Stretching Affordable Housing Resources through Better Local Government Practices

Transcription

1 UNIVERSITY OF MINNESOTA Stretching Affordable Housing Resources through Better Local Government Practices Proposal to The MN Challenge Edward G Goetz, Tim Thompson, Jack Cann, Stacy Becker 6/13/2014

2 Overview Local government practices related to the development of land can have the effect of driving up the cost of housing development. Higher development costs, in turn, can reduce the amount of affordable housing that is produced. In some cases, local policies, regulations, and practices may actually directly reduce the amount of affordable housing that is developed if those practices discourage or disallow certain developments. This proposal, which focuses on the entire range of land development policies and practices, therefore has the potential to both lower development costs for affordable housing projects and increase the rate of production. Many cities locally and nationally have initiated innovative practices that have reduced development costs and resulted in higher rates of production. Our proposal focuses on identifying those best practices and facilitating their implementation in the Twin Cities region. The identification of best practices has, of course, been done before. Such efforts can and often do sit on shelves to collect dust, without having impact on actual practices. There are several characteristics of our proposal, however, that set it apart from previous best practices efforts. First, our proposal incorporates an analysis of what is keeping local governments from adopting best practices. Second, our proposal incorporates an analysis that will identify the specific opportunities that exist for better practices in the Twin Cities region. Third, our proposal incorporates an analysis of how the local governments that have adopted best practices overcame the political and administrative barriers to do so. Fourth, our proposal will produce actionable steps that will fit into the regional system of land use planning and review. The Region s emerging commitment to development of a network of transit corridors has a direct connection with this project. Cost containment and making resources go farther is particularly compelling in the context of providing affordable housing opportunities along transit corridors, but also uniquely challenging in some ways given all the obstacles to successful transit-oriented development. In addition, the DOT s New Starts requirements provide substantial incentive for project proposers to include affordable housing policies as part of their proposals. We will try to connect our project to the multiple ongoing efforts in this area. The Southwest Corridor s next New Starts application will be due to the federal government before our project is completed, but there may be a way to insert in the New Starts application a commitment by member cities and the county to work with our project and to implement its recommendations. There will also likely be other New Starts applications submitted on behalf of 1

3 the Region in the future where this work can be tied in. Another transit-related effort is the development of the Southwest Corridor Housing Plan, due to be adopted this summer. This is another case where our project will not be completed but there may be an opportunity to get a commitment to work with our project in the plan. Finally, we will also look for opportunities to connect with the TOD group that is part of the Partnership for Regional Opportunities (PRO). We are already committed to participating in planning for the Mixed Income Housing Finance Workshop planned for later this year. Project Description We will undertake a three-stage program for identifying and implementing best practices in local land development. First, we will identify and summarize national and local best practices for reducing policy, regulatory and permitting barriers to affordable housing. We will produce implementation-ready best-practice recommendations that may be tailored to specific communities as well as for integration into regional planning documents and processes. Second, we will conduct an analysis of where a more complete adoption of best practices is likely to have the largest effect on the production of affordable housing, particularly those suburban cities with the largest future affordable housing goals. Finally, we will pursue a two-pronged implementation strategy that a) focuses on particular communities by tailoring recommendations to community conditions, and b) takes advantage of the regional planning framework in place in the Twin Cities and the array of local organizations and public/private collaboratives working on issues of affordable housing in the region. Stage 1 Best Practices. There are four objectives in this stage: 1) Utilize on-line and published sources to collect best practices, both nationally and locally; 2) Assess the practices of communities within the Twin Cities who have done the best job in meeting affordable housing goals; 3) Utilize advisory group to prioritize possible best practices; and 4) Collect implementation information for the highest priority best practices. Each of these objectives is outline below. Utilize on-line and published sources to collect best practices. Assembling best practices from national and local sources is straightforward and has largely been accomplished. Sources of best practice information include the Department of Housing and Urban Development s Regulatory Barriers Clearinghouse ( and the 2

4 Center for Housing Policy s national Affordable Housing Toolbox ( In addition, ULI Minnesota and the Center for Housing Policy created a toolbox specific to Minnesota communities ( We will search for other published compendia of best practices in the area of developing affordable housing. 1 The next step is analyzing and categorizing this literature as well as obtaining specific ordinances and policies. We will focus our attention on a) zoning, land development, construction and subdivision regulations, b) design guidelines, c) administrative processes and streamlining, d) fees and dedications, and e) other local practices affecting development costs. We will also examine ways demand on federal and state subsidies per unit can be reduced through greater reliance on the private sector (inclusionary housing) or local government funding. Assess the practices of high-performing communities within the Twin Cities region. We will identify the cities in the region that have produced the most affordable housing relative to their Livable Communities Act (LCA) housing goals from We will interview planners and officials in those cities to understand their local practices and how they were successful in producing affordable housing. Where their successes were due to local practices related to land use and development, we will add those lessons to the list of best practices. Utilize advisory group to prioritize best practices. After reviewing, compiling, and summarizing the techniques being used locally and nationally, we will bring them to our review panel of housing developers and local officials. The panel will review the techniques utilizing four criteria: Potential for cost savings in individual developments Potential for applicability across a large number and type of development projects Likelihood of adoption by local governments Ease of implementation The first two criteria listed above relate to the potential impact of the best practice. The final two criteria relate to their feasibility. We will use the advisory group s review to prioritize best practices by their potential impact and feasibility. 1 For example, we have identified other compendia of cost-reduction techniques from Massachusetts, Erie County, Pennsylvania and other locations. 3

5 Collect implementation information and materials. We will produce best practices that are implementation-ready. Beginning with the highest priority best practices we will gather information necessary for implementation locally. This includes collecting sample ordinances and implementation guidelines in use by the communities engaging in these practices. We also intend to interview local officials in those communities to gather information about a) how these initiatives won political acceptance, b) the administrative details of implementing the practice, and c) the impact of the practice. This approach will produce a set of best practices that are practical and will have high potential for impact in reducing development costs. Furthermore, the best practices that we assemble will go beyond merely a listing or description of the tool/technique, but will also include concrete information related to implementing each tool/technique gathered from communities that have used it successfully. Thus, each best practice is actually a bundle of tools and implementation lessons that will provide local officials with information about both the what and the how of reducing development costs. Stage 2 Local Opportunities. In stage 2, which will be undertaken concurrently with stage 1, we will examine the local affordable housing experiences to determine where the greatest opportunities exist to make a difference through the adoption of best practices. We have identified communities within the Twin Cities region that have the largest 10-year affordable housing obligations under the Metropolitan Council s current fair share housing goals formula. Second, we have also identified communities that produced the least affordable housing relative to their 15-year LCA goals. We have reviewed the Metropolitan Council s Housing Performance Scores to also help identify cities with the most room for improvement. These approaches have produced a list of communities that could provide the greatest opportunity for impact regionally. After enactment of the Livable Communities Act (LCA), the Metropolitan Council negotiated affordable housing production goals for the period with most metro cities. The two central cities produced 111% of their LCA goals, the suburbs, 43%. For the decade , the Council assigned each metro city its fair share of the 51,000 new affordable units which the Council estimated would be required in the metro area. Nearly 20,000 of those new units were assigned to suburban cities which hadn t managed to meet even the 43% average suburban production on LCA goals in the previous decade and a half. Over 7,000 units were 4

6 assigned to suburban cities which had produced no affordable rental housing at all in the previous 15 years. To the list of opportunity cities as defined by housing performance and affordable housing obligations, we will add communities in the region that are receiving significant transit investments through the build-out of the regional transit system. These cities will provide opportunities for maximizing transit-oriented development and for connecting best practices in affordable housing to transit investments. We will examine the formal regulatory structure of these communities, looking at their comprehensive plans, zoning ordinances, permitting processes, and development fee structure (including subdivision/administrative fees, sewer and water connection fees, park dedication fees and the like). Because our previous studies 2 have demonstrated that there is some discrepancy between the formal regulatory structure that is in place in a given city and actual practices, we will also interview local planning officials and developers to assess the degree, frequency, and effectiveness of specific practices. Completion of this step will provide us with a profile of land development practices within each strategically chosen community. These profiles will be used to determine the opportunities for improved practices in these communities, and provides the basis for tailoring a specific set of best practice recommendations for individual communities faced with significant affordable housing responsibilities and growth opportunities over the next ten years. The findings from this analysis will be brought to our advisory group for their reactions and feedback. Stage 3 Dissemination and Implementation. Activities at this stage will focus on communicating results to the range of local and state bodies with responsibility for land-use development policy. It will involve a combination of technical assistance and salesmanship with respect to needed regulatory changes. None of the funds from the MN Challenge program will be used for lobbying. The work completed in this project may subsequently leverage policy advocacy or lobbying efforts by the Housing Preservation Project and other groups, but activities pursuant to this project will only apply to technical assistance and presentation and dissemination 2 Goetz, E.G., K. Chapple, and B. Lukermann (2002) The affordable housing legacy of the Minnesota Land Use Planning Act. Minneapolis: University of Minnesota, Center for Urban and Regional Affairs; and, Bydalek et. al. A Vision for the Next Decade, Planning for Affordable Housing in the Twin Cities Metro, prepared for the McKnight Foundation, Spring

7 of findings and recommendations. Our dissemination and implementation approach will occur in two tracks, a policy track and a technical assistance track. We will reach out to the Minnesota Housing Partnership (MHP) and the Greater Minnesota Housing Fund (GNHF) for the purpose of connecting to communities in Greater Minnesota and to developers who work in Greater Minnesota. The Destination Medical Center development in Rochester, Minnesota, for example, provides an important opportunity for applying the lessons of this project beyond the Twin Cities metropolitan area. We will work with MHP and GMHF to identify additional high-opportunity areas for outreach and technical assistance. Our first track (the policy track) will focus on region-wide implementation of costreducing best practices. A legal framework for the region-wide implementation of regulatory innovations to reduce costs of housing development already exists. The Minnesota Land Use Planning Act (LUPA) requires that the comprehensive plans of local governments include a housing implementation program, including official controls to implement the housing element of the land use plan, which will provide sufficient existing and new housing to meet the local unit s share of the metropolitan area need for low and moderate income housing. The implementation program must describe public programs, fiscal devices, and other specific actions to be undertaken in stated sequence to implement the comprehensive plan and ensure conformity with metropolitan systems plans (Minn. Stat , subd. 4). The Metropolitan Council is a key player in the implementation of regulatory cost-saving initiatives. The Council is currently in the process of creating its first Housing Policy Plan update in 30 years. It is planning to release the plan this fall. We will have a set of recommendations for best practices ready for incorporation into this plan and into subsequent Council guidance. The Housing Policy Plan is part of the region s long-range planning effort called Thrive MSP Communities across the region will be creating new comprehensive plans for approval by the Metropolitan Council by 2018, and will have to begin their planning processes soon. This is an ideal time to identify and offer recommendations for regulatory reforms. In the past the Metropolitan Council provided suggested land use and regulatory steps in a set of guidelines for local governments. The guidelines included suggestions related to lot size, garages, square footage of living areas, and other items that have an impact on housing prices. When these recommendations were in place in the 1970s, they affected the content of 6

8 comprehensive plans throughout the region and coincided with a period during which significant progress was made in getting affordable housing built in suburban locations. 3 Our analysis will provide the basis for an update of those guidelines. We will also work with the Metropolitan Council to incorporate best practices into a) the Local Development Handbook issued to communities in the region, and b) the curriculum for the Council s program of technical assistance training provided to communities related to writing the Housing Element of the Comprehensive Plan. Finally, we have an agreement to work with the Metropolitan Council to incorporate best practices into the Housing Performance Score guidelines. These scores are used by the Met Council in their decision-making regarding the expenditure of various funds. The incorporation of best practice standards into the Housing Performance Scores would add an incentive for cost-reduction to the existing incentives the Council has in place for affordable housing production. We will work with ULI to expand and update their Affordable Housing Toolkit and to produce a document focusing on local approaches to facilitating affordable housing development that would complement ULI s Development-Ready-Guide. We will make presentations of our findings to the Regional Council of Mayors, Metro Cities, North Metro Mayors Association, League of MN Cities, MN-APA, the Greater Minnesota Housing Fund and other appropriate bodies. We will make presentations of our detailed analyses of problems and opportunities to individual cities. We will work with MN Housing to incorporate Best Practices into the affordable housing project scoring system (the QAP). We will develop an interactive website and other community-specific information sources to inform citizens, affordable housing activists, and other parties of available tools and their use. The second track is a technical assistance track. We will produce tailored recommendations for a number of communities with the greatest opportunities for improvement and impact. For these communities we will identify a set of best practices that address the specific conditions and practices that have limited affordable housing production in the past. These will be communicated in individual meetings with communities and officials. To achieve more widespread implementation of local regulatory policy and practices that reduce housing costs, we believe three things are needed: 1) greater awareness; 2) leadership; and 3) incentives. Incentives will be addressed through the policy track of our proposal. We have designed the 3 Goetz,. Chapple, and Lukermann (2002) The affordable housing legacy of the Minnesota Land Use Planning Act. 7

9 technical assistance track of our work to promote awareness and leadership, and ultimately action, among municipalities. Our main approach will be to convene a working group of municipalities for the express purpose of reviewing and implementing regulatory reforms to reduce the cost of affordable housing. Cities will identify and pursue reforms that are beneficial for their city, but by working together, cities will experience greater momentum and support and have the opportunity to learn from one another. It will also provide a more efficient and effective method to track their deliberations and actions. We will approach cities with preliminary suggestions, based on our review of their affordable housing performance and current policies and practices. We will provide technical assistance to willing cities outside of this group process where necessary. The coalition will be composed of 8 to 20 volunteer cities. The goal is a mixed working group those who have made substantial progress as well as those who have not. A candidate pool of cities will be developed using the following criteria: 1) least housing relative to goals and current policies and practices; or 2) excellent progress on goals and/or use of best practices; and/or 3) situated on transit corridors. The Advisory Committee will review and revise the candidate pool. Cities will be recruited with the help of ULI, Metro Cities, the Advisory Committee, and additional organizations as needed. Over the summer of 2014 we will review the current policies and practices of identified cities. In early fall we will contact cities, and have available specific preliminary analyses and recommendations. Volunteer cities will understand that the express purpose of the coalition is to advance regulatory reform in their cities. Beginning in the fall of 2014, cities will meet once monthly to: Review, learn about and discuss best practices that could be applied in the cities Develop action plans for their cities Share information and lessons about the efforts to introduce regulatory reform in their cities Identify any regional and/or state policy that would assist their efforts. 8

10 Implementation outcomes and performance measures Table 1: Outcomes and performance measures First-stage Outcomes Performance measures Incorporation of best Inclusion of best practices in Met Council s Local Development practices into regional Handbook processes Inclusion of best practices in Met Council s Housing Performance Score formula Incorporation of best practices in the technical assistance curriculum developed by Met Council for local Comprehensive Planning training Inclusion of best practices in a ULI document similar to the Development-Ready-Guide but focused on affordable housing Inclusion of best practices in the QAP scoring system for Low Policy track Technical assistance track Enhanced regional dialogue on implementing best practices Adoption of tailored recommendations for high-opportunity communities Income Housing Tax Credit applications Inclusion of best practices in web-based Affordable Housing Toolbox operated by ULI-MN and Center for Housing Policy or in a separately-developed interactive website. Number of hits on the website Attendance at sub-regional meetings focusing on implementation of best practices Attendance at public forums on implementation of best practices Number of cities agreeing to join working group coalition Number of cities remaining engaged throughout the process Participation of city staff in working group activities Number of best practices cities agree to try to institute General Second-stage Outcomes Implementation of best practices by local governments Production of affordable housing Performance measures Number of 2018 comprehensive plans that identify best practices in their Housing Elements or Implementation sections Number of best practices identified in 2018 comprehensive plans Number of communities that change local practices in the direction suggested by the best practices Number and range of different local practices that are changed in the direction suggested by best practices Number of new local practices implemented in housing projects Number of affordable units produced Number of communities producing affordable housing Degree of progress on affordable housing goals per community 9

11 Reducing the cost of developing affordable multifamily rental properties. Cost Categories Local government practices and policies have a significant impact on all three cost categories acquisition costs, construction costs, and soft costs. This proposal will address savings in all three areas. Below are the cost drivers we have identified, how these drivers act to increase costs, and how our proposal will mitigate or reduce those costs. Some metro cities have done a good job of implementing some or many cost savings reforms. But in many cases cities have already identified and committed to many of these best practices in their comp plans, but have not acted on those commitments to put them into practice. Other cities have made even less progress. We will try to get at the barriers preventing implementation, and discover how some cities have been able to successfully act on these commitments, while others have failed to follow through. Site Selection Barriers City practices here can be passive, can create increased costs or can proactively facilitate the most favorable site selection and acquisition. Some cities view site selection for affordable housing as the responsibility of the developer and see themselves as playing little role in identification and selection. This in itself increases the soft costs for affordable housing developers in terms of their staff investment in this part of the development process. Some cities will steer affordable housing developers to sites which are problems for the city or are difficult or expensive to build on, further increasing costs. What we will try to do is identify those city practices that proactively prioritize sites which are ideally located for affordable housing, and that better yet, acquire the sites or take advantage of land already publicly owned. This would include employing practices which prioritize excess publicly owned land for affordable housing. Reducing Project Scale and Density It is common for public opposition to the size, height and scale of proposed buildings to lead to city insistence on reduction in any or all of these features, which always increases land cost/unit and often increases construction costs/unit. Even where local government does not overtly seek reductions, where developers perceive a lack of support in the face of NIMBY reactions, they will voluntarily downscale buildings on their own. Sometimes this occurs as a result of informal conversations with city staff even before any public hearings. This proposal 10

12 will seek out and identify local governments with the most effective approaches to minimizing this tendency. How much opportunity cities zoning creates for higher density housing types also has direct implications for production costs. Townhouses are substantially less expensive to develop than single family homes. It is critical that cities set aside sufficient developable sites at densities which will permit townhouse and walk-up developments. Imposing Additional Design Costs and Zoning Related Costs In some instances, neighbors will insist on more expensive design features (brick exterior, for example) and in other cases, local officials will seek these things, or may even require certain costly design features as a matter of practice. We will look for local practices that consciously avoid these additional costs, by, for example, finding the right balance between considering citizen input and adopting explicit policies that seeking certain design features will be considered an inappropriate infringement on developer decisions. In addition, we will consider zoning and subdivision requirements that can reduce costs with respect to setbacks or lot width guidelines, and zoning approaches more generally that are friendly to new and innovative construction practices. Imposing Unnecessary Parking Requirements Complying with minimum parking requirements adds a substantial cost for developers. Reduction or even elimination of minimum parking requirements has become a growing trend in recent years, particularly in areas with viable alternatives to cars. We will identify the practices that seem to be most effective in this area, in a variety of environments, in minimizing the number of parking places that must be provided. Preferences for Mixed Income Developments Many local governments express a preference that affordable housing be built only in the context of mixed income housing. Tax credit projects, in the view of some, are viewed as concentrating poverty, even when there is a range of incomes in the project and it is located in a higher income community. Because building mixed income developments is frequently very challenging due to financing requirements, this kind of local preference may increase costs and discourage the development of any new affordable projects in these communities. We will identify those communities that have effectively addressed this concern, including the educational efforts needed to do so, and will suggest policy changes for those who have not. 11

13 Administrative Delays Cities understandably want to provide public input into development decisions in local neighborhoods, but too often this leads to a prolonged and lengthy review processes, which substantially increase the developer s soft costs, and which in some cases results eventually in the dreaded slow no. This not only increases the costs of developments caught up in this process, including effectively killing projects in some cases, but it also discourages developers from returning to such communities in the future. We will identify cities who have found ways of streamlining these processes, or at least avoiding prolonged delays and multiple opportunities for NIMBY reactions. This will also include local practices which include appropriate zoning for affordable multifamily housing in good locations so that unnecessary rezonings or other land use approvals are minimized. We will also look at how cities deal with the changing composition of elected bodies while projects are pending for decision. We will also examine local practices which have been identified as promising in this area. For example, ULI-MN s HousingPolicy.org website highlights Roseville s expedited review and permit process. Both the national literature review and local comments suggest that this area will be high on the list for consideration. Excessive Fees The amount of local fees should have a reasonable relationship to the purpose of the fee and not be simply a means of generating more funds for the local government. Unfortunately, complaints continue from developers about excessive fees which drive up costs. We will review ways cities ensure that such fees are not excessive, and probably more importantly, city practices in waiving or reducing fees for affordable developments. Failure to Fully Utilize Local or Private Resources Although not technically practices which reduce costs, there are two kinds of practices which reduce a development s reliance on federal and state housing subsidies, thereby stretching these resources further. One area is the use of local financial resources, including tax increment financing, tax abatements, HOME or CDBG funds, bonding, HRA levy authority, and land write downs. Some of these, like land write downs and pay-as-you-go tax increment or tax abatement, do directly reduce operating costs. All of them directly reduce the need for housing subsidies and thus permit available subsidy resources to go further. Many local governments regularly deploy these resources in helping to close the funding gap for affordable developments, but 12

14 practices vary here. When local governments face competing demands for limited local resources, how is it that some manage to effectively commit these resources to affordable housing? Are these primarily matters of political priority, and if so, what local practices can facilitate affordable housing as a priority investment? Another way to reduce reliance on federal and state subsidies is to create additional affordability through engaging the private sector. This can be done through various forms of inclusionary housing practices. These, in effect, reduce housing costs by reducing project payments to developers. A number of cities now employ these kinds of practices, with varying effectiveness, and we will try to discover what sort of inclusionary practices are effective under what kind of conditions. Expected Savings Given the multi-dimensional nature of our cost-saving idea, it is not possible to put an exact dollar figure, or even percentage savings, on its potential. What we do know is that the cost savings associated with our idea are well-documented, and considerable: The cost-savings estimates, detailed below, are significant and derived from detailed and robust evaluations from all types of housing markets across the country. The breadth of communities across the country who are engaging in such efforts demonstrates that these are ideas that can be adopted in any community. Local evidence suggests that the take-up of such practices in metro area communities has been limited at best. Estimates of Cost-Savings Regulatory/policy reform will produce a range of cost-savings depending on a number of factors, including: 1) which reforms are not already in place; 2) which needed reforms are implemented; 3) the extent of the reform; 4) local housing market factors; 5) proposed project specifics; and 6) local land costs. But to be clear: saying it depends is not the same as we don t know. There is broad-based evidence of savings from such reforms, evidence which ranges from robust econometric models to the results of local practices. Table 2 presents summary findings from the academic literature on the costs of regulation. (A more complete review of the literature is attached.) Table 3 provides a sampling of reports from around the country and Table 4 provides local evidence, based on data and experience. The conclusions are three-fold. First, local regulatory practices drive up the cost of 13

15 housing. Two areas that seem to have significant and consistent impacts on costs are administrative delays and density. Second, while the methodologies and type of source vary, there is a fair degree of consistency about the order of magnitude of cost savings. Savings can be expected in the 5% to more than 25% range. Given that the average TDC cost per new unit of construction in the Twin Cities is nearly $230,000, this represents sizeable potential savings-- in the range of $11,000 to more than $57,000 per unit. Third, Tables 2 and 3 point out another intriguing and vitally important possibility. Not only do local regulations increase the cost of affordable housing, they probably dampen production. When resources are constrained, as is the case with nine percent LITHC and gap financing, higher cost housing means fewer units can be developed. In addition, it appears that there is a separate dampening effect on developers faced with uncertainty and administrative delays and an overall undersupply of housing in the market that pushes up prices. Thus, it is possible that some of the relatively poor performance in meeting the Met Council s LCA goals for affordable housing may be attributed directly to local regulatory practices and not just to constrained funding. 14

16 Table 2 Findings from Academic Literature of Regulatory Impacts on Housing Costs 15

17 Table 3: Sample of National Reports on Impacts of Regulatory Practices Source Year Geographic area Type of regulation Impact California Building Industry Carlsbad, $27,000 - $57,000 increase in costs; indirect and 2006 Direct costs of regulation Assn. CA direct add 19%-33% increase in sales price HUD 2013 Allowable TDC for a 2-bdrm detached/ semidetached homes is $30,000-$42,000 greater than Minneapolis Building type (density); TDC area limits for other more dense types of housing Illinois Dept. of Human Rights 2013 Chicago Zoning, building codes Reduces supply of affordable housing Impact Data Source 2005 Kyle, TX Home and lot sizes, materials New regulations increase home costs by $20,000 Piedmont Public Policy Mecklenberg Controls ordinance, street design 2013 Institute County, NC guidelines Adds $68-$85 to monthly payment State of Montana 2000 Montana Various building codes $4,800 per home Tomas Rivera Policy Institute 2002 California Permitting delays Adds 14-21% to cost of housing; regulations reduce housing by 16 million units Table 4: Local Sources Suggesting Impact of Regulatory Practices Source Type of regulation or practice Impact Chaska Comprehensive Saves $63,000 on $243,000 home Local developer A Delays/requirements 4 months delay. Cost more than we made. Local Developer B Density restrictions Up to 20% of cost Local Developer B Building requirements $10,000 MN Challenge feedback Comprehensive survey (U. of St. Thomas) Significant impacts on costs, in priority order: administrative delays, parking requirements, design requirements, zoning and density MN Housing data Land new construction (related to density) In metro, varies from average of $6,200/unit for lower cost housing to more than $20,000/unit for higher cost housing MN Housing data Parking new construction In metro, varies from average of $600/unit for lower cost housing to more than $8,700/unit for higher cost housing MN Housing data Environmental contract new construction In metro, varies from average of $100/unit for lower cost housing to more than $2,300/unit for higher cost housing The advantage of focusing on local regulatory practices as a source of cost-savings is that they can be applied anywhere and to any type of development, though they will play out differently in different communities and situations. While our proposal focuses on the metro area, the same situations apply to Greater Minnesota. The benefits can be reaped across the affordable housing spectrum, from rehab to new construction, townhomes to high-rises, and across different community types and financing situations. Most can be applied to transitoriented development. Some regulatory reforms would have universal applicability, such as expediting the permitting process or land use and zoning that allows higher densities. Others, such as building design requirements or parking requirements, would broadly apply to many types of new construction. And some, such as New Jersey s smart codes for rehab projects, would have more limited applicability. 16

18 Potential for Replication: Regulatory Reform across the Country One way to assess the potential for replication is to see what type of traction the idea has elsewhere. HUD s Regulatory Barriers Clearinghouse, offers an extensive library of studies and reports from around the country, with the general theme that regulations add to the cost of housing and decrease the supply of affordable housing. This database also provides information about how some communities have responded, for example: Portland created 'permit ready' house plans for use on certain infill lots. Columbus, OH and the development community created an agreement in which both sides made specific commitments to reduce the time to process development applications. Bend, OR offers a package of developer incentives for affordable housing, including expedited permitting, density bonuses up to a 35% increase, and minimum lot size exemptions. 4 Pinellas, FL offers expedited permit processing for developers of affordable housing through the use of a voucher to list fee relief amounts and track the project. In Austin, TX the SMART program offers expedited permit review, affordability impact analysis and fee waivers; from 2001 to 2004, the ratio of units affordable to families at or below 60% MFI increased by more than 25%. 5 The City of Colorado Springs provides for an "Express Review" of development plans for developers of affordable housing. The state of New Jersey adopted the Rehabilitation Subcode to allow more flexibility in renovating older properties and increase the supply of affordable housing, saving an estimated 10-40% of the cost of building renovation. 6 Woodland, CA offers changes to square footage, setbacks, parking, and height requirements for developers of affordable housing. Brunswick, Maine is proposing flexible dimensional standards for affordable housing projects S.M.A.R.T. Housing : A Strategy for Producing Affordable Housing at the Local Level, Austin, Texas, ICMA Best Practices 2005, April David Listokin and David Hattis Building Codes and Housing April 2004 Page 21 17

19 Montana identified and proposed 18 separate building code changes to assist housing affordability. Potential for Replication: Local Take-up of Regulatory Reform We know that regulatory regimes impact costs, and that small and large communities across the country are beginning to amend their practices as result. What is the capacity for takeup in the Twin Cities metro area? Two reviews of local practices document that, with a few notable exceptions, there is considerable room for regulatory reform and cost savings in the metro area. These reviews, the Metropolitan Council s Tools and Incentives to Promote Affordable Housing in the Twin Cities, (March 2013) the basis for its Housing Point Scoring (HPS) system- and A Vision for the Next Decade, Planning for Affordable Housing in the Twin Cities Metro, prepared for the McKnight Foundation (Spring 2009) catalogue regulatory practices. Both suggest that regulatory reform is far from mainstream. Table 5 presents findings from the two documents, both of which relied on surveys of municipal officials. They ask different questions, the Vision Study querying whether a regulatory tool had been used at all in the last ten years, and the Met Council whether a tool had been utilized in 2011 and/or is a regular practice or policy of the municipality. In comparing the two, one might conclude that most regulatory tools are used sparingly at best. Even those that were reported to be most utilized over the past ten years zoning variances, density bonuses, PUDs, and accessory units-- do not appear to be ongoing practices. Table 5: Percent of Cities Adopting Various Regulatory Practices in the Metro Area Vision Study, 2009 HPS, 2013 n=35 n-34 n=156 Expedited approval 6% 9% Flexible building width or height 14% 8% Zoning variances (special/condition use permits 17% 44% 9% Adjust lot sizes 23% 38% 19% Adjusted fees 26% 29% 15% Density bonuses 34% 44% 6% PUDs with smaller lots 49% 82% Inclusionary zoning 3% 3% Alternative construction technologies 15% 6% Parking variances 14% Setback reductions 25% Reduction in street, right-of-way widths 8% Accessory units 53% 3% 18

20 The Vision Study also took a look at what types of tools were included in municipalities comprehensive plans (Table 5). The study noted that plan content doesn t necessarily come to fruition: (We should) take one step backwards to examine the actual implementation of comprehensive plans on the ground. While the Met Council reviews plans for completeness, it would be useful for many stakeholders to have easy access to information about what cities have promised to do toward their affordable housing goals and on which commitments they have followed through. 7 In interviews conducted with local officials for the preparation of this proposal, we found evidence that plans indeed can be more visionary in nature, and may or may not be accompanied by an intention for active implementation. The reason may be simple. Municipalities must prepare comprehensive plans that meet the Met Council s requirements. However, there are no requirements to produce affordable housing, only goals. We talked to a handful of local officials and developers, all of whom agreed that are no compelling carrots or sticks for cities to produce affordable housing. One went further, stating, Cities have no incentives to reduce the cost of affordable housing. There s another, complementary, possibility. The Vision Study suggests that most cities don t recognize the connection between regulatory practices and affordable housing production. City officials were asked whether various types of regulatory practices limit the production of affordable housing. Table 6 reports the answers. In contrast to the great body of evidence presented above, most city officials don t regard their regulatory practices as an impediment to affordable housing. Table 6: Vision Study Regulatory Practices as a Limitation to Affordable Housing Production In summary, there is a great gulf between documented evidence on the impact of regulations on the costs and production of affordable housing, and what appears to be practiced 7 Bydalek et. al. A Vision for the Next Decade, Planning for Affordable Housing in the Twin Cities Metro, prepared for the McKnight Foundation, Spring 2009, p

21 in the Twin Cities metro area. The central purpose of our idea presented in this proposal is to bridge this gap. Our work will help illuminate the extent, nature and reasons for the gap and prepare effective technical assistance based on this understanding. Impacts of the Idea The heart of this question concerns potential trade-offs between costs (in our case, costly policies and regulations) and other outcomes desired by a community. In much of the literature cited in Table 2, the authors acknowledge that regulations have benefits as well as costs; indeed regulations are put in place for a reason. Michael Schill, in Regulations and Housing Development: What We Know writes, to separate bad regulations (that is, regulatory barriers) from good ones, it is extremely perilous to look solely at the effects of these regulations on the price of housing. 8 Different types of regulatory reform will have differing types and degrees of impacts in a community. Some reforms, such as minimizing regulatory delays, should have few, if any, negative impacts. In fact, when these reforms are well done, they can improve community acceptance and enhance the ability to serve those in need. This is the case in Chaska, which starts its discussions of affordable housing with a public hearing. A second set of reforms those impacting design and construction can be implemented without negative consequences on the housing stock. As Chaska has demonstrated, there is considerable room to adjust setbacks, parking requirements, street widths, and density without sacrificing housing quality, energy efficiency or durability. However, many cities place a priority on creating affordable housing that is indistinguishable from the existing market rate housing in that community. It is this set of reforms especially increases in density that often bump up against community norms and expectations. One city official told of an effort to create dense housing at a rate of 4.5 units per acre, and the community backlash that ensued. Another said, Out here, 1/3 acre lots are considered the ghetto. The key to addressing community concerns lies in the process of how and when the community is involved. Chaska, for example, has demonstrated that good public process can facilitate rather than impede affordable housing development. These same processes can also create a more streamlined and certain process for the developer, reducing overall 8 Michael Schill, Regulations and Housing Development: What We Know, Cityscape: A Journal of Policy Development and Research, HUD, 8,1, p.7. 20

22 development costs. 9 There is a final set of reforms related to guiding and zoning land for multifamily housing where reducing costs could work at cross-purposes with other important goals. If it is a priority to ensure that people who live in affordable housing have access to good transit, jobs, services, etc., we must accept the trade-off that this housing will be built on more expensive land. Each and every community can tailor regulatory reform to meet its needs. Done right, regulatory reform can yield significant cost savings and improved production with little to no negative impacts. TEAM Project Team Team leaders are Tim Thompson and Jack Cann of the Housing Preservation Project (HPP), Edward Goetz, professor of urban and regional planning at the Humphrey School of Public Affairs and director of the Center for Urban and Regional Affairs, and Stacy Becker of Becker Consulting. Thompson is President and Senior Attorney at HPP, and has worked on affordable housing issues, and regional and local government housing policies and practices for over 25 years. Cann is co-founder of HPP and has worked on housing issues since founding the Minnesota Tenants Union in Goetz has researched local and regional affordable housing issues for over 20 years and has served on several local and regional boards related to affordable housing. Becker has been consulting on local development and housing matters for 15 years, including work with the Regional Mayor s Affordable Housing task forces, MN Housing, ULI, GMMHC, and others. Thompson, Cann and Goetz have worked together on projects related to the effects of land use planning on affordable housing production. In 2002 Goetz led a team of university researchers, working with Thompson and Cann, in a study of 25 years of implementation of the Land Use Planning Act, focusing on 25 high-growth suburbs in the Twin Cities region. 10 In 9 Becker, Stacy, Do Local Planning Processes Fuel NIMBYism?, working paper, Lincoln Institute of Land Policy, February 2010, 10 This study resulted in three publications: Goetz, E.G., K. Chapple, and B. Lukermann (2002) The affordable housing legacy of the Minnesota Land Use Planning Act. Minneapolis: University of Minnesota, Center for Urban and Regional Affairs; Goetz, E. G., K. Chapple, and B. Lukermann (2003) Enabling exclusion: The retreat from fair share housing in the implementation of the Minnesota Land Use Planning Act. Journal of Planning Education and Research, 22 (3): ; and, Goetz, E.G., K. 21

23 2007, again in partnership with Thompson and Cann, Goetz led another team of university researchers in an analysis of the affordable housing approaches of 35 cities within the Twin Cities metropolitan area, focusing on the content of their Comprehensive Plans and the implementation of those plans (the Vision study). 11 CURA also conducted a study of land use and development practices in 10 Twin Cities communities in Goetz has also conducted a study of the implementation of the Livable Communities Act and its impact on affordable housing development (Goetz and Mardock 1998; Goetz 2000). 13 Our team has a wealth of experience in collecting the type of information needed for stages 1 and 2 of the project. Our previous studies have included interviews with local officials and developers, as well as document review of local regulatory policies. We are confident that our previous experience provides the necessary experience to focus the study on these issues. Research Team A team of researchers from the University of Minnesota will be created to conduct the studies identified in stages 1 and 2 (the best practices study, compilation of the supplementary materials for best practice implementation, and the study of local development-practice opportunities). Advisory Group A group of project advisers consisting of nonprofit and private sector housing developers, and local housing and planning officials will be assembled. We have commitments of participation from the following: Cathy Bennett, Urban Land Institute-Minnesota; Libby Starling of the Metropolitan Council; John Duffy, Duffy Development; Charlie Vander Aarde, Metro Cities; Kevin Ringwald, City Planner for the City of Chaska; Karl Batalden, Community Development Planner for the City of Woodbury; Darielle Dannon of the Minneapolis Consortium of Community Developers; Andrew Michaelson of CommonBond; David Frank, TOD Coordinator for the City of Minneapolis, and others. Chapple, and B. Lukermann, (2004) The Minnesota Land Use Planning Act and the promotion of low- and moderate-income housing in suburbia. Law & Inequality: A Journal of Theory and Practice. Vol. XXII (Winter). 11 Bydalek et. al. A Vision for the Next Decade, Planning for Affordable Housing in the Twin Cities Metro, prepared for the McKnight Foundation, Spring Lukermann, B., and M. Kane (1994) Land Use Practices: Exclusionary Zoning, de Facto or de Jure? Center for Urban and Regional Affairs, University of Minnesota. 13 The findings from this study were published in Goetz, E.G. & L. Mardock (1998) Losing ground: The Twin Cities Livable Communities Act. Minneapolis: Center for Urban and Regional Affairs, University of Minnesota; and, Goetz, E.G. (2000) Fair share or status quo? The Twin Cities Livable Communities Act. Journal of Planning Education and Research, 20 (1):