Affordable Housing for Changing Communities
Local officials increasingly recognize that the availability and cost of housing has a major impact on their community. A diversified housing inventory supports strong economic development,attracting new businesses, and ensures that existing employers are able to recruit and retain staff. Lack of affordable workforce housing can force employees to commute significant distances, contributing to traffic congestion and air pollution, and to an increased frequency of employee absences.
To meet the challenges of a rapidly changing population, Colorado needs to provide a continuum of housing choices for households with different incomes, and for those needing housing accompanied by supportive services. One of the goals of the Division of Housing is to help Colorado renters become stable homeowners. Still, many Coloradans lack the income or resources to sustain home ownership. A development strategy based on a solid understanding of the housing market and the needs of the community will provide opportunities for young people and single households, as well as ensuring the welfare of the most vulnerable members of the population with safe, decent, and affordable options for the elderly and the disabled.
CREATING AFFORDABLE HOUSING
Developing and operating housing can be challenging. Developers, in the creation of market- rate projects, willingly entertain risks, incentivized by the prospect of achieving a significant return on investment. Projects that provide workforce or affordable housing may be more difficult with limited financial resources to make deals work. It is here that local governments play a critical role in helping their communities achieve a balance of housing types for all residents in the community.
SUPPLY AND DEMAND
According to the National Association of Home Builders (NAHB), the housing industry generally contributes between 15 and 18 percent of the nation’s gross domestic product (GDP). The housing industry is vital to Colorado’s state and local economies, creating jobs and generating taxes and wages.
As the economy continues to grow throughout the Rocky Mountain region, the demand for home sales is rising in metropolitan areas, creating much tighter markets than are being experienced in many rural areas. According to the U.S. Department of Housing & Urban Development (HUD), Colorado is experiencing the fastest job growth in the region, with much of that growth attributable to housing construction.
When planning for future economic development, or when responding to new proposals, it is important for communities to take their local housing market into consideration. A community that has high housing costs but mainly attracts jobs at less than $10 an hour may find that it has a severe lack of affordable housing for new employees. Pre-planning to create affordable housing options for low– and moderate-income households will help keep new workers in safe, quality housing they can afford. This strengthens communities, enabling families to send their children to local schools and support local business while cutting down on traffic and congestion from commuters.
Analysis Of Housing Demand
- Convert hourly wages to annual incomes for each wage earner:
Hourly wage x 2080 (hours per year) = Annual gross income
Example: $10/hr x 2080 = $20,800
- To determine what an affordable housing cost is at these income levels, use the following calculation:
Annual gross income / 12 = monthly
Monthly income x .30 = monthly housing
2080 / 12 = $1,733 monthly income
$1,733 x .30 = $520 monthly housing budget
This wage earner can afford to pay $520 per month for all housing costs, including rent and utilities. This analysis is based on a one-income household, and assumes full time with benefits. It is important to note that many minimum-wage earners are working part time with no benefits.
After determining what new employees can afford for rental housing, communities need to look at the prices and availability of units in the local housing market.
UNDERSTANDING YOUR HOUSING MARKET
Housing Needs Assessments and Market Studies are two distinct tools utilized to quantify the scope and housing needs facing a community. The two terms tend to be confused and incorrectly substituted for each other.
A Housing Needs Assessment provides a general analysis of the overall condition of the various types of housing in a community and the need for specific types of housing (homeownership, rental, special needs housing). The Housing Needs Assessment is important in determining the type and magnitude of housing issues and needs in a community. In addition, it is an important tool in narrowing the focus of possible housing proposals, and it provides an overall guidance document.
A Market Study provides independent confirmation that a specific housing proposal will be successful in the marketplace. Most lenders require an independent Market Study to confirm assumptions about your housing proposal. The following criteria will be analyzed as part of a market study: project location (shopping, employment, neighborhood, school district and proximity to schools); market area identification (socioeconomic characteristics, physical and political boundaries); demographic data (age, household size, number of households); relationship to existing and anticipated comparable developments; and a statistical analysis of the number of households that will be available for the proposed housing project.
MARKET ASSESSMENT FRAMEWORK
STEP 1: Assembling the Team
The first step in the analysis of local housing needs is assembling a team of individuals and organizations to involve in the needs analysis process. The goal of this team is to collect and analyze housing related information and to provide the results of this analysis to the broader community.
STEP 2: Data Collection
Demographic information can be obtained from census data maintained by the federal government, and from the State Demography Office. Additional housing data — on vacancy rates, average rents, and foreclosures — is available from government sources or the private sector. A community might also want to conduct a “windshield survey” to determine the quality of available housing stock.
STEP 3: Compilation and Analysis of the Results
The completed assessment is a preliminary evaluation that should give the community a general idea of the size and type of development needed to meet the housing demand in the target area. The next step in the process is determining how to use the information contained in the assessment. An action plan should be drafted to list the steps necessary to achieve the community’s housing goals. The purpose of an action plan is to clarify what resources are required, and to formulate a timeline for when specific tasks need to be completed.
The Housing Bridge below is a needs assessment tool that may be used to help a community achieve housing balance.
Used with permission of McCormick and Associates, Inc.
TEN TIPS FOR LOCAL GOVERNMENTS
- Understand your housing market.
- Set a community housing plan.
- Develop criteria or definitions of affordable housing.
- Reduce the impact of regulations on affordable housing.
- Contribute land to affordable housing.
- Provide financial assistance.
- Reduce, defer, off-set, or waive development fees for affordable housing.
- Establish a land banking program to ensure the availability of land for future development.
- Allow exemptions for property tax or sales and use taxes.
- Allow “fast tracking” of planning and zoning approval for affordable housing projects.