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Challenges and Policy Options for Creating and Preserving Affordable Housing near Transit and in Other Location-Efficient Areas

Executive Summary

This report examines specific, actionable non-statutory changes that the U.S. Department of Housing and Urban Development—and partner agencies—could adopt to better facilitate and encourage the development and preservation of affordable and workforce housing in location-efficient areas. These are areas near transit, employment centers, or other essential services that allow families to reduce the number and extent of necessary car trips. Transit as defined in this report encompasses reliable bus, bus rapid transit, street car, light and heavy rail commuter service and subway. Transit-oriented development (TOD) refers to new residential, commercial, and mixed-use development and the preservation, renovation, or rehabilitation of real estate within walking distance of these modes of transportation.

We gathered the challenges and policy options included in this report in the summer of 2010 from practitioners and thought leaders from around the country, including many individuals that develop, facilitate, or promote transit-oriented development and other forms of location-efficient development. A variety of venues, including two in-person forums, personal interviews, an online survey, and an online forum page were used to gather the information. The report was prepared for the What Works Collaborative.

This report addresses four topical areas, all related to providing affordable and workforce housing in the context of development oriented around transit, employment centers, and other location-efficient areas:

  1. Developing Sustainable and Inclusive Communities
  2. Ensuring Long-Term Affordability
  3. Serving Very Low Income Residents
  4. Preserving and Fostering Affordable Housing Opportunities in the Broader Neighborhood

Outlined here are the challenges and policy options for each of the topical areas suggested by practitioners and thought leaders interviewed for this report. More specific policy options follow in the full report.

a. Developing Sustainable and Inclusive Communities

The growing popularity of transit-oriented development is good news for a variety of reasons. However, as recent research confirms, housing and land prices often rise sharply in neighborhoods close to transit stations,1 which can make it difficult for low-income and working families to find affordable housing near transit.

While the new Interagency Partnership for Sustainable Communities has set out as a goal for federal policy the promotion of affordable housing near transit, our research identified a number of cases in which federal programs are not well coordinated to support the development of affordable and workforce housing near transit stations and may even inadvertently create incentives for the location of affordable and workforce housing in areas that are not location-efficient, such as outlying suburbs with limited or inconvenient public transit options. In addition, at the state, regional and local levels, many 

governmental agencies lack the knowledge and capacity to adequately plan for affordable and workforce housing in location-efficient areas.

Federal agencies have an important role to play in addressing these challenges. Some changes which could potentially facilitate sustainable and inclusive communities near transit include:

  • Adjusting underwriting, mortgage insurance, and mortgage limit requirements to better support the development of affordable and workforce housing at transit locations.
  • Offering additional incentives to support location-efficient affordable and workforce housing through the Federal Transit Administration’s (FTA’s) New Starts/Small Starts programs.
  • Helping local governments and nonprofits with land acquisition through changes to the CDBG program.
  • Providing research, best practices, guidance and leadership to support effective federal policy and build capacity at the state, regional, and local levels.

b. Ensuring Long-Term Affordability around Transit

Major investments of public funds will be needed to ensure that a portion of housing units near transit are affordable to low‐and moderate income families. To protect this substantial public investment and ensure that such families have continued access to sustainable communities, these public investments ideally should be accompanied by legal requirements that ensure the housing remains affordable over the long-term.

Many of the major programs that fund affordable housing do not require or effectively encourage long-term affordability. For instance, the HOME program—the largest federal program dedicated to affordable housing—requires a minimum affordability period of only 15 years for major investments in affordable homeownership and a minimum affordability period of only 20 years for new construction of rental housing. In addition, regulations for other major tools that support homeownership for lower income families, like FHA insurance, are not always compatible with programs that seek to provide long-term affordability (i.e., community land trust programs).

There are a number of steps that HUD could take to help strengthen incentives for long-term affordability in these programs and provide other incentives to promote and sustain long-term affordability near transit, including:

  • Changing the HOME program rule to extend the affordability periods for major HOME investments.
  • Modifying FHA regulations to be more supportive of long-term affordable homeownership.
  • Requiring or creating incentives for long-term affordability in competitive programs related to new public transit investments or TOD.

c. Serving Very Low Income Residents around Transit

Creating or preserving housing for very low income families (generally, 50 percent or less of area median income) in high-density, location-efficient areas is often not financially feasible without dedicated federal rental assistance subsidies. Yet this is precisely the income group most likely to need the transit and other vital services that such areas provide. If communities do not adopt policies to preserve and expand housing affordable to this population close to transit at the outset of major transit investments, it will only become more difficult to do so in the future as rents and home prices in these areas increase.

In the United States, there are over 200,000 federally subsidized rental units close to transit. However, there is the potential for the subsidies on more than two-thirds of these units to expire, which would greatly compromise affordability near transit across the country. To add to this, public housing authorities lack incentives to attach project-based subsidies to units near transit and job centers, even though they have the ability to do so.

HUD could take a number of steps to preserve affordability for very low income populations and facilitate the subsidizing of properties in location-efficient areas. Some of these steps include:

  • Preserving subsidy, and improving the physical condition and financial viability of projects close to transit.
  • Incorporating incentives and requirements into HUD programs to encourage the development of deeply affordable units and the provision of deep subsidies near transit centers.

d. Preserving and Fostering Affordable Housing Opportunities in the Broader Neighborhood

Major infrastructure investments, like new transit investment, can spur revitalization and create amenities that benefit residents of all income levels. At the same time, however, it can drive up housing prices, leading to displacement of low- and moderate-income families. Major housing investments (such as HOPE VI) can, in some cases, also have this type of impact. To ensure that major housing and transportation investments do not lead to an overall loss of affordability in the broader neighborhoods in which communities make those investments, it is important to consider and address the potential for such spillover effects in designing and implementing these investments.

Options for addressing these issues include:

  • Requiring a thorough assessment of potential spillover effects prior to project initiation and a plan for addressing those effects to ensure ongoing affordability.
  • Providing guidance on promising strategies for managing spillover effects.