Restrictive zoning and fees levied on new construction are among the most common regulatory barriers to the development of affordable housing. The news media has recently called attention to instances in which a local government's authority to regulate development was called into question and subsequently curbed. In this article, we'll discuss two such cases, in New Jersey and North Carolina. A third case in California describes how a local affordable housing ordinance will remain intact despite being ruled unconstitutional.
In New Jersey, a State Superior Court judge has suspended the zoning authority of the boroughs of Carlstadt and New Rutherford until they obtain approval for plans to address their affordable housing needs from the state's Council on Affordable Housing (COAH). Meanwhile, a court-appointed special monitor will approve any new development. The special monitor only needs to view existing land ordinances as advisory in nature and may make revisions as deemed appropriate.
From 1975 to 1983, a series of New Jersey Supreme Court decisions held municipalities responsible for meeting their fair share of regional housing needs. Yet nearly one-third of the state's households continue to spend 30 percent or more of their income on housing, just as they did in 1990. Today, the total number of households has grown, making the need for affordable housing even more urgent.
When the Tomu Development Corporation applied to the Carlstadt and New Rutherford town councils for approval to build two 20-story residential towers beside the Hackensack River, the developer planned to sell 17 percent of the 840 units to low-income buyers. Both towns rejected the proposal, having targeted the site in question for waterfront recreation and ecotourism development. Invoking the right to file a builder's remedy lawsuit against Carlstadt and East Rutherford, Tomu Development claimed these communities were not meeting obligations to supply their fair share of affordable housing in the state. The court ruled in favor of the developer in November 2005 and has since stripped the boroughs of their zoning powers and suspended their land-use ordinances.
In June of this year, the North Carolina Court of Appeals nullified an ordinance passed by Durham County that imposed impact fees on new home construction. Although the county planned to use the collected fees to help build new schools, the ordinance in question did not have the proper enabling legislation from the General Assembly, according to both this Court and the trial court. The Court directed the County to refund the $8.3 million in collected fees. The North Carolina Supreme Court has refused to review the ruling.
San Diego's 2003 housing ordinance required developers to dedicate a percentage (10%) of any new housing project to units for low- and moderate-income families. Builders had the option of paying a fee in-lieu of providing affordable units. The point in the process at which the fee was due came into contention, with builders arguing that it should be when they make application for approval. The city disagreed, however, insisting it was due when the building permit was issued. The San Diego County Building Association subsequently filed suit against the city. In May 2006, a Superior Court judge ruled the ordinance to be unconstitutional because it lacked a waiver provision for builders to request an exemption for a project shown to have no impact on the city's affordable housing problem.
The city council approved an out-of-court settlement, cleared with the judge, on July 25, 2006. The ordinance will remain intact, but now includes the waiver provision. The city agrees to calculate the amount of the in-lieu fee at the time a project application is submitted, rather than later in the process when the building permit is issued. The settlement also requires the city not to change the fee before September 2008. The city has collected $12.5 million in affordable housing fees since the inception of the ordinance; it now projects that $20 million in anticipated revenue will go unrealized.
California Fights Back with Legislation against NIMBYism
The soaring housing market, continual influx of people, and shortage of necessary development to meet affordable housing demands are three reasons for California's lack of housing affordability. Another is the "Not in My Back Yard" (NIMBY) mentality that affects when, where, and how many affordable housing units builders produce.
According to Charles G. Field's Building Consensus for Affordable Housing, "At one time, the national goal of affordable housing was a widely held consensus." However, in recent years, issues such as racial, ethnic, and moral beliefs have compromised the like-minded thinking of the Roosevelt era. In this article, we will examine the background of NIMBYism and how California and other states try to restrict its effects on affordable housing development.
Brief History of the NIMBY Attitude
Projects such as landfills and hazardous waste sites, both of which threaten the environment and public health, were the first to receive NIMBY opposition. However, it soon rapidly expanded to housing, and affordable housing in particular. People who oppose any significant changes in their neighborhoods exemplify one aspect of the NIMBY attitude. In 1991, HUD's Advisory Commission on Barriers to Affordable Housing observed that the NIMBY attitude is "easily translatable into political actions, and intentionally exclusionary and growth inhibiting." The Commission explained that a NIMBY attitude might be based on valid fears, such as public or environmental harm. However, the Commission states that fears based upon stereotypes, racial or ethnic prejudices, or development in general, represent unfounded reasons for NIMBYism.
NIMBYism in California
In the early 1980s, California was experiencing strong and growing opposition to new development. According to many housing economists, this helped create many of the affordability problems that its citizens experience today.
In his 2005 speech to the Fisher Center Real Estate Symposium, Anthony Downs, a Senior Fellow at the Brookings Institution and a member of the Advisory Commission on Barriers to Affordable Housing, explained that local governments control "how many and what kinds of housing units can be built." However, suburban homeowners, who represent nearly 70 percent of the voters, can exert considerable pressure on local legislators voting on new development or affordable housing. The public's opposition to new development stems from wanting to protect their housing investment and prevent future traffic problems. Downs also explains that NIMBY pressures do not just come from homeowners; other groups that have a vested interest in keeping home prices high often exert pressure on local legislators as well.
California's Anti-NIMBY Law
In 1991, California enacted one of the first anti-NIMBY laws in the nation. The bill, which requires local approval without prohibitive conditions placed on reasonable developments, was sponsored by the Chamber of Commerce and supported by housing advocates, senior citizens, and religious groups. Opponents of the bill included the Farm Bureau, California Association of Cities, County Supervisors Association, and the Sierra Club. There are six exceptions to mandatory approval; the three most significant are as follows:
Inescapable effects on health or safety;
Significant numbers of low-income families already present; and
Conflicts with the general plan of a locality that meets all state requirements for housing need.
Since its effective date, there have been six major amendments to the bill, including a recent change in name, although significant problems remain. Rather than the burden being placed on the localities to show why a project should not be approved, the burden is currently placed upon developers and nonprofits to go to court in order to enforce the law, thus severely weakening its effectiveness. Since many organizations may be reluctant to take legal action against their city or county, there have been relatively few lawsuits since the bill's enactment in 1991. Instead, most of the evidence of change is "anecdotal," according to Marc Brown, Co-Director of the California Housing Law Project. Mr. Brown goes on to explain that usually, the "city councils hear from the attorney(s) that the city or county can be sued," which provides enough incentive to reconsider the questionable decision. He acknowledges that another result of the law is its ability to let "local governments off the hook," since they "can blame the states" for required compliance.
Other State Laws that Fight NIMBYism
In 1975, the New Jersey Supreme Court made the first Mount Laurel decision, finding that each municipality in the state has the obligation to make a reasonable effort to provide housing for its low- and moderate-income residents. Ten years later, it created the Council on Affordable Housing (COAH) to oversee adherence to the law. The court included a "Fair Share" rule, which the Council uses to delegate permits for affordable housing based on its estimates of current and future housing needs. The rule enables each locality in New Jersey to buy and sell up to 50 percent of its share of affordable housing, allowing areas to decide how many affordable housing units to provide, while still maintaining compliance with the rule. Both rental and owned housing is covered by the rule, although two rental houses equal one owned house. In addition, New Jersey's Fair Housing Act does not require municipalities "to raise or expend municipal revenues" to achieve their fair share. While other states have yet to enact a law similar to that of New Jersey, a number of states are trying to lessen NIMBY effects.
Massachusetts, which also experienced opposition to development in the 1980s, uses a Housing Appeals Court to ensure that development plans are not being unfairly denied. The court has the ability to override local government decisions that fail to meet minimum affordable housing requirements. The Massachusetts law is both very important and more than a bit complex; look for an in-depth analysis in an upcoming issue.
Oregon uses a Land-Use Board of Appeals to help combat NIMBYism. Oregon's Board came into existence in 1979 and allows for a simplified appeals process, quicker decisions than those available through the previous Land Conservation and Development Commission and circuit courts, and greater consistency in decisionmaking. The Court enables the reliance of state and local legislators and the public on the legislation in place.
California legislators have made some major changes to combat NIMBYism within the state, though they still have much work to do. New Jersey, Massachusetts, and Oregon have each enacted a law that helps fight NIMBYism. Actions by these states assist in advancing affordable housing development and set an important precedent for other states to follow.
Syracuse Provides Protection against Home Equity Loss
To encourage new development and the renovation of older communities, some cities are experimenting with programs that protect homeowners against potential home equity losses. The home equity protection program provides owners (or potential owners) with the assurance that they will not lose money on the resale of their homes, including protection from losses that result from land use decisions.
Typically, homeowners can purchase a plan at any time, even during the initial mortgage signing. Coverage fees and schedules vary widely, but are generally based on a protected or assessed home value. Although homeowners may put a plan in place immediately, they must typically wait a number of years before their property is fully protected. After this waiting period, owners can file a claim to recover losses from the resale of their home. The programs are usually introduced to protect homeowners by preserving prices in declining housing markets. However, they also have the capability of offering assurances to homeowners worried about the effects of land use decisions on the value of their homes.
Syracuse, New York
The Syracuse Neighborhood Initiative is a combined effort undertaken by the city, community development organizations, and private sector leaders with the aim of improving the quality of life by making communities healthier and safer. Four clearly defined goals outline the intent of the program. The first three cover neighborhood investment, quality of life, and community strength. The fourth, "to help neighborhood residents build assets," seeks to provide benefits to homeowners through increasing home values. This goal is accomplished through increasing the construction of affordable housing projects, providing opportunities for renovation, adding accessible housing counseling, and establishing the Home Value Protection Program.
Created in 2002, the Syracuse Home Value Protection Program is administered by Equity Headquarters, Inc., a nonprofit subsidiary of Home HeadQuarters. The program was conceived through the cooperation of Yale University's School of Management, Freddie Mac, Real Liquidity LLC, HSBC, the Mortgage Risk Assessment Corporation, and other local partners. Syracuse's program is unique among home equity protection plans and was created as a pilot program that, if successful, could be transferred to other locations. In the kickoff press release, Ellen Lazar, former Executive Director of the Neighborhood Reinvestment Corporation, states that "This pilot effort also gives Neighborhood Reinvestment and its national partners the opportunity to monitor the product and examine the possibility for similar products that could benefit homeowners in other communities."
The program offers equity protection to current owner-occupants and new buyers of one- and two-family homes within the city boundaries. Owners must state a protected value for their home, and pay a fee of 1.5 percent of this value. Protected values must be no less than 50 percent of the current assessed value and no more than 150 percent. After a waiting period of three years, owners who sell their homes are eligible for a payment if average prices have dropped in the ZIP code, regardless of the actual resale price. This feature makes Syracuse's program unique from other home equity programs that base payments on the actual home's resale value. Since the payment is based on average prices, rather than actual resale, homeowners have every incentive to maintain and improve their homes, adding to the effectiveness of the program's goal of improving local property values.
According to Virginia Smith, Real Estate Development Director for Home HeadQuarters, the program currently covers 129 properties and is successful in protecting property values and assisting neighborhood revitalization. She states that the program, developed to keep owner-occupants in the city and reduce the risk of property value depreciation from various sources (including land-use decisions), has yet to pay any claims due to market increases in property value. She also reports that "lenders respond well to the program and agree it is a good bet for their customers."
Research on Home Equity Protection
A 2004 report by the National Association of Realtors® Center for Real Estate Research undertook a review of the academic literature on equity protection programs. The authors found that these programs are a workable solution for attaining community acceptance of affordable housing development.
Smith reports that Syracuse's program is "a success in the fact that people are becoming more comfortable with housing prices in their area. People feel it is doing good for the city of Syracuse." Whether encouraging neighborhood revitalization or promoting community acceptance of affordable housing, home equity protection programs deserve an earnest assessment.
Florida Task Force Recommends Limited State Regulation of Impact Fees (part 3)
This is an update of the actions taken by the Florida Impact Fee Review Task Force, first posted in RBC's January 2006 edition of Breakthroughs. Senate Bill (SB) 1196 "Florida Impact Fee Act" died in the State Infrastructure Council on May 6, 2006. The bill included task force recommendations that, if adopted, would require that the calculation of the impact fees be based on the most recent and localized data, would provide for accounting and reporting of impact fee collections and expenditures, would limit administrative charges for the collection of impact fees in a separate accounting fund, and would mandate that notice be provided no less than 90 days before the effective date of an ordinance or resolution that imposed a new or amended impact fee.
However, SB 1194 "Growth Management," a bill comparable to SB 1196, was approved by Governor Bush on June 15, 2006. SB 1194 allows for the creation of the "Florida Impact Fee Act" and requires that an impact fee meet certain specified requirements concerning the calculation of the fee, accounting for revenues and expenditures, provision of notice, and collection of administrative costs.