'Affordable' housing bonus an incentive to lose money in Durham

jwise@newsobserver.comDecember 22, 2013 

— After it sat on the books unused for a decade, planners wondered what was wrong with the density-bonus incentive Durham offers for building low-income housing.

So they asked developers and got a simple answer: It’s an incentive to lose money.

So it’s back to the drawing board, this time with advice from developers and from two UNC-Chapel Hill graduate students who scoured the country for incentives that actually work.

The key incentive, Melissa Kim and John Perry found, is keeping government officials and the general public out of the project review and approval process.

“Obviously, that’s a sticking point,” City Councilwoman Diane Catotti said after hearing their report at a recent meeting. But, she added, “I can understand where that would be terribly attractive” to developers.

Bigger bonuses help, too. Durham’s current, ignored bonus lets a developer build more houses or apartments than zoning allows on a given piece of property in exchange for including “affordable” units in the project. One affordable house gets you one more to build and rent or sell for whatever the market will bear.

Ten years after the city and county put the bonus in place, Durham planners learned that developers stand to lose more on the affordable units than they can make on the additional units at market rate.

Adding units, senior planner Aaron Cain said, has drawbacks. More units require more room for parking; they can push a project past the point the builder has to pay for an analysis of traffic effects and widening roads; they may mean added impact fees, more time-consuming approvals.

“These increase your risk, these increase expense, and make it less desirable for people to take advantage of the housing density bonus,” Cain said.

Negative incentive

Generally speaking, housing is “affordable” if it costs less than 30 percent of the income for households at or below 80 percent of the area median: for a family of four in Durham, Cain said, 80 percent is “in the mid-$40,000 range” per year. Building more of it is a priority for the local governments and various citizen organizations interested in alleviating poverty.

But Durham, it turns out, has a negative incentive for developers, and no incentives available for putting low-income housing where policy-makers want dense, affordable housing, such as close to anticipated light-rail stations.

Kim and Perry, regional planning students at UNC, volunteered their help in consulting officials of 10 other jurisdictions that offer low-income housing incentives of one sort or another. They found that, to interest developers, a density bonus has to offer at least a 2-to-1 ratio: two market-rate units for each affordable one. More height than zoning normally allows helps too, along with lowering the parking requirements.

The most important thing, though, was having plans approved by local administrators and avoiding public hearings. Dick Hales, a former Durham planner and now an advocate for affordable housing, echoed the point.

“If projects have to come through (public processes) individually, they are subject to a lot of scrutiny,” Hales said, “and lots of time a few folks who disapprove can bring down an entire project.”

Revisions underway

Assistant City-County Planning Director Pat Young said the department is working on revised incentives and intends to involve developers and citizen groups in the process. Some new ideas that seem likely to work in Durham should be ready in 2015, he said.

“It’s really going to be critical that we have the development community at the table,” said County Commissioner Wendy Jacobs. “Financially, it has to work for them.

“This has to be something that people really are committed to, the entire community,” she said. “To realize that ... affordable housing, workforce housing, is so basic to having a thriving economy in Durham.”

Wise: 919-641-5895

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