Why is your Home so Expensive? Local Utah Governments
A Community Action Partnership of Utah Report Why is your Home so Expensive? Lowering the Cost of Housing through Local Utah Governments 2009 Shawn Teigen 230 South 500 West, Suite 260, Salt Lake City, UT 84101 tel: 801-433-3025 fax: 801-596-2011 www.utahcap.org Table of Contents Table of Contents.........................................................................................................................i Executive Summary................................................................................................................... ii Imagine.......................................................................................................................................1 The Problem with Walmart .........................................................................................................1 Overview ....................................................................................................................................1 Policy Implications .....................................................................................................................2 What is Housing Affordability? ..................................................................................................2 How do we Fix the Problem? ......................................................................................................5 What are the Components that Contribute to New Homes Costs? ................................................6 Zoning Basics .............................................................................................................................9 Zoning Ordinances....................................................................................................................10 What and Who are the Stakeholders? ........................................................................................13 What is the Problem with Zoning? ............................................................................................17 Options .....................................................................................................................................20 Can the State do Anything?.......................................................................................................21 What should the State do?.........................................................................................................21 Moderate Income Housing Plans...............................................................................................22 Changes to the Moderate Income Housing Plans – the “Sticks”.................................................23 Quality Growth – the “Carrots”.................................................................................................24 Outcomes..................................................................................................................................25 How do we Effect Change?.......................................................................................................25 Conclusion................................................................................................................................27 References ................................................................................................................................28 Why is your Home so Expensive? Lowering the Cost of Housing… ii Why is your Home so Expensive? Lowering the Cost of Housing through Local Utah Governments Prepared by Shawn Teigen Executive Summary The free-market in Utah is not being allowed to create housing for a wide range of household incomes. Governmental over-regulation is a significant barrier to this development. Zoning is the most expensive part of over-regulation, and local governments must be incentivized to loosen zoning ordinances. The right incentives can help to allow for the development of unsubsidized affordable housing with the added benefit of creating additional subsidized housing. Un-Affordable Housing Housing affordability is measured by comparing cost and income. For renters, the cost is generally thought of as monthly rent plus utilities. For owners, the cost is best calculated using “imputed rent,” which includes items such as property taxes and maintenance minus income tax interest deductions and capital gains savings. The rule of thumb for housing affordability is that households should spend no more than 30 of their income on housing. More than 35 percent of households surpass this expenditure. Further, increasing housing costs are outpacing income gains. This places pressure on households and leaves far too little money for food, healthcare, transportation, education, and other necessities for many of Utah’s families, and most of Utah’s poorest families. The Problem with Zoning Regulation, mainly zoning, is considered to be a large factor in all these problems. The issue is that municipalities are trying to minimize the percentage of expenditure per new household in the community. At the same time, existing resident homeowners, or NIMBYs, are trying to protect the value of their most important asset: their homes. Whether or not the NIMBYs are irrational is beside A Community Action Partnership of Utah Report the point. The issue is that their voting power leads to several zoning problems: • • • • • Unbalanced local government representation Exclusionary zoning Cost/benefit inefficiencies Social inequity across income groups and communities Market failure Incentives to Counterbalance NIMBYs Incentivizing local governments to modify zoning ordinances through state mandates and smartgrowth opt-in programs will go far to counter the voting strength of NIMBYs and allow for the creation of unsubsidized housing. The incentives should include both sticks, to require change to local zoning ordinances, and carrots, to encourage it. Sticks The sticks can include simple word changes to the moderate income housing plan statute. These changes will both expand the requirements under the plans and give more power to plaintiffs under civil challenges of the plans. iii A few specifics are as follows: • • • • Modifications should be made to target various income levels. Wording should be changed to require that communities must create a proper environment and shall analyze the means and techniques for the development of moderate income housing. Communities should be required to specifically examine issues such as permits, impact fees, and various types of zoning restrictions including maximum densities and minimum lot sizes. Wording should allow plaintiffs to recover damages and injunctive or other equitable relief under the statute and should require that the burden of proof be placed on the communities. Further, the addition of stronger language written throughout the statute will help to bolster a plaintiff’s cause of action against the appropriateness of a community’s moderate income housing plans and/or their exclusion of certain low- and moderate-income developments. Carrots The carrots can include an expansion of the an existing program from within the Governor’s Office of Planning and Budget to prioritize infrastructure funding for communities that follow smart-growth principles, including those laid out in the moderate income housing plan legislation. This program is part of the Utah Quality Growth Commission (the “Commission”) which supports land conservation, home ownership, housing availability, efficient infrastructure development and efficient land use. However, the Commission has been given legislative authority only to influence the community with incentives, not mandates. To this end, the Commission has developed the Quality Growth Community certification program (the “Program”) which is awarded to local governments which complete eligibility requirements. The Commission should require high quality standards for moderate income housing plans and adherence to these plans if communities desire to be included in the Program. The Commission can further incentivize communities to enroll in the program by providing greater benefits. The Program’s benefits currently consist of some funding prioritization. The Commission can expand its partnerships throughout the state’s governmental agencies and beyond thereby increasing the breadth and depth of prioritization for infrastructure funding grants, including: • • • Utah Permanent Community Impact Fund Board Community Development Block Grant Utah Department of Transportation The Legislature could bolster the language from House Bill 199 to require such interagency participation with the Commission. Currently, the state is effectively subsidizing bad practices by providing grants and loans to fast growing areas across the state with little requirement in return. The state could easily reverse these policies and require smart-growth practices. Conclusion The housing and zoning problems presented in the accompanying report are most often found in fast growing communities that are transitioning from rural to suburban. However, the solutions can have positive effects on all communities. Incentivizing local governments to modify zoning ordinances through state mandates and smartgrowth programs will go far to allow for the creation of unsubsidized housing. Such incentives will aid in the development of an adequate amount of subsidized housing as well. Why is your Home so Expensive? Lowering the Cost of Housing… iv Why is your Home so Expensive? Lowering the Cost of Housing through Local Utah Governments Imagine You purchased your home 10 years ago. You get along with your neighbors. They take care of their yards. You wave as you drive past. You have enjoyed a fairly strong rate of appreciation on your house. Though you have been saving for retirement, most of your assets are tied up on the equity of your home. This week you discovered that a Walmart is being built in the open field not more than 200 yards from your home. The Problem with Walmart This paper is about the way local governmental policy affects housing costs. It is about housing affordability. So what does that have to do with Walmart? Zoning. Once a proposal is put forward to build a Walmart near your house, you might be excited about it. Think about the convenience of stopping by on a Saturday morning for a jug of milk or a carton of eggs. But you worry that the Walmart will bring with it a heavy flow of traffic and turn your quiet street into a wave of engine noise and horns, potentially slowing the appreciation of your home. So, for the first time in your life, you fully engage with your government. Sure you have always voted. Now, you will call your city councilperson. You will attend meetings at city hall. You will tell everyone who will listen: “I do not want a Walmart in my back yard.” You will work tirelessly to stop the Caterpillars from preparing the land. Overview This paper addresses the issues of zoning through the lens of housing development that is affordable to a wide range of incomes. However, before even touching on the concept of zoning, this paper (i) examines the term “affordable housing,” (ii) reveals the state of affordable housing in Utah, and (iii) looks at the barriers to developing affordable housing for renters and owners. This paper provides several suggestions about how to make zoning encourage unsubsidized affordable housing. Finally, this paper shows that these suggestions will help encourage the development of subsidized, lower-income housing as well. A Community Action Partnership of Utah Report 1 Policy Implications What are the policy implications of looking at zoning’s relationship to housing affordability? The current economic crisis, caused in part by a wildly inflated and unstable housing market, will have some positive effects on the affordability of housing.1 Construction prices may drop significantly with the end of the construction boom. Additionally, communities will need to put forth an effort to attract the development of more affordable housing if they want to develop any housing at all. However, these factors alone may not be enough to create enough housing that is affordable to a wide range of incomes. This type of housing is vital for stable, healthy communities. What is Housing Affordability? Often when people think about housing affordability the first things that come to mind are cost and income. More specifically, we need to compare the price of a house or the total rent paid in relation to household income. For homeowners, “the price of a house is not the Box 1 same as the annual cost of owning” Imputed Rent (Himmelberg 2005, 68). Additional factors need be taken into account. We should The formula for the annual cost of homeownership, instead look at the actual cost of ownership, also known in the housing literature as the or the “imputed rent” (see Box 1), which “imputed rent,” is the sum of six components gives a more accurate measure of housing representing both costs and offsetting benefits: appreciation. • cost of foregone interest • one-year cost of property taxes Rental affordability is somewhat easier • tax deductibility of mortgage interest and compute given that there are no tax property taxes implications or maintenance costs to • maintenance costs consider. However, even this measure • expected capital gain (or loss) requires a bit more than comparing actual • additional risk premium monthly rent against monthly income due to (From Himmelberg 2005, 74&75) utility costs. The Department of Housing and Urban Development (“HUD”) incorporates utilities into their measure of housing affordability. The rule of thumb for housing affordability is that the imputed rent (for owners) or actual rent plus utilities (for renters) should be no more than 30 percent of household income. This is the measure that many organizations, including HUD, use to determine housing affordability. Of course, the 30 percent “rule” is just a generally accepted standard, a rule not followed by one third of the population (see Graph 3 on page 4). 1 However, these positive effects will continue to negatively affect homeowner confidence as homeowner equity diminishes. Why is your Home so Expensive? Lowering the Cost of Housing… 2 One additional factor should be taken into account for both owners and renters: transportation costs. While numerous organizations have been looking closely at the housing/transportation relationship,2 HUD and the Department of Transportation have only recently formed a task force to analyze this relationship and redefine affordability accordingly. They now recognize that “although transportation costs now approach or exceed housing costs for many working The rule of thumb for housing families, Federal definitions of housing affordability of owning or renting affordability don’t recognize the strain of households is that the imputed rent soaring transportation costs on homeowners (for owners) or actual rent plus and renters who live in areas isolated from utilities (for renters) should be no work opportunities and transportation more than 30 percent of their income. choices” (HUD March 19, 2009). Housing costs for owners and renters are complicated and multifaceted. But is housing unaffordable? Is it becoming more unaffordable over time? The Problem There are two ways to investigate the potential problems with housing affordability; we can look at them as a snapshot or over some length of time. For a snapshot we can study the state’s various multiple listing services which provide prices of homes for sale. Additionally, there are numerous resources to find listings of rental properties. For a view of the sale of homes over time one can peruse the Utah Association of REALTORS’ Market Reports (compiled from multiple listing services). However, these types of resources only provide information on the market as a whole. The Office of Federal Housing Enterprise Oversight (“OFHEO”) provides the appreciation of specific houses over time. OFHEO calculates a housing price indicator (“HPI”) from the changes in the sales price and refinancings of a set of single-family homes. The HPI shows us that since 1980, housing prices in Utah have increased 287.75% (see Graph 1). Last year that increase was 1.87% (see Graph 2) (OFHEO).3 Graph 1 Housing Price Change Since 1980 Graph 2 700 10 600 5 500 400 Percent Percent One Year Housing Price Change 300 200 100 0 -5 CA (rank:51) UT (rank:16) OK (rank:1) -10 -15 0 OK (rank:51) UT (rank:21) MA (rank:1) -20 2 For example, the Center for Neighborhood Technology has developed the “Housing + Transportation Affordability Index” 3 For the period through the second quarter of 2008. A Community Action Partnership of Utah Report 3 When one compares Utah’s home prices in the HPI with household income since 1980, one can see that home prices have outpaced income considerably, at 288 percent versus 212 percent (Utah’s median income was 17,6714 in 1980 compared to 55,1095 in 2007). “It does not necessarily follow from rising prices of houses that ownership is becoming more expensive,” (Himmelberg 2005, 68); though utilizing the HPI and income increases is a common comparison, it may not provide us with the whole story. For this we must also consider imputed rent. When looking at imputed rent, the increases in the annual costs of homeownership have also continued upward, though a bit slower than the HPI (Quigley 2004, 195-197). While this news may be fine for existing homeowners, it is troublesome for renters who are interested in owning. This population is faced with saving larger portions of their incomes for down payments and spending greater portions on their monthly incomes on their mortgages. Further, the increase in home prices affects the renting community. The higher the imputed rents (or costs of ownership), the higher the actual rents that households must pay. And, accordingly, the greater number of people with a housing burden. What is this “burden” of housing costs? A burdened household is one that is paying over 30 percent of their income on housing. A severely burdened one is paying over 50 percent of their income. One in ten homeowners and one in five renters fall into this latter category spending more than half of their incomes on housing (see Graph 3). Percentage of Homeowners and Renters with No Burden, Burdened, and Severely Burdened from Housing Expenses Why are so many in 2007 households burdened? Quite frankly, some of it 70% may have to do with 60% personal choice. Or poor 50% choices. A portion of the 0 to 29.9 % problem may stem from 40% 30 to 50 % unforeseen circumstances 30% 50 % or more such as a lowering of 20% income. Another cause is 10% the shortage of affordable housing for the poorest 0% Graph 3 households, forcing this Homeowners (with a mortgage) Renters population into housing Source: American Community Survey, 2007 that is too expensive. This compromised population includes people on fixed incomes (like Social Security), those who cannot work, or those making the minimum wage. Utah has shortage of affordable and available rental units for extremely lowincome households (see definition in Box 2) of 30,988.6 This shortage is deepening year by year; 4 U.S. Census http://www.census.gov/hhes/www/income/histinc/state/state1.html (retrieved on April 1, 2009) U.S. Census.http://factfinder.census.gov/servlet/GRTTable?_bm=y&-_box_head_nbr=R1901&ds_name=ACS_2007_1YR_G00_&-_lang=en&-format=US-30&-CONTEXT=grt (retrieved on April 1, 2009) 6 National Low Income Housing Coalition’s Congressional District Profiles, www.nlihc.org/doc/cdpUT.pdf. 5 Why is your Home so Expensive? Lowering the Cost of Housing… 4 the number of unsubsidized development, subsidized development, and ageing units (which become affordable over time) are not keeping up with increasing demand.7 Accordingly, the lack of affordable housing in Utah increases overall vulnerability, leaving far too little money for food, healthcare, transportation, education, and other necessities for many of Utah’s families, including most of Utah’s poorest families. Box 2 Household Income Definitions How do we Fix the Problem? The level of housing cost burden can be understood using terms borrowed from economics, “demand-side” or “supply-side.” Demand-side economics requires a focus on the people who are demanding housing, by increasing household incomes or providing subsidy programs. While some of these techniques are currently being employed (i.e. minimum wage and Section 8-type housing choice vouchers), they are outside the focus of this research. Instead, the remainder of this report will deal with supply-side economics approaches. Area Median Income (or “AMI”): This is the household earning the median income by geographical area (the median is not the same as average, but is the middle household in the group). In 2009 the HUD AMI estimates for families were as follows: Utah - $64,548; San Juan County (lowest) - $39,800; Summit County (highest) - $93,400; Salt Lake County - $67,800. (HUD, 2009) “Workforce”: generally, a household making between 120% and 80% of AMI. Low-Income: a household making less than 80% of AMI. Very Low Income: between 50% and 30% AMI. Extremely Low Income: below 30% AMI. Supply-side economics suggests instead that whatever changes we make must affect the supply, in this case home prices. There are many ways to do this. Governments may develop the housing themselves. An example of this is the development of public housing by housing authorities using HUD funding. Another way to develop housing is through the market with subsidies. The most substantial of these is the Housing Credit, or Low-Income Housing Tax Credit, which is administered through the Internal Revenue Service and locally through the Utah Housing Corporation. There are also several HUD and U.S. Department of Agriculture programs that provide funding for the development of housing. Lastly, Utah’s Olene Walker Housing Loan Fund is available to fill in funding gaps which helps make many subsidized projects able to target very and extremely lowincomes. Subsidies have never been substantial enough to maintain adequate levels of affordable housing. Is there a way to accommodate the development of additional affordable housing in light of this subsidy shortfall? Yes. But to understand it we will need to explore which factors contribute to 7 Olene Walker Housing Loan Fund Annual Report to the Utah State Legislature, 2008 A Community Action Partnership of Utah Report 5 the price of housing and which of these factors can be adjusted to downwardly affect home prices. What are the Components that Contribute to the Cost of New Homes? What does it take to build a house? Just a plot of land and a contractor? Not quite. It takes a mortgage at a set interest rate. It requires that you and the contractor conform to local regulations. It demands that you pay impact fees to local municipalities and that the contractor pull permits to get the job started. This paper explores each of these factors in turn. Figure 1 Construction Costs Land Housing Costs Mortgage Interest Regulation Mortgage Interest Mortgage interest makes up a substantial portion of overall housing costs. Most of us certainly need a mortgage when building a home. Most developers need a loan when building a four-plex or an 80-unit apartment complex. Lowering interest rates is a common tool to get people into their first homes (i.e. Habitat for Humanity). Also, providing low rate loans to developers in return for low-income targeted units is a very common practice (i.e. Olene Walker Housing Loan Fund). However, these options are beyond the scope of this paper. Instead, the focus will be on allowing for efficiencies in the marketplace without subsidy. Why is your Home so Expensive? Lowering the Cost of Housing… 6 Land Land is an important part of the cost of housing. Is the cost of land increasing? Certainly. And land is a major player in home costs. But how can the cost of land be lowered in such a way as to lower overall housing costs? Land banking is one way to low costs. Another way to lower costs is by decreasing the size of the plots of land upon which homes are built. This latter approach is addressed in more detail later in the paper. Construction Costs Construction costs consist of the price of materials and building costs. Are overall construction costs to blame for the affordability of housing? What about housing quality and features? Quigley and Raphael (2004) analyze HUD and U.S. Census Bureau data look at the overall effect of quality and housing features on new housing cost. They find that there is in fact a relationship and argue that “quality increases are an important factor in explaining higher prices of housing stock” (Quigley 2004, 203). So what do we do, lesson the quality of new homes? This does not seem to be an option, as most of these quality improvements have to do with a level of resident safety that has become a new benchmark in housing construction. Quigley and Raphael (2004) also compare the R.S. Means and Saylor, Inc. construction cost data with the nominal price of new housing from HUD. They show that construction costs have increased more quickly than have nominal prices since mid-1980s. However, “a large part probably represent increased land costs arising from regulatory restrictions on new construction” which is “especially large for the low-quality housing market” (Quigley 2004, 207). Regulation “High home prices appear to have more to do with regulation than with the operations of a free market for land” (Glaeser 2003, 31). And what is this regulation? Mainly permit procurement, impact fees, and zoning. Permits: The first factor in looking at the cost of regulation is building permits. This cost is mainly related to opportunity costs. Opportunity costs (to borrow another economics term) are related to the foregone benefit that would have been gained by developing in a High home prices appear to have more community without high permit procurement to do with regulation than with the time delays. operations of a free market for land. Housing developers would certainly welcome an expedited permit process. Some communities allow for a speedy process for types of development which they feel are necessary but which need additional incentive to build. It would be useful to look into the cost associated with the time it takes to receive permits. However, these opportunity costs are beyond the scope of this paper. Hook-Up Fees: Hook-up fees are imposed by local governments for the connection of water and sewer lines and occasionally for other services. These tend to be a small portion of the total, local regulatory fees. A Community Action Partnership of Utah Report 7 Impact Fees: Another factor in the cost of regulation is impact fees. When a builder is developing a project, the local government imposes fees to cover the “impact” of such project. They are “charges imposed by local governments as a condition of approval” used to cover costs such as “water treatment, wastewater, flood control, roads, parks trails, open space preservation, police and fire equipment” (Wood 2003, 14). Who ultimately pays these fees? Not existing residents. But beyond that there is no one single answer. Does the developer pay the impact fee in the form of a smaller profit? Does the landowner who sells land at a discount rate to the developer pay? Does the new home buyer pay the fee? Or does some combination of the three feel the burden (Cullingworth 1993, 79-80)? One question might be whether the burden of these fees lay too heavily on the new homeowners and not heavy enough on the established residents of the community. If the local municipality needs revenue to provide the necessary addition of police power to cover the new homes, then these costs are justified. However, if the costs are just a source of income to be used for unrelated community services or inefficient government, then these costs are questionable. Often these fees are considered one of the main barriers to the development of affordable housing. In actuality, they may not be as significant as sometimes thought. Other factors, like lower interest rates or higher densities, may be a greater barrier to development. Often these fees are considered one of the main barriers to the development of affordable housing. In actuality, they may not be as significant as sometimes thought. Related to these impact fees are linkage fees that include charges to large developments (generally in urban areas) which have some corresponding negative impacts on low-income residents.8 A state-wide example of linkage fees is the requirement for an “income targeted housing” set-aside in Utah’s “community development and renewal” projects (more commonly referred to redevelopment or RDA projects)9. Advocates for linkage fees find that since the low- and moderate-income housing cannot compete with new development pressures, they need some help in making sure that such housing continues to exist (Cullingworth 1993, 81-82). Zoning: Another factor in looking at the cost of regulation is zoning. In order to look at zoning in depth we must first look at the basics of zoning and then determine zoning’s relationship to cost. 8 These negative impacts include gentrification and low-income resident displacement. As a side note, some of this linkage fee type funding was lost due to the passage of SB205 in Utah’s 2009 General Session. 9 Why is your Home so Expensive? Lowering the Cost of Housing… 8 Zoning Basics Overview All communities plan. They plan for future development within their boundaries. They plan to make sure that they grow in ways which fit in line with their vision of what the community should become. How does planning related in with zoning? Some people see “planning as the primary function” while others see planning “as simply a means of assisting zoning” (McCarthy 2003, 208-9). In Utah, the long-range general plan of a community is implemented through zoning. Zoning takes the general plan and breaks pieces of property down into specific uses. It then places certain standards on the use of this property. Zoning categorizes land into residential, commercial, mixed-use, or industrial areas. Basically, zoning can keep a 7-11 from popping up next to a single-family home. It can keep a factory from being built next to a seven-story apartment complex. Zoning also provides for sub-categories of uses. A community might have residential zones for manufactured homes. A community may zone for single-family homes on one-tenth acre, one-quarter acre, or multi-acre lots. Or they may zone for multi-family apartments or condos of three or seven stories in height. Zoning is meant to decrease the possibility of negative externalities of additional development. An externality is another economics term that refers to costs which are generated by one entity but which are paid for by the larger society. While zoning tries to control these, zoning itself can contain its own negative externalities. For example, as zoning can protect one homeowner’s greatest asset, it can exclude someone else from living in the area. Almost all communities zone. Houston, being one of few cities and the largest city in the U.S. that does not zone, is often cited anecdotally as why zoning is needed. Stories of uncontrolled development abound. However, while Houston does not zone in the traditional, 20th century, governmental way, the market has crept in to fill this void with the advent of planned unit developments or PUDs. This way, a community can “zone out” or disallow commercial and industrial uses or unwanted residential ones. The usage of PUDs is becoming more prevalent across the country and is fast becoming a 21st century standard. State and Federal Governance The power to zone is granted to Utah’s local governments as follows: The municipal legislative body may pass all ordinances and rules, and make all regulations, not repugnant to law, necessary for carrying into effect or discharging all powers and duties conferred by this chapter, and as are necessary and proper to provide for the safety and preserve the health, and promote the prosperity, improve the morals, peace and good order, comfort, and convenience of the city and its inhabitants, and for the protection of property in the city.10 Zoning is perceived by the municipalities themselves as one of their most important powers. It is often thought of as an exclusively local issue: “the role of local government in the planning, 10 Title 10-8-84 A Community Action Partnership of Utah Report 9 development and use of land is one of the most fundamental and highly valued exercises of local authority” (Stevenson 2003, 67). At the federal level, there are at least two Constitutional requirements that zoning must follow for the protection of individuals: equal protection and due process. Equal protection “prohibits discriminatory zoning and requires that local governments treat similar activities the same” (Stevenson 2003, 72). Due process requires that limitations on the use of private property “be clearly expressed and not left to inference” (Stevenson 2003, 72). In Utah, due process is codified in zoning law as follows: (1) Each appeal authority shall conduct each appeal and variance request as provided in local ordinance. (2) Each appeal authority shall respect the due process rights of each of the participants.11 The test of due process is reasonableness. Included in this test might be public benefits versus landowner costs, adjacent uses, effect on property values (“although substantial diminution of the protester’s property value is rarely determinative standing alone”) and aesthetics (McCarthy 2003, 225). The “diminution of the protester’s property value” is one of the key points that this paper will focus on with respect to zoning. But how does zoning affect property values, and, accordingly, property taxes? To determine that, we must first understand how zoning affects new home prices. Zoning and Housing Costs Zoning can increase housing prices by indirectly reducing supply and by directly raising prices. “Land-use regulations that reduce housing supply and increase housing prices include a wide variety of ordinances” (Quigley 2004, 206). This restriction of housing supply has the indirect effect of raising costs (Fischel 1985, 125-147). The conclusion of almost all housing price studies is that the new restriction policies do indeed have significant effects on housing prices” (Fischel 1985, 239). While some restrictive ordinances only restrict the supply of housing in general, they can restrict the supply of a certain type of housing, namely that which is affordable to lower-income residents. This is done by raising prices of all housing. We must look at the particulars of these restrictive zoning ordinances and ordinances in general. Zoning Ordinances Communities have many options that can be used in their zoning toolboxes. A few common zoning ordinances follow: • • • 11 Building location on the land Height restrictions Façade requirements Title 10-9a-706 Why is your Home so Expensive? Lowering the Cost of Housing… 10 • • • Multi-family vs. single-family dwellings Minimum house size Density requirements (such as minimum lot size) All of the above zoning particulars are fairly self-explanatory, but are laid out below with a bit of detail with respect to housing. Building Location of the Land. Building location requirements are quite common. Simply, these are ordinances as to where and how a building is going to be situated on a piece of property. For example, a house may be required to be set back 30 or more feet from the street and to provide a buffer of 15 feet from the property lines that abut the neighbor’s land. Height Restriction. Some of us are lucky enough to have the sun shine in our bedroom windows in the morning to wake us. For many Utahns, mountain views are an important feature of their homes. Height restriction ordinances can help maintain these types of amenities. In fact, the first city-wide zoning law in the United States was effectively (though not technically) a height restriction ordinance.12 Façade requirements. Shall a home be constructed of 50 percent brick? 100 percent stucco? Some exterior requirements are used to enhance the atmosphere and ensure homogeneity of neighborhoods. Regardless of differences in personal opinions as to what is nice and what is not, what constitutes beauty and what does not, “courts have determined that aesthetics is a substantial governmental goal and local governments may seek to achieve that goal”13 (Stevenson 2003, 73). Multi-family vs. single-family dwellings. Some urban areas have apartments that “infill” large plots of land adjacent to older houses. Other neighborhoods do a good job at integrating townhomes and condos with single-family residences. The first of these examples may have to do with changes to zoning regulation with the passage of time. The second may have to do with planning for a wider range of household incomes. Some of the most progressive land use planners are integrating multi-family and single family dwellings. One of the ways this is being accomplished is through “big-house” development which developers design four-unit condos or apartments that look much like the surrounding neighborhood single-family development. One way that communities “zone out” lower- and moderate- income populations is to allow for the development of few or no multi-family units. Minimum square footage. Many local governments require a minimum square footage in their zoning plans. This may be intended as a way to homogenize upscale neighborhoods. Or, it may simply be an effective way of increasing housing costs without mandating a minimum home price. 12 1916 Zoning Resolution of New York City. Oregon City v Harteke, 400 P.2d 255 (Or. 1965); Cromwell v. Ferrier, 225 N.E.2d 749 (N.Y. 1967); Racine County v. Plourde, 157 N.W.2d 591 (Wis. 1968). 13 A Community Action Partnership of Utah Report 11 Density requirements. Housing density is written into all zoning plans. Quite often this is done by mandating a minimum lot size. For example, a plan might stipulate that houses might be a minimum of one-fifth of an acre, or, in as is the case in some more rural/suburban areas, the lot might be a minimum of one-acre. Graph 4 provides lot size information in Utah from 67 municipalities and 10 counties (Envision 2003, 12). What can be added to these plans? Density bonuses have been widely shown to produce a greater return on investment for developers. Why? The bonus homes are on less expensive pieces of land (because the plots are smaller) and the construction costs can be lower (because the homes are typically smaller). As such they can make a larger profit and possibly sell the homes more quickly (Cullingworth 1993, 64). Percent of Total Jurisdictions Several localities in Utah are Smallest Minimum Lot Size for Single Family Detached in Jurisdiction jumping on the national trend of 60% inclusionary 50% zoning, including Park City and 40% Wasatch and 30% Summit Counties. 20% Inclusionary 10% zoning requires the 0% development of Over 10 10 to 5 Under 5 some low- or Number of Units per Acre moderate-income Graph 4 homes in all new developments. Utah has “no express or implied authorization or prohibition” regarding local inclusionary zoning (Hollister 2007, 2). Common denominator: What do the above zoning requirements have in common? All of them can increase the cost of new housing. Accordingly, they all can increase the per household property tax revenue. While local governments cannot mandate a minimum cost on a new house, they can assure that a new house will be expensive due to regulation. In the end they are able to rationalize this based upon state code, justified in that they may “provide for the safety and preserve the health, and promote the prosperity, improve the morals, peace and good order, comfort, and convenience of the city and its inhabitants, and for the protection of property in the city.”14 Local governments may determine that they can accomplish these goals by catering to more wealthy residents. What is the true motivation for implementing certain restrictions on the building of new housing? Is it solely out of goodwill that regulators want to “preserve the health” and improve “the morals” of the people? To fully understand this question we need to see who the stakeholders are with respect to zoning. 14 Utah Code. Title 10-8-84, Ordinances, rules, and regulations – Passage – Penalties, Section 1. Why is your Home so Expensive? Lowering the Cost of Housing… 12 What and Who are the Stakeholders? What is a stakeholder? Certain individuals and groups influence the housing supply to their benefit. Other individuals and groups are affected to their detriment. Both of these groups have a stake in the process. They can all be considered stakeholders. Why are stakeholders important when considering zoning? Because it is important to know who is in control or impacted to understand the reason behind certain zoning particulars. One thing to keep in mind when examining this issue is to follow the money trail. Zoning is “a collective property right that is used by the municipality to maximize the net worth of those in control of the political apparatus” (Fischel 1999, 404). Figure 2 Developers Existing Resident Homeowners “Workforce” Renters Lowincome persons Who Affects Zoning Ordinances? Governors Office of Planning and Budget Planners Housing Advocates Legislature Local Elected Officials A Community Action Partnership of Utah Report Interest Groups (i.e. League of Cities and Towns / Land Use Institute) Division of Housing & Community Development 13 Developers Developers do more than just build according to the specifications of planners. “Developers are the ones who implement the zoning plans” (Bennett). And as such they can greatly influence zoning. Large developers affect zoning by requiring certain ordinance changes in order to proceed with massive, revenue generating developments. Smaller developers can also submit requests to build “planned unit developments” which may ultimately skirt around many zoning ordinances. In the current economy, developers of all sizes may indirectly affect zoning in that cities will look for ordinance changes that have a greater opportunity to attract development (Bennett). Planners Local governments rely heavily upon planners to provide guidance on best practices, planning laws, and the long-range, detailed vision of well planned communities. However, zoning is not often considered the “the product of far-sighted planners whose objective is to correct the misdeeds of the private market;” this is “an idea even planners have given up” (Fischel 1999, 404). In essence, no matter how visionary the planner is, their hands will still be tied by other forces at work inside the government. Low-Income Housing Advocates Housing advocates work to affect both supply-side and demand-side economics. Glaeser and Gyourko have found that “if policy advocates are interested in reducing housing costs, they would do well to start with zoning reform,” which lay in the realm of the supply-side (2003, 35). They describe restrictive zoning ordinances as tax, and feel that advocates should work on removing this tax in order to have a wider effect on affordable housing. They argue that “reducing the implied zoning tax on new construction could well have a massive impact on housing prices,” much greater than subsidizing rent or working to increase government subsidies for building (2003, 35). If policy advocates are interested in reducing housing While they may be correct in terms of creating costs, they would do well to workforce housing and housing for incomes at the start with zoning reform. top of the low-income spectrum, it might be harder to realize the gains that they discuss for the very or extremely low-income. As such, the approaches that advocates employ necessarily should focus on many income groups and types of policies (Milligan). State Government Why is the Legislature a stakeholder on this issue? Because they grant local municipalities the power to zone. Do the Legislature and local governments see eye to eye on the issue of zoning, since, after all, the same people elect both groups? Not necessarily. Zoning is essentially a local issue. Not all communities are interested in “zoning out” or disallowing low- and moderateincome residents. Why is your Home so Expensive? Lowering the Cost of Housing… 14 Both the Governor’s Office of Planning and Budget (“GOPB”) and the Division of Housing and Community Development (“DHCD”) have a stake in the issue of zoning. GOPB is a force behind long-term planning in the state. The DHCD is particularly interested in the development of housing for low- and moderate income residents. Local Elected Officials and Municipalities The executive and legislative branches of local government have a direct impact on zoning, as they are the ones that pass the laws related to these ordinances. These officials, of course, have interests in the health of the municipality. One of the approaches to maintaining such health is “fiscal zoning.” So-called “fiscal zoning” is aimed at reducing the cost to local municipalities. The idea is to allow new development only if it pays for itself. At first glance this would make perfect sense. The problem with this approach is that local officials will have a natural inclination to “zone out” or disallow lower- and moderate-income households which may not be able to pay for themselves. The main cost that is considered within “fiscal zoning” is the cost to “police” people. When used in this paper the term means more than sending out a police officer to the door. It is used in more of a legal or statutory sense where police power is “the exercise of government power to limit, regulate or prohibit personal and business activity and property uses without government compensation in order to protect the public health, safety, morality and general welfare” (McCarthy 2003, 167). There is a limit to how little a community will be able to spend on policing. However, if the community wants to spend a smaller percentage of its revenue per person, it may do so by increasing its per capita revenue amount from property taxes. Some level of “fiscal zoning” might be employed in all communities. But, more importantly, “politicians act as if they want to get elected and reelected” and as such “pass zoning laws and administer them in such a way as to improve their chances of reelection” (Fischel 1985, 208). This means that they will try to work on the issues of that part of their constituency that is most likely to vote (and most likely to vote for them). Part of the problem is that politicians may not know what all the voters want. Therefore, other stakeholders with special interests may step in to influence them, and such groups often succeed. “Local government… speaks for the people who get there first” (Cullingworth 1993, 80). Often, the people who get there first are the existing resident homeowners. Existing Resident Homeowners or NIMBYs Existing resident homeowners have an enormous amount of power in the community. Where does this power come from? They vote. In fact they vote 50 percent more in municipal elections than do renters. One of the reasons that renters do not vote as often as owners is that they may not be as financially involved in the community. Basically, they do not vote because they do not own their home (Fischel 2001). The manifestation of such voting power over local governments has given existing resident homeowners the moniker NIMBY, an acronym for “not in my back yard.” What are the motivations behind NIMBYism? They may argue that: A Community Action Partnership of Utah Report 15 • The development of affordable housing is going to increase student enrollment in public schools without increasing revenue from property taxes, and as such, school quality will decrease. • The development of affordable housing is going to negatively affect the value of the homes in the surrounding area. It is fear that motivates NIMBYs. The first of these fears is the potential costs of low-income housing on schools. The argument that low-income housing does not pay for its own schooling (with property taxes) is a big concern and a very common one. However, scholars are determining that this is becoming somewhat of an outdate concept (Fischel 1985, 319). At one point zoning was applied in such a way to help make sure that new developments were able to pay for themselves with the property taxes they generated. Local government school finance changes as a result of court cases15 have minimized this concept. The result is that many communities “now have substantially less incentive to zone out the poor for fiscal reasons” (Fischel 1985, 319). The further reduction of property taxes reliance for other services will continue to removes these reasons (Fischel 1985, 319, 326, 327). However, while this may be the case, one only needs to compare the quality of schools in high-income and low-income neighborhoods to refute this point. The possible reasons for this difference are varied and complex, and beyond the scope of this paper. The second fear has to do with home value. Peeking in the door at your local city hall, you may be surprised to see how fervently some local residents are decrying the development of a subsidized 12-unit complex two blocks away. You might see them fighting wildly against a zoning change. They might be using every anecdote, no matter how far fetched, to fight against a development that will house homeless seniors or shelter abused women and children. But are they crazy? Or are they just being prudent? NIMBYs may appear to be irrational. But really they may just be trying to protect their most valuable asset from the most unlikely, unforeseen results. Basically, a loss in value. Zoning is often seen as a type of home-equity insurance. If homeowners had equity insurance, they would not need to fear the decrease of their home value. But no wide-spread insurance of this type currently exists to assuage owners’ fears (Fischel 2001). Mixed-income, multi-family developments need not be Do NIMBYs need to fear heterogeneous development? feared in terms of property A study from the MIT Center for Real Estate shows that, generally, “the worst-case scenarios of multivalue losses. family intrusion into a single-family neighborhood” had no effect on housing value (MIT 2005, xiii). The study shows that “mixed-income, multi-family developments need not be feared in terms of property value losses” (MIT 2005, xiii). Nonetheless, there exists some possibility of property value losses. It is that small possibility that generally motivates NIMBYs. Further, to use another economics concept, most people are risk averse. They would rather enjoy the incremental appreciation of their home value than allow for development of a project that could actually speed the appreciation of their home, but could carry the possibility of the loss of 15 Serrano v. Priest, 487 P.2d 1241 (Cal. 1971), Robinson v. Cahill, 303 A.2d 273 (N.J. 1973) Why is your Home so Expensive? Lowering the Cost of Housing… 16 that appreciation. Even if a mixture of housing types, with accompanying variety of ages, ethnicities, races, and incomes, could make a community more vibrant and a more attractive place to live, the possibility of any negative affect on home value would frighten homeowners to maintain the status quo. How do NIMBYs protect against these supposed effects? By making the surrounding housing more expensive. But, again, they cannot approach their local elected officials and ask them to raise home prices by some sort of mandate. Local officials must do it through zoning. They can do it by requiring that large, brick, single-family houses be built with three garages on large pieces of land. Accordingly, NIMBYs are often considered the root cause of low densities and high home prices. But what about the people who own the “undeveloped” land? They have a property right as well, do they not? However, as there are not as many of them and as they might not even be local voters, elected officials may not listen. And existing homeowners feel a sense of entitlement because their house is already built. They live in the community. They feel that the owners of undeveloped land do not have a connection to the community but are only out for profit, as opposed to the homeowner that has a heart in the community. This entitlement gives them the moral high ground in any fight over any proposed development and zoning changes (Fischel 1999, 418). How do you convince landowners that new types of development are acceptable? One is to show the benefit of the new development (or zoning regulation) and at the same time show the harm to the community of not moving ahead with the development (regulation). If that is not possible, the other option is to counter landowners’ weight in the eyes of local elected officials with other incentives. To build an argument for countering NIMBYism, we must first look at the problems that zoning can foster. What is the Problem with Zoning? So, if “fiscal zoning” and NIMBYism are the cause of many types of zoning practices, what are the negative effects? These include the fact that zoning may unintentionally only represent a subsection of the local residents. Zoning may intentionally be designed to be exclusionary, which carries with it certain social welfare issues. Zoning may have certain cost/benefit problems, basically creating more cost than it purports to save. Zoning may not be fair to cities across their boundaries. And finally, zoning may overly tamper with the “free market” by over-regulating; in doing so zoning can create a market failure. Representation: NIMBYs are obviously different from renters in that they own their homes. But there are other significant differences. “Homeowners do not comprise a representative cross section of America” (Fennell 2001, 626). They tend more often to be white, married, older, and wealthier than their renter counterparts (Fennell 2001, 627). Thus, since homeowners vote at a greater rate, local elected officials are listening more closely to white, married, older, and wealthier citizens. Accordingly, zoning ordinances may be crafted in such a way as to exclude residents based upon demographics. A Community Action Partnership of Utah Report 17 Exclusionary zoning: What do people mean when they refer to “exclusionary zoning”? The term refers to fashioning zoning particulars in such a way as to keep certain populations out. This, again, is the reason behind NIMBYism: Exclusionary zoning is prevalent because it is widely desired by those who have acquired, or are in the process of acquiring, their share of the American Dream. Like all dreams, it is easily shattered: hence the vociferous opposition to any development which carries such a threat. (Cullingworth 1993, 74). The main theories that lie behind the rationale for exclusionary zoning were developed by Charles M. Tiebout and refined by Bruce Hamilton. This relates back to the discussion about property taxes and schools. Basically, if the low-income are not excluded from well-off communities, they will enter into these communities in droves as “free-riders,” reaping the benefits of strong property tax bases but not paying their fair share. So exclusion is seen as necessary, and “such exclusion is accomplished virtually always through zoning” (Fennell 2001, 624). Is this exclusion all about property taxes, schools, and free-ridership? Maybe the wider problem is that “suburban exclusion of the poor is rooted in a larger social problem whose dimensions transcend the realm of land use controls,” such as stereotypes, racism, and the desire for homogeneity of the community (Fischel 1985, 336). But is exclusionary zoning legal? “The Fair Housing Act16 does not permit the exclusion of all low-cost housing within a community” (Stevenson 2003, 140). However, neither the Fair Housing Act, the equal protection clause of the Constitution, nor case law17 have accomplished what they were set out to or were expected to accomplish in terms of low-income or workforce housing development (Cullingworth 1993, 66 & 72). Cost/benefit: What benefits are being produced from zoning and what costs are being incurred? “Studies of land values within a community that show that the beneficiaries of the restrictions (current owners of the developed lots) gain less than is lost by those on whom the costs are imposed (owners of undeveloped land)” (Fischel 1985, 249). Zoning is supposed to provide a benefit to the community. However, the two issues that arise from this cost increase are (i) if the benefits are legitimate and (ii) if the increases are contained within the community or flow over into the surrounding community. The latter gives rise to community equity issues. This is the background for the development of associations of governments which are meant to assert collective power to reign in on the rogue practices of certain communities. If a cost/benefit analysis is applied to zoning, “raising housing prices outside of restricted communities is probably evidence that benefits do not equal costs” (Fischel 1985, 249). These increased costs outside of the communities “spillover” into surrounding communities as externalities. Alternately, the surrounding communities might respond with the implementation of exclusionary zoning practices of their own. 16 17 42 U.S.C. §§ 3533, 3535, 3601-19, 3631 (1995). I.E. the Mount Laurel (1975, 1983, and 1986) cases and the Arlington Heights (1977) case. Why is your Home so Expensive? Lowering the Cost of Housing… 18 Social equity across communities: Cost/benefit analysis brings up the idea of spillover into surrounding communities. The issue also moves beyond this point. The idea of “fair share” housing came into prominence in the 1970s; “in pursuing the valid zoning purposes of a balanced community a municipality must not ignore housing needs, that is its fair share proportion of the obligation to meet the housing needs of its own population and of the region”18 (Cullingworth 1993, 65). The problem with each community acting on its own without regional or state guidance is that, while they may not necessarily ideologically support many of their zoning parameters, “each may also think that if it and only it becomes less restrictive, all of the The problem with each community acting on problems associated with low-income its own without regional or state guidance is housing will fall upon it alone” that, while they may not necessarily (Fischel 1985, 139). As discussed ideologically support many of their zoning above, they then will exclude certain populations in a race to “zone out” the parameters, each may also think that if it residents which do not pay their fair and only it becomes less restrictive, all of the share of “policing” and schooling. problems associated with low-income housing will fall upon it alone. Social equity across income groups: Inevitably, when a conversation is raised about low-income subsidies, someone will argue that people ought to pay for their own housing. One thing that is often overlooked is the amount of government subsidy for all homeowners. Owner-occupied housing is enormously subsidized in the U.S. The combination of mortgage interest deductions and property tax deductions on personal income taxes combined with the capital gains tax shelter provided to homeowners is far greater (four times more) than the cumulative amount of lowcome rental housing. Most of this “upward mobility” subsidy is provided to those that have already made it up the social strata. This subsidy is not enjoyed by the rental population and will almost never benefit low-income populations as the standard income tax deduction will almost always benefit this low-income owners more than itemizing deductions. In the end, the bulk of governmental social welfare is being provided to those who need it least at the expense of those who need it most. Zoning’s affects on housing prices will only perpetuate this problem. Markets: There is also an issue of over-regulation that comes with zoning. This is an extremely common issue found in the literature surrounding zoning practices: Economists typically conclude that housing markets are not subject to serious market failures... But they also frequently argue that housing prices are artificially inflated by inappropriate government interventions such a large-lot zoning. In this case the operational market can be made more efficient by removing the restrictions (Weimer and Vining 2005, 206) Can it be determined that housing prices are artificially inflated? Maybe. More likely, the market is creating more high-income housing and less low- and moderate-income housing than is 18 Oakwood at Madison, Inc. v. Township of Madison, 117 N.J.Super. 11, 283 A.2d 353 (1971) A Community Action Partnership of Utah Report 19 needed. If it can be determined that this is not a housing market failure but a governmental one, then the market can be improved by eliminating the government failure (Weimer and Vining 2006, 205). Clearly, as with many zoning practices, there is a government failure. Options If it can be determined that this is not a housing market failure but a governmental one, then the market can be improved by eliminating the government failure. So what do we do? Many of the problems from these zoning practices stem from a lack of information or from misinformation. Many of the problems can be overcome by communities working together to achieve a common goal. So what do we do? We educate. But who? How? Do we focus on the education the homeowners, showing them the reasons to relax their opposition to a wider range of zoning standards, leading then to a wider range of housing choices? Do we go to the homeowners and try to sway them to rid their communities of exclusionary zoning principals? The difficulty with this approach is the need to educate all voters. They will need to look beyond what they consider to be their own best, and very tangible, interests to the wider interests of society. Do we educate local elected officials on the greater societal benefits of having a wider range of housing choices? Do we persuade them to either implement or rescind land use ordinances and policies to downwardly affect the cost of new housing? Some communities, realizing the perils of not developing affordable housing, are beginning to change from within. This has come with education. It takes a few motivated individuals who are aware of the crisis to begin the process of change. This can be seen in the Park City and Summit and Wasatch Counties with inclusionary zoning and other progressive changes. It can be seen in Moab with the initial drafts of its very ambitious affordable housing plan. The key to effective education is to reveal the crisis, show why this topic matters, and motivate individuals at the same time. The problem with looking to educate one city at a time has to do with the idea of the “prisoner’s dilemma.” If one fast growing community makes the change without the surrounding communities following suit, then that first community will bear the brunt of the supposed higher public costs of denser, less expensive zoning, instead of spreading these costs across society. An alternative is to get cities to work together: “intergovernmental cooperation has been hailed as the wave of the future for solving problems that need comprehensive, area-wide planning” (Berman 2002, 59). One option, then, is to work within Utah’s associations of governments to encourage governments to ease zoning standards across municipal boundaries. However, with this option we still have cities that are run by elected officials who are beholden to the whims of a few constituents. How do we balance out this voter power? Why is your Home so Expensive? Lowering the Cost of Housing… 20 We could educate the state government on the problems within and across communities and ask them to make certain changes. Can the state do anything? What should the state do? Are there carrots and sticks that the state government can employ to entice either the homeowners or the elected officials to effect changes in zoning ordinance for the creation of affordable housing? Figure 3 State Government (carrots and sticks) Existing Homeowners (NIMBYs) Can the State do Anything? There are two basic categories of rule Local Governments granted to local governments. Utah has in (and their power over place a “structural, functional, and limited zoning ordinances) fiscal home rule” (Hollister 2007, 9). States that are considered “home rule” delegate most of their local power to the local governments, which power is “limited to specific fields, and subject to judicial interpretation (Hollister 2007, 4).” “Home rule creates local autonomy and limits the degree of state interference in local affairs (Hollister 2007, 4).” “Utah is a fairly strong home rule state” (Hollister 2007, 42). While the Utah Constitution grants authority to local governments, “this grant of authority shall not… be deemed to limit or restrict the power of the Legislature in matters relating to State affairs, to enact general laws applicable alike to all cities of the State.”19 So, while Utah is a fairly strong “home rule” state, it does seem as though state government can do something. But what? What should the State do? Often, advocacy groups are ridiculed for running to state government to get things done. However, in an effort to reign in over-zoning there seem to be few other options. NIMBYs are entrenched in their attitudes - fear of dipping home values and diluted public schools - that they will not likely budge without being forced to do so. Local elected officials believe that their hands are tied because NIMBYs vote in such high numbers, and these officials are driven to be reelected. There needs to be some counterweight against the NIMBYs to secure good, long-range planning in fast-growing suburban communities. 19 Utah Const. Art. XI, §§ 1, 5 (2006) A Community Action Partnership of Utah Report 21 So what should the state do? Whatever they do, they should not mandate a uniform requirement across all cities in the state. They should not require that all cities develop a certain type of affordable housing. They should not require that each city target the same income targeted housing in the same amounts (Milligan). It is important to take into account unique characteristics of all cities. As this paper has emphasized the potential problems with minimum lot sizes, it may be tempting to look only at minimum lot sizes when trying to correct exclusionary zoning practices. However, this alone would be dangerous as all communities are not the same (Fischel 1999, 406). This danger makes it important to consider solutions that arise organically out of the needs of a community, ones which are augmented with the needs of the wider It may be tempting to look only at minimum lot society. This, then, is where the statesizes when trying to correct exclusionary mandated moderate income housing zoning practices. plans20 might be utilized in measuring what a local municipality’s housing needs are, how they plan, and how they accomplish the development of affordable housing that they “shall consider.”21 Moderate Income Housing Plans The Utah Legislature passed House Bill 295, Providing Affordable Housing, in the 1996 General Session. This legislation requires that “each municipality shall prepare and adopt a comprehensive, long-range general plan for… the protection or promotion of moderate income housing.”22 The idea behind this moderate income housing plan legislation was to encourage communities to look at their housing needs, brainstorm ways to satisfy those needs, and develop a roadmap for overcoming their shortcomings. Unfortunately, many communities have looked at these plans only as a hurdle to jump over or ignore entirely. How are they able to do so? Because the legislation has no teeth. In 2007, the Utah Division of Housing and Community Development set out to collect moderate income housing plans from across the state in an effort to quantify the quality of the plans. After successfully gathering 85 percent of the plans, they found that on a nine-point scale, the county and municipality plans had an average score of 3.6, or “below expectations” with respect to “(1) how current the plan is, (2) populations targeted in the plan, (3) how well the plan projects need, (4)the plans to meet the identified need, and (5) if the affordable housing plan is adopted as part of the overall general plan” (Fulton 2007, 14). If we hope to use the moderate income housing plans to support loosening the restrictions on zoning, there are two approaches that we can take. To begin with, some simple changes need to 20 Utah Code. Title 10-9a-403 2(a)(iii) Utah Code. Title 10-9a-403 2(b)(i) 22 Utah Code. Title 10-9a-401 21 Why is your Home so Expensive? Lowering the Cost of Housing… 22 be made to the moderate income housing plan legislation in an effort to bolster the law. These would be the “sticks” or “teeth” in the law. Also, there are certain “carrots” that might be useful in motivating local governments which can be provided by state government. Changes to the Moderate Income Housing Plans – the “Sticks” There are several simple changes to the moderate income housing plans23 that should be pursued: • Modifications should be made to target varying income levels: 0 - 30 percent (extremely low-income), 30 - 50 percent (very low-income), 50 - 80 percent (low-income), and 80 120 percent (“workforce housing”) AMI. Currently, the law requires that communities explore options for “households with a gross household income equal to or less than 80% of the median gross income.” 24 • Wording should be changed to require that communities must, not should, “facilitate a reasonable opportunity for a variety of housing, including moderate income housing.”25 • Wording should be changed to require that communities shall, not may, “include an analysis of why the recommended means, techniques, or combination of means and techniques provide a realistic opportunity for the development of moderate income housing…”26 • Wording should be included that not only shall the plan “include a description of: (a) efforts made by the city to reduce, mitigate, or eliminate local regulatory barriers to moderate income housing”27 but shall also look specifically at issues such as permits, impact fees, and various types of zoning restrictions including maximum densities and minimum lot sizes. • A specific date should be included as to when biannual reviews are due to the Department of Community and Culture to provide communities with a more strict time constraint in an effort to motivate such communities.28 • Wording should be changed so that “in a civil action seeking enforcement or claiming a violation” of the code, the plaintiff may recover damages and injunctive or other equitable relief. The current language states that the “plaintiff may not recover damages but may be awarded only injunctive or other equitable relief.”29 A very powerful action by the legislature would be to require that when a civil action is seen by a judge that the burden of proof be placed on the communities. Further, the addition of stronger language written throughout the statute will help to bolster a plaintiff’s cause of action against the 23 These ideas came out of conversations with Clayton Fulton (from the Utah Division of Housing and Community Development) and Richard Walker (from Tightline Communications) during 2008 and 2009. 24 Utah Code. Title 10-9a-103 19 25 Utah Code. Title 10-9a-408 2 (b) i 26 Utah Code. Title 10-9a-408 2 (b) ii 27 Utah Code. Title 10-9a-408 2 (a) 28 Utah Code. Title 10-9a-408 1 29 Utah Code. Title 10-9a-408 4 A Community Action Partnership of Utah Report 23 appropriateness of a community’s moderate income housing plans and/or their exclusion of certain low- and moderate-income developments. Quality Growth – the “Carrots” State agencies can utilize certain techniques to incentivize local municipalities in adhering to progressive zoning standards and eliminating exclusionary zoning practices. This could occur as an extension and expansion of a program that is currently in use by the Utah Quality Growth Commission (the “Commission”) as supported by the staff of the Governor’s Office of Planning and Budget. The Commission was created in 1999 when the Utah Legislature passed House Bill 199. This bill, the Quality Growth Act, “supports critical land conservation, home ownership, housing availability, efficient development of infrastructure and efficient use of land” though on “a purely voluntary basis” (UQGC). One of the Commission’s main goals is that “housing choices and housing affordability are quality of life priorities and state and local governments should cooperate with the private sector to encourage both” (UQGC). Falling in line with the suppositions of this paper, the “assumptions [which] underlie the principles of Quality Growth [are] • A solution for one community may not apply to all communities. • Free market forces are important in addressing challenges” (UQGC). The Commission has developed a “Quality Growth Community” certification which is awarded to local governments which complete all of the eligibility requirements of the Commission. The Quality Growth Community encourages communities to be inline with the moderate income housing plan legislation. The benefit of being a Quality Growth Community is the “recognition and access to state benefits” (UQGC). The Commission should require high quality standards for moderate income housing plans and adherence to these plans if communities desire to be included in the Quality Growth Community program. The Commission can further incentivize communities to enroll in the program by providing greater benefits. The Quality Growth Community program’s benefits currently consist of some funding prioritization. The Commission can expand its partnerships throughout the state’s governmental agencies and beyond thereby increasing the breadth and depth of prioritization for infrastructure funding grants. For example, on of these parties could include the Utah Permanent Community Impact Fund Board which provides loans and/or grants to state agencies and sub-divisions of the state which may be socially or economically impacted by mineral resource development on federal lands. Others could in clued the Department of Community and Culture’s Community Development Block Grant funding as well as Utah Department of Transportation funding can Why is your Home so Expensive? Lowering the Cost of Housing… 24 also be prioritized for Quality Growth Communities. The Legislature could bolster the language from House Bill 199 to require such interagency participation with the Commission. Currently, the state is effectively subsidizing bad practices by providing grants and loans to fast growing areas across the state with little requirement in return. The state could easily reverse these policies and require smart-growth practices. Outcomes Effecting change in local zoning ordinances is meant to allow for the creation of more housing that is affordable to the “workforce.” This will help elementary school teachers, firefighters, police officers, healthcare employees and others to live where they work. However, countering NIMBYism to effect this change by using these sticks and carrots can do much more than help develop unsubsidized housing. These same techniques will help expand the benefits to that type of housing development that needs some type of subsidy, namely extremely and very lowincome households. It can help local governments turn their state-mandated housing funding from redevelopment and other linkage fees into funding that helps develop housing which targets these households. How do we Effect Change? Whatever is done to create a wide range of housing that is accessible to all of Utah’s residents, “the approach needs to focus on all ends at once” (Milligan). Everyone needs to be educated. Interest groups and non-profits need to educate local elected officials so that those officials can speak intelligently to their constituents and defend certain types of development that is needed in the community. Further, if they are Whatever is done to create a wide range of persuaded to more closely follow the housing that is accessible to all of Utah’s requirements of the moderate income residents, the approach needs to focus on all housing plan code, they can discover for themselves what their own community’s ends at once. needs. For example, several communities that have been working with the Utah Workforce Housing Initiative have been surprised to learn about the breath of income groups that reside within their own city boundaries (Milligan). Interest groups and non-profits need to educate both branches of state government. In turn these branches need to help educate local elected officials with the right carrots to incentivize cities to develop in the best possible way. The legislative branch needs to educate local elected officials with the right sticks into the code so that local governments are forced to analyze their needs and make the best choices. What is the best approach to this education? To determine this, one must look closely at the stakeholders’ relation to zoning in regard to these carrots and sticks (see Table 1, below). We need to study the influence that certain stakeholders have over others. Stakeholders can build alliances to work in conjunction with one-another for the education of those that they influence. A Community Action Partnership of Utah Report 25 The first step is to schedule meetings with stakeholders to perform an analysis of the strengths, weaknesses, opportunities and threats associated with the ideas presented in this paper. Such a group can brainstorm additional approaches to the problems presented herein. Table 1 Stakeholder Name Internal and/or External # 1 Stakeholder Map30 Cooperation (+) or Opposition (-) 6 Local Elected Officials Local Gov’t Planners Developers Legislature Governor Office of Planning and Budget Division of Housing and Comm. Devel. NIMBYs 7 Low-Income Internal + 8 Workforce Internal + 9 League of Cities and Towns Utah Land Use Institute Utah Workforce Housing Initiative External +/- External +/- External + Low-Income Advocates External + 2 3 4 5 6 10 11 12 Attitudes Values and Objectives Shaping Their Attitudes Prominence of Issue (High/ Med/ Low) Adoption Power (Y or N) Power ImpleWho mentation they Power influence (Y or N) Who influences them Internal +/- Votes High Y N 2,4 5 Internal +/- Edu High N Y 1 1 External External External + +/+ $ Votes Long-term planning High Med High N Y Y Y N Y 1,2 1-3 1,2 6,7,8 1,6,7,8 4 External + High Y N 1 4 Internal - Lowincome housing Home Value Place to live Place to live Cities as members Impact fees High N N 1 - Med N N 1 - Med N N 1 - High N N 1,2 1 High N N 1,2 3 Moderate income housing plans Lowincome housing High N N 1,2 7,8 High N N 1,4 7,8 After that, a task force should be convened which will be made up of various stakeholders to more fully develop the approach that should be pursued. In 1997, the Legislature passed Senate Bill 12431 that created a “Task Force on Regulatory Barriers to Affordable Housing” to focus on exclusionary zoning, building restrictions and permit fees. While “nothing came out of this task force,” the right stakeholders with the right motivation might be able to move forward on this issue (Milligan). By persuading the Legislature to convene such a task force, it will be possible to attract some of the key participants who are most able to effect change. 30 31 The stakeholder map was taken from Clemons 2001, pg 29. SB124 www.code-co.com/cgi-bin/intshow?callhtm=&prtstr=&datapath=/home/codeco/httpd/htdocs/utah/leg/97/bills/&billcode=sb0124e Why is your Home so Expensive? Lowering the Cost of Housing… 26 What is the likelihood of garnering support from legislators? It is hopefully not too presumptuous to assume that most of the liberals will be on board with the legislative sticks. But what about the conservatives? “Some view zoning as the antithesis of land value protection and the free market, designed primarily to protect the residential home, responsive to special interests, not market oriented directions” (McCarthy 2003, 209). As such, the best strategy would be to motivate free-market, property-rights conservatives to support legislation that could loosen some of the local governmental regulation that is running nearly unchecked. In the meantime, we must continue to focus on incremental development changes. Senior housing is seemingly the least likely type of housing development that will foster NIMBYism in communities (Clark). Accordingly, it is one type of housing that can more easily be “sold” to local communities. Such development can be used in an effort to get the camel’s nose in the tent as “low-income housing for the elderly is not much resisted” (Fischel 1985, 334). Conclusion Housing appreciation is outpacing income. There is a shortage of housing that is affordable and available to lower-income households, which shortage is continuing to expand. Over 35 percent of all households are burdened with housing costs, particularly renters. This burden places pressure on families and leaves far too little money for food, healthcare, transportation, education, and other necessities for many of Utah’s families, and most of Utah’s poorest families. Regulation, mainly zoning, is considered to be a large factor in all these problems. The housing and zoning problems presented in the paper are most often found in fast growing communities that are transitioning from rural to suburban. However, the solutions can have positive effects on all communities. Incentivizing local governments to modify zoning ordinances through The market is not being allowed to create state mandates and smart-growth housing for a wide range of Utah’s households programs will go far to allow for the and the way to make this happen is through creation of unsubsidized housing. It creating an incentive for municipalities to will also help educate communities as loosen their regulation. to their own housing needs; the needs assessments which are required (but not often followed) have already begun to open the eyes of several communities. The proposed changes presented herein are small. As such, the main step is to help the decisionmakers understand the problems and then take small steps forward. Fortunately, the issue can be distilled down for the state government to a very simple problem and solution: the market is not being allowed to create housing for a wide range of Utah’s households, and the way to make this happen is through creating an incentive for municipalities to loosen their regulation. The key to effecting change is to reach agreement on what the problem is, to simply define the problem, and then to take small steps and make incremental changes (Braybrooke 1963). A Community Action Partnership of Utah Report 27 References Bennett, John. Executive Director of the Quality Growth Commission in the Governor’s Office of Planning and Budget. Telephone conversations on March 12, 2009 and April 16, 2009. Berman, David. State and Local Relations. Municipal Year Book. 2002. Braybrooke, D. and C.E. Lindblom. A Strategy of Decision. New York: The Free Press. 1963. Clark, Luann. Director of Housing and Neighborhood Development for Salt Lake City. 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