Defining the terminology of affordable housing

Friday, August 21, 2015, Vol. 39, No. 34
By Linda Bryant

There is no single definition of affordable housing. What is considered affordable by a family earning $100,000 a year will likely be out of reach for another family that earns only $25,000 a year.

Incomes and housing costs also vary by location.

A typical home in one community might cost $300,000, while that same house would cost half as much in another part of the country.

Rules of thumb often are used to determine affordability.

For example, the federal government considers housing to be affordable if a family spends no more than 30 percent of its income on its housing costs, including utilities.

Using this benchmark, a family earning $30,000 a year could afford to pay up to $9,000 a year (or $750 a month) on housing.

In the private sector, lenders underwriting home purchases typically require that families spend no more than some set percentage of income (such as 28 percent) for mortgage payments, taxes and insurance.

Yet, these “rules” don’t tell the whole story.

A family making $200,000 per year can afford to spend 30 percent of its income on housing and have enough left over to meet other necessities, but a family making $20,000 might not be able to make ends meet on the income left over after spending 30 percent for housing.

A family’s capacity to meet other expenses depends on other factors such as family size and age of children.

What is workforce housing?

Workforce housing is housing for the occupations needed in every community.

Those who need workforce housing include school teachers, nurses, police officers, firefighters and other critical workers.

In many communities, there is a mismatch between where these jobs are located and where affordable homes are located.

It creates a difficult situation for working households and employers. Many working families must choose between paying expensive housing costs to live close to their jobs or they must face lengthy commutes from areas with more affordable housing.

In areas with particularly high housing costs, employers may have difficulty retaining employees because the workers do not make enough to afford nearby homes and tire of long commutes.

The families in need of workforce housing don’t fall neatly into a single narrow income category.

Employees in some industries such as retail sales, food service, and tourism are likely to be in the lower income ranges.

Seasoned workforce jobs with education or training requirements, such as teachers, police officers, nurses, etc., may fall into the middle income brackets but still find it difficult to afford homes in the community where they work.

The lack of affordable workforce housing is felt beyond working families. High housing costs force families to move further and further from their places of employment to be able to afford housing.

Cities become more sprawling, which can lead to more traffic congestion, air pollution and road maintenance costs, which in turn negatively affect the quality of life for all residents in the community.

What is inclusionary zoning?

Inclusionary zoning, often referred to as IZ, is a land-use technique for developing diverse mixed-income communities by requiring each new residential development make a percentage of its new units affordable to targeted incomes.

It often lets developers build more units through a “density bonus” along with other incentives to help the program operate better.

Inclusionary zoning is used in cities across the country, and states have made it part of their law.

Because inclusionary zoning policies are adopted at the local level, individual municipalities have flexibility in how these policies are structured.

The highest-regarded programs usually address the following questions:

  • Are they mandatory for all new developments, or can developers choose whether to participate?
  • If mandatory, are there exemptions for developments under a designated size threshold?
  • What percentage of units need to be affordable, and at what income level?
  • How long do affordability requirements need to be maintained?

Local jurisdictions also typically consider the incentives and cost offsets that will compensate participating developers for the revenue they forgo by selling or renting units at below-market levels.

These can range from density bonuses that authorize the construction of more homes than the existing zoning would otherwise allow, to fee waivers that exempt builders from certain costs associated with new development to other offsets, such as reduced parking requirements.

Communities can work with builders and others involved in the housing industry to tailor the available incentives and offsets to offer the benefits likely to be most effective given local market conditions.

Source: The Center for Housing Policy