COUNCIL OF THE DISTRICT OF COLUMBIA

Committee ON Economic development

DRAFTCommittee Report

1350 Pennsylvania Avenue, NW, Washington, DC 20004

TO:All Councilmembers

FROM:Muriel Bowser, Chairperson

Committee on Economic Development

DATE:July 8, 2014

SUBJECT:Report on Bill 20-604 “Affordable Homeownership Preservation and Equity Accumulation Amendment Act of 2014”

The Committee on Economic Development, to which Bill 20-604, “Affordable Homeownership Preservation and Equity Accumulation Amendment Act of 2014” was referred, reports favorably thereon and recommends approval by the Council.

CONTENTS

  1. Background And Need……………………………………………….…...………….……..1
  2. Legislative Chronology……………………………………………………………………...9
  3. Position of the Executive…………………………………………………………………....9
  4. Comments of Advisory Neighborhood Commissions…………..………………….…10
  5. Summary of Testimony.……………………………………………………………..…….10
  6. Impact On Existing Law…………………..…………………….………………………....12
  7. Fiscal Impact………………………………………………………………………………...13
  8. Section-By-Section Analysis………………..…..………………………………………….13
  9. Committee Action…………………...…………………………………………………..…14
  10. Attachments..……………………………………………………………………………….14
  1. Background And Need

On Tuesday, December 3, 2013, B20-604 the “Affordable Homeownership Preservation and Equity Accumulation Amendment Act of 2013” was introduced by Councilmembers Bonds and McDuffie, and referred to the Committee on Economic Development.

Need for Affordable Housing:

This legislation stems from the District’s need to address the critical shortage of affordable housing that must be addressed to close the wealth gap, end homelessness, and sustain a growing economy to the benefit of all residents. 1-in-5 District households—over 50,000 families—have a severe housing burden, meaning they spend at least half their income on housing. There is a waiting list of 70,000 people who want public housing, and 8,000 existing units that are in critical need of renovation or replacement. The District also has 7,750 homeless families in the District, which is up 13% from last year.

With this need in mind, the District has therefore set a goal of creating 10,000 new affordable units by 2020 and is well on its way to meeting that goal ahead of schedule thanks to considerable funding increase in recent years for the Housing Production Trust Fund (HPTF) administered by the Department of Housing and Community Development (DHCD). But, when considering that the District continues to grow by 1,000 new residents per month, combined with a need to preserve existing affordable housing, more can and must be done on this issue.

Challenge of “Distressed” Neighborhoods:

B20-604 is meant to help address this general need for affordable housing while also solving a specific challenge in “distressed” neighborhoods. Affordable housing developers testified before the Committee that they often have difficulty selling units located in neighborhoods that have not received the same amount of revitalization as others in the District. This is because market-rate units in these so-called “distressed” neighborhoods may not be any more expensive than the subsidized affordable units constructed next door. Potential homebuyers are naturally inclined to purchase the market-rate unit, all other things being equal, if it means not being subject to the resale restrictions that are statutorily imposed on affordable units subsidized by the HPTF. Not only are these homebuyers averse to purchasing these affordable units, once they do, they often have difficulty finding a new buyer that meets the income requirements should life circumstances change (e.g., unemployment, marriage, and children) and they need to resell the unit. Finally, when such resale restrictions apply, an owner is prevented from realizing the appreciation in their unit, thus thwarting the key wealth building benefit of homeownership.[1] These are the issues being grappled with by this legislation.

How the Bill Works:

B20-604 reduces the resale restrictions for which affordable for-sale units located in distressed neighborhoods and produced with District government subsidies from the Housing Production Trust Fund (HPTF) must remain affordable to 5 years. The current resale restriction period is 15-years in most cases, though homes located in a U.S. Census Tract with a poverty rate of 30% can be sold at market rate in 10-years.[2] The legislation also requires affordable housing subsidies to be repaid to the HPTF at the time an affordable unit is sold. Under current law, the affordable unit owner receives that subsidy amount as a windfall as long as they live in the unit for 15-years, reducing the District’s available resources to produce more affordable housing.

Balancing the Interests of Long-Term Affordability and Wealth Building:

Basic economics dictate that maximizing the long-term affordability of housing units conflicts with the goal of building wealth for low- and moderate-income residents who need it most. Without the wealth building benefit of homeownership, low- and moderate-income populations are often unable to attain higher education for both themselves and their children as well as comfortable retirements, among other quality of life issues that governments should strive to help provide for their residents. At the same time, the District must try to create affordable housing for as many residents as possible, particularly the most vulnerable homeless populations such as veterans, those with mental and physical disabilities, and young children. A balance must therefore be struck.

B20-604 leaves the determination of what constitutes a “distressed” neighborhood to the Mayor, which must be done on an annual basis after considering median sales price, median home appreciation rate, poverty rate, homeownership rate, and other “reasonable” factors. There was considerable debate amongst advocates about the best definition of “distressed”, what criteria are the best indicators, and where the best sources of accurate and up-to-date data can be found for this purpose. The Committee believes giving the executive latitude in this determination is the most prudent course of action for several reasons. First, the Deputy Mayor for Planning and Economic Development and the Department of Housing and Community Development have teams of experienced staff who are very familiar with the District’s housing needs, the tools they have at their disposal to address these needs, and the conditions in each neighborhood. These are all key factors in making an informed determination of where affordability resale restrictions should be relaxed. Secondly, economic conditions can change rapidly, making it all the more important for the Mayor to be able to change the definition of “distressed” by relatively quick rulemaking compared to the legislative process. Finally, the District has hired the Urban Institute to conduct a housing needs assessment that is expected to ultimately yield an in-depth analysis of how much affordable housing the District has, where and for what population segments its needs are greatest, and the best tools for getting there. The Committee believes no concrete decisions should be made about which neighborhoods should have relaxed affordability resale restrictions until such time as that assessment has been completed and a plan for its implementation has been prepared.

The Committee believes this compromise equally serves the competing interests of maximizing affordability and allowing residents to build wealth. That said, the Committee is not averse to reopening the issue following early results of the new process laid out here. This would better allow the District to consider all housing needs and properly tune the tools it has to more effectively target our greatest housing needs.

The Committee also does not in any way wish to favor one type of housing along the continuum of affordable housing against another. B20-604 therefore includes language that allows covenants to be longer than 5 or 15 years if the District and/or an affordable housing developer choose to use a different model, such as shared equity or limited-equity cooperatives, that balance affordability and wealth building at different levels.

  1. LEGISLATIVE CHRONOLOGY

December 3, 2013Bill 20-604, “Affordable Homeownership Preservation and Equity Accumulation Amendment Act of 2013,” is introduced by Councilmembers Bonds and McDuffie, co-sponsored by Councilmember Barry, and referred to the Committee on Economic Development.

December 6, 2013Notice of Intent to act on Bill 20-604 is published in the District of Columbia Register.

April 25, 2014Notice of May 29, 2014 public hearing on B20-604 is published in the District of Columbia Register.

May 29, 2014The Committee on Economic Development holds a public hearing on Bill 20-604.

July 8, 2014The Committee on Economic Development marks-up Bill 20-604 and adopts the Committee’s report.

  1. POSITION OF THE EXECUTIVE

Victor Hoskins, Deputy Mayor for Planning and Economic Development, expressed concern that B20-604 reduced the resale restrictions for affordable for-sale units produced with funding from the Housing Production Trust Fund from 15 to 5 years. He believed this would yield less affordable housing for each public dollar spent even with the recapture provision that would require subsidies to be repaid in to the Trust Fund when a unit is sold. This is because property and construction costs have increased between when the unit is sold and when the subsidy is repaid.

  1. COMMENTS OF ADVISORY NEIGHBORHOOD COMMISSIONS

The Committee received no comments from any Advisory Neighborhood Commissions.

  1. SUMMARY OF TESTIMONY

The Committee on Economic Development held a hearing on Bill 20-594 on May 29, 2014. The testimony of witnesses who submitted written statements is available as Attachment 2 to this report. Video from the hearing is also available at

  1. IMPACT ON EXISTING LAW

B20-604 amends the Housing Production Trust Fund Act of 1988, effective March 16, 1989 (D.C. Law 7-202; D.C. Official Code § 42-2801, et seq.), to revise the resale restrictions associated with affordable for-sale units developed or preserved in distressed neighborhoods with funding from the Housing Production Trust Fund and requires that subsidies used to construct such affordable for-sale units be recaptured by the Trust Fund when the unit is sold.

  1. FISCAL IMPACT

A fiscal impact statement, prepared by the Chief Financial Officer, is attached as Attachment 3.

  1. SECTION-BY-SECTION ANALYSIS

Section 1:Long title.

Section 2:Amends the Housing Production Trust Fund Act of 1988, effective March 16, 1989 (D.C. Law 7-202; D.C. Official Code § 42-2801, et seq.), to revise the resale restrictions associated with affordable for-sale units developed or preserved in distressed neighborhoods with funding from the Housing Production Trust Fund and requires that subsidies used to construct such affordable for-sale units be recaptured by the Trust Fund when the unit is sold.

Section 3:Adopts the fiscal impact statement in the committee report.

Section 4:Establishes the effective date of the bill.

  1. COMMITTEE ACTION

The Committee on Economic Development met on July 8, 2014 to consider Bill 20-604, the “Affordable Homeownership Preservation and Equity Accumulation Amendment Act of 2013.” Committee Chairperson Muriel Bowser called the meeting to order with Councilmembers ______of the Committee present and offered remarks on the Act.

Chairperson Bowser then moved Bill 20-604 with leave for staff to make technical and conforming amendments.

Committee members voting in favor: Bowser,______

Committee members voting against: None

Committee members voting present: None

Committee members absent: None

Chairperson Bowser then moved the Committee Report of Bill 20-604.

Committee members voting in favor: Bowser, ______

Committee members voting against: None

Committee members voting present: None

Committee members absent: None

  1. ATTACHMENTS
  1. Bill 20-604 as introduced.
  2. Written testimony.
  3. Fiscal impact statement.
  4. Legal sufficiency determination.
  5. Comparative Print for Bill 20-604.
  6. Committee Print for Bill 20-604.

1

[1] The Committee acknowledges the work of the Urban Institute finding that the greatest wealth produced from homeownership stems from the induced savings of paying down mortgage principal each month rather than the appreciation in the home’s value.

[2] D.C. Official Code § 42-2801(1C). The District has only sporadically enforced such resale restrictions, and the Committee is hopeful that the relevant agencies are doing a better job as they track units produced under Inclusionary Zoning and similar programs.