More communities demand developers build affordable housing

With home ownership in the U.S. at a 20-year low and growing evidence that skyrocketing housing prices are burdening not just the poor but also the middle class, calls for affordable housing are getting louder across the nation.

Now key court decisions are bolstering calls for equitable housing and reflecting the national angst over housing affordability

On Thursday, the U.S. Supreme Court ruled 5-4 against the state of Texas and found that the way the state awarded $9.7 billion in low-income tax credits from 1990 to 2011 reinforced segregated housing in violation of the Fair Housing Act. The state gives federal incentives to private developers to build or rehabilitate affordable housing. Civil rights groups sued, charging that the state doled out the money in a way that clustered minorities in poor neighborhoods, keeping low-income housing out of white areas.

“Much progress remains to be made in our nation’s continuing struggle against racial isolation,” Justice Anthony Kennedy wrote in the majority opinion. “We must remain wary of policies that reduce homeowners to nothing more than their race.”

But it is not just at the federal level that key decisions are being made. Last week, the California Supreme Court cleared the way for municipalities to demand builders include affordable housing in new projects. In its unanimous decision, the court said that the affordable housing crisis has reached “epic proportions in many of the state’s localities.”

Developers and builders had challenged San Jose’s affordable housing ordinance as unconstitutional. Under the law, developers who build 20 or more housing units must set aside 15 percent of them at below-market value or give money to a city fund. About 170 other cities in the state have similar ordinances – known as inclusionary zoning – and experts predict many more will, now that the court issued its ruling.

“It removes a large legal threat from these types of measures,” said Richard Frank, director of the California Environmental Law and Policy Center at UC Davis School of Law. “The California Supreme Court is considered one of the most influential state courts in the nation.”

And California is one of the most expensive housing markets in the nation, especially in coastal cities. According to a state report released in March, an average California home costs $440,000, 145 percent above the national average of $180,000.

Although most of the affordable housing ordinances include incentives for builders (higher density, option to build affordable units in another location, financial subsidies), the industry vows to keep fighting.

“We, right now in Southern California, are in a housing crisis at all income levels,” said Tim Piasky, chief executive of the Los Angeles/Ventura chapter of the Building Industry Association of Southern California. “We’re supportive of subsidized housing but it’s a societal problem … It shouldn’t be put on the back of market-rate buyers.”

His organization will appeal the decision to the U.S. Supreme Court, he said.

“There may be other jurisdictions that will pass inclusionary zoning requirements without adding incentives,” Piasky said. “We don’t know, when it comes down to other cities, what they are willing to do.”

The court decision applies only to new housing for sale, not rental units.

But affordable housing advocates in California are hoping the ruling will revive legislation for affordable rental housing requirements. A law passed in 2013 but was vetoed by Gov. Jerry Brown who specifically cited legal uncertainties because of the pending San Jose litigation.

“Now, housing advocates are going to go back and talk to the governor’s folks to see if we can get legislation passed again,” said Michael Rawson, a lawyer with The Public Interest Law Project in Oakland, California, who represented several of the organizations in support of San Jose’s affordable housing ordinance. “ It’s a very big victory … I know it’s being watched in other states.”

The rental market has boomed nationwide, fueled by foreclosures during the housing bust. When people lost their homes, they rented. The share of renters rose to a 20-year high of 35.5 percent of households in 2014, according to a report this week from Harvard University’s Joint Center for Housing Studies. It was the 10^th consecutive year of increase in renters.

The study found that since 2004, households headed by people aged 45 to 64 – the peak ages of home ownership – accounted for twice the share of renter growth than younger households that are typical renters.

“Certainly there’s greater awareness, greater attention to the issue of housing affordability,” said Chris Herbert, managing director at the center. “The fact that it’s becoming more prevalent for people of middle income  leads to greater awareness and support for political action.”

Boston and New York leaders are exploring ways to increase the affordable housing stock and considering inclusionary zoning ordinances, he said.

Three in five Americans believe the country is “still in the middle” of the housing crisis or “the worst is yet to come,” according to a recent survey by the MacArthur Foundation. And housing is at the core of the public’s pessimism about the potential for social mobility, the survey found. Four in five Americans expressed deep skepticism about the ability to move up the socio-economic ladder, saying that it’s more likely for middle-class people to fall into a lower economic class than it is for the poor to rise to the middle class.

Benjamin Reznik, a real estate development lawyer at Los Angeles-based Jeffer Mangels Butler & Mitchell LLP, said developers want to build affordable housing but don’t want it be a mandatory condition.

“What this (court ruling) means is that you cannot build a market-rate project in San Jose. Period,” he said. “People might get creative. It seems to me that if I have a project that is 21 homes, I’ll say, never mind, I’ll build 19” to avoid the inclusionary housing mandate. “I don’t think it will lead to more affordable housing for sale.”

Despite inclusionary zoning measures in almost 200 California jurisdictions, “you still have a housing crisis, you still have an affordability problem,” Piasky said. “It hasn’t solved the problem.”

Larry Gross, executive director of the nonprofit Coalition for Economic Survival in Los Angeles, said the state court ruling is a huge victory but “it doesn’t solve the problem at hand in regard to the ability of Los Angeles to pass an inclusionary ordinance” for rental units. “It’s one piece of the puzzle.”

All these affordable housing measures are meaningless unless existing affordable housing is preserved, he said. In 1986, the state passed the Ellis Act that allows landlords to get out of the rental market and convert units to condominiums.

“Since 2001, 19,000 rental units (in Los Angeles) were lost due to the Ellis Act,” Gross said. “The city has only built around 10,000 in that same period of time. That’s a net loss of 9,000. Clearly, there’s no way we’ll ever be able to build our way out of our housing affordability crisis.”

There is also starting to be a backlash against affordable housing ordinances in expensive markets such as New York City and San Francisco because “affordable” is still too expensive for lower- to middle-income residents.

“What is rarely said is that the majority of voters are homeowners who are perfectly fine with (high housing prices) because it boosts their net worth and they already have their home,” said John Burns, a real estate consultant in Irvine, California. “Conceptually, many want to see affordable housing, just nowhere near where they currently live.”