((Not In My Backyard"

Removing Barriers to Afforda ble Housing

HUD-5806 Advisory Commission on Regulatory Barriers to Affordable Housing U.S. Department of Housing and Urban Development

July 8, 1991

Honorable Jack Kemp Secretary of Housing and Urban Development U.S. Department of Housing and Urban Development Washington, OC 20410

Dear Mr. Secretary:

The American Dream for every family has at its core a comfortable home in a safe neighborhood, a home available to buy or rent at a cost within the family budget, a home reasonably close to the wage earner's place of work. Unfortunately, too many American families today carmot fulfill their version of that dream because they carmot find affordable housing.

The cost of housing is being driven up by an increasingly expensive and time-consuming permit-approval process, by exclusionary zoning, and by well-intentioned laws aimed at protecting the environment and other featuTes of modem-day life. The result is that fewer and fewer young families can afford to buy or rent the home they want.

These were among the concerns, Mr. Secretary, that you expressed when you established the Advisory Commission on Regulatory Barriers to Affordable Housing. In your Charter, you asked this group of distinguished and experienced Americans to explore the effect of the maze of Federal, State, and local laws, regulations, ordinances, codes, and innumerable other measures that act as barriers to the development of affordable housing in appropriate places. You asked the Commission to catalogue the barriers, identify the sources of those barriers, and propose solutions that would help millions of American families to achieve their dream.

Pursuant to your charge, the Commission has prepared a comprehensive Report that identifies regulatory barriers to affordable housing and, just as important, proposes action to lower those barriers. Throughout the Report, the Commission expresses its belief that change is essential if the Nation is to meet its goals of a decent home and suitable living environment for every American family.

In closing, we wish to extend our deep gratitude to members of the Commission, who gave of their time and talent to fashion this Report. On their behalf, we have the honor to transmit to you, Mr. Secretary, pursuant to Section 12 of the Charter, "Not In My Back Yard" : Removing Barriers to Affordable Housing, the Report of the Advisory Commission on Regulatory Barriers to Affordable Housing.

Respectfully,

Thomas H. Kean, Chainnan /l !2 ;:~::~e;, ::~

Marlldate to the Commission

When she visited the United States, the Russian human rights "activist" Yelena Bonner said to the American people: The people of the world do not want war, they want to own a house. They want to own a home. They want the decency and dignity that goes along with their own home.

The American dream is a universal dream. But all too often this dream of ownership, of decent and affordable housing, is being denied to fIrst-time homebuyers and low- and moderate-income families. Government rules and red tape are regulating the dream out of existence. The challenge to this Commission is to discover and to tell us how to remove those regulatory barriers.

Jack Kemp Secretary of Housing and Urban Development First Meeting of the Commission May 31,1990

Commission Members

Chairman Vice Chairman Thomas H. Kean Thomas Ludlow Ashley President President Drew University Association of Bank Holding Companies

Jerry E. Abramson Kimi O. Gray Mayor of Louisville, KY Chairperson, Board of Directors KenilworthlParkside Resident Management Larry P. Arnn Corporation President Claremont Institute for the Study of Greenlaw Grupe, Jf. Statesmanship and Political Philosophy Immediate Past President, Urban Land Institute Chainnan/CEO Robert 1. Buchert The Grupe Company President American Heritage Construction and Maureen Higgins Development Corp. Director California State Department of Housing and Stuart M. Butler Community Development Director, Domestic and Economic Policy Studies The Heritage Foundation John T. Maldonado Director Barbara M. Carey* Colorado Division of Housing Metro-Dade County Commissioner Miami, FL Richard E. Mandell Vice President Gale Cincotta The Greater Construction Corp. Executive Director National Training and Infonnation Center James C. Miller III Chainnan Joanne M. Collins Citizens for a Sound Economy Foundation Member of City Council Kansas City, MO Sue Myrick Mayor of Charlotte, NC Thomas B. Cook Director of Housing and Land Use Robert B. O'Brien, Jf. Bay Area Council Chainnan/CEO San Francisco, CA Carteret Bancorp, Inc.

Anthony Downs Paul M. Weyrich Senior Fellow President The Brookings Institution Free Congress Research and Education Foundation J. Roger Glunt President Robert L. Woodson Glunt Building Co., Inc. President National Center for Neighborhood Enterprise *Resigned October 5, 1990 Commission Staff

u.s. Department of Housing and Urban Development

John C. Weicher Assistant Secretary for Policy Development and Research

James W. Stimpson Deputy Assistant Secretary for Research

Research and Technical Staff

Martin D. Abravanel Harold R. Holzman Terrence L. Connell Lester Rubin Deborah J. Devine Steven F. Smith David Engel

Operations and Administrative Staff

Heather A veilhe Katherine L. O'Leary Valerie F. Dancy Vanessa D. Void-Taylor Linda M. DeFilippo

Senior Advisors

Anthony M. Villane, Jr., DDS, Regional Administrator Lawrence L. Thompson, Executive Assistant

Acknowledgments The Commission wishes to thank the following individuals for their invaluable assistance and contributions to its work: James E. Allen, Director, City of Louisville Department of Housing and Urban Development, Louisville, KY; William C. Myers, Director of State Policy, Free Congress Research and Education Foundation, Washington, DC; and Margaret Howard, Chief of Staff, Office of the President, Drew University, Madison, NJ. · " Contents Contents

Preface ...... 1 Executive Summary ...... 3

Part I. Regulatory Barriers and Affordable Housing ...... 1-1

Chapter 1. The Causes and Regulatory Consequences of the NIMBY Syndrome ...... 1-1 The Impact of NIMBY on Affordability ...... 1-2 The Personal Basis of NIMB Y ...... 1-5 Institutional Aspects of NIMBY ...... 1-7 Checking the Effects of NIMBY and NIMTOO ...... 1-9

Chapter 2. Regulatory Barriers in the Suburbs ...... 2-1 Growth Controls ...... 2-1 Restrictive and Exclusionary Zoning ...... 2-5 Excessive Subdivision Controls ...... 2-8 Inequitable Fees on Development ...... 2-1 0 Burdensome and Uncoordinated Approval and Permitting Systems ...... 2- 12

Chapter 3. Regulatory Barriers in Cities ...... 3-1 Restrictions on Urban Rehabilitation and Infill ...... 3- \ Rent Control ...... 3-5 Restrictions on Low-Cost Housing ...... 3-6 Regulatory Restrictions on Certain Types of Housing ...... 3- 9 Reinvestment in Older Urban Neighborhoods ...... :...... 3-12

Chapter 4. Environmental Protection Regulation and Affordable Housing ...... 4-1 How Environmental Regulations Affect Housing Affordability ...... 4-1 Wetlands and Affordable Housing ...... 4-3 The Endangered Species Act and Its Effect on Housing ...... _ ...... 4-7 Timber Production and Housing Affordability ...... 4-11

Chapter 5. Other Factors Affecting Housing Affordability ...... 5-1 Poverty and Housing Affordability ...... 5-1 The Housing Finance System ...... 5- 3 The Tax System ...... 5-4 Actions to Address Affordability Problems ...... 5-5 The Affordability Problems of Low-Income Renters ...... 5-7 Conclusion ...... 5-10 Contents

Part II. Commission Recommendations and Implementation Strategy ...... II-l

Chapter 6. The Federal Role: Stimulating Regulatory Reform ...... 6-1 Federal Initiatives ...... _...... 6-1 Integrating Barrier Removal Into Housing Programs ...... 6-2 Recognizing Affordable Housing as a Major Federal Concern ...... 6-6 Actively Working to Promote Affordable Housing ...... 6-11

Chapter 7. Increasing State Responsibility and Leadership ...... 7-1 Rationale for Looking to the States ...... 7-1 State Initiatives to Remove Local Regulatory Barriers ...... 7-3 What States Can Do, Are Doing, and Should Do ...... 7-5

Chapter 8. Working Together: Efforts to Educate the Public, Build Coalitions, and Convince Local Policymakers to Dismantle Regulatory Barriers ...... 8-1 Common Misunderstandings About Regulatory Barriers ...... _...... 8-2 Raising Awareness and Educating the Public ...... 8-3 The Need for Collective Action ...... 8-4 The Role of Employers ...... 8-9 Initiating Local Barrier-Removal Strategies ...... 8-9

Chapter 9. Strategy for Implementation ...... 9-1 Dissemination of Commission Findings and Recommendations ...... 9-1 Strategy for Implementing Federal Recommendations ...... 9-3 Strategy for Implementing State and Local Recommendations ...... 9-5

Appendices ...... III-l A. Commission Hearings and Witnesses ...... A-I B. Biographies of Commissioners ...... B-1 C. Charter of the Secretary's Advisory Commission on Regulatory Barriers to Affordable Housing ...... C-l Preface Preface

But opponents of regulatory barriers that inhibit affordable housing have scored some successes. Perhaps the greatest success has been the increase in The Commission and the State activism, which has been a primary force Secretary's Mandate behind code reform. Local building codes, widely regarded in the past as barriers to the use of innova­ Unnecessary regulations at all levels of government tive cost-saving technology, have in recent years stifle the ability of the private housing industry to become less of a problem as States more widely meet the increasing demand for affordable housing adopt model codes and local governments more throughout the country. To address this problem, systematically update their codes. Some States and a President George Bush asked Secretary of Housing number of localities have adopted policies to pro­ and Urban Development Jack Kemp to convene an mote affordable housing, with impressive results. Advisory Commission that could identify regulatory Encouraged by the successes and stimulated by the barriers to affordable housing and recommend how challenge, this Commission eagerly accepted the these barriers could be removed. The President invitation of President Bush and Secretary Kemp. At observed: their first meeting, the Commissioners voiced strong [At] all levels of governments we have got to take agreement with the sentiment of Commissioner a second look at some of the well-intended Roger Glunt: "I don't come with an attitude that we housing policies that actually decrease our can't do anything. I have not been on a Federal housing supply. I'm talking about the excessive commission before-I have never failed at this rules, regulations, and red tape that add unneces­ before-so I am going to try as hard as I can." sarily to the cost of housing-by tens of thou­ The Commission represents a broad range of citizens sands of dollars---or that create perverse incen­ with extensive knowledge of and interest in the tives to allow existing housing to deteriorate .... building regulatory process and its impact upon The negative impact of overregulation has caused housing affordability. It includes builders, develop­ concern in the affordable housing debate for several ers, and heads of nonprofit organizations who have decades. In the past 24 years, no fewer than 10 developed affordable housing units; government federally sponsored commissions, studies, or task officials who have promoted reform of housing forces have examined the problem, including the regulations; appointed State and local officials with President's Commission on Housing in 1981-1982. responsibility for the regulatory process; recognized These study groups have made many thoughtful policy experts who have analyzed the implications recommendations, usually to little avail. In the of regulation; and individuals representing interests decade since 1981, the regulatory environment has if of low- and moderate-income families. anything become a greater deterrent to affordable housing: regulatory barriers have become clearly more complex, and apparently more prevalent. Preface

concerned about those. with incomes below 50 percent of the area median income. In other cases, it also means that a moderate-income family cannot Goal and Objective afford to buy a modest home of its own because it cannot come up with the downpayment, or make The Commission's goal has been to assess compre­ monthly mortgage payments, without spending more hensively prevailing Federal, State, and local than 30 percent of its income on housing. regulations governing construction and rehabilita­ tion, and to recommend ways to reduce the barriers The problem of housing affordability touches many to affordable housing these regulations may raise. Americans: renters who lack savings to afford a The year-long review included an examination of downpayment on a house, parents whose children Federal housing and environmental regulations and cannot afford to live nearby when they start their State and local regulations regarding growth con­ own families, low-income households who spend trols, zoning, permitting, and building codes. Mind­ half of their income on housing, and persons who ful of previous efforts, the Commission established commute long distances because they cannot afford early the objective of developing implementation to live near where they work. strategies for its recommendations. With these strategies as part of this Report, the Commission The Commission recognizes the influence of many believes its recommendations are more likely to be factors and phenomena on housing affordability, adopted, and more likely to be effective. ranging from macroeconomic policy to technologi­ cal change. The Commission's charter specifies, To guide its deliberations, the Commission devel­ however, that it should focus on regulatory barriers oped a definition of the problem of affordable as a particularly important and growing cause of the housing. It concluded that, most urgently, there is shortage of affordable housing. The Commission not enough "affordable housing" when a low- or believes that a successful effort to reduce regulatory moderate-income family cannot afford to rent or buy barriers will benefit many American families, a decent-quality dwelling without spending more especially young households and low-income than 30 percent of its income on shelter, so much families, and will substantially ameliorate the that it cannot afford other necessities of life. With national housing affordability problem. respect to renters, the Commission is particularly

2 " . Executive Summary

Ex~ecutive Summary

illions of Americans are being priced out sionary, discriminatory, and unnecessary government of buying or renting the kind of housing regulations at all levels substantially restrict the they otherwise could afford were it not for ability of the private housing market to meet the Ma web of government regulations. For demand for affordable housing, and also limit the them, America-the land of opportunity-has be­ efficacy of government housing assistance and sub­ come the land of a frustrating and often unrewarded sidy programs. search for an affordable home: In community after community across the country, • Middle-income workers, such as police local governments employ zoning and subdivision officers, firefighters, teachers, and other vital ordinances, building codes, and permitting proce­ workers, often live many miles from the dures to prevent development of affordable housing. communities they serve, because they cannot "Not In My Back Yard"-the NIMBY syndrome­ find affordable housing there. has become the rallying cry for current residents of these communities. They fear that affordable housing II Workers who are forced to live far from their will result in lower land values, more congested jobs commute long distances by car, which streets, and a rising need for new infrastructure such clogs roads and highways, contributes to air as schools. pollution, and results in significant losses in productivity . What does it mean if there is not enough "affordable housing"? Most urgently, it means that a low- or • Low-income and minority persons have an moderate-income family cannot afford to rent or buy especially hard time finding suitable housing. a decent-quality dwelling without spending more II Elderly people cannot find small apartments to than 30 percent of its income on shelter, so much that live near their children; young married couples it cannot afford other necessities of life.) With re­ cannot find housing in the community where spect to renters, the Commission is particularly concerned about those with incomes below 50 per­ they grew up. cent of the area median income. In other cases, it also These people are caught in the affordability squeeze. means that a moderate-income family cannot afford Contributing to that squeeze is a maze of Federal, to buy a modest home of its own because it caJUlot State, and local codes, processes, and controls. These come up with the downpayment, or make monthly are the regulatory barriers that--often but not always mortgage payments, without spending more than 30 intending to do so-delay and drive up the cost of percent of its income on housing. new construction and rehabilitation. These regulatory barriers may even prohibit outright such seemingly Concern about the effects of regulation on housing iJUloCUOUS matters as a household converting spare affordability is not new. Other commissions over the rooms into an accessory apartment. past two decades have examined the causes, framed

Govenunent action is essential to any strategy to assist low- and moderate-income families in meeting I For purposes of this Repon, the Commission believes that a housing affordability problem exists when a household earning their housing needs. But government action is also a 100 percent or less of area median income cannot afford to rent major contributing factor in denying housing oppor­ or buy safe and sanitary housing in the market without spending tunities, raising costs, and restricting supply. Exclu­ more than 30 percent of its income.

3 Executive Summary ,

the issues, and recommended solutions concerning nent. Some suburban areas, intent on preserving the impact of regulation on housing prices. The fact their aesthetic and socioeconomic exclusivity, erect that the problem remains today should not deter impediments such as zoning for very large lots to continued efforts to resolve it. This Commission has discourage all but the few privileged households therefore considered both what should be done and who can afford them. Some exclude, or minimally how to make sure that it is done. provide for, multifamily housing, commonly ac­ knowledged to be the most affordable form of Many forces in addition to regulatory barriers affect housing. the problem of affordability of housing. Certainly some aspects of both the housing finance system and In theory a way of separating "incompatible" land the tax structure seem to inhibit the availability of uses to protect health and safety, zoning has become affordable housing. For very low-income house­ a device for screening new development to ensure holds, the root problem is poverty. But even for very that it does not depress community property values. low-income households, regulatory barriers make As a result, some suburban communities, consisting matters worse. mainly of single-family homes on lots of one acre or more, end up as homogeneous enclaves where Those other forces are beyond the purview of this households such as schoolteachers, firefighters, Commission's study. What is within its purview is young families, and the elderly on fixed incomes are the effect of regulatory barriers on the cost of hous­ all regulated out. ing, and that is substantial. The Commission has seen evidence that an increase of 20 to 35 percent in Suburban gatekeepers also invoke gold-plated subdi­ housing prices attributable to excessive regulation is vision controls to make sure that the physical and not uncommon in the areas of the country that are design characteristics of their communities meet most severely affected. very demanding standards. Many of these communi­ ties are requiring that developeTs provide offsite amenities such as parks, libraries, or recreational facilities that can add substantially to the housing costs of new homebuyers. The Basic Problem

Whether the search for housing takes place in rap­ idly growing suburban areas or older central cities, the basic problem is the same: because of excessive and unnecessary government regulation, housing costs are too often higher than they should and could be. Yet the specific government regulations that add to costs in suburban and high-growth areas tend to differ from those adding to costs in central cities.

Regulatory Barriers in the Suburbs

In the Nation's suburbs, the landscape of the affordability problem reveals a variety of topical features. Exclusionary zoning, reflecting the perva­ sive NIMBY syndrome, is one of the most prom i­

4 Executive Summary

ling regulations can add considerably to the cost of Here ... in Mercer County, a major housing. Local residents--concerned about road subdivision would receive ... ll differ­ congestion, overburdened sewer and water systems, ent reviews from 9 different agencies. overcrowded schools, and strained city budgets­ Seven of those reviews concern them­ have many ways to limit growth. Households that do selves with the adequacy of storm not want to forgo the job opportunities in growing areas must often travel far afield to find affordable • -drainage. Jet fighter planes and moon housing. rockets get by with triple redundant control systems. We need seven gov­ A look at some cost data can be very sobering. Land ernment agencies to look at whether developers in Central Florida, a boom area under the storm drainage will drain. It is an intense development pressure, must add a $15,000 important concern, but it is probably surcharge to the price of a $55,000 house to cover not that important. the costs of excessive regulation. A $55,000 house becomes a $70,000 house. In Southern California, William Connolly, Director the cost of fees alone has contributed $20,000 to the Division of Housing and price of many new homes, and fees of $30,000 or Development more are not rare. In New Jersey, developers report New jersey Department of that excessive regulation is adding 25 to 35 percent Community Affairs to the cost of a new house. It is clear that the costs of regulation in suburban and high-growth areas are causing large numbers of households to forgo their Communities are increasingly charging large fees to dreams of homeownership or to make difficult developers who seek the privilege of building hous­ tradeoffs involving very long commutes. ing in them. These fees may bear little resemblance to the actual cost of providing services and facilities that new subdivisions require. Although fee sched­ In Moreno Valley, California, the ules are often driven by fiscal concerns, they have a morning rush hour begins a little after regressive effect. Fees are generally fixed regardless 4:00 a.m. as thousands of sleepy of how much they affect the cost of a new home. commuters-mostly men-stumble Thus, households that can only afford less expensive into their cars to begin their 70-mUe-.. houses end up paying a higher proportion of the westward trek to the job centers of sales price to cover the cost of fees. Orange County. If they're lucky, Slow and overly burdensome permitting is another they'll slip throug~ the Highway 91­ regu1atory obstacle. The original rationale for estab­ Interstate 15 bottleneck in nearby lishing permitting and approval processes is Corona before 5:00, when the morn­ unassailable: to ensure that construction meets ing traffic jam typically begins. That- established standards related to health, safety, and way, they'll be in Orange County by other important public concerns. But, in many 6:00,able to catch an extra hoor of jurisdictions, the process involves multiple, time­ sleep in their cars before the.workday consuming steps that add unnecessarily to housing begins. costs. Delays of 2 to 3 years are not uncommon. William ·Fultoo The affordability landscape comes most sharply into "The Long Commute'" focus in areas that are experiencing rapid growth. Planning These are the places that attract households seeking July 1~2(J . opportunities, and the places where growth-control-

5 Executive Summary

Regulatory Barriers in Cities construction of "no-frills" affordable housing sl:lch as the new single-room-occupancy (SRO) hotels that Any government regulation that adds to the cost of have recently proved so successful in San Diego. urban housing is especially significant because of Waivers on code requirements in that city cut the the concentration of low-income households in cost of some SRO living units by as much as 60 central cities. Unlike suburban areas where large­ percent. scale new subdivision development is taking place, the regulatory problems in cities involve either the Other regulations that affect the availability of rehabilitation of older properties or new infill con­ housing, such as rent control, also seem to ignore the struction to provide afforaable housing for families plight of the poor. In the long run, the primary ben­ of limited means. Central-city reinvestment has been eficiaries of rent control are frequently upper and further compounded by restrictive and racially middle-income groups rather than lower income discriminatory lending practices. households who need assistance in obtaining decent homes in safe neighborhoods. By limiting annual Chief among the urban regulatory barriers are build­ rent increases and thus providing incentives for ing codes geared to new construction rather than to higher income tenants to remain in older but pleasant the rehabilitation of existing buildings. The codes neighborhoods, rent control hinders upward mobility often require state-of-the-art materials and methods of low-income families to better housing that are inconsistent with those originally used. For opportunities. example, introducing newer technologies sometimes requires the wholesale replacement of plumbing and Urban neighborhoods could benefit substantially electrical systems that are still quite serviceable. from such affordabiJity-enhancing options as manu­ factured housing, the use of modular units in con­ Excessively expensive requirements have also made struction, and the legalization of accessory new infill units in some urban jurisdictions more apartments. But, too often, regulatory baniers com­ than 25 percent more expensive than identical units pletely block or seriously impede the introduction of constructed in adjacent suburban localities that allow these options. Manufactured housing is still fre­ less costly materials and methods. Despite the press­ quently relegated to rural areas by local zoning ing need to provide shelter for low-income house­ ordinances. State highway regulations and local holds, city building codes seldom provide for the building codes sometimes mandate modifications to modular units that offset the savings these prefabri­ cated units can provide for infill construction. Fi­ If rehabilitation codes made more nally, local zoning regulations often prohibit accessory apartments, which could be a significant sense, a.nd all government offic~s that source of affordable housing: as many as 3.8 million _ support and govern this type of . units could be added to the Nation's rental housing project were to.standardize require­ supply through this means alone. . -ments -ano simplify approvals, about -_$4,000 would be saved OD the aver­ age dwelling unit that is undergoing Environmental Protection and . complete rehabilitatiol!.­ Affordable Housing . . , . Peter Werwath . . Exerting considerable influence on both urban and : "'The Price ofRegulation" suburban landscapes, otherwise valuable environ­ . The En~rprise Foundation mental protection regulations seriously restrict the Rehab Work Group amount of buildable land that is available for devel­ 1990 opment. This effect raises the cost of what land remains open for homebuilding.

6 Executive Summary

Regulations that mandate environmental impact ing expectations and requirements into the permit­ studies increase developers' costs by prolonging the approval process. permitting process and thus increasing the carrying charges that they must pay to finance business op­ The Endangered Species Act (ESA) also affects erations. Costs are also raised by the assessment of housing affordability. Designed to help ensure the speciar fees and exactions for wilderness and wild­ survival and well-being of existing species of plants life conservation. In some instances, developers are and animals, the ESA allows the Fish and Wildlife required to set aside land for preserves, pay mitiga­ Service (FWS) to ban or severely restrict develop­ tion fees, or undertake mitigation projects (such as ment in thousands of acres for years at a time, if creating a new wetland) in exchange for the use of such land is the habitat of a species judged to be property designated as a wetland. Increases in devel­ "endangered" or "threatened." The ESA does not opment costs associated with environmental protec­ take into account the socioeconomic impact of these tion are passed along to the consumer and thus have restrictions on human activity. Construction is al­ a direct effect on housing affordability. lowed after the FWS approves a Habitat Conserva­ tion Plan, which usually involves the permanent Regulations for the protection of wetlands have establishment of preserves for the endangered hindered residential development in many areas. animal. Over the past several years, the Federal definition of a wetland has become more expansive. Protection These preserves increasingly involve the purchase of has recently been extended to some areas where the private, prime development land. Recently, in River­ soil is only temporarily saturated with water for side County, California, the initial phases of creating short periods each year. Considerable duplication a 30-square-mile system of preserves for the Stevens exists between Federal and State regulations, render­ Kangaroo Rat cost some $100 million. Estimates of ing the permitting process for wetlands development the entire protection effort run more than twice that unnecessarily lengthy and complicated and therefore amount. A special impact fee of $1 ,950 is now unnecessarily expensive. At the Federal level, the levied on each acre of Riverside County that is jurisdictions of the Environmental Protection developed, with new homebuyers bearing the cost. Agency (EPA) and the Army Corps of Engineers Housing affordability is becoming an inadvertent overlap considerably, at times introducing conflict­ casualty of environmental protection.

New York State law bars development within a 100-foot radius around a breeding pond of the endangered tiger salamander. Sightings ofthis animal near a pond, therefore, sometimes result in,stoppages of development while it is ascertained if a breeding area is present. A 102-acre subdivision project in the Long Island community of Bridgehampton, including 9 units that had been earmarked as affordable housing, was brought to a halJ when a tiger salamander was found on the property. The plan was delayed for more than 1 year.until the developer agreed not to build near the pond. The number of affordable units was reduced by almost one-half. Robin Goldwyn Blumenthal The Wall Street Journal April23, 1990, Page 87

7 Executive Summary

regulatory system. Hence, the cumulative impact goes well beyond the intent of sound and reasonable Root Causes and New government oversight responsibilities. Perhaps the most potent and, to date, intractable Directions cause of regulatory barriers to affordable housing is NIMBY sentiment at the individual, neighborhood, There can be little disagreement that government and community levels. Residents who say "Not In land-use and development regulations are o·ften My Back Yard" may be expressing opposition to barriers to affordable housing. Why is this so, and specific types of housing, to changes in the character what should be done about it? of the community, to certain levels of growth, to any and all development, or to economic, racial, or Root Causes ethnic heterogeneity. In any case, the intention is to exclude, resist change, or inhibit growth. Part of the problem involves a classic conflict among competing public policy objectives. Numerous The personal basis of NIMBY involves fear of Federal, State, and local regulations that are intended change in either the physical environment or compo­ to achieve specific, admirable goals tum out to have sition of a community. It can variously reflect con­ negative consequences for affordable housing. The cern about property values, service levels, fiscal impact on housing costs may not have been consid­ impacts, community ambience, the environment, or ered when the regulations were promulgated. public health and safety. Its more perverse manifes­ tations reflect racial or ethnic prejudice masquerad­ Another major part of the problem is the fragmented ing under the guise of these other concerns. structure of government land-use and development regulation. Not only do many local jurisdictions NIMBY sentiment-frequently widespread and control land uses and development within each deeply ingrained-is so powerful because it is easily metropolitan area, but multiple levels of govern­ translatable into government action, given the exist­ ment, and a multiplicity of agencies at each level, ing system for regulating land use and development. also have responsibility for one aspect or another of Current residents and organized neighborhood this process. Duplication, uneven standards, and groups can exert great influence over local electoral other cost-producing consequences result from this and land-development processes, to the exclusion of nonresidents, prospective residents, or, for that matter, all outsiders. Restrictions on affordable housing are the result.

New Directions

The root causes of regulatory barriers to affordable housing have been in place for many years, and the evidence is overwhelming that these barriers are unlikely to disappear, absent significant incentives and effort. All levels of government need to work at removing barriers in conjunction with private interests.

Certainly. the Federal Government needs first to put its own house in order. It should remove or reform existing Federal rules and regulations that have an

8 Executive Summary

adverse effect on housing affordability, and initiate strategies, relaxing Federal requirements in response procedures to minimize adverse effects in future to reform efforts, and providing planning grants to regulations. Simply stated, Federal agencies promul­ assist in barrier removal. gating major rules must account for the impacts of those rules on affordable housing. Finally, concerted educational and group actions are needed at the local level to expose the negative Because States delegate authority to local govern­ consequences of certain government regulations, ments to regulate land use and development, States build coalitions for pursuing regulatory reform, and should take the lead in removing regulatory barriers stimulate local barrier-removal efforts. Such actions to affordable housing. What each State should do are intended to complement and reinforce proposed depends upon its own circumstances and situation, State and Federal actions. In this way, affordable but there is no question that State leadership is the housing can become a reality for those deprived of it only path likely to bring about desired change. by government regulation.

A few States have been substantially involved in attempting to promote affordable housing through : '" 0'. ,'" •• -~ ·.~r: ~-~t. '.~'~_ ...:..4 . • ," -','­ the removal of regulatory barriers. Their efforts include recognizing affordable housing as a formal Commission State goal, creating procedures for reconciling local regulations with State goals, eliminating redundant Recommendations regulations, developing procedures for resolving development disputes, setting statewide standards in The Commission bas sought to identify the funda­ support of affordable housing, eliminating discrimi­ mental institutional, political, and structural reasons nation against certain types of affordable housing, why regulatory barriers are so pervasive and so and providing State financial incentives for afford­ resistent to reform. Based on this analysis, the Com­ able housing and local regulatory reform. Clearly, mission proposes 31 recommendations for Federal, however, more effort on the part of more States is State, and local government and private action. They called for. are intended to be complementary and should be viewed as important elements of a total package of Despite the appropriateness and desirability of State actions necessary for broad-based and effective action, States are unlikely to playa strong role in the regulatory reform. If implemented, these recommen­ absence of Federal incentives to do so. Therefore, dations will provide the legislative and administra­ the Federal Government must take appropriate tive tools for a comprehensive program directed at actions to engage the States. Such actions include reducing regulatory impediments to affordable conditioning Federal housing assistance on the housing. establishment of State and local barrier-removal The Federal Role: Stimulating It is quite consistent with our Federal Regulatory Reform system ... that State governments be The Commission envisions the Federal Government quite intrusive in preventing parochial as a vehicle for stimulating State (as well as local) _behavtor by loc~1 governments. regulatory reform efforts. The Federal Government Robert c. Ellickson must also set an example in regulatory reform by Wa/~er E. Meyer ProfessOr of reviewing its own regulatory system to remove or -Property and Uiban Law reform those regulations that have an adverse effect Yale Law School upon housing affordability.

9 Executive Summary

Integrating Barrier Removal Into Recommendation 6-2 Housing Programs State Review of Local Barrier-Removal Plans Federal housing legislation should authorize the U.S. The Commission recommends that States be Department of Housing and Urban Development offered the opportunity and be encouraged to (HUD) to condition assistance to States and locali­ review and comment upon the local barrier­ ties based upon their barrier-removal strategies. It is removal plan of the Comprehensive Housing inequitable and a waste of taxpayers' money to Assistance Strategy (CHAS) mandated by the continue to provide housing assistance to govern­ National Affordable Housing Act of 1990. ments that choose to maintain policies that limit housing affordability. Currently, HUD is severely constrained from seeing that reform is carried out. Recommendation 6-3 The 1990 National Affordable Housing Act prohibits Federal Housing Assistance to States HUD from conditioning assistance based upon any local policies, no matter how restrictive or burden­ The Commission recommends that the Congress some they may be. This legislative prohibition make permanent the authority for both mortgage vitiates the requirement for a barrier-removal plan revenue bonds and the Low Income Housing Tax and frustrates the purposes for which this Commis­ Credit (LlHTC). As part of such legislation, the sion was created. The Commission strongly recom­ Commission strongly recommends that the por­ mends its prompt removal. tion of each State's allocation of private-issuance bond authority used for single-family mortgage The Commission believes that regulatory barriers revenue and multifamily housing bonds, as well will not be diminished substantially unless and until as the State allocation of LlHTC authority, be States become strong and vital participants in the contingent upon the State having an approved regulatory process. Therefore, the Commission barrier-removal plan as part of the Comprehen­ proposes that Federal housing assistance flowing sive Housing Assistance Strategy (CHAS) directly to States be conditioned upon the existence required by Title I of the National Affordable of State barrier-removal strategies. In addition, the Housing Act of 1990. States without approved Commission recommends that States review and barrier-removal plans would forfeit tax-credit comment upon the barrier-removal strategies of their authority, as well as that portion of private­ localities. To encourage greater involvement in issuance bond authority that is used for housing regulatory decisionmaking, States that have barrier­ purposes; and that authority would be redistrib­ removal strategies should be entitled to waivers of uted to States with approved plans. certain Federal regulations that could increase the supply of affordable housing. Recommendation 6-4 Recommendation 6-1 Regulatory Incentives for States Condition Assistance Upon Barrier-Removal The Commission recommends that a variety of Strategies administrative and regulatory incentives be provided to States that establish and implement The Commission strongly recommends that the satisfactory barrier-removal strategies. Specifi­ Congress amend the National Affordable Hous­ cally, the Commission recommends that the ing Act of 1990 to authorize HUD to condition Administration establish an interagency Afford­ assistance to State and local governments based able Housing Regulatory Review Board to pro­ upon their barrier-removal strategies. vide, in participating States, waivers of or adjustments to Federal regulations to increase the supply of affordable housing.

10 Executive Summary

Recommendation 6-5 in the development and implementation of environ­ mental protection policy. State Barrier-Removal Planning Grants

The Commission recommends that the Congress Recommendation 6-6 enact legislation to provide States with funding assistance on a cost-sharing basis for 3 to 5 years Housing Impact Analysis to plan and initiate comprehensive programs of The Commission strongly recommends that a barrier removal and reform at both the State and Housing Impact Analysis be required of every local levels_ Federal agency before it promulgates any major rule or rule revision. As an initial step, proce­ dures for the Analysis should be implemented Affordable Housing as a Major administratively. The Commission also recom­ Federal Concern mends that the Congress enact specific legislation mandating such Analysis as part of the As the level of government least affected by NIMBY rulemaking process. pressures, the Federal Government can demonstrate to State and local governments how to establish an effective balance between protecting other societal Recommendation 6-7 goals and achieving housing affordability. To avoid future regulations that restrict affordability, the Removal of Barriers to Central City Investment Commission proposes that every Federal agency The Commission recommends that HUD and the should prepare a Housing Impact Analysis before Federal financial regulatory agencies develop the proposing any major new rule or regulation. The means to ensure reinvestment in older urban Analysis would examine the projected impact of the communities, and protect these communities from proposed rule on affordability and any actions that racial discrimination in lending and disinvest­ can be taken to prevent negative impacts. ment. The regulatory agencies should take measures to make conventional mortgages as The Commission proposes other actions with respect available as those insured by the Federal Housing to paperwork reduction, the Davis-Bacon Act, and Administration (FHA). More specifically: central city investment. With respect to the last (1) secondary market policy must include a firm, issue, the Federal Government should remove all unequivocal commitment to end all forms of regulatory barriers imposed by racial discrimination discrimination; (2) HUD, as the regulator for the and past restrictive lending practices. It has at its Federal National Mortgage Association (Fannie disposal powerful authorities-the Financial Institu­ Mae) and the Federal Home Loan Mortgage tions Reform, Recovery, and Enforcement Act Corporation (Freddie Mac), should maintain and (FIRREA), the Community Reinvestment Act enforce at least its current low- and moderate­ (CRA), and the Fair Housing Act-that should be income and central city requirements for Fannie used to ensure affordable housing opportunities in Mae, and extend them to Freddie Mac, and the inner city. should monitor these agencies' compliance with Finally, the Commission notes that Federal environ­ statutory goals for investment in central cities; mental regulations that fail effectively to balance (3) Fannie Mae and Freddie Mac should monitor environmental protection with other social goals and work to ensure the availability of private have a direct impact upon the affordability of hous­ mortgage insurance on low-downpayment loans ing. To avoid such situations, the Commission of less than $100,000; (4) secondary markets recommends comprehensive reform of both national should expand into new kinds of products that wetlands policy and the Endangered Species Act to serve the affordable housing market and convert ensure proper consideration of housing affordability affordable housing demonstrations, as they prove

I I Executive Summary

viable, to ongoing programs; (5) the Federal alternative sites and that also allow for a reason­ financial regulatory agencies should vigorously able period of time in which planning and the enforce the Community Reinvestment Act and search for alternative sites can be undertaken; (3) the Home Mortgage Disclosure Act; and, (6) adopt the use of public and private purchase as HUD and the regulatory agencies should ensure well as incentives or compensation to maintain that they are enforcing both the letter and the wetlands that are privately owned; (4) develop a spirit of current anti-discrimination laws, includ­ clear and explicit long-range strategy defining ing the Fair Housing Amendments Act of 1988. and implementing the "no net loss" policy; and (5) streamline and simplify Federal regulatory authority and, under appropriate safeguards, Recommendation 6-8 delegate Federal regulatory authority to those Amend the Paperwork Reduction Act States that have comparable wetlands regulations. The Commission recommends that the Congress amend the Paperwork Reduction Act to clarify that it applies to all Federal paperwork require­ Recommendation 6-11 ments, regardless of whether or not these require­ Reform the Endangered Species Act and ments involve the submission of paper to a Regulations government agency. The Commission recommends a thorough review of both statutory and administrative provisions Recommendation 6-9 regarding protection of endangered species to Amend the Davis-Bacon Act ensure an adequate balance between protection and other essential social goals. Specifically, the The Commission recommends that the Congress Administration and the Congress should: (1) amend the Davis-Bacon Act to: (1) raise the establish a standardized peer review process for threshold of covered projects from the present the evaluation of data used in determining which level of $2,000 to $250,000, and (2) treat lower species should be placed on the endangered spe­ income multifamily housing as residential rather cies list; (2) employ purchase, as well as regula­ than commercial property. tion, with adequate compensation, to protect species habitats; and (3) modify the regulations governing the development of Habitat Conserva­ Recommendation 6-10 tion Plans (HCPs) so as to ensure that aff-ordable Reform Wetlands Regulations housing and other important societal needs are given full weight in fashioning these agreements The Commission recommends a comprehensive and that a mechanism for the impartial arbitra­ assessment of existing wetlands legislation and tion of disagreements between affected parties is regulations to eliminate excessive or unnecessary included in the HCP process. barriers to affordable housing while protecting essential wetlands resources. More specifically, the Administration and the Congress should: Working to Promote Affordable (1) develop a wetlands definition, for purposes of Housing regulation, that protects critical environmental resources, streamlines regulation of ecologically The Federal Government can undertake a number of low-value wetlands, and allows suitable develop­ administrative and programmatic actions to stimu­ ment therein consistent with a goal of "no net late regulatory barrier refonn. Most importantly, loss"; (2) mandate fair and equitable EPA guide­ when Federal, State, and local regulations limit lines that clarify rules on the availability or fundamental rights and protections, the Federal

12 Executive Summary

Government has the responsibility to protect such Recommendation 6-15 rights. The Commission recommends that the Fed­ eral Government become an active participant in Regulatory Reform Clearinghouse seeking judicial review of excessive or discrimina­ The Commission recommends that HUD work tory development controls and regulations. with and support organizations that currently collect information on State and local regulatory Recommendation 6-12 developments, such as the National Association of Home Builders, American Planning Association, Legal Review of Regulatory Barriers and State and local governments, to create a The Commission strongly recommends that the centralized, single-source database and clearing­ executive branch become an active and continu­ house for use by housing advocates, builders, ing participant in seeking increased Federal and State and local governments, attorneys, research­ State judicial review and scrutiny of excessive ers, and others interested in regulatory reform and discriminatory development controls and and barrier removal. regulations through active legal intervention, technical assistance, and participation as a friend of the court. Recommendation 6-16 Office of Regulatory Reform

Recommendation 6-1 3 The Commission recommends that the Secretary of Housing and Urban Development establish a Building Support for Regulatory Reform separate Office of Regulatory Reform funded and The Commission recommends that HUD initiate staffed to implement the Federal recommenda­ a cooperative program with public-interest orga­ tions of this Report and to assist States and locali­ nizations, industry groups, and State and local ties in initiating comprehensive programs of governments to build public support and consen­ barrier removal. sus for regulatory reform. Increasing State Responsibility Recommendation 6-14 and Leadership Encourage Development of Model Codes and Ordinances If reform is to be achieved, the States must be in­ volved far more extensively than they are now. All The Commission recommends that HUD assume States must assume increased responsibility and a leadership role and work with government and oversight for the regulatory decisionmaking pro­ private-industry groups, such as the American cesses of their constituent localities. Bar Association, American Planning Association, National Association of Home Builders, National Governors' Association, League of Cities, State Housing Affordability as a State Goal community affairs agencies, and others to de­ All States should undertake an ongoing action plan, velop consensus-based model codes and statutes at both the State and local levels, directed at barrier for use by State and local governments. Specifi­ removal. As part of such a strategy, States should cally, the Commission sees a need for a new thoroughly review their existing zoning and land­ model State zoning enabling act with a fair-share planning systems and remove all institutional barri­ component, model-impact fee standards, and a ers to affordability. These include limitations or model land-development and subdivision-control prohibitions constraining the use of various housing ordinance. afford ability options such as accessory apartments,

13 Executive Summary

duplexes, manufactured housing, and single-room­ ers.to affordable housing projects; State-estab­ occupancy housing. States should also continue their lished housing targets and fair-share mechanisms; ongoing efforts directed at building-code reform as and requirements for a variety of housing types well as consolidate and streamline their own regula­ and densities. tory responsibilities.

Foremost among State responsibilities is recognizing State Administrative Reform affordable housing as a State goal and public pur­ pose for which the police power is delegated to States are in a position 10 ensure greater coherence localities. As such, the State has the responsibility to and rationality in the various administrative reviews ensure that all localities, as well as the State itself, that are required. They can simplify the maze of State have comprehensive programs of barrier-removal and local regulations, and they can ensure that and zoning reform. regulations meet State goals, with minimum overlap and duplication. Recommendation 7-1 State Barrier-Removal Plans Recommendation 7-3 Encourage or Sponsor Conflict Resolution and The Commission strongly recommends that each Mediation State undertake an ongoing action program of regulatory barrier removal and reform at the The Commission recommends that States establish State and local levels. At a minimum, this pro­ or sponsor neutral third-party conflict-resolution gram should include a comprehensive assessment and mediation procedures to resolve conflicts of State and local regulations and administrative between developers and local governments, and to procedures, as well as State constitutional author­ remove barriers to affordable housing. ity and enabling legislation. States should propose a program of State enabling reform and direct State action, as well as provide for model codes, Recommendation 7-4 standards, and technical assistance for local Streamlining State Regulatory Responsibilities governments that are responsible for enacting and administering development controls. As part of an overall barrier-removal strategy, the Commission recommends that States consolidate and streamline their multiple regulatory responsi­ Recommendation 7-2 bilities, for example, by giving authority to a single agency, to shorten and improve both State and State Zoning Reform local approval processes. The Commission strongly recommends that, as part of their overall barrier-removal strategy, States should thoroughly review and reform their Recommendation 7-5 zoning and land-planning systems to remove all Time Limits on Processing and Approvals institutional barriers to affordability. Reforms The Commission recommends that States enact that States should consider include: a require­ legislation that establishes time limits on building ment that each locality have a housing element code, zoning, and other approvals and reviews. subject to State review and approval; effective Such limits should apply to State as well as local comprehensive planning requirements; modifica­ development reviews, and should establish a legal tion of zoning-enabling authority to include presumption of approval. The regulatory body affordability and housing opportunity as primary should have the factual burden of clearly demon­ objectives; State authority to override local barri­ strating why the regulatory rejection was

14 Executive Summary

appropriate and in the public interest. Unless the version of the applicable model code without locality made a clear and convincing case, a technical modification; States and localities peri­ permit or approval denial would be invalid under odkally review their codes to eliminate obsolete the law. Ifthe government did not act within the or unnecessary prescriptive requirements; and time established by law, approval would be States and localities, private organizations, and automatic. the Federal Government work to create a nation­ ally recognized building-product evaluation and approval system. Setting State Standards

States can have a major impact upon the provision of Recommendation i-8 affordable housing by becoming active participants in setting standards and requirements for develop­ Modular Code ment regulations. States must also ensure that en­ The Commission recommends that a uniform abling legislation-the basic authority by which they national regulatory program be established for delegate regulatory powers to localities-guarantees modular housing. This goal can be accomplished that local regulatory actions address the housing either by an interstate compact or the enactment needs of all the citizens of the State and provide for by the Congress of preemptive legislation. maximum housing choice and opportunity.

Recommendation i-6 Recommendation i -9 State Subdivision Ordinances and Standards Provide Necessary Infrastructure . The Commission recommends that States either The Commission recommends that State and enact a statewide subdivision ordinance and local governments develop and implement neces­ mandatory land-development standards or, alter­ sary policy and funding plans to provide and natively, formulate a model land-development maintain adequate infrastructure in support of code for use by localities. Land-development affordable housing and growth. The Commission standards should be based on supportable data recommends that States and localities employ a and research regarding traffic usage, density, and range of financing tools to ensure that such infra­ similar criteria. Standards could either be man­ structure is available in a timely fashion. datory orserve as a model ordinance for use by localities. Recommendation i -10 State Impact Fee Standards Recommendation i-i The Commission recommends that States enact Continue Building Code Reform legislation establishing mandatory standards and The Commission recommends that the substan­ uniform procedures for imposing impact fees. tial progress made by State and local govern­ Such legislation should set forth criteria defining ments in reforming the building code regulatory the specific types of capital facilities for which system over the past 20 years continue and be localities may consider fees and methodologies to accelerated. More specifically, the Commission ensure that such fees are related and fairly pro­ recommends that: States adopt either the CABO portioned to the need for the facilities and ser­ (Council of American Building Officials) one- and vices generated by the proposed development. two-family code, or require localities to do so; The Commission believes that impact fees should State and local governments adopt the latest be used to fund only facilities that directly serve or are directly connected to the house or develop­

15 Executive Summary

ment on which these fees are levied. Impact fees Significant change has succeeded only when effec­ to fund general infrastructure improvements are tive coalitions of public, private, and nonprofit subject to abuse and are less efficient than tar­ organizations, employers, and housing activists, geted user fees and broader financing methods. recognizing the social and economic benefits that can accrue from affordable housing, find common ground for political action. Recommendation 7-11 Remove Regulator)' Barriers to Certain Types of Recommendation 8-1 Affordable Housing Options Local Governments Should Undertake The Commission strongly recommends that Educational Efforts on Affordable Housing States initiate actions to end discrimination The Commission recommends that local govern­ against certain types of affordable housing op­ ments undertake educational programs to help tions, such as amending their zoning enabling the public to become aware of the economic acts to: (1) authorize, under appropriate condi­ effects of local regulations, of the need for regula­ tions and standards, manufactured housing as a tory reform, and of the value of affordable permitted dwelling unit under local zoning, and housing. prohibit local communities from enacting ordi­ nances forbidding manufactured housing; (2) direct that localities permit, under State stan­ Recommendation 8-2 dards, accessory apartments as of right, not as a "conditional use," in any single-family residential Concerned Groups and Citizens Should Build zone within the jurisdiction, subject to appropri­ Coalitions for Regulatory Reform ate design, density, and other occupancy stan­ The Commission recommends that government dards set forth by the State; and (3) require leaders and concerned organizations and indi­ localities to include a range of residential use viduals build coalitions to support regulatory categories that permit, as of right, duplex, two­ reform and affordable housing. Professional and family, and triplex housing and adequate land civic organizations should examine the conse­ within their jurisdictions for such use. The Com­ quences of the NIMBY syndrome; private and mission also strongly recommends that States community foundations should sponsor studies of require al\ local governments to review and and debate on regulatory reform; and govern­ modify their housing and building codes and ment officials should join with private citizens to zoning ordinances to permit, under reasonable address the implications of NIMBYism. Govern­ State design, health, density, and safety stan­ ment, business, nonprofit, and educational lead­ dards, single-room-occupancy housing. ers should take the lead in forming local coalitions to translate public awareness into support for regulatory reform and affordable Working Together: Efforts to housing. Educate the Public, Build Coalitions, and Convince Local Recommendation 8-3 Policymakers to Dismantle Employers and Others Who Benefit From an Regulatory Barriers Affordable Housing Supply Should Advocate Regulatory Reform Ultimately, regulatory reform must occur in the State legislatures, city halls, and county offices respon­ The Commission recommends that employers sible for regulating the housing environment. and other private industry leaders recognize the

16 . Executive Summary

importance of affordable housing and work with significant and important as the recommendations housing advocates, local government officials, themselves. and others interested in regulatory reform to The Commission proposes a comprehensive ap­ lower the barriers to affordable housing. proach directed at all levels of government as well as at private organizations. The approach includes Recommendation 8-4 Federal incentives to encourage States and localities to begin the job of restructuring their regulatory Local Governments Should Initiate Harrier­ responsibilities. Removal Strategies The Commission believes that significant reform Dissemination of Commission of the existing regulatory system must become a priority of local government if local as well as Findings and Recommendations national housing goals are to be achieved. The Release of this Report provides an opportunity to Commission recommends that all local govern­ present the issue of regulatory barriers directly to the ments initiate a strategy of barrier removal. The Congress, State and local officials, and activists and strategy should include a comprehensive and advocates for housing affordability. As initial steps systematic review of zoning, subdivision ordi­ in a long-term implementation strategy, the Commis­ nances, building codes, and related development­ sion proposes that HUD: control ordinances and administrative pro­ cedures to identify excessive, duplicative, or • Immediately undertake a vigorous unnecessary barriers to housing affordability and dissemination and education effort on the opportunity. Localities should consider many Commission findings and recommendations; reforms, including but not limited to: (1) provid­ ing adequate land for a variety of housing types • Request Congressional hearings on the and densities; (2) eliminating excessive site-devel­ Commission Report; and opment standards; (3) reforming local property • Initiate a comprehensive series of public and taxes; (4) decontrolling rents at least for higher­ private meetings with State and local income households; (5) developing one-stop per­ governments, the housing industry, and mitting; (6) providing for adequate infrastructure national organizations to fashion a consensus to accommodate growth; (7) eliminating obsolete for regulatory reform. and prescriptive building code requirements; and (8) creating Housing Opportunity Zones. Implementing Federal

- - - - ~ •• ., ! - .. _ . ' • Recommendations . - -- : ,.:,. ,". ," - " Particular attention should be paid to ensuring that A Strategy for the Commission's recommendations for Federal action are implemented as soon as possible. To meet Implementation this objective, the Commission proposes the follow­ ing strategy: Recommendations for reform are not enough. Be­ cause barriers to affordability reflect basic political, • Establish a unit in HUD to monitor institutional, and social priorities that many commu­ implementation; nities consider important, there is a great need for a strategy for action to effect meaningful reform. • Submit draft legislation to the Congress; Developing and implementing such a strategy are as

17 Executive Summary

• Undertake targeted efforts to educate Federal, State, and local poJicymakers and the public about the fundamental equity of the proposed Federal reforms; and Reform Can Happen

• Take specific administrative steps to enable Development controls and regulations have a direct the Federal Government to become an active impact upon where people live, how they manage participant and advocate for regulatory reform. and use their property, what lifestyle and living arrangements they choose, who their neighbors are, and what their residences cost. If those controls and Implementing State and Local regulations fail to address equitably the needs of all Recommendations citizens, if they provide benefits to some while limiting housing choice and opportunity for others, To assist in local regulatory reform efforts, the they violate the public purpose in whose name they Commission proposes that HUD provide essential are enacted. education and technical information to State and local governments. Specifically, HUD should: Reform will not come easily, but it has occurred in some places and it can be achieved in many others. • Work with State and local governments, The Commission has developed both objectives and nonprofit organizations, and others wishing to a plan for accomplishing them. If Federal, State, and undertake programs of consensus-building and local governments adopt similar goals and plans, the become a continuing resource to local efforts; cost of housing will be significantly reduced, to the benefit of millions of low- and middle-income • Support local efforts by developing model American families. codes, disseminating information, and organizing workshops, conferences, and other Although regulatory barriers to affordable housing educational activities; have proven remarkably resistant to change, this Commission is optimistic that the time is right for • Work with State governments willing to serve comprehensive regulatory reform. Increasingly, as laboratories to demonstrate innovative national and local policymakers, housing activists, solutions to regulatory barriers; and and others recognize that the private housing market is not being allowed to generate its full potential • Give awards to exemplary local reform efforts, supply of housing. A balanced and comprehensive and keep track of regulatory developments and strategy aimed at meeting national housing needs progress in the removal of barriers. must include the prompt removal of discriminatory, exclusionary, and unnecessary regulatory barriers to affordable housing.

18 Part I:

. "-, ~. ," . ~ ..1.' -' .~ . ~ .', ~ :.: .. -:r. - .

...... ~_ . ~ . _ _ J ~::" ' _ _ . "'~ , " Regulatory Barriers and Affordable Housing

I-I Regulatory Barriers and Affordable Housing

he lack of affordable housing in many communities in the United States constitutes a serious economic and social problem for millions of Americans. It also hampers sound economic development of many metropolitan regions. Part I of this Report examines the Treasons behind the lack of affordable housing and focuses on the role of government regulations-at the Federal, State, and local levels-that tend to make housing less affordable than it might otherwise be.

Governments find many reasons to adopt regulations that inhibit development of affordable housing in certain areas. One central and overriding cause is the dislike of both residents and public officials for additional or different kinds of housing in their neighborhoods and communi­ ties. This uncommonly powerful political attitude is often referred to as the NIMBY syndrome­ Not In My Back Yard.

Chapter I explores the NIMBY syndrome, identifies a number of other causes of regulatory barriers to affordable housing, and sets the stage for an exploration of how NIMBY attitudes have become imbedded in regulatory barriers in the suburbs (Chapter 2) and in cities (Chapter 3). Chapters 2 and 3 focus on State and local regulations. The Federal Government administers regulations that are intended to achieve highly important and worthwhile goals-notably environ­ mental protection-but that also contribute to the housing affordability problem; Chapter 4 examines the background and operation of these regulations as they affect housing affordability.

The Commission believes that shortages of affordable housing in key areas around the country stem from macroeconomic factors, the many manifestations of the NIMBY syndrome, and local regulatory barriers of the sort discussed in Chapters 1 through 4. But other forces also affect housing affordability, and Chapter 5 discusses them briefly. These forces include the housing finance and tax systems and Federal programs to assist lower income families by reducing the cost of decent housing. These subjects are beyond the purview of the Commission but are impor­ tant to the larger context in which this Report should be considered.

1-2 Chapter 1 The Causes and Regulatory Consequences of the NIMBY Syndrome

lmost every witness who testified before But the zealously guarded local control of land use the Commission found occasion to use the and development facilitates the translation of increasingly relevant acronym NIMB Y­ NIMBY sentiment into codes and ordinances that ANot In My Back Yard-to describe opposi­ effectively burden development and constitute tion by residents and public officials alike to addi­ barriers to affordable housing. The results are exces­ tional or different kinds of housing units in their sive growth controls, exclusionary zoning ordi­ neighborhoods and communities. These witnesses nances, unnecessarily drawn-out pennit and made clear that NIMBY opposition all too often approval processes, and arbitrary restrictions against leads to restrictive and excessive government land­ special types of housing units that combine to make use and development regulations that add unneces­ housing less affordable for many households. sarily to the cost of housing. Although costs vary Through such regulations, the NIMBY syndrome widely, the Commission has seen evidence that has become institutionalized at the local level. increases of 20 to 35 percent in housing prices Against the local institutionalization of the NIMBY attributable to excessive regulation are not uncom­ syndrome, there is little counterpoise from govern­ mon in the most severely affected areas of the mental institutions that consider public welfare country. within a broader perspective.

The NIMBY syndrome is often widespread, deeply This is not to say that NIMB Y attitudes form the ingrained, easily translatable into political actions, only basis for government regulations that make and intentionally exclusionary and growth inhibiting. housing less affordable. Among other causes are: NIMBY sentiment can variously reflect legitimate • An interest in reducing long-tenn concerns about property values, service levels, infrastructure maintenance costs (by requiring community ambience, the environment, or public developers to make costly front-end health and safety. It can also reflect racial or ethnic expenditures); prejudice masquerading under the guise of these legitimate concerns. It can manifest itself as opposi­ • An interest in protecting vested local interests tion to specific types of housing, as general opposi­ (by requiring or excluding the use of certain tion to changes in the character of the community, or building materials or construction practices); as opposition to any and all development. • A need to find alternatives to property tax or Personal sentiments intertwine with local govern­ bond fmancing of infrastructure (by using mental and quasi-governmental arrangements for various types of fees); regulating land development to make the NIMBY • A lack of awareness by local officials of state­ syndrome a major influence on development policies of-the-art building methods or materials in many communities. A long and fundamentally (leading to unnecessary or inappropriate sensible tradition in the United States holds that building requirements); and regulations affecting land use should be promulgated at the local level because that is where their effects • The fact that multiple agencies and levels of are most directly felt. Local government regulations government have similar regulatory for the most part provide sound guidelines for responsibilities (often resulting in redundancy, development. lack of coordination, and inconsistency).

I-I NIMBY Syndrome

Some of these factors interact with the NIMBY impact fees, time-consuming permitting processes, syndrome to strengthen barriers to affordable hous­ excessive subdivision controls, and obsolete building ing. Overcoming the syndrome will not remove all codes. Their significance can be seen in the dispari­ barriers to affordable housing, but it will be a major ties in affordability in different parts of the country. step. The regional values for the NAR index in December 1990 range from 82 in the West, where-regulatory barriers are widely regarded as particularly strong, to 144 in-the Midwest. The regional patterns are made up of numerous local diverse housing markets, The Impact of NIMBY on populations, and housing regulations. Because housing regulations are local, it is not surprising that Affordabi Iity affordability varies substantially within regions. In the West, for example, the NAR affordability indices Nationally, affordability for homebuyers has im­ range from 43 in Los Angeles to 119 in Denver.) proved in the 1980s, after deteriorating during the 1970s. The improvement has occurred largely be­ The regional and local NAR indices have been cause stable macroeconomic policy has reduced calculated only since 1983. They capture current inflation and, therefore, mortgage interest rates. differences in homeownership affordability, but not Mortgage interest rates were below 9 percent in long-term trends. Regulatory barriers to affordable 1970, rose to 13 percent by 1980, peaked at about 15 housing have been widely recognized as a problem percent in 1982, and dropped to 10 percent in 1990. 1 for many years but have become increasingly impor­ In addition to lower inflation and interest rates, the tant in the past decade. The longer-term patterns can growth of the economy has pushed up incomes faster be seen in the Census Bureau's price index for new than home prices. Both factors are clearly reflected homes, which has measured the cost of building the in affordability measures. The homeownership same house from year to year for more than 2 dec­ affordability index published by the National Asso­ ades (see Exhibit 1-2). The Census index is perhaps ciation of Realtors (NAR) had a value of 110 in the best indicator of the impact of regulation because 1990, meaning that a household at the national me­ regulations most directly affect construction costs dian income had 10 percent more than the amount and home prices. The Census Bureau reports both needed to qualify to buy the national median-priced national and regional indices. During the 1970s, existing house (see Exhibit 1-1). This value is below average sales prices, as estimated for a constant­ the 1976 value of 126, but well above the 1981 level quality house, rose sharply in the West, which is of 69. The general pattern of affordability for poten­ dominated by Calif-ornia, the western State consid­ tial flrst-time buyers is similar to that of all house­ ered to have the greatest affordability problems. In holds over the past 14 years, although it has been the 1980s, average sales prices for a constant-quality consistently more difficult for these families to buy house rose even more dramatically in the Northeast, homes and become homeowners. The pattern for while continuing to be high in the West. After 20 first-time buyers is not surprising; their resources are years, the differences among the regions are more more limited and they may have difficulty accumu­ pronounced than they were in 1970.4 lating a downpayment.2 Renters have also confronted affordability problems Through the 1980s, however, barriers to home­ resulting from regulatory barriers. One useful cost ownership affordability were erected that have coun­ measure is rent per square foot. This ratio has in­ tered the basic trend of improving affordability and creased in real terms during the past 2 decades, from now threaten to undermine it. Foremost among these 32 cents in 1971 to 63 cents in 1989 (both figures barriers are local housing regulations that drive up are in 1989 dollars). Rent per square foot was very the cost of building a home and, therefore, the cost of similar in the four Census regions in 1971, differing buying it. Such regulatory barriers include high by 2 cents or fewer from the national average. As

1-2 Chapter 1

Exhibit 1-1 NAR Affordability Index*

Year

• See endnote 2. Year Source: National Association of Realtors.

1-3 NIMBY Syndrome

Exhibit 1-2 Average Sales Price of Constant Quality Houses, by Region

Thousands of Dollars

$200

$180

$160

$140

$120

$100

$80 -I--=-.:::===..:.::;:..-'--...:=..::::..:..-="-----,{/-~L:.III~-"'::":--":":"":'----j --- Northeast ==::J' West

$60

'.'

$40

I ~ $20

1'70 '72 '74 '80· . '84 . '86 '88 - _~'-' I Year

Source: Current Construction Reports, U.S. Bureau of the Census, Washington , D.C.

1-4 Chapter I

with the new home price index, it then diverged over are not widely regarded as having particularly strin­ the next 2 decades, with all regions increasing sub­ gent regulatory barriers.9 stantially in real teIms. In 1989, the West had the highest value at 72 cents, and the Midwest the low­ Although regulatory barriers and the NIMB Y syn­ est at 52 cents.s drome do not account for all differences in affordability, they are certainly contributing factors. Rents rose in real t7ImS during the 1980s, by 9 Diverse housing prices and rental cost patterns percent nationally, after declining in the 1970s. across Ihe Nation reflect, in part, differing character­ During the 1980s, substantial regional and local istics of communities with respect to housing and differences also occurred for rents as well as con­ regulatory barriers that limit its availability. struction costs. Generally, real rents rose most rap­ idly on the east and west coasts, both regions widely regarded as having particularly serious regulatory barriers. The metropolitan areas of Boston, Los Angeles/Long Beach, and San Francisco/Oakland, The Personal Basis of for example, all experienced increases in real rents of more than 20 percent during the 1980s, while NIMBY Chicago, Minneapolis/St.Paul, Miami/Ft. Lauder­ dale, and Detroit had increases of 10 percent or less The heart of NIMB Y lies in fear of change in either (real rents in Miami actually decreased).6 Within the physical environment or population composition metropolitan areas, disparities are often more ex­ of a community. Concerns about upholding property treme, as individual jurisdictions erect barriers to values, preserving community characteristics, main­ rental housing. Rental affordability has worsened in taining service levels, and reducing fiscal impacts the North Bay counties of the San Francisco area in are often involved. Sometimes these expressed the past 4 years, for example, while it has improved concerns are also used as socially acceptable excuses in the Central Bay Area.7 for ethnic and racial prejudices. Whether genuine or used as excuses for other motives, such concerns The rise in housing costs has hurt lower income often generale strict development curbs. renter families, particularly in the West. Between 1974 and 1989, the proportion of very low-income renters with severe housing problems rose by 14 Upholding Property Values percentage points (from 29 to 43 percent) in the West, while it declined in the other three regions. Having a substantial investment in their home, During this period, which coincided with the prolif­ many homeowners fear changes they perceive may eration of regulatory barriers to affordable housing, lower property values. In neighborhoods of single­ the West changed from the region with the lowest family detached homes on large lots, for example, proportion of families with severe problems to one threatening changes include multifamily rental with the highest proportion. 8 housing, attached single-family housing, manufac­ tured housing, housing on small lots, or accessory Affordability problems are especially acute for poor apartments developed from unused space in single­ renters in Western metropolitan areas. The most family homes. Concomitantly, widespread biases recent data show that more than 85 percent of poor arise against less affluent households, renters, mi­ renters pay more than 35 percent of their income for norities, or simply those who are "different," which rent in the Los Angeles, San Francisco, and San often means those who are identified as typical Diego areas. For Los Angeles and San Francisco, the inhabitants of more affordable types of housing. In proportion has been increasing. Similar problems some cases, NIMBY objections to more affordable exist in other areas, such as Detroit, however, that housing and its typical inhabitants stem from honest

1-5 · NIMBY Syndrome

misconceptions about the effects of new develop­ contrast, the opportunities that growth brings to ment on property values. Those who express con­ those who live in communities under developmental cerns about property values are often unaware of pressure are more distant and less tangible and evidence showing that expanding the mix of housing visible. types in an area will not adversely affect property values.1O What established residents can immediately see is the short-term physical effects of growth. Roads that were previously able to carry their traffic load ad­ Preserving Community equately are now congested. For example, in Cali­ Characteristics fornia the number of lane-miles of congested freeways and highways has been rising 15 percent In some instances, NIMBY sentiment involves each year as the road system has used up the excess opposition to development projects even though the capacity built into it several decades ago. Speeds projects would markedly raise property values. It is have slowed precipitously and daily trips take two or not unusual, for example, for residents of low­ three times as long as they did a few years ago. density communities to resist the subdivision of Residents also note air quality that was previously vacant land for residential construction, even if the good is now often poor and harmful to health. The proposed development involves very expensive incidence of respiratory ailments rises. Residents homes. They fear the destruction of scenic vistas, worry that water supplies are no longer adequate; open space, and the tranquil ambience of their ham­ they are sometimes forced to ration usage. Water let resulting from the presence of more people, more quality suffers; many areas are at or beyond the traffic, and more commercial enterprises. Similarly, capacity of their wastewater and sewer systems. residents of well-established neighborhoods, charac­ Schools that could previously operate on a single terized by homes of a particular historical period or session now operate on double and trip-Ie sessions. architectural design, have battled encroachment from A common response to such deterioration in services luxury high-rise projects to preserve neighborhood and to infrastructure inadequacies is to support aesthetics, although property values would increase regulations that reduce the pressure on infrastructure considerably as a result. Those who live in historic and services by slowing development. districts or in scenic, rural areas have often gravi­ tated to such places precisely because of their unique characteristics, and they fear these characteristics Reducing Fiscal Impacts would be irretrievably lost as a consequence of changes brought about by development. NIMBY sentiment may also reflect taxpayer concern about the fiscal implications of new development, especially with regard to the provision of infrastruc­ Maintaining Service Levels ture. Furthermore, infrastructure development and other growth-related expenditures sometimes com­ NIMBY sentiment sometimes reflects worries about pete for priority with health and welfare responsibili­ pressure that additional or different kinds of housing ties mandated by Federal as well as State put on public or social services in the community. governments. Residents' unwillingness to pay for The perceived connection generally elicits strong infrastructure associated with growth has been a emotion and response. It may be true that growth major issue in many communities. and development contribute to well-being by open­ ing up and spreading economic opportunities to Property taxes have traditionally been the largest large numbers of households, but long-time commu­ revenue source for local governments, but rapidly nity residents and public officials responsible for increasing property taxes led to taxpayer revolts in meeting their needs see the negative manifestations the 1970s and early 1980s and resulted in the pas­ of growth on an immediate and concrete level. By sage of State laws specifically restricting local

1-6 Chapte( i '. , ,

governments' ability to raise revenue from property taxes. As of 1985, 31 States had imposed property tax rate limits on local governments and 6 States had adjusted either constitutional or statutory limits on Institutional Aspects of the total amount of revenues local governments NIMBY could collect annually. As a result, property taxes are now down from 36 percent of total local revenues in Personal concerns about property values, the charac­ 1972 to 25 percent throughout the 1980s, teristics of new neighbors, service levels, community ambience, the environment, or public health and In addition, some sources of financing, including safety-the. NIMB Y syndrome-are transfonned Environmental Protection Agency (EPA) grants for into regulatory barriers through the electoral process sewer and water treatment facilities, traditionally and through public forums where neighborhood available to local governments to pay for necessary groups exert their greatest influence over land­ infrastructure, are no longer available or are avail­ development decisions. able at reduced levels. The Tax Refonn Act of 1986 has also restricted the use of municipal bond pro­ ceeds for quasi-public projects by imposing ceilings NIMBY and the Local Control up to allowable limits. of Development

The effect of these changes in fiscal structure should Most of the mechanisms citizens use to influence not be overstated. Although local governments' real land development are local, just as most decisions property tax revenues per capita declined as a result affecting land development and housing of the tax-limitation movement, total local govern­ afford ability are local. Hence, a particular symbiosis ment revenues have increased significantly. Real per exists between NIMBY sentiments and the institu­ capita local government revenues were 23 percent tionalization of NIMBY. It is at the local level that higher in 1988 than in 1980, and 29 percent higher officials responding to citizen concerns enact growth in 1988 than in 1972. Local governments and local controls such as capping the number of building residents have been less willing to pay for infrastruc­ pennits issued or imposing moratoria on sewer ture, but not in general less able to do so. hookups. It is local zoning commission members who, responding to citizen petitions for the exclusion of certain kinds of housing, regulate density by Preserving Homogeneity imposing minimum lot sizes or zoning only for single-family residential uses. It is local policy that Community residents who are especially concerned requires overly wide streets, excessively elaborate about the influx of members of racial and ethnic sanitary systems, or large tracts of open space. Local minority groups sometimes justify their objections officials also control the pennit and approval process on the basis of supposedly objective impacts like where they can fashion around the development lowered property values and increased service costs. process such a tangled skein of red tape it takes For example, they may maintain that more afford­ years to unravel. As things stand, all of these actions able multifamily housing will decrease the value of are undertaken by local governments acting with single-family housing in its vicinity. Such residents little direction from or oversight by State are unwilling to admit to prejudice against minority governments. group members and use the subterfuge of these other concerns when making their case: Racial and ethnic Complicated and lengthy pennit and approval sys­ prejudice thus is often one root of the NIMB Y tems do not always evolve by design, but where syndrome, though NIMBY concerns also exist NIMBY sentiment is strong and vocal, this system is where racial or ethnic differences are not involved. clearly a leverage point. For example, a community

1-7 NIMBY Syndrome

can use the requirement for environmental impact through fees and exactions levied by local statements, involving extensive surveys and studies governments. by a developer and reviews by various agencies, to slow the development process intentionally. The Influence of NIMBY Although good arguments support local control over Groups land use and development, the NIMBY syndrome has thrived under opportunities that local control As established residents of the community, local provides. That regulations affecting development officials have an interest in ensuring that public tend to institutionalize parochialism, pitting commu­ benefits of regulation coincide with those of existing ruty residents against nonresidents, is not difficult to homeowners, who vote and pay taxes. Local elected understand, considering the political geography of officials are necessarily sensitive to community development decisions. concerns. In virtually every suburban community there lies the potential for citizens groups rallying Although the complex series of exchanges that behind candidates who run on NIMBY platforms, constitute the metropolitan economy may be spread and many established lawmakers have found them­ out over its entire area, the separate local jurisdic­ selves turned out of office by maverick candidates tions within the area are the source of most regula­ who do so. These no-growth candidates promise less tions affecting development. Most metropolitan crime, less school overcrowding, and less road areas consist of many such local jurisdictions, each congestion. No-growth platforms appeal to those autonomously making land-development decisions who want, beyond all else, to preserve the status meant to address the concerns of its own quo. Only at their peril will politicians interested in constituents. keeping constituents happy discount neighborhood group concerns about preserving the character of the Because development regulations apply only within community. Testimony before the Commission jurisdictionarbounds, officials tend strongly to suggests that the Not-In-My-Term-Of-Office­ fashion them to reap the benefits of development NIMTOO--phenomenon is an inevitable offshoot of while incurring few of its costs. Local officials have strongly felt and persuasively expressed NIMBY powerful fiscal incentives for externalizing-loading sentiment. onto somebody else-the costs of population mobil­ ity that accompanies regional economic activity. In addition to lobbying elected officials, NIMBY Thus, households coming into the area in pursuit of groups regularly participate in the regulatory process jobs are viewed as potential drains on a community's through vocal input at public forums and hearings tax base because they consume in services more than dealing with land-use and development issues. they pay in taxes. By contrast, employment centers Unlike the strict rules governing judicial proceed­ associated with the jobs that attract these households ings, many localities have no specific rules regarding are viewed as tax assets to be encouraged. Unfortu­ who can testify at public hearings or what rules of nately, such decisionrnaking is particularly disadvan­ evidence apply. Participants often represent ad hoc tageous to outsiders wanting to move into a groups that coalesce around a particular develop­ commuruty. Because communities naturally prefer ment issue. They can be very effective at packing activities that generate high tax revenues, they place hearing rooms and leaving the impression that public severe restrictions on the development of affordable opinion is strongly against whatever project they housing, including housing for those already work­ oppose. ing there. Despite the fact that the extension of infrastructure and services ultimately benefits the Procedural rules governing participation in the entire economy of the area, it is new homebuyers regulatory process are loose in many respects. Yet who find themselves bearing the brunt of its costs formidable hurdles discourage nonresidents' partici­

1-8 Chapter I

pation in the process, even where their welfare is against the interests of outsiders and deprive many directly involved. Although public forums are not households of affordable housing opportunities. officially closed to nonresidents, notices of hearings But the welfare of a State's citizens need not suffer or invitations to testify are often restricted to resi­ when these responsibilities devolve upon local dents. Nonresidents are, therefore, less likely to hear government. about such forums, while residents are able to pre­ pare and make their case in force. Although States have responsibility for the general welfare of their citizens, they have not always delin­ The disadvantages of nonresidents in pressing their eated officially what such responsibility entails. For interests in the face of the NIMBY phenomenon are example, with a few notable exceptions, most State not just procedural. The nature of the zoning process courts have not clarified the meaning of the general militates against outsiders' claims and reinforces the welfare responsibility clause found in State constitu­ claims of established residents. Zoning ordinances tions. And many State constitutions are ambiguous subdivide a community into districts or zones to about the fact that the general welfare is ill-served separate incompatible uses, densities, and building by a local ordinance that constricts the supply of types. Thus, property owners' claims-that contigu­ affordable housing. Moreover, the courts often ous uses affect the enjoyment and economic benefits presume the validity of State zoning enabling legis­ derived from their property-are supported by lation and local zoning ordinances, and are disin­ regulations enforcing compatibility of uses within clined to hear challenges to them. Thus, those zones. Those advocating more affordable housing in affected by the NIMBY syndrome are caught in a a community cannot, in the same way, point to a "Catch-22" situation. They find no relief through the precise location on the map where benefits of afford­ courts because the courts accept zoning as a valid able housing are being deliberately withheld and legislative function, and they find no recourse particular households are being harmed. What is through the legislature because the legislature leaves more, nonresidents may not know exactly where it to the courts to deal with statutory challenges. they want to buy or rent; the "harm" to them seems remote, the remedy deferrable. As for the citizens and public officials who exhibit the NIMBY syndrome at the grassroots level, it is clear from their support for more restrictive regula­ tions that they often push aside the compelling need for affordable housing. Instead of dealing with the negative side effects of growth and with irfrastruc­ Checking the Effects of ture financing problems, they take the expedient NIMBY and NIMTOO course of declaring their communities off limits to most development. Yet communities where the NIMBY and NIMTOO raise questions about how NIMBY syndrome is entrenched are quick to invite best to provide for general welfare when it comes to those households seeking affordable housing to land-use and development decisions. Under the search in neighboring jurisdictions. Unfortunately, American Federal system, States are the custodians when many jurisdictions in a metropolitan area all of the welfare of their citizens and, in turn, can place other concerns before the need for affordable delegate police powers to local units of government. housing, households seeking affordable housing may Using these powers, local governments can levy find themselves shut out of the entire metropolitan fees, issue permits, and carry out zoning and other area. As a result, everybody suffers in one way or land-use and development controls. Relatively another. unfettered local use of these powers can conspire

1- 9 NIMBY Syndrome

Endnotes 5"Characteristics of New Housing: 1989," Current Con­ struction Reports, C-25, and, "Characteristics of Apart­

I New home mortgage yields, as reported by the Federal ments Completed," Current Housing Reports, H-131, Housing Finance Board and defined as the effective rate U.S. Department of Commerce, Bureau of the Census, in the primary mortgage market reflecting fees and and U.S. Department of Housing and Urban Develop­ charges as well as contract rate and assuming, on the ment, 1975 and 1989. average, repayment at the end of 10 years. 6 "Consumer Price Index Detailed Report," U.S. Bureau of 2The NAR interprets an index value of 110 in 1990 as Labor Statistics. showing a family earning the median family income of $35,581 had 110 percent of the income required to qualify 7 "Housing and Development Report," Bay Area Council, marginally for a conventional loan covering 80 percent of Vol. 4, Feb. 1991, p. 3. the median existing single-family home price of $95,500. First-time buyers are defined as wage-earning renters, 8The very low-income renters for whom it is possible to aged 25 to 44. The index for them is the ratio of the track changes consistently over time are unassisted fami­ median income for the group to the minimum income lies and elderly households with incomes below 50 required to qualify for a 90 percent mortgage on a starier percent of the local median income. Households with hl)use (priced at 85 percent of median of all existing severe housing problems spend more than 50 percent of houses for sale). "Home Sales," National Association of their income on rent and/or live in units that are seriously Realtors, Feb. 1991. deficient, lacking basic features such as adequate plumbing. 3 The NAR affordability index values have been calcu­ lated for 22 of the larger metropolitan areas. Only four of 9 "Annual Housing Survey: 1974-76, Housing Character­ these, Denver, Houston, Pittsburgh, and Phoenix, have istics for Selected Metropolitan Areas," and "American index values much greater than the region in which they Housing Survey for (Selected) Metropolitan Area(s) in are located. It is therefore evident that the sma:ller metro­ 1985-87," Current Housing Reports, If-170, U.S. Depart­ politan areas within each region not separately reported, ment of Commerce, Bureau of the Census, and U.S. and the non-metropolitan areas, have higher index values. Department of Housing and Urban Development. Note: This pattern is to be expected: anecdotal evidence indi­ For 1974-76 data, income categories below $5,000 were cates that affordability problems are most severe in the used; renters with incomes below the poverty level were larger metropolitan areas. In the Northeast, the NAR used for 1985-87 data. affordability indices ranged in the fourth quarter of 1990 from 47 in the New York metropolitan area to 90 in 10 See discussion titled "Beliefs About Property Values" in Philadelphia In the Midwest, the indices ranged from 83 Chapter 8, page 2, as well as the reference in Chapter 8, in Chicago to 134 in Detroit. The South had a range from Endnote 1, to "The Effects of Subsidized and Affordable 90 in Miami/Hialeah to 149 in Houston. Housing on Property Values: A Survey of Research," Department of Housing and Community Development, 4 "Price Index of New One-Family Houses Sold," Current State of California, Sacramento, 1990, p. i. Construction Reports, C-27, U.S. Department of Com­ merce, Bureau of the Census, Mar. 1984 and Mar. 1991 .

1-10 Chapter 2 Regulatory Barriers in the Suburbs

"Not In MyBack Yard" Removi ng Barriers to Affordable Housing

Report to President Bush and Secretary Kemp by the Advisory Commission on Regulatory Barriers to Affordable Housing Regulatory Barriers in the Suburbs

as the Nation as a whole in the 1990s. In 1989 alone, only reason for local policies to restrict growth; the State grew by nearly three-quarters of a million many California communities had adopted restric­ people. I Indeed, one-quarter of all growth in the tive ordinances and regulations before 1978. But United States during the 1980s occurred in Califor­ limitations on the use of property taxes to pay for nia. 2 Much of this growth is fueled by in-migration infrastructure have forced policymakers either to from other regions of the country and from South­ find new sources of financing or limit growth. east Asia, Latin America, and other parts of the world. Many of the immigrant groups seek economic opportunity and a better standard of living. Califor­ Devices Used to Control nia is adding jobs faster than any other State in the Growth United States; since 1982, it has created 2.8 million Growth-limiting devices include: downzoning to new jobs. The State's $700 billion economy makes it one of the 10 largest in the world, and its location on increase lot size and allow fewer housing units to be the Pacific rim guarantees its position within the built; zoning tracts of land for agricultural use and fastest growing trade zone in the world.' thus removing land from the residential development inventory; and placing caps on building permits to Residents of communities in California and other allow only a fixed number of housing units to be areas that are at the epicenter of growth are naturally built within a given time. Growth-control measures concerned about road congestion, overburdened also include curbs on development brought about by sewer and water systems, unhealthy air quality, and tying growth to the infrastructure needed to support overcrowded school systems. In many real respects, it. Communities using such measures have refused to the quality of life may suffer in communities experi­ increase their level of capital spending, even in the encing rapid growth. Under these circumstances, the face of development pressures, and have used inad­ tendency to resort to the quick fix of placing restric­ equate infrastructure as a justification for slowing tive regulations on development is not uncommon. growth. In fact, one of the most effective ways of Indeed, in response to these growth pressures, by the limiting growth is to relate development to the end of 1988, 907 local growth-control or manage­ availability of public services. ment measures had been enacted in the State to slow Some localities intentionally drag their feet during development.4 Local decisionmakers are also fearful the building permit and approval process, using their of their inability to pay for increased infrastructure ability to delay issuing approvals as an evasive to support growth because of the loss of revenue strategy aimed at halting growth. Ad hoc groups sources traditionally used to pay for infrastructure. opposed to growth are playing an increasingly cen­ The Proposition 13 cap on property taxes is not the tral role in precipitating such delays.

The California court specifically addressed the question of a city restricting extension of utility service outside its boundaries to achieve growth control when the City of Santa Rosa was challenged by a developer. The trial court upheld the city position that it was not a public utility and, therefore, not required to extend service to non-contiguous development. The court determined that the city's urban development strategy was a valid exercise of police powers. Julie Hayward Biggs The Urban Lawyer Vol. 22, No.2, Spring 7990

2- 2 Chapter 2

Planning and zoning boards cannot easily dismiss neighbors. But no one suburban government can concerns raised by such groups about putative unilaterally reduce the total growth of its metropoli­ project impacts. Ad hoc groups can stymie develop­ tan area by adopting growth-limiting policies within ment by questioning the appropriateness of projects its own borders. All growth-limiting policies on any number of grounds. These vocal concerns adopted by one community simply displace the same can sometimes cause long delays in the issuance of amount of growth to other communities. Therefore, project approvals and permits, which can make it all such policies are essentially "beggar-thy-neigh­ infeasible for some projects to go forward and can bar" policies. They do not solve any problems asso­ add significantly to the costs associated with those ciated with or caused by growth, but simply move that do proceed. them around within the metropolitan area.

Rather than barring growth altogether, some com­ The Consequences of Selective munities selectively encourage certain kinds of Growth Controls development, while discouraging others in an at­ tempt to benefit from growth without paying for its Resorting to such devices as capping building per­ costs. Although bound to the same metropolitan mits and delaying permits and approvals can tempo­ economy, independent jurisdictions within many rarily alleviate the problems of congestion and air metropolitan areas have made separate decisions and water quality, and reduce the strain on local about how much and what kinds of growth to allow. facilities and services. But sometimes the controls Some see themselves as exclusive residential en­ merely exacerbate the problems that opponents of claves, and use their land-use controls to insulate growth are hoping to contain. For example, when themselves from all but middle- and upper income development is forced to leap-frog over jurisdictions households that can afford ample lots and large, that cap building permits, congestion in the region single-family homes. Some of these communities actually worsens because more traffic is generated see themselves as corporate and employment cen­ by the longer trips required. ters. They may be hospitable to commercial projects such as business parks and shopping centers, but set When a few select communities in a metropolitan a cap on permits for residential development. Busi­ area adopt development strategies designed to mini­ nesses are generally thought to have favorable ratios mize congestion and avoid what they see as an of tax payments to service costs; residences are not. overuse of their facilities or degradation of their aesthetic environment, they simply shift congestion Communities attracting high tax-ratable, primarily and other tangible burdens of development onto their commercial development, and discouraging lower

I have compared the homes that had been sold, in selected pairs of years, before and since the growth control initiative was passed, witnin the unincorporated portions of Santa Cruz County, with similar sets of homes in nearby areas in overlapping subregionai markets... .lt is safe to say that, after 10 years of growth control, the prices of - owner-occupied houses are, across the board, at least 10 percent higher tnan they .would have been in the absence of controls.

Paul Niebanck

2-3 Regulatory Barriers in the Suburbs

tax-ratable residential development are attempting to strategies, if only as a defense. Ultimately, entire strengthen their local tax base and hold residential metropolitan areas may become inhospitable to service costs to a minimum. Although this strategy growth OI may selectively attract commercial devel­ may seem rational from their perspective, it contrib­ opment while discouraging all but high-end residen­ utes to fiscal inequities among communities in a tial development. metropolitan area by forcing neighboring jurisdic­ tions that provide housing for persons priced out of Wnen the majority of localities in a metropolitan the community where they work to bear a dispropor­ area selectively issue permits for business facilities tionate share of the service costs associated with new while denying permits for residential projects, they development. As it stands now, only a few places, contribute to one of the most serious consequences such as the Twin Cities in Minnesota, provide for of selectively applied growth controls-a metropoli­ tax-base or revenue sharing among neighboring tan-wide imbalance between the location of jobs and jurisdictions to make up for such tax-base the location of affordable housing. The imbalance discrepancies. often engenders onerous commuting patterns. Many people are unable to live near where they work For a time following the adoption of such strategies, because of the lack of affordable housing. Instead, the growth-attracting features of the larger metro­ they must seek out communities at the exurban politan area may be sufficiently strong to cause new fringe or beyond. Paradoxically, as outlying commu­ development simply to skip over those jurisdictions nities begin to grow in size, new residents are often where it is discouraged and to concentrate in juris­ at the forefront of efforts to adopt growth controls dictions without regulatory barriers to growth. Over there, forcing residential development even farther the longer term, however, there is often a band­ from employment and commercial centers. wagon effect: Neighbors of communities that em­ ploy fiscal development strategies and strict growth The widespread s.trategy of encouraging commercial controls begin to adopt their own growth-limiting development in the metropolitan region, while

~ : ~iverinore, Ca.fifornia, is bordered by two jurisdictions that are major job centers but ,that look to livermore to create the housing their workers require. Since Livermore does not share in the revenue generated by development in these employment centers, . iUs now actively encouraging commercial development of its own while placing caps ·:ion .residential projects. " Cathie Brown, Mayor Livermore, California

t ' irrMoreno Valley, California, the morning rush hour begins a little after 4:00 a.m. as "- .thousands.of sleepy commuters-mostly men-stumble into their cars to begin their . 70-mile westward trek to the job centers of Orange County. If they're lucky, they'll slip .~ ;#trough the Highway 91-lnterstate 15 bOttleneck in nearby Corona before 5 :00, when . " 'the morning traffic jam typically begins. That way, they'll be in Orange County by '. :. '6:00, able to. catch an extra hour of s1eep in their cars before the workday begins. Willia,n Fulton "The Long Commute" Planning, July 1990

2-4 Chapter 2

failing to ensure places that provide affordable new development can occur, is a good example of housing to workers, can backfire. Southern Con­ how such a linkage has led to unintended--conse­ necticut, for example, is learning belatedly that quences. Although the policy was adopted to prevent providing affordable housing is of paramount impor­ infrastructure backlogs from developing, it has not tance in preserving the special economic advantages had that effect because it did not solve the problems of an area. Although the State experienced an enor­ of infrastructure financing. In order for supporting mous economic boom from relocation of corpora­ infrastructure to be in place before new development tions out of Manhattan (Stamford has become the can occur, the revenues to pay for it must be avail­ third-largest headquarters city for Fortune 500 com­ able and earmarked for that purpose. But such rev­ panies), some corporations in Connecticut are now enues have not been earmarked. John DeGrove, the concerned about their ability to attract employees author of the concurrency policy, told the Florida because of the prohibitive housing prices in commu­ State legislature at the time it was debating the nities that have imposed growth controls. Companies policy, "If you're not willing to pay the bill for finding it difficult to recruit workers to Connecticut concurrency, don't do this." Tallahassee is a case in localities with high housing costs are beginning to point, bearing out DeGrove' s concern. Like most think twice about expanding or remaining there. other communities in the State, it is far behind in expanding its road network to meet the needs of its The economy of an entire area can suffer a signifi­ burgeoning population. Lacking the funding that cant downturn when several industries or businesses would be required to expand its road system, the city come to the common conclusion that an area is appears to have little choice under Florida's inhospitable because affordable housing is not avail­ concurrency policy but to impose moratoriums on able for their workers. Silicon Valley in California is development, thereby endangering its economic a good example. Because growth-control policies are boom.6 so common there, firms have begun to follow house­ hold migration patterns and relocate to the Central Valley where housing is more affordable. In a com­ parison of the ratio of housing units to jobs in large central cities and their suburbs in different regions of the country, suburban San Jose-located in the heart Restrictive and of Silicon Valley-was the only area having more Exclusionary Zoning jobs than housing units, with a ratio of 0.74 housing 5 units for every job. Although the clustering of Local zoning ordinances that prescribe land uses, electronics firms that made Silicon Valley world­ densities, and building heights are the most powerful famous preceded the current affordable housing and pervasive tools by which localities regulate problem, the subsequent slow-growth policies of its development. When used in an exclusionary marmer, suburban areas have made it more difficult for work­ they have a notable impact on residential land costs, ers employed in these industries to fmd suitable especially in preferred suburban locations. Recent housing. Firms are also leaving Orange County and studies of the cost impacts of zoning patterns in relocating in the more affordable Inland Empire of suburban Washington, D.C., counties, for example, San Bernardino and Riverside Counties, which has show that restrictive ordinances add about 10 per­ become the fastest growing job market in the United cent to the price of a home beyond what is necessary States. to ensure health, safety, and welfare.7 This sur­ The strategy of tying growth to the availability of charge is notable because it reflects the price effect infrastructure can backfire. Florida's concurrency of restrictive zoning exclusive of all other costly policy, which requires that supporting infrastructure regulatory barriers; which combine to drive up be already in place or soon to be put in place before suburban housing prices even further.

2-5 Regulatory Barriers in the Suburbs

The Rationale for Zoning enhancement of community property values. Multi­ family housing was simply assumed to have a nega­ Zoning is intended to ensure that contiguous land tive effect on single-family property values. Euclid uses are compatible by requiring that they conform still stands as the law today, greatly reinforcing to a preconceived master plan or set of public pur­ NIMBY opposition to more affordable forms of poses. Before zoning, the only way to ameliorate housing. adverse impacts from abutting but incompatible land uses was to file an injury claim after the fact. By contrast, the central idea of zoning is the separation Problems With Zoning of incompatible land uses before they occur, in order Many communities have used their zoning powers to to avoid haphazard land-development patterns and provide suitable land parcels for more affordable the negative externalities they can create. For ex­ housing, including multifamily housing. Unfortu­ ample, zoning ordinances attempt as a rule to con­ nately, in others zoning restrictions are driving up tain the spillover effects-noise, congestion, the cost of housing and making it less affordable, unhealthy emissions--{)f commercial and industrial without serving any public purpose. Zoning has land uses by segregating them from residential uses. evolved as a purely local government function, In actual practice, the separation of districts and land reflecting the values and attitudes of established uses resulting from the zoning process has not al­ residents of the community. In drawing up compre­ ways been guided solely by the compelling consider­ hensive plans and making land-use decisions, local ations of health or safety. No universal standard is agencies and boards have assumed that they need accepted by all jurisdictions for determining whether look only within their own borders and meet the particular land uses are incompatible. In this situa­ needs and serve the desires of the people already tion, exclusionary criteria based on community living there. This view ignores the fact that many sentiments sometimes prevail. In some places, critical activities, including employment and trans­ single-family homes are chosen as the standard for portation, take place at a metropolitan level, and that preserving neighborhood homogeneity, and desires intra-metropolitan population mobility is continuous. for such intangibles as community ambiance influ­ In States where localities have home rule powers, ence the zoning process. The more affordable hous­ local control over the process is all the more en­ ing types, including multifamily housing, trenched. State legislators who come from such manufactured housing, accessory apartments, and localities seldom seem inclined to support legislation single-room-occupancy dwellings, are often cited as that would alter local control over land use. Follow­ incompatible uses. ing the Euclid decision, the States exercised their authority to set up the groundrules for local zoning To some extent, the bias against more affordable and, with only a few exceptions, have done little to kinds of dwelling units was already apparent in the alter the rules since then. 1926 Euclid v. Ambler case, in which the U.S. Su­ preme Court established zoning as an appropriate The values and norms regarding community charac­ use of the police powers that States could delegate to ter represented by zoning boards may not be shared cities. Although such delegation was supposed to by all those affected by their decisions. Board mem­ promote the general welfare, zoning advocates who bership generally consists of local residents who argued before the Supreme Court made no attempt to have a stake in enhancing property values and pre­ conceal their distaste for multifamily housing. In serving the ambience of their community. Their justifying the exclusion of apartments from areas actions, therefore, tend to exclude housing types and where single-family housing dominated, the Court in households considered less desirable. Not surpris­ Euclid likened their proximity to "a pig in the parlor ingly, especially in suburban areas, there is often a instead of the bamyard."8 One amicus curiae brief bias toward single-family detached housing on equated the promotion of public welfare with the generous-sized lots.

2- 6 Chapter 2

The bias in favor of single-family housing units may zoned for-multifamily rental housing. Similarly, persist in spite of market demand. A witness from alternative housing types, such as modular and Oregon told the Commission that, at one point, one­ manufactured housing and accessory apartments, half of all demand (based on application rates for are also frequently zoned out. building permits by developers) for new housing in the Portland area was for multifamily units, while only 7 percent of vacant land for residential use was Inclusionary Zoning zoned for multifamily development. In many places The Euclid case established the legality of zoning, even less land is available for multifamily rental including the practice of segregating housing types, housing. For example, in Fairfax County, Virginia, a but this is not all it established. The ruling left open large suburb of Washington, D.C., out of211,904 "the possibility of cases where the general public I acres zoned for residential use, only percent are interest would so far outweigh the interest of the

In the Northeast: In Connecticut, where the home rule principle is jealously guarded, many suburban communities around Bridgeport have an aversion to higher density housing. In these communities, 2-acre zoning prevails. Easton, for example, has exercised its local prerogative of zoning at an even lower density.

Joe McGee, former Vice President People's Bank, Bridgeport, Connecticut In the Midwest: Many communities jn suburban Chicago zone out manufactured housing and make use of estate zoning with 5-acre lots as a minimum. In Barrington Hili's, for example, homes are very expensive. Attempts to push homesharing in some of these communities, allowing elderly homeowners to use part of their homes as rental units, are prohibited by local zoning codes that may be holdovers from the 1960s and 1970s when, in an attempt to discourage hippie communes, unrelated individuals were prohibited from subdividing the same house.

Suzanne Hayes, Community Development Director Cook County Department ofPolicy, Planning, and -­ Development, Cook County, Illinois

In King County, Washington, the county where Seattle is located and which recorded -the single largest 1-year increase in housing prices among American cities between . 1989 and 1990, more than 1,500 square miles of land are zoned to allow on.ly 1 house .per 5 acreS of land. - ­

"Tom McCabe, Exealtive Vice-:P~ident . Building Industries Association of Washington

2-7 Regulatory Barriers in the Suburbs

municipality that the municipality would not be inclinations of whoever may be interpreting the allowed to stand in the way."9 Thus, the Court ordinance and granting exceptions to it. County envisaged the possibility that the States might have councils, zoning board members, and local citizens to become involved where local zoning ordinances who come to zoning hearings can always discover were extremely prejudicial to the general welfare. objections to a particular project based on the extent For the most part, however, the States have not to which it encroaches on their own neighborhood, become involved. Instead, local governments have even when they would voice no such objections if sometimes counteracted the exclusionary effects of the same project were located elsewhere. their own zoning ordinances by adopting inclusionary measures to ensure the availability of some affordable housing. Perhaps the most common way of ensuring the Excessive Subdivision availability of some affordable housing in the face of restrictive zoning is by establishing a quid pro quo: a Controls locality agrees to relax its zoning restrictions on density in return for a developer agreeing to provide Subdivision ordinances that regulate the physical moderately priced units. The higher density not and design characteristics of new housing, or require absorbed by the moderately priced units becomes a onsite and offsite improvements, are now common­ bonus to the developer. By practicing inclusionary place. Some clearly add unnecessarily to housing zoning on a selective basis, communities are able to costs. For example, extraordinarily wide side-yard appeal to very different constituencies. Because they setbacks can add to the visual ambience of a com­ preserve restrictions on higher density development munity, but they also add to the costs of laying water in the official zoning ordinance, communities reas­ and sewer lines between houses separated by gener­ sure those who press for lower densities to preserve ously proportioned yards. They can also increase their property values. At the same time, those who costs because more land per unit is required and land advocate affordable housing are glad to have gained costs are often very high. at least the units created by the inclusionary variance. Gold-Plated Standards Inclusionary zoning used as a remedy to exclusion­ ary practices raises a number of problems, including Many communities require excessive standards to constitutional challenges based on due process, reduce long-term maintenance costs on the infra­ equal protection, and uncompensated takings. When­ structure they will eventually inherit from develop­ ever a developer is constrained from putting land­ ers. Because these communities lack sufficient holdings to a reasonable economic use, these funding sources for infrastructure repair and capital considerations may come into play. Communities improvements, they want to hold these costs to a that practice inclusionary zoning often compensate minimum. Some communities gOld-plate their subdi­ developers through density bonuses and, in this way, vision ordinances because they know that develop­ attempt to defuse the constitutional arguments. In the ers, rather than the local voters, are paying. Other absence of such density bonuses, the developers may communities attempt to uphold a standard of design raise no legal objection if they are able to increase and amenity that enhances property values for estab­ the price of the market-rate units to compensate for lished residents of the community, without concern affordable units. for the impact that such design standards will have on the housing costs of new residents. For example, In addition, when the opportunity for inclusionary requirements that all streets must be 30 to 36 feet zoning occurs as a variance to a more restrictive wide--even where narrower, less costly streets zoning ordinance, its continued use is subject to the would be more appropriate and would not jeopardize

2-8 Chapter 2

public safety-simply add to the price of new hous­ storm sewer systems can, for example, lead to run­ ing. In one Joint Venture for Affordable Housing off and soil erosion after rain storms. demonstration project, the cost savings from reduc­ ing street and right-of-way width requirements was Site-improvement standards can also be excessive in $705 per 101. 10 Besides adding directly to the sticker light of contemporary technology. Many new cost­ price of a house, excessive subdivision controls can saving site-development methods and techniques are also restrict competition among builders. Because not being fully exploited because of overregulation only developers with substantial financial resources and inflexible design requirements. For example, the can meet large up-front cash requirements, such a use of curvilinear sewers is still restricted in many restricted competitive environment may also raise places despite the fact that such sewers eliminate the housing costs. need for costly manholes required wherever a grade or slope changes along a sewer line. Likewise, mountable, rolled curbs are not widely used despite Inflexible Standards the fact that they eliminate the need for making driveway cuts when streets are laid out before house In other instances, site-improvement standards sites have been identified. Site-improvement regula­ appear to be relatively inflexible because of the tion is more often the product of local politics and narrow focus of the interests involved in developing long-held beliefs concerning the role of regulation them and the difficulties associated with modifying than the result of technically based studies and them. Standards and requirements generally reflect current professional expertise. input from local civil engineers, public safety offi­ cials, insurance companies, professional building code associations, and others; once established, Varying Standards community officials are often reluctant to change them, even when the standards no longer meet the Where subdivision ordinances reflect the personal need for which they were intended. Indeed, in some preferences of local elected and volunteer officials, cases they do hann. Wide streets drained by closed they are likely to differ from community to commu-

Many communities around Columbus, Ohio, require concrete-based streets, even though engineering professionals contend this is too burdensome and far too costly for typical residential traffic. Other communities also use a cul-de-sac radius requirement that can accommodate the largest firefighting equipment-normally a hook-and­ ladder-despite the fact that this vehicle is never dispatched to single-family reside[1tial neighborhoods.

Gloria M. Snider, Executive DirectOr Columbus and Franklin County Housing Commission . ­ Orlando, Florida, requires manholes to be placed no more than 200 feet apart and to ' have changes of direction, which are carry-overs from an erawhen -clean-out capabilities and construction techniques were not as adv~nced as .they are today. Yet,­ manholes cost $3,800 a piece or $150 a lot. Tim Leadbetter, 'President Timber/eafAssociates, Orlaooo, Florida ­ ---~~ '.

2-9 Regulatory Barriers in the Suburbs

nity. Differing, conflicting, and contradictory local costs. [n communities where distinctions between ordinances within the same area or State make it insiders and outsiders are nurtured through growth difficult and consequently more costly for builders, controls and exclusionary zoning, the demand for architects, designers, and civil engineers who must off-site improvements is consonant with their gen­ be familiar with the unique requirements of each eral view that new development is a privilege that locality. can just as easily be taken away as granted.

Requiring Offsite Improvements Inequitable Fees on In addition to onsite improvements required of developers by subdivision ordinances, jurisdictions Development are increasingly extracting offsite improvements as the price of admission-land dedications, recre­ Through various fees and assessments, as well as ational facilities, schools, police or fire stations, and requirements for offsite improvements, communities libraries. These take the NIMBY syndrome a step can force developers to pay for infrastructure and farther than onsite improvements. They benefit public services associated with new development. residents who live outside the boundaries of the new Using their power to regulate land use, localities subdivision, but they are paid for by new have gradually shifted the burden of supplying such homeowners. infrastructure and services from the community at large to developers. Developers pass the costs along Still in dispute legally is the extent to which the to new homebuyers, in some cases adding substan­ community at large should be the primary benefi­ tially to the total cost of new housing. ciary of the offsite improvements that only residents of new housing developments have paid for in the [mpact fees are regressive because they are assessed form of higher housing costs. Established residents on a per-unit basis, rather than as a percent of the reap part of the benefit but newcomers pay all of the value of the home. Those who depend on affordable

In order for one developer to obtain approvals in a New Jersey housing development that he was constructing, he had to provide, among other items: a 1 ~O-unit senior citizen complex, a 2S0-space parking lot on 7 acres for commuters, a 200-acre park, . and S miles of water lines to accommodate the development.

Newark Star Ledger January II, 1989

The beneficiaries of the offsite improvements that I was compelled to make were clearly not the new residents, although they bore the brunt of the costs. I had to build a 6-mile water main to gain permission to. construct the multifamily project even though the new main was not required as a result of the development.

William Steben

2-10 Chapter 2

Multiple Reviews by The Cost of the Permitting Overlapping Jurisdictions Process

In their earliest forms, approval and permitting Time is critical in housing development, because systems tended to be relatively simple and straight­ financing and profitability depend upon keeping on forward, with few levels of government or agencies schedule. Where the expected time required to involved and with few steps in the process. Delays obtain approvals and permits is not known and were uncommon. Over the years, local permitting cannot be built into the schedule, the risk is higher. systems have incorporated a growing number of This risk, in tum, results in increased carrying costs rules, regulations, and new responsibilities, such as on developers' construction debt. environmental protection, at the Federal, State, and local levels. In Mercer County, New Jersey, out of Unfortunately, delays are chronic in many permit the II different reviews a major subdivision must and approval systems. A 1989 investigative series in receive, no fewer than 7 concern themselves with the the Newark Star Ledger, for example, documented a adequacy of storm water drainage. An increasing massive bureaucratic maze in some New Jersey 14 number of agencies have become part of the typical communities. What previously required a few approval and permit process without attention to months now requires about 3 years. House prices in coordination, consolidation, or streamlining. In most some developments in New Jersey have increased by places, permits and reviews are not logical point-to­ as much as 100 percent in 6 years, a rise attributable point processes, but layers of single-issue reviews, mainly to permitting and other delays and to cum­ each with decisions made without regard for costs or bersome procedures. IS delays. The result is overlapping jurisdictions with Part of the cost of obtaining all the requisite approv­ redundant and duplicative regulations. als includes the fees developers must pay to a con­ Some jurisdictions have come to use their approval sultant who has technical expertise in the areas for and permitting systems for additional purposes, such which permits are required and who knows how to as slowing growth by limiting the number of permits walk a project through the bureaucracy. Besides the issued or setting prices for the permits as a means of lawyers mentioned by Bob Schmitt at the beginning raising revenues for other uses. of this chapter, developers now often find it neces­

- -A housing development on Staten Island, New York, begun in the 19705, took 12.5 years and 2 different property developers to get approvals and permits from 28 different -government agencies.

Joint Venture for Affordable Housing

A, builder. has spent 16 years trying to obtain· the permits necessary to construct a hous­ - 'ngo ~velopmentio Old Bridge, New Jersey. The company has spent more than $95 . ,0 million:so far -for carrying costs and regulatory costs but has not yet started construction. The-rotaI amount of the outlay could add $68,000 to the price of each home once the devel~pment is"finished. --'

Newark Star Ledger January.J 1, 1989

2-13 Regulatory Barriers in the Suburbs

1991. The authors find that growth controls are not a Sam-Herzog, an E~t- Brunswick, New statistically significant factor in the provision of affordable housing. See to the contrary: William A. Jer~y, developer, ~id thafbefore Fischel, Do Growth Controls Matter? A Review ofthe building approvals a~ given; more Empirical Evidence on the Effectiveness and Efficiency of arid lliQie Consultants' .-repo~ C!r.~ Local Government Land Use Regulation, Lincoln Institute - -r~ire(j in sum areas as1faffic,.fresh _ of Land Policy, Cambridge, MA, 1989. water, ~ragei wettandS) - andscap­ 5 Using HUD's Urban Data System, this statistic was ing;'noise 7~md Sound conirol, and soi!_ taken from a survey of the five Standard Metropolitan sampling and stream e ncroachment' Statistical Areas with the largest central cities in each of . ....~ - - ­ the four census regions . . Herb Jaffe !'Cost ofRed Tape Adqi up on fi John Koenig, "Down to the Wire in Florida," Planning, Home Morlgages· Oct. 1990 . . Newark Star Ledger

c January 9, :, ~89 . ­ 7 Henry Pollakowski and Susan Wachter, "The Effects of Land-Use Constraints on Housing Prices," Land Economics, August 1990, Vol. 66, No.3, pp. 315-324. Also, Man Cho and Susan Wachter, "Interjurisdictional sary to retain archaeologists, biologists, and many Price Effects of Land Use Controls," Journal ofUrhan other kinds of professional consultants to obtain and Contemporary Law, Vol. 40, forthcoming 1991. The needed development approvals. These consultants 10 percent price effect attributed to restrictive zoning is regarded by Dr. Wachter as minimal because provide the necessary technical expertise developers Montgomery County, Maryland, one of the jurisdictions require to ensure that they are not violating some studied, has many inclusionary programs that would tend historical preservation, environmental, or other to moderate the price effects of its zoning ordinance. standard they might not even have been aware of when they put together their development plans. The K Euclid v. Amhler Realty Co., 272 U.S. 365, 388 (1926). cost of consultant fees adds, ultimately, to the cost of 9 Euclid v. Amhler Realty Co., 272 U.S. 365, 384-385 the houses the developer builds. (1926).

10 For a description of the Joint Venture for Affordable Endnotes Housing, see Chapler 8.

I California Department of Finance, Report 89 E-2, 1990. II The Newark Star Ledger, Jan. 11,1989.

2 "Does California Need a Policy To Manage Urban 12 Bruce W. Ferguson, "How Impact Fees Affect Growth?" A report from the Senate Urban Growth Policy Residential Development," Jan. 1991. Prepared for The Project. Prepared by the California Senate Office of Urban Land Institute. Draft. Research, Elisabeth Kersten, Director, June 1989.

1.1 Philip Bettencourt, The Preview Company, Orange J The Financial Times Survey, Oct. 22, 1990. County, California.

4 Madelyn Glickfeld and Ned Levine, "The Relationship 14 The Newark Star Ledger, Jan. 11,1989. Between Local Growth Controls and Production of

Affordable Housing: A California Case Study," Feb_ 14, 15 Ibid.

2-14 Chapter 3 Regulatory Barriers in Cities

ities are the locus of much of the economic from local government to hold down costs and thus and cultural resources of their metropolitan remain able to function. Too often the efforts of area. But cities also contain large concentra­ these housing providers are stymied by local offi­ Ctions of low- and moderate-income families cials who are reluctant to accept newer and more who find it difficult to acquire affordable housing. innovative solutions, and who rely instead on more Even under the most favorable conditions, these costly traditional building materials and methods. households have the fewest options to rent a house or Mortgage lending is the lifeblood of all housing apartment or buy a house. They face regulatory markets. In many city neighborhoods, however, barriers, but they face financial and other barriers as overly restrictive and inflexible practices by lending well. institutions-savings and loans, banks, private mortgage insurers, and secondary market agencies­ Barriers affecting affordable housing for both sub­ have denied urban families the funds needed to make urbs and central cities must be removed. But in available decent, affordable housing. doing so, it would be unfortunate to undermine the vitality of cities and create new barriers for their current residents and those who want to move there. Steps must be taken to ensure that mortgage-lending resources are available to irmer-city, minority resi­ dents. In addition, builders should be encouraged to Restrictions on Urban build new housing and rehabilitate existing housing Rehabilitation and Infill in urban neighborhoods. Modem municipal government is necessarily a Removing urban regulatory barriers that dispropor­ complicated business, and nowhere is it more com­ tionately affect the poor and minorities is an espe­ plicated than in the oldest and Jargest cities. While cially daunting challenge. The building codes of affordable housing is in short supply, a great many America's older cities sometimes contain archaic opportunities typically exist for rehabilitation and regulations that are inapplicable to the contemporary infil\' The exploitation of these opportunities by realities of providing affordable housing. Virtually developers, however, requires the cooperation of all of the construction work in these cities consists of local government. Public officials may sometimes infill and rehabilitation rather than large tracts of fear that innovative approaches will prove to be new homes built on open land, necessitating that city unsatisfactory, and adopt the NIMTOO approach as officials rethink their regulations. Sometimes, how­ a political precaution; sometimes, the governmental ever, city officials' efforts toward barrier removal machinery is simply tradition-bound and inflexible. are slowed by NIMBY pressure against infill from the residents of old, established neighborhoods of Although population densities have been declining single-family homes. The NIMBY opposition to new in many of America's urban centers, typically these construction may be intensified by the tightly packed centers are still densely populated, and housing is nature of urban housing, making it harder to ignore often at a premium. Some of the strategies intended unwanted neighbors. This NIMBY sentiment can to enhance housing affordability for low- and mod­ work against granting special concessions to devel­ erate-income, irmer-city households include con­ opers of affordable housing who need this assistance structing moderately priced multifamily housing,

3-1 Regulatory Barriers in Cities

rehabilitating existing multifamily housing, and rehabilitating single-room-occupancy (SRO) hotels. I.suppOit State legislation that w~uld In addition, nonprofit organizations sponsor , , provi~ for-"quicl(-ta~e" action by homeownership programs for low- and moderate­ il'il.{nicipalities, ~rrpit!ing a city to income families. The viability of these innovative take quick title to .abandoned approaches depends, in part, on the strong support of p.roPerties: Currently, in Chicago, the local officials in lowering regulatory barriers, if only ,processJo .ta~~. title . can last as long as on a case-by-case basis. ,'5 to 6 Years. With tile quick take, it . eQuid be'shortened to 4 months. Rehabilitation of Existing :;: - _ . - ";; Marf NelsOn, President Properties , Bethel, New Life Chicago,lL Many cities contain neglected or abandoned apart­ ment buildings the city has acquired for nonpayment of taxes. They also contain older SRO hotels that are being lost through deterioration or conversion to become available to would-be rehabilitators as soon other uses. Recognizing that these are important as possible so that the buildings do not further dete­ affordable housing resources for low-income house­ riorate or fall prey to vandalism. In many cities, holds, nonprofit groups and local government agen­ however, because of cumbersome regulations gov­ cies in numerous cities have attempted to save and erning initial transfer of title to the city, the process rehabilitate them as inner-city multifamily housing of selling or giving away such properties can take for low-income families. Under some arrangements, years. Besides putting the buildings at risk of addi­ sponsoring groups receive ownership of acquired tional damage, delays slow down the whole rehabili­ properties from the city in exchange for repairing the tation process, add to costs, and prevent some building and turning it into low-income housing. nonprofit organizations, which tend to have ex­ tremely tight budgets, from taking advantage of Delays in Acquisition opportunities. These factors discourage such devel­ opers and restrict the supply of affordable housing When owners abandon multifamily dwellings in for the people who need it most. relatively good condition, the dwellings should Historic Preservation

Regulations governing the preservation of buildings judged to be of historic value can also block reha­ bilitation of older structures. A project may be slowed while a determination is made as to whether an old elementary school or hotel is of historic significance. If the building is labeled as historic, then the planned rehabilitation is sometimes subject to lengthy and costly approval processes to ensure authenticity of appearance. In other cases, where a building is in a historic district or has been individu­ ally designated as historic, energy-efficient enhance­ ments such as replacement of windows and doors or drilling of holes into side walls for the injection of insulation may be blocked on the basis of strict

3-2 Chapter 3

adherence to preservation standards_ The high heat­ may require extensive, expensive, and unnecessary ing bills that result are particularly disadvantageous modifications_For example, mandating state-of-the­ to continued occupancy by low- and moderate­ art electrical materials in all construction may re­ income families_ quire the costly rewiring of an entire apartment building -undergoing rehabilitation, when only lim­ ited repairs might be necessary _These added costs Problems Resulting From Codes raise the price of housing, driving it further and Building codes are sometimes barriers to the reha­ further beyond the reach of low- and moderate­ bilitation of multifamily rental housing, especially income households_ when they are written only with new construction in mind_ To take advantage of improvements in tech­ New Rental Construction nology, codes are usually amended annually, with new additions typically being published every 3 Local building codes are often not geared to support­ years_ Updated codes that do not contain provisions ing cost-effective construction of affordable housing_ for the rehabilitation of older buildings, however, They sometimes generate excessive costs by requir­

3-3 Regulatory Barriers in -Cities

ing unnecessarily expensive materials, unnecessary city. I The design innovations engendered by the safety features, unnecessary building code require­ original project proved so successful in terms of ments, or outmoded construction techniques. profitability and renter satisfaction that hundreds of units were subsequently constructed in the area on Codes can create serious problems for those in need the same plan, using waivers of code requirements. of housing-the poor and the homeless. The City of (The public policy process by which San Diego's San Diego provides a vivid example of how exces­ Single Room Occupancy hotel program functioned sive code-related costs can be virtually eliminated. is further described in Chapter 8.) In the late 1980s, that city's public officials sup­ ported the construction of "no-frills" SRO hotels in a successful effort to deal with the local homeless New Single-Family problem. Construction

Traditionally, this type of housing has served ex­ Aside from occasional condominium conversions, tremely poor one-person households, so construction vacant lots left by the demolition of uninhabitable costs had to be kept to a minimum to keep rents low. buildings present the most common opportunities for The actual savings that resulted from code waivers creating new homeownership in the inner city. With in San Diego were considerable and led directly to the help of local governments, nonprofit groups in the creation of exceptionally affordable housing. The some communities are building single-family homes construction costs for an SRO room amounted to on such lots specifically for purchase by low- and some $20,000, as against $50,000 for a studio apart­ moderate-income households. In attempting to ment in San Diego. Low construction costs allowed reduce construction costs as much as possible, they monthly rents for rooms in these San Diego hotels to face the same kinds of regulatory barriers that ham­ range from about $220 to $390, well below the $500 per the construction and rehabilitation of multifamily charged for the cheapest studio apartments in that dwellings.

The City of San Diego was able to facilitate the cost-effective construction of SRO hotels and thus foster the production of affordable housing by actively working to waive a number of building code requirements. For example, prior to San Diego's SRO revolution, builders were required to provide a 1:1 ratio of parking spaces to living units. Local officials realized that this requirement was irrelevant to SRO hotels where residents are hardly likely to own cars. Since parking spaces cost as much as $20,000 each, a waiver of the 1:1 requirement and subsequent construction of fewer spaces resulted in considerable savings. In addition, fewer required showers, fewer required fire exits (replaced by a sprinkler system instead), and a reduction in the overall size of the units from the State-mandated 220 square feet to an average of less than 150 square feet helped to significantly lower construction costs. Yet, these well-designed units contained a standardized built-in wall unit with a lavatory, water closet, refrigerator, microwave oven, and television.

HThe City of San Diego's Single Roqm Occupancy Residential Hotel Program" Strategic Planning and Research Division City ofSan Diego Planning Department October 1989

3-4 Chapter 3

Builders sometimes face an additional consider­ income and even upper income households.2 Indeed, ation--environmental protection regulations-not it is an open question whether these groups benefit usually associated with cities. (See Chapter 4 for a more than the poor. Research has consistently dem­ detailed discussion of these regulations.) In recent onstrated that rent control is a barrier to residential years, environmental protection concerns have led mobility. Middle- and upper income renters derive many municipal governments to mandate reviews of considerable advantage from choosing not to move. the potential impact of proposed projects on the Most rent-control ordinances pennit rent increases to environment. These often lengthy reviews may be the market rate only when a unit turns over-a fonn required even for urban infil1 projects. of "vacancy decontrol." Rent control therefore mostly benefits those families-rich and poor-who live in the apartments when rent control is imposed. New residents will have to pay higher rent and, perhaps also "key money" to move in. Unlike re­ Rent Control fundable security deposits and legitimate fees that renters are routinely asked to pay, key money is an More than 10 million Americans in 6 States and the illegal cash payment the landlord or rental agent District of Columbia Jive in communities that have extracts from new tenants simply for being chosen to rent control ordinances. Advocates of rent control fill a vacancy, usually when housing is in short maintain that this fonn of regulation helps the disad­ supply or an apartment is particularly desirable. vantaged by holding down the cost of housing and the proportion of their incomes consumed by rent. In The effects of rent control on mobility tend to ben­ the short run, rent control does benefit some low­ efit the wealthy and hurt the poor. As the well-to-do income people. During inflationary periods, these stay in their rent-controlled apartments for longer regulations prevent rents from rising as rapidly as and longer periods, they enjoy greater and greater they otherwise would. Furthennore, even in non­ savings, and thus become less and less willing to inflationary periods, rent control helps low-income move to a comparable rental unit elsewhere, where households by allowing them to remain in desirable as new tenants they would have to pay a market rent. locations, close to jobs and services. In this connec­ The slow turnover at the high end of the rental tion, advocates of rent control contend that these market adversely affects renters in less comfortable ordinances slow the gentrification process that circumstances because it chokes off their opportuni­ diminishes the supply of affordable housing. ties for upward mobility. Furthennore, rent control restricts the range of housing choices for low­ As a means of redistributing income to the poor, income households perhaps more than those of any however, rent control is extraordinarily inefficient, if other group. In a situation where income from an not counterproductive. A large body of research already decaying property is tightly controlled but indicates that much of the benefit goes to middle- fuel prices and other costs are freely rising, land lords

A plan to build 51 two-family houses in the Williamsburg section of Brooklyn took 22 m<.)nths to gain environmental approval, even though a full environmental impact statement was not needed .... . Jason DeParle "Report on New York Deplores Slowness of Environmental Reviews" The New York Times April 23, 1990

3-5 Regulatory Barriers in Cities

are not inclined to maintain or repair rental units. - • • ,- ~ _. L' .:~' • ~ -~ .=; Rent-control ordinances exert economic pressure on the poor to remain in decaying housing in unsafe neighborhoods. Restrictions on Low-Cost

Rent control transfers income and wealth from Housing owners to renters in what amounts to an unlegislated The basic purpose of building codes has not changed subsidy. It may be desirable to redistribute income to since the Code of Hammurabi: to protect public a greater extent than at present, but rent control is an health and safety against the faulty design and con­ unfair, inefficient method of doing so. It transfers struction of buildings. The earliest building codes in income only from owners of rental housing. No America were developed to protect against fire. As other type of asset ownership is penalized in this cities and towns adopted their own codes, the build­ way. Furthermore, the stereotype of the "rich land­ ing industry was faced with conflicting and diverse lord" does not match well with reality. Studies in requirements. New York City have shown that a substantial frac­ tion of the landlords who own rent-controlled prop­ Since the early 1900s, when the insurance industry erties have lower incomes than the tenants living in promulgated the first national building code, signifi­ such properties. Historically, ownership of rental cant steps have been taken in the development of property has enabled emigrants in America to uniform standards. But code problems continue. achieve upward socioeconomic mobility. This is no Major problem areas include antiquated codes, poor less true today; more than one-half the landlords in administration, and duplicate and conflicting 3 New York City are foreign-born. More equitable regulations. and efficient methods of redistributing income to the poor are available. Building and housing codes often represent major barriers to housing affordability that occur in both For these reasons, many analysts favor abolition of urban and suburban areas, but they tend to have a rent control. Because rent control holds rents below greater impact on the availability of affordable the market and therefore benefits tenants in the housing in more densely populated areas where short-run, however, full and immediate decontrol space is most limited. Not only can codes raise costs would almost certainly have an adverse impact, within a given jurisdiction, but differences among particularly on lower income households. This jurisdictions within a metropolitan area can also potential adverse impact has been a major policy create frustrating problems for architects and build­ concern. ers. Sometimes, in the patchwork of jurisdictions spawned by urban sprawl, public officials simply There are ways to mitigate the harm from decontrol disagree on how best to ensure safe, sanitary hous­ to those low-income households who live in con­ ing, and the result is a maze of costly regulations. trolled units. One possibility is to decontrol apart­ ments occupied by better-off households. The The comprehensive nature of building codes, income eligibility limit for Federal mortgage rev­ coupled with the broad discretion customarily pos­ enue bonds is 115 percent of area median income; sessed by local officials charged with code adminis­ households above this income should not need the tration and enforcement, sometimes turns the codes benefits of a special housing subsidy. This proposal into regulatory barriers. In some instances, local need not add to the administrative burden of rent building codes reflect the suspicions of officials that control. Tenants seeking to maintain a controlled new technologies are somehow inferior to traditional rent could simply present their tax return to the methods and materials. The effect of such suspicions landlord or the administrative agency. may also be compounded by pressure from local labor unions whose leaders fear that innovations in

3-6 Chapter 3

construction techniques will cost jobs. The NIMB Y introduction of labor-saving synthetic and prefabri­ syndrome is also evident here, manifesting itself in cated construction materials. Also, jurisdictions with local opposition to certain kinds of housing that may heavy employment in building materials industries, bring "undesirable" types of people into the neigh­ such as those producing steel, sometimes mandate borhood and lower property values. the use of such materials instead of using less expen­ sive, synthetic products such as plastic. Existing Codes and Confl icts All model codes permit local building officials to accept alternative materials or methods arising from The building industry and local code officials have new technology. Many officials are reluctant to established regional associations of building officials allow the introduction of such innovations, however, that recommend model codes for use by govern­ because there is likely no advantage in doing so. ments in their regions. These groups periodically Rather, officials may be subject to public and profes­ update the model codes. A model code becomes a sional criticism for the consequences of failure of local regulation only if adopted by an appropriate building materials and methods. Consequently, governmental agency. Most communities rely on officials infrequently waive existing rules or permit one of the model codes. Only a few of the largest the use of new building technologies. cities have promulgated their own unique codes, but even they appear to be increasingly adopting model Furthermore, when model codes are revised to take code provisions. Typically, communities that adopt a advantage of the benefits of emerging technologies, model code also modify it to incorporate special local officials are still sometimes reluctant to incor­ considerations. In some cases, communities have porate the changes into their jurisdiction's building modified building code language to encourage the code. This resistance to change may be based on bad use of a particular material, industry, or construction experiences with earlier versions of the new material practice or to discourage the use of competitive or method. For example, some local building offi­ materials. cials still recommend against allowing plastic pipe in their communities because the first commercial When building codes promote local interests, they plastic pipes did not compare favorably with iron can have an impact on the cost of housing by, among and copper pipe. Many people in the plumbing other ways, prohibiting the use of more cost-effec­ industry now believe that plastic pipe can be supe­ tive materials or methods of construction. For ex­ rior to metal pipe, and several model building codes ample, building trades unions may resist the permit its use. Despite the successful widespread use

3-7 Regulatory Barriers in Cities

of such innovations as plastic conduits for electrical to the placement, capacity, Or kind of building mate­ wiring in other jurisdictions, however, many munici­ rial required in plumbing Or electrical systems. palities, including Chicago, still prohibit the use of Similarly, because enforcement rests with local this innovative material on almost all residential building offices, differing interpretations of what construction. This prohibition adds to the cost of constitutes acceptable compliance may also differ, both material and labor. even where statewide codes are in effect. In a few instances, State and local codes such as those deal­ Cleveland's plumbing code is another example. ing with fire prevention conflict with respect to Plumbing systems -require air vents to prevent build­ stringency in either specific provisions or in inter­ ups of vacuum or air pressure and to ensure that pretation by inspectors. Differing codes in jurisdic­ material can be quickly camed into and out of the tions in the same region can drive up builders' costs network of pipes. The Cleveland building code by denying them the economies of buying materials requires that plumbing installed during rehabilitation in bulk at a discount. must be vented using actual vent pipes running through the structure. In contrast, the use of existing mechanical venting valves in the plumbing system Disincentives in land and itself is much cheaper and easier to install in Property Taxes Cleveland's older, solidly built homes where install­ ing the code-mandated vent pipes through walls and In most places, the real property tax is a tax imposed ceilings results in much unnecessary work and on the combined market value and improvements of expense, sometimes as much as doubling the plumb­ both land and buildings. The tax, however, discour­ ing costs. ages land development and rehabilitation, because they increase the value of the property and the tax Although State and local governments have made that must be paid. great progress in the reform of local codes, consider­ able confusion results from differences among An alternative solution for communities is to impose governments in the manner in which they adopt and low tax rates on structures and high tax rates on amend model codes and the degree to which locali­ land. This approach will raise the cost of holding ties modify or amend them. Most States have no land vacant (or leaving structures on the land systematic process for amending or updating build­ unrehabilitated), will not penalize land development, ing codes. As a result, neighboring communities and can result in more efficient land use, including may use substantially different versions of the same increased affordable housing opportunities. code. Even though these jurisdictions may all start out using the same code, specific provisions may Adopting a two-tiered approach to property taxes is differ considerably or actually conflict with respect controversial. It is likely, for example, to create windfall profits for some and windfall losses for others_ Communities also need to consider what net changes in revenue would occur as a result of prop­ Fire codes are another problem in erty tax reform so that their planning processes can Ohio, as they are in most other States. be appropriately adjusted. Therefore, communities Fire codes are usually enforced by that choose to reform their property tax systems local authorities, and many times should do so over some period of time rather than all confl ict can exist between the State at once. and the local code. The whole process can be a Tower of BabeL The two-tiered approach to property taxation is in place in some American communities, although it is Bob Schmitt, Builder much more common in other parts of the world. Cleveland, OH Pittsburgh, for example, is one of 22 Pennsylvania communities that employ a tax system that does not

3-8 Chapter 3

reward holding undeveloped land and does not Home Construction and Safety Standards Act of penalize land development. 1974, a manufactured home is a dwelling unit fabri­ cated on a pennanent chassis at an offsite manufac­ turing facility for installation at the building site, and bearing a label certifying it as built in compliance with the Act's Federal Manufactured Housing Con­ Regulatory Restrictions on struction and Safety Standards. These homes are built in a factory and shipped as virtually complete Certain Types of Housing houses or in sections that can be quickly assembled with minimal labor. Before 1980, these dwellings, The NIMBY syndrome often manifests itself in now officially known as "manufactured housing," urban areas in the fonn of prohibitions against types were tenned "mobile homes," a name that is still of housing that are "different." Examples include widely used today. The Standards have come to be factory-built homes-that is, manufactured and called the HUD Code, because HUD administers the modular housing-and accessory housing. These Act. The HUD Code regulates design, construction, products are widely recognized as important compo­ strength and durability, fire resistance, energy effi­ nents of a complete affordable housing strategy. ciency, installation, and perfonnance of internal Efforts to make them available, however, often systems essential for health and personal comfort. encounter regulatory roadblocks. NIMBY attitudes can stem from two sources: the housing itself may Many contemporary configurations in which manu­ be viewed as unattractive, and the people who live in factured housing is now being marketed are larger it may be regarded as undesirable neighbors. These than many of the conventional homes built in the attitudes account in large part for the fact that manu­ years immediately after World War II. Although factured and accessory housing have yet to make a most units are less expensive, manufactured housing clear impact on the availability of affordable housing can cost as much as $70,000 or more. In 1989, the in urban areas. year for which the most recent data are available, the average price for a multisection manufactured home, which is the largest type of unit sold, was $34,800. Manufactured Housing Multisection homes have approximately 70 percent of the square footage (living space) of the average More than 12.5 million Americans live in manufac­ s tured housing.4 As defined in the Federal Mobile conventional stick-built home.

Government officials in Northern Virginia, suburban Maryland, and elsewhere are reluctant to allow expansion of mobile· home parks and 'construction of new ones .­ There is widespread opposition to mobile homes from owners of more conventional ~u~s. ­

People·just don't want mobile homes aro.und, said an Arlington planning official who asked not to be identified. Local governments don't want to address them as 'affordable housing because they would be forced to see what a sage move it would be to support them. Avis Thomas-Lester

NAffordable But Unwelcome" The Washington Post October 7, 1990

3-9 Regulatory Barriers in Cities

Because manufactured homes are often less expen­ that the pitch or slope of a roof be sharper and there­ sive than traditional stick-built homes of comparable fore higher than standard manufactured housing size, they are a valuable affordable housing resource. roofs. Houses with steeper roofs are more difficult to But zoning boards in many localities still ban them transport to the site because of limited height clear­ completely or allow them only in specially desig­ ances of highway underpasses. Even if suitable nated mobile home parks or in agricultural areas transportation can be arranged, modifying the where the absence of infrastructure can make siting homes, such as by using hinged roofs, raises their expensive or simply impractical. Such discrimina­ cost and renders them less affordable. tion is partially responsible for relegating two out of every three manufactured housing units to rural Modular Housing areas. Fewer than 10 percent are found in central cities. Yet these units have worked well in urban Modular or industrialized housing is factory-built infill projects. Manufactured housing can be a rela­ housing that is certified as meeting the State or local tively inexpensive way for low- and middle-income building code. For purposes of building code ap­ households to become homeowners. proval, modular housing is equivalent to stick-built housing. In fact, some builders of conventional Although the HUD Code preempts the need for housing use factory-built modular units in construct­ building code approval by State and local govern­ ing homes that appear identical to the conventional ments, many local regulators dissuade would-be product. Included in this category are panelized and consumers by publicly questioning the quality of log homes. Modular units can be used to construct construction in manufactured housing. Such attempts single- and multifamily homes ranging from small, to disparage the quality of manufactured housing relatively inexpensive houses with a single level to occur despite the fact that the HUD Code home is large, elaborately designed, multistory structures. the only form of housing routinely inspected for building code compliance prior to occupancy. Fur­ Modular technology has some advantages in the thermore, despite preemptive Federal legislation, construction of affordable housing in urban areas. It local regulators-in an effort to block the use of is easily adaptable to its site. Also, in many large manufactured housing in their jurisdictions-some­ cities, periodic shortages of skilled craftspeople such times create building code requirements they know as carpenters can slow down projects that use more mass-produced, factory-built housing cannot rou­ conventional building technologies. Modular units tinely meet. For example, some local codes require arrive at the construction site with nearly all of the

3-10 Chapter 3

carpentry work completed. In urban settings, modu­ average monthly rent for licensed accessory apart­ lar construction has been found to yield cost savings ments, occupied by tenants unrelated to the owner, of approximately 15 percent.6 was $140 less than the average rent for the same­ sized conventional apartments in that county.8 Some builders wishing to use modular technology These self-contained units, however, yield benefits have encountered regulatory barriers. Because the beyond adding to the existing affordable rental market for a particular manufacturer's product typi­ stock. They can provide single-family households, cally crosses State boundaries, compliance with State especially the elderly, with much-needed additional building codes and associated procedures is required. income. They can contribute to neighborhood stabil­ Compliance requires a good deal of duplication of ity because they allow elderly homeowners to re­ permit applications on a State-by-State basis and is main in their homes when their current housing time-consuming and costiy. Furthermore, local arrangements are no longer appropriate or afford­ building inspectors sometimes require that modular able. The creation of these apartments also improves units be dismantled for inspection. Analogous to the the local tax base because the new capacity to gener­ situation mentioned above with building codes, ate income increases the value of property. inspectors sometimes insist on the use of expensive and unnecessary materials that, in the case of modu­ The proposed introduction of accessory apartments lar housing, makes for costly onsite alterations. In into what has always been a neighborhood of single­ addition, modular manufacturers must deal with family homes sometimes gives rise to local opposi­ differing transportation regulations that cover tion. In what might be viewed as a classic display of actual shipping of the structures themselves. It has NIMBY sentiments, neighbors often express con­ been estimated that interstate reciprocity on code cerns about added traffic and noise that renters might approval and transportation regulations could reduce bring. Neighbors also worry that their property the cost of modular housing by 10 to 15 percent, values might be lowered as a result of this change in in addition to savings achieved by their use in density. As with a great many NIMBY ~otions that construction. tum out to be incorrect, recent research suggests that neither quality of life nor property values suffer from the presence of accessory housing.9 Local taxpayers Accessory Housing may also see potential costs to the community in added service and infrastructure needs. Accessory housing is another way to enlarge the pool of affordable rental units. Most often, accessory housing takes the form of an apartment developed from unused space in single-family houses. It may involve the renovation of a building, such as a garage or shed, adjoining a single-family house. Accessory units may also be small, factory-built dwellings, sometimes called "granny flats," sited on the prop­ erty adjacent to a single-family home.

Typically, accessory apartments cost much less to produce than conventional apartments and conse­ quently are usually much less expensive to rent as well. Recent research findings indicate they can be constructed, on average, for one-third the cost of conventional rental units.7 These savings are passed on to the consumer. In Montgomery County, Mary­ land-an affluent suburb of Washington, D.C.-the

3-11 Regulatory Barriers in Cities

As a strategy for increasing the amount of affordable barriers contained in building codes, rehabilitation housing, however, accessory apartments offer an requirements, and restrictions on certain types of easily attainable and relatively inexpensive option. housing would solve only some of the problems For example, in suburban Long Island, New York, these families face in their search for decent, safe, localities where housing is in short supply and and affordable housing. The barriers imposed by single-family homes predominate, regional planners racial discrimination, unnecessarily restrictive credit have estimated that from 10 percent to 20 percent of lending practices, and operations of the secondary existing homes have illegal accessory apartments. In market institutions would remain. one Long Island jurisdiction where accessory apart­ ments have been legal for more than 2 decades and where single-family homes account for more than 95 Redlining and Disinvestment percent of the dwelling units, a fifth of the homes Sources of mortgage credit differ for homebuyers in contain an accessory apartment. If I in every 10 of suburban and inner-city neighborhoods. Conven­ America's owner-occupied single-family homes tionallenders generally finance housing in stable, built before 1975 were to devote space to an acces­ predominantly white, communities, and the Federal sory unit, 3.8 million rental units would be gener­ Housing Administration (FHA) and the Department ated, increasing the supply of rental housing by of Veterans Affairs (V A) finance housing in minor­ about 10 percent. 10 ity and transitional inner-city communities. FHA's Barriers to accessory housing can take several forms. liberalized underwriting policies have made mort­ Single-family zoning usually precludes accessory gage lending accessible to inner-city minority fami­ apartments and thus is an automatic barrier. In lies. In the past, however, FHA-insured loans have addition, the process of converting a single-family been made to many families who had no reasonable home's surplus living space to a self-contained prospects of repaying them. Whole neighborhoods apartment may require rehabilitation. As with the were ruined as a result of defaults and foreclosures rehabilitation of existing housing, compliance with on FHA mortgages. As a result of these experiences, conventional building codes oriented to new con­ conventional lenders looked elsewhere to make struction can make the creation of an accessory loans. All of this experience reinforced redlining apartment unnecessarily expensive, causing addi­ activities, the process by which lenders discriminate tional financial strain on precisely those by denying commercial or residential credit to cer­ homeowners whose precarious economic circum­ tain (usually poorer and/or minority) neighborhoods. stances have caused them to favor accessory apart­ Ironically, financial institutions continued to seek ments in the first place. and accept deposits from these neighborhoods; they just stopped lending there.

Past Efforts to Stem Redlining Reinvestment in Older To maintain healthy neighborhoods, housing mar­ kets must provide all types of mortgage credit. In Urban Neighborhoods 1975, Congress passed the Home Mortgage Disclo­ sure Act (HMDA) as a first step in addressing the The problems discussed thus far affect housing problem. Although HMDA did not regulate lenders, affordability for low- and moderate-income families it gave consumers a powerful tool-information throughout the country. But additional regulatory about lending activities. The theory behind HMDA issues affect lower income families living in inner­ was that consumers ought to be able to make in­ city neighborhoods. Removing existing regulatory formed judgments about where they banle

3-12 Chapter 3

HMDA data could be used to show which lenders The Influence of Secondary were not meeting their community responsibilities; depositors could choose not to patronize lenders who Market Practices were unwilling to lend to them. But HMDA provided CRA and HMDA provided an incomplete set of only the raw data-it offered no means to force tools to eliminate red lining, because they were not lenders to meet their responsibilities. To add teeth to relevant to the secondary market. Unless lenders HMDA, Congress enacted the Community Reinvest­ were able to sell their loans quickly on the secondary ment Act (CRA). CRA reinforced the responsibilities market to the Federal National Mortgage Associa­ of lenders to serve both the depository and credit tion (Fannie Mae) and the Federal Home Loan needs of their local communities, and of the Federal Mortgage Corporation (Freddie Mac), they would regulators-the Federal Home Loan Bank Board not have the liquidity to make new loans. (replaced by the Office of Thrift Supervision in late 1989), the Federal Deposit Insurance Corporation, Fannie Mae's and Freddie Mac's underwriting the Comptroller of the Currency, and the Federal standards are oriented towards "plain vanilla" mort­ Reserve Board-to ensure they do so. CRA required gages. The standards encourage lending in suburban, that each time an institution applied for a new growing, homogenous, and higher income areas, branch, merger, or other structural change, it had to where housing and zoning requirements result in the demonstrate it was meeting both the depository and production of "cookie cutter" new homes in uni­ credit needs of its current local communities. formly single-family neighborhoods. These stan­ dards work against more diverse building types and CRA permitted.community organizations to chal­ mixed-use neighborhoods, which are more difficult lenge these applications. As a result of these chal­ to assess and to underwrite. lenges, lenders have agreed to commit additional funds to mortgages in urban neighborhoods. Through Fannie Mae and Freddie Mac have had anti-dis­ 1990, there have been at least 195 CRA agreements crimination and anti-red lining guidelines, but have in 63 different cities and metropolitan areas and in not consistently followed them. The Commission 10 States that have at least 1 statewide agreement. I I understands that these agencies have strengthened These activities have produced more than $8 billion these guidelines and are promoting them. In addi­ in private investment. Roughly 80 percent of these tion, Fannie Mae and Freddie Mac have developed agreements have been negotiated since 1984. The pilot programs to purchase mortgages in inner-city, Boatman's Bank in St. Louis is one of a number of minority neighborhoods. For example, these agen­ lenders exceeding its original CRA commitment. It cies are working with the National Training and had agreed to make $50 million available, but actu­ Information Center on a $1-billion, 13-city demon­ ally loaned out $68 million, as of 1989. In Chicago, stration. Even though these pilot programs have been the Neighborhood Lending Programs initially agreed successful, Fannie Mae, Freddie Mac, and lenders to a 5-year commitment of $153 million, but in­ still view them as "special programs" and have not creased it by $200 million for 1988 and 1989. incorporated them into standard underwriting processes. These agreements have been obtained only through the tenacity of community groups that bring the The charters of Fannie Mae and Freddie Mac require challenges. The regulatory agencies still remain that a reasonable portion of their mortgage purchases passive players, too often waiting for community­ support the national goal of providing adequate group action. housing for low- and moderate-income families. In addition, as a result of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA),

3-13 Regulatory Barriers in Cities

HUD has been given authority to regulate both 5 Ibid. agencies. HUD's regulations require that 30 percent 6 Kathryn Wylde, "Affordable Housing and the Urban of Fannie Mae's investment benefit low- and moder­ Environment," A paper for the One Earth Series, New ate-income households and 30 percent be in central York City Partnership Inc., Apr. 1990, p. 7. cities, although these are not murually exclusive.

Regulations are now in preparation for Freddie Mac 7 Patrick H. Hare, "Installations of Accessory Units in and are being revised for Fannie Mae. Communities Where They Are Legal," Planning and Design, Washington, D.C., Apr. 1990.

Endnotes x H. lane Lehman, "One Solution to Affordability Crunch," The Washington Post, lune 23, 1990. I "Low Cost Housing 'Niche' Spreads Nationally," California Builder, Oct.-Nov. 1988, p. 7. ~ Results of a study commissioned by the Ontario Ministry of Housing. Reported in Urban Outlook, lan. IS , 2 In 1988 in New York City, some 45 percent of the 1991,p.1. economic benefits of rent control accrued to 14 percent of the households in rent-regulated apartments-a group III American Housing Survey for the United States, 1987: with incomes greater than $40,000. "A Financial Analysis Introductory Characteristics-All Housing Units, Table of Rent Control Regulation in New York City: Costs and lA-I, p. I, U.S. Department of Commerce and U.S. Opportunities," KPMG Peat Marwick, Peat, Marwick, Department of Housing and Urban Development, Main & Company, New York, 1988, p. 16. Washington,D.C.

3 Arthur D. Little Inc., "The Owners of New York's II Calvin Bradford, "Draft Report to The Ford Foundation Rental Housing: A Profile," May 1985, p. 4. on the Present State ofCRA Activities," 1991.

4 "Quick Facts About the Manufactured Housing Industry-I 990/9 I ," The Manufactured Housing Institute, Arlington, Va.

3-14 Chapter 4 Environmental Protection Regulation and Affordable Housing

reservation of the environment is unques­ at exclusionary zoning. Court challenges to environ­ tionably and properly a high priority in mentally based building pennit denials have been America. Sometimes, however, efforts to mounted on these grounds, but they have generally P protect the environment have the unintended not succeeded. consequence of preventing development of afford­ able housing. In many parts of the United States, environmental protection regulations act as barriers to the availability of affordable housing by signifi­ cantly diminishing the supply of land for residential How Environmental development and, thereby, raising the cost of land and housing. The Nation needs to find a better Regu lations Affect balance between the objectives of protecting the Housing Affordability environment and ensuring its citizens an adequate supply of affordable housing. Environmental protection regulations can become barriers to affordable housing in three ways. First, The search for reasonable trade-offs between these and most directly, they may raise the cost of housing two objectives is complicated by the actions of through a variety of requirements. Second, and more NIMBY groups. The impact of environmental subtly, they often interject costly delays into the regulation on the availability of affordable housing building pennit review process. Third, regulations is substantially amplified by the widespread use of lead to delays that are frequently exacerbated by the environmental protection as a stalking-horse for overlapping jurisdictions of Federal, State, and local NIMBY groups bent on opposing unwanted devel­ agencies charged with environmental protection opment. Often, environmental concerns raised responsibilities. against the development of multifamily or low- and moderate-income housing really constitute attempts

.,,-:J~heir (the SOuth Co~rAirQualit{Managerrient District's] charter is clear air, which

L .Js',-of ~oo-rse, i~portatit, ' B~t h~uses- ~not ,emit pollutants, they are being used simply '. as a . proxyd~tea,c;toB~gulating the'things that do emit, like cars, we are talking about :'.- regulatihg hQUses:l HOrii(beli.eve We will get cleal!:er airras a result of this-(prop6sea :,-:)unita!iOi1 ~n:flpusi ~~J~~~]/. but we'wfll ~et: ,!\oIe ' expersive h

4-1 Environmental Protection Regulation . .

Direct Costs and Limitations into project schedules and budgets. Sometimes, on Development however, NIMBY groups exploit the delays in the

In pursuit of environmental protection, governments at all levels have fashioned statutes and ordinances that limit or otherwise control the quantity, type, and Those opponents have the ability to configuration of housing and its associated infra­ use--or to misuse-the approval structure. These statutes and ordinances go well process and the process of judicial beyond longstanding sanitary engineering regula­ review to delay development to the tions that deal with sewage disposal and storm drainage. Environmental restrictions on development point where the developer loses the can extend to complete prohibitions on the construc­ financing, the land, or the will to go tion of housing in certain areas. The overall effect is forward. to limit the amount of land available for residential Kenneth B. Bley, Esq. construction, thus raising the price of buildable land Cox, Castle & Nicholson and, in tum, making the housing that is finally built Los Angeles, CA on that land more costly.

In addition, environmental statutes may require certain dedications, payments of fees, or other actions by developers. In some localities, for ex­ ample, permission to engage in land development in New York State law bars environmentally sensitive areas is contingent upon development within a 1 ~O-foot setting aside a portion of the land as open space or as a wildlife and forest preserve, or upon reclaiming a radius around a breeding pond of specified acreage of wetlands or some other ecologi­ the endangered tiger salamander. cally significant land, or upon paying a special Sightings of this animal near a pond, impact fee. These business expenses are passed therefore, sometimes result in along to the consumer as higher housing prices. stoppages of development while it is ascertained if a breeding area is Review Delays present. A 102-acre subdivision project in the Long Island community In the vast majority of municipalities, consideration of Bridgehampton, including 9 of the potential environmental impact of proposed units that had been earmarked as development projects is now a standard part of the affordable housing, was brought to building permit process. Many jurisdictions will not a halt when a tiger salamander was grant building permits without the submission of a found on the property. The plan was formal environmental impact statement (EIS). EIS delayed for more than 1 year until the ' studies of proposed projects can add more than a developer agreed not to build near year to the permitting process, requiring the would­ the pond. T he number of affQrdable be builder to pay carrying charges on loans for long units was reduced by almost one-half. periods of time.) Robin Goldwyn Blumenthal Because environmental review is now a legitimate The Wall Street Journal and routine component of the permitting process, . April 23, 1990, p. B7B developers normally plan for reasonable expenses associated with such reviews, and tend to build them

4--2 Chapter 4

permitting process occasioned by these reviews. very often duplicative, making compliance more A typical tactic involves the insistence on indepth burdensome and costly but adding little in the way investigations of the potential adverse impact of of environmental protection. proposed development, causing additional costly delays of many months, and sometimes years. If Moreover, duplicative regulations can be adminis­ such investigations fail to halt unwanted develop­ tered inconsistently across levels of government, so ment, NIMBY groups sometimes initiate legal that project approval by one level does not guarantee actions that generate costly delays of such length concurrence at another. When project review stan­ as to threaten the viability of the development entity dards differ across agencies, builders and developers itself. can find it difficult to know their compliance respon­ sibilities. Even if they manage to work their way through the regulatory maze, they generally pass Overlapping Jurisdictions the cost of administrative delays on to the renter or homebuyer. When more than one government agency regulates a critical activity, such as the development of residen­ tial housing, administrative difficulties often suIface. Although the basic reason for overlapping jurisdic­ tions-the different missions of agencies-is readily Wetlands and Affordable understandable, such a situation can easily give rise to conflicts among various agencies and to ambigu­ Housing ity with respect to what constitutes compliance with regulations. This problem arises in relation to the The growth of America's cities and farms during preservation of wetlands, protection of endangered the past 2 centuries has consumed more than half species, and, sometimes, sanitary codes and other of the Nation's original wetlands. The remaining health concerns. wetlands serve important economic and environmen­ tal functions, such as flood control and the provision Federal, State, and local agencies' respective envi­ of wildlife habitat, and need to be protected. How­ ronmental regulations often involve time-consuming ever, environmental protection legislation and administrative requirements and potentially large associated regulations dealing with wetlands often expenses. Furthermore, because conservation is a unnecessarily raise the cost of housing. The defini­ high priority at all levels of government, rules are tion of wetlands, as well as Federal and State

[The regulatory] systems in Anne Arundel [County, MO] can be borrowed and the . concerns Anne Arundel has ' ~bout watershed management can be utilized in Howard County, in$tead of having to recreate and redo all of those together; so that the . development commlihity can look at all of this and plan on a larger scheme. The wetlands'issue is sonjetimes monitored by the Corps of Engineers, the State, and other . times by the [Washington Suburban Sanitary Commission]. A lot of our time goes into processing paperwork and trying to figure out what's the next step instead of spending more time on more livable communities, more workable work environments. .' Corridor Today . October 27, 1989

4-3 Environmental Protection Regulation

administrative procedures for regulating their use, Environmental Protection Agency (EPA), the Army lead to adverse impacts on housing affordability. Corps of Engineers (the Corps), the Soil Conserva­ tion Service, and the Fish and Wildlife Service (FWS)--joined to produce The Federal Manualfor Definitional Problems in Identifying and Delineating Jurisdictional Wetlands. Wetlands Regulations Instead of narrowing the definition of wetlands, this manual takes an even more inclusive view: to be Most people think of wetlands in commonsense defined as a wetland, the soil need be only tempo­ terms: ponds, swamps, bogs, marshy coastal areas, rarily saturated with water, in some instances. or bottomland forests. In reality, the scientific The effect of this expanded definition is that more definition is highly technical and is based on private, buildable land-land that is totally dry hydrology, soil condition, and specific types of nearly all of the time--<:an be declared a wetland, water-loving vegetation. Wetlands are often identi­ and its use for development denied. fied by the presence of plants found in soil that is, at a minimum, periodically saturated or covered In general, wetlands statutes tend not to take land­ with water. In terms of their physical appearance, use issues into account. Typically, existing statutes however, wetlands are as varied as America's do not differentiate between critical and ecologically geography. low-value wetlands. If the statutes were to make this distinction, then the development of a low-value Because the protection of wetlands has resulted in wetlands might be permitted for some important widespread restrictions on .residential development, public purpose. Similarly, most environmental advocates of affordable housing have long sought protection statutes that deal with wetlands do not to modify the definition of wetlands to exclude a effectively differentiate between publicly and number of naturally occurring soil conditions that privately owned land. are largely unrelated to water quality and, thus, not within the purview of Section 404 of the Clean The problems that arise as a result of the lack of Water Act (CWA). In 1989, the four Federal land-use distinctions in wetlands regulations are agencies that regulate the use of wetlands-the exemplified by the predicament that builders of a Juneau, Alaska, homeless shelter faced. In May 1989, the St. Vincent de Paul Society, a public charity, began planning for the construction of a six-unit homeless shelter for families in downtown Federal permits for wetlands activities Juneau. To meet a city requirement that parking are increasingly difficult to get. In spaces be available at the shelter, the Society pur­ the San Francisco District of the chased a vacant lot that adjoined the shelter property Corps of Engineers, for example, and applied to the Corps for a permit to pave. the Bay Planning Coalition has com­ Because this quarter-acre lot was designated a piled statistics from the Government "wetland," however, the Corps would not issue showing that, in a recent 5-year the permit. Without the permit, there could be no period, only two "major" wetland parking lot, and, without the parking lot, the city . permits have been issued by the would not issue a building permit for the shelter. Corps .... It took more than a year of administrative maneuver­ ing before the Corps and the city issued the neces­ Robert Briscoe, Land Use sary permits and construction could begin on both Attorney parking lot and shelter. Had the wetlands permitting San Francisco, CA regulations recognized distinctions with respect to the public benefit to be derived from the intended land use, considerable time and money would have Chapter 4

been saved, and homeless families could have been conflict, overlapping juri-sdictions render the permit­ sheltered much sooner. ting process unnecessarily complicated and lengthy, obliging applicants to negotiate with both Federal agencies in hopes for a speedy, positive result. In Jurisdictional Problems addition, the FWS, the Soil Conservation Service, With the Federal Wetlands and the National Marine Fisheries Service are Regulation sometimes consulted on matters pertaining to individual permit applications. The need to obtain The Clean Water Act has a number of important both State and Federal permits often complicates functions pertaining to the "waters of the United the situation. States," including protecting navigation, water quality, and wetlands. Congress entrusted this statute's complex and wide-ranging mission princi­ The Complexity of the Federal pally to the EPA and the Corps. Section 404 of the Permitting Process CWA is the legislative focal point of current Federal wetlands protection efforts. It authorizes the Corps Although concerns about keeping the Nation's to issue permits for filling and subsequent develop­ water supply clean are by no means new, environ­ ment of wetlands, and requires the Corps to follow mental protection became a clear national priority EPA guidelines when issuing these permits. It also with the passage of the National Environmental authorizes EPA to veto any Corps decision to issue Protection Act (NEPA) of 1969. NEPA introduced a permit for use of wetlands. the environmental impact statement into the Federal regulatory process by requiring assessments of the Their overlapping jurisdictions occasionally produce potential impact of federally financed projects on conflicts between EPA and the Corps. Resolving the environment. These assessments have become these interagency conflicts can prove time-consum­ a time-consuming and costly adjunct to the Federal ing and expensive for applicants. Sometimes, such wetlands permitting process. conflicts lead to extensive litigation, such as the 1987 Attleboro Mall case, which upheld the EPA's Designed to ensure adequate protection of aquatic broad authority to oversee, and even veto, the Corps' ecosystems, the Federal permitting process for permit approvals.2 Even without interagency developing a wetland is often arduous and costly

In 1986, a Wareham, Massachusetts, businessman wished to expand his sales and storage facilities onto adjacent property. Since a portion of the proposed building site contained wetlands, he consulted the local conservation commission, hired environmental engineers, and applied for Federal, State, and local permits. Four years and $173,100 later, construction had not begun on the planned building annex. Much of the time and money was consumed in efforts to meet differing requirements of the EPA and the Corps.

Case Studies on Problems with the Section 404 Regulatory Program - Volume I National Association ofHome Builders December 1989

4-5 Environmental Protection Regulation

and does not take into account any public benefit,. "unavailable" by the developer. It was the such as a stronger local economy, that a proposed developer's contention that, because the alternative development might produce. Section 404(b)(I) of site was unavailable in July 1984, when its applica­ the CWA requires that applicants for wetland tion to the Corps was made, the timing of the development permits avoid adverse environmental original search was not relevant. EPA argued impacts to the maximum extent practicable. An successfully that the developer's entry into the real important consideration is whether the proposed estate market, and the search for alternative sites, development needs to be located near water, thus begin at the same time (the "market entry" theory). making crucial its placement on wetlands. If no alternative site can be found, the applicant must The Attleboro Mall case injected new uncertainties devise a plan to minimize adverse impacts to the into the already arduous wetlands permitting pro­ site's wetland ecology. If the proposed development cess. No explicit guidance exists as to precisely cannot occur without seriously damaging the wet­ when the search for an alternative site has begun or land, the applicant must provide appropriate and what was an acceptable alternative at that time. As practical compensatory mitigation that, in essence, the law now stands, developers can be faulted after involves creating a comparable wetland at another the fact for not investing in property-perhaps no location. The permit application process is structured longer available-that EPA judges would have been to encourage applicants to meet the requirement of suitable. avoiding adverse environmental impacts by finding The mitigation stage of the permitting process, while an alternative site that features an "upland" rather more straightforward and generally conceded to be than a wetland. much less of a problem, can also be lengthy and The Attleboro Mall decision significantly increased frequently involves prolonged negotiations. The the difficulty of getting a permit to develop wet­ applicant must convince the Corps, EPA, the FWS, lands. The case began in December 1983 with tbe and, occasionally, the National Marine Fisheries purchase by a shopping center development com­ Service that a proposed replacement project will pany of an 82-acre tract that was known to contain satisfy their respective requirements to establish a a 50-acre swamp. The purchase was made after an suitable wetland. Disagreements among these indication that State environmental protection agencies on what constitutes a satisfactory mitiga­ agency approvals of the project might be forthcom­ tion in a specific instance do occur. With few ing. The approvals were, in fact, soon obtained, specific guidelines available on the mitigation along with local authorization. In its permit applica­ process, applicants sometimes face a difficult task in tion to the Corps, the developer indicated that a pleasing all the Federal agencies involved. A devel­ nearby alternative site was unavailable and infea­ oper can be virtually assured, however, that the sible for its project.) This application was approved mitigation process will be expensive. Estimates of by the CDrpS. After receiving the required formal the actual cost of creating an acre of wetland range notification from the Corps of its intent to issue a from $50,000 to $250,000, with ongoing monitoring permit, however, EPA vetoed the project, stating that and maintenance charges amounting to as much as 4 an alternative site was available when the applicant $150,000 per year. In addition, the prolonged, often began looking for property to develop. The devel­ complex negotiations extend the builder's loans for oper challenged EPA in court, and the case turned on acquisition, development, and construction. when the developer's search for an alternative site began. The developer said that it had begun to search Compensating landowners in September 1983; EPA contended that the search had begun in the spring of 1983. Central to this for Wetlands dispute was a competitor's purchase in July 1983 Efforts to protect wetlands consistently deny of an option on the alternative site identified as landowners permission to develop their property.

4-6 Chapter 4

Sometimes, all use of a wetland is prohibited. In An increased State role in wetlands regulation other situations, development judged not to have an represents a simple broadening of existing land-use adverse impact is allowed. Hence, to varying de­ responsibilities. In addition, because most State grees, the protection of wetlands causes landowners environmental protection statutes were patterned on economic loss, and even though a government Federal legislation, there is already, as noted above, agency does not really take possession of a wetland, considerable duplication of regulations that could its restriction of profitable uses of private property profitably be eliminated by a lessening of Federal can amount to a "taking." activity. In 1977, Congress directed EPA to allow the States to assume responsibility for portions of the The issue of takings has prompted a good deal of Federal Government's pennit program for Section litigation, because the Fifth Amendment forbids the 404. Howeyer, the assumption of some of the government from taking property without equitable program's operational expenses, without a signifi­ compensation. To date, the courts have been inclined cant diminution of EPA oversight, plus the absence to rule against landowners where a taking was of incentives, have conjoined to entice few States to alleged to have occurred, but where some economic participate.6 To date, only Michigan has become use of their property was still possible. Similarly, involved. Yet the groundwork for a better integration where a complete taking has not occurred, the issue of Federal and State wetlands responsibility has been of compensation for partial economic loss has been laid, and could serve as the basis for a long-range largely unaddressed. In situations where a taking has no-net-loss strategy. been judged to have occurred, there is little clearcut guidance on the issue of compensation, which here . '. -. . involves the purchase of property by a government - .",' '." ~. -I:'..,., • ..: agency.

In 1988, President Reagan issued Executive Order The Endangered Species No. 12630, "Government Actions and Interference Act and Its Effect on with Constitutionally Protected Property Rights." It directed Federal agencies to assess the implications Housing of their actions so as to prevent unnecessary takings. As yet, however, no measures have been put into Originally passed in 1973, the Endangered Species effect to ensure that the order is carried out. Act (ESA) is designed to help ensure the survival and well-being of existing species of plants and animals. The ESA makes it illegal to "take" a plant Planning for the Future: or animal that is designated as "threatened" or Increasing the State Role "endangered." "Take" means engage in any activity that is thought to hann the protected plant or animal. In fashioning a long-range strategy for the imple­ The basis upon which the detennination is made that mentation of the Administration's "no net loss" a species is threatened or endangered is rather broad, policy for the Nation's wetlands, the amount of and includes destruction, modification, or curtail­ responsibility to be given to States in overseeing ment of its habitat, as well as disease and predation. environmental protection becomes an important Therefore, besides barring activity that directly question. Most States already have some fonn of causes death or injury to individual members of wetlands protection legislation. A number of them, protected species, the law prohibits significant (such as California, Florida, Massachusetts, Michi­ modification or degradation of the habitat used for gan, New Jersey, and Oregon) are acknowledged to breeding, feeding, or sheltering the species in have particularly comprehensive wetlands protection general. programs.5

4-7 Environmental Protection Regulation

therefore, more expensive, thereby diminishing prospects for affordable housing in the area. Both The bottom line is that humans have the ESA and the manner in which the FWS adminis­ reached the limit in how far they can ters it could be modified to lessen significantly the intrude on the environment, said Act's .impact on the creation of affordable housing, Nancy Kaufman, field supervisor for without diminishing its ability to preserve the natural the Fish and Wildlife office that world. oversees Riverside County. She said that it is unfortunate that newcomers are being penalized for a problem Problems With the created by all residents, but her job is Administration of the ESA to enforce the Endangered Species Act by requiring the county to solve a In the ESA, Congress prohibited consideration of socioeconomic factors in listing a species as threat­ problem its sprawling growth created. ened or endangered. The absence of this constraint "How they do it? As long as it's legal, on the listing process has, in part, led to the ESA Fish and Wildlife doesn't care how imposing some of the most stringent restrictions on they come up with it," Kaufman said. the use of private property of any existing Federal "I'm not required by law to analyze environmental statute. Because actions that ad­ versely alter habitat can be interpreted as a taking the housing price aspect for the (in the sense of taking possession of fish or game), average Californian." legally equivalent to directly harming individual Kirstin Downey members of an endangered species, a listing can "Rare Rat Gains Ground in effectively cause a stoppage of all development on Turf War" lands judged to be critical habitat, often to the The Washington Post detriment of housing affordability. February 23, 7989 The Act states that critical habitat-that is, land essential to ensuring the protection and recovery of an endangered species-should be identified at the time of listing. However, the designation of an At the direction of the Secretary of the Interior, FWS endangered species' critical habitat is not always adds plants and animals to the lists of "threatened" made so quickly. The destruction of critical habitat and "endangered" species. When a species is added carries substantial penalties. When the designation to either list, FWS can take steps to protect it, one of critical habitat is delayed, developers are often of which is to curtail human activities in geographic confused about the location of land where human areas that are believed essential to its continued activity is restricted. The efforts of developers to viability, such as known breeding grounds. State avoid damaging critical habitats tend to exacerbate agencies can also restrict human activity in areas the economic impact of the listing by extending the they judge essential to the viability of a species. It limits of the ban further than necessary and some­ is not unusual for development to be severely times by completely halting construction in a restricted, in areas containing thousands of acres, particular region or jurisdiction. for years at a time. The Act does, however, provide for the drafting of a When environmental protection agencies curtail Habitat Conservation Plan (HCP), which represents development and limit other human activity thought a mechanism for resolving the land-use issues that to be detrimental to the survival of a species, sur­ typically arise from a listing. The HCP gives all rounding buildable land becomes more scarce and, "affected parties," such as landowners, developers,

4-8 Chapter 4

State and local public officials, environmentalists, curtailment of development can be staved off. These -and other public interest groups, the opportunity to stoppages cost the local business community money, craft an amicable solution to ensuring the continued because loans on buildable land must continue to be survival of the endangered species. Typically, an serviced and construction projects are delayed, with HCP includes the setting aside of buildable land as a concomitant loss of opportunities to sell goods and preserves for the endangered species and also the services. The implicit threat that development might payment of mitigation fees. be restricted, perhaps on short notice through an emergency listing, also generates pressure to fashion Although HCPs have been successfully drafted to an acceptable HCP. Furthermore, the direct costs meet both human needs as well as those of endan­ involved in designing an HCP can be high (a re­ gered species, problems arise with the FWS' admin­ cently completed Orange County, California, study istration of this process. The process tends to be of existing wildlIfe habitats cost some $300,000), lengthy, sometimes taking years. The failure of the because consultants are sometimes needed to do the FWS clearly to define criteria for an acceptable HCP requisite research, write the resultant reports, and, has contributed to the time-consuming and expen­ ultimately, prepare the draft HCP. A substantial sive nature of the process. Furthermore, the FWS is proportion of the costs engendered by the HCP both the official protector for the endangered species process itself are initially borne by developers and and the judge of what constitutes an acceptable builders and, as costs of doing business, are added HCP. Given the amorphous state of the HCP pro­ to the price of new homes. cess, plus the absence of a procedure for arbitrating disagreements between participants, the consortium of local public officials, landowners, and business Obtaining Valid Information people who represent their community in HCP for Implementation of the ESA negotiations with environmentalists has relatively little influence over the outcome. Under the provisions of the ESA, the Federal Government is supposed to use the "best scientific From the beginning of the HCP negotiations, and commercial data" available in determining pressure exists to restrict development voluntarily, whether a species is endangered or threatened. The so that direct FWS intervention with more drastic FWS does not, however, have minimum standards and criteria to establish what constitutes the best .. data, nor is there a formalized peer review process ~ Tne California gnatcatcher, a rare bird for evaluating the data. As a consequence, decisions , found mostly in Orange County-and affecting the economic destiny of whole regions, and ..:. nearby counties, has moved a step , costing both public and private interests hundreds of millions of dollars, can be made on the basis of =doser to being declared endangered, relatively little information. For example, a single '- :- astatus:'that:cou Id affect proposed study on the Golden-Cheeked Warbler, the method­ .-: ,so\lth:~ounty toiIwaysj several large ology of which was subsequently criticized by an ,, - housing dev~, lopments, and numerous acknowledged authority on the bird,1 was used by smaller projects. ' . . FWS as the basis for a decision to order the emer­ gency listing of this bird as endangered. This listing -:. Frank Mi~delt resulted in severely restricting development in thousands of acres in Travis County, Texas, with localities around the City of Austin being especially hard hit. The Travis County appraiser estimated that the value of the land affected by the listing would be reduced from $335.7 million to $15.1 milIion, and

4-9 Environmental protection Regulation

the annual tax levy would be reduced from $6.7 arising of who will pay for their protection. The million to $0.3 million.8 Negotiations are currently October 1988 listing of Stevens Kangaroo Rat as an underway on obtaining funding for an HCP that will endangered species proved costly to both current and establish preserves covering an area of more than future citizens of Riverside County, California, 60,000 acres at a cost of more than $100 million.9 located some 75 miles east of Los Angeles.

Although the ESA does not allow the consideration Curtailment of development in the western part of of economic issues in the actual decision to declare a Riverside County was agreed to in an HCP. The species endangered, the fact that huge expenditures construction stoppage encompasses private as well of both public and private funds almost inevitably as public land. The HCP calls for a 30-square-mile follow argues for a reasonable level of prudence. system of rat preserves, and requires Riverside The FWS could have reviewed a number of studies County to raise an initial $103 million to pay for the and obtained expert opinions in conjunction with the creation of habitats. Although no one knows pre­ review. The FWS was not required to take these cisely how much the HCP will eventually cost, steps, however, and chose not to do so. estimates have run as high as $350 million. 10 The magnitude of the cost stems from the fact that the bulk of the affected lands are privately owned, rather Bearing the Costs Engendered than State or Federal property, and therefore have to by the ESA be purchased at market rates. In November 1988, county supervisors levied a special impact fee of Although it is not unusual for the drafting of HCPs $1,950 on each acre of land to be developed, ulti­ to cost local governments hundreds of thousands of mately affecting perhaps as many as 100,000 dollars, the plans themselves led to the creation of homesites. Hence, for years to come, people buying preserves that are more and more often being new homes in Riverside County will be paying for fashioned from privately held land once considered the Stevens Kangaroo Rat's preserves. While prime development property. As the list of endan­ environmental protection efforts frequently raise the gered species grows, the question is increasingly cost of land and housing, few instances provide as

By imposing costs indirectly through regulation, rather than directly through tax.es,

h massive expenditures are being made on environmental protection, but the expenditures and revenues are "off budget," shielded from the usual public scrutiny. .

Pacific Legal Foundation Written comments to the Commission September 12, 1990

loudoun County [Virginia] voters soundly rejected a $5 million bond issue .. yesterday that would have financed the purchase of endangered plant and animal habitats.... .

Steve Bates . HLoudoun Rejects Bond Issue for Habitat Purchase N The Washington Post . March 13, 1991

4-10 Chapter 4

clear a picture of the process as this Riverside County situation. . . The timber industry is critical to the American economy, a backbone of our housing industry. Affordable lumber.is part of affordabl¢ housing. Timber Production and The bUilders in. F10tida have a stake in the PaCific Northwest as su-rely as Housing Affordability those of us who'arink orange juice feel the effects of a drought in Florida. The vast majority of new single-family houses in the United States are of wood-frame construction. Wood "The Reverend Jesse L. products account for approximately 15 percent of the Jackson average construction cost of a new single-family Press Release from the house. The price of timber, therefore, plays an National Rainbow important role in housing affordability. Especially Coalition Inc. significant in this connection is the influence that February 28, 1991 envirorunental protection regulations exert on timber production.

Environmental protection regulations directly affect forest management. Fq!.ests.are habitats for endan­ management and harvesting activities on private gered or threatened species, such as the Northern lands. Spotted Owl, which lives in the forests of the Pacific Northwest. To protect endangered or threatened In addition to serving as critical habitat for hundreds species, large set-asides of Federal land are often of species of plants and animals and, therefore, advocated. A proposed Federal conservation strategy falling indirectly under the purview of environmen­ to preserve the owl would set aside 8 million acres tal regulations, the forests themselves are important of forestland in California, Oregon, and Washington. natural resources to be protected and conserved. Timber harvesting would cease, with a resultant loss Years before concern for protecting endangered of about a quarter of the Nation's annual softwood species became a central issue in charting the future lumber and plywood production capacity. The of the Nation's forests, there was a debate about the supply of timber from private lands is also affected size of the annual timber harvest, much of which by State regulations issued in response to Federal comes from Federal lands. Timber harvesting first guidelines for preserving endangered or threatened became the subject of national debate after most of species. the virgin forests on private lands were cut. The demand for wood products and the impact of associ­ Timber supply is also affected by other federally ated market forces on housing affordability have mandated envirorunental regulations, including continued to focus attention on the management of wetlands policies. Although the Clean Water Act timber supplies on public lands and, as a conse­ exempts "normal" forestry activities on wetlands quence, on Federal policies for achieving a balance from permitting requirements, the exemption is between forest conservation and timber production. being increasingly challenged and reviewed in With the relatively recent entry of broader environ­ court and by some Federal agencies. The new mental protection issues into the regulatory equation, Federal manual on wetlands, mentioned earlier, recognizing the relationship between housing will extend Federal review of forestry activities to affordability and timber production has become millions of acres not traditionally considered to be even more critical. wetlands, thus potentially further restricting forest

4--1 1 Environmental Protection Regulation

Endnotes 8/bid., Part B, Aug. 1990, p. 2. 9Prior to the emergency placement of the warbler on the 'A 1990 study. entitled "From Schools to Skyscrapers." endangered species list, work was underway in Travis by the New York City Housing Partnership, a nonprofit County on a multi-species HCP for the preservation of developer of affordable housing, found that environ­ another bird native to the region, the Black-Capped Vireo, mental impact reviews of development projects in that and five species of invertebrates found in local caverns city took an average of 19 months. (karsts). The development community had already 2Bersoni v. EPA, 674 F. Supp. 405 [N.D.N.Y. 1987]. voluntarily modified its operation to assist in preserving the vireo's habitat. but development was not seriously 3William H. Ethier, "Adverse Decision Will Not Be affected. The emergency listing of the Golden-Cheeked Reviewed by the U.S . Supreme Court," National Warbler led to widespread restrictions on development in Association of Home Builders, Washington, D.C., Travis County, consistent with the intent of the ESA to 1989, p. 5. ensure a listed species' survival. Efforts by a consortium of public and private interests to protect the warbler led to 4Abigail Fair. "Wetlands Save You Money," ANJEC the formulation of a new multispecies HCP that included Report (Associations of New Jersey Environmental the six species upon which attention had already been Commissions). Fall 1990, p. 10. focused.

5David Salvesen, "Wetlands: Mitigating and Regulating 'OKirstin Downey, "Rare Rat Gains in Turf War," The Development Impacts," The Urban Land Institute, 1990, Washington Post, Feb. 23, 1989. pp.50-55.

6/bid., pp. 43-44.

7The critique was presented in a July 24,1990, letter to the Honorable Manuel Lujan, Secretary of the Interior, from Professor Warren M. Pulich of the University of Dallas. The letter was included in "Report of the National Association of Home Builders to Secretary of the Interior Manuel Lujan on Problems with the Endangered Species Act," Aug. 6, 1990.

4-12 Chapter 5 Other Factors Affecting Housing Affordability

ffordability problems arise, in large while the number of nonpoor families with measure, from the macroeconomic con­ affordability problems has increased. siderations, the many manifestations of the NIMBY syndrome, and the local regulatory Congress has specified that renters with severe A affordability problems-those paying more than barriers discussed in Chapters I through 4. But these factors are by no means the only ones that 50 percent of income for housing-should receive affect housing affordability. For low- and very low­ priority for admission to HUD's major rental assis­ income households, poverty is the primary reason tance programs. Using this measure, almost three­ that affordability problems exist. For them, regula­ fourths of the families with affordability problems tory barriers merely exacerbate an already difficult are poor. task of obtaining shelter. The housing finance The number of poor renter families with system and Federal tax laws are also extremely affordability problems rose from 2.2 million to 3.7 important components of the process by which million between 1974 and 1985, and then decreased housing is provided in the United States, and both to 3.2 million by 1989 (see Exhibit 5-1). These have changed dramatically during the past decade. trends parallel changes in the total number of poor So also have the programs that provide housing renters, which grew from 4.1 million in 1974 to 6.7 subsidies for the poorest families in America. This million in 1985 before dropping to 6.2 million by chapter discusses the relationship between poverty 1989. The proportion of poor renters with afford­ and housing affordability, and al so aspects of the ability problems has been basically stable since housing delivery system that, although beyond the 1974, with about 55 percent paying more than 30 Commission's purview, provide a broader perspec­ percent of their income for rent. However, this tive and context within which Federal, State, and apparent stability masks increases in affordability local regulatory barriers affect housing markets. problems among unassisted poor renters. While the Finally, this chapter describes Federal efforts that proportion of poor renters who received housing focus on serving the needs of households most assistance increased from 20 to 34 percent between susceptible to housing affordability problems. 1974 and 1989, the share of unassisted poor renters with affordability problems rose from 66 to 79 percent, and the share of those paying more than 50 percent of income for housing rose from 40 to Poverty and Housing 59 percent. Affordability Poverty is not a completely reliable measure of income for purposes of examining housing afford­ The problem of affordable housing is closely ability among the lowest income households, related to the problem of poverty. More than one­ because the poverty level is the same across the half of poor families, both owners and renters, have country while the cost of housing varies dramatically affordability problems, as the Commission has from place to place. Congress has therefore preferred defined them. Moreover, until 1983, the majority to determine housing needs in terms of income of families with affordability problems were poor; levels in particular housing markets. Most rental the number of poor families has declined since 1983, assistance is directed at renters with very low

5-1 Other Factors Affecting Affordability

incomes, which is defined as income below 50 admission to rental assistance, such "worst-case" percent of the median family income in an area. problems among very low-income renters have (For comparison, the poverty line is around 40 been studied in some detail. Between 1974 and percent of the national median family income.) 1989, increases in the number of households with Unassisted very low-income renters who are not worst-case problems were attributable to worsening poor have about the same incidence of affordability affordability problems alone, because both the problems as poor renters, but they are only half as number and proportion of income-eligible renters likely to pay more than half of their income for rent. with severely inadequate housing declined. Analysis Affordability problems are much less common for of worst-case problems over time has also shown renters above 50 percent of median income. Indeed, that growth in unmet needs was greatest in the West, three-fifths of those with any affordability problems, and that it was concentrated among families, espe­ and more than 90 percent of those with severe cially families with children. Between 1975 and affordability problems, have very low incomes. 1989, the number of elderly with worst-case prob­ lems remained near 1.1 million, while the number Because either rent burdens above 50 percent of of families with severe problems grew from 1.1 income or severely substandard housing are the million to 2.1 million. conditions qualifying households for preference in

Exhibit 5-1 Affordability Problems Among Very Low-Income Family and Elderly Renters, by Income, 1974-1989 (Households in Millions)

Family Income 1974 1980 1985 1989 Below Poverty 4.1 S.6 6.7 6.2 Receiving Housing Assistance 0.9 1.4 2.1 2.1 Unassisted: Rent Burden> 30% of Income 2.2 3.1 3.7 3.2 Rent Burden> SO% of Income 1.4 2.1 3.0 2.4

3.3 3.5 3.1 4.1

Receiving Housing Assistance O.S 0.7 3.1 4.1 Unassisted: Rent Burden> 30% of Income 1.5 1.7 1.7 2.3 Rent Burden> SO% of Income 0.4 0.5 0.8 1.0

Source: Annual and American Housing Surveys, Office of Policy Development and Research, U.S. Department of Housing and Urban Development, Washington, D.C.

5-2 Chapter 5

tions to increase their involvement in the mortgage market. A much larger share of home mortgages is now purchased by the secondary market institutions The Housing (62.1 percent in the 3rd quarter of 1990, compared ·Finance System with 30.7 percent in 1980 and 20.3 percent in 1970),2 and the institutions themselves have increas­ During the 1980s, the housing finance system ingly functioned as mortgage market intermediaries was radically transformed in response to the infla­ rather than investors in mortgages. They now tion of the preceding decade and to the new com­ convert mortgages into mortgage-backed securities, puter and communications technologies. The roles instead of holding them as assets in their own of major actors in the system have changed, both portfolios. quantitatively and qualitatively. Mortgage-backed securities were developed in the Savings and loan associations (S&Ls), long the 1970s and refined in the 1980s. The Government major source of funds for home mortgages, now National Mortgage Association (Ginnie Mae) playa less important role in the mortgage market, introduced the mortgage-backed security in 1970; for several reasons. Tax advantages that used to today it securitizes virtually all Federal Housing accrue to S&Ls and other thrift institutions for Administration (FHA) and Department of Veterans investing a large proportion of their portfolios in Affairs (VA) originations, which are about 16 per­ mortgages or mortgage-backed securities were cent of all originations. The Federal Home Loan eroded substantially through the 1980s, and elimi­ Mortgage Corporation (Freddie Mac) and the Fed­ nated entirely by the Tax Reform Act of 1986. eral National Mortgage Association (Fannie Mae) Concomitantly, thrifts were allowed to diversify securitize another substantial fraction of annual their lending activities during the early 1980s, mortgage originations. The market influence of although the Financial Institutions Reform, Recov­ Freddie Mac and Fannie Mae extends well beyond ery, and Enforcement Act (FIRREA) partially the number of loans they buy or securitize; their reversed the liberalization in 1989.1 Technological underwriting standards for primary loans are widely changes have also affected the role of S&Ls by adopted and amount to national underwriting stand­ fostering the separation of mortgage origination ards for a substantial fraction of all mortgage credit. and servicing from mortgage lending. Where tradi­ In addition, the securities markets now seldom tional thrift institutions originated mortgages to hold in their own portfolios, now many S&Ls typically leave mortgage-backed securities in their original originate mortgages and sell them to other investors. form. Typically, the markets tum them into securi­ ties with multiple maturity classes, so that investors As the importance of the S&Ls has declined, other can reduce the risk that prepayment will occur at an institutions have become more prominent. Mortgage inconvenient time, particularly when interest rates bankers and commercial banks are as adept as the fall. The first such securities, collateralized mortgage thrifts at originating mortgages; commercial banks obligations, were issued in the early 1980s. Roughly originated more home mortgages than thrifts for 90 percent of the mortgage-backed securities created the first time in 1989, and have maintained their by Freddie Mac and Fannie Mae are now immedi­ new prominence since then. Pension funds and life ately repackaged into Real Estate Mortgage invest­ insurance companies invest in mortgages to a greater ment Conduits (REMICs) to reduce the prepayment extent than they did a decade ago. risk.

As the strength of the S&Ls has eroded, the second­ Some relatively new and smaller entities are now ary mortgage market has become more important. participating in the secondary market. These The changes in the secondary market have provided institutions focus almost exclusively on affordable the impetus and the vehicles for many other institu- housing needs. For example, the federally chartered

5-3 Other Factors Affecting Affordability

Neighborhood Reinvestment Corporation (NRC) compete for loanable funds, the new rules are receives annual congressional appropriations so that likely to make housing less affordable. its Neighborhood Housing Services of America can purchase loans to assist otherwise "unbankable" persons or households. Likewise, the private, non­ profit Local Initiatives Support Corporation (LISC), through its Local Initiatives Managed Assets Corpo­ The Tax System ration (LIMAC) subsidiary, maintains a secondary market fund designed to increase the flow of invest­ The Federal tax system helps to determine the price ment funds into neighborhoods. It does so by of housing by influencing both total investment in purchasing some of the loans made by LISC and housing and the division of that investment between other organizations.3 owner-occupied and rental properties. The tax system can favor or discourage housing in general Whether the accumulated changes in the secondary as compared with other forms of investment. It can market have raised or lowered the price of mortgage also favor or discourage homeownership or renting credit in general is not clear. The net effect is by providing special tax benefits for one or the other. probably not large, in either direction. The wide­ spread concern of a decade ago--that other lenders The Federal tax system changed fundamentally in would not "fill the gap" if the S&Ls diversified and the 1980s, and the changes increased the costs of held fewer mortgages-now appears to have been housing as compared with other investments. Both overstated; other investors have moved into the the 1981 and 1986 tax law changes lowered mar­ mortgage market to supply funds for housing. ginal income tax rates and raised personal exemp­ tions and standard deductions. While these changes Technological progress and the growth of the were desirable in themselves, they reduced the secondary market have also replaced the former relative tax advantages of investment in home­ local or regional mortgage markets with a national ownership by reducing the value of the mortgage mortgage market. Geographic differentials in interest and property tax deductions. The marginal, mortgage rates have effectively disappeared. This after-tax cost of homeownership for a family of change has improved affordability in areas that three earning $40,000 is 8.2 percent higher under have traditionally suffered an imbalance between the Tax Reform Act of 1986 than under prior law. 4 mortgage demand and the supply of funds, notably It is not likely, however, that these changes have rural areas and rapidly growing regions such as substantially affected affordability for first-time California. homebuyers.

The transition to a new housing finance system is The tax law changes in the 1980s also had important imposing costs and creating problems in certain effects on rental housing. The 1981 changes allowed respects. FIRREA limits the amount an S&L can for accelerated depreciation on multifamily housing lend to anyone borrower, relative to the S&L's investment, contributing to a rental housing con­ capital. This restriction is forcibly changing the struction boom in the early 1980s. The Tax Reform borrowing practices of some builders, requiring Act of 1986 sharply reversed course. It eliminated them to develop new relationships with new lenders. accelerated depreciation, increased the depreciation At the same time, financial regulators have forced period for all real estate to 27.5 years, ended the some S&Ls and banks to adopt stricter underwriting deductibility of construction-period interest and criteria for real estate loans. The disruption of taxes in the year they were incurred, and restricted traditional lending relationships and the stricter the deduction of passive losses. These changes lending rules are major factors contributing to a increased the cost of investment in rental housing. credit crunch over the past year. At least in some The National Association of Home Builders has markets for some period of time, as developers estimated that, as a consequence, rents would have

5-4 Chapter 5

to increase by between 15 and 20 percent to main­ for housing affordability resulting from the funda­ tain the same rate of return on rental housing mental changes during the past decade, typically by investments.5 bringing down the mortgage interest rate paid by homeowners or rental property owners. These efforts In addition, the Tax Reform Act of 1986 limited the attempt to increase the role of the private sector in amount of "private-purpose" tax-exempt bonds that providing affordable housing, either by incentives State and local governments could issue, including or requirements. Many of them focus on the neigh­ both industrial development bonds for rental housing borhoods in which low- and moderate-income and mortgage revenue bonds for homeownership. It families live. also tightened the income and rent restrictions for families eligible to benefit from these bond pro­ grams. These changes potentially increase the cost Community Reinvestment of housing as compared with all other investments. As discussed in Chapter 3, one of the important tools The new tax laws dramatically affected multifamily that has been used to stimulate the flow of resources housing production in the 1980s. The 1981 Act to American cities is the Community Reinvestment generated a boom in apartment production, and Act (CRA), which requires that lenders make concomitantly high rental vacancy rates. Since the affirmative efforts to lend in low-income neighbor­ 1986 Act was passed, construction has been drop­ hoods.6 It has been in existence since 1977 and ping steadily. Neither Act has had a clearly discern­ was strengthened by FIRREA in 1989. ible effect on affordability, however, if only because neither was in force long enough for rents to adjust Many of the early agreements reached pursuant to fully. CRA obligations focused solely on mortgages for single-family housing. More recent agreements have The tax reforms of the 1980s have so far had more increasingly concerned both multifamily and com­ adverse impact on the after-tax cost of home­ mercial lending in poorer neighborhoods. In addi­ ownership than on the cost of renting, but ultimately tion, banks have found that taking equity positions renters will be affected more adversely. The major in neighborhood housing developments allows them tax benefit of homeownership is the exclusion of the to use Low Income Housing Tax Credits, which both rental value of the home from the owner's income; improves their rates of return on the investments and this benefit did not change as a part of the reforms, contributes to satisfying CRA requirements. although its value declined as tax rates were re­ duced. Both owning and renting housing became The need to comply with CRA requirements and more expensive, but there appears to be little change the availability of secondary market purchasers in their cost relative to each other. (especially Fannie Mae and Freddie Mac) have induced some lenders, including mortgage bankers, to become active in inner-city lending. In New York, for example, one mortgage banker, Norstar Mort­ gage Company, originated about $100 million in Actions to Add ress subsidized, single-family loans between mid-1988 and mid-1990. 7 Other activities, some of which Affordability Problems may be attributable to actual or expected CRA challenges, include a commitment by California Besides these broad changes in public policy, the banks to provide almost $8.5 billion for community Federal Government has undertaken specific efforts lending beginning in 1990 and a similar agreement to help families and neighborhoods for whom, and by Massachusetts banks to commit between $5 where, affordability is most pressing. To some billion and $6 billion.8 extent, these efforts mitigate adverse consequences

5-5 Other Factors Affecting Affordability

Federal Housing Finance units will be occupied by, and affordable to, house­ holds with incomes at or below 50 percent of area Board Programs median income for the remaining useful life of the Another effort to encourage investment in housing property or the mortgage term. Priority is given to for low-income families is contained in the 1989 loans for homeownership and for the purchase or FIRREA legislation. A Federal Housing Finance rehabilitation of housing held by the Federal Gov­ Board (FHFB) was created to be the new regulator ernment and housing sponsored by any nonprofit of the Federal Home Loan Banks; the Federal Home organization, State, housing authority, or State Loan Banks borrow in the capital markets and make housing finance agency. advances to S&Ls that belong to the Federal Home The funds for this program are provided by each Loan Bank System, providing an alternate source Federal Home Loan Bank as a fraction of its net of funds . FIRREA established two programs under income, subject to statutory minimums for the whole FHFB intended to answer criticisms that the lending system. In 1990, the Federal Home Loan Banks industry was not doing enough to reduce the housing made available $80 million, which helped to finance affordability problem.9 The first, the Community $1 .2 billion in affordable housing. As a result of this Investment Program, provides special cash advances program, more than 24,000 single- and multifamily from the Home Loan Banks to S&Ls to undertake units will be created. community-oriented lending. The loans are intended for housing for homeowners or renters whose income does not exceed j 15 percent of area median Mortgage Revenue Bond income, and for commercial and economic develop­ ment activities that benefit low- and moderate­ Financing income families or are located in low- and moderate­ Mortgage revenue bonds (MRBs) are one category income neighborhoods. Mortgages for which there of "private-purpose" tax-exempt bonds issued by are no Teadily available secondary markets receive State and local governments for single-family priority. housing. Other categories of private-purpose tax­ The advances to fund these community-oriented exempt bonds include small-issue industrial devel­ projects are provided at the Home Loan Banks' cost opment bonds and rental housing bonds. Bond of funds plus administrative expenses. During 1990, volume is restricted to $50 per capita per year, or the Banks provided $500 million to fund 10,257 a maximum of $150 million for each State for all single-family homes and 5,909 rental units. The private-purpose issues. advances were priced between 25 and 35 basis Mortgage revenue bonds have been the primary points below the normal cost of funds. financial vehicle by which States, through their FIRREA also requires each Federal Home Loan housing finance agencies, have provided below­ Bank to create an Affordable Housing Program. market-rate loans to homebuyers, thus addressing This program encourages member institutions to statewide housing affordability problems for some originate loans for low- and moderate-income residents. Proceeds from MRBs have been used by housing at below-market rates of interest. Each Bank moderate-income, first-time homebuyers to purchase provides subsidized advances to members willing to homes with prices less than 90 percent of the aver­ use the money to reduce the interest rate on long­ age area purchase price. According to the National term loans to finance home purchases or rehabilita­ Council of State Housing Finance Agencies, States tion by families with incomes at or below 80 percent participated in a total of $4.5 billion in new money of median. Members also qualify for advances to issues in 1989, generating more than 94,000 loans. to finance the purchase, construction, or rehabilitation Approximately $70 billion in MRBs have been of rental housing in which at least 20 percent of the issued since their inception.

5-6 Chapter 5

States have been authorized to issue mortgage credit the first 90 days that the property is for sale. The certificates (MCCs) in lieu of MRBs because the RTC had sold almost 2,700 homes to poor families bonds are relatively inefficient subsidies to Tirst-time by December 30, 1990. homebuyers. MCCs entitle homebuyers to income tax credits for a specified percentage of the interest The RTC may also transfer properties with no on qualified mortgage loans. In this way, the entire reasonable recovery value to Federal agencies, amount of the subsidy flows directly to the home­ State or local government agencies, or nonprofit buyer without being partly diverted to financial organizations for public use. This use includes middlemen or bondholders. housing for the homeless, day care centers for children of low- and moderate-income families, and other public uses designated by the Secretary Federal Property Disposition of Housing and Urban Development. By early 1991, eight of these properties had been given to nonprofit The Federal Government has an inventory of vacant entities. More are expected to be placed in this housing units from defaults and foreclosures on program in the near future. federally insured home mortgages and failed S&Ls. Some of these properties may be used to provide affordable housing for low- and moderate-income households. HUD has developed three initiatives for disposing of its foreclosure-acquired properties in The Affordability ways that promote housing affordability. The first is the direct sale program under which HUD offers Problems of Low-Income single-family homes that it acquires to qualified homeless providers at a discount of normally 10 Renters percent below market value before HUD lists the The Commission does not expect that the removal homes for sale to the general public. The second is of regulatory barriers to affordable housing will a lease program, with option to purchase, under solve all the affordability problems faced by the which HUD offers HUD-owned homes to homeless poor, most of whom are renters. Reducing barriers providers at a cost of $1 per year. There is also a will ease their problems, but reducing barriers alone demonstration program under which HUD provides will not suffice. Their affordability problems are too assistance to governmental entities and private, severe. Clearly, there is a need for direct housing nonprofit organizations to provide housing and assistance for the poor. supportive services for the homeless. If an applicant is interested in purchasing HUD-owned homes in connection with this program, HUD will enter into a Federal Rental Assistance 6-month lease-purchase option with a public housing authority or other governmental entity under which The Federal Government has provided rental hous­ the property is effectively held off the market while ing assistance to low-income families for more than the applicant applies for acquisition assistance. 50 years, and these programs have made decent housing available to many of the poorest families The Resolution Trust Corporation (RTC), the in America. Originally, the housing problems of the second major holder of foreclosed properties, has poor were regarded as primarily physical problems, two programs to increase housing available for and housing needs were defined in terms of housing low- and moderate-income families. The Affordable quality. Gradually, however, as housing conditions Housing Disposition program allows only moderate-, improved, affordability concerns have become more low-, and very low-income families, nonprofit important in public policy. In the 1980s, Congress organizations, and State and local governments to redefined the priority needs for housing assistance buy eligible single- and multifamily properties for to include affordability-paying more than half of

5-7 Other Factors Affecting Affordability income for rent and utilities-as well as housing Prepayment of FederaUy without structural adequacy and functioning plumb­ ing and heating systems. Affordability has increas­ Subsidized Mortgages ingly become the major, and for many the only, According to the original terms of their contracts housing problem. In 1989, such excessive rent with the Federal Government, private owners of burdens were the only housing problem for almost 360,000 federally assisted low-income multifamily three-fourths of the 5 million very low-income housing units become eligible to prepay their renters with priority "worst-case" housing mortgages over the next 15 years and convert their problems. I I properties to market-rate rental housing or other purposes. In so doing, they would terminate their To respond to these needs, Federal housing HUD-controlled and subsidized rent levels. Several assistance during the 1980s shifted to vouchers witnesses who testified before the Commission were and certificates for use in the existing stock, thus concerned about the near-term effects of this devel­ assisting more families for given levels of expendi­ opment on affordable housing opportunities, ture than would be possible with new construction because the majority of these properties were built or substantial rehabilitation. In addition, light in the early 1970s and are, therefore, eligible for rehabilitation of the existing stock has received prepayment in the early 1990s. more attention. Legislation passed in 1987 placed a temporary Between 1980 and 1990, the number of renter moratorium on prepayments, severely limiting the households receiving assistance rose from 3 million rights of property owners, and left tenants uncertain to 4.4 million,12 with more than half of the increase as to their position after the moratorium expired. in certificates and vouchers, and rental assistance The 1990 National Affordable Housing Act created was more narrowly targeted to the poorest, most prepayment provisions, based on recommendations needy families. More than 80 percent of the addi­ made by Secretary Kemp as part of the HOPE tional subsidies went to families with incomes initiative, to ensure that lower income households below 50 percent of area median income. would continue to have access to most of this The National Affordable Housing Act of 1990 affordable housing, in some cases through home­ established new programs to complement further ownership programs. The prepayment provisions increases in certificates and vouchers and to preserve attempt to compensate, on a fair basis, owners who existing assisted units in the affordable stock. The are seeking to prepay their mortgages, but only if the HOME Investment Partnership program will provide units remain part of the affordable housing stock. In funds through which States and localities can expand exchange for retaining afford ability restrictions for affordable rental housing opportunities for low- and the remaining useful life of the housing, owners will very low-income families, especially through the be offered additional financial benefits, based on the ~urren.t market value of their properties. The major rehabilitation of substandard rental housing. 13 Homeownership and Opportunity for People Every­ mcentlves are an increased annual rate of return on where (HOPE), also created by the Act, provides owners' revalued equity, an equity take-out loan, or grants to resident management groups, nonprofit both. These incentives are supported through in­ organizations, and local agencies to promote creases in allowable rents, and Section 8 assistance homeownership of public and Indian housing pro­ is provided to lower income families to ensure that jects and federally acquired single- and multifamily their rent burdens do not increase above 30 percent of their income. The incentives package cannot properties. 14 exceed an amount equivalent to rents at 120 percent of the Fair Market Rents for the local market area under the Section 8 Existing program.

5-8 Chapter 5

If owners decide to pursue prepayment, they will subject to marginal tax rates, that is, the credits are be required to provide a right of first offer to the not deducted from before-tax income, as were many tenants, to allow them to purchase the property for of the pre-1986 investment incentives, and they can resident homeownership, and also to other entities shelter both passive and non-passive income (up to that are willing to retain affordability restrictions for the maximum limits). The LlHTC is a significant the remaining useful life of the housing. Owners are improvement over previous tax incentives for rental free to prepay mortgages if they receive no bona housing and is a major source of assistance, adminis­ fide offer. tered by States, for those with housing affordability problems. Because the credit goes only to units The prepayment provisions also assist tenants in occupied by low-income families, it creates a direct the purchase of properties with grants to resident incentive to serve these households. The statute councils to cover the costs of acquisition and for defines low income and sets limits on allowable rehabilitation, technical assistance, and other ex­ rents, to ensure that low-income families benefit penses. Nonprofits and State and local public from the credit. In addition, States are given the agencies acquiring properties for continued use as authority to allocate credits to their most important affordable rental housing will also be eligible to needs, and the program encourages the participation receive grants to cover the purchase price as well of nonprofits. as other incentives. For-profit entities will be eligible for mortgage insurance for an acquisition loan and In 1989, the States allocated $307 million in housing other incentives to ensure the property remains credits. This amount is the equivalent of more than affordable to low-income households. Although $3 billion in budget authority for housing assistance. most owners are expected to accept the incentive In its first 3 years, the credit supported the construc­ package or sell properties for continued use by low­ tion of 111,000 units and the rehabilitation of income households, existing tenants are still pro­ another 95,000 units. A HUD evaluation found that tected when these events do occur. Eligible tenants the LlHTC has been able to serve a fairly wide range can receive Section 8 vouchers or certificates, of markets. The typical household has an income special-needs tenants and households in low­ well below the allowable program maximum, set vacancy areas are guaranteed continued occupancy at 60 percent of the local median family income: at affordable rents for 3 years, and all tenants who 68 percent of all households receiving credits had choose to move can receive relocation assistance. incomes below 50 percent of the local median. The National Affordable Housing Act authorized Investors earned an internal rate of return that more than $1 billion over 2 years to preserve these averaged between 17 and 19 percent, after taxes, units, encourage resident homeownership, and for the typical tax credit unit. protect tenants affected by prepayments. Although the LIHTC was originally authorized for only 3 years, Congress has extended it at least low I ncome Housing through 1991. Bills have been introduced in both Tax Credit Houses of the I02nd Congress for a permanent extension. In some cases, the bills would also extend One feature of the Tax Reform Act of 1986, the application of the LIHTC to other activities, such as Low Income Housing Tax Credit (LlHTC), was rehabilitation for certain lower income families. designed specifically to foster production of rental While the credit has been fully utilized since 1989, housing for low-income families, replacing the tax low-income housing could be provided more effi­ benefits of the prior law such as accelerated depre­ ciently if the credit were made permanent, so that ciation, favorable capital gains treatment, and the housing producers would not be faced with annual ability to use passive losses to shelter income from uncertainty over whether the credit would be any source. 15 The value of the tax credits is not continued.

5-9 Other Factors Affecting Affordability

6 CRA, along with the Home Mortgage Disclosure Act (HMDA) of 1975, was intended to stop red lining, the process by which lenders deny commercial or residential Conclusion credit to certain (usually poorer and/or minority) areas. CRA's originai language contained the requirement for Regulatory barriers are not the only factors affecting financial institutions that were federally insured to "serve housing affordability, and removing regulatory the convenience and needs" of their local communities. barriers will not resolve all the housing affordability Some critics of the original CRA suggest that many banks problems in the United States. Significant and extended only deposit services to meet this requirement. substantial problems would remain for the poorest Pennission for banks to establish Community Develop­ families in society. At the same time, however, the ment Corporations (CDCs) was also expected to playa role in addressing red lining. The Federal Reserve Board regulatory barriers that now exist are exacerbating has supported CDCs, for the institutions it regulates, since the problems of the poor. The Commission belieyes 1971. In some places, through the efforts of well­ that a serious effort to reduce regulatory barriers is organized community organizations, CRA has been an essential component of an overall strategy to implemented quite effectively. The National Training promote housing affordability. and Infonnation Center in Chicago, and the Local Initiatives Support Corporation (LISC) headquartered in Part II of this Report establishes the appropriate New York City, are among the locally based organiza­ policy environment in which reform can occur tions that pioneered the use of the CRA challenge and proposes solutions for effective removal of provisions to leverage investment. regulatory barriers. 7 Jane Moss Snow, "The Community Reinvestment Act Business," Mortgage Banking, Vol. 50, No.8, May 1990, Endnotes p.75.

I The Financial Institutions Refonn, Recovery, and 8 Data provided by the Center for Community Change, Enforcement Act, Public Law 101-73, Aug. 9, 1989. Washington, D.C.

2 "Annual Gross Flows of Long-Tenn Mortgage Loans," 9 The Financial Institutions Refonn, Recovery, and U.S Department of Housing and Urban Development, Enforcement Act, P.L. 101-73, Section 721, Aug. 9,1989. Office of Financial Management, Dec. 8, 1988, Aug. 15, 10 1989, and March 28, 1991. These data cover one- to 1989 HFA Homeownership Survey, National Council of four-family mortgages purchased by either Federal credit State Housing Agencies, Washington, D.C. agencies or those creating mortgage pools. The vast II The "worst-case" or priority needs identified by majority of the purchases are by Fannie Mae, Freddie Congress include living in substandard housing, paying Mac, and Ginnie Mae. more than half of income for rent and utilities, or having

3 As reported in a LISC news release (undated), LIMAC been involuntarily displaced. The estimates are based on is to become the frrst nonprofit group to offer market-rate 1989 American Housing Survey data. securities backed by pools of community development 12 HUD budget data. loans.

13 Grants wi11 be made available to participating 4 Home Building After Tax Reform: A Builder's Guide, jurisdictions following submission to HUD of a The National Association of Home Builders, Washington, Comprehensive Housing Affordability Strategy (CHAS) D.C., Nov. 1986, p. 7. that identifies both housing needs and regulatory barriers 51bid., p. 17. to affordable housing. Ironically, however, the 1990 Housing Act expressly prohibits HUD from allocating or denying HOME grants to communities based on any local policies or regulatory barrier considerations.

5-10 Chapter 5

14 The 1990 Act authorized $1 bill ion over the next 2 years for implementation and planning grants for this program.

15 The tax credits are allocated to States and flow to project owners. Investors in qualified projects receive a dollar-for-dollar reduction in tax liability, up to a maximum of $7,000 per year for the 10-year life of the credit subject to certain limitations and exceptions. States are responsible for developing their own allocation and project approval mechanisms, subject to relatively strict targeting requirements contained in the 1986 Act.

5-11

Part II:

Commission Recommendations and Implementation Strategy

11 - \ Commission Recommendations and I mplementation Strategy

art II of this Report presents the Commission's recommendations. The Commission proposes 31 recommendations for Federal, State, local, and private action. These recom­ mendations, if implemented, would provide the legislative and administrative tools for a P comprehensive program directed at reducing regulatory impediments to affordable housing. Chapter 6 (Federal recommendations), Chapter 7 (State recommendations), and Chapter 8 (local and private-sector recommendations) present Commission proposals that are intended to be complementary and should be viewed as important elements of a total package of actions neces­ sary for broad-based regulatory reform. The Commission believes that some of these proposals are so essential to any effective regulatory effort that it highlights them below for particular consideration.

If reform is to be achieved, States must be involved more extensively. The Commission envisions the Federal Government as a vehicle for stimulating State (as well as local) regulatory reform efforts. Federal housing legislation should allow HUD to condition assistance to States and locali­ ties based upon their barrier-removal strategies. It is inequitable and a waste of taxpayers' money to continue to provide housing assistance to governments that maintain policies limiting housing affordability. Similarly, because States have an especially important role to play, the Commission proposes that Federal housing assistance flowing directly to States be conditioned upon the exist­ ence of acceptable State barrier-removal strategies. In addition, States should review and com­ ment upon the barrier-removal plans of their localities. To encourage greater involvement in regulatory decisionmaking and increase the supply of affordable housing, the Federal Govern­ ment should waive regulations for States that have barrier-removal strategies.

The Federal Government must also set an example in regulatory reform by reviewing its own regulatory system to remove or reform those regulations that have an adverse effect upon housing affordability. To avoid future regulations that restrict affordability, the Commission proposes that every Federal agency prepare a Housing Impact Analysis before proposing any major new rule or regulation. The Analysis would discuss the projected impact of the proposed rule on affordability and any actions that could prevent negative impacts. Federal environmental regulations that fail effectively to balance environmental protection with other social goals can and often do directly drive up the cost of housing. To avoid such outcomes, the Commission recommends comprehen­ sive reform of both national wetlands policy and the Endangered Species Act to ensure proper consideration of housing affordability in the development and implementation of environmental protection policy.

The Commission also believes that many Federal, State, and local regulations limit fundamental rights and protections. The Federal Government has the responsibility to protect such rights, and the Commission recommends that the Federal Government become an active participant in seek­ ing judicial review of excessive or discriminatory development controls and regulations.

l/-2 All States must assume increased responsibility and oversight for the regulatory decision making processes of their constituent localities. Specifically, the Commission strongly believes that all States should undertake an ongoing action plan, at both the State and local levels, directed at barrier removal. As part of such a strategy, all States should thoroughly review their existing zoning and land-planning systems to remove all institutional barriers to affordability, including limitations or prohibitions constraining the use of housing affordability options such as accessory apartments, duplexes, manufactured housing, and single-room occupancy. States should also continue their ongoing efforts directed at building-code reform, and should consolidate and streamline their own regulatory responsibilities.

Developing and implementing a strategy for acting on these recommendations is, in the view of the Commission, as significant and important as the recommendations themselves. Chapter 9 presents such a strategy, which consists of a widespread effort to educate the public about the price that is being paid for pursuing parochial interests, and details actions that Federal, State, and local governments and private interests should undertake to achieve regulatory reform.

11-3

Chapter 6 The Federal Role: Stimulating Regulatory Re-form

ousing and building regulations and Government has had a small role in regulating hous­ ordinances have traditionally been primarily ing; for that matter, the Federal role has sometimes local responsibilities, for good reason: been counterproductive. Hhousing markets are local markets. Many basic phenomena that affect the building process, such as soil conditions or climate, are local. Prefer­ ences of local residents should be taken into account, and are best expressed to and through local govern­ Federal Initiatives ment. The existing local regulatory system offers choice, flexibility, and community participation that The Commission believes the Federal Government are unique. The importance of these considerations should foster actions by the States as well as local strongly supports the tradition of local responsibility, governments to reduce regulatory barriers, and and implies that development controls will continue should especially encourage States to take a broader to remain primarily within the purview of local role in working with their localities to implement government for the foreseeable future. reform. This approach does not mean replacing local regulation with Federal regulation. Rather, the Fed­ But local regulation can become parochial regula­ eral Government should encourage, assist, and tion. The prevalence of the NIMB Y syndrome, provide incentives for the removal of existing regu­ combined with the multiplicity of jurisdictions latory barriers and the local and State adoption of within most metropolitan areas, has resulted in policies that promote housing affordability. The regulatory processes that leave out of account legiti­ Federal Government should undertake actions that mate interests of people who live outside a given inspire the States as well as local governments to community, but who are affected by that reform housing-related regulations. community's decisions. Typically in American metropolitan areas, the affected outsiders are less To initiate and stimulate reform, the Federal Govern­ well off than are current residents; sometimes they ment can incorporate into Federal programs incen­ are members of racial or ethnic minorities. If tives for State and local regulatory reform. It can NlMBY pressure dictates regulatory policy in most begin by getting its own house in order, by establish­ or all of the jurisdictions in a market area, then the ing affordable housing as a higher priority than it is availability of housing will be lower, the cost of now, and by ensuring that Federal regulations and housing will be higher, and middle- and moderate­ programs do not inadvertently raise barriers to income families throughout the area will be less affordable housing. In addition, the Federal Govern­ well-housed than they would like, and could afford. ment can remove those special regulatory barriers that limit housing investment in central cities. And it Overcoming the NIMB Y syndrome therefore re­ can work actively with other levels of government quires levels of government beyond the locality to be and with private individuals and organizations, involved in the building regulatory process, in the providing them with information and bringing them interests of all citizens who are affected by the together to develop a better understanding of issues policies of local governments. Those levels include and concerns, so they can resolve their differences. the Federal Government. Historically, the Federal

6-J The Federal Role

remove or ameliorate the negative effects, if any, of such regulatory barriers. The State CHAS is espe­ cially important now that a major HUD housing I ntegrating Barrier program (HOME) is providing funds to the States Removal Into Housing for their direct use and allocation. In the past, Fed­ eral housing funds most often have been sent di­ Programs rectly to localities or to States to pass on to localities. Not only does this new requirement repre­ To stimulate regulatory refonn, Federal housing sent an attempt by the Federal Government to en­ programs should incorporate incentives for State and courage more affordable housing in urban America, local barrier-removal efforts. but the structure of the CHAS itself also emphasizes the importance of removing regulatory barriers to Barrier-Removal Strategies affordable housing.

The National Affordable Housing Act of 1990, for Although the 1990 Act requires States and localities the first time, requires States and localities to begin to begin to address the issue of regulatory barriers, to address the issue of regulatory barriers. As a HUD is severely constrained in seeing that refonn is condition ofreceiving assistance under 13 HUD actually carried out. The Act specifies that HUD programs, including the new housing block grant may not disapprove the CHAS or condition financial (HOME), HOPE Homeownership programs, and assistance based upon such policies, no matter how Community Development Block Grants (CDBG), burdensome or costly the barriers may be. In fact, the 1990 Act requires States and localities to prepare HUD is expressly prohibitedfrom allocating or and to obtain HUD approval of a Comprehensive denying assistance based upon any local policies, Housing Affordability Strategy (CHAS). The strat­ regulations, or barrier considerations. This legisla­ egy must explain, among other things, whether tive prohibition vitiates the requirement for a bar­ public policy affects the cost of housing or the rier-removal plan and frustrates the purposes for development and rehabilitation of affordable hous­ which this Commission was created. Moreover, ing in the jurisdiction, or results in economic or Section 108 denies judicial review ofa CHAS in racial discrimination. terms oflocal governments' treatment ofpublic policies. A number of factors are particularly relevant for the development of that portion of the CHAS associated It is both inequitable and contrary to public policy to with regulatory barriers to affordable housing: tax provide Federal housing assistance to States and policies, land-use controls, zoning ordinances, build­ localities that choose policies that raise the cost of ing codes, fees, charges, and growth limits. The housing, limit affordability, or result in racial dis­ CHAS must describe the jurisdiction's strategy to crimination. Conditioning Federal assistance upon

6-2 Chapter 6

barrier-removal actions is not an inappropriate State Review intrusion into State and local affairs. Historically, one of the most fundamental responsibilities of the As all localities are creatures of the State, the State Federal Government has been to prevent State and should be encouraged to review and comment on the local administrators from abusing the rights of barrier-removal plan required of localities as part of citizens. Conditioning Federal assistance will not the CHAS. A few States already review local regula­ supplant State and local administration but, rather, tions as part of a housing element or comprehensive will be a tool to constrain abuse. planning requirement. To encourage State review of local barrier-removal plans, HUD should, as part of The Congress should permit HUD to review the the CHAS approval process, give particular consid­ barriers portion of the larger CHAS, and to disap­ eration to any comments and recommendations prove the jurisdiction's plan to remove the identified offered by the States. In addition, where States barriers if the plan is unsatisfactory. Disapproval require localities to submit barrier-removal plans to should result in rendering the jurisdiction ineligible meet State housing or planning goals, Federal law for assistance. Although States as well as localities should be modified to permit HUD to accept, if should also be required to submit a barrier-removal substantially equivalent, the same barrier-removal strategy as a condition of receiving housing assis­ submission required by the State for use by the tance, disapproval of a State strategy should result in Federal government in its own CHAS review pro­ denial of housing assistance only to the State, not to cess. Such an approach would reduce the paperwork localities that otherwise had an acceptable plan. burden placed upon localities and give additional significance to State barrier-removal requirements Recommendation 6-1 and reviews. Condition Assistance Upon Barrier-Removal Recommendation 6-2 Strategies State Review of Local Barrier-Removal Plans The Commission strongly recommends that the Congress amend the National Affordable The Commission recommends that States be Housing Act of 1990 to allow HUD to condition offered the opportunity and be encouraged to assistance to State and local governments based review and comment upon the local barrier­ upon their barrier-removal strategies. removal plan of the Comprehensive Housing Assistance Strategy (CHAS) mandated by the National Affordable Housing Act of 1990. Expanding the Role of States The intransigence of local governments that adopt Federal Housing Assistance to States regulatory barriers tied to the NiMBY syndrome will not be substantially loosened until States become The limited role most States have chosen for them­ strong and vital participants in the regulatory pro­ selves in the area of regulatory barriers evidences the cess. The Federal Government should encourage strong need for the Federal Government to employ them to do so. Although all regulatory power ema­ creatively its housing assistance programs to encour­ nates from the State and is delegated to localities, age expanded State action. Because few HUD hous­ only a few States have chosen to assume oversight ing and community development funds flow directly responsibility to ensure that this delegation is exer­ to the States, however, HUD can currently exercise cised for the general welfare of all its citizens. Chap­ little direct leverage to stimulate State barrier­ ter 7 discusses, in detail, the Commission's views on removal actions. Even if the Congress were to per­ the State role and presents a comprehensive series of mit HUD to condition housing assistance upon recommendations for State action. acceptable barrier-removal strategies, as proposed by

6-3 The Federal Role

Commission Recommendation 6-1, the effect wou Id reducing the effectiveness of Federal housing be minimal. Making additional resources available subsidies. for State housing activities that would be contingent on their housing strategies would increase incentives The Commission believes that it is both counterpro­ for State action. ductive and a waste of taxpayers' money for the Federal Government to provide substantial housing The Federal Government does have, however, two subsidies, without requiring a commensurate effort highly significant State housing programs that are to reduce governmentally created barriers to not administered by HUD but are, rather, created by affordability. IfStates receive these substantial Federal tax law and are administered by the Treasury Federal housing assistance subsidies, they should be Department-housing bonds, which are either mort­ subject to the same CHAS requirements for barrier gage revenue bonds (MRBs) for single-family removal to expand the availability of affordable homeownership or industrial revenue bonds for housing that the Commission recommends should be multifamily housing, and the Low Income Housing required of HUD programs. Tax Credit (LIHTC). Chapter 7 details those barrier-removal actions the Mortgage revenue bonds, now known as qualified Commission believes should condition Federal mortgage bonds, are tax-exempt bonds issued prima­ housing assistance to States. At a minimum, all rily by State housing finance agencies to provide States should have comprehensive barrier-removal mortgages at below-market interest rates to first-time plans that provide for State as well as local reform, homebuyers. About $80 billion of such bonds have including new enabling legislation, direct State been issued, most since 1980, to finance about 1.3 action, and model codes and standards (Recommen­ million housing units. States also issue multifamily dation 7-1); plans for comprehensive zoning and bonds for rental projects for low- and moderate­ land-planning reform (Recommendation 7-2); re­ income families. The Tax Reform Act of 1986 set form of subdivision ordinances, building codes, and total issuance ceilings for all private-purpose bonds, impact fees (Recommendations 7-6, 7-7, and 7-10); not just MRBs, based upon each State's population. and a strategy for eliminating regulations that dis­ criminate or prohibit a variety of housing types and The Tax Reform Act of 1986 also created the Low densities that can improve affordability (Recommen­ Income Housing Tax Credit. In place of previously dation 7-11). available tax preferences, the 1986 Act provides for 10-year tax credits to support the development and rehabilitation of low-income rental housing. As with Recommendation 6-3 MRBs, the legislation sets State LIHTC ceilings Federal Housing Assistance to States based upon State population. To receive an alloca­ tion from the State's credi t authority, a project The Commission recommends that the Congress owner or developer must apply to the designated make permanent the authority for both mortgage State allocation agency. revenue bonds and the Low Income Housing Tax Credit (LIHTC). As part of such legislation, the Authority both for the issuance of MRBs and for the Commission strongly recommends that the LIHTC expires at the end of fiscal year 1991. The portion of each State's allocation of private­ Commission believes that the Congress should make issuance bond authority used for single-family such authority permanent. mortgage revenue and multifamily housing bonds, as well as the State allocation of LIHTC While these two programs have made the States authority, be contingent upon the State having an major players in the provision of low- and moderate­ approved barrier-removal plan as part of the income housing, States are not currently required to Comprehensive Housing Assistance Strategy participate actively in removing or reforming regula­ (CHAS) required by Title I of the National tory barriers that raise the cost of housing, thereby Affordable Housing Act of 1990. States without

6-4 Chapter 6

approved barrier-removal plans would forfeit the Administration establish an interagency tax-credit authority, as well as that portion -of Affordable Housing Regulatory Review Board to private-issuance bond authority that is used for provide, in participating States, waivers of or housing purposes; and that authority would be adjustments to Federal regulations to increase the redistributed to States with approved plans. supply of affordable housing.

State Incentives State Planning Grants

A balanced program directed at stimulating in­ No State currently exercises anything approaching creased State responsibility for regulatory reform the oversight of, and review responsibilities for, its should also include carefully selected incentives. constituent jurisdictions to the level envisioned by the Commission. Except in the areas of environmen­ tal regulation and building codes, only a handful of Regulatory Flexibility States exercise any direct authority or responsibility Relaxing various Federal requirements might en­ over development regulation. Implementation of the courage States to press for reform. Added flexibility Commission's recommendations would impose at State and local levels in using Federal program administrative and programmatic burdens for which funds and conducting reviews has been suggested in many States will be unprepared. Because the proper Commission testimony as such "carrots." exercise and delegation of the police power make this an appropriate State responsibility, the Commis­ One model that would provide added flexibility sion recognizes that most States will initially find it would create an interagency Affordable Housing difficult to assume this new role. Regulatory Review Board (AHRRB) as a mecha­ nism to expedite the granting of waivers of or adjust­ The Federal Government can provide limited finan­ ments to Federal regulations, that could increase the cial assistance to States in developing the capacity supply of affordable housing in States with barrier­ and expertise to initiate barrier-removal programs. removal programs. Previous HUD efforts that provided assistance to States and localities in comprehensive plaIUling were The AHRRB would review major regulatory prob­ instrumental in developing effective local planning lem areas and develop promising alternatives. It and community-development capacity. Other Fed­ could evaluate proposals for waivers according to eral agencies, such as the Departments of Energy each agency's rules and criteria. It would also be and of Health and Human Services, currently pro­ desirable to monitor whether such waivers do, in vide funds to develop State energy and health plan­ fact, appreciably reduce the cost of housing. A ning functions. number of actions, particularly in the environmental area, could be taken. For example, participating Recommendation 6-5 States could be delegated responsibility for enforc­ ing wetlands regulations under the Clean Water Act. State Barrier-Removal Planning Grants The Commission recommends that the Congress Recommendation 6-4 enact legislation to provide States with funding Regulatory Incentives for States assistance on a cost-sharing basis for 3 to 5 years to plan and initiate comprehensive programs of The Commission recommends that a variety of barrier removal and reform at both the State and administrative and regulatory incentives be local levels. provided to States that establish and implement satisfactory barrier-removal strategies. Specifically, the Commission recommends that

6-5 The Federal Role

zealous pursuit by these agencies of their own agen­ das easily gives rise to confusion and conflict. When an agency that does not perceive itself as having Recognizing Affordable housing responsibilities advances a regulation that Housing as a Major has an effect on housing costs, the agency's regula­ tory analysis does not generally consider the effects Federal Concern on housing.

Many Federal rules and regulations have a substan­ tial impact upon the cost of housing. If regulatory The Federal Government as reform is to be achieved, the Federal Government Exarrlple must take a leadership role by getting its own house in order. As the level of government least affected To set its own house in order, the Federal Govern­ by the NIMBY syndrome, the Federal Government ment should first review existing rules and regula­ has the responsibility to demonstrate to State and tions that adversely affect housing affordability, and local governments that an effective balance can be initiate procedures to minimize these effects in found between the protection of other societal goals future regulations. Agencies promulgating major and housing affordability. rules should have to account for the impacts of those rules on housing affordability. Too often, Federal agencies promulgate regulations without due consideration of costs, especially when the goal is to protect health and safety. Inadequate Housing I mpact Analysis attention is paid to exploring less burdensome alter­ For every major rule, the promulgating Federal natives. If at all possible, Federal agencies should agency should prepare a Housing Impact Analysis. seek marketplace solutions rather than highly regula­ This Analysis should discuss, indepth, the projected tory approaches. When considering regulation, cost­ impact of the rule on housing and land costs, supply, effectiveness should be the yardstick for evaluating and demand; alternatives that were considered; and the acceptability of regulatory solutions. possible actions the agency could take to ameliorate At the Federal level, housing is regulated by up­ any negative impacts. Unlike Environmental Impact wards of 20 Cabinet departments and independent Statements, the Analysis should be limited to admin­ agencies, creating a regulatory maze. Three or four istrative rules and regulations, and would not cover different agencies may be involved in administering individual projects. A Federal Housing Impact a single regulatory issue such as wetlands. Although Analysis could also serve as a model for State and the causes of overlapping jurisdictions are under­ local governments. standable, given the different missions of agencies,

6-6 Chapter 6

HUD could develop the criteria and format for the Barriers to Central-City Investment Analysis and be assigned responsibility within the executive branch for review and comment. Initially, The Federal Government should adopt policies that this Analysis should be included as part of the remove regulatory barriers imposed by racial dis­ broader regulatory impact analysis currently required crimination, past restrictive lending practices, and by Executive Order No. 12291. Because decisions the operations of secondary market institutions. made pursuant to an Executive order are not subject Policies should be developed to make inner-city to judicial review, the Congress should also enact lending part of the lenders' regular, conventional legislation specifically mandating a Housing Impact business and not just special demonstration pro­ Analysis that would be subject to such review. grams. Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) has created new oppor­ In addition to considering the impact on housing tunities for HUD regulation of the Federal secondary affordability of individual new rules, the cumulative market institutions and for the expansion of Commu­ effect of numerous regulations should be addressed. nity Reinvestment Act (CRA)-related activities. The No system is in place for monitoring the aggregate Fair Housing Amendments Act of 1988 has signifi­ effects of all rules on the cost and availability of cantly expanded HUD's ability to enforce anti­ housing. As part of any new legislation, therefore, discrimination laws. These new powers should be the Congress should require that each Federal agency energetically embraced. conduct a biennial review of all existing regulations to assess their cumulative effect on housing cost and Recommendation 6-7 affordability. Removal of Barriers to Central-City Investment HUD's own regulations and procedures regarding the design, construction, or rehabilitation of housing The Commission recommends that HUO and the should be subject to the same rigorous review and Federal financial regulatory agencies develop the analysis required of other agencies. The Department means to ensure reinvestment in old~r urban should remove all unnecessary, excessive, or dupli­ communities, and protect these communities cative standards that are not demonstrably required from racial discrimination in lending and to protect health and safety. HUD has made great disinvestment. The regulatory agencies should progress in this area by accepting State and local take measures to make conventional mortgages as codes and standards in lieu of the Department's own available as those insured by the Federal Housing often unnecessary and excessive requirements. HUD Administration (FHA). More specifically: (1) should continue, expand, and accelerate this secondary market policy must include a firm, approach. unequivocal commitment to end all forms of discrimination; (2) HUD, as the regulator for Federal National Mortgage Association (Fannie Recommendation 6-6 Mae) and Federal Home Loan Mortgage Housing Impact Analysis Corporation (Freddie Mac), should maintain and enforce at least its current low- and moderate­ The Commission strongly recommends that a income and central-city requirements for Fannie Housing Impact Analysis be required of every Mae, and extend them to Freddie Mac, and Federal agency before it promulgates any major should monitor these agencies' compliance with rule or rule revision. As an initial step, procedures statutory goals for investment in central cities; (3) for the Analysis should be implemented adminis­ Fannie Mae and Freddie Mac should monitor tratively. The Commission also recommends that and work to ensure the availability of private the Congress enact specific legislation mandating mortgage insurance on low-down payment loans such Analysis as part of the rulemaking process. of less than $100,000; (4) secondary markets should expand into new kinds of products that

6-7 The Federal Role

serve the affordable housing market and convert Recommendation 6-8 affordable housing demonstrations, as they prove viable, to ongoing programs; (5) the Federal Amend the Paperwork Reduction Act financial regulatory agencies should vigorously The Commission recommends that the Congress enforce the Community Reinvestment Act and amend the Paperwork Reduction Act to clarify the Home Mortgage Disclosure Act; and, (6) that it applies to all Federal paperwork HUD and the regulatory agencies should ensure requirements, regardless of whether or not these that they are enforcing both the letter and the requirements involve the submission of paper to a spirit of current anti-discrimination laws, government agency. including the Fair Housing Amendments Act of 1988. Accessibility Other Federal Regulations In fulfilling the requirements of the Fair Housing Amendments Act of 1988, HUD recently promul­ Other actions are available to the Federal Govern­ gated accessibility guidelines for the design and ment to remove barriers to affordable housing. construction of multifamily housing. These guide­ Among them are these three. lines were developed after many months of debate and are just becoming fully effective. The Commis­ Paperwork Reduction sion urges HUD to be sensitive to their cost implica­ tions, and to recommend any needed change, after The Office of Management and Budget (OMB) is carefully monitoring and evaluating their impact on the regulatory watchdog over all Federal regulations. the cost of multifamily housing. Much of this authority emanates from the PaperNork Reduction Act, which requires OMB to ensure that Davis-Bacon Act most Federal regulations do not mandate unneces­ sary paperwork. For many years, OMB's authority The Commission heard extensive testimony regard­ was considerable and widely respected. Its work ing the impact of the Davis-Bacon Act on small shortened and simplified many Federal forms. Last builders and developers. The purpose of the legisla­ year, however, the U.S. Supreme Court ruled that tion is to protect the wage rate of workers against OMB's authority covers only paperwork submis­ reductions arising from competition among bidders sions to the Federal Government, and does not for Federal contracts. Since its passage in 1931, the extend to rules that require industry to generate and statute has never been adjusted for inflation. Conse­ simply maintain paper. Thus, a Federal tax form, quently, it covers projects as small as $2,000, which such as Form 1040, would be subject to OMB re­ imposes "prevailing wage" rates and extensive data­ view while one required to be maintained in the collection and reporting requirements on the smallest workplace, such as a Form W-4, would not. builders and projects.

The housing industry is subject to extensive disclo­ This costly regulatory burden can be relieved by sure and data-collection requirements affecting costs raising the threshold of covered projects. If the (truth-in-lending, wetlands, endangered species, etc.) threshold were raised to $250,000, it is estimated that, as a result of this decision, currently do not that more than 50 percent of all contracts would be undergo OMB review. The Congress has the power removed from the Act's requirements. At the same to amend the Paperwork Reduction Act to restore time, only 15 percent of the dollar value of all con­ such OMB review, and the Commission recom­ tracts would be so excluded. mends that it do so.

6-8 Chapter 6

Davis-Bacon wage rates for residential construction Federal wetlands regulations evolved haphazardly are substantially lower than for commercial con­ from earlier pollution-control programs and legisla­ struction. Multifamily construction, however, is tion regarding the dredging of rivers and harbors. As considered commercial construction under the Act. additional Federal responsibilities and programs In order to expand the affordability of federally have been added to existing legislation, administra­ assisted projects, all lower income multifamily tive guidelines have increasingly become a confus­ projects covered by the Davis-Bacon Act should be ing hodge-podge of contradictions. As a result, made subject to residential wage rates. administrative procedures fail to balance equitably the protection of wetlands resources with the need Recommendation 6-9 for affordable housing. Amend the Davis-Bacon Act Wetlands regulation is an extremely complex system involving at least six Federal agencies. Although the The Commission recommends that the Congress Army Corps of Engineers is the primary permit amend the Davis-Bacon Act to: (1) raise the issuing agency, it must operate under policy guide­ threshold of covered projects from the present lines developed by the Environmental Protection level of $2,000 to $250,000, and (2) treat lower Agency (EPA). As a result of ever-expanding defini­ income multifamily housing as residential rather tions of wetlands to include drained agricultural than commercial property. lands, moist tundra, slightly moist soils, etc., vast acreage is now classified as wetlands. To date, little effort has been made to differentiate between critical Environmental Regulations and marginal wetlands.

Beginning with the National Environmental Protec­ Chapter 4 discussed a number of problems with tion Act of 1969, Federal legislation on air and water current policy and procedures the Commission quality necessitated that public officials at all levels believes should be addressed. EPA policy requires of government give environmental protection high the Corps to deny a permit if "practical alternatives" priority. Prior to NEPA, land-use regulation was exist. This provision often means that, as applied to exclusively a responsibility of State and local gov­ housing, a permit can be denied if the landowner, or ernment. As a result of increased awareness of and some other developer, can theoretically buy another concern for environmental protection over the past site in the area. Although it is Administration policy two decades, however, the Federal Government has that there be "no net loss" of additional wetlands, no become an ever more active participant in directly clear and explicit long-range strategy states how this regulating the use of land, and Federal regulations objective will be fairly and equitably achieved. have come increasingly to affect the cost of housing. Current policy also fails to differentiate effectively between publicly and privately owned land. It may Wetlands be in the public interest that privately owned lands Federal regulation of land use is particularly heavy remain substantially undeveloped to protect critical in the area of wetlands protection. Preserving this environmental resources; if so, the government vital natural resource for future generations is an should purchase such lands, or provide incentives for essential responsibility that must continue and be private owners to maintain them as wetlands. If expanded, but this national objective can be instead the use of regulatory power seriously dimin­ achieved in a less expensive and more systematic ishes the ability of landowners to receive an ad­ manner than is now the case, and at far less cost to equate return on property, provision should be made affordable housing. for fair and equitable public compensation resulting from a regulatory taking of property.

6-9 The Federal Role .

The existing system also requires duplicative pennit Species Act imposes stringent restrictions on the use applications to both Federal and State agencies. A of private property, however, and has a great impact critical review of all existing wetlands laws and on the availability and cost of land in high-growth regulations could help to eliminate such administra­ urbarlizing areas. The restrictions regarding habitat tive complexity, reduce uncertainties about whether modification can result in severe limitations, if not lands are to be protected, and balance wetlands outright prohibitions of development activity, on protection and the provision of affordable housing. vast areas of private property. When such limitations As the advocate of affordable housing within the occur where land is in great demand, the impact Administration, HUD should actively participate in upon the costof land can be very significant. the environmental rulemaking and legislative pro­ cess to ensure a balance between housing and envi­ The Act currently requires the decision as to whether ronmental concerns. a species is "endangered," and therefore listed for protection, be based on "the best scientific and commercial data available," but no fonnal standards Recommendation 6-10 presently exist as to how available data are evalu­ Reform Wetlands Regulations ated. A standardized review process should be put into place for the evaluation of data in this critical The Commission recommends a comprehensive decisionmaking process. assessment of existing wetlands legislation and regulations to eliminate excessive or unnecessary When a species is listed as endangered, the Act barriers to affordable housing while protecting provides that a Habitat Conservation Plan (Hep) be essential wetlands resources. More specifically, developed to ensure effective protection of the the Administration and the Congress should: (1) species under study. The Hep is a useful tool in develop a wetlands definition, for purposes of reconciling land-use and endangered-species issues, regulation, that protects critical environmental serving as a mechanism that enables "affected par­ resources, streamlines regulation of ecologically ties" such as members of the local business commu­ low-value wetlands, and allows suitable develop­ nity to examine options for complying with the ESA. ment therein consistent with a goal of "no net Housing affordability and other important societal loss"; (2) mandate fair and equitable EPA guide­ needs should be carefully considered in the Hep lines that clarify rules on the availability of alter­ process. The guidelines for the drafting of Hep native sites and that also allow for a reasonable should clearly provide for giving these factors full period of time in which planning and the search weight. In addition, the Hep process should contain for alternative sites can be undertaken; (3) adopt provisions for the impartial arbitration of disagree­ the use of public and private purchase as well as ments among participating interest groups, because incentives or compensation to maintain wetlands currently a single Federal agency serves as both the that are privately owned; (4) develop a clear and advocate of the endangered species as well as judge explicit long-range strategy defining and imple­ of the agreement's acceptability. menting the "no net loss" policy; and (5) stream­ line and simplify Federal regulatory authority It is essential that habitats of endangered species be and, under appropriate safeguards, delegate protected for future generations. As with wetlands Federal regulatory authority to those States that protection, however, a comprehensive strategy that have comparable wetlands regulations. severely limits the use of private lands to protect these essential habitats should go beyond the use of police power regulation and include purchase as well Endangered Species Act as fair and equitable compensation of landowners for Society now places great importance on the preser­ excessive regulatory takings. vation of species and their habitats. The Endangered

6-10 Chapter 6

Recommendation 6-11 reluctant to intervene and review th·is exercise of public regulatory power. The Federal Government Reform the Endangered Species Act and has an appropriate and necessary role to playas an Regulations active resource as well as a participant in litigation The Commission recommends a thorough review regarding development controls and regulations that of both statutory and administrative provisions raise significant constitutional and related legal regarding protection of endangered species to issues. ensure an adequate balance between protection Many State and local-as well as Federal-statutes and other essential social goals. Specifically, the and regulations pose significant statutory and consti­ Administration and the Congress should: (1) tutional issues that should receive more intense establish a standardized peer review process for judicial review and scrutiny than is now the case. A the evaluation of data used in determining which number of legal scholars have raised the distinct species should be placed on the endangered possibility that excessive or discriminatory regula­ species list; (2) employ purchase, as well as tions may involve important legal issues. Regulations regulation, with adequate compensation, to that do not have a valid public purpose may violate protect species habitats; and (3) modify the the Due Process Clause of the Constitution. Exces­ regulations governing the development of Habitat sive regulations may amount to a "taking" without Conservation Plans (HCPs) so as to ensure that compensation; other regulations may violate the affordable housing and other important societal Equal Protection Clause barring racial and other needs are given full weight in fashioning these forms of discrimination. agreements and that a mechanism for the impartial arbitration of disagreements between State constitutions and enabling legislation often affected parties is included in the HCP process. offer similar but broader protections. Many State laws that establish standards of accountability and requirements regarding the "general welfare" of all • ... T ~<"' '. , 1 . -',') . the citizens of the State may well be violated by -..: ~ d . - - ~ .. .. - .- . exclusionary and restrictive local regulations.

Actively Working to The Federal Government has a constitutional respon­ Promote Affordable sibility to protect the rights of individuals, and this protection can arguably be extended to individuals Housing who are harmed by regulations governing the kinds of housing that can be built, where it can be built, The Federal Government can take a number of and how much of it can be built. HUD and the Jus­ additional programmatic and administrative options tice Department could undertake a joint program to to stimulate reform efforts. identify cases of excessive or exclusionary regula­ tions in which a favorable resolution would have a Legal Initiatives significant impact upon removal of regulatory barri­ ers. In some cases, the Federal role might be limited Development controls and regulations have a broad to technical and legal assistance to participants in and pervasive impact upon many aspects of Ameri­ local litigation. Where significant constitutional cans' daily lives. They affect where people live, how issues are at stake, however, it may well be appropri­ they manage and use their property, what lifestyle ate for the Federal Government to initiate an action and living arrangements they choose, who their or formally participate as a friend of the court. neighbors are, and what their residence costs. Yet surprisingly, courts have for the most part been

6-11 The Federal Role

Recommendation 6-12 Technical Assistance Legal Review of Regulatory Barriers State and local government reform efforts benefit The Commission strongly recommends that the from an aggressive Federal progrcun of technical executive branch become an active and assistance and information dissemination. continuing participant in seeking increased Federal and State judicial review and scrutiny of Model Codes, Ordinances, and .excessive and discriminatory development Standards controls and regulations through active legal intervention, technical assistance, and A comprehensive Federal regulatory implementation participation as a friend of the court. strategy must encourage the development of badly needed model codes in areas that present the most severe regulatory problems. Much of the progress Consensus-Building that has been achieved over the past 20 years in building code reform has been the result of the Any strategy for the implementation of regulatory development of consensus-based model codes. reform must recognize that regulatory barriers are, to a great extent, the result of a failure of the political Model building codes are widely available, but the process to accommodate and adapt adequately to the value of standardized, up-to-date codes is not always housing needs of the have-nots. acknowledged or appreciated. Where they are in place, model building codes are of great help to both The Federal Government can take a leadership role the building industry and housing consumers. by serving as an honest broker, bringing together groups with differing points of view so that regula­ Progress in the land-use area has been less success­ tory decisions would be based on a better under­ ful, in part because of uncertainty as to which orga­ standing of the issues from each other's perspective. nizations and which level of State and local Both Chapter 8 (Education and Coalition-Building) government should take the lead in the reform of and Chapter 9 (Implementation) discuss the impor­ land-use law and impact-fee standards. Any effec­ tance of consensus-building in achieving regulatory tive model codes in the land-use area must be con­ reform. As part of any over-all strategy, HUD should sensus-based and developed primarily by those work with national and local organizations with an industry, nonprofit, and governmental organizations interest in affordable housing to encourage them to that work with or regulate land use. The Federal reach agreements and to implement these agree­ Government has an appropriate and necessary lead­ ments through their respective organizations. ership role, however, in stimulating and brokering the process of consensus-based model codes and in Recommendation 6-13 disseminating them to State and local governments. Building Support for Regulatory Reform Model statutes for State use are needed particularly in three areas: new zoning enabling legislation The Commission recommends that HUD initiate containing a fair-share component, model impact-fee a cooperative program with public-interest standards, and a model land-development and subdi­ organizations, industry groups, and State and vision ordinance. These model codes can be invalu­ local governments to build public support and able tools for those States beginning the process of consensus for regulatory reform. reforming their building-regulatory system.

6-12 · Chapter 6

HUD has extensive experience in facilitating the data on the prevalence of regu·latory barriers and the development of model codes and their application. effects on availability of affordable housing; new In 1980, HUD developed model rehabilitation codes and innovative approaches to the design, construc­ in an eight-volume set of guidelines. In 1983, it tion, and siting of affordable housing units; and published another document designed to enhance regulatory issues facing other communities, as well uniformity of interpretation arId application of the as successful local regulatory reform efforts. Build­ provisions of the Council of American Building ers, planners, government agencies, housing advo­ Officials (CABO) One and Two Family Dwelling cates, regulatory reformers, attorneys, and many Code. Each effort had the assistance of more than a other individuals and groups would benefit by being dozen national organizations, including State and able to look to centralized sources and databases for local officials and organizations in the building written materials, abstracts, and other information on industry. A similar effort is now needed in the area related events. of model codes for land-use and impact-fee reform. Recommendation 6-15 Recommendation 6-14 Regulatory Reform Clearinghouse Encourage Development of Model Codes and The Commission recommends that HUD work Ordinances with and support organizations that currently The Commission recommends that HUD assume collect information on State and local regulatory a leadership role and work with government and developments, such as the National Association of private-industry groups, such as the American Home Builders, American Planning Association, Bar Association, American Planning Association, and State and local governments, to create a National Association of Home Builders, National centralized, single-source database and Governors' Association, League of Cities, State clearinghouse for use by housing advocates, community affairs agencies, and others to builders, State and local governments, attorneys, develop consensus-based model codes and researchers, and others interested in regulatory statutes for use by State and local governments. reform and barrier removal. Specifically, the Commission sees a need for a new model State zoning enabling act with a fair­ share component, model-impact fee standards, HUD Office of Regulatory Reform and a model land-development and subdivision­ control ordinance. Effective implementation of the many recommenda­ tions made by this Commission will require both a concerted effort and long-term commitment by Information HUD. Development of barrier-reform legislation, review of housing impact analysis, initiation of legal States and localities also need basic information that intervention actions, development of model codes would be helpful in reaching out to the public. Get­ and standards, review of State and local barrier­ ting the right information to the right people was removal strategies, negotiation with other Federal seen by many Commission witnesses as an impor­ agencies, consensus-building, facilitation, and edu­ tant step in gaining support for regulatory reform. cational and technical assistance to State and local The principle to follow is simply one of efficiency governments are among the many actions that the and effectiveness: good ideas and successful ap­ Commission envisions will become ongoing respon­ proaches should be shared and disseminated. sibilities of HUD.

One way to do this is through national clearing­ If regulatory reform for affordability is to have the houses. Many organizations would be interested in attention and resources that are warranted, HUD

6 - 13 The Federal Role

should establish a separate, adequately funded Of­ fice of Regulatory Reform charged with the respon­ sibility of implementing the Commission's recommendations.

Recommendation 6-16 Office of Regulatory Reform The Commission recommends that the Secretary of Housing and Urban Development establish a separate Office of Regulatory Reform funded and staffed to implement the Federal recommendations of this Report and to assist States and localities in initiating comprehensive programs of barrier removal.

6-14 Chapter 7 Increasing State Responsibility and Leadership

ecognizing that most regulations affecting housing costs are promulgated at the local level, the Commission believes that local [llt is quite consistent with our Fed­ governments should exercise their authority eral system ... that State governments R be quite intrusive in~'preventin' g paro­ over land use and development in ways that promote affordable housing. Where they do not, or where chial behavior by loea:I governments. State actions unnecessarily add to housing costs, the The decisions by local governments States should exert leadership to resist NIMBY on transportation, education, and pressures and remove regulatory barriers. States are housing do affect I~lrger regions. _ better positioned than either the Federal Government or local governments to do so. Because no single Robert C. flliclcson, Walter E. Meyer Professor of model exists for accomplishing this task, however, Property ,and Urban.Law States should have the flexibility to determine how Yale Law School ­ best to respond within their boundaries. This call for State leadership is in the best tradition of the American Federal system, where the States serve as laboratories for democracy and government administration.

Rationale for Looking Generally, the key actors are the to the States __ States and you should focus on the structural relationship between the Removal of regulatory barriers to affordable -, StateS-and loca[government, in housing can best be accomplished at the State level. ensu~i~g thafa S~te or regional Although it is essential that the Federal Government -. inferest... is reflected in local land-use actively promote-and provide strong incentives dec~.i6nmaki~g~ where that intere$t is .­ for-reform, housing markets are simply too diverse justified. Str<;>nger involvellJent o( to be regulated at the Federal level. Likewise, al­ ,- Sta"tesih matters of greater than· local' ­ though most regulation of land use and development impactmay r'eSult-< in greater. standards .­ occurs at the local level, many local governments are unlikely, for reasons discussed in Chapter 1, to . ~ of faJrhe~s, more predictabiHtY, and­ -. ' less' -diffusion-in regulatory' standards. undertake the kinds of regulatory reform that would '" 'c.' ,.' ' .• create a meaningful number of affordable-housing S~. Meek, Ala., Past opportunities. PreSident The American Planning States are in a unique position, for both constitu­ _.. ' Association tional and practical reasons, to deal with regulatory barriers to affordable housing. Constitutionally, all authority exercised by units of local government

7-1 Increasing State Responsibility

The State presence in the regulatory While no single organization or area is essential for perhaps two entity can address the large and major reasons. First, as the repository diverse affordable housing agenda, of the sovereignty of its citizens, the the State, with its-ability to allocate State is charged with providing for resources, as well as to influence the the common good. Building and regulatory environment, can have a land-use regulations affect some of major impact on addressing the ~he most basic aspects of the life affordable housing needs of the citizenry. Therefore, the Com­ of... people. monwealth must assure that the Affordable Housing for the effects of these regulations are what Emerging Maine they were intended to be. Second, The Report of the Governor's while we cherish the considerable Task Force on Affordable degree of local autonomy our forms Housing of government provide, parochial Augusta, September 1988, local interests may work against the p.l broader purposes for which the regulatory interests were created ... Decisions are frequently made by purely local bodies that materially over land use and development derives wholly affect the I ives and choices of others from the State. The power to regulate-the police outside the community. These power-is delegated to localities by the State. Thus, individuals will themselves have even though many regulatory barriers do not result no effective voice in the process used directly from State action, the State clearly has the to reach that decision. For the State, leverage to influence the primary selling in which the tough choice lies in setting up they exist. Although the Commission does not advocate direct State involvement in specific devel­ rules of the game that afford enough opment decisions traditionally made by localities, latitude to accommodate reasonable and does not advocate the creation of unnecessary - local preferences while assuring that levels of State bureaucracy and review, it does those preferences are not made at believe that the State has the duty to ensure that th~ e_xpense of the common good. local police powers are exercised for the common States and Regulatory good for which such delegation is made. Reform: Avenues to Just as important, however, are practical concerns. Affordable Housing Because the State stands in an intermediary position Department ofHousing between the Federal and local levels of government, and Community it can see beyond the boundaries of a single jurisdic­ Development Commonwealth ofVirginia, tion while being aware of, and sensitive to, local Richmond, April 1990, variations. Such a perspective allows the interests of p. 9 the entire State popUlation to be represented and served, including those excluded from some commu­ nities as a result of regulatory barriers. The State is,

7-2 Chapter 7

therefore, uniquely situated to undertake reform of The actions taken by Massachusetts and New Jersey, the collage of local regulations, as well as the State although somewhat controversial, illustrate just two requirements that overlay them. of the different ways in which a State interest in promoting affordable housing led to institutionalized Despite the appropriateness of State action, many systems for removing certain regulatory barriers. In States are unlikely to remove regulatory barriers to Massachusetts, advocacy for affordable housing affordable-housing in the absence of strong incen­ began in the Commonwealth's legislature and was tives for doing so. For this reason, the Commission later augmented by an executive order of the Gover­ recommends Federal incentives for both bringing nor. In New Jersey, advocacy began with litigation about reform at the State level and encouraging State in the State courts and was later institutionalized action to effect change at the local level. It should be through legislation. Although no consensus exists clear that the Commission's objective in promoting that either approach is better, these cases are note­ State leadership and responsibility is to remove worthy because they represent extraordinary State regulatory barriers to affordable housing, and not to actions intended to produce significant change at the produce a net increase in regulatory burden resulting local level by imposing a process that leads, in some from State actions. cases, to overriding local decisionmaking.

The Case of Massachusetts State Initiatives to Remove The Commonwealth of Massachusetts became concerned about the impact of local zoning decisions Local Regulatory Barriers when its program to encourage developers to build affordable housing encountered resistance from States can effect the reform of local regulatory localities in the form of building permit denials. barriers to affordabl-e housing in many ways. Some In response, the Massachusetts Legislature in 1969 possibilities include legislative action that mandates enacted Chapter 774, known as the "anti-snob specific performance, judicial intervention also zoning law." The goal of the law is to ensure that mandating performance, administrative procedures, at least 10 percent of a community'S housing stock inducements for local voluntary action, and combi­ is within the price range of low-income households. nations of these. Clearly, the conditions, the The mechanism for accomplishing this goal is to affordability problems, and the political climate allow redress to builders who have been refused in a State will dictate how that State chooses to permits to construct locally unpopular types of expand its leadership and responsibility for affordable housing if less than 10 percent of the regulatory reform. jurisdiction's housing stock is classified as

-THe statute~ ~hich w~ Chapter.]74 of the A~t of 1969, struck at two evils~ .. ':egulatory _- bar-rie_rs;and builHri delays~ So welrhas this program worked in Massachusetts over the - -. -pas~. 29 -Years that I can point to :20,000 units of ~ffordable ho·using.that are -presently _-• built a1tCf ~cupi~d ... stricily beCause 9f t~- is program. - - . " - ~; M~Y cor'inan, Chai~, H6using Appeals Com~ittee -ComT7Wnwealth ofMassachusetts

7-3 Increasing State Responsibility

affordable. The Massachusetts Housing Appeals are able to retain control over future development Committee can override local permit refusals by within their borders. Local units that are counted issuing a comprehensive permit when evidence toward the 10 percent threshold must have use indicates that the 10 percent goal has not been restrictions that limit the rent or sales prices of the achieved. Recently adopted amendments to the anti­ housing to ensure long-term affordability. The Local snob act allow communities that have not met the Initiatives Program is viewed as a way for localities 10 percent standard, but have demonstrated their to gain greater control over their development while commitment to its goal, to have their performance complying with the State's affordable housing certified by a State-created Review Board. State­ requirements. certified performance makes it more difficult for developers to win approval of disputed projects from the Housing Appeals Committee, because the burden The Case of New Jersey of proof then lies with the developers. The impetus for reform in New Jersey came from court action filed by civil rights organizations that To provide additional incentives for the provision saw the face of racial and class discrimination in of affordable housing, the Governor issued Execu­ existing one-half-acre zoning laws and in the denial tive Order 215 in 1982. It instructed all State agen­ of building permits for higher density housing. In cies to withhold development assistance awards response, the New Jersey courts in the 1970s estab­ from communities that were found to be "unreason­ lished the requirement that localities use their zoning ably restrictive of housing growth," with special powers to ensure that affordable housing for low­ consideration given to a municipality's "efforts to and moderate-income households be built. facilitate the development of housing for low- and moderate-income families." In the initial case, South Burlington County NAACP v. Township o/Mount Laurel, the New Both the 1969 legislation and the executive order Jersey Supreme Court imposed a mandatory, re­ have encouraged localities to allow the construction gional concept of providing affordable housing by of affordable housing. Although local zoning ruling that every developing community had a ordinances have not actually undergone wholesale constitutional obligation to contribute its fair share change in Massachusetts, vigorous advocacy of toward meeting its region's low- and moderate­ affordable housing by the Commonwealth govern­ income housing need. The court interpreted the ment has helped to weaken their strength as State Constitution to mean that the power to regulate regulatory barriers. use of property must be exercised in accordance Until recently, the development of housing afford­ with the general welfare. This regionally based fair­ able to low- and moderate-income households and share approach became known as the Mount Laurel the removal of regulatory barriers impeding such doctrine. development has come mainly through the State's Subsequent Mount Laurel cases expanded the override powers provided in the anti-snob law. ruling to every community in New Jersey, not just Through the recently enacted Local Initiatives to developing places. The court appointed a three­ Program, however, localities are being encouraged judge panel to develop fair-share formulas and to to take the initiative by removing regulatory impedi­ implement the decision, in part by seeing that ments and encouraging the production of affordable builders who successfully challenged permit denials housing on their own. The State provides the incen­ were allowed to proceed with their projects. To tive by agreeing to count affordable units so pro­ be successful, a challenge had to show that a com­ duced toward the 10 percent affordable housing munity was not meeting its fair-share obligations. threshold that the anti-snob statute established. When localities reach the threshold, they are exempt In 1985, the State legislature enacted a State Plan­ from developer appeals to the State. Instead, they ning Act and the Fair Housing Act; the latter created

7-4 Chapter 7

a Council on Affordable Housing (COAH), and the goal; creating procedures for reconciling local courts subsequently transferred responsibility for regulations with State goals, eliminating redundant implementing the Mount Laurel decision from the regulations, and resolving development disputes; judicial to this new agency of the executive branch. setting statewide standards in support of affordable COAH works with municipalities to determine housing; eliminating discrimination against certain quantitative targets for the amount of low- and types of affordable housing options; and providing moderate-income housing that represents their fair­ State financial incentives for affordable housing and share contribution to their region's housing stock, local regulatory reform. and it established both a quasi-judicial administra­ tive law procedure and an informal mediation alternative for overseeing progress toward meeting Recognizing Affordable fair share requirements. In addition, COAH is Housing as a State Goal attempting to develop a clearinghouse that would assist low- and moderate-income households to States are in a unique position to promote affordable locate available affordable units and that would offer housing as an official goal. Under the Federal homebuyer and homeownership counseling. system, States assume primary responsibility for the general welfare of their citizenry and, therefore, it The courts retain jurisdiction over disputes that arise falls to them to consider what factors are most between developers and communities that have not essential to the well-being of the population. Given chosen to be covered by COAH rules. In these cases, evidence of unmet housing need or distress resulting the courts can issue, and have issued, builders' from a lack of affordable housing, some States have remedies that, for all intents and purposes, provide a promoted affordable housing as a welfare goal. A developer with a blanket permit to undertake a few, such as New York, have written it into their project that includes affordable housing units, but consti tution. has been denied approval by the community. Along with identifying affordable housing as essential to the general welfare, States can promote it. Initially, they can require localities to assess, and thus acknowledge, their affordable housing needs. What States Can Do, Are They can also require localities to identify regulatory impediments to affordable housing and encourage Doing, and Should Do their removal. Finally, if localities continue to maintain barriers and subvert State goals and priori­ The Commission encourages all States to continue to ties, States can withdraw local authority to zone, find ways to remove regulatory barriers to affordable enact subdivision controls, impose impact fees, housing. This section presents recommendations for promulgate building and housing codes, and issue achieving that end. It is inappropriate, however, for land-use and development permits. the Commission or the Federal Government to mandate a single approach to achieving regulatory reform. Instead, States should have the flexibility to Housing Needs Assessments devise their own strategies and solutions, building on existing policies and practices in those States that To promote affordable housing, a number of States have already begun to take action. In addition, require local governments to assess their housing witnesses offered a variety of suggestions that needs and to focus on the extent to which affordable should stimulate further reform. housing is lacking. In many cases, these needs assessments are part of a comprehensive planning These suggestions and examples can be grouped as process and are often referred to as the housing foJlows: recognizing affordable housing as a State element of the plan. States that require them include

7-5 Increasing State Responsibility

California, Florida, Maine, New Jersey, Oregon, the housing need. After identifying barriers, and Vennont. Housing elements are intended to California law requires localities to adopt programs ensure that localities specifically address housing to remove or overcome them. However, there are affordability problems. In Florida, for example, a no effective implementation methods or strong locality must inventory its housing relative to type, incentives for local governments fully to follow tenure, age, rent, value, monthly cost, and ratio of their housing element or to implement the programs rent or cost to income. In addition, each locality in them. must project the housing needs of anticipated populations, separately estimating the needs of rural and farmworker households by number, type, cost or Review of Enabling Authority rent, tenure, and required land. Failure to comply To promote affordable housing aggressively, a few with the State requirements can result in loss of States have taken control over certain aspects of land highway funding and other infrastructure support. development (such as pennitting systems and Singling out housing needs in this way is important zoning) because they were not satisfied with the way in that it raises the priority of housing in relation to localities were using their delegated land-use and other statewide goals. development authorities. One of the earliest efforts was in Massachusetts. When a locality is not living In New Jersey, the housing element serves an up to its Commonwealth-established affordable additional and somewhat different role-as a critical housing goal, the Commonwealth issues a compre­ component of the fair-share plans that localities hensive pennit that supersedes a number of the submit to the State's Council on Affordable Hous­ pennitting requirements imposed at the local level. ing, mentioned above, when they choose to be It does so on a case-by-case basis. Oregon, in covered by that agency's rules.' The enforcement contrast, has assumed responsibility for reviewing of fair-share obligations can be qu-ite varied in New and approving local plans and ordinances, leaving Jersey, depending upon whether communities specific land-use decisions in the province of local choose to file a housing element with the Council. government. In this way, the State promotes its If a locality does not choose coverage, the courts affordable housing goals. California has also re­ will hear appeals and often rule against it to cently amended its land-use laws to provide State implement the Mount Laurel doctrine. review and opinion of final local plans. Furthennore, under certain circumstances, low- and moderate­ Identifying Regulatory Barriers income housing developments can override local zoning if the locally adopted housing element is not Several States--California, Florida, Maine, Oregon, in compliance with State law. If such a project is Vennont, and Washington among them-require denied approval or restrictions are placed on it that local governments to identify barriers, including adversely affect its viability or affordability, and the regulatory barriers, to affordable housing. This decision is challenged in a court action, the burden identification is often preliminary to adopting a of proof is placed on the locality to justify the denial. barrier-removal strategy, but the adoption of such a strategy does not always guarantee its implementa­ tion. 2 California is an example of the fonner. Califor­ Recommendation 7-1 nia law requires localities to identify potential and State Barrier-Removal Plans actual governmental and non-governmental con­ straints on the maintenance, improvement, or The Commission strongly recommends that development of housing for all income levels. each State undertake an ongoing action program Localities are also required to detennine whether of regulatory barrier removal and reform at their land-use regulations are keeping new residen­ the State and local levels. At a minimum, this tial construction below the levels required to meet program should include a comprehensive assessment of State and local regulations and

7-6 Chapter 2

housing are forced to absorb fees that are a substan­ While government infrastructure funding sources tial percentage of the sales price of any home they have generally declined, State governments have purchase. For example, exactions, dedications, and actively worked to install fees as a permanent fixture fees account for as much as 30 percent of the cost of of local infrastructure financing. A trend has devel­ housing in New Jersey. I I oped toward increased use of State authority to enable or require localities to impose development One consequence of high fee schedules is that devel­ and impact fees. Although these State actions are not opers sometimes opt to build housing only for the intended to have a negative impact on affordable higher end of the single-family market where fees housing, they often have exactly that effect. can be absorbed more easily as a proportion of sales price. Another consequence may be that developers prefer to construct single-family as opposed to Legal Status multifamily projects. According to a recent Urban Land Institute study, it is easier for developers to Case law dealing with local government levies on pass the fees along to homebuyers than to renters. 12 new development generally upholds ordinances that This preference can have a particularly dampening require developer participation in service provision effect on the development of multifamily housing, and improvements made within the boundaries of a and may be partially responsible for the fact that the new development. Courts have considered these multifamily share of all housing starts declined by levies permissible uses of local police powers. By 10 percentage points between 1985 and 1989. Those now, developer and, consequently, consumer financ­ who depend on more affordable housing are clearly ing. of onsite infrastructure and public services disadvantaged when new development shifts to the associated with new development has become an upper income, single-family end of the market. accepted practice. It is only recently, however, that courts have begun to uphold fee systems for offsite infrastructure and service financing. This extension Why Fees? of fees to offsite improvements has been justified by Fees and offsite improvement requirements have the application of what is called "the rational nexus arisen partly from local fiscal concerns. Many local test." The test, taken from case law precedents, governments are now finding themselves con­ requires that a reasonable "connection" exist be­ strained-by State expenditure and taxing limits­ tween the fee assessed and the benefits derived, and from raising money to provide needed infrastructure that the fees not exceed the new development's share of the actual cost of the infrastructure needed to and facilities, and have turned to fees to close the serve it. Despite the rational nexus test, however, it funding gap. As the pace of development has quick­ is not always clear that fees for offsite improvements ened in suburbs and growth areas of the country, are assessed on the basis of the actual benefit of local funding sources, including property taxes, have these improvements to the new development. become insufficient to meet the demand. No longer can it be taken for granted that the community at large will provide and finance offsite infrastructure. With public sources of funding for infrastructure Fees in the Bay Area have risen 126 becoming more uncertain, many localities are look­ percent since 1981 to a median value ing to development fees, special assessments, and of $9,110 in late 1987. exactions from developers to pay for on- and offsite, new, or expanded infrastructure and services, all of The Bay Area Council which add to the cost of new housing. California is a "Taxing The American Dream: Development Fees and Housing major example of this shift from public- to devel­ Affordability in the Bay Area" oper-financed infrastructure. Localities there have May 1988 turned almost exclusively to developer fees to fund construction of new infrastructure. ----

2-11 Regulatory Barriers in the Suburbs

Impacts

Shifting the burden for finarrcing infrastructure first to developers and then to new homebuyers raises Burdensome and several issues. Among them is whether the facilities Uncoordinated Approval and services provided are more than is necessary to serve the needs of new development. Relieved of and Permitting Systems some of the burden of infrastructure financing, local communities may be requiring more capacity than Approvals and permits are meant to ensure that would be provided if traditional financing mecha­ construction meets established standards. They must nisms were still in use, perhaps benefitting some be obtained at every stage of new residential devel­ existing residents but almost certainly adding unnec­ opment. Each governing agency with jurisdiction essarily to the cost of new housing. over a development establishes procedures for issu­ ing permits. Collectively, all of them constitute the When the amount, number, and timing of fee pay­ approval and permitting system. ments are negotiated on a project-by-project basis, rather than being based on a known, uniform for­ This system is one of the most frequently criticized mula, local inconsistencies and inequities can arise. of all the regulatory barriers to affordable housing. To the extent that fees reflect the attractiveness of In many jurisdictions it involves multiple, time­ the community as a site for new development and consuming steps that add unnecessarily to housing not simply the cost of its supporting infrastructure, costs. For example, in Orange County, California, those to whom such fees are passed on end up pay­ just to obtain a building permit-only one of the ing a speciaf tax for the privilege of living in the several different permits required to complete a community. project there--development plans must be checked to see if they meet building code standards, State Even if developers are not paying for excess capac­ sound attenuation laws, the State energy electrical ity, and even if fee structures are known and consis­ code, good engineering practices, adequate water tent, fees still impose a burden on new homebuyers, and sewage disposal standards, the plumbing code, a burden that earlier generations of homebuyers did the uniform mechanical code, and State handicapped not bear. The shift to fees probably increases the person provisions, among others. Plans are also overall cost of financing infrastructure: the fees are assessed to determine whether special requirements financed in the mortgage market, whereas infrastruc­ are applicable, such as those set down in ture has traditionally been financed through munici­ homeowners association guidelines. Although costly pal bonds. The end result is that newer residents are and time-consuming, this review and approval pitted against older ones in the struggle over who process demonstrates exceptional diligence. More pays for infrastructure, and some potential new problematic are approval processes involving open­ residents are simply priced out of the housing ended, discretionary review. For example, many market. suburban communities in Southern California use point systems based on still other criteria to decide whether to approve a project. Just applying this point-rating process can take up to a year. All of these processes and steps are multiplied whenever amendments to the plan are called for as a result of its non-conformity with anyone of the multiple standards by which it is judged. It has been esti­ mated that, as of 1989, the cumbersome approval and permit process in Orange County typically adds $20,000 to the cost of a single-family unit. 13

2-12 Chapter 7

administrative procedures, as well as State constitutional authority and enabling legisla­ It is within the province of tion. States should propose a program of State enabling reform and direct State action, comprehensive plans that States as well as provide for model codes, standards, could mandate the local provision and technical assistance for local govern­ of affordable housing ... ments that are responsible for enacting and Kirk Emerson, Director, administering development controls. County-wide Planning Bucks County, PA Reconciling Local Regulations With State Goals, Eliminating Redundant Regulations, and controls are consistent with certain State-established Resolving Development goals and priorities. A number of States-such as Florida, Georgia, Maine, New Jersey, Oregon, Disputes Vermont, and Washington-use comprehensive Because the development of housing is so regulated, planning to ensure that land-development regula­ tions are consistent with the goal of providing the process of carrying forward a project from idea affordable housing. to finished product is very complex. States have ultimate control over several regulatory layers that Oregon's comprehensive planning statute, enacted shape this process and are in a better position than in 1969, is among the oldest in the Nation. Among individual localities to introduce coherency and other things, it requires cities and counties to adopt rationality into it. For example, they can establish plans consistent with State goals. In addition, it procedures for simplifying and ensuring that the requires localities to review local zoning ordinances maze of State and local regulations cohere with to ensure that they do not permit residential develop­ State goals and for minimizing redundancy and ment projects to be rejected merely because interest overlap. To these ends, some States have established groups are concerned about their value or character­ comprehensive planning requirements and single istics. It also requires localities to ensure that permit coordinating agencies. and approval processes do not add unnecessary costs or delays inconsistent with promoting afford­ The development of housing can be a contentious able housing. Local compliance with comprehensive enterprise, affecting the competing interests of local planning requirements is mandatory; the statute is governments, the development community, and enforced by State agencies and, if necessary, the households at various income levels. States are State courts. The Oregon Act has been modified appropriately concerned not only with harmonizing several times in the past 20 years, primarily to these interests, but also with promoting State wel­ strengthen State policies that place high priority fare responsibilities that may include the provision on affordable housing and discourage regulatory of affordable housing. To achieve these ends, a barriers preventing production, and has served as number of States have created dispute-resolution a model for implementation of planning acts in and mediation processes. other States.

Comprehensive Planning Florida's comprehensive planning approach (contained in its 1985 Growth Management Act) More and more, States are requiring localities to requires localities to show how they intend to use prepare comprehensive plans in which local govern­ their land-development controls to satisfy housing ments must explain how their land-development needs. Compliance with the Act is mandatory.

7-7 Increasing State Responsibility

Maine and Vennont have also recently enacted hearings, with imposed outcomes. In Massachusetts, comprehensive planning legislation in which afford­ as noted above, an appeals process provides devel­ able housing is used as one benchmark, among opers of proposed affordable housing projects others, for evaluating the appropriateness of local the opportunity to petition the Commonwealth plans and land-development controls. Compliance directly for compr.ehensive pennits when they are is not, however, strictly mandatory. 3 turned down by localities not acting in good faith to fulfill the Commonwealth's affordable-housing States that undertake comprehensive planning goal. New Jersey and Oregon, which have State should make housing affordability and availability affordable-housing goals, also have their own central goals of that planning. Zoning refonn and appeals processes. barrier removal should be parts of the implementa­ tion mechanism. As an alternative to quasi-judicial appeals processes, some States have established less fonnal mediation Recommendation 7-2 procedures for resolving development disputes. These procedures enable developers and localities State Zoning Reform to reconcile differences through compromise. In The Commission strongly recommends that, as Massachusetts and New Jersey, both the more part of their overall barrier-removal strategy, fonnal appeals process and the less fonnal mediation States should thoroughly review and reform procedure exist. Oregon is establishing an infonnal their zoning and land-planning systems to re­ procedure. These States seem to recognize that move all institutional barriers to affordability. outcomes satisfying all parties are more likely to Reforms that States should consider include: a result from infonnal mediation than from more requirement that each locality have a housing fonnal appeals processes. element subject to State review and approval; A State can sponsor infonnal, non-binding effective comprehensive planning requirements; mediation procedures even when it has not adopted modification of zoning-enabling authority to the promotion of affordable housing as an official include affordability and housing opportunity as State goal. For example, in Connecticut, where the primary objectives; State authority to override promotion of affordable housing is encouraged but local barriers to affordable housing projects; not required, the State sponsors an infonnal media­ State-established housing targets and fair-share tion procedure aimed at getting localities within mechanisms; and requirements for a variety of the same region to assume some share of the respon­ housing types and densities. sibility for housing low- and moderate-income households. This procedure aims at helping the mediation partners to find solutions tailored to each Appeals and Mediation community's special character and resources. Several States have created fonnal processes, or less fonnal adjudication procedures, for resolving land­ Recommendation 7-3 development disputes involving local governments, Encourage or Sponsor Conflict Resolution developers, and, sometimes, advocacy groups. In and Mediation some cases, these procedures have the force of law, while in others they lead to voluntary agreements The Commission recommends that States among the disputants. establish or sponsor neutral third-party conflict-resolution and mediation procedures Often at issue in the more fonnal appeals processes to resolve conflicts between developers and is the question of whether localities are facilitating local governments, and to remove barriers to or subverting the goal of promoting affordable affordable housing. housing. Such processes resemble official court

7-8 Chapter 7

S1ate Administrative Reform approvals to determine where delays occur and how they might be eliminated. Pre-application meetings Extraordinary processing and time delays are a can also be held to inform specific developers about major element in housing costs. As discussed in what to expect and how to prepare plans and Chapter 2, for example, delays are estimated to applications. add $20,000 to the cost of a single-family house in Orange County, California. Government agencies Recommendation 7-4 often have no incentive to review applications by builders in a timely manner and, in many instances, Streamlining State Regulatory Responsibilities use delays as a mechanism to extract desired As part of an overall barrier-removal strategy, concessions from developers. the Commission recommends that States States are in a position to review the entire matrix of consolidate and streamline their multiple re­ land-use and development regulations to reduce gulatory responsibilities, for example, by giving overlap and duplication across both agencies and authority to a single agency, to shorten and im­ levels of government. One approach is to consolidate prove both State and local approval processes. multiple regulatory entities into a single agency to streamline, shorten, and improve both State and local permit and approval processes. New Jersey Recommendation 7-5 illustrates how the single-agency model can operate. Time Limits on Processing and Approvals Prior to recent reforms, building code permits were The Commission recommends that States enact issued at both the State and local levels. Likewise, legislation that establishes time limits on building both State and regional commissions issued environ­ code, zoning, and other approvals and reviews. mental permits and reviewed comprehensive plans Such limits should apply to State as well as local and housing elements. Such regulatory overlap development reviews, and should establish a legal resulted in an average waiting period of approxi­ presumption of approval. The regulatory body mately 3 years from first application to should have the factual burden of clearly ground breaking. In response to such a lengthy demonstrating why the regulatory rejection was procedure, the State has taken steps to coordinate appropriate and in the public interest. Unless the its environmental reviews and has consolidated locality made a dear and convincing case, a some of the agencies that have environmental permit or approval denial would be invalid under approval and permitting responsibilities.4 the law. If the government did not act within the Some States have imposed limits on the amount of time established by law, approval would be time government agencies can take in the approval automatic. and permit process. In practice, these limits have, at times, been circumvented by government agencies that threaten to deny a permit within the allowable Setting Standards in Support period unless the applicant "voluntarily" agrees to of Affordable Housing an extension. Other steps being taken to simplify the regulatory process include establishing one-stop States can implement the goal of affordable housing permit centers and development-approval processes by inducing greater uniformity among jurisdictions that fast-track projects providing affordable housing, in building codes and development fees designed to preparing catalogs of required permits and approv­ provide infrastructure financing. Such standardiza­ als, and sponsoring periodic pre-development tion promotes affordable housing by eliminating conferences. In the last case, public officials and specific local building code prohibitions against representatives of the development community some more affordable housing types, including identify the steps necessary to secure permits and manufactured and modular housing. Standardization

7-9 Increasing State Responsibility

also promotes affordable housing by encouraging agency responsible for implementing and adminis­ economies of scale in building practices. Builders tering some components of that State's building are in a better position to hold down costs when they code. The extent of uniformity generated among do not have to keep altering their materials and localities, however, does not yet approach that methods of construction to meet the disparate code existing in Virginia. requirements of separate jurisdictions where they build. Finally, State promotion of development Although great progress has been made by State standards allows for consideration of a broader and local governments in the reform of local codes, general welfare than if standards were set locality considerable confusion results from differences by locality, yet localities still maintain the flexibility among governments in the maMer in which they to account for local needs and objectives. In this adopt model codes, and in the degree to which respect, the State could establish minimum or localities modify or amend them. Most States have maximum standards to guide local government no systematic process for amending or updating and prevent the adoption of standards detrimental building codes. As a result, neighboring communi­ to housing affordability. ties may have substantially different versions of the same model code. More importantly, many commu­ nities amend their local codes to restrict particular Building Codes and building products and systems. A number of States Subdivision Standards have begun to increase their oversight responsibili­ ties over codes and standards. Just as in planning, Some States have adopted statewide building codes zoning, and other regulations, the States need to and subdivision standards to address the problem, ensure that localities obey and implement State identified in Chapter 3, of the plethora of local codes laws in the promulgation and administration of and standards that can exacerbate the housing building codes. affordability problem. The Virginia Uniform State­ wide Building Code, effective since 1973 and based Many communities also impose subdivision require­ on the Building Officials Code Administrators ments that have little basis in demonstrated health (BOCA) Code, is a prime example of a mandatory, or safety needs. Through both prescription and performance-based, statewide building code in­ negotiation, for example, they impose excessive tended to eliminate local and intra-regional differ­ requirements with respect to such things as street ences. It is also intended to eliminate costs generated widths, sidewalks, and open space. Localities also by the self-interests frequently perpetuated by local use land-development and subdivision ordinances codes. New Jersey created a single, State-level to exact additional concessions and amenities from

. ·THere=-s-.hould be tlnif6rm,"statewide codeS baseo on national performance codes. :" .• )booJd be no ' S~e ar:nendments'to th~e codes and there should be nf lar-d use. ~ . - . . -, . - - , w.-m M: C~Iy, Directqr, Division of Housing N~ ~rsey Department ofCommunity Affairs .- .... ­

7-10 Chapter 7

developers who often have no choice but to agree to requiremenis; and States and localities, private these demands. Such costs are generally passed on to organizations, and the Federal Government work the housing consumer in the form of higher house to create a nationally recognized building­ pnces. product evaluation and approval system.

Finally, the current regulatory system does not adequately encourage new building products, Modular Housing Standards research, and technical innovation. Manufacturers of new or innovative building products or systems Over the past 20 years, 36 States have attempted to often find it extremely difficult to obtain regulatory streamline their regulatory processes to enforce approval. One solution is for the Federal Govern­ preemptive statewide standards for the design and ment to work with private industry to develop a construction of modular housing. Nonetheless, the simple and comprehensive system for the review lack of uniformity in administrative procedures and approval of innovative, cost-saving housing among the States still imposes costly and duplicative technologies. regulatory burdens on the manufacturers of the units, as discussed in Chapter 3. Moreover, in spite of Recommendation 7-6 many attempts during the 1980s to create interstate uniformity, few States have actually passed legisla­ State Subdivision Ordinances and Standards tion establishing reciprocity on building codes for The Commission recommends that States either modular housing. To accelerate building code enact a statewide subdivision ordinance and reform, a number of States are exploring the possi­ mandatory land-development standards or, bility of entering into a compact for a voluntary alternatively, formulate a model land­ national code on modular housing. Such a national development code for use by localities. Land­ code would go a long way toward removing regula­ development standards should be based on tory impediments to developing an industrialized supportable data and research regarding traffic housing industry that has potential for significant usage, density, and similar criteria. Standards cost savings. could either be mandatory or serve as a model ordinance for use by localities. Recommendation 7-8 Modular Code Recommendation 7-7 The Commission recommends that a uniform Continue Building Code Reform national regulatory program be established for modular housing. This goal can be accomplished The Commission recommends that the either by an interstate compact or the enactment substantial progress made by State and local by Congress of preemptive legislation. governments in reforming the building code regulatory system over the past 20 years continue and be accelerated. More specifically, the Infrastructure Financing and Commission recommends that: States adopt Impact Fee Standards either the CABO (Council of American Building Officials) one- and two-family code, or require As discussed in Chapters 1 and 2, many regulatory localities to do so; State and local governments barriers are the direct result of the difficulties adopt the latest version of the applicable model localities have in responding to growth pressures and code without technical modification; States and in providing adequate infrastructure to accommodate localities periodically review their codes to affordable housing. The charging of fees, which eliminate obsolete or unnecessary prescriptive originated in growth States such as California,

7-11 Increasing State Responsibility

Colorado, and Florida, is now common practice Such legislation should set forth criteria defining nationwide as a way to shift development costs the specific types of capital facilities for which from the public at large to builders and, then, to localities may consider fees and methodologies homebuyers. Inadequate roads, schools, and water to ensure that such fees are related and fairly and sewer facilities often result in slow-growth proportioned to the need for the facilities and policies or fiscal zoning in which only high-ratable services generated by the proposed development. development is sought. In many areas, fees exceed The Commission believes that impact fees should 10 percent of the porchase price of a home and have be used to fund only facilities that directly serve a significant impact on housing affordability. or are directly connected to the house or development on which these fees are levied. Much recent research on the appropriateness and Impact fees to fund general infrastructure equity of impact fees suggests that, too often, local improvements are subject to abuse and are governments desire to load up builders, and the less efficient than targeted user fees and ultimate homebuyer, with fees for infrastructure and broader financing methods. facilities only marginally affected by, or related to, the proposed development. Given budget con­ straints, the trend toward increased use of impact fees will, in some form, probably continue. While Eliminating Discrimination targeted, user-based impact fees can be an appropri­ Against Affordable Housing ate mechanism for financing certain public facilities, Options fees not directly benefiting the proposed develop­ ment, as well as other exactions, should not be Local ordinances often discriminate against certain substitutes for broader financing mechanisms to fund types of affordable housing options such as manu­ public infrastructure. Therefore, standards and factured housing, accessory units, duplex and triplex criteria to prevent misapplication and abuse of housing, and single-room-occupancy (SRO) hous­ impact fees are needed. ing, as discussed in Chapter 3. Some States and localities have tried to eliminate such discrimination, Recommendation 7-9 however, and the Commission strongly encourages more such actions. Provide Necessary Infrastructure The Commission recommends that State Manufactured Housing and local governments develop and implement necessary policy and funding plans to provide Localities are generally able to exclude manufac­ and maintain adequate infrastructure in tured housing from most residential zones by support of affordable housing and growth. considering it not to be a dwelling unit under local The Commission recommends that States and zoning. Under most zoning ordinances, only housing localities employ a range of financing tools to built under the local code is a permitted use in ensure that such infrastructure is available in residential districts. If it is permitted at all, manufac­ a timely fashion. tured housing is generally relegated to mobile home parks or outlying, undesirable areas within the community, despite the fact that its construction is Recommendation 7-10 covered by a Federal preemptive building code. Even in the 16 States that explicitly bar localities State Impact Fee Standards from discriminating against manufactured housing, The Commission recommends that States enact some localities have sought to limit its use through legislation establishing mandatory standards and zoning or building codes. In addition, in some uniform procedures for imposing impact fees. localities, officials have sought to undermine State

7-12 Chapter 7

laws by attempting to convince would-be purchasers housing has been lost in many cities. Most local not to buy manufactured homes on the grounds that development controls do not contemplate, and they are somehow inferior. therefore cannot easily accommodate, SRO housing. For example, most zoning ordinances limit density Accessory Units by dwelling units per acre. Such limits can make SROs, which require higher densities, unfeasible. Accessory apartments are another potltntial source Also, many zoning and building codes consider an of affordable housing. Data from HUD's American SRO to be a commercial, rather than residential, use. Housing Survey indicate that 32 percent of all homes Such a classification excludes them from many with five or more rooms are occupied by one- or areas, and often results in the application of costly, two-person households. Accessory apartments inappropriate building code requirements intended utilize the existing dwelling, land, and infrastructure, for commercial structures. and can be made available at a much lower cost than newly built housing units. Accessory apartments are Recommendation 7-11 generally illegal under most zoning ordinances, and only a few communities have legalized them. Where Remove Regulatory Barriers to Certain Types allowed, they are generally permitted as "condi­ of Affordable Housing Options tional" or "special-permit" uses. Such a permit, The Commission strongly recommends that under locally developed criteria and standards, is States initiate actions to end discrimination often difficult to obtain. against certain types of affordable housing options, such as amending their zoning enabling Duplex and Triplex Housing acts to: (1) authorize, under appropriate conditions and standards, manufactured housing Duplex and triplex housing can also increase the as a permitted dwelling unit under local zoning, stock of affordable housing. These dwellings are and prohibit local communities from enacting designed to be occupied by an owner with an ordinances forbidding manufactured housing; additional one or two rental units, and are common (2) direct that localities permit, under State in many older urban areas. Most were built in the standards, accessory apartments as of right, early years of this century, and were a great source not as a "conditional use," in any single-family of entry-level housing for many lower and middle­ residential zone within the jurisdiction, subject income immigrant families. This type of housing to appropriate design, density, and other could again be a resource for a new generation of occupancy standards set forth by the State; families currently priced out of the market, offering and (3) require localities to include a range of affordable housing opportunities to both owner residential use categories that permit, as of right, and renter. duplex, two-family, and triplex housing and adequate land within their jurisdictions for such SROs use. The Commission also strongly recommends that States require all local governments to Single-room-occupancy units play an important review and modify their housing and building role in housing lower income, homeless, or transient codes and zoning ordinances to permit, under populations. Unfortunately, because of redevelop­ reasonable State design, health, density, and ment, inappropriate enforcement of local regula­ safety standards, single-room-occupancy housing. tions, and changing demographics, much of this

7-13 Increasing State Responsibility

Providing State Financial manner in which municipalities employ the grants or loans in exchange for undertaking specific regula­ Incentives for Affordable tory reforms. Second, the number and size of such Housing .and Local Regulatory grant and loan packages could be made contingent Reform upon regulatory reform, with the most cooperative municipalities receiving the most help. A number of States offer to local governments financial incentives linked to the provision of affordable housing. Some of these efforts are State Grants as a Stimulus for Change financed in innovative ways and represent new Another way to encourage change at the local level ideas and opportunities for providing affordable is for States to include regulatory reform in their housing. Financial incentives could also stimulate comprehensive planning requirements and then to barrier removal and regulatory reform. use State grants to reward municipalities for imple­ menting appropriate regulatory reforms. For ex­ Housing Trust Funds ample, localities in Maine that enact local growth­ management programs consistent with the State's Since the mid-1980s, States have used housing comprehensive planning goals, including an afford­ trust funds to promote the construction of low- and able housing goal, are eligible for State grants that moderate-income housing. To date, more than 20 support implementation of such programs. Connecti­ States have developed trust funds. Most make loans cut also offers grants for infrastructure to reward or grants to municipalities or to nonprofit organiza­ localities that build affordable housing. This pro­ tions to support the construction or rehabilitation of gram is most attractive to the State's less wealthy rental properties. The vast majority of these proper­ communities that need financial help, but it could ties are in cities rather than suburbs. reward regulatory reform anywhere.

A variety of sources are drawn upon to support these funds. New York and Vermont, for example, Endnotes make annual appropriations from general revenues.

Connecticut has used general obligation bonds. I Although the State's planning law requires each locality Other States use such special funding mechanisms, to prepare a housing element, the more critical concern, sometimes in combination, as off-shore oil taxes with respect to meeting housing need, may be whether a (California), the interest earnings on real estate community has filed its housing element with the Council earnest money and a one-time capitalization appro­ on Affordable Housing and, therefore, has agreed to be priation (Washington), and reserve funds from bound by the rules of that agency. When communities do previous State housing finance agency activities so, the ground rules under which affordable housing (Virginia). The Housing Opportunity for Maine efforts are evaluated and disputes resolved differ significantly from those that emerge when the courts are (HOME) Trust Fund has used more than $22 million asked to rule on the merits of rejected development in State appropriations between 1982 and 1987 and, proposals after developers challenge the rejection. In the since 1986, proceeds from real estate transfer taxes latter case, the courts have been disposed to rule against on sellers, to finance or supplement directly projects localities (in keeping with the Mount Laurel doctrine) and that include single-family home purchases, rental to provide builders with remedies that render local zoning rehabilitation, and new rental development. decisions moot. Under COAH's rules, communities obtain a bar against zoning law suits for a specified Housing trust funds could potentially generate period. COAH offers a mediation alternative to the incentives for regulatory reform in two ways. First, administrative law proceedings that would otherwise considerable discretion could be allowed in the occur under the Fair Housing Act.

7-14 Chapter 7

2 It is likely that the kinds of regulatory barriers so identified, as well as the interactions of regulatory barriers among regions, will vary from State to State and from region to region within a State. This likelihood provides a compelling argument in favor of State leadership and responsibility for regulatory reform and for oversight of land-use and development regulations. In fact, many States have taken the first step in this process by establishing task forces and study commissionS-iO review a wide range of issues related to regulatory barriers and affordable housing.

3 Although planning requirements may not be mandatory, there are consequences for non-compliance, including loss of participation in some funding programs and automatic adoption of regional plans if conflicts arise between local and regional priorities.

4 Many regulatory problems associated with land use and development in New Jersey are documented in the State of New Jersey's Report ofthe Study Commission on Regulatory Efficiency, Trenton, NJ, Sept. 1988.

7-15

Chapter 8

lengthier commutes, and the inability of children who grew up in a community to afford to live there as adults. The net effects on a community can include increases in taxes and locally borne costs, as well as a reduction in local economic viability and the creation of a totally inhospitable climate for future growth within an entire metropolitan area.

Beliefs About Cost Impacts

As discussed in Chapter 2, many communities practice some form of fiscal zoning, seeking to expand their base of tax ratables while restricting that enables the targeting of educational efforts some forms of residential development, including focused on the specific fears of particular segments affordable housing. Often, this approach is a local of the community. When this kind of assessment is response to restrictions on property tax collections or combined with housing inventory data contained in local spending, as exemplified by Proposition 13, locally prepared housing elements,2 communities which did the former, and Proposition 4, which did can gain a complete picture of what concerns need to the latter, in California. Infrastructure spending may be addressed and what types of housing need to be then be a candidate for reduction, along with growth provided. controls to mitigate the short-term consequences. Other approaches have not been tried, as far as the But such actions are short-sighted and eventually Commission is aware. One would be a socioeco­ exacerbate the problems created by inadequate nomic analysis of people living outside the commu­ infrastructure. Infrastructure is necessary to support nity who could be expected to move in, if affordable the current population and expected future growth. housing became available. Such information might Infrastructure backlogs weaken vital intraregional well show, in some instances, that many of the dependencies and undermine the economic vitality potential new members of the community are not, of metropolitan economies. in fact, very different from existing residents.

Local governments can also systematically collect information on the local and regional effects that land-use and development regulations have on Raising Awareness and housing costs. Such information would be useful in meeting State requirements (where imposed) and Educating the Public would be essential to efforts aimed at enlightening both local public officials and the general public as To complement the actions the Commission recom­ to the effects of local regulation, especially those mends for the Federal and State governments in that are NIMBY -driven. In the absence of informa­ Chapters 6 and 7, local governments can play an tion, both the public and policymakers have limited important role in educating the public about afford­ awareness and understanding of the consequences able housing. They have several possible ways to of government actions on housing affordability. address residents' concerns and provide information to counteract the NIMBY syndrome. Some ways Other groups besides the general public-local already exist, either as a result of State requirements officials, developers, and other public and private or local initiatives. One example, an assessment of decisionmakers-would benefit from education local attitudes and concerns expressed through about affordable housing. They, too, should know surveys, public meetings, etc., provides information the critical need for, and value of, affordable housing

8-3 working-Together .

within the community. If they are to change their . . outlook, they should know about innovative A wide range of local leaders are approaches to providing housing that can fit into the existing community and still be affordable, if affected by regqlation reform. regulatory barriers are removed. There are several These include local builders, mer­ ways of disseminating this information. Some of chants, realtors, and bankers, among them represent true educational effort while others ,others, in Jhe private sector, and are extensions of the technical assistance role often public-sectoroffidals, such as local played by governments; any of these educational and government staff. Last but not least, assistance efforts could be a useful part of a compre­ neighborhood residents clearly have hensive local strategy for dealing with regulatory a stake. Public and private leaders all reform. They include showcasing existing affordable need to be involved in a regulation units, working with a local university to demonstrate reform effort to ... ensure that the affordable housing, and working with Federal and changes meet the community's needs. State governments to implement education and information initiatives. Stuart.S• . Hershey and ...... ' Caroryn·Gaimise Streamlining Recommendation 8-1 L~I Regula(ions: A HahiJJ)oQk Local Governments Should Undertake 10r Redu~ing Housing and Educational Efforts on Affordable Housing Development Cpsts Management Information The Commission recommends that local Service Special Report, governments undertake educational programs to No.n help the public to become aware of the economic lriternationalCity Managers effects of local regulations, of the need for As$ociation, WashingtOn, regulatory reform, and of the value of affordable D.C., May 19!!3 ~ housing.

based on concerns about how affordable housing units will look and how well they conform to existing units and lots. Where collective actions have The Need for already been taken, such groups include nonprofit Collective Action development organizations, labor unions, organiza­ tions that advocate on behalf of low- and moderate­ The Commission believes that understanding the income persons, the building industry, community consequences of regulation, and educating residents associations, and government agencies. In many and public officials with the expectation of raising cases, however, some of these groups are neither the priority of affordable housing as a policy issue, informed about the issues nor organized to promote are not enough. Concerted and collective action by the removal of regulatory barriers to affordable groups that have an interest in affordable housing is housing. In the absence of such an informed and also needed. This action will help overcome NIMBY organized approach, the likelihood that appropriate attitudes that frequently result in opposition to officials will take action is considerably diminished. affordable housing, opposition that is outwardly

8-4 Chapter 8

The Joint Venture for practice or regulation, to several thousand dollars per unit for projects that involved multiple changes in Affordable Housing usual practice and several waivers of local fees . The Joint Venture for Affordable Housing (JV AH) is an example of how local, collective efforts over­ Coalition-Building in Pursuit came local NIMBY-driven restrictions, albeit on a of Regulatory Reform demonstration basis. JV AH showed that affordable housing consistent with community standards can be Relatively permanent forms of collective action to built if local developers, community interest groups, counter the NIMBY syndrome, such as those and local government officials strongly support such involving coalition-building, have succeeded in a housing. JV AH was a HUD-sponsored effort with a number of other cases, as the Commission found in large number of public- and private-sector groups the course of its hearings. In communities across the participating in the demonstrations. The purpose of country, coalitions of interested groups have effec­ JV AH was to assess the impacts of land-use and tively encouraged public officials to consider the development regulations on the cost of housing and impacts of their regulations on housing affordability, to demonstrate that housing costs could be reduced and to find appropriate remedies. Such coalitions as a result of regulatory reform. Projects were have proven to be at least a partial antidote to the undertaken in 27 communities in 24 States, and NIMBY syndrome that often undergirds the regula­ housing units were produced at costs lower than tions. Just as NIMBY issues can unite a would have been the case in the absence of the community's residents against affordable housing, relaxation of local rules and regulations prompted by so too can common interests unite concerned citi­ the demonstration. Twenty-two of these projects zens, public interest groups, private developers, and involved relaxation of some subdivision rules, while business people in support of reforming regulatory 5 demonstrated cost savings associated with infill barriers to affordable housing. Three examples are projects. Builders obtained partial or complete the BRIDGE Housing Corporation (headquartered in waivers of some regulations, fees, subdivision San Francisco), the process begun in San Diego that ordinances, site-design standards, and building-code led to the construction and rehabilitation of many requirements in many of the participating communi­ single-room-occupancy hotels for lower-wage ties across the country. Savings ranged from a few workers and the homeless, and the New York City hundred dollars per unit for minor changes in local Housing Partnership.

8-5 Working Together

The BRIDGE Housing Corporation These efforts draw on BRIDGE's community relations expertise to reduce risk and generate time BRIDGE, a nonprofit California corporation special­ and money savings. izing in building affordable housing through the creation of strong, local coalitions, has worked to Between 1983 and mid-1990, BRIDGE projects fashion sound, ongoing working relationships with yielded construction of 2,241 units (of which 1,283 local communities. BRIDGE is not the only success­ were offered at below-market prices OT rent-s), 700 ful such entity; the Enterprise Foundation, the Local units under construction (of which 484 were to be Initiatives Support Corporation, and the quasi­ offered at below-market prices or rents), and 1,408 governmental Neighborhood Reinvestment Corpora­ units in various stages of project approval.7 The tion are also dedicated to serving low- and moderate­ combined value of all BRIDGE projects is more income households through similar coalition­ than $350 million, with about 60 percent of all building approaches. BRIDGE illustrates the activi­ completed and planned units affordable to low- and ties of successful organizations. very low-income families. One BRIDGE project combined development by BRIDGE and a private­ According to the Corporation: sector builder with tax credits purchased by a large oil company, which allowed very low rent levels. BRIDGE works closely with surrounding neigh­ The project also benefitted from voter-approved bors, local sponsors, government officials, and exemption from the local growth-control ordinance financial institutions, as well as with private (including overwhelming voter approval by those in developers, environmentalists, businesses, the immediate neighborhood of the project).H Other architects, and engineers, to create financially BRIDGE coalition-created projects include land feasible and broadly supported projects. An donations, density bonuses, tax-exempt bond essential part of the BRIDGE development financing, local rental assistance programs coordi- process includes informal community meetings and official public hearings ... .In several situa­ tions, BRIDGE has enlisted the support of neighborhoods that had bitterly opposed previous The obstacles to regulatory reform or similar developments .... BRIDGE also enters are significant, but it is a hopeful sign into partnerships with neighborhood and commu­ that there do exist some prominent nity organizations.3 examples of successfu I efforts to The cornerstone of BRIDGE operations is its improve ho~sing and land-use development trust fund that generates 8 to 10 times regulation. Though different in many its face amount in value added to property. The fund respects, many of these efforts have operates as a revolving source of working capital succeeded as a result of their ability that generates earnings (to form the basis of to develop a political coaUtion in BRIDGE project subsidies) while the invested _support of a.ffordable housing and capital is recaptured through project operations of a process capable of resolving (sometimes on a deferred basis).4 The fund provides : the many conflicts inherent in the venture and equity capital and extends affordability . land-use and housing development through the provision of subsidies.s In addition, BRIDGE secures Low Income Housing Tax Credits for corporate investors in its projects; arranges long­ William C. Apgar, Jr., and short-term tax-exempt debt financing from Associate Professor of City State, county, and local governments; and cooperates and Regional Planning with private and nonprofit sponsors to obtain com­ Harvaid University . munity approvals for affordable housing projectS.6

8-6 Chapter 8

nated and implemented by BRIDGE, and other . ,. '.:, features. you h~ve tQ insula~_ ther:n in some .._·-se.nse again~t the.tyriln!1Yof the SROs in San Diego NIMBYs'who-can_pack a meeting Single-room-occupancy (SROs) hotels have gener­ haiL How manY, times have you seen ally been thought of as run-down, seedy places that inaQ evening here, the develoPer, are best-done away with through urban redevelop­ his attorney, and architect goj n ment. Prior to 1986, building a new downtown SRO and there are "3 of them against 500 for the homeless and the working poor was unthink­ .-peopte sitting in th'e audiel)ce able in San Diego, where tourism was important to . screaming for blood, who basiCally the local economy and where downtown revitaliza­ tell every one of the elected officials tion was a top priority for local officials. Between up in front of them that there will be 1975 and 1985, many large cities lost a substantial recall petitions circulated in the portion of their SROs to demolition or conversion to mo'rning if this thing is "passed tonight. other uses. In San Diego, this loss amounted to .. .-0" • approximately one-third of all SROs.9 I. Don lerner, Pre.sident L • BRIDGE Housing . Faced with a decreasing ability to provide this type CorPoration of housing, the city in 1986 created an SRO Task San Francisco, CA Force composed of representatives from both the public and private sectors, including nonprofit organizations and those representing households who would occupy affordable housing. The Task Force's working solution to the problem was to given the opportunity to live in safe, affordable preserve and rehabilitate older SROs and build new housing. Furthermore, low-wage workers could live ones.1O It set out to accomplish several objectives within walking distance of downtown businesses, simultaneously: passage of an SRO-preservation which would bolster the dwindling supply of these ordinance, adopt ton by the city of an SRO program, workers. These efforts created the constituency for and creation of a constituency for SRO housing so downtown SRO construction and rehabilitation that it would become politically acceptable for the leading to an acceptable political climate within City Council to issue necessary waivers and which the San Diego City Council approved zoning approvals. variances and other waivers.

Concomitantly, the Task Force worked with a The Baltic Inn was completed in early 1987. In July private developer who proposed to build the Baltic of that year, San Diego adopted an SRO Program, Inn because he believed that it was profitable to which promoted the construction of more SROs and, construct a new SRO hotel. The developer under­ in November, passed an SRO Preservation ordi­ stood that the plan had to be sold to both the busi­ nance. The latter contained a "supply-threshold" ness community and public officials, from whom formula that prevents further demolitions when the wide-ranging assistance with zoning variances and supply of SRO units drops below the threshold. J J cost-cutting waivers of building, plumbing, and The coalition that came together as a result of the electrical codes would be needed if the project were Task Force was instrumental in passing the SRO to be profitable. The Task Force helped to create the Program and in reclassifying SROs as commercial appropriate environment. NlMBY opposition was hotels, which brought tax advantages favoring mollified somewhat by Task Force efforts to inform affordable housing and the relaxation of, or change neighbors that the likely occupants of the Baltic in, several components of the local building and fire were largely people who could pay their way if codes (see Chapter 3 for the details of some of these

8-7 working Together

waivers and changes). 12 For its part, the city pro­ organizations to take on the marketing and selling vided builders with financial incentives, including functions of its affordable housing projects. reduced water and sewer connection and capacity charges, and low-interest rate loans to underwrite Since 1983, the Partnership has been involved with rents for very low-income occupants. i3 Subse­ projects that produced more than 7,000 homes and quently, plans for a number of other .SROs were apartments in more than 40 neighborhoods in a11 5 approved and built, and San Diego became an active boroughs of New York City. Successes include advocate for new SRO construction both in CaJifor­ gaining acceptance by city officials and trade unions nia and across the Nation. From April 1987 through of modular housing, and reducing permit and the end of 1990, San Diego builders added a total of approval waiting times. According to the president nearly 2,000 SRO rooms to downtown San Diego. 14 of the Partnership, the success of the coalition­ building approach "is reflected in the fact that Long Island and other areas throughout the State and The New York City around the country have mounted initiatives mod­ Housing Partnership eled on our New York City program."16

The New York City Housing Partnership is a local The Commission believes that political support to initiative undertaken by business and civic leaders to redirect NIMBY energies must be built at all levels. work with local government to create affordable The BRIDGE Corporation, the SRO construction in homeownership opportunities for local households. San Diego, and the New York City Housing Partner­ One of its primary objectives is to foster public­ ship are examples of how this support can be fash­ private cooperation to achieve reductions in govern­ ioned. They show that strong, 10caJ coalitions can be ment red tape as they affect the production of significant adjuncts to a continuing process of affordable housing. In many cases, Partnership deliberations and interactions that are necessary projects involve for-profit builders and private­ prerequisites for meaningful local reform. Education sector financing. In fact, 80 percent of all financing and coalition-building go hand-in-hand, enabling the for Partnership projects since 1983 (which amounts private, public, and public-interest sectors to work to more than $500 million) has been through private­ together to aJlow for nonadversariaJ procedures for sector loans. 15 decisionmaking vis-a-vis regulatory reform.

The Partnership process is built around what it sees as its intermediary role; that is, it serves as a buffer Recommendation 8-2 between homebuilders, lenders, and other private­ Concerned Groups and Citizens Should Build sector organizations and the public sector. The Coalitions for Regulatory Reform Partnership induces builders and lenders to under­ take affordable housing projects by assuming all The Commission recommends that government responsibility for dealing with government agencies. leaders and concerned organizations and This responsibility includes obtaining government individuals build coalitions to support regulatory funds, where appropriate, and all necessary approv­ reform and affordable housing. Professional and aJs from local government agencies before any civic organizations should examine the conse­ applications for permits are filed. The Partnership quences of the NIMBY syndrome; private and guarantees that it will fast-track all approvals and community foundations should sponsor studies of that builders will not incur any costs associated with and debate on regulatory reform; and govern­ delays in approvals. In essence, the Partnership . ment officials should join with private citizens to removes the political risk that can accompany address the implications of NIMBYism. Govern­ affordable housing development. Finally, the ment, business, nonprofit, and educational Partnership arranges for community-based nonprofit leaders should take the lead in forming local

8-8 Chapter 8

coalitions to translate public awareness into Recommendation 8-3 support for regulatory reform and affordable housing. Employers and Others Who Benefit From an Affordable Housing Supply Should Advocate Regulatory Reform The Commission recommends that employers and other private industry leaders recognize the importance of affordable housing and work with The Role of Employers housing advocates, local government officials, Employers are usually the missing element in and others interested in regulatory reform to coalitions that are addressing affordable housing lower the barriers to affordable housing. needs. Their absence deprives coalitions of a valu­ able partner and the employers themselves of a useful vehicle for improving employment condi­ tions. Workers who cannot find affordable housing reasonably close to their job must absorb the costs of I nitiating Local Barrier­ longer travel time; these workers will eventually demand higher pay and will suffer morale problems. Removal Strategies Younger workers will not be attracted to jobs in such locations. The employer may have to relocate the The Commission strongly believes that local govern­ facility to be nearer the workers. ment should, and will, continue to have central responsibility for the regulation of housing and the Some employers recognize this situation. In San built environment. It is the Commission's hope and Francisco, the Bay Area Council is an association of expectation, therefore, that individual communities business leaders and major employers who have will be willing to take steps, without unnecessary become instrumental in educating citizens and local delay, to reduce the regulatory barriers to affordable government officials on the need for regulatory housing in their jurisdictions. The educational and refonn. The Council advocates a wide range of coalition-building activities recommended by the refonns to ensure affordable housing in the Bay Commission will fonn the framework around which Area. Employers in other metropolitan areas can do refonn can occur. likewise. As the general public and local officials learn more Another role that employers are playing, to reduce about the damaging effects of the NIMBY syn­ the burden of long commutes, reduced productivity, drome, pressures to maintain NIMBY -driven dwindling labor pools, and other problems, is as a regulations should subside and significant regulatory provider of housing assistance benefits. Some barrier refonn should become a reality. The Com­ employers are providing downpayment assistance, mission believes that the removal of regulatory rental subsidies, reduced sales prices on homes built barriers to affordable housing is sound public policy. by employers, mortgage guaranties, and land dona­ The nature of the needed refonns is well-known. tions. Employers are also increasingly providing The Commission restates them here in confidence debt or equity capital for real estate developments that political leaders of good will and vision will that provide housing that employees may occupy. 17 take heed. While this important development should not be regarded as a substitute for removing regulatory The Commission recognizes, however, that barriers to affordable housing, it can be a comple­ many communities around the country will con­ ment to efforts at barrier removal. tinue to believe that it is in their self-interest to perpetuate barriers raised as NIMBY defenses.

8-9 working Together

These communities should reconsider where their laboratories for regulatory reform and stimulate the long-range, genuine self-interest lies, and they development or rehabilitation of affordable housing should reexamine their policies toward the exclusion in areas that would otherwise be bypassed by or inclusion of affordable housing in their economy. devel0pers or nonprofit providers of housing.

The Commission proposes that localities place particular emphasis on local reform of zoning. Recommendation 8-4 Communities need to provide for a variety of Local Governments Should Initiate housing types and densities, including mixed-use Barrier-Removal Strategies zoning, SROs, manufactured housing, duplex housing, and accessory and rental housing. The The Commission believes that significant Commission also takes note of the great importance reform of the existing regulatory system must of decontrolling rents in ensuring the availability become a priority of local government if local as well as national housing goals are to be of a sound and vital housing stock. achieved. The Commission recommends that As part of an overall strategy of barrier removal, the all local governments initiate a strategy of Commission also proposes that localities review barrier removal. The strategy should include a their property tax systems. As discussed in Chapter comprehensive and systematic review of zoning, 3, the typical existing system encourages land price subdivision ordinances, building codes, and inflation, by encouraging land holding and specula­ related development-control ordinances and tion. It also penalizes investment that woul-d improve administrative procedures to identify excessive, and maintain existing housing, by imposing rela­ duplicative, or unnecessary barriers to housing tively high property tax rates on land improvements. afl'ordabiIity and opportunity. Localities should The existing property tax system might be replaced consider many reforms, including but not with a two-tier approach in which the tax rate on limited to: (1) providing adequate land for a land would be significantly higher than the rate on variety of housing types and densities; structures. The Commission recommends that (2) eliminating excessive site-development localities consider this approach as part of any standards; (3) reforming local property taxes; overall effort to remove barriers to affordable (4) decontrolling rents at least for higher-income housing. households; (5) developing one-stop permitting; (6) providing for adequate infrastructure to The Commission also urges localities to embrace the accommodate growth; (7) eliminating obsolete concept of Housing Opportunity Zones, which and prescriptive building code requirements; would offer incentives to barrier removal within and (8) creating Housing Opportunity Zones. designated areas. Such zones can serve as important

8-10 Chapter 8

Endnotes 2 A housing element is an inventory of existing housing units, by various groupings, and estimates of housing

I "The Effects of Subsidized and Affordable Housing on need, also by various groupings. A housing element is a Property Values: A Survey of Research," Department of common part of the requirements of State comprehensive Housing and Community Development, State of planning acts. See Chapter 7 for a discussion of housing California, Sacramento, 1990, p. i. The 15 studies elements. reviewed in this piece are: Hugh 0. Nourse, "The Effects .1 BRIDGE /989-/990 Annual Report, BRIDGE Housing of Public Housing on Property Values in St. Louis: 1938­ Corporation, San Francisco, CA, 1989, p. 10. 1960," St. Louis, MO, 1963; Robert Schafer, "The Effect of BMIR Housing on Property Values: 1958-1970," in the 4 Ibid., p. 8. San Fernando Valley, CA, 1972; William A. Rabiega, Ta-Win Lin, and Linda Robinson, "The Property Value 5 Ibid. Impacts of Public Housing Projects in Low and Moderate Density Residential Neighborhoods: 1963-1978," in 6 Ibid ., p. 6. Portland OR, 1984; Joseph DeSalvo, "Neighborhood 7 Ibid ., p. 14 . Upgrading Effects of Middle-Income Housing Projects in New York City: 1964-1969," 1974; Carol E. Babb, Louis K Ibid., p. 20. G. Pol, and Rebecca F. Guy, "The Impact of Federally Assisted Housing on Single Family Sales: 1970-1980," ~ "The City of San Diego's Single Room Occupancy in Memphis, TN, 1984; Elizabeth Warren, Robert M. Residential Hotel Program," Planning Department, City Aduddell, and Raymond Tatalovich, "The Impact of of San Diego, Oct. 1988, p. 3. Subsidized Housing on Property Values: A Two-pronged Analysis of Chicago and Cook County Suburbs: 1970­ 10 Ibid., p. 4. 1980," 1983; Donald C. Guy, John L. Hysom, and II Ibid. Stephen R. Ruth, "The Effect of Subsidized Housing on

Values of Adjacent Housing: 1972-1980," in Fairfax 12 Ibid. County , VA, 1985; Linda Saunders and Michael J. Woodford, "The Effect of a Federally Assisted Housing 13 Ibid. Project on Property Values: 1973-1978," in Jefferson County, CO, 1979; Edward Hicks, "MHs Do Not 14 "Affordable Housing Guidelines and Standards," a Depreciate Conventional Neighbors: 1973-1981," in report prepared by the National Association of Home San Jose, CA, 1982; Jeffrey C. Baird, "The Effects of Builders Research Center, Upper Marlboro, MD, under Federally Subsidized Low Income Housing on Residential HUD Contract HC-5789, Dec. 1990, p. 160. Property Values in Suburban Neighborhoods: 1975­ 15 Testimony before the Commission of Kathy Wylde, 1979," in Fairfax County , VA, 1980; Lynn Sedway and President, New York City Housing Partnership, New Associates, "Impact of Affordable Housing on Property York City Partnership, Inc., in Trenton, NJ , July II, 1990. Values: 1975-1982," in Marin County, CA, 1983; Torrey

and Torrey, Inc. and Haley-Leslie Appraisal Co., "EIR 16 Ibid. for Corte Madera Homes: 1975-1983," in Marin County,

CA, 1983; Stephen Farber, "Market Segmentation and 17 David C. Schwartz and Daniel Hoffman, the Effects of Group Homes for the Handicapped on "Employers Help With Housing," The Journal ofReal Residential Property Values: 1979-1983," in Shreveport­ ESLale Development, Vol. 5, No. I, Summer 1989, Bossier City, LA, 1986; Kenneth J. Gruber, Gladys G. pp. 18-22. Shelton, and Ann R. Hian, "The Impact of the Presence of Manufactured Housing on Residential Property Values: A Comparative Study of Residential Property Transfers in Selected Residential Areas of Guilford County, NC: 1980-1986," 1986; and Thomas E. Nutt-Powell, David Hoaglin, and Jonathan Layzer, "Residential Property Value and MobilelManufactured Homes: A Case Study of Belmont, NH: 1981-1983," 1986.

8-11

Chapter 9 A Strategy for Implementation

egilU1ing with the Douglas Commission report goes beyond just recommending reform. The more than 2 decades ago, no fewer than 10 Commission proposes Federal incentives to encour­ Federal studies, commissions, and task age States and localities to begin the job of reform­ Bforces have addressed the issues of exclusion­ ing and restructuring their regulatory responsibilities, ary, discriminatory, or excessive housing develop­ and it proposes specific steps to increase the likeli­ ment regulations. (See box.) Although these groups hood of implementation. The Commission believes differed in emphasis, they displayed remarkable that only such an approach will loosen the pervasive consistency regarding findings and proposed actions grip of NIMBY. governments should take to remove barriers to housing choice and affordability. Despite this consensus of experts, policy makers, and public officials, however, little has changed. If anything, the situation has deteriorated. Many of these recom­ Dissemination of mendations remain as applicable today as when they were originally made. Commission Findings

Because State and local governments make most and Recommendations regulatory decisions affecting development, feder­ This Report provides a unique opportunity to bring ally established commissions and studies generally the issue of regulatory barriers to affordability exert limited influence over local policymakers, directly into the forefront of national policy debate legislators, and administrators who must undertake on housing policy. The Commission's findings and reforms. More important, as local regulations reflect recommendations provide an agenda for reform that the policies and priorities the community considers should be forcefully presented to the Congress, State desirable, barriers to affordability are extraordinarily and local elected officials, local administrators, and resistant to reform. activists and advocates for affordable housing.

To address these basic attitudinal and structural The Commission expects that, concurrent with the impediments supporting exclusionary and parochial release of this Report, HUD will immediately development regulations, the Commission decided to undertake a major effort of education and informa­ focus on developing a strategy for action that can tion dissemination as a first step of a longer term effect meaningful regulatory reform. Developing and implementation strategy. Initially, the Department implementing such a strategy is, in the view ofthe should undertake a large-scale effort to distribute the Commission, as significant and important as the Report to the Congress, Governors, leaders of State recommendations themselves. A specific plan of legislatures, mayors and other local officials, na­ action is necessary if the substantive recommenda­ tional associations, the building industry, and tions are to become reality. housing advocates. The mass as well as industry The Commission strategy is a comprehensive media should also be made fully aware of this major approach directed at all levels of government as well social issue and the Commission's proposals for as at private individuals and organizations. This reform through a sophisticated education effort.

9-1 A Strategy for Implementation

9-2 Chapter 9

This initial education effort should be only the first prominently and convincingly on the national policy step of a larger and continuing program to raise the agenda. issue of regulatory barriers in the public conscious­ ness. The Commission hopes that the Congress From its earliest deliberations, the Commission has would, early on, conduct general hearings on the been heartened by Secretary Kemp's enthusiastic Commission's findings and the rationale for reform. commitment to implementation. The Commission is Other necessary actions include meetings and confident this commitment will take the form of briefings with affected public interest groups and legislative proposals and administrative actions to trade associations and conferences with State and ensure rapid implementation. The Congress has also local officials. shown significant interest in implementing reform. Section I 05(f) of the 1990 National Affordable Finally, the Commission's findings and reform Housing Act directs the Secretary, not later than 4 proposals must be creatively presented to interested months after submission of this Report, to submit a governments, private individuals, national organiza­ written report outlining his recommendations for tions, and the housing industry with the hope that a legislative and administrative actions to facilitate the national as well as local consensus can be generated removal or modification of excessive, duplicative, or in favor of comprehensive reform. Local forums, unnecessary regulations or other requirements of town hall meetings, and briefings should be con­ Federal, State, or local governments. ducted over an extended period.

Broad-based education and dissemination of the Legislative Actions Report's fmdings and recommendations, as well as a followup strategy to ensure implementation of the The first step in implementation requires a legisla­ specific proposals for Federal action, will require a tive strategy to ensure enactment of the continuing and forceful HUD presence and capabil­ Commission's major legislative recommendations, ity in the area of regulatory reform. The Commis­ particularly the proposals to condition Federal sion, therefore, recommends the creation, within housing assistance to States and localities upon HUD, of an Office of Regulatory Reform specifi­ barrier-removal strategies and the proposal for a cally charged with implementing the Commission's Housing Impact Analysis for all major Federal recommendations. regulations. The Commission urges the Administra­ tion to submit to the Congress, as soon as possible, draft legislation for these changes, and urges the . . .,. ,~:., ~- .. ..-,­ - - -,' Congress to conduct legislative hearings on these recommended initiatives.

Strategy for Implementing The Commission is very much aware that it will be Federal Recommendations difficult to enact legislation to allocate housing assistance based upon acceptable State and local As a Federal entity appointed by the Secretary of barrier-removal strategies without broad-based Housing and Urban Development at the request of public support. A broad consensus must be devel­ the President, this Commission also has a special oped that will recognize the wisdom of these pro­ responsibility to propose a strategy to ensure that the posed reforms. States and localities must come to Commission's recommendations for Federal action recognize that removal of regulatory barriers is in are implemented. If implemented, these recommen­ their own, as well as the national, interest; major dations will have a significant impact on reform employers must become advocates for reform; and efforts at all levels of government and will place housing activists need to understand that removal of affordable housing and regulatory reform regulatory barriers is an essential element of any

9-3 A Strategy for Implementation

comprehensive strategy for meeting housing needs. organizations and to assist in getting these recom­ To achieve these refonns, the Commission hopes mendations adopted. The Commission believes that the same consensus among representatives of there is a growing awareness of the importance of differing economic and political philosophies, all this issue and that the time is right for an effective levels of governments, and many varied interest campaign to crystallize this emerging consensus. groups that has coalesced within this Commission can be developed within the larger body politic. Administrative Actions Education and The Commission's Federal recommendations include administrative actions that involve a number Information Actions of Federal agencies. An Affordable Housing Regula­ Generation of support for Federal action will require tory Review Board would be created to expedite a concentrated effort that should include meetings waivers of Federal regulations as well as to encour­ age negotiations for refonn of various environmental with representatives of various interest groups, leaders in the Congress, State and local officials, rules and regulations. In addition, a Housing Impact and heads of professional organizations; focused Analysis would be required prior to the promulga­ conferences and workshops with all levels of tion of any major rule or regulation. The Commis­ governments; and an infonnation and publicity sion recognizes the difficulties in seeing these effort to explain to the general public the administrative changes through to implementation. The Commission is confident, however, that HUD affordability problem as well as the wisdom of the proposed Federal actions. The Commission urges will be a forceful advocate for regulatory refonn within the Administration and will assign implemen­ HUD to undertake, subsequent to the general education and infonnation effort accompanying tation of these administrative actions the highest release of this Report, a targeted program to educate priority. State and local policymakers, housing advocates, The Commission recommends that the executive private industry, and others as to the importance and branch become an active participant in seeking fundamental equity of the proposed Federal refonns. increased judicial review of excessive and discrimi­ HUD should convene a group of interested organi­ natory Federal, State, and local development con­ zations to develop a specific strategy for moving trols and regulations. The Commission urges HUD's forward together toward refonn. Office of General Counsel to assume leadership in All these efforts must emphasize that the recom­ this area and work with the Justice Department to mendations do not propose inappropriate Federal identify litigation opportunities to address the most intrusion into State and local decisionmaking. intransigent discriminatory regulatory barriers to Rather, if implemented, these proposals will protect affordable housing. and expand basic rights, expand housing opportuni­ Finally, the Commission recommends program ties for millions of households, enhance equity, and initiatives for HUD, including developing model encourage and strengthen emerging State and local codes and standards and the establishment of a efforts at removing artificial barriers to regulatory refonn infonnation clearinghouse. These affordability. initiatives are not costly. The Commission believes, Several members of this Commission have made a however, that they will have a significant impact on commitment to work with HUD, as private citizens stimulating regulatory change at all levels of govern­ after this Commission's work is completed, to ment. The Commission recommends that HUD explain the recommendations to interested provide for these efforts in its budget planning.

9-4 Chapter 9

State Responsibility Strategy for Implementing For both legal and practical reasons, much of the responsibility for regulatory refonn must rest with State and Local the State. All authority exercised by local govern­ ments for land-use and development controls derives Recommendations constitutionally from the police power of the State. As such the State has the duty to ensure that the Ultimately, long-lasting refonn must occur in the delegated local use of this power is exercised for the State legislatures, county offices, and city halls common good of all the citizens of the State. More responsible for regulating the housing environment. practically, the State responds to a broader constitu­ Even proposals for Federal action cannot succeed ency and is less likely to be subject to the immediate without a willingness at the State and local levels to pressures of parochial interest and NIMBY. remove barriers to affordability and to offer housing choice to all Americans. The Commission does not believe, however, that States should be involved in specific development Significant change has already occurred at the local decisions nonnally made by localities. Rather, it is level. Generally, these efforts have succeeded when the responsibility of the State to establish fair and effective coalitions of public, private, and nonprofit equitable rules of the game that afford sufficient organizations, recognizing the social and economic latitude to accommodate local preferences and benefits that can accrue from affordable housing, variations while ensuring that these preferences are find common ground for political action. The Com­ not exercised at the expense of the "general wel­ mission does, however, offer a general strategy for fare." The State can also serve as an essential forum HUD's implementation of its State and local recom­ for balancing competing loca! interests and in setting mendations. a larger strategy for meeting the needs of economic growth and affordable housing. Technical Aid The Commission also urges not only HUD but also As part of any State or local implementation strategy, the Administration to challenge the States as well as policymakers must identify and better understand the every local jurisdiction to undertake refonn. It may processes by which effective change has occurred also be extremely useful for the Administration to and develop approaches and methodologies for broad recognize officially those States and localities that replication. Although the Federal Government has no have been willing to initiate refonn by providing direct role in stimulating local political support for well-publicized awards for exemplary efforts. regulatory refonn, HUD can provide essential It is important to note that a number of States have educational and technical infonnation to assist local already begun to undertake refonn programs. The regulatory refonn efforts. Through the development Commission's recommendations in this area are not of model codes, technical infonnation, conferences, radically new. Rather, they reflect and validate a and education, the Department can become a critical growing trend in the pattern of State and local focal point for broad-based local refonn efforts. The regulatory responsibility over development. HUD Commission strongly encourages HUD to work with should encourage this emerging State role through a State and local governments, nonprofit organizations, concerted effort of technical assistance and support builders, employers, and others wishing to undertake for the development of model State standards and programs of consensus-building. The Department enabling legislation. should become a continuing resource to emerging State and local regulatory-refonn coalitions.

9-5 A Strategy for Implementation

Because of the powerful presence of NIMBY, the For regulatory reform to succeed, it is absolutely Commission believes that, for the short term, reform critical that concerned groups and individuals efforts should particularly concentrate on increasing support State and local reform efforts. Local govern­ the role of the States in overseeing and reviewing the ments and civic organizations must examine the regulatory systems of their constituent jurisdictions. economic and social consequences of the NIMBY HUD should consider identifying a select number of syndrome and make the public aware of the value individual States with a Governor and legislature and need for reform. Employers and other private exhibiting a willingness to consider innovative industry leaders should recognize that they, too, solutions to regulatory barriers that can serve as have an interest in affordable housing, and they "laboratories" to initiate reform. In these States, the should work with housing advocates and other Administration can test the viability of waivers of interested parties to eliminate regulatory barriers. Federal regulations and provide concentrated techni­ cal assistance and support. Finally, implementation requires a continuing need to keep track of regulatory developments and progress in the removal of barriers. Throughout its local Responsibility deliberations, the Commission has been struck by the lack of available data on the nature and impact of At best, State reform efforts can only establish more regulations upon affordability. The Commission equitable rules of the game by which localities make therefore proposes that communities report regularly decisions. In the long term, localities will continue to on progress in reforming their regulatory system and bear most of the responsibility for regulating the that the Federal Government establish a clearing­ housing environment. If regulatory reform is to house and encourage the development of cooperative succeed, it must be institutionalized within the strategies. In these ways, the Commission hopes that decisionmaking process of local government. The useful information can be provided to local agencies Commission believes that implementation of its so that a regulatory system can eventually be estab­ recommendations for Federal and State action will lished to ensure the availability of housing choice make this outcome far more likely. and housing affordability for all Americans. Appendices

Advisory Commission on Regulatory Barriers to Affordable Housing

Ill- I

Appendix A Commission Hearings and Witnesses

TRENTON, NEW JERSEY, Kathryn Wylde HEARING President JULY 11, 1990 New York City Housing Partnership New York, NY Panel I: Panel I": Overview of Affordable Housing Trends and Barriers Issues of Special Interest to the Northeast and Mid-Atlantic States William C. Apgar, Jr. Associate Professor of City Subpanel III-A: and Regional Planning Kennedy School of Government, and Rent Control Joint Center for Housing Studies John Atlas Harvard University President Cambridge, MA National Housing Institute Robert C. Ellickson Director Professor of Property and Urban Law Passaic County Legal Aid Society Yale University Law School Montclair, NJ New Haven, CT Jacque Eaker Executive Vice President Panel II: New Jersey Council of the The Impacts of Regulation Multi-Housing Industry East Brunswick, NJ William M. Connolly Director Subpanel III-B: Division of Housing and Development New Jersey Department of Environmental Regulation Community Affairs Andrew L. Strauss Trenton, NJ Project Manager Ara K. Hovnanian New Jersey Field Office of the President Trust for Public Land K. Hovnanian Enterprises, Inc. Morristown, NJ Red Bank, NJ Robert A. Weiboldt James W. Shields Executive Vice President Executive Director New York State Builders Association, Inc. Industrialized Housing Albany, NY Manufacturers Association Harrisburg, PA

A-I Hearings and Witnesses

Subpanel III-C: Kirk Emerson Director of Countywide Planning Fair Share Bucks County Planning Commission Paul J. Matacera Doylestown, PA Vice President New Jersey League of Municipalities Joseph J. McGee Mayor Vice President North Brunswick, NJ People's Bank of Bridgeport Bridgeport, CT Douglas V. Opalski Executive Director Public Witness New Jersey Council on Affordable Housing Frank A. Willis Trenton, NJ Executive Director Housing Opportunities Fund John M. Payne Trenton, NJ Associate Dean and Professor of Law Rutgers University School of Law Newark, NJ CHICAGO, ILUNOIS, HEARING JULY 31 and AUGUST 1, 1990 Michael Wheeler Director of Research Center for Real Estate Development Panel I: Visiting Professor of Law Overview of the Affordable Housing Massachusetts Institute of Technology Regulatory Environment in the Midwest Cambridge, MA Edwin S. Mills Professor of Real Estate and Finance Panel IV: Kellogg School of Management State Activities and Initiatives Northwestern University Evanston, IL Murray Corman Chairman George Tolley Housing Appeals Committee Professor of Economics Massachusetts Executive Office of University of Chicago Communities and Development Chicago,IL Boston, MA

Bob Franks Panel II: Assemblyman Community and Neighborhood New Jersey State Assembly Perspectives: The Case of Chicago New Providence, NJ Subpanel II-A: Panel V: Overview Local Activities and Initiatives Michael F. Schubert Norman L. Christeller Commissioner of Housing President City of Chicago Montgomery Housing Partnership, Inc. Chicago,IL Silver Spring, MD

A-2 Appendix A

Barbara Shaw Harry N. Gottlieb Staff Director Deputy Director Mayor's Task Force on Housing Affordability Leadership Council for Metropolitan Chicago,IL Open Communities Chicago,IL Subpanel II-B: Subpanel II-E: Financing Affordable Housing Housing Programs Ri{; hard C. Hartnack Executive Vice President Josh Hoyt First Chicago Corporation Executive Director Chicago,IL Organization of the Northeast Chicago, IL Peter Lennon Deputy Director Otis Monroe Illinois Housing Development Authority Housing Organizer Chicago,IL Southwest Community Congress Chicago,IL Subpanel 11-(: Anne Rich Housing Rehabilitation Director Lakeview Tenants Organization Anthony L. Austin Chicago,IL Vice President for Housing Bethel New Life, Inc. Chicago, IL Panel III: The Impacts of Regulation Bruce A. Gottschall Executive Director Subpanel III-A: Neighborhood Housing Services of Chicago Chicago,IL Single Family

Michael C. Rohrbeck Nonnan M. Hassinger, Jr. Executive Director Chainnan PRIDE The Hassinger Companies Chicago,IL President, Hoffman Homes Itasca,IL

Subpanel 11-0: David K. Hill, Jr. Neighborhood Reinvestment President Kimball Hill, Inc. Michael Freedberg Rolling Meadows, IL Coordinator Campaign for Responsible Ownership Dean P. McFarland Center for Neighborhood Technology President Chicago, IL MH Construction Management, Inc. Whiteland, IN Clifford Gatewood Assistant to the President The Neighborhood Institute Chicago, IL A-3 Hearings and Witnesses

Subpanel 111-8: Panel VI: Multifamily Modula:, and Manufactured Housing

Kelly A. Bergstrom Richard A. Brooks Chairman Director National Multi-Housing Council Minnesota Office of State President and CEO, JMB Properties Building Codes and Standards Chicago,IL St. Paul, MN

Constance S. Moore Panel IV: Director, Manufactured Housing and Building Codes and Rehabilitation Government Affairs Indiana Manufactured Housing William E. Farnsel Association, Inc. Executive Director Indianapolis, IN Neighborhood Housing Services of Toledo, Inc. Toledo,OH Public Witnesses

Salvatore Ferrera George Allen President GFA Management Metropolitan Housing Development Corp. Greenwood, IN Chicago, IL Michael J. Brown Builder.s, Inc. Panel V: Westfield, IN State and Local Initiatives Edwin Kwiat Joseph E. Gilessner Vice President Executive Director United Mobile Homeowners New Directions Housing Corp. Justice,IL Louisville, KY Thomas Lenz Eugene W. Kuthy Local Initiatives Support Corporation Commissioner Chicago, IL Michigan Department of Commerce Financial Institutions Bureau Lawrence A. Meyer Lansing, MI Southwood of Greenwood, Inc. Greenwood, IN Robert Weisenborn Senior Vice President, Public Affairs Gloria M. Snider Ohio Association of Realtors Executive Director Columbus, OH Columbus and Franklin County Housing Commission Columbus, OH

Len Wehrman National Foundation of Manufactured Home Owners Daly City, CA

A-4 Appendix A

SAN fRANCISCO, CALIFORNIA, Carol G. Whiteside HEARING Mayor SEPTEMBER 12 and 13, 1990 City of Modesto Modesto, CA Introduction

Brad Paul Panel III: Deputy Mayor for Housing Environmental Regulation San Francisco, CA John Briscoe Panel I: Partner Washburn, Briscoe & McCarthy Regulatory Barriers in Growth Markets Chairman San Francisco Bay Planning Commission Sanford R. Goodkin San Francisco, CA Executive Director KPMG Peat Marwick Lawrence C. Hart Goodkin Real Estate Consulting Group Chairman and President San Diego, CA Fibreboard Corp. Concord, CA Panel II: Pat Nemeth Growth Management Deputy Executive Officer of Planning and Rules South Coast Air Quality Management District Subpanel II-A EI Monte, CA

Impacts on Housing AfTordability Robin L Rivett Chief, Environmental Law Section John D. Landis Pacific Legal Foundation Assistant Professor of City Sacramento, CA and Regional Planning University of California at Berkeley Berkeley, CA Panel IV: State Initiatives Henry R. Richmond Executive Director Marian Bergeson 1000 Friends of Oregon Chairman, Senate Committee Portland, OR on Local Government California State Senate Angelo Siracusa Sacramento, CA President Bay Area Council Chuck Clarke San Francisco, CA Director Washington State Department Subpaneill-B: of Community Development Olympia, WA Public Perspective Edward J. Sullivan Cathie Brown Preston, Thorgrimson, Shidler, Gates & Ellis Mayor Portland, OR City of Livermore Livermore, CA A-5 Hearings and Witnesses

Panel V: Donald E. Moe Senior Vice President Local Initiatives Santa Margarita Company Judith F. Lenthall Rancho Santa Margarita, CA President HomeAid Panel VIII: Diamond Bar, CA Permit and Approval Process Mark A. Pisano Kenneth B. Bley Executive Director Cox, Castle & Nicholson Southern California Los Angeles, CA Association of Governments Los Angeles, CA Brian Catalde I. Donald Terner Vice President President Paragon Homes Santa Monica, CA BRIDGE Housing Corp. San Francisco, CA Noel W. Lane III President Panel VI: Melody Homes Westminster, CO Regulations Impacting Low-Income Families Public Witnesses

Stephen E. Carlson Gerald D. Eid Executive Director President California Housing Council Eid-Co Buildings, Inc. Sacramento, CA Fargo, ND

Aleta G. Fowler David Hennessy Principal President Shawangunk Company State Mobile Homeowners League Menlo Park, CA San Jose, CA

Panel VII: Cathe Smeland Henry George School Impact Fees/Infrastructure Financing of Northern California San Francisco. CA Bart Doyle General Counsel Building Industry Association WASHINGTON, DC, HEARING of Southern California SEPTEMBER 25 and 26, 1990 Diamond Bar. CA American Forest Resource Alliance Monica Florian Washington, DC Vice President Mark E. Rey The Irvine Company Executive Director Newport Beach, CA

A-6 Appendix A

American Planning Association Manufactured Housing Institute Chicago,IL Arlington, V A Stuart Meek Jerry C. Connors Assistant City Manager/Planning Director President City of Oxford Oxford,OH National Association of Counties Washington, DC California State Building John P. Thomas Standards Commission Executive Director Sacramento, CA Richard T. Conrad National Association of Home Builders Executive Director Washington, DC Kent W. Colton Commonwealth of Pennsylvania Executive Vice President Harrisburg, PA Karen A. Miller National Association of Realtors Secretary Washington, DC Department of Community Affairs Robert H. Elrod President Council of American Building Officials Elrod Realty, Inc. Falls Church, VA Orlando, FL Richard P. Kuchnicki President National Council of State Housing Agencies Washington, DC Council of State Community John T. McEvoy Affairs Agencies Executive Director Washington, DC Neal 1. Barber National Foundation for Immediate Past President and Director Affordable Housing Solutions Virginia Department of Housing Rockville, MD and Community Development Martin Schwartzberg Richmond, VA Chairman

Housing Roundtable National Governors' Association Robert K. Burgess Washington, DC Co-Chair and President Timothy Masanz Pulte Home Corporation Director Bloomfield Hills, MI Committee on Economic Development and Technological Irmovation Weston E. Edwards Chamnan and President National Housing Conference Weston Edwards & Associates Washington, DC Dallas, TX John Simon President John D. Lusk Director and Chairman David M. Koss The Lusk Company Director of Legislation Irvine, CA

A-7 Hearings and Witnesses

National League of Cities George W . Liebmann, PA Washington, DC Baltimore, MD Walter Webdale, Director Fairfax County (V A) Department of William R. Prindle Housing and Community Development Program Manager Alliance to Save Energy National Low Income Housing Coalition Washington, DC Washington, DC Walter Rybeck Barry Zigas Director President Center for Public Dialogue The Urban Land Institute Kensington, MD Washington, DC Robert Seaman Frederick A. Kober Chairman, Housing Committee Trustee and President American Society of Civil Engineers The Christopher Companies Washington, DC Vienna, VA Daniel Sullivan U.s. Conference of Mayors Vice President Washington, DC Center for the Study of Economics Charles Box Pittsburgh, PA Mayor, City of Rockford Rockford, IL SUBMITTED PAPERS U.s. House of Representatives Washington, DC Mike Crozier Honorable Patricia Saiki State Senator, State of Hawaii Representative from the First Honolulu, HI District of Hawaii William B. Dunn World Wildlife Fund and Immediate Past Chairman The Conservation Foundation Special Committee on Affordable Housing Washington, DC American Bar Association Douglas P. Wheeler Chicago,IL Executive Vice President Edward J. Hussey Public Witnesses Chairman Government Relations Committee John J. Gilbert III Association for Regulatory Reform President Washington, DC Rent Stabilization Association of New York City, Inc. Jolm F. Kelly III New York, NY Chairman Housing Development Committee J.L. Lach Association of General Contractors President Washington, DC Mineral Insulation Manufacturers Association Alexandria, V A

A-8 Appendix B Biographies of Commissioners

Thomas H. Kean, Chairman Jerry E. Abramson

Thomas H. Kean, Governor of New Jersey from 1982 Jerry E. Abramson has been Mayor of Louisville, to 1990, was ranked as one of the five most effective Kentucky, since 1985 and was the first mayor of State chief executives in the United States in a 1986 Louisville ever to be elected to two 4-year terms. He Newsweek polL Governor Kean-now president of established several programs to open the doors of city Drew University in Madison, New Jersey-is a hall to the citizens of Louisville, making city services former teacher, businessman, and State Assembly more accessible to all and expanding Louisville's Representative. While serving two terms in New Enterprise Zone to create 9,000 new jobs. He has Jersey's highest office, his accomplishments included received national recognition for his innovative pro­ revitalizing education programs, cleaning up the grams to increase the supply of affordable housing in State's natural resources, transforming the State's Louisville, and was named in 1987 as one of the top business climate, reducing unemployment, and put­ 20 mayors in the United States by U.S. News and ting in place the Nation's toughest drug laws. He World Report. The Mayor was general counsel to also launched a nationally recognized welfare reform former Kentucky Governor John Y. Brown, Jr. Presi­ program and an urban Enterprise Zone program that dent of the Kentucky League of Cities and a member created more than 40,000 jobs in ilUler cities. Gover­ of the Board of Trustees of the U.S. Conference of nor Kean's autobiography, The Politics ofInclusion, Mayors, Mayor Abramson is the recipient of the was published in 1988. Governor Kean was inaugu­ Richard Strauss Award of the National Conference of rated as the 10th president of Drew University on Christians and Jews for significant humanitarian April 27, 1990. Governor Kean is a graduate of contributions to his community. He received a Princeton University and received a master's degree bachelor's degree from Indiana University and a law from Columbia University Teachers College. He has degree from Georgetown University. received honorary doctorates from Columbia Univer­ sity, Rutgers University, and 18 other institutions. Larry P. Arnn

Larry P. Arnn is president of the Claremont Institute Thomas Ludlow "Lud" Ashley, Vice Chairman for the Study of Statesmanship and Political Philoso­ Thomas Ludlow "Lud" Ashley, president of the phy and executive director of the Aequus Institute. Association of Bank Holding Companies, was a Dr. Arnn has published numerous articles on political Democratic Member of the U.S. House of Representa­ science, economics, and public policy, including a tives from the Ninth District of Ohio for 26 years. A recent study on the California no-growth movement member of the House leadership, he was Deputy and its effect on transportation. A noted speaker and Whip and served on the Banking, Finance and Urban participant in a number of national and international Affairs Committee, chairing its Urban Growth Sub­ panels examining political theories, Dr. Arnn received committee and the Housing and Community Develop­ a Ph.D. in government at the Claremont Graduate ment Subcommittee. He has served as a consultant School. and lobbyist specializing in urban affairs, banking, financial services, insurance, and secondary mortgage Robert J. "Jay" Buchert market legislation. His background includes private law practice. A native of Toledo, Ohio, Mr. Ashley Robert J. "Jay" Buchert is vice president and treasurer received a B.A. from Yale University and a law of the 160,OOO-member National Association of degree from Ohio State University. Home Builders and president of his own construction

B-1 Biographies

and development corporation. A Cincinnati-area set policy in such areas as zoning, parks use, building native, Mr. Buchert has held every leadership code enforcement, land use, environmental regula­ position with the Greater Cincinnati Home Builders tions, and fire and police protection. Her appointment Association and is a member of the Ohio Home to the Board by Governor Bob Graham in 1979 made Builders Association. He has testified before the U.S. her the first black woman to serve in this capacity. House of Representatives and the U.S. Senate on She earned postgraduate degrees from Ohio State issues vital to housing and the building industry. University, the University of Miami, and the Univer­ He also served on President Reagan's Private Sector sity of Florida: Initiative Committee, the Small Business Ad­ ministration's National Advisory Council, and the Gale Cincotta Federal Home Loan Bank Board's Affordable Hous­ ing Study Group. He was appointed by Ohio's Gover­ Gale Cincotta, co-founder and executive director of nor to serve on the State's Housing Finance Agency the National Training and Information Center (NTIC), and the Governor's Commission on Housing, and has works as an agent for change to revitalize neighbor­ been an active participant in local regulatory reform. hoods. She is nationally known for having spear­ Mr. Buchert is a member of the board of directors of headed the neighborhood movement, and has received the Housing America Foundation and Home Owners several public service awards for her efforts to end of America, Inc. poverty, including Ms. magazine's 1985 Woman of the Year award for "providing a model of community Stuart M. Butler power for the whole nation." Under her leadership, NTIC has developed affordable housing programs Stuart M. Butler is a noted British-born economist, with secondary mortgage markets and private mort­ author, and speaker on Federal social program re­ gage insurers and coordinated the NTIC/Aetna Neigh­ form and policies. His numerous publications and borhood Investment Program, providing more than articles focus on health and welfare policy and the $100 million in loans for rehabilitation or construction privatization of government services. He is credited of affordable housing units in 14 urban neighbor­ with bringing the idea of Enterprise Zones to the hoods. Ms. Cincotta serves as chairperson of National United States, and in 1980 was included in the Na­ People's Action, a coalition of more than 300 commu­ tionallournal's list of the 150 individuals outside of nity organizations throughout the country. She is a government with the greatest influence on decisions in board member of Chicago's Neighborhood Housing Washington. He is currently director of Domestic and Services as well as a member of the Federal Home Economic Policy Studies for The Heritage Foundation Loan Bank of Chicago's Community Investment and an adjunct fellow at the National Center for Advisory Council and serves on the review boards of Neighborhood Enterprise. Dr. Butler received his the lending programs of several Chicago banks. bachelor of science in physics and mathematics, his master's degree in economics, and his Ph.D. in Ameri­ Joanne M. Collins can economic history from St. Andrew's University in Scotland. Joanne M. Collins is an assistant vice president with the United Missouri Bank of Kansas City, where her Barbara M. Carey community and civic involvement extends from local concerns to posts with the Republican National Com­ Barbara M. Carey, Ed .D., has worked and lived in mittee and the Mid-America Regional Council. She Dade County, Florida, as a school administrator and was a member of the Kansas City (Missouri) City realtor for more than 20 years. Dr. Carey is an Council from 1974 to 1990, and also served as educational specialist and consultant and served as a member of the Metro-Dade County Board of Com­ missioners until 1990. The Board has broad powers to • Ms. Carey resigned from the Commission in October 1990.

B-2 Appendix B

chairperson of the Missouri State Advisory Commit­ and-an M.A. and Ph.D. in economics from Stanford tee to the U.S. Commission on Civil Rights and on the University. advisory council of the National League of Cities. She is the former president of the board of directors J. Roger Glunt of Women in Municipal Government and former national co-chair of the National Black Republicans 1. Roger Glunt is founder and president of Glunt Council. Ms. Collins holds a B.A. in political science Building Co., Inc., of Pittsburgh, Pennsylvania. He and history from the University of Kansas and is a is a member of the National Association of Home master's candidate at Baker University. Builders (NAHB) and served the organization as a national representative, national vice president, and Thomas B. Cook member of the executive committee. He is a leader in regulatory reform, chairing NAHB's Regulatory Thomas B. Cook is Chief of the Housing Policy Reform Task Force and Regulatory Reform Coordi­ Development Division of the California Department nating Committee. Also a member of the Builders of Housing and Community Development. As director Association of Metropolitan Pittsburgh and the Penn­ of the San Francisco Bay Area Council's Housing and sylvania Builders Association, he has won both orga­ Land Use Program from 1987 to 1991, serving as nizations ' Builder of the Year awards. He has served Council vice president for housing and land use in on the board of the Pennsylvania Housing Finance 1991 , he promoted local land-use plans and policies Agency since 1985, is vice president of the Churchill that increased the supply of affordable housing. Mr. Borough Council, and is past president of the West­ Cook has written several studies for the Council on inghouse Valley Chamber of Commerce. Mr. Glunt rental housing, development fees, and regional is a graduate of the University of Pittsburgh's School growth. Formerly an urban planner with the City of of Business. Pleasanton, California, he has a master' s degree in city and regional pianning from the University of Kimi O. Gray California at Berkeley and an undergraduate degree in geography from Dartmouth College. Kimi O. Gray, chairperson of the Kenilworth! Parkside Resident Management Corporation, created Anthony Downs a national model for efficient resident management when she organized the purchase of the Kenilworth! Anthony Downs, a senior fellow at the Brookings Parkside public housing development in Washington, Institution in Washington, D.C., has written and D.C.-the first sale of public housing property to coauthored 15 books and more than 300 articles, residents in the United States. Among her successes, including his recent evaluation of residential rent Ms. Gray increased rent collections for the 464-unit control and The Revolution in Real Estate Finance. development, created more than 120 jobs through He is a frequent speaker and consultant on real estate various commercial ventures within the development, economics, housing, urban politics, and other topics. and assisted more than 600 students living in public For 18 years, he was a member and chairman of Real housing through the "College, Here We Come" pro­ Estate Research Corporation, a national consulting gram. Ms. Gray also serves as chairperson of the firm advising private and public decisionmakers on National Association of Resident Management Corpo­ real estate investment, housing policies, and urban rations and the District of Columbia Resident Advi­ affairs. He is a member of the board of directors of sory Board. Her efforts have been recognized with the the Urban Land Institute and the Urban Institute, the President's Volunteer Action Award, the Jefferson American Economic Association, the American Real Award, Washingtonian magazine's Washingtonian Estate and Urban Economics Association, and the of the Year award, Catholic University'S President's National Academy of Public Administration. Dr. Medal, and the Public Citizen of the Year award from Downs has a bachelor's degree from Carleton ColJege the National Association of Social Workers.

8 - 3 Biographies

Greenlaw "Fritz" Grupe, Jr. communities in planning and developing housing for low-income households. Mr. Maldonado serves on Greenlaw "Fritz" Grupe, Jr., is chainnan, chief the Council of State Community Affairs Agencies executive officer, and founder of The Grupe Com­ Housing Committee, and is a member of the National pany, a real estate development finn headquartered in Association of Housing and Redevelopment Officials. Stockton, California, with annual sales of $250 mil­ He has a master's degree in Urban and Regional lion. Mr. Grupe has developed 50 residential commu­ Planning and Community Development from the nities in 8 States and is now planning 3 large-scale, University of Colorado. master-plaJUled communities in California. He is immediate past president of the Urban Land Institute, fonner president of the Stockton Chamber of Com­ Richard E. Mandell merce and Stockton Board of Realtors, and a member Richard E. Mandell, vice president of The Greater of the Advisory Board of the Center for Real Estate Construction Corporation of Altamonte, Florida, acts and Urban Economics at the University of California as the liaison between the company's buyers and the at Berkeley. He is a graduate of the University of mortgage industry and the government agencies California at Berkeley. regulating tract building. As co-chainnan of the Or­ ange County, Florida, Affordable Housing Task Maureen Higgins Force, he was responsible for examining the needs, potential solutions, and long-tenn implications of Maureen Higgins is California Governor Pete affordable housing issues facing central Florida. Mr. Wilson's chief deputy legislative secretary. From Mandell also serves as a member of the U.S. Depart­ 1989 to 1991, she was Director of the California State ment of Housing and Urban Development's Florida Department of Housing and Community Develop­ Field Advisory Council, the Orange County Housing ment, where she administered various loan and grant Finance Agency's Advisory Committee, and the programs intended to develop and construct afford­ National Association of Home Builders' National able housing throughout the State. Ms. Higgins also Task Force on Affordable Housing. He received a served as fonner Governor George Deukmejian's bachelor's degree in political science from American chief deputy legislative secretary and was responsible University and a J.D. from the University of Florida. for coordinating housing, criminal justice, and educa­ tion legislation. Ms. Higgins received her bachelor's III degree from Washington State University and her J.D. James C. Miller from McGeorge School of Law. James C. Miller III is chainnan of the board of Citi­ zens for a Sound Economy and John M. Olin Distin­ John T. Maldonado guished Fellow at the Center for the Study of Public Choice at George Mason University. Dr. Miller, who John T. Maldonado is fonner director of the Colorado was President Reagan's director of the Office of Division of Housing. He was responsible for all State Management and Budget from 1985 to 1988, is a housing activities, including code enforcement, regu­ fonner chainnan of the Federal Trade Commission, latory authority, and Federal housing programs for fonner assistant director for government operations low-income and homeless persons. Mr. Maldonado and research with the Council on Wage and Price recently served as president of the National Confer­ Stability, and resident scholar and co-director of the ence of States on Building Codes and Standards, Center for the Study of Government Regulation at the and is on the board of the National Rural Housing American Enterprise Institute. He has written a num­ Coalition. He received the Colorado Association of ber of articles and books on economics, regulatory Local Housing Authorities Award and the Adolph refonn, transportation, industrial policy, and other Coors Company Hispanic of the '80s award. In previ­ topics. Dr. Miller has a Ph.D. in economics from the ous capacities, he assisted local governments and University of Virginia.

B-4 Appendix B

Sue Myrick public- and private-sector leaders to develop low- and moderate-income housing. He also directs the New Sue Myrick has been Mayor of Charlotte, North Jersey Urban Lending Program, which has committed Carolina, since 1987 and is president and chief execu­ more than $115 million for low- and moderate­ tive officer of Myrick Advertising, Marketing & income housing projects. Mr. O'Brien has a B.A. Public Relations. She is a member of the Advisory from Lehigh University. Board of the U.S. Conference of Mayors and serves on the Conference Task Force on Hunger and Homelessness. Ms. Myrick is president of the Na­ Paul M. Weyrich tional Conference of Republican Mayors, a member Paul M. Weyrich, president of the Free Congress of the Republican National Committee, and a member Research and Education Foundation and founding of the board of directors of the North Carolina Insti­ president of The Heritage Foundation, is a prominent tute of Politics. Her civic involvement includes mem­ conservative publisher and commentator with exten­ bership on the advisory board of a local homeless sive experience in politics, public policy, and the print shelter and task force. The Mayor also serves on the and broadcast media. Mr. Weyrich heads a number of U.S. Department of Housing and Urban public policy and media organizations and serves on Development's Regional Advisory Council. the boards of several others. He is a member of the board of directors of Amtrak, vice-chainnan of the Robert B. O'Brien, Jr. Committee for Effective State Government, and publisher of a number of journals, including Family, Robert B. O'Brien, Jr., is chainnan and chief execu­ Law and Democracy Report. tive officer of Carteret Bancorp, Inc., the second­ largest savings institution in New Jersey, with offices in New Jersey, Florida, Maryland, Virginia, and Robert L. Woodson Washington, D.C. In 1989, Mr. O'Brien was elected Robert L. Woodson is president of the National Cen­ vice chainnan of the U.S. League of Savings Institu­ ter for Neighborhood Enterprise, a research, demon­ tions, and is the current chainnan of the Housing stration, and development organization, and chainnan Opportunities Foundation, established by the League of the Council for a Black Economic Agenda. For­ to provide leadership on affordable housing issues for merly a resident fellow and director of the American the thrift industry. Mr. O'Brien serves as chair;man of Enterprise Institute's Neighborhood Revitalization the League's Housing Policy Committee. He is also a Project, he directed national and local community member of the Thrift Institution Advisory Council of development programs, including a pioneering pro­ the Federal Reserve Bank of New York, a director of gram encouraging resident management and owner­ the Federal Home Loan Bank of New York, and a ship of public housing. Mr. Woodson has publiShed a fonner director of the Federal Savings and Loan variety of articles on economic issues for national Insurance Corporation. Mr. O'Brien is the current publications. He received a B.S. from Cheyney State national chainnan of Neighborhood Housing Services College and a master's degree in social work from the of America and a director of the Palm Beach County, University of Pennsylvania. Florida, Housing Partnership, Inc., which works with

8-5

· Chapter 8 Working Together: Efforts to Educate the Public, Build Coalitions, and Convince Local Policymakers to Dislllantle Regulatory Barriers

n many communities across the country, the barriers can also have undesirable consequences­ NIMBY syndrome is widespread and deeply for residents' own communities, for nonresidents ingrained. As this Report makes clear, residents who would like to live there, and for surrounding Ibelieve that restrictive regulatory barriers keep communities as well. tax rates down, land prices up, and "undesirables" out; and locally elected officials act on these beliefs Concerted educational and group actior.s can, through ordinances, regulations, and procedures. therefore, expose the negative consequences of the Communities impose growth-inhibiting, exclusion­ NIMBY syndrome and can counter NIMBY forces ary, and ostensibly protective regulations in the at the grassroots level. Despite some successes, expectation that the people who live and vote there however, the track record in this regard has not will benefit from them. To help overcome these been particularly impressive to date. Regulatory impositions, the Commission has addressed its reform-resulting from a recognition by local recommendations primarily to the Federal Govern­ citizens and officials that there are severe afford­ ment and the States, urging them to act on behalf ability and economic consequences to regulatory of those who are harmed by local NIMBY policies barriers-has been piecemeal. To improve this without having a voice in establishing the policies. record, the Commission believes that the costs of NIMBY policies should be made known to the The self-interest of local residents, however, is public and to local decisionmak.ers, and that success­ not always served by barring affordable housing ful local efforts to create affordable housing should from the community. Some of the expected benefits be identified and analyzed so that they can be of regulatory barriers tum out to be overstated. The replicated wherever possible.

8-1 working Together

affordable housing opportunities, such as fiscal zoning or growth-control ordinances, do not stop growth in the near-term. When individual jurisdic­ Common Misunder­ tions use these devices, they simply cause the standings About growth to occur elsewhere in the metropolitan area. All that they have accomplished is to pass Regulatory Barriers on the burdens of growth to their neighbors.

Those who support regulatory barriers to affordable In the longer term, fiscal zoning or growth-control housing and growth in their communities often have ordinances can undermine the well-being of entire a narrow perspective and are misinformed about the metropolitan areas. As discussed in Chapter 2, impacts of such barriers. For example, many people growth-controlling communities are often joined by mistakenly believe that affordable housing has their neighbors and, eventually, entire metropolitan detrimental effects on property values. Many others areas are cut off from growth. When this happens, fail to consider the adverse effects that such regula­ individual communities no longer benefit from tions can have on their area's economic growth employing selective strategies. What these commu­ and well-being, especially in the longer term. nities have failed to recognize is that their economic These beliefs need to be reexamined in light of health is inextricably tied to the economy of the the available evidence. metropolitan area as a whole. Independent regula­ tions, leading cumulatively to myopic strategies, produce a regional economic effect having negative Beliefs About Property Values consequences for all local economies. Some of the long-term economic consequences are regional Local advocates of NIMBY policies frequently imbalances between job and housing opportunities, argue that the presence of affordable housing will regional infrastructure backlogs, commercial and result in decreased property values. Available industrial relocation caused by inadequate evidence indicates, however, this outcome is not workforces or land availability, increased road likely to occur. A survey of relevant research finds congestion and maintenance costs resulting from that 14 out of 15 studies "reached the conclusion that there are no significant negative effects from locating subsidized, special-purpose or manufac­ tured housing near market-rate developments. Some, in fact, reported positive property value effects after y There:is no easy soJution for locating subsidized units in the neighborhood.'" The [overcoming NIMBy] .. .it takes a lot communities included in these 15 studies are large . _ of-hard · w~(~ . am~ a, lot ofmeetings . and small, suburban and urban, and located in all . tp begin to p~t a dent hi tfiat With ' parts of the country. The kinds of affordable housing reSpect to ~pJe~oppOsi..,g , afforoable· ~: discussed in the studies include several subsidized .·.housing,·jfwas.suggested that what housing efforts, units produced through State . we have them housing programs, and, in a few cases, public to do is' ~ke and show " housing units. them ' w~twe mean by affordable . : ~sing....(examples of whiCh are] as well~~as~ ~ market-rate. : .units. Beliefs About -Economic Well-Being

Most local residents and public offIcials frequently do not understand that local regulations precluding

8-2 Appendix C C-harter of the Secretary's Advisory COOllllission on Regulatory Barriers to Affordable Housing

Section 1. Purpose rehabilitation as well as applicable Federal regula­ tions. This review shall include, but not be limited to: This document establishes a charter for a Secretary's zoning, impact fees, subdivision ordinances, stan­ Advisory Commission on Regulatory Barriers to dards, processing and permitting, rental control, codes Affordable Housing under the provisions of the Fed­ and innovation, and environmental requirements. eral Advisory Committee Act (FACA) of 1972, as amended, P.L. 92-463, 5 U.S.c. App. The Commission shall prepare a report to the Secre­ tary which presents its findings on the degree to Section 2. Authority which regulations increase housing costs including recommendations as to appropriate State, local, and The Commission is established by the Secretary Federal actions that the Commission recommends pursuant to Title V of the Housing and Urban Devel­ should be taken to remove or modify excessive, opment Act of 1970 (P.L. 91-609; 84 Stat. 1784; 12 duplicative, or unnecessary regulations and U.S.c. 1701Z-1) and implements the determination of requirements. the Secretary of Housing and Urban Development to establish an Advisory Commission pursuant to the Section 4. Membership Federal Advisory Committee Act (FACA) of 1972, as amended, P.L. 92-463, 5 U.S .c. App. The Commission shall be composed of no more than 22 members and shall consist of individuals with Section 3. Objectives, Scope of extensive knowledge or interest in the building regu­ Activities, and Duties latory process and its impact upon the affordability of housing. The Commission, appointed by the Secretary Construction of housing is governed by a broad range to assure a balanced representation, shall consist of: of Federal, State, and local statutes, ordinances, and elected and appointed officials with responsibility for regulations. Although most are enacted for valid the regulatory process; recognized experts, public purposes, in many instances, duplication and homebuilders, and developers with extensive knowl­ excessive standards and requirements needlessly edge of residential construction and regulation; and inflate the costs of construction and rehabilitation, individuals with a concern for or representing the thereby excluding many moderate- and low-income interests of low- and moderate-income families. families from homeownership and rental housing. In some instances, regulatory requirements are also used Section 5. Appointments as a mechanism for economic and racial discrimination. The Commission members shall be appointed by the Secretary to serve a term of 12 months from the The Commission shall undertake a comprehensive effective date of the Charter. Members shall serve at assessment of the nature and status of prevailing State the pleasure of the Secretary. and local regulations governing construction and

C-J Charter

Section 6. Chairperson Federal Register at least 15 days in advance of the meeting. Shorter notice is permissible in cases of The Chairperson shall be appointed by the Secretary emergency, but the reason for such emergency and shall be responsible for: must be reported in the notice. a. Establishing the informal organization of the b. Detailed minutes of each meeting or hearing of the Commission and appointing any subcommit­ Commission shall be kept, and their accuracy tees as are deemed necessary; certified to by the Commission Chairperson and b. Developing, with the advice and consent of the submitted to the Secretary of HUD and filed with the Departmental Committee Management Officer. Commission, procedures for its effective and The minutes shall include: efficient operations; I. The time and place of the meeting or hearing; c. Ensuring that procedures for public participa­ tion in Commission meetings are established in 2. A list of Commission members and staff and accordance with FACA; and agency employees at the meeting or hearing; d. Taking such other actions as may be required 3. A complete summary of matters discussed and to facilitate the discharge of Commission the conclusions reached; duties. 4. Copies of all reports received, issued, or Section 7. Commission Organization approved by the Commission;

The organization and agenda of the Commission shall 5. A description of the extent to which the be established at the first full meeting of the Commis­ meeting was open to the public; and sion on Regulatory Barriers to Affordable Housing. 6. A description of public participation, including Once established, the organization of the Commission a list of members of the public who attended may be modified when deemed appropriate by the the meeting or hearing. Chairperson. Any subcommittees appointed by the Chairperson shall be subordinate and advisory to the c. An employee designated by the Secretary, or his full Commission. Such subcommittees may meet at designee, will attend every meeting of the Commis­ such time and places as the subcommittee Chairper­ sion. The designated employee, or his designee, son has approved for the performance of Commission must call, or approve, each meeting and is autho­ business. The results of all subcommittee meetings rized to adjourn any Commission meeting when­ shall be reported to the full Committee for its review. ever he determines that adjournment is in the public interest. Section 8. Meetings Section 9. Support Services The Commission will meet at least once every 3 months for its duration. If the Chairperson deems it The Assistant Secretary for Policy Development and necessary, additional meetings and/or hearings may Research, to the extent permitted by law and subject be convened at any location which is advantageous to to the availability of funds, shall provide the Commis­ the business of the Commission. All meetings and sion with administrative services, funds, facilities, hearings of the Commission and any of its subcom­ staff, and other support as may be necessary for the mittees shall convene under the following conditions: effective performance of its functions. a. A notice of each Commission or subcommittee meeting or hearing shall be published in the

C-2 Appendix C

Section 10. Estimated Support and Cost regulatory burden upon housing construction, reduce costs, and expand affordability. The final Report shall The Department estimates that the operating cost of also include a description of the Commission's mem­ the Commission will not exceed $200,000. This does bership, functions, and other actions prior to its termi­ not include staff support costs, which are estimated to nation. From time to time the Commission may submit be 10 staff years. other additional reports which are deemed necessary to carry out its functions and responsibilities. Section 11. Travel and Compensation

Members of the Commission will serve without com­ Section 13. Expiration pensation, but are entitled to be paid for travel and The Commission, established under this Charter, shall subsistence in the performance of duties on an actual terminate 12 months after the charter is filed unless expense basis, as authorized by 5 u.s.c. 5703(b). sooner extended.

Section 12. Reports Original Charter Approved: December 15, 1989 The Commission shall submit to the Secretary a final Filed: March 14, 1990 written Report. This Report shall describe the findings Amended : July 27,1990 of the Commission as to the nature and extent to which Federal, State, and local legislation and regula­ Jack Kemp tions governing the construction, rehabilitation, or Secretary of Housing management of housing are excessive, duplicative, or and Urban Development unnecessary and shall also include recommendations for any legislative, judiciai, or administrative actions which the Commission believes can relieve the

C-3