • The law has never been challenged in court Montgomery County, Maryland

10. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The Legislative Findings section declares that: • The number of persons and families needing affordable housing is growing • Persons with lower paying jobs or on fixed incomes cannot afford to reside in the County • Making workers commute into the county is not sound policy • Ignoring the high cost of housing is discriminatory • The market conditions that foster high priced housing (and higher profits) discourages development of a broader range of housing types and prices • A profitable market exists for lower cost housing if land costs can be reduced and a more modest product is built • Private developers will become an active partner in providing MPDUs if an incentive is provided and a density bonus holds the best hope for being that incentive Montgomery County, Maryland

11. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The public policies underpinning the law include: • Providing a full range of housing choices in a suitable living environment • Provide affordable housing to meet existing and future employment needs • Disperse affordable housing throughout the county • Allow increased densities to off-set the additional costs to developers • provide flexibility for developers to meet the MPDU requirement Montgomery County, Maryland

12. Public Policy Goals of the MPDU Program: GOAL: Produce moderately priced housing so that County residents and persons working in the County can afford to purchase or rent decent housing IMPLEMENTATION: Form a partnership with developers through the zoning ordinance to add moderately priced housing to subdivisions by allowing more market rate development to off-set costs. GOAL: Distribute low and moderate income households throughout the growth areas of the County IMPLEMENTATION: Apply the MPDU requirement countywide in order to achieve distribution of MPDUs in every community. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

13. Goals of the MPDU Program (continued): GOAL: Expand and retain inventory of affordable housing by allowing the County’s housing authority (the Housing Opportunities Commission or HOC) and nonprofit housing sponsors to purchase up to 40% of the MPDUs IMPLEMENTATION: Off-set losses from the MPDU inventory due to expiration of the price controls by allowing a portion of the new units to be purchased by the HOC or other nonprofits to be retained as a permanent resource that is rented to qualified participants GOAL: Provide funds for future affordable housing by sharing the windfall appreciation when MPDUs are first sold at market price after the price controls expire IMPLEMENTATION: Supplement County financial support for affordable housing by sharing the profit when an MPDU is sold at market rate after the price control expires and dedicating those profits to the County’s housing program. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

14. Legal Framework: The MPDU program is primarily implemented through two sections of the Montgomery County Code: Chapter 25A – known as the Moderately Priced Housing (MPH) law, this section of the Code lays the foundation for the MPDU Program Chapter 59 – The Montgomery County Zoning Ordinance specifies the applicable zones, sets the applicable zoning bonus densities, and sets the site plan requirements Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

15. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Chapter 25A - Among other things, this law requires the County Executive to: • Set income and eligibility standards for consumers of MPDUs, including: • Set maximum incomes by size of household • Enforce first-time homebuyer requirement • Establish maximum sales prices and rents of MPDUs, based on such factors as: • general market and economic conditions • interest group input • necessary and reasonable costs to build and market the MPDU units • price adjustments tied to relevant cost elements of changes in CPI • “architectural compatibility” - adjustment to upgrade exterior appearance of unit to “fit in” • Establish the procedures for the sale and rental of units • Establish procedures for establishing resale prices and any shared profit required Montgomery County, Maryland

16. Chapter 59 - The zoning connection The zoning ordinance contains provisions for residential development that provides both flexibility and restrictive controls over the construction of moderate cost housing in new subdivisions. The MPDU requirement operates as an “overlay” zone applicable to all residential projects of 20 units or more regardless of zoning density. In single family detached, residential zones the ordinance allows a portion of the units (40-60%) to be attached in the form of “one-family attached or semidetached dwelling units, townhouses, or a combination thereof…” Lot sizes can be smaller than the base zone in order to achieve the density bonus and accommodate the variation in building types. Density comparison of base zones to permitted adjustments for MPDUs Dwelling Units Per Acre Base MPDU R200 2.0 2.44 R150 2.6 3.17 R90 3.6 4.39 R60 5.0 6.1 R40 7.0 10.12 R-T6 6.0 7.32 R-T8 8 9.76 R-T10 10 12.2 R-T12.5 12.5 15.25 R-T15 15 18.35 R30 14.5 17.69 R20 21.7 26.47 R10 43.5 53.07 The overall density increase can not exceed 22% Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

17. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The concept of a density bonus – simplified: • Under zoning law, the percentage of MPDUs required ranges between 12.5 percent and 15 percent, while the allowed density bonus ranges from 0 percent to 22 percent. • Example: If the underlying zoning would permit 100 units, in exchange for providing 15 percent MPDUs, the developer could receive the maximum bonus of 22 percent (assuming the site would allow such an increase) • Therefore, the total number of units would be 122; 15 of the bonus units are MPDUs, while 7 additional market rate units are provided.

18. The developer’s requirements: Must identify MPDU units on signed site plan that is legally binding and enforced through a site plan enforcement agreement Must execute “Agreement to Build MPDUs” before building permits can be issued Must sign “Offering Agreement” to market the units to MPDU consumers when they are ready for occupancy Must record covenants in land records that commit the units, require the MPDUs to be owner occupied, and place controls on re-sale prices Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

19. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Site Plan Review and Approval: • The MPDU requirement for a development is determined by the Planning Board through the site plan review and approval process • MPDU site planning guidelines for developers to help with achieving “compatibility”: • Encourage a variety of MPDU unit types including duplexes, piggybacks, quadriplexes, triplexes, small-lot detached units, apartments, and townhouses • Prohibit back-to-back units unless absolutely necessary • Discourage clustering MPDUs in a location in a subdivision through innovative site planning and building configuration • Permit enough clustering of single-family detached and duplex MPDUs to take advantage of production and marketing efficiencies • Ensure that open space and recreational facilities that are required for site plan approval are equally available to all residents • Encourage distribution of MPDU apartment units among market rate units Montgomery County, Maryland

20. The Agreement to Build MPDUs includes: The total number of units, including MPDUs The entire land holding related to the subject project A requirement that the MPDUs be constructed at the same time or before other dwelling units A requirement that the MPDUs be completed before the the final market rate units are completed Disclosure, at time of sale, that the unit is price controlled Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

21. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The Offering Agreement includes: • The total number of MPDUs being offered • The final sales prices or rents as calculated using the pricing standards and formula • MPDU floor plans and types • The final site plan and recorded plats for each unit • A copy of the covenants in recordable form • A general information sheet on the units Montgomery County, Maryland

22. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Alternative Compliance measures: • In cases of “economic infeasibility”, environmental constraints, or high condo fees that would make the unit unaffordable to consumers, the developer may request an alternative arrangement • Requests for alternatives are reviewed by the Director of Housing and Community Affairs (DHCA), and in some cases, a panel composed of the DHCA, Director of Planning, and the HOC Executive Director • Alternatives include: paying a fee in lieu of MPDUs, building the MPDUs elsewhere, or donating land to be used to build MPDUs • Historically, alternatives have been requested in high-rise, high cost developments in central business districts

23. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program The Consumer Side: • Consumers must be certified by the Department of Housing and Community Affairs (DHCS) as eligible by submitting income verification and assurance that no other property is owned • For Sale MPDUs are offered through a Lottery, with a point system • One point for living in Montgomery County • One point for working in Montgomery County • Up to three points for participating in the program for three or more years • Eligibility to participate in individual lotteries is determined by unit size (number of bedrooms) and family size • Rental MPDUs are offered on a first come, first served basis Montgomery County, Maryland

24. Profile of Current Consumers: Maximum Income Range: For Sale $44,000 (individual) to $68,000 (family of 5) Rental $40,000 (individual) to $62,000 (family of 5) Maximum income limits are set at about 65% to 70% of median Average income of purchasers - $32,000 Number of certificate holders - 1,300 MPDU purchasers are: Employed Hold jobs in the retail and service sectors, often multiple jobs at one time Entry level teachers, firemen and police officers Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

25. Achieving Compatibility - Judge the results by identifying the MPDUs Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

26. Achieving Compatibility - Judge the results by identifying the MPDUs Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program MPDUs Market Rate MPDUs MPDUs Market Rate MPDU duplexes in a single family detached community. Montgomery County, Maryland

27. Another housing type - Identify which are market rate and which are MPDUs Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

28. Another housing type - Identify which are market rate and which are MPDUs Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program All MPDUs All MPDUs All Market Rate All Market Rate Montgomery County, Maryland

29. More choices: Which are the MPDUs? Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

30. More choices: Which are the MPDUs? Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Market Rate MPDUs MPDUs MPDUs Montgomery County, Maryland

31. Another way to mix MPDUs with Market Rate Units. Which is which? Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

32. Another way to mix MPDUs with Market Rate Units. Which is which? Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Market Rate Market Rate MPDUs Piggy Back MPDUs Montgomery County, Maryland

33. Examples of single-family detached MPDUs at Avenel, a community of multimillion dollar houses. The market rate houses in this community are large and expensive. In this instance, there is absolutely no way to achieve compatibility. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

34. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Montgomery County, Maryland

35. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU) Program Current housing situation with MPDUs: 2004 Median Housing Sales Price NewResale MPDU SF Detached $666,540 $450,000 SF Attached $427,501 $283,500 $140,000* All Single Family $395,000 * calculated for late 1999 on a three bedroom townhouse including: land, construction, financing, legal and closing, marketing and sales commission, builders overhead allowance, and architectural compatibility Average Rent (2004) MPDU Efficiency $ 887 $ 854 1-BR $1,027 $ 906 2-BR $1,211 $1,083 3-BR $1,526 $1,260 Total MPDU’s Produced through 2004 = 11,647 MPDUs still in inventory = approximately 3,500 Montgomery County, Maryland

36. Program Implementation: The local government carries out regulatory and administrative functions and the building industry produces the housing Builders must: subdivide the land and obtain Planning Board approvals obtain building permits construct the units work with DHCA to price and offer the units work with consumers selected to purchase units Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU Program Montgomery County, Maryland

37. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU Three County Agencies with Responsibility: • The Planning Board • The Department of Housing and Community Affairs (DHCA) • The Department of Permitting Services (DPS) Montgomery County Government must: • administer the zoning and plan approval • assure that the project’s MPDU requirements are documented • certify consumer eligibility • establish agreements with developers on staging • establish MPDU pricing • oversee the selection of potential buyers through the lottery • enforce resale and shared profit restrictions

38. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU Program Public cost to administer the program: • The cost to administer the zoning requirements is absorbed in the normal zoning administration program. • The cost to carry out the non-zoning part of the program is in the County’s Department of Housing and Community Affairs budget.

39. Montgomery County, MarylandModerately Priced Dwelling Unit (MPDU Program More background, forms and regulations can be found at: www.montgomerycountymd.gov/mpdu Questions?: christopher.anderson@montgomerycountymd.gov