The following overview focuses on strategies and tools related to creating new affordable housing options that are specifically tailored to the opportunities and challenges presented by gentrifying neighborhoods. Specifically, these tools are focused on creating housing that is permanently affordable for both current and future generations of vulnerable households.
Strategy #5a: Intervene early to acquire control of land in strategic locations of gentrifying neighborhoods.
For neighborhoods that are vulnerable or in the early stages of gentrifying, a city should support the acquisition of as much land as possible in strategic areas of the neighborhood. As gentrification picks up steam in a neighborhood, it becomes much more difficult to feasibly acquire properties for affordable housing. For neighborhoods that are susceptible to gentrification or in the very early stages of gentrifying, it can be hard to envision the kind of rapid rise in property values that often comes in the later stages of gentrification. But buying land in this early period gives cities, community groups, and residents more capacity to mitigate displacement when change does come.
Policy Tools:
• Acquisition and land banking of property for future affordable housing development
Even if plans or funds are not yet in place to build a new affordable housing development, cities can acquire parcels of land of varying sizes in neighborhoods that at risk or in the early stages of gentrifying, while prices are still relatively affordable, and bank that land for future affordable housing development. A land bank can best serve the needs of gentrifying neighborhoods when it works in tandem with a community land trust, making the land available for affordable housing development via a 99-year lease to ensure permanent affordability of the land.
The Urban Land Conservancy in Denver focuses on acquiring properties near current and future transit stations– areas where large increases in property values are anticipated. The Conservancy banks the sites for up to five years while funds and plans are assembled for new affordable housing and other community uses on the site. The Conservancy then leases the land via 99-year leases.
Cities can support land banking by creating a streamlined system to track vacant parcels that are appropriate for residential or mixed-use development. Eminent domain is also available to Texas cities for land acquisition for affordable housing–such as acquiring old industrial sites that conflict with surrounding residential uses–although this tool should be used on a very limited basis with community vetting. Special attention has to be paid to avoid any racially discriminatory uses of eminent domain.
Examples: Denver (The Urban Land Conservancy); Austin ($100 million from 2018 general obligation bonds dedicated towards buying and holding land for affordable housing).
Considerations: In addition to the lower land costs that come with acquiring land in early- stage gentrifying neighborhoods, land acquisition gives a community more control to shape future redevelopment. To be effective, a land bank program needs access to affordable financing as well as city subsidies.
• Land acquisition fund
Land acquisition funds support the capacity of cities and nonprofits to swiftly take advantage of land acquisition opportunities in gentrifying neighborhoods. The Urban Land Conservancy in Denver relies on the Denver Transit Oriented Development Fund for funding its land acquisitions. The $24 million fund is used to pay for purchasing, holding, and eventually developing sites in the Denver region along current and planned transit corridors for affordable housing and other community amenities. The fund is supported by contributions from the City of Denver, foundations, and private investors.
Examples: Denver (Denver Transit Oriented Development Fund); Minneapolis (Hiawatha Land Acquisition LRT Fund).
Considerations: Requires a high level of city investment and development of new local capacity to create and operate the fund.
Strategy #5b: Dedicate surplus public land to affordable housing development.
Surplus and underutilized public land is often the most accessible source of land for affordable housing in gentrifying neighborhoods. For many CDCs in Texas, the utilization of surplus public land has been a key strategy in a community’s early development of affordable housing. Public ownership of land helps insulate housing development decisions from market pressures, allowing the provision of housing types that for-profit developers will not provide, such as large family-sized apartments.
Policy Tools:
• Public land for affordable housing policy
A public land for affordable housing policy could include a number of components to address current barriers to redeveloping surplus public land with affordable housing, including: (1) a clear and enforceable city policy regarding the minimum level of affordable housing that must be included on redeveloped city land that is suitable to residential development, (2) annual goals for the number of city parcels to redevelop with affordable housing, and (3) a requirement that any city-owned land be first offered for affordable housing development.
To complement a policy and help cut through inter-department politics and silos, cities should consider creating a new staff position at city management level rather than within a city department to manage the public land for affordable housing policy. The staff member could regularly assess opportunities for developing affordable housing on public land and kick start the redevelopment process. Part of the charge for the staff member would be to interface with other units of local government (e.g., school districts) to put their surplus land parcels into use as affordable housing through mechanisms such as partnerships and land swaps, in cases when public entity goals align, such as with below-market teacher housing. Many states and cities around the country have policies that prioritize public land for affordable housing.
Examples: Seattle; San Francisco; Montgomery County, Maryland.
Considerations: Land costs are a significant portion of the cost of a new affordable housing development, but providing publicly-owned land, on its own, will typically not be enough to achieve deep affordability. Additional subsidies likely required.
Strategy #5c: Leverage the power of hot real estate markets in middle- and late-stage gentrifying areas to create affordable housing.
In neighborhoods where real estate is already at a premium and housing is in high demand, cities and communities have a unique ability to steer the private market toward the development of affordable housing and other community benefits in exchange for increases in land use entitlements such as increases in height of a building.
Policy Tools:
• Adoption and expansion of density bonus programs
In many Texas cities, denser development types are increasingly imperative to provide enough housing to support local needs. Local governments can leverage this need and support denser development through density bonus programs that require a percentage of income-restricted affordable housing as a part of every new development in exchange for an increase in land use entitlements. Many density bonus programs offer an option for an in-lieu fee toward an affordable housing fund instead of the development of onsite affordable housing. However, some of the most successful density bonus programs in Texas, such as the City of Austin’s Vertical Mixed Use (VMU) ordinance, do not offer in-lieu fees and require onsite affordable units. These programs with onsite requirements have resulted in more affordable units built overall than those that offer in-lieu fees.
The efficacy of density bonus programs is highly dependent on market conditions; density bonuses can become “out of tune” with market conditions as the business cycle progresses and thus must be frequently calibrated. If calibrated correctly, density bonus programs result in an increase in both affordable and market rate housing in middle- and late-stage gentrifying neighborhoods and more mixed-income housing in cities overall.
Examples: Austin (Ten programs including VMU Ordinance, Planned Unit Development (PUD) Density Bonus, Downtown Density Bonus Program); Dallas (Mixed-Income Housing Development Bonuses).
Considerations: Density bonus programs result in income-restricted affordable housing in high opportunity areas with no subsidy by the city. The economics of density bonus programs do not typically allow for units that serve families below 60 percent of the median family income, unless they are coupled with additional policies and programs, such as Montgomery County’s partnership with the local housing authority. Requires active monitoring by the city to ensure the program requirements are followed by current and future owners.
• Community benefits agreements (CBAs)
CBAs are agreements negotiated between a developer and a community group that will be impacted by a proposed development project, whereby the developer of the project agrees to provide specific mitigations or benefits to the local community in exchange for the community group agreeing to support or take a neutral position on the developer’s project. In a community undergoing gentrification pressures, for example, residents may be able to successfully negotiate an agreement for the developer to include affordable housing in the new development or to provide funding for house repairs, in exchange for the community group supporting the developer’s request for an upzoning on the property.
Examples: Zilker Neighborhood Association, Austin (Developer agreed to include 26 rental units for low-income families making up to 60% AMI, and 14 units at 80% AMI, in exchange for the association supporting the developer’s upzoning request); Blackland Community Development Corporation, Austin (developer agreed to sell one of the five condominium units to Blackland as affordable housing to a family making up to 60% AMI, with a 99-year affordability requirement, in exchange for obtaining an upzoning on the property).
Considerations: Community benefits agreements are most likely to be successful when the community has some type of political leverage, such as when a developer is seeking an increase in zoning entitlements and the city council is willing to condition its approval of the rezoning on the developer securing the community’s support. The community will need a lawyer to prepare and help negotiate the agreement.
Strategy #5d: Retain city and community ownership of land to ensure permanent affordability of housing units for future generations of residents.
Wherever possible, cities supporting the development of affordable housing should retain ownership or long- term resale controls on the land–or ensure that a nonprofit or community-controlled entity with a commitment to permanent affordability retains ownership of the land. Otherwise, precious government investments in affordable housing located in a gentrifying neighborhood will be lost as the housing eventually flips to market rates that are far out of reach of low-income families.
Policy Tools:
• Community land trusts
Community land trusts (CLTs) provides opportunities for future generations of low-income residents to live in a gentrifying neighborhood and reduces turnover of properties. CLTs also result in substantial property tax savings for low-income homeowners in Texas. Through a CLT, a nonprofit organization maintains long-term ownership of the land to provide permanently affordable housing for the benefit of the community. CLTs typically incorporate residents into the governance of the land trust. A community land trust can be used with single-family housing as well as mixed-used and multifamily development, and with homeownership as well as rental housing. For homeownership units, the land is typically leased for 99 years to an income-eligible family for an affordable price. The family purchases the home on the land with mortgage financing, typically from a bank. When the family wishes to sell the home, the nonprofit CLT has a right of first refusal to purchase the home, and the resale price is restricted to ensure it remains affordable to future buyers. For rental CLT units, a nonprofit entity retains ownership of the home and then leases the home to an income-eligible family for an affordable price.
Examples: There are more than 240 CLT programs in 46 states, including: Houston (Houston Community Land Trust); Austin (City of Austin, Guadalupe Neighborhood Development Corporation); North Carolina (Community Home Trust, Durham Community Land Trustees); Chicago (Chicago Community Land Trust); and Albuquerque (Sawmill Community Land Trust).
Considerations: Requires an entity with capacity to actively monitor the resale restrictions and work closely with the homeowners to ensure that the home is maintained and that the restrictions on the home are complied with. Community control of land can be an unfamiliar concept to many residents and often requires extensive education efforts to counter suspicions of a “land grab.”
• Shared equity appreciation with resale restrictions and rights of first refusal
If a city or nonprofit entity does not retain ownership of the land, then a best practice for long-term affordable homeownership is restricting the resale prices of the homes through a shared equity model, where the owners recoup their investment and the return on appreciation is capped via a restrictive covenant recorded in the deed records.
Examples: The City of Austin currently requires shared equity appreciation for 99 years for its homeownership programs and has a right of first refusal on the home so the City can buy the home and resell it to another low-income household.
Considerations: The wealth-building that can occur in gentrifying areas is muted in shared- equity homeownership.
Strategy #5e: Require longer affordability terms in new affordable multifamily properties
The federal Low-Income Housing Tax Credit (LIHTC) program is the largest affordable rental housing development program in the country, but Texas regulations reduce the long-term effectiveness of the program. Many new properties placed in service can exit the program after 30 years, and most properties with credits allocated prior to 2002 can exit after 15 years. Rapid gentrification in some areas is increasing apartment owners’ incentive to exit early from the LIHTC program. The following is a tool that cities could adopt to ensure new tax credit properties coming online include longer affordability requirements.
Policy Tools:
• Require longer affordability terms for new LIHTC properties
Under Texas law, LIHTC developers applying for tax credits currently must obtain city council approval as a condition of receiving the credits (4% credits) or competitively scoring in the state’s application process (9% credits). As a condition of providing city approval or any other benefits to LIHTC developments, cities could pass an ordinance requiring all developers to commit to a minimum 55-year affordability term with the City. Several cities and states around the country require an affordability term of 40 to 55 years or even longer.
Examples: Nevada (50 years), Utah (99 years), California (55 years).
Considerations: LIHTC properties will likely need additional subsidies down the road to maintain the property.