Citation
The role of single-family detached manufactured housing in inclusionary housing programs

Material Information

Title:
The role of single-family detached manufactured housing in inclusionary housing programs
Creator:
Bowden, Jerry
Publication Date:
Language:
English
Physical Description:
123 pages : ; 28 cm

Subjects

Subjects / Keywords:
Housing, Single family -- United States ( lcsh )
Housing, Single family ( fast )
United States ( fast )
Genre:
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
General Note:
Submitted in partial fulfillment of the requirements for the degree, Master of Planning and Community Development, College of Design and Planning.
Statement of Responsibility:
by Jerry Bowden.

Record Information

Source Institution:
University of Colorado Denver
Holding Location:
Auraria Library
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
15515817 ( OCLC )
ocm15515817
Classification:
LD1190.A78 1986 .B667 ( lcc )

Full Text
THE ROLE OF SINGLE-FAMILY DETACHED MANUFACTURED HOUSING IN INCLUSIONARY HOUSING PROGRAMS
A thesis submitted in partial fulfillment of the requirement for
the degree of
Masters In Planning and Community Development Department of Planning and Community Development College of Design and Planning University of Colorado at Denver
Fall, 1986


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CONTENTS
ABSTRACT ................................................... v
METHODOLOGY ............................................... vi
CHAPTER 1 INTRODUCTION ..................................... 1
CHAPTER 2 MANUFACTURED HOUSING CONSTRAINTS AND OPPORTUNITIES (MEANS BY WHICH TO DO IT)
A. MANUFACTURED HOUSING HOMEOWNERSHIP _______ 7
B. TYPES OF MOBILE HOME LAND USE.............. 11
CHAPTER 3 INCLUSIONARY HOUSING PROGRAMS (ENCOURAGING AFFORDABLE HOUSING DEVELOPMENT VEHICLE TO GET US THERE)
A. MECHANICS AND APPLICATION.................. 17
B. HOUSING POLICY............................ 20
C. THE HOUSING AFFORDABILITY PROBLEM ......... 26
D. CAUSES OF PRICE INCREASES ................. 27
E. WHAT IS AN INCLUSIONARY HOUSING PROGRAM . 29
F. FLEXIBILITY................................ 31
G. RESALE AND ANTISPECULATION CONTROLS ....... 33
H. BUYER SELECTION AND CERTIFICATION ......... 34
I. AMERICAN AND FOREIGN PERSPECTIVE .......... 37
J. ESTABLISHING A LEGAL BASIS FOR INCLUSIONARY HOUSING PROGRAMS .......................... 40
K. INCLUSIONARY HOUSING PROGRAMS AS AN
EXACTION................................... 48
L. THE ECONOMICS OF INCLUSIONARY HOUSING
PROGRAMS: THE DISTRIBUTION OF MARKET
EFFECTS.................................... 49
M. MAKING INCLUSIONARY HOUSING PROGRAMS
WORK....................................... 61
N. INCENTIVES ................................ 62
O. THE ROLE OF THE DEVELOPER.................. 70
P. CREATING AND MAINTAINING OCCUPANCY ........ 75
CHAPTER 4 HOUSING NEEDS ASSESSMENT
A. SUMMARY.................................... 79
B. HOUSING PRODUCTION AND MARKETING IN 1980
AND 1981 .................................. 81
C. OUTLOOK FOR HOUSING PRODUCTION AND
MARKETING.................................. 93
D. TRENDS IN HOUSING INVENTORY AND HOUSEHOLD
CHARACTERISTICS 1970-1980 ................. 95


CHAPTER 5 SUMMARY
A. CREATING HOUSING POLICY .................. 105
B. THE PUBLIC SECTOR HOUSING POLICY ......... 105
C. THE PRIVATE SECTOR HOUSING POLICY ........ 107
D. COMMUNITY AND NEIGHBORHOOD GROUPS7
HOUSING POLICY ........................... 109
E. FEDERAL GOVERNMENT INITIATIVES/FAIR HOUSING ACT OF 1968 .............................. 116
APPENDIX A. MANUFACTURED HOUSING MANUFACTURERS/
PRODUCERS................................. 119
NOTES


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Jerry and Shalonda for their support
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ABSTRACT
Recent rapid increases in housing costs, caused in part by rapidly rising mortgage interest rates and land acquisition costs are major reasons why legislation is needed to mandate that local jurisdictions assure the availability of affordable housing development. This thesis examines the use of manufactured housing as a major housing costs reducing strategy incorporated into inclusionary housing programs. The inclusionary housing program would remove any excessive barriers for the use of manufactured housing and regulate its i mplementati on.
Inclusionary housing programs have been widely used in California, New Jersey, and Maryland. Its use has been central in conventional housing development, but hasnt been applied to the use of manufactured housing. In large the success of inclusionary housing programs in these communities was based on three major factors which enhance the feasi-bi1i ty:
1) local government commitment to the program;
2) builders' loss of profits kept to a minimum; and
3) flexibility in the number and location of being an integral part of the program. Screening of buyers and resale controls are necessary to maintain a stock of affordable housing, and compatible land use policies are fundamental. Major criticisms of inclusionary housing programs are addressed and it is concluded that if properly designed, local inclusionary programs can increase the supply of affordable units with acceptable equity effects.
V


METHODOLOGY
In gathering in-formation -for this thesis, I attended a seminar sponsored by the Housing Issues Task Force. The topic focused on the use of manufactured housing to achieve affordable housing development goals. In learning about inclusionary housing programs, it occurred to me that by combining the two strategies to meet affordable housing needs, it would make the inclusion of low and moderate-income housing even more effective.
A research of recent books published on inclusionary housing programs, particularly Alan Mallach, author of "In elusionary Housing Programs and Robert C. Ellickson, author of "The Irony of Inclusionary Zoning, led me to believe that by using manufactured housing through a mandate of inclusion-ary housing programs, the goal of decent affordable housing for all Americans could be achieved. In reviewing the data on manufactured housing, a comparable evaluation was done of construction, cost-effectiveness, and production efficiency.
Additionally, a comparison was made of manufactured housing use in conventional housing developments, whether subdivision design or infill. Census data and other references contributed to the analysis and final conclusions toward developing a housing needs consensus.
An interview with L. C. Brown of Colorado Manufactured Housing Association provided information on the shortcomings and prognosis of the industry. Letters of inquiry were mailed randomly nationwide to manufactured housing manufacturers/ producers for additional information.


I
1
INTRODUCTION
The rising cost o-f housing has generated considerable concern during the past several years. Affordable new single family detached houses, in particular, are in short supply, although this form of housing continues to be preferred by consumers. Factors contributing to these high costs include outmoded land use regulations, stringent development stand dards, and inflated construction costs. Within the past few years, a number of local governments have tried to remedy this situation. Endeavoring to meet the need for affordable new sing1efami 1y housing, they have revised their land use standards or promoted affordable housing unit development under existing planned unit development (PUD) ordinances.
While most housing experts agree there is a need for more affordable housing for low and moderate-income families, there is far less agreement on both the level of need and how this need can be met. The focus of this thesis illustrates how low and moderate-income housing can be more affordable in conjuction with the use of manufactured and inciusionary housing programs. Manufactured housing alleviates expensive costs associated with conventional stick built housing due to inflated material costs and low labor productivity. Manufactured housing can enhance the level of economic activity by
1
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providing new jobs for the production and installment of these units, and at the same time increase the level of economic activity through home investment buying.
Another strategy for the development of affordable housing is the use of inclusionary housing programs. Inclu sionary housing programs encourage or mandate that developers of conventional or market-rate housing include a predeter mined number of dwelling units in their projects that are affordable to low and moderate-income families. These programs are usually implemented by inclusionary zoning provisions that either make the inclusion of low and moderate-income housing a condition of approval or provide incentives that the developer can choose to take advantage of in return for including such units. A key feature of inclusionary housing programs is that they attempt to make lowerincome housing a part of new middle and upper income housing developments, rather than concentrating such housing in one area. These programs are a relatively new approach to the provision of housing for low and moderateincome households, most inclusionary programs are less than 10 years old.1 Most inclusionary programs, whether they are voluntary or mandatory, provide some form of incentive or bonus to the developers that participate in these programs. The most common incentive offered is the density bonus or an increase in permitted density when the predetermined percentage of low and moderateincome units are provided.
2
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Alan Mallach, a noted author, on inclusionary housing programs, believes that these financial inducements or incentives can be especially useful when developer's participation in an inclusionary housing program is mandatory. A further examination will be discussed later.
As the 1980:s began, home builders considered how to cut costs to respond to this market. Building downsized houses on smaller lots appeared to be a logical way to meet some of the demand for singlefamily houses. In areas of the country where such houses were built, developers found them to be more marketable then attached and multifamily housing. The problem remained that development standards governing density and lot size, frontage, setbacks, building orientation and siting, street widths and sidewalks, parking, open space, drainage, and water systems limited the housing industry's ability to deliver an attractive, affordable house and downsized lot.
Affordabi1ity of housing is believed to be the real problem by the Reagan administrati on. In support of this position, the administration has eliminated virtually every federal subsidy program for the construction of new housing for low and moderateincome households. In place of these programs the administration proposes a voucher system that would provide rent subsidies to tenants on the basis of income. Critics of the affordabi1ity approach and voucher system point out that while national vacancy rates may suggest that the housing stock is adequate, the problem is
3


one of availability in the right places. Critics of a voucher system also argue that such a scheme does nothing to improve or maintain the quality of housing, and it will only work in markets where there is an adequate supply of housing.3 What seems to be a reasonably accurate assessment of the problem of affordable housing for low and moderate-income families is that in some communities decent units are available, but unaffordable and in other areas the supply of decent units is inadequate. In any event, whether you believe that the problem of housing low- and moderate-income families is one of affordabi1ity or avai1abi1ity, it is clear given the outs in housing support at the federal level that state and local governments must take a more active role in the provision of housing.
Suburban economic integration (Clark, 1984) goes a step further to induce affordabi1ity by integrating lower-income households out of the central cities and lower status suburbs in suburban municipalities. The economic integration approach suggested in this article addresses the rudiments of poverty seeking to bring social and economic change through legislation. Suburban municipalities should be required to provide its fair share of low and moderateincome housing or inevitably all central cities will experience a decline in fiscal abilities, thereby becoming a haven for the have nots. The New Jersey State Supreme Court passed a decree that a municipality located within a region provide its "fair share" of affordable housing for low- and moderate income households.


The Mount Laurel II case set in motion inclusionary fair share housing. As a result, communities are conscious of the ruling, but most still have not met the fair share obligation.3
As indicated earlier inclusionary programs foster the development of low and moderate-income housing needs through mandatory zoning ordinance regulation. Written in the establishment of the ordinance would remove any excessive barriers toward the use of manufactured housing construction. How would this work in terms of law and social and economical policy? Although the answers are largely complex in nature, the result is efficacious and palatable. Empirically, more people will be employed by the increase in economic activity. Many of the problems associated with neighborhood cyclical social instability and decline would be minimal if not nonexistent. There would be an increase in municipal or county tax base as more people move into homeownership and less dependent upon government housing subsidy. Additionally, the enhancement of the affordabi1ity concept within the use of manufactured housing makes the inclusionary housing programs more effective toward meeting housing policy.
More importantly, the inclusionary housing programs heterogeneously integrate incomes and race, within existing communities, but has the efficacy for future equitable land use development. Many of the central cities are burdened with fiscal instability as a result of the loss of industry.
5


wealthier populations and federal government housing subsidy. In California and New Jersey, two communities leading the way in inclusionary housing programs have established resale and antispeculation controls to maintain housing affordability. Low- and moderateincome households who demonstrate inability to afford market-rate units would be given preferential con-si deration.
New Jersey has went a step farther to ensure an equitable access to land use by the establishment of an "overlay" zone which has the effect of zoning the county or municipal residential land, as much as twothirds for low and moderateincome. This reduces land costs associated with exclusionary zoning practices. This form of exaction has been tested in New Jersey Supreme Court which gave way to other communities adopting a more flexible program toward housing development. Inasmuch, California Supreme Court has refused to address this issue of exaction because of its nexus to municipal zoning and subdivision regulation that requires new developments to dedicate needed services, in terms of schools, adequate public facilities, parks, and open space before development approval. The question of exactions being ultra vires and a taking without due process is not relevant. Thus, socioeconomic zoning has always existed in land use development. Exclusionary zoning for example is a form of socioeconomic development. The social and economic disparities caused by this type of land use pattern places enormous costs on the public sector.
6


MANUFACTURED HOUSING CONSTRAINTS AND OPPORTUNITIES
Manufactured Housing Homeownership
Nationwide affordable housing development has reached crisis level. Not only is there not enough affordable single-family detached housing starts, but the costs of existing housing stock is soaring as a result.
While it is estimated that the population of the nation as a whole will grow by less than 10 percent in the decade of the eighties, the number of households is expected to rise sharply at a rate of more than 10 percent with a declining household size. Housing demand will vary considerably by geographic region and by type of community. Poor and minority households will likely continue to be concentrated in central cities. An increase in the number of households will create pressure for expansion of the housing supply, but high interest rates caused by inflation will tend to constrain housing construction and increase the price of new housing. The criteria most commonly accepted for low-and moderateincome housing designates those as earning 80 percent of the median income as low and moderateincome families. Those earning 80 to 125 percent of the median income are generally classified as middle income and those earning 125 percent or more of the median income are
7


considered upper income. Locally, (in Denver) between 1970 and 19S0, housing prices increased 269 percent while household income increased by 137.9 percent."*
Manufactured housing is a -factory built unit. Construction cost for manufactured housing is $8 an hour in comparison to $18 an hour for conventional stick built housing. Units are shipped to the site by sections and erected on a concrete slab. Average time of construction is 24 hours for the building itself and about another 2 1/2 days for the electrical and plumbing and finishing off interior.3
Encouragement of homeownership has traditional1y been a major objective of housing policy at all levels of government. For many Americans, homeownership is the most impor tant factor in their overall economic well-being. Homeowner-ship is desirable but not affordable. Manufactured housing is a significant source of affordable housing, particularly first time homebuyers, the elderly, and low and moderte income families. Manufactured homes account for almost 36 percent of all single-family homes sold in the United States in 1981, and for the vast majority of those sold for under $50,000.*
The nature of the manufactured housing industry has changed remarkably over the past two decades. At one time, the standard unit produced was usually a "house trailer." As the units became larger, they became known as mobile homes; and innovations in manufacturing led to larger "modular home" and "double-wide" mobile homes were joined together at the
8


site. The "mobile home"
designation became less and less
appropriate as such units were increasingly installed permanently at the home site. More recently, large components o-f buildings such as entire walls, have been manufactured in factories and shipped to the site for permanent installation. Such components or the assembled buildings, sometimes have been designated manufactured housing. For the purpose of clarity the term manufactured housing applies to dwellings formerly designated as mobile or modular homes, whether or not they are, permanently attached to a site.
It is the belief that manufactured homes permanently attached to the land qualify as real property and that federal and state government and quasigovernment agencies provide the regulatory and legal framework necessary to permit permanent mortgage financing of such property on the same basis as other real property.7. Manufactured housing has competed effectively in a national housing market characterized by a vast array of federal credit programs, institutional financing facilities, and regulations that favor conventional housing competitors. However, special limitations on the financing of manufactured housing continue to place serious inhibitions on what could be a valuable and affordable source of housing for millions of people. Disincentives that have characterized the manufactured housing sector should be removed in order to make full use of this resource.
9


Manufactured housing has undergone major changes since
the early 1970's; a new nationwide construction code <1974), supervised by HUD, has improved quality, durability, and safety; and federal credit insurance and guarantees have been extended to manufactured housing in both FHA and VA programs. States and localities should remove from their zoning laws all forms of discrimination against manufactured housing, including offsite fabricated housing systems or components conforming to requirements of one of the current nationally recognized model codes. Because of sharply rising housing costs, manufactured housing today offers many households their only option for homeownership. In 1980, manufactured homes amounted to 29 percent of all single-family homes sold.3 The marketplace demand for manufactured housing has come from improvements in the product as well as from a competitive price.
Despite the increasing aesthetic and durability of manufactured housing, local zoning laws continue to discriminate against mobile homes. In many localities, mobile homes are segregated into special areas, often in disadvantageous locations set aside as "trailer parks." Vermont, California, and Indiana have enacted laws precluding discrimination against manufactured homes. Manufactured housing can be safe, cost effective and as healthy as comparable sitebuilt housing. Housing systems or components satisfying a nationally recognized model code similarly should not be excluded from use


in a locality. Exclusionary zoning provisions based on types o-f manufactured housing are arbitrary and unrelated to legitimate zoning concerns.
Types o-f Mobile Home Land Use
There are three types of mobile home land use commonly found in rural towns: single sited mobile homes, parks, and subdi vi si ons.
Sinole Sited Mobile Homes are the most common form of mobile home land use in rural areas. In towns, such homes are usually sited on owner occupied lots within the built up areas or at its edges. Some homes are sited on rented or leased lots. Many single sited mobile homes, especially those on owner occupied sites, are set on a permanent foundation and have site built additions (such as garages, utility rooms and the like). Where lots in the built up areas of a town are long and narrow, the mobile home may be the only cost effective means of developing housing. While most are permanent, in a few cases, the single sited mobile home is used as temporary housing: for example to accommodate sick and aged parent on the same lot where a family owned house is 1ocated.
Parks are less common in rural than in urban areas, but they are still the second most common form of mobile home land use. Parks in rural areas also tend to be smaller in size than those in urban areas. The most common type of park is one in which units are owner occupied and space is rented.


In some parks both units and space are rented. Many rental parks are restricted to adults only, or they have separate sections -for families with children. A relatively recent type of park is the condominium or cooperative park, where occupants either own shares in the park or own their own lot and shares in the common areas. Many developers are finding these types of parks more profitable to build. In a few cases the residents in older parks have arranged to buy their lots and convert their park into condominiums or cooperatives.
Subdivisions may consist entirely of mobile homes or they may be a mixture of mobile homes and site built houses. Many subdivisions are developed with specific units offered as models. Purchasers may then select a unit to place on their lot. Other subdivisions allow households to move their own unit onto the site. In both cases convenants are usually established which help to control the design character of the community.
Towns approach the regulation of these different types of land use in a variety of ways. Towns which do not have a comprehensive plan may regulate a particular type of use through the adoption of a special use ordinance; for example, a mobile home park ordinance which specifies the requirements that must be met in developing a park. Towns with a comprehensive plan may establish specific zones in which each type of use may be developed. Since defining the requirements of each type of use can be cumbersome, some towns have adopted a


FUD development process. Such a process usually specifies general development requirements and then sets up a review procedure so that plans can be evaluated as they are being refined. A less common approach to regulation is the use of a permitting system. Such a system does not specify zones of development, rather it establishes a set of community goals and then allows developers to make proposals which are then approved based on their ability to meet one or more of these goals. For example, if a community established the goal of providing affordable housing for its senior citizens, a developer might propose a mobile home park which was designed to meet this goal.
The method of regulation which a town adopts often reflects its attitude toward and capacity to plan. A small town without a staff planner may restrict its regulation to special use ordinances designed to control only the most troublesome types of development. A city with several fulltime planners may choose to regulate through a PUD process which provides developers with greater flexibility while giving the planning staff better control over the details of a proposal.
Regardless of the method of regulation adopted, its effectiveness will be limited to the area with which its provisions are executed. It does little good, for example, to adopt comprehensive zoning ordinances only to grant variances to their requirements without adequate justification and evaulation. At the other extreme, zoning ordinances may be
13


INCLUSIONARY HOUSING PROGRAMS
3
Mechanics and Application
Inclusionary housing programs is a relatively new concept in land use regulation. It has only been used and tested in a -few small communities, but is mostly well known -for its application in California and New Jersey, two states widely considered pioneers or guides to the future in this field. Many of the underlying propositions on which inclusionary housing programs depend on are the specific features of the program which raise questions of law, public policy, and economic soundness that are yet unanswered. The term "inclusionary housing program" is sometimes used synonymously with its counterpart "inclusionary zoning ordinance." Albeit they both have a distinct separate application. An inclu-sionary zoning ordinance is defined as a zoning scheme under which prospective developers are required by a municipality or county to provide low- and moderateincome housing as a part of, or in conjunction with their proposed development projects. An inclusionary housing program is a program designed to bring about affordable housing to low- and moderateincome households in a community, using a variety of programs and activities, but implementation principally relying on an inclusionary zoning ordinance. An inclusionary
17


zoning ordinance or the equivalent is a necessary condition for an inclusionary housing program. It is not, except in the unusual case, likely to be sufficient in itself for the resulting effort to be considered a legitimate program.10
Under the inclusionary housing program, the provision of housing for lowerincome households encourages or mandates developers of conventional marketrate housing include a predetermined number of units as a means to reduce the cost of per unit production to make single-family detached housing more available and affordable. A key feature of inclusionary housing programs is the integration of lowerincome housing into the growth and development of new communities rather than concentrating such housing in one area. Most inclusion-ary programs, whether they are voluntary or mandatory, provide some form of incentive or bonus to developers that participate in these programs. The most common incentive offered is a density bonus or an increase in permitted density when the predetermined percentage of low- and moderate-income units are provided. Alan Mallach, a noted author of inclusionary housing programs, believes that these financial inducements or incentives can be especially useful when the developers participation in an inclusionary housing program is mandatory. Inclusionary housing programs resulted from three separate concerns: first, the attempt of American housing policy to serve ambitious social policy goals and the failure to achieve these goals; second, the national challenge to the practices of exclusionary zoning, a challenge
18


both legal and political in nature; and third, economic trends reducing the affordabi1ity and availability of housing to the moderate and middle income population as well as to the poor during the past decade.11
Theoretical 1y, inclusionary housing is an offshoot of the 1926 U.S. Department o-f Commerce Standard Zoning Enabling Act. Spearheaded by Herbert Hoover, the Standard Enabling Zoning Act endeavors to preserve the health, safety, public welfare, and morals of a community. Purpose of the Act was to secure safety from fire, prevent overcrowding of land, undue concentration of population, and provide adequate air and light. In addition, the Act would facilitate the adequate provision of water, sewer, schools, parks and transportation, and the underlying phrase, "nothing in a zoning ordinance be discriminatory or foster racial segregation." Since the Euclid Ohio vs. Ambler Realty decree and to date, many communities foster exclusionary zoning which is in sharp contrast to the above mentioned. Exclusionary zoning practices are the specific political, legal, social, and economic factors that have brought housing policy to its present state and prompted the undertaking of inclusionary housing programs which are in essence a product of the past 20 years since the late 1980s. Whatever efforts may be made by the Reagan Administrati on to dismantle social policies, the Housing Act of 1968 and the events of the 19607s defined sound social policy for the United States, in certain key regards, in a manner that has persisted remarkably to the present.12
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Housing Policy
The 1949 Housing Act established the national "goal of a decent home and suitable living environment -for every Amer ican family." The 1949 Housing Act was largely designed to initiating the urban renewal program, which in the final analysis, is today widely held to have done significantly more harm than good to that goal. This changed dramatically during the 19603,s. The Department of Housing and Urban Development was established in 1965, and in 1968 Congress enacted the first legislation since the New Deal era which committed the federal government to provide the resources for a major program of construction and rehabilitation of housing for low and moderateincome households. The Section 235 and 236 programs were the commonly used only to be succeeded by Section 8, as a result federally subsidized housing rosed to nearly 500,000 by 1971 and leveled over 400,000 per year in 1979. A key phrase recapituated from the 1968 congressional legislative session, which prompted a sense of urgency in meeting the housing needs of less affluent Americans, which became a part of the national consciousness. "Many of the Nation's lowerincome families have not fully realized the goal of the 1949 Housing Act, and that there exists in the public and private sectors of the economy the resources and capabilities necessary to the full realization of this goal."13
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From 1968 onward, efforts with varying degrees o-f success to meet the housing goals o-f the 1949 congressional agenda took up an increasing part o-f the federal domestic budget. At the same time poor housing conditions coexisted with racial segregation and of particular importance this problem was confined to urban areas. The goal of national housing policy is more complex and controversial both in framing and execution, which is not of fostering both racial and socioeconomic integration in housing. This goal is not only to integrate the poor and members of racial minorities, but for the society as a whole.1"* The federal policy in the Housing and Community Development Act of 1974 so explicitly embodied the goal of socioeconomic integration. Since the 1968 legislation, many attempts have been initiated by use of these programs to foster integration and only a small fraction were successful, often as a result of litigation. There is little or no evidence, furthermore, that these efforts have had in the aggregate any meaningful impact on racial or socioeconomic desegregation. During the 1970s, for example, in almost all cases the economic disparity between central cities and their suburban rings widened (Clark, 1984); the cities becoming poorer and the suburbs more affluent, at least, in relative terms. Although the Department of Housing and Urban Development provided Section 8 subsidy funds for suburban communities willing to participate in Areawide Housing Opportunity Plans (AHOPs) had little more than a marginal effect. The combination of the nearly inexorable workings of economic
21


trends, once set in motion, coupled with the underlying values and attitudes o-f large parts of American society, have to date largely neutralized this entire aspect of American housing policy. The failures and frustrations, however, by comparison with that experienced during the period following 1980, as the Reagan Administration effectively eliminated over a period of less than three years, any meaningful federal role in the production of new housing for low and moderateincome households. Neither the state nor local government was capable of providing funding for housing programs in any manner capable of replacing the lost federal funds.
The loss of federal funds for new housing construction in the early 1980's was a significant factor in the growth of inclusionary housing programs; while some such programs initiated during the 1980's were seen as means of utilizing federal subsidies more effectively for socioeconomic integration. By the early 1980's consideration was being given to inclusionary housing programs as an alternative to federal subsidy programs. The implications of this are considerab1e.
In order to understand the legal developments of inclusionary housing, it is necessary to examine its counterpart, exclusionary zoning. Exclusionary zoning defined simply as zoning that has the effect of keeping out of a community racial minorities, lowerincome residents, or undesirable population of any kind.13 The specific workings of exclusionary zoning range from formal zoning ordinance provisions such
22


as large lot size requirements, minimum dwelling unit -floor area requirements, and prohibitions on housing types, and arbitrary patterns o-f municipal land use regulatory behavior. Exclusionary zoning has existed as long as zoning, the pioneer case used by the U.S. Supreme Court to establish the constitutionality o-f zoning, Euclid Ohio vs. Ambler Realty. Many cases since the 1920s have come under the rubric of exclusionary zoning at the state level. While it is beyond the scope o-f this thesis to trace the complexities o-f exclusionary zoning noting its roots in the civil rights movement, it is clear that the challenge emerged in -force quite suddenly in the late 19607s, at which time not only were numerous lawsuits filed, but the issue was granted significant recognition at the political level in a number of states as well. From this beginning, during the course of the 1970s a number of outcomes emerged. First, the focus of action shifted sharply from the federal to the state courts, as the federal courts most notably in Boraas vs. Belle Terre and Warth vs. Selding adopted a posture essentially antagonistic to those who sought to challenge exclusionary zoning ordinances, except under the extremely narrow circumstances provided for in Arlington Heights.The New Jersey, Pennsylvania, New York, and California state courts demonstrated a readiness to confront the issue. Despite fragmented legal victories, the tangible outcomes in terms of units for low- and moderateincome housing produced as a result of these victories were very limited. In Pennsylvania, it became relatively easy for an offended
23


builder to obtain affirmative relief in the form of a grant of building permits by the court, but the Pennsylvania doctrine appeared almost entirely preoccupied with ensuring a variety of building types in each community, with little sensitivity to the issues of racial or socioeconomic integration or to planning.17
In New Jersey, by comparison, the courts showed considerable sensitivity to broad housing and planning issues, but until 1983 were strongly opposed to award any form of affirmative relief to a builder, except under the most unusual or extreme circumstances. Along with the reluctance of the municipalities which had lost exclusionary zoning suits to undertake any affirmative programs in response to the court decisions, and in many cases, their readiness to obstruct those decisions, the likelihood of significant affordable housing production taking place as a result appeared more and more remote. It was also noted as the plaintiffs became more sophisticated about economic realities, they realized that simply eliminating exclusionary zoning barriers was not, in itself, necessarily a means to creation of affordable housing. If a municipality, for example, adopted an ordinance in which substantial land areas were zoned without exclusionary restrictions for housing types such as apartments and townhouses, but the market demand in the community for such housing at high price levels was substantial, it was unlikely that any of that land would ever become available for the
lU


construction o-f inexpensive housing. xs A case involving Mahwah Township, an a-f-fluent suburban community in northern New Jersey, in which an ordinance (adopted subsequent to the -filing o-f an exclusionary zoning suit, but prior to the trial) designed substantial acreage -for planned residential development at gross densities of 4 and 6 units per acre, without egregious exclusionary standards or constraints. Trial testimony established that land in these districts was in the process of being developed with townhouses planned to sell, for the most part, at prices in excess of $100,000. This was the first exclusionary zoning case where the thrust of the plaintiffs case was that compliance with the standards set forth in the New Jersey Supreme Courts 1975 Mount Laurel decision dictated the adoption of an inclusionary program by the municipality.
In compliance with Mount Laurel and Madison, however, a municipality must take into account the context in which the ordinance will be implemented. Profit and market factor will determine the profit margin. It is the duty of the municipality to ensure that construction of a sufficient supply of least cost housing will actually take place, given the realities of the marketplace. While this argument did not prevai1 at the trial court, it was adopted by the New Jersey Supreme Court in the 1983 case known as Mount Laurel II. ^ In this decision, the court held that adaption of an inclusionary housing program would be expected, if not explicitly required, of any municipality Subject to the obligation to provide for
25


its -fair share of regional low and moderate-income housing needs.
The Housing Affordability Problem
While conventionally produced and financed housing had always been beyond the reach of the poor or near poor, during the 1970's such housing moved farther and farther away from the grasp of large segments of the nonpoor population, the American middle class. The problem in essence, was a combination of two factors. During the 1970's, house prices rose at a more substantial1y faster rate than incomes. Second, beginning in the late 1970s and particularly in the early 1980's, mortgage interest rates rose, compounding the effect of the price increase. Between 1973 and 1980, the average annual rate increase (compounded) has been 15.8 percent to 17.0 percent nationally.30 On the other hand, personal incomes have about doubled during that time, increasing at an
average rate of about 10 percent per year. The amount a
household can afford to pay is determined by the annual
housing expense, not the house price. For example, the
monthly payment on a 10 percent loan of $80,000 is $702; on a
14 percent loan the monthly payment is $948 (for a 30 year uniform pay loan), a difference of $246 a month.
26


Causes of Price Increases
I-f the sales price o-f a new house is broken down into its component costs (plus pro-fit), it becomes clear that land price increases are the major contributor to overal1 house price increases. In addition, developer -financing costs and increased profits have also been major contributors. Both shifts and supply restrictions could have caused the large increase in land prices. A study by the Urban Land Institute (1980) makes a strong case that supply restrictions are the primary factors.21 In a comparison of twelve metropolitan areas, the Institute found that rapidly growing areas, which restricted growth such as San Diego, California, and Boulder County, Colorado, experienced much larger raw land price increases between 1975 and 1980 than rapidly growing areas that did not restrict growth significantly such as Houston, Texas; Atlanta, Georgia; and Jacksonville, Florida.
Although the evidence certainly suggests that growth restrictions play a major role in land price increases, other competing explanations have not been eliminated. It would be necessary to obtain a better understanding of specific local conditions in each of the jurisdictions in order to do a full analysis. Several prominent real estate analysts believe that demand factors, especially those related to an increased number of households in the housing market and the inflation induced attitude that a house is an investment rather than a mode of shelter, are more important.
27


Two -factors caused the large increase in the number o-f potential buyers: a high rate o-f household formation as children of the post war baby boom entered the twentyfive to thirtyfour year old age group and as divorce rates rose, and the 1iberalization of home loans considered a wifes earnings as stable income in qualifying for a home loan. Second, inflation has contributed to increase demand in a number of ways. It has caused homeownership to be much more strongly desired than it was in the past as the best hedge against inflation and the best way to accumulate assets. It has caused people to be willing to pay a much higher premium for a house because of its perceived value as an investment and along with the disastrous stock market decline of 1973 74, it has prompted many affluent investors to shift their money into single-family housing as rental investments or as outright speculations.30 Developer financing costs are another major contributor to the added costs of housing production. Increases have resulted both from increased interest rates on construction loans and from the delays added to the development process by a variety of local regulations and by citizen opposition to specific projects.
While affordabi1ity is a national problem to some degree, it is unequivocal that it varies significantly from one part of the United States to another in its severity and in the number or percentage of area households affected. Since the same factors that are also likely to trigger new house
28


price increases in excess of the national average are also likely to push up the price of existing house resales, whatever utility the "trickle-down" theory may have in less impacted areas will be least in the areas of greatest demand and growth pressure. These observations are concentrated most heavily in the northeastern United States, within the BostonWashington corridor, and on the West Coast. Although other growth areas are hardly free of affordabi1ity problems, it would appear that such factors as a more open regulating climate, ready availability of inexpensive land, and the existence of large unincorporated areas in which development can take place tend to mitigate the severity of these prob-blems in large parts of the South and Southwest.
What Is An Inclusionary Housing Program
Inclusionary housing programs endeavor to provide affordable housing development through mandatory and voluntary inducements. Orange Countys inclusionary housing program merits special attention because it is both large and innovative. The programs goal is that 25 percent or more of all new housing units will be affordable to residents who earn less than 120 percent of the countys median income.31 There are three income ranges in the program. Ten percent of the the units are to be provided in the "low-moderate" range of 80 percent or less of the countys median income. However, this requirement is contingent upon the availability of (federal, state, or local) subsidy financing. Ten percent must
29


be provided in the "Median I" range o-f 80-100 percent of median income and 5 percent must be provided in the "Median II" range of 100120 percent of median income. If public subsidies are not available for the "low-moderate" range units, the alternative requirement is to provide 15 percent in the Median I category and 10 percent in the Median II category. The county does not specify the affordable price ranges for households in the three income categories, it simply assumes that a house which can be bought by moderate-income people is affordable.33
The most important incentives offered for the production of affordable units are density bonuses, a reduction in processing time, and financing at belowmarket interest by means of county revenue bonds. The density bonuses are granted only as an incentive to the provision of affordable housing. The standard density bonuses are 10 percent above the maximum density range allowed by the zoning, whichever is greater. Standard bonuses are subject only to environmental and infrestructure capacity evaluation. Projects that have fewer than the required affordable unit percentage or that request greater than standard density bonuses are evaluated in terms of affordabi1ity and unit mix infrestructure capacity, and several other factors.33
The municipality or county administration can take several steps to reduce processing time; the general land use land element is modified to eliminate unnecessary amendments, which can now be handled at the zone change level; revisions
30


in the site plan approval process now allow many subdivisions to be approved administratively rather than by the planning commission, and tentative map approval authority transferred from the planning commission to a subdivision committee, an act which reduces processing time by three weeks.3"* Perhaps more important is the pending streamlining of the Environmental Impact report process by utilization of a master environmental assessment which specifies standard mitigation measures based on environmental constraints that are considered significant for unincorporated areas of the county.353 This may be a key feature for elminating undesirable blockage of the development process by citizen's groups opposed to projects. A further step taken is the establishment of a project coordinator for affordable housing projects. By monitoring projects and assisting developers, the administration maintains its objectives. The administration can also modify some development standards and make Block Grant funds available for affordable projects in order to enhance their feasibility. The municipality or county can sell bond issued for financing singlefami 1y housing. This Special Obligation Bond issue is provided solely for the development of newly constructed residential homes in the affordable price range.
FI ex i bi 1 i tv
There are several alternatives of exceptions to meeting the requirement for providing 25 percent of units in new developments in the affordable range. First, projects con-
31


taining -four or fewer units are exempt from the requirement entirely. Second, projects in geographic subareas in which the 25 percent affordable objective has been met are exempt. This provision, included as a sunset clause, has been a matter of concern to housing advocates, who fear that there are no guarantees that the affordable units present today (without resale controls) will not become unaffordable in the future.
The most important alternatives to the provision of onsite affordable units is the opportunity to transfer credits for affordable units between different projects.26 Developers who build more than the required 25 percent of the units in the affordable range receive a credit for each unit above the 25 percent requirement. They may then apply those credits to other developments of their own, or they may sell them to other developers. Each unit credit is used to reduce by one the number of affordable units in the other (receiving) development. The transfers must be approved by the county planning commission, and approval is to be based on a variety of considerations; dispersal access to transportation and employment and conditions in the particular community analysis area in which the transfer is to be applied. The use of transfers should lead to greater economic efficiency by allowing certain builders to specialize in higherpriced uni ts.
Flexibility in locating the affordable units within a subdivision is also allowed. Dispersal of the units at the block level is not required; thus, the units can be clustered
32


-for greater e-f-ficiency. The allowance of clustering is in keeping with the county's explicit declaration that "economic integration of diverse income groups is not a purpose or goal."2'7 The clustering appeals to developers, who generally believe that scattering of low-priced units will reduce the desirability and value of higherpriced units nearby.
Resale and ftntispeculation Controls
Resale controls are an integral part of maintaining affordable units. Resale controls typically control either or both of these elements: the appreciation of house value, by setting the price at which the units can be sold; and the transfer of property, by limiting or dictating the party or parties to which the unit can be sold. Usually a formula is established to determine the selling price. A formula which may take into consideration changes in the consumer price index, the value of improvements made by the owner.20 Only those units built with the assistance of public funds are required to have resale controls; other units are encouraged to have resale controls. The preferred method for resale control is a thirty-year deed restriction which gives a preemptive first right to the county or its designee to buy the unit for a price that allows appreciation equal to the percentage increase in county median income, plus substantial improvements. It is expected that because of the stipulation regarding public funds, approximately half of the affordable
33


units built under the inclusionary housing program will have resale control.
Anti specul ati on controls has, thus -far, depended heavily on buyer selection and certification to disqualify speculators. Three methods o-f speculation controls have been implemented. The primary methods which has been used -for most projects, is a deed restriction which controls resale prices for the first five years of occupancy (in contrast to the thirty-year resale controls on publicly assisted units). A second method of speculation control is the one year owner-occupancy agreement, which has been required in only one development, involves a "good faith" trust deed which is in force for five years. If the buyer sells the house during this period, he/she forfeits a penalty to the county.2 Buyer Selection and Certification
The preferred method of buyer selection and certification of income relies upon the Housing Authority. The Author establishes a central information and referral service for use by developers and potential homebuyers. Potential buyers pay a one year subscription for ($1015) which enables them to place an application on file, have their qualifications prescreened, and receive information about new units. Attempts are made to screen out homeowners who are
potential speculators, and clear preference is given to households not already owning a home. A lottery is implemented to give fair opportunity to all qualified homebuyers


since the number of potential buyers out number the number of available affordable units.30
Determining who is to benefit is a major underlying question and is one of social policy. The New Jersey Supreme Court, in its Mount Laurel II decision, made its priorities explicit by using uncharacteristical 1y unambiguous language: "if sound planning of an area allows the rich and middle class to live there, it must also realistical 1y and practically allow the poor."31 For purposes of complementing the decision, the court characterized the population to be served and toward whom inclusionary housing programs should be directed as follows:
"Moderate income families" are those whose incomes are no greater than SO percent and no less than 50 percent of the median income of the area, with adjustments for smaller and larger families.
"Low income families" are those whose incomes do not exceed 50 percent of the median income of the area, with adjustments for smaller and larger fami 1i es.32
To emphasize its point the court was not seeking through judicial process to benefit the middle class rather than the poor, the court distinguished its characterization of these income ranges from the terminology used by HUD, which characterized the above groups a "low income" and "very low income" respecti vely.
35


By comparison, the Orange County ordinance described earlier provides that bene-f iciaries may be those whose incomes are as high as 120 percent of the area median income and, where subsidy funds are available, allows the inclusion-ary requirement to be met by providing units affordable to a segment of the population, the least affluent of whom earn more then the most affluent member of the targeted population denoted by the New Jersey Supreme Court.33
Using the Standard Metropolitan Statistical Area (SMSA) between the decennial census years, HUD generally undertakes an annual estimating process in order to adjust eligibility standards for the housing projects under its supervision. In Orange County, for example, early in 1983 the HUD median gross family income up to $36,000 could qualify for low and moderateincome housing under the Orange County inclusionary ordinance. Within the state of New Jersey, HUD median income figures ranged from a low of $21,800 Cape May County), to a high of $33,100 (Kanterdon County). In the Newark SMSA, the largest SMSA in the state, the maximum income for a family of four with a considered "moderate income" by the definition of the New Jersey Supreme Court in 1983 was $25,200.3* The issue of setting income limits for the beneficiaries of inclusionary housing programs has been a constant bone of contention. Such restrictions, either formally or de facto, have frequently been imposed.
36


American and Foreign Perspective
Albeit the objectives of an inclusionary housing policy are widely shared by planners and policymakers in the industrialized nations, the specific approach characterized as an inclusionary housing program is largely an American phenomenon. Policies designed to promote economic and demographic integration have been encouraged by a number of governments. Israel, for example, undertook to create a planned demographic mix between new immigrants, typically of lower-income and veteran Israelis in a number of planned new communities. The city of Paris has adopted plans and policies to maintain the historic economic mix in "gentrifying older areas through the construction and rehabi1itation of housing for lower-income households. Canada has actively fostered economic integration in a planned community in Vancouver, British Columbia.33 With the limited exception of the Vancouver development, the inclusionary objectives of other countries are achieved through more direct public sector intervention in the financing and production of housing than in the United States. The city of Paris, for example, seeks to ensure continued low and moderateincome occupancy of historic areas through the acquisition and rehabi1itation of buildings, under public or nonprofit auspices, for lower-income occupancy in areas such as the Marais and Beaubourg. In the Israeli new towns, the majority of the units for people of varying economic levels were
37


built under governmental or quasi-governmental programs. It appears that public policy in most European countries is supportive o-f more direct, ongoing public intervention in the housing market than is the case in this county.36 In such a climate a delegation to the private sector to the extent implicit in the inclusionary housing program approach could be seen as a failure on government's part to carry out its responsibilities. This is particularly the case in those countries in which a clear political distinction is made between the private sector and the "social sector" which must be protected from vagaries of the private marketplace. In the United States, by comparison, even in the heyday of federal housing programs the dominant ideology consistently maintained that the provision of housing was a private sector responsibility, to be only supplemented by public resources.
One project which combines elements from both American and European approaches was the False Creek planned community in Vancouver. The False Creek area was a large tract of vacant and underutilized land in Vancouver which was the subject of a systematic planning and development effort to create a "new town in town" beginning in the late 1960s and designed eventually to accommodate a population of 30,000. Empirical results show that communities without social and physical diversity are unhealthy and people living in them have limited access to the wide range of values, habits and beliefs which are the essential ingredients of urban living.
38


The False Creek planners decided that the project should have an economic mix reflecting that o-f the Greater Vancouver area. That was translated in 1976 dollars (Canadian) to a mix o-f onethird o-f the households earning under $11,700; onethird over $18,600. The economic mix target was coupled with a demographic mix target to ensure a mixture o-f young and old, and small and large families.37.
Achievement of the income mix objective was exceptionally difficult and resulted in the creation of a variety of new and creative approaches, combining some of the features of a mortgage buydown and a 1 easepurchase structure. An internal subsidy was also incorporated into the project by applying a different ground rent to each type of housing being developed, "higherincome households would, in effect, subsidize lowerincome ones." This last example comes closest to the American model of the inclusionary housing program. Still, the "inclusionary" element of the overall project is clearly subordinated to intense public sector involvement and intervention in making housing available to lowerincome households through a variety of national and provincial programs and resources. The False Creek project is closer in its underlying philosophy and modus operandi to the European model than the American one.
In conclusion, this segment has attempted to set forth some of the circumstances by which inclusionary housing programs have come to be a major element in American housing and land use policy; and second to provide a brief overview
39


of the concept known as an inclusionary housing program. The
following segment of inclusionary housing programs will examine law and public policy considerations.38
Establishing ft Legal Basis for Inclusionarv Housino Programs
A threshold issue is whether inclusionary housing programs are indeed legal, either in terms of the available statutory law or in terms of the United States Constitution. As with any complex land use issue, particularly one which represents such a significant change from past practice, there are many legal or quasi-legal points that can be raised an the subject. It is not the intent of this segment to exhaust an extensive examination of all such issues but mainly review three significant points. These are first, the issue of whether such ordinances are ultra vires in that they exceed the purview of the zoning power or the power delegated to local government; second, whether and to what degree such ordinances are subject to the laws governing exactions which is the costs that may be imposed by municipalities on developers and their developments. These issues are introduced by two leading cases on the subject, those of Virginia and New Jersey.
DeGroff and Mount Laurel II: There have been two resolutions of the legality of inclusionary housing programs or zoning ordinances by state supreme courts up to now, one in Virginia, in which such ordinances were found to be both ultra vires as well as violative of the Virginia State Con-


stitution; and the other in New Jersey, where such ordinances were found to be not only legal, but all mandated by the New Jersey State Constitution.
The Virginia Case, Board of Supervisors of Fairfax County, et al. vs. DeGroff Enterprises, Inc., et al ,decided in 1973, dealt with a challenge to an inclusionary ordinance in an affluent suburb of Washington, D.C., in which developers were required to rent 50 or more units to low-and moderateincome households, defined on the basis of eligibility for public housing or for the Section 235 and 236 programs. The ordinance was invalidated by the Virginia Supreme Court in the following opinion:
"The amendment in establishing maximum rental \
and sale prices for 15 percent of the units in the development, exceeds the authority granted by the Enabling Act to the local governing body because it is socioeconomic zoning and attempts to control the compensation for the use of land and the improvements thereon."
Of greater importance, however, is that the amendment requires that the developer or owner rent or sell 75 percent of the dwelling units in the development to persons of 1ow-or moderateincome at rental or sale prices not fixed by a free market. Such a scheme violated the guarantee set forth in Section II of Article 7 of the Constitution of Virginia,
**1


1971, that no property will be taken or damaged -for public purposes without -first compensation.40 By most commentors this decision is not given much weight. One leading authority characterised it as "almost uniquely lacking in legal reasoning or rationale." The argument was dashed in blunt terms to Mount Laurel II.
It is nonsense to single out inclusionary zoning (providing a reasonable opportunity for the construction of lower-income housing) and label it "socioeconomic" if that is meant to imply that other aspects of zoning are not. Detailed single-family residential zones, high-rise multifamily zones, or any kind of factory zones, "clean" research and development zones, recreational, open space, conservation, and agricultural zones, regional shopping mall zones, indeed practically any significant kind of zoning now used, has a substantial socioeconomic impact, and in some cases, a socioeconomic motivation. It would be ironic if exclusionary zoning to encourage the construction of lower-income housing were ruled beyond the power of a municipality because it is "socioeconomic" when its need has arisen from the socioeconomic zoning of the past that excluded it.4*1
The Mount Laurel II decree, was a culmination of a long series of New Jersey decision clearly cognizant of the socioeconomic nature of zoning and land use controls. The New Jersey case, Southern Burlington County NAACP, et al. vs. Township of Mount Laurel which was the first case in 1980 concluded that "realistic opportunity" through its land use
k2


controls to provide -for its -fair share o-f regional housing need. An earlier unreported trial, the Uxbridge Associates vs. Township o-f Cherry Hill (1980), established the means -for a mandatory inclusionary zoning ordinance. The trial judge upheld an ordinance requiring that 5 percent o-f all units constructed in a high-density multi-family residential zone be "low or middle income units." The court disposed quickly o-f the ultra vires argument from DeGroff and found that there had been no taking. With regard to the taking issue, however, the court relied heavily on a conclusion that any hardship had been largely self-inflicted, by virtue of the failure of the plaintiff to make any effort to seek federal or other subsidies, which arguably might have mitigated any economic harm that he was suffering. While this was, a relatively narrow ruling, it did set in motion the direction that would soon be taken by the New Jersey Supreme Court. The fundamental Mount Laurel doctrine is that each municipality subject to the doctrine must provide for its fair share of regional housing need. A major purpose of Mount Laurel II was to set down means by which it would be ensured, to the degree possible that this opportunity would indeed be "realistic, pointing out that whether the opportunity is realistic will depend on whether there is in fact a likelihood to the extent economic condition allow that the lower-income housing will actually be constructed.42 Given the evidence, which is discussed in some detail in the opinion,


controls to provide for its fair share of regional housing need. An earlier unreported trial, the Uxbridge Associates vs. Township of Cherry Hill (1980), established the means for a mandatory inclusionary zoning ordinance. The trial judge upheld an ordinance requiring that 5 percent of all units constructed in a high-density multifamily residential zone be "low or middle income units." The court disposed quickly of the ultra vires argument from DeGroff and found that there had been no taking. With regard to the taking issue, however, the court relied heavily on a conclusion that any hardship had been largely self-inflicted, by virtue of the failure of the plaintiff to make any effort to seek federal or other subsidies, which arguably might have mitigated any economic harm that he was suffering. While this was, a relatively narrow ruling, it did set in motion the direction that would soon be taken by the New Jersey Supreme Court. The fundamental Mount Laurel doctrine is that each municipality subject to the doctrine must provide for its fair share of regional housing need. A major purpose of Mount Laurel II was to set down means by which it would be ensured, to the degree possible that this opportunity would indeed be "realistic," pointing out that whether the opportunity is realistic will depend on whether there is in fact a likelihood to the extent economic condition allow that the lower-income housing will actually be constructed.*2 Given the evidence, which is discussed in some detail in the opinion.


that
"neutral "
ordinances are unlikely to accomplish this
goal, the court points out:
"Therefore, unless removal o-f restrictive harriers will, without more, a-f-ford a realistic opportunity tor the construction ot the municipalitys fair share ot the regions lower-income housing need, attirmative measures will be required; and in many cases, the only way tor courts to ensure that municipalities with tair share obligations do not, directly or indirectly, hinder construction ot lower-income housing is to require attirmative measures encouraging the construction ot such housing. 1143
After an extensive discussion in which the municipal obligation to make possible the use ot tederal and state subsidy programs by local developers (through tiling applications, adopting appropriate resolutions, and granting tax abatement) is made clear, the decision turns to inclusianary zoning devices. Voluntary programs (reterred to as "incentive zoning") are cited in the work ot Fox and Davis,44 the court notes that "those municipalities that relied exclusively on such programs were not very successful in actually providing lower-income housing." The court then states:
"A more effective inclusionary device that municipalities must use if they cannot otherwise meet their fair share obligations is the mandatory set-asi de."
k5


It is clear -from the discussion leading up to this point, which has been very briefly summarized, that the court expects the above conclusion to be reached in most, if not all, circumstances. The court then established two practical conditions to govern such inclusionary programs; first, that where practical, a municipality should use mandatory set-asides even where subsidies are not available and second, dwelling units must be maintained through appropriate means, affordable to lower-income households over an extended length of time.'*3
The legal findings, in the strict sense, in that part of the decision dealing with mandatory inclusionary programs, are not extensive. As noted above the issue of "socioeconomic" zoning is dealt with in unequivocal, even barbed, terms. The taking issue is dealt with in a more perfunctory manner, in a quote, as follows:
"As for confiscation, the builder who undertakes a project that includes a mandatory set-aside voluntarily assumes that financial burden, if there is any, of that condition. There may well be no "subsidy" in the sense of either the landlord or other tenants bearing some burden for the benefit of the lower-income units; those units may be priced low not because someone else is subsidizing the price but because of realistic considerations of cost, amenities, and therefore underlying values."46
46


While it is true that in some cases there may well be no subsidy -from the developer, or from others bearing the burden, it is likely that in many cases there will be indeed, the restricted definition that the court adopted for "low and moderate-income households come close to dictating that such a subsidy will be necessary, particularly with regard to the "1owincome" units. This is not to suggest that the question cannot be resolved; simply, that it has more dimensions that is suggested in the opinion. It is very likely, however, that Justice Wilentz, the author of the opinion already conceived there is enough literature already written on the taking issue and to add further would be futile.
One additional New Jersey case should be noted, one which is cited with approval by the court in Mount Laurel II, the decision by the appellate division of New Jersey Superior Court in. In The Matter of Egg Harbor Associates.47 This decision upheld the authority of the New Jersey Department of Environmental Protection to impose a permit condition under the Costal Area Facilities Review Act requiring that developments meeting certain other conditions must provide 10 percent of their units as moderateincome housing, and 10 percent as lowincome housing. The New Jersey courts have found, in contrast to the Virginia Supreme Court in DeGroff, that neither the ultra vires question nor the taking issue stand as impediments to the enactment of inclusionary ordinance as elements in an inclusionary housing program.
^ 7


Incl iisionary Housing Programs As An Exaction
Although the issue has never been the subject of a court decision other than a passing mention in the Egg Harbor Associates case, the question of whether a requirement that developers provide low- and moderateincome housing meets the standards set in case law for subdivision exactions has been a topic of considerable concern on the subjects of inclusionary housing programs. Subdivision exactions are those requirements imposed by a community on a developer to provide land for public facilities, to construct such facilities, to make off-site improvements, or to apply fees to the municipality in lieu of providing land or constructing facilities. Case law has consistently held that for such an exaction to be legal, there must be a relationship between the nature and extent of the exaction and the facility needs generated by the residents in the development itself. As the New Jersey Supreme Court noted in Mount Laurel II that when applied to inclusionary zoning ordinances the exaction is a form zoning district. As it was put in Mount Laurel II:
"The rationale of Weymouth decision (1976) supra, could under appropriate circumstances, sustain a zoning ordinance that restricted a particular district exclusively for mobile homes for the elderly (the actual restriction allowed other uses). If that is permissible, then the compar able special need of lowerincome families for


housing, and its impact on the general welfare, could justify a district limited to such use and certainly one of lesser restriction that requires a district include such use (the equivalent of a mandatory set-aside)."Aa
In short, the imposition of an inclusionary zoning ordinance is a use of the police power in order to serve the general welfare and in New Jersey an explicit constitutional obligation by setting specific standards to govern the nature of the development that will take place in certain districts. It is not an exaction, which is by nature external to the use permitted in the zoning di str i ct. *** A more complex issue is whether the alternatives of off-site development or the payment of fees in lieu of low and moderate-income housing development fall into the category of exactions.
The Economics of Inclusionary Housing Programs: The Distribution of Market Effects
The distribution of market effects arising from the imposition of an inclusionary housing program has been the subject of considerable attention. Much of the attention has been focused on what can be characterized as the "fairness" issue, an issue of as much political as economic interest. This is the question of who pays the cost and who benefits from the achievement of inclusionary housing goals 30 In California the cost of inclusionary housing programs are built into the market-rate housing sales, and moderate income


housing units built under inclusionary housing programs. While that does not in itsel-f mean that a loss, in the literal sense, is being taken by the developers, it does dictate, at a minimum, that pro-fits are being foregone which would otherwise be available. The loss of profits is not a trivial consideration. Not only are profits the motive for any enterprise in a capital economy, but they are particularly important in a highly volatile industry such as housing, where substantial amounts of money must be placed at risk anew for each undertaking, and where the possibility of loss on a given project, for reasons beyond the developers control, is always present.
In other cases, particularly where a community is applying the standard established by the New Jersey Supreme Court in Mount Laurel II, it may literally not be possible to sell or rent some units in a manner that will enable the developer to incorporate all of the true costs of development in the selling price. This is particularly likely to be the case if the developer is required to provide for the full range of off-site improvements and exactions that may be required of a typical development in many suburban jurisdictions.
Linder any of these circumstances, the issue of whose to pay is germane. It is a complex issue, not amendable to simplistic formulation: e.g. that a developer pass the cost on to buyers of marketrate units or that he absorb the cost from his profits, excess or otherwise. Before any effort can be made to determine whether the allocation of costs is
50


reasonable or "-fair, a systematic effort must be made to determine, as best, what the actual allocation or costs is. That, in turn, must be done in a realistic framework, taking into account the degree to which the development process deviates from classical economic principles and premises, rather than on the basis of abstract economic models. Furthermore, the market interactions resulting from the provision of more modest housing units in a community or within a development project must be taken into consideration. Although that subject raises questions about which it is possible only to speculate may still be useful in establishing the context in which programs currently in place can be evaluated, and future programs formulated.
Finally, whatever the distribution of costs, it is important to examine the distribution of benefits as well, and the reasonableness with which those benefits appear to be allocated. This is, in essence, a question of social policy rather than pure economics. The simplest case in which to examine the question of who pays the costs, such as those which may be associated with offsite improvements or tax exempt bond financing, are engaged in the program. The costs of an inclusionary housing program can be borne in three ways. First, the costs can be absorbed by the developer from the profits that he would otherwise presumably make. Second, the costs can be passed forward to the buyers of the market-rate units in the development. Third, they can be passed backward, in that the developer of a project subject to an
51


inclusionary housing program will not be willing to spend as much for land, all other factors being equal. In other words, most of the costs will be passed backward to the owners of land. In the long run, any program which imposes significant costs on a developer, which he must absorb and cannot pass either forward or backward is likely to be unstable. The manner in which a developer prices his product is a compound of a variety of factors including his production costs, the type of housing product that he typically builds, the size of the development, the length of time he is willing to remain involved with that development, and finally, the price that the market will allow at a given rate or market absorption. Market analysis is far from an exact science, and the more aggressively a developer prices a particular housing product, the greater the risk he incurs of either not being able to sell at all or significantly slowing down the sale rate of the units. Slow sales, means carrying costs of inventory which can be costly to the developers. The point is well made by Ellickson that the ability of a developer to pass on the costs associated with an inclusion-ary housing program, or for that matter any costs over the customary costs of development, vary significantly depending on the nature of the community and its place in the regional housing market.531 If the community, in Ellickson's terminology, has no unique attributes, and has no features which would prompt a buyer to spend more money on a house in that community than on an identical house elsewhere, no builder
52


active in that community can pass on "non-standard" costs to homebuyers. I-f the opposite exist in a community, a builder can pass cost forward.
It should be stressed that this model applies to a variety of cost factors over and above inclusionary housing programs. As some of the critics of inclusionary housing programs would appear to suggest that costs generated thereby have a different effect than other "non-standard" costs. The same logic that may make it impossible for a developer to pass forward the costs of an inclusionary zoning program in a nonunique community makes it impossible for that developer to pass forward any costs over and above those typical of development in that community. For that reason mainly that sites that are either unusually expensive, in need of extensive site preparation, or require extensive offsite improvements for development are unlikely to be developed in unique communities and significantly more likely to be developed in unique communities where the premium prices that can be obtained allow a developer to pass forward the cost of building on expensive land or to spend substantial sums for site and offsite improvements.33
Since the pricing of housing in unique or premium communities is such as to accommodate a wide range of costs associated with site acquisition and improvement, it is not unlikely that some builders in these environments can pass the costs of inclusionary housing forward, particularly if their land acquisition or improvement costs are below the
53


maximum level tolerated by the market. In Orange County or Palo Alto, California or Bedminster and Cherry Hill in New Jersey are premium communities where inclusionary housing programs have been implemented.
Still, while the economics of development in these premium communities may offer a developer greater flexibility, it is far from unlimited as in the case of Orange County where there is a relatively competitive building industry. While the strength of the market demand at premium prices supports substantial development activity, it does not support infinite premium pricing, as a number or developers in that area discovered in the early 1980s.=3 While absorbing or passing the costs forward are not tenable long-term resolutions of the question, they do occur particularly in situations where a developer becomes subject to an inclusionary housing program requirement after the land for the proposed development has already been acquired, or after substantial investments have already been made. The former is far from unusual, since considerable stockpiling of land does take place. Under such circumstances, there is no possibility of passing costs backward to a landowner, since the landowner and the developer are one of same. Leaving aside what can be considered transitional cases, however, the tendency from that point onward will be to pass the cost or the reduction in profit potential backward to the landowner in the form of a lower price for his or her land. In essence, the effect of an inclusionary housing program on land value


in a given zone, all other standards being held constant, is identical to that of a downzoning of the same land. Given the legal interpretation previously offered as to the nature of inclusionary housing programs, i.e. that they are intrinsic to the use of the land, the outcome logically should be precisely that.
Land markets, however, often behave in a way unrelated to rational economic behavior and their irrationality can act as a potential "drag on the successful implementation of an inclusionary housing program. As has been noted, landowners develop expectations of the value of their land which tend to be highly sensitive to upward movement of the land market and highly insensitive to downward movement. In what has been characterized as a "price ratchet," land prices tend to remain fixed at the upward end of a price cycle for an extended period after changes in objective reality have come to dictate lower prices.
How significant the effect of the price ratchet will be depends entirely on the relationship between supply and demand within a given local market. Two diametrical1y opposed cases can be presented. In the first case, the supply of land within a particular premium community in which development demand is strong is extremely limited or concentrated in a few hands. In this case, if the landowners hesitate to reduce their prices down to the new level dictated by the market, developers may have to reevaluate their ability to continue to build under the inclusionary housing program at higher
55


land prices than they consider to be reasonable. A very efficient developer may, for example, determine that he can achieve economics to compensate for the higher land price, as for his inability to pass his costs backward to the land-owner. Once, of course, a major land transaction takes place, past inclusionary housing program at pre-program land values, the ratchet will be fixed. Few, if any, subsequent land transactions will reflect the reduced land value theorecti cally dictated by the market.34
A1ternatively, if the supply of land is substantial1y in excess of the demand, particularly if developers have land stockpiled so that they continue to build for some length of time without acquiring additional land, there is a realistic probability that over time the price of land in that community will indeed decline to the level set by the change in profit potential resulting from the establishment of the inclusionary housing program. In most premium communities, however, it is likely that circumstances are closer to the former rather than the latter case. Land available for development appears in short supply, whether by virtue of the absence of vacant parcels, development constraints such as growth controls or lack of infrastructures, or other factors. ==
The above discussion has considered only the simplified case in which no public costs are involved and all cost relationships are between the developer and his market "partners, the landowners and homebuyers. In a well designed
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there may be a sub
inclusionary housing program, however, stantial measure o-f public involvement, including fasttrack or accelerated processing, waiver of fees or offsite improvements requirements, and provision of assistance through tax-exempt bond financing or use of Community Development Block Grant (CDBG) funds. When such involvement is part of the development process, some measure of cost has been diverted onto actors other than the basic 1andowner/developer/ homebuyer trinity.
Pursuing the analogy between inclusionary housing programs and exactions, it logically follows that the costs of an inclusionary housing program will be more readily absorbed by the market in unique or premium communities than in communities with less compelling market attractions. The premium price that buyers will pay to live in the Palo Altos of the world enables a developer to incorporate a variety of costs into the purchase price of his units which would not be possible elsewhere. It is most probably the case in such communities that the costs of a reasonable inclusionary housing program can be absorbed without any decline in the price of land paid by developers. This is potentially important, since it is precisely such communities in which the price of land is most likely to remain high, whatever inclusionary program is adopted.
There is a sort of irony in this conclusion. Since housing in premium communities is the most expensive housing, the need is greatest there for an inclusionary program if anyone
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other than the wealthy are to be able to live there.
Fur-
thermore, since they are the most affluent communities, the redistributional effect of an inclusionary housing program is likely to be greater than in a community where the income gap is less pronounced.
That notwithstanding, this conclusion raises serious problems. First premium communities are, by definition, a relatively small part of any geographic area or housing market. An inclusionary housing program, therefore, which found itself limited to premium communities would affect only a small part of the regions housing production and would be destined to have no more than a modest impact on the regions housing needs. Second, the question arises whether the imposition of an inclusionary housing program, with a resulting increase in the number and visibility of low and moderate-income households in the community if sufficiently widespread, could potentially have a negative impact on the premium character of the community, or at a more modest scale, the premium character of specific developments in which low and moderateincome housing were incorporated.
The first issue is philosophically striaght forward, although possibly technically complex. If inclusionary housing programs are to be a significant means of meeting low and moderateincome housing needs, they must be economically sound propositions in a much wider variety of communities than just the small number of elite suburbs. Limiting the reach of inclusionary programs to premium communities would
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be preposterous both as law and as housing policy. The economic -factors involved, however, dictate that great care be taken with the design o-f each program. Programs must be designed in such a way that the level o-f the inclusionary objectives, i.e. the number and type of low- and moderate-income housing units sought and the level of incentives offered yield a reasonable outcome for a capable developer. The extent of the low and moderateincome housing requirement can and should reasonably vary with the marketplace character of the community imposing the requirement. Achieving such an outcome is not, unrealistic, given the level of affordability that can be achieved where land and improvement costs can be kept down, and with reasonable cooperative effort between developers and local governments.
The second issue, although widely speculative, is worth some discussion. It is clear that at least part of the motivation of those seeking to live in elite communities is the opportunity to live among other well-to-do people of putatively similar socioeconomic status or class. Generally speaking, in the United States, private housing choices have tended to maintain socioeconomic segregation rather than combat it; Ellickson writes, the trend is a clue that upper-income groups disvalue the proximity of lowerincome groups more than lowerincome groups value the proximity of upper-income groups.36 This may not be strictly true, because the ability of the upper-income groups to enforce their prefer-rences is so much greater than that of the lower-income groups, it has, nonetheless, enough truth to it to be given
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careful consideration. Some affluent areas across the country in which a widely heterogeneous economic mixture appears to exist with some measure of stability, are the exception, rather than the rule.
From a philosophical standpoint and, at least in New Jersey, a legal standpoint as well, the obligation to make inclusionary housing programs work is shared by the municipality to provide the opportunity for the development of low- and moderate-income housing, but that opportunity can be provided by imposing a duty upon developers in the community to provide those units within their developments. Thus, from the developer's standpoint, the construction of low and moderate-income housing becomes as such an intrinsic part of
the manner in which he does business as the accommodation of indigent patients was held to be an intrinsic part of the
nursing business in New Jersey Association of Health Care
Facilities vs. Finley.^
It is the municipality which at least in theory has to make the initiative. Where planning and zoning powers are properly being exercised, the municipality establishes the ground rules which must be adhered to by a developer seeking to build. This is particularly the case with regard to inclusionary housing programs whether or not it is true of the general course of municipal land use regulation. The typical developer is not likely to include low- and moderate-income housing in an otherwise more expensive development except in response to an explicit regulatory mandate.
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Framing that mandate, therefore, in all of its dimensions so that the program will indeed trigger the development of low-and moderateincome housing, becomes the most important consideration in the design of an inclusionary housing program. At the core of that mandate lies the zoning or land use ordinance setting forth the terms and condition under which a builder in the community must develop.
Making Inclusionary Housing Programs Work
The preceding segments have identified any number of shortcomings which can hinder the effective carrying out of an inclusionary housing program, but have also suggested that
means are available to navigate most of the obstacles that
stand between theory and practice. The obligation to provide those means falls largely on the municipality or county designing and implementing the program; while it is
necessary, of course, for developers to approach such
programs reasonably and constructively, they can act only with the context of the program devised by local government.
A key factor to making inclusionary housing programs work is the effectiveness of the inclusionary zoning ordinance. The ordinance must establish a reasonable and non-excessive goal for the development of low and moderate-income housing, and must establish other land use standards which do not interfere with the achievement of that goal.
A large number of inclusionary zoning ordinance fall short, however, of the above standard, although more often with regard to the latter requirement then the former.
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In any specific development scenario there is a point up to which low- and moderate-income housing requirements are feasible and not unreasonably burdensome, but beyond which they become burdensome. Inclusionary zoning ordinance can be burdensome in two separate ways: by requiring an excessive percentage o-f low- and moderate-income housing units, or by defining low- and moderate-income housing too narrowly or restri cti vely.
Incentives
A municipality or county can, over and above providing a "clean" zoning ordinance under which to build, offer a developer a variety of incentives to make the development of low- and moderate-income housing more attractive. Within tnis area, it is important to distinguisn between zoning incentives, which are part of the land use regulatory scheme, and other incentives, such as financial assistance or processing assistance. The concept of the density bonus is central to the notion of the voluntary inclusionary program and that the opportunity to build at greater density is an incentive sufficient to prompt a developer to incorporate low and moderateincome housing in his development.
Highland Park, Illinois for example, provides such a limited density increase relative to the required low and moderate-income housing units that the builder ends up building fewer market-rate units under the density bonus that he is permitted to build by right. =,*i In California, it has
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become effectively impossible to obtain building permits without providing a substantial number of low and moderate-income housing units. Some similar programs, but giving such less weight to low- and moderate-income housing production, have also been enacted in other communities.
A different approach, under consideration in some New Jersey communities as a response to the Mount Laurel II decision, is the inclusionary overlay zone, or conditional use. In a version of that approach being developed by a
planning team, the overlay zone or conditional use would apply to roughly twothirds of a municipality. Within that area a developer could build under the existing zoning by right, which would be limited with rare exceptions to development of single-family houses on relatively large lots. The developer could alternatively seek to build under the conditional use, which would provide for an increase in density in the area of 600 percent; e.g. from one unit per two acres to three units per acre.60 In order to qualify for the increase in density, the developer would have to either:
1) incorporate roughly 20 percent of low- and moderate-income units in his development;
2) combine the proposed site with a second site, and incorporate roughly 20 percent of the total units proposed as low and moderate-income housing, on either site; i.e. place all of the lower-income units on one site, and the market units on the other; or
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3) make a substantial cash contribution in lieu o-f
housing development to the housing trust fund tor the production ot low and moderate-income housing. An economic analysis can be conducted to establish the relative costs ot the options, in order to calibrate the alternatives.61
The provisions ot the overlay zone include one teature ot broaden significance: specifical 1y, the idea of offering developers alternative routes to the satisfaction of the inclusionary objective. Developers, as will be discussed, vary widely in terms of their technical willingness to embark on inclusionary housing developments at all. A municipality framing an inclusionary program should examine carefully whether its objectives can be achieved, in some cases, through alternatives to "straight" inclusionary development:
i.e. alternative to incorporating low- and moderateincome housing within each major development in the community. The principal alternatives that have been identified are: 1) off-site development, 2) payment in lieu of development, 3) transfer credits, and 4) donation of land. Each of these alternatives may be worthy of consideration in some communities under some circumstances, and irrelevant or inimical to the success of an inclusionary program in others. The point that is stressed is that such alternatives should, at a minimum, be considered in the framing of any inclusionary zoning ordinance.
Municipalities have the power to offer a variety of other potential inducements to developers in order to
6 b


generate the production of low and moderate-income housing. In other cases, municipalities may be able to obtain such benefits for developers from third parties, notably the state and federal government. Such inducements serve the purpose of reducing the costs, either initially or over time, to low-and moderate-income residents of housing produced through inclusionary housing programs beyond that which a developer can reasonably achieve through internal subsidies. Such inducements, such as tax abatement, use of tax-exempt bonds, and the like are arguably more important to offer in the contents of a mandatory than a voluntary inclusionary program. In the latter, in the final analysis, the developer can choose not to take advantage of the inclusionary option; but in the mandatory program, the developer has no choice other than to leave the community or cease being a developer. This clearly places a greater obligation on the
part of the community to seek out and provide assistance from whatever sources may be available to the greatest degree possible.
Many of the available non-zoning incentives have been mentioned. The following will be a brief presentation of the more effective and more readily available incentives:
1) Tax-Exempt Bond Mortgages: The lower interest rate of tax-exempt bonds, typically 34 percent below the conventional mortgage interest rates at any given time, provides a substantial boost to the affordability of a unit at a given cost. The level of subsidy that is likely to be
65


required without tax-exempt bond -financing, to produce housing that is realistically a-ffordable to low-income households as defined in Mount Laurel II is greater than that which most developers may realistically be able to provide. In such circumstances, it may be reasonable to require certain levels o-f lowincome housing production only if tax-exempt bond financing is available. The specific circumstances under which it may be available will vary from state to state where state law provides that a municipality or county can issue such tax-exempt bonds directly, such a commitment should be seriously considered by any community imposing an inclusionary housing obligation on a developer.
2> Community Development Block Grant Funds: All municipalities and counties in the United States are potential recipients of funds under the Community Development Block Grant program, a federal program available to support a wide variety of local activities, particularly those that improve the housing conditions of low- and moderate-income households. Some municipalities and counties, including all large urban centers, are considered "entitlement" communities, and receive such funds on a noncompetitive basis; other communities can receive the Small Cities program. In many states, as a result of recent program changes, the Small Cities program is administered by the state rather than the federal government.
While CDBG funds cannot be used directly to finance construction, they can be used in a variety of ways which
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directly -facilitate the construction o-f low- and moderate-income housing; or make the end product more a-f-fordable to lower-income households. Among the more widespread uses o-f such -funds are land-banking or the acquisition of land for low and moderate-income housing with CDBG funds;63 use of CDBG funds to provide infrastructure for low and moderate-income housing sites, particularly for the funding of necessary off-site improvements; and interest rate reduction, by incorporating grant money into financing packages either as a grant or as a low interest loan.
The law provides for a diversity of techniques by which CDBG funds can be used to reduce costs associated with the provision of lowerincome housing, so that a municipality in conjunction with one or more developers, can readily design a program that utilizes available funds in the cost efficient manner in each particular case. Furthermore, this program represents a significant source of funds, with annual appropriations in recent years being in the area of $5 billion. As a result, there is no question that by targeting CDBG funds to defray costs associated with providing low and moderate-income units in larger developments, more units more affordable by lowerincome households can be constructed.
3) Tax Abatement: Many states have enacted statutes whereby municipalities can offer tax abatement to residential developments meeting certain criteria. Typically, a statute may provide that the owner of a rental development may pay a fixed percentage of project income in lieu of property taxes
6 7


annually, this is known as a payment in lieu o-f taxes (Pilot), and can be set at different levels, usually by action of the municipal governing body.
Historical 1y, suburban communities have been reluctant to grant tax abatement to lowerincome housing developments, with the exception of senior citizen housing where it was anticipated that the cost of providing municipal services to the residents would be minimal. Fears of fami 1yoriented developments triggering dramatic increases in school enrollment while generally unfounded, tended to discourage the granting of tax abatement. The granting of tax abatement in support of inclusionary housing programs may be further hindered by state enabling legislation in this area; most state statutes tend to restrict tax abatement to developments financed with public funds or being undertaken in conjunction with urban renewal projects, as to other particular circumstances more characteristic of the development environment twenty years ago than that of the present day. As inclusionary housing programs become more widely implemented, it is not unreasonable to expect that state legislators may adopt legislation making tax abatement, under reasonable ground rules, available as a tool in support of inclusionary housing efforts.
4) Use of Municipality Owned Land: In a number of jurisdictions, the use of CDBG funds are used to acquire land which is then made available to developers who will construct lower-income housing. Many municipalities, through various
6b


means, have come into ownership o-f vacant or underutilized land parcels suitable -for residential development. In other cases, the municipality may be in a position to obtain land presently in state or -federal ownership -for housing
development on behal-f o-f a developer. Such land may be made available -for the construction o-f lower-income housing
simultaneously with construction of more expensive housing elsewhere; in some cases, sites may be situated so that they can provide additional acreage for a site subject to an inclusionary housing program. Such opportunities are likely to be less readily available in suburban than in urban communities, since during recent years many urban jurisdictions have come into ownership of large tracts of land, often as a result of tax foreclosure or urban renewal.
5) Use of Municipal Funds; The notion that a suburban municipality would actually appropriate funds raised by local taxes to support lowerincome housing is abhorrent to most suburban residents; even the court in Mount Laurel II did not go so far as to mandate the spending of municipal funds, while warnings that satisfaction of the Mount Laurel obligation imposes many financial obligations on municipalities.6* Suburban residents, with few exceptions, perceive themselves as heavily taxed and overburdened by the costs of simply providing the basic services and facilities that they have come to consider necessary for their health and welfare. While some suburbanites may be overburdened by local taxes, many are not.
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In the -final analysis; much, i-f not all, o-f the -foregoing discussion comes down to the issue o-f good -faith. Having adopted an inclusionary zoning ordinance and -framed an inclusionary housing program, is the municipality acting in good faith to see that it brings about desired results; i.e. the production of housing that is indeed affordable to, and occupied by, lower-income households. In a context wherein the obligation to achieve results is equally shared between the municipality and the developer, the concept of good faith is an affirmative one, grounded in the proposition that a municipality acting in good faith to implement an inclusion-ary housing program must take whatever affirmative steps are reasonably available to it to bring about its success. In short, for a local jurisdiction to carry out the provisions of an inclusionary housing program in good faith requires more than simply adopting an ordinance and placing matters in the hands of the developers active in the community. It requires a series of affirmative steps which lead to a form of partnership between the municipality or county and the developers, formed in order to make production of lower-income housing possible.
The Role of the Developer
While the municipality must establish the ground rules for an inclusionary housing program and has an obligation to act affirmatively in support of developer's efforts to build under those ground rules, the developer is, after all the one
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who will or will not build the low- and moderate-incorae hous-
ing which an inclusionary ordinance seeks to provide. The development industry, as a rule, has been unenthusiastic about the establishment o-f mandatory inclusionary housing programs. It is their belie-f that inhibition to affordable housing is a direct result of too much government regulation and if the industry is deregulated that would entail more affordable developments; and that in any event, it is unfair and unreasonable to place the responsibility for meeting a general societal need on the back of the building industry. There is no doubt that relaxation of regulation, growth limits, and the like would make possible substantial reduction in housing costs. There is also no reason to assume that those reductions would even approach the cost differences between the going market and the price of the units produced under inclusionary housing programs in Orange County or Montgomery County.It is equally clear that few, if any, builders will produce units that conform to the Mount Laurel II standards in the absence of explicit regulatory standards and conditions. The California Builder Industry has been adamantly opposed to inclusionary housing programs. The developers which have been most successful hold the most positive attitudes, while those builders who have not been successful had negative attitudes. There are three separate factors emerge at this point: the type of developer, the size of the developer, and the attitude with which the
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developer approaches the project, in particular the lower-income housing element with the project.
Developers are diverse with regard to their size, their organizational structure, the nature o-f the product that they build, and many other -features. The typical developer is conservative; having become accustomed to producing a particular housing product, he will rarely deviate significantly from that model, except under duress. Even where image is not a problem, it is not generally feasible for the builder of an expensive, limited volume product to shift to the production of affordable or lower cost housing. The difference between the two products from a technical perspective is almost so great as to suggest that two different industries are involved. The same lines divide developers on the issue of participation in, and cooperation with, government programs and agencies. The typical builder often sees himself as an adversary and adopts a 1aissez-faire nongovernment attitude which reflects the very real difficulties developers have experienced in trying to take advantage of government housing programs. A case study in Orange County is worth examining:
Small developers perceive a greater risk in building moderate-priced units and are less able to afford the cost of innovative design or technological changes. Therefore, they are less likely to build a project with affordable units onsite. Because their projects are small (on small parcels)
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they are less able to separate af-fordables -from market-rate units, an action they perceive as necessary to reduce the negative e-f-fect of the lower priced units on market rate units. They are much less able to take advantage o-f scale e-fficiencies to cut costs, and in -fact are more likely to experience increased learning costs in constructing new model types In contrast, some large developers were able to take advantage of the incentives offered by the county and produce developments that were in their entirety as in large part made up of affordable housing, is defined by the county. This in turn enabled them to sell credits to other typically smaller developers, thereby making a substantial cash return on their production of lower-income units. Credits are accu
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mulated through the production of a-F-fordable units for low-and moderate-income occupants. At which time the developer has fulfilled the housing needs under an inclusionary housing agreement, he is entitled to either sell his credits or build market-rate units without any additional requirements. The fact that small builders were willing to spend $15,000 or more per credit, which appears to be substantially more than the loss taken by the larger builders on the production of these units suggests: 1) that the pricing of conventional units in the Orange County marketplace was capable of absorbing a substantial "tax" of this nature; and 2) that their resistance to actually building lower-income housing was so strenuous that they were willing as an alternative to pay a "tax" substantial1y in excess of the likely direct cost to them of producing the required affordable housing.
A corollary to the above point is that a mandatory inclusionary program must be sensitive to the difference between developers by type and by size, and express that sensitivity by offering a variety of means by which to meet an inclusionary requirement. A requirement across the board that each development constrain a set percentage of lower-income housing, without exceptions or alternatives, may turn out to be unworkable for a substantial number of builders active in the community which, in turn, could easily lead to the objectives of the program being frustrated.
A third distinction, and perhaps the most important one, although the hardest one to define with precision, is that of
7b


the attitude with which the developer approaches the inclusionary housing condition to which he is subject. It is apparent that many developers perceive the provision of lower-income housing to be a burden totally different in degree and in kind from other obligations and conditions that they must meet, such as site and off-site improvements. In a similar vein, it appears that many developers, treating lowerincome housing as an "add-on" rather than an integral part of the development, prepare financial plans which do not include the lower-income units, and then superimpose the costs of the lower-income units on the financial plan.*'*
Alan Mallach believes the successful developer under an inclusionary housing program is the developer who fully meshes the planning of the low- and moderateincome housing with the overal1 planning of the development. From his standpoint the development of inclusionary housing should be routinized as not to make its implementation seem abnormal or experimental.
Creating and Maintaining Occupancy
As previously mentioned those family households most closely identified to the low-income definition would be the most qualified to participate in the inclusionary programs. Based on need and family income these family households would be kept on file by the administering agency to occupy the units as they become available. This same agency would also function to maintain these units as low- or moderate-income
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status by setting up an equity control program. Some questions have arisen over the resale control programs. It has been perceived as challenging -fundamental American principles and values; Hagman notes that the Cali-fornia Association o-f Realtors alleges that denying a low- or moderate-income person the right to equity appreciation in a purchased unit is condemning that person to continue lowincome status. While it is -formulated that such is preposterous, it does have relevant concern. This concern, coupled with a number o-f thorny legal and technical issues, has resulted in some jurisdictions deciding not to impose resale controls (although care-fully limiting initial occupancy), and others deciding to limit the controls to a relatively short period after initial occupancy.70
Any effort to ensure that units constructed under inclusionary housing programs be and remain occupied by lower income households does require considerable level of public intervention, both in the form of initially framing and adopting detailed regulations and standards as well as in terms of ongoing monitoring and administrating for the duration of lower-income household occupancy. This is nothing new to those familiar with federal subsidized housing programs. Resale controls take a variety of forms, and much of the variation reflects the differences between the two elements of the rationale set forth above; namely, the prevention of speculation, and the long term preservation of the lower-income housing stock. The prevention of specula-
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tion can often be adequately discouraged by requiring the purchaser to maintain the unit as his or her principal residence for a given period; controls have been established in various communities for periods of one to five years.71 Prior to establishment of a more extensive resale control program. Orange County imposed an unusual antispeculation control, described as follows:
"The mechanism would be in the form of a trust deed (second mortgage) equal to 15 percent of the purchase price. If the house was resold within the first year from original sale, the full 15 percent would be due and payable to the county or its designee. If the home was resold during the second year, there would be a 20 percent reduction; i.e. 12 percent reduction until after the fifth year. The home could be sold for the market value at any time as long as the provisions of the trust deed were complied with."'72 Although there are many antispeculation devices used by various communities and many legal issues associated with such controls, it is beyond the scope of this study to detail these issues. Finally, there is little argument that a unit may provide less tax revenue to a municipality over time if its value is controlled keeping it below market-rate value of the unit. It should be recognized that the advantages out-
weigh the negatives in terms of more people will have the opportunity to own homes at a much less subsidized cost in
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-
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4
HOUSING NEEDS ASSESSMENT
Summary
This segment is a narrative o-f the 1980 Annual Housing Survey. It describes the state of the housing inventory in 1980 and the characteristics of housing production and marketing in 1980 and 1981, and to discuss anticipated developments in 1982 and, where possible, 1983. The narrative details trends in rental housing, outlook for housing production and marketing, and the availability of mortgage funds for housing.
The housing industry downturn, which began in 1979 due to adverse economic conditions and high interest rates, continued through 1980 and 1981. Housing starts fell to 1.3 million in 1980 after a peak of 2.0 million in 1978, and further to 1.1 million in 1981. Single-family starts fell to
0.85 million units in 1980 and 0.71 million in 1981, while multifamily starts were 0.44 million and 0.38 million. Mobile home shipments declined less, to 0.22 million in 1980, and rose to 0.24 million in 1981. New home sales dropped to 0.54 million in 1980 after a peak of 0.82 million in 1977 and 1978, and declined further to 0.44 million in 1981.
There is strong evidence that in periods of construction downturns, the existing housing inventory is used more inten
79


sively. It is conserved and upgraded and investment in it increases, partially offsetting the new construction downturn. Furthermore, additions to the stock -from sources other than new construction increase, making the Nation less dependent on new construction than has been generally believed.
Housing starts in 1982 were lower in 1981, just over
1.0 million units. It is anticipated that the recovery of the economy and lower inflation and interest rates, there is a good probability of an increase to the 1.4 million level in 1983. Trends in the existing stock of housing resulted in the growth of the housing inventory to over 88 million units by November 1980. Occupied units, and thus households, increased by 1.5 million from 1979 to 1980 despite the downturn in new construction, because of additions from other sources. The stock grew fastest in the suburbs of metropolitan areas, next fastest in non-metropolitan areas, and slowest in central cities of metropolitan areas.
The rental inventory demonstrated continued yearly growth in 1979 and 1980 in contrast to frequent claims of a skrinking rental stock. The reason for the growth is due not only to additions from new construction and non-new-construc-tion sources, but also to shifts in tenure from owner occupancy to renter occupancy. In some years, this can add over half a million units to the rental inventory. The physical adequacy of housing has been improving over the longer run, but the problem of cost burdens have been very severe, particularly for very lowincome renters.
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Housing Production and Marketing in 1980 and 1981
Housing production and marketing in 1980 continued the sharp downturn which had begun in 1979, reaching a low point in the Spring, then recovering somewhat during the rest o-f the year in production, where sales peaked in late Summer and declined during the rest o-f 1980. Total private housing starts for the year were 1,292,000, down 26 percent from 1979 and down 36 percent from 1978, the peak of the most recent housing production cycle. Total public and private starts totaled 1,312,600 units in 1980. The seasonally adjusted annual rate for private starts was above 1.3 million in January and February 1980, fell below 1.1 million in March and April, and dipped below 1.0 million in May, to 939,000 units. It rose to the 1.2 to 1.3 million range in June and July, continued above 1.4 million in August and September, and exceeded 1.5 million in October and November, peaking at
1,539,000 in the latter month before declining to 1,457,000 in December. These movements were in response to the stringent credit conditions in March and April. Mortgage interest rates at commitment had risen from 13 percent to the 15 to 17 percent range in the Spring, and then fell to under 12 percent in August in response to Federal Reserve actions. Mortgage rates rose again in the Fall, reaching the 15 to 16 percent range in late 1980.
In 1981, housing production and marketing turned downward again to levels unprecedented in over three decades, as a result of high mortgage interest rates. Total private hous-
81


ing starts in 1981 was 1,084,200 units, 16 percent below the depressed 1980 -figure. Total public and private starts were 1,100,300 housing units, the lowest volume since the housing industry recovered -from World War II. The seasonally adjusted annual rate peaked at 1,585,000 in January 1981, hovered around 1.3 million in February, March and April, was at 1.2 million in March, and just above 1.0 million in June and July. It remained below 1.0 million in the last five months of the year, and below 0.9 million from September through December. The effective conventional mortgage commitment rate rose steadily from the third quarter of 1980. In the first quarter of 1981, it averaged above 15 percent; in the second quarter, above 16 percent; in the third quarter, above 17 percent; and in the fourth quarter, above 18 percent.
1. Housing Production: Starts
Single-family production in 1980 was 29 percent below the 1,194,100 starts of 1979. The 1980 total was 852,200 privately owned singlefamily starts, the lowest volume since 1970. The seasonally adjusted annual rate for single-family starts paralleled the rate for total starts. In 1981,
705,400 single-family housing were started, or 17 percent fewer than in 1980. This was the lowest one family starts level since records began to be kept in 1959. Privately owned multi family starts in 1980 amounted to 440,000 units, 20 percent below the 1979 level of 551,000 units. This was the largest decrease for the multi family sector in five years.
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In 1981, privately owned multifamily starts declined by 14 percent, or less than single-family starts, to 378,800 units. This volume exceeded the multifamily production
levels of 1975 and 1976, in the previous housing downturn. In the first quarter of 1981, the annual rate averaged 508,000 units, then fell to 390,000 units in the second quarter. The rate fell again to 317,000 in the third quarter, and in the last quarter the rate rose slightly to 328,000 units.
2. Manufactured Housing Shipments
Mobile home shipments were 20 percent lower in 1980 than in 1979; 221,600 units were shipped by manufacturers in 1980, compared with 277,400 shipped to dealers and park developers
in 1979, and a similar number in 1978. The seasonally adjusted annual shipment rate of 258,000 in January 1980, and
271,000 in February, fell to about 170,000 in May and June, and then rose the rest of the year to 239,000 in December. In 1981, mobile home shipments rose almost 9 percent to 240,700 units, as consumers turned to this lower cost form of housing. The shipment rate was 232,000 in January 1981 and then varied between 254,000 and 267,000 until July, after which it fell to about 238,000 in August and September, and to about 207,000 in the final three months of 1981, affected by high interest rates like conventional housing.
3. Building Permits
About 1,190,600 new privately owned housing units were authorized in 16,000 permit issuing places in 1980, 23 per-
83


cent below the 1,551,800 in 1979, and 34 percent below the 1,800,500 in 1978. Single-family permits were down almost 28 percent -from 981,500 in 1979 to 710,400 in 1980. Permits -for units in structures with two or more units -fell 16 percent -from 570,300 in 1979 to 480,200 in 1980. Multi-family permits were 33.4 percent o-f all permits issued in 1977, 35.2 percent in 1978, 36.7 percent in 1979, and 40 percent in 1980, the
highest proportion since 1974, when it was also 40 percent.
In 1981, the number o-f privately owned housing units authorized in 16,000 permit-issuing places decreased more than 17 percent -from 1980 to 985,500. For the fourth consecutive year, permits for singlefamily units fared worse than
multifamily permits. Single-family permits fell 21 percent

to 564,300, while multifamily permits for two or more unit structures declined 12 percent to 421,200 units. Permits for multi family units represented almost 43 percent of all housing unit authorizations in 1981. At the end of 1981, builders held permits for 145,500 units which were not yet started. This was 16 percent below the 173,600 units authorized by unused permits in the hands of builders at the end of 1980, and 21 percent below the 184,100 at the end of 1979. About
59 percent of the unused permits at the end of 1981 were for multifamily units.
4. Housing Completions/Units Under Construction
During 1980, about 1,735,300 newlybuilt, privately owned housing units were added to the Nations housing inven-


tory (exclusive of the addition of over 600,000 housing units from existing structures). This was more than 19 percent below the 2,150,700 units added in 1979. New private conventionally built housing completions in 1980 totaled an estimated 1,501,600 units, 20 percent -fewer than the 1,970,800 completed in 1979, and also 20 percent -fewer than in 1978. In 1981 about 1,494,900 new housing units (conventional and mobile) were added to the Nations housing stock, 14 percent fewer than in 1980. Conventionally built housing completions added 1,265,700 units, 16 percent below 1980.
Single-family unit completions fell to 956,700 units in 1980, 26 percent below the one family completions of
1,301,000 in 1979. Completions of units in structures with two or more units added 544,900 units to the inventory in 1980, only.24,900 units and 4 percent less than the 569,800 units added the prior year. In 1981, singlefamily completions amounted to 818,500 units, 14 percent below 1980, and two-plus unit completions totaled 447,200 units, IS percent below 1980.
Placements on site in 1980 of mobile homes ready for occupancy amounted to 233,700 units, 17 percent fewer than the 279,900 units placed on site in 1979. In 1981, on-site placements of the mobile home component of manufactured housing totaled an 229,200 units, 2 percent below the 1980 1evel.
At the end of the 1980, 896,100 privately owned housing units were under construction, down 21 percent from the
85


1,140,100 started but not completed at the end o-f 1979. A-bout 43 percent, or 381,600 units, were in multi-family structures, compared with 501,400 or 44 percent, at the end o-f 1979. At the end o-f 1981, 682,400 units were under construction, 24 percent below 1980. About 44 percent, 300,700 units were in multi-family structures.
5. HonsinQ Marketing; New House Sales
New singlefami ly house sales in 1980 declined -for the second straight year. Merchant builders sold 545,000 speculatively built singlefamily houses, down 23 percent from the
709,000 sold in 1979, and 33 percent from the record levels of almost 820,000 in 1977 and 1978. The low point in new home sales occurred in April 1980, when 36,000 homes were sold, for a seasonally adjusted rate of 366,000 new houses. The rate rose to between 615,000 and 540,000 in July and August, and then fell to the 550,000 level in the last quarter of the year. At the end of 1980, builders were carrying an actual inventory of 342,000 units, the equivalent of 7.7 months of sales at the seasonably adjusted December sales rate.
In 1980, contractors completed 161,000 single-family houses, and owners built or acted as a general contractor for another 194,000 units. These represented 17 and 20 percent respectively of single-family completions in 1980. Completions of units built for sale totaled 583,000 units, 61 percent of all single-family completions, and completions of
86


units built for rent amounted to 19,000 units 2 percent of all single-family completions.
In 1981, new single-family sales declined to the lowest level recorded since the series began in 1963. Only 436,000 new speculatively built homes were sold, 20 percent below the 1980 level, and 3 percent under the previous low of 448,000 set in 1969. At the end of 1981, builders were carrying an unsold inventory of 278,000 homes, well down from the recent peak of 426,000 houses in May 1979, and only a 7.0 month supply at the December 1981 sales rate. In previous downturns in 1973 and 1974, the unsold inventory (a record 432,000 in August 1973) had represented supplies of more than 10 months at current sales rates. Approximately 38 percent of the homes for sale in December 1981 were completed, a higher than normal proportion, and 45 percent were under construction, a lower than normal proportion. A normal 17 percent were authorised but not yet started.
In 1980 and 1981, new home sales fell 25 to 30 percent from 1979 in the Northeast; they were 67,000 in 1979 and
50,000 in 1930 and 46,000 in 1981. In the North Central, sales fell from 112,000 in 1979 to 60,000 in 1981, a drop of 46 percent. Sales fell 50 percent in the West over the two years, from 225,000 to 112, 000 homes. Sales fell 27 percent in the South, from 304,000 to 219,000 units.
6. Existing House Sales/Apartment Absorption Rates
Existing single-family home sales declined in 1980 to the lowest level in five years. The volume of 2,881,000 sales
87


was 22 percent below the 1979 volume o-f 3,701,000 homes. The seasonally adjusted annual rate varied -from a low o-f
2,350,000 in May to a peak of 3,280,000 in September. In 1981, existing home sales declined over 18 percent -from 1980 to a level o-f 2,351,000 houses, the lowest volume since 1974s 2,272,000. In the last three months o-f 1981, the rate again -fell below 2.0 million.
Existing home sales fell in all four regions during both 1980 and 1981. Over the two years, existing sales were down 32 percent in the South, 34 percent in the Northeast, 40 percent in the North Central, and almost 42 percent in the West. The South's share of existing home sales increased from under 39 percent in 1978 to 40 percent in 1980 and over 41 percent in 1981.
Multifamily rental absorption rates decreased in 1980, as demand for new rental units softened. About 196,100 privately-financed, unfurnished and unsubsidized rental apartments in buildings with five or more units were completed in 1980, down 19 percent from the 241,200 completed in 1979. About 75 percent of the 1980 completions were rented within three months, compared with a three month absorption rate of 82 percent in 1979. About 75 percent of the 1980 completions were rented within three months, compared with a three month absorption rate of 82 percent in 1979. In 1981. the absorption rate for newly completed, privatelyfinanced and unsubsidized apartments in buildings with five or more units rose again to 80 percent. An estimated, 135,500 such
88


About 91,800 new condominium units in five or more unit structures were completed in 1979, compared with 54,500 in structures were completed in 1979, compared with 54,500 in 1978. The proportion of condominium units sold within three months was 74 percent in 1979, and 77 percent in 1978. In 1980, 122,800 condominium units in structures with five or
more units were completed, and of these about 72 percent were sold in three months. Condominium sales were affected by the same factors that dampened rentals of new apartments and sales of new and existing homes.
7. Condominum Production/Other Inventory Additions
Total condominum starts in 1980, based on builders intentions at time of start, reached a level of 186,000 units, down 6 percent from 198,000 such starts in 1979. Of the 1980 condominium starts, 35,000 units or 19 percent of the total were in one unit structures (attached or detached). This was a smaller proportion than the 43,000 such starts in 1979. Another 32,000 or 17 percent of the total were in structures with two to four units; this was 29 percent of all the two to four units; this was 29 percent of all the two to four unit starts, compared to 25 percent in 1978, and a slight increase over the 30,000 such starts in 1979. Of the 331,000 starts of units in structures with five or more units in 1930,
118,000 or 36 percent were intended for sale as condominiums. In 1979, 126,000 units or 29 percent of the 429,000 starts in
five or more unit structures were intended to be sold as
89


condominiums. Starts of units intended for rental occupancy amounted to 213,000 units in 19S0, 30 percent less than the
303.000 rental starts in 1979. Thus, as rental absorption faster rate than starts of new condo units, an appropriate market response by builders.
The lower levels of housing production in 1980 and 1981 were offset by increased conservation, upgrading, and more intensive use of the existing stock, by conversions of large units to more and smaller units suitable for todays smaller households, and by conversions of non-residential structures to residential use. Following the decline in new construction additions to the inventory in 1979 and 1980, the number of housing inventory losses also declined in 1980. Gross losses had averaged over 1,400,000 units per year from 1974 to 1979, or 531,000 permanent losses and 886,000 retrievable losses. From October 1979 to October 1980, the inventory lost about 1,200,000 units, 485,000 permanent and 728,000 retrievable. The net increase in losses from 1979 to 1980 was less than 450,000 units, due to retrievable units returning to the inventory, compared with net increases of 512,000 to
954.000 from 1975 to 1976. Additions from sources other than construction were providing over 600,000 units to the inventory, over and above the 1.7 million units added by reported new construction.
3. Price Trends
The median price of a new house sold in the United States increased only 2.7 percent, from $62,900 to $64,600,
90


from 1979 to 1980, and Increased by 6.7 percent to $68,900 in 1981. In the North Central region, the median price de-
creased in current dollars by 0.8 percent to $63,400 in 1980, and increased only 3.9 percent to $65,900 in 1981, far below general price increases. In the West, it increased 3.9 percent to $72,300 in 1980 and 7.6 percent to $77,800 in 1981. In the South, the increase was 4.0 percent to $59,600
in 1980, and 8.1 percent to $64,400 in 1981. In the
Northeast, the increases were 6.1 percent $69,500 in 1980, and 9.4 percent to $76,000 in 1981. The price index for all new constant quality homes rose 11.0 percent in 1980, and
8.4 percent in 1981. Thus, builders were building homes with
fewer amenities as well as cutting prices in an attempt to continue production.
The median price of existing homes rose 11.7 percent in 1980, to $62,200 from $55,700 in 1979, and only 6.8 percent to $66,400 in 1981, the lowest increase since the 5.5 percent increase in 1970. The price of an existing home sold in the West in 1980 rose 15.4 percent to $89,300, and in 1981, the median price was $96,200, up only 7.7 percent from 1980, half the rise of the previous year and slightly above the new house sales price. In the South, existing home prices rose 10.6 percent to $58,300 in 1980, and 10.5 percent to $64,400 in 1981, almost as much of an increase as in the prior year. In the North Central, the increases were 8.6 percent to $51,900 in 1980, and 4.6 percent to $54,300 in 1981. In the Northeast, the increases were 13.4 percent to $60,800 in 1980 and 4.8 percent to $63,700 in 1981.
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Average sales prices o-f the new mobile home type o-f manufactured housing placed -for residential use have steadily risen since -from 1979. Average prices in 1991 were about the same as in 1980, with an annual average o-f $19,900. In all years, prices have been signi-ficantly higher in the West than in the other regions. In 1979 and 1980, average annual prices were similar in the Northeast, North Central and South, although there was greater disparity in earlier years. In 1981, prices remained highest in the West ($25,600) compared by $18,400 to $19,000 in the other three regions.
With the exceptions of new conventional1ybui1t homes in the Northeast in 1981, and existing homes in the Northeast and West in 1980 and in the South in 1981, these price increases were smaller than the increases in the Consumer Price Index, although alternative mortgage instruments, purchase money mortgages, and other financing innovations make home prices less certain than in the past. The CPI rose 12.5 percent from 1979 to 1980 and 8.7 percent from 1980 to 1981. The cost of construction materials rose 6.6 percent from 1979 to 1980 and 6.2 percent to 1981. However, wage adjustments for construction workers in major industry bargaining units, which include non-residential construction, rose 9.9 percent in 1980 and 11.1 percent in 1981. Overall, residential construction costs rose about 8 percent in 1930 and less than 6 percent in 1981, faster than the price of a new house in 1980, but slower in 1981.
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Outlook -for Housing Production and Marketing
Between 1.00 and 1.10 million conventional housing units are expected to be started during 1982, somewhat below 1931. The lower end of this range has a higher probability than the upper end. Single-family starts would account tor about 0.60 to 0.65 million units, while multitamily starts would comprise 0.40 to 0.45 million units. Shipments ot the mobile home type ot manufactured housing are projected to vary between 220,000 and 240,000 in 1982, for a total housing production initiation of 1.22 to 1.34 million units. Completions of conventional housing units and mobile home placements should produce from 1.10 to 1.20 million additions to the Nation's housing inventory. The 0.94 to 0.96 million conventional completions would include about 575,000 singlefamily units and 375,000 multifamily completions. In 1983, it is probable that starts will rise to the 1.3 million to 1.5 million range.
Sales of speculatively built new homes are anticipated to total between 370,000 and 400,000 in 1982, down from 1981. Absorption of new rental units in multifamily structures could increase slightly to a three month rate of about 81 percent. Based on anticipated housing production and marketing levels, homeowner vacancy rates are likely to be at or above 1.5 percent. Rental vacancy rates, which have been near 5.0 percent since the fourth quarter of 1980, are expected to continue at that level. The vacant stock for rent and sale are of a higher quality than ten years ago, so that
93


these low rates are not as onerous as they appear
to
be.
However, many local housing markets will continue to be tight, which will induce increased investment in and use o-f the existing stock.
In 1980, $63.1 billion was expended on new residential construction, while nearly threefourths as much, $46.3 billion, was expended on maintaining, repairing and making construction improvements to the existing housing inventory. In 1981, $62.7 billion went -for new construction and $46.4 billion, again threefourths as much, was used to improve or maintain the existing inventory. In 1978, investment in the existing housing stock was less than halt as much as the expenditures on new construction. Additions and alterations to residential structures amounted to $21.3 billion, and major replacements, $9.8 billion in 1980; the 1981 -figures are estimated at $20.4 billion and $9.9 billion. Gross private residential investment in nonfarm structures constituted about 3.8 percent o-f GNP in 1980 and about 3.6 percent in 1981 ($99.7 billions). The share o-f GNP has declined -from 5.1 percent in 1978 and 4.8 percent in 1979, and is expected to increase again in 1983. Investment in the existing inventory, which has been steadily increasing in real terms until 1981, when it declined about 6 percent, is expected to decline slightly in 1982, to about $45 billion in current dol1ars.
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Trends in Housing Inventory and Household Characteristics
1970-1930
1. Housing Stock. Tenure and Location Trends
By October 1980 the Nations housing stock had grown to a total of 88.2 million units, an increase of 19.5 million units, or 28.4 percent, since 1970 (Table B-l). Some 98 per-
Table B i-l
Changes in the Housi ng Stock :, 1970- -1980*
(Number of Units in Millions)
Change in Units
Number Percent
1970 1973 1976 1980 1970 - 1980
Total Units 68.7 76.0 80.9 88.2 19.5 28. 4
Seasonal Units 1.0 0.7 1.6 2.2 1.2 120.0
Year-Round Units 67.7 75.3 79.3 86.0 18.3 27.0
Occupied 63.4 69.3 74.0 80. 1 16.7 26.3
By Owners 39.9 44.7 47.9 52.5 12. 6 31.6
By Renters 23.6 24.7 26. 1 27.6 4.0 16.9
Vacant 4.3 6.0 5.3 6.9 1.7 39.5
For Sale 0.5 0.5 0.6 0.8 0.3 60.0
For Rent 1.7 1.5 1.5 1.5 -0.2 -11.8
Other 2. 1 3.9 rr '-i O' JL 3.7 1.6 76.2
*Units may not add to totals because o-f rounding.
cent (86.0 million units) o-f the stock consisted o-f year-round units, which had increased by 27 percent since 1970. The yearround, gross vacancy rate was 7.0 percent (6.0 million), but many o-f these vacancies (3.7 million) were either already sold or rented and awaiting occupancy, held for occasional use, or otherwise not available for rent or sale. Thus, there were actually 2.3 million units on the market for rent or sale, and the marketable vacancies represented
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almost 2.7 percent o-f the year-round housing stock. The 1970 marketable vacancies totaled 2.2 million units, or 3.2 percent o-f the year-round stock.
From 1970 to 19S0 occupied units increased by 26.3 percent, with owneroccupied units increasing by 31.6 percent and renter-occupied units by 16.9 percent. In 1980, owner-occupancy accounted for about 65.6 percent of all occupied units, a slight increase over the 1970 Decennial Census rate of 62.9 percent. In actual numbers, there was an increase of 12.6 million owneroccupied units and about 4.0 million renteroccupied units from 1970 to 1980, while year-round vacancies increased by approximately 1.7 million. Cooperative and condominium owner-occupancy were reported at 1.4 million in 1980; about 137,000 cooperative and condominium units were vacant and for sale.
The national figures should not be interpreted to represent any particular local housing market or markets, but only to describe a hypothetical average market. Changes were not uniform regionally, by city size, or by any other logical method of classifying the places in which the housing stock-changes from one year to another; it would, therefore, be unusual for any locality picked at random to follow closely the pattern set by the overall figures. Table B-2 shows changes in the number of year-round housing units by region and metropalitan/non-metropoli tan 1ocati on.
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Table B-2
Year-round Housing Units, 1970-1980 (Number of Units in Millions)
Change in Units
Location 1970 1973 1976 1980 Number 1970 Fercent 1980
All 67.7 75.3 79.3 36.0 18.3 27.0
By Region:
Northeast 16.2 17.4 17.6 18.4 2.2 13.6
North Central 18.7 20.2 21.0 22.3 3.6 19.3
South 20.9 24.0 25.8 28.5 7.6 36.4
West 11.9 13.8 14.9 16.8 4.9 41.2
By SMSA Location: In SMSAs 46.1 51.0 iJ*j 6 58.0 11.9 25.8
Inside CC 22.6 24. 1 24.5 25.5 2.9 12.8
Outside CC 23.5 26.9 29. 1 32.5 9.0 33.3
Outside SMSAs 21.6 24.3 25.7 28.0 6. 4 29.6
CC (Central Cities)
2. Trends in Values o-f Owned Units and Gross Rents o-f
Rental Units
A distribution o-f specified owner-occupied units by value from 1970-1980 discloses the continuing movement of house values towards the higher end of the scale (Table B-3). The proportion of lower-valued homes (less than $25,000) has decreased steadily, while the proportion of homes valued over $35,000 has increased rapidly. Since 1976, most of the growth has occurred in homes valued over $50,000. These shifts in the distribution of house values are reflected in the median value of owner-occupied housing, which increased from $17,100 in 1970 to $51,300 in 1980 (200 percent). Although much of this change was due to general inflation in the economy, some was also attributable to demand which
97


increased the value of existing homes and to the higher values of new houses occupied for the first time relative to the lower values of older houses removed from the inventory. A result of this change in the housing stock value has been the increased tax base and revenues it has provided to local taxing jurisdictions, and an accompanying increase in property tax burden for the occupants. However, the price increases were due to increased demand, in part because of favorable Federal Income Tax treatment of mortgage interest and property taxes, and to the perception homes as an inflation hedge.
Gross rent is defined as contract rent plus the estimated average monthly cost of utilities if these items are paid in addition to rent. Rents have trended upward since 1970, with the median rising 123 percent to $241 from 1970 to 1980. Increases in gross rent may be due to several factors: the general inflation in the economy, rising utility costs, and a tightening in some rental markets due to low levels of new construction activity and conversions of some rental units to condominiums.
98


Table B-3
Specified Owner-Occupied Houses* by Value, 1970-1980
Percent of Owned Homes Gross Change
1970 1973 1976 1980 1970-1980
Value
Less than $10,000 21.17. 9.77. 5.47. 2.07. -19.27.
$10,000 - 14,999 20. 1 12.2 6.9 2.5 -17.6
$15,000 - 19,999 20.3 16.2 10.2 3.6 -16.7
$20,000 - 24,999 14.8 14.5 10.3 4.5 -10.3
$25,000 - 34,999 14.0 23.5 23.5 12.7 - 1.3
$35,000 - 49,999 6.5 15.8 24.2 23.2 + 16.7
$50,000 $75,000 or 74,999 more 3. 1 8. 1 13.9 5.6 27.2 24.3 +48.4
Median Value (2007.) $17,100 $24,100 $32,300 $51,300 $34,200
Limited to one-family houses on less than 10 acres and no business on property.
Renters reported a similar but smaller shifts in gross rents:
Table B-4
Percent of renters Reporting Specified Monthly Gross Rents, 1970-1980
Percent of Renters Gross Chanoe
1970 1973 1976 1980 1970 1980
Rent
Less than $80 26.07. 16.87. 10.27. 4.97. 121.17.
$ 80 - 99 17.6 12. 1 6.8 2.9 14.7
$100 - 149 j-j 3 31.2 23. 4 9.7 -24. 1
$150 - 199 15.7 24.5 27. 1 16. 1 + 0.4
$200 - 299 5.7 12.9 25.5 37. 1 +31.4
$300 - or more 1.3 2.6 7.0 29.3 +28.0
Median Gross Rent $108 $133 $167 $241 $133 (1237.)
3. Trends in Type of Structure
The types of units in the housing inventory change over time only as the new structures added to the inventory differ markedly from the old structures removed from the inventory.
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Table B-5 shows the change in the distribution o-f all year-round housing units, in which the smaller structures (single unit and 2-4 unit structures) declined relatively, accounting -for 32.4 percent of the housing units in 1970 but only 80.3 percent in 1980. Multi-family structures of five or more housing units and mobile homes increased their share of the total housing inventory from 1970 to 1980.
Table B-5
Changes in Structure Type, 1970 to 1980
Gross Change
Structure TvDe 1970 1973 1976 1980 1970 1980
One Unit 69. 17. 68. 17. 67.67. 67.77. -1.47.
Two to Four Units 13.3 12.8 12.3 12.6 -0.7
Five Units or More 14.5 14.7 15.0 15.3 +0. 3
Mobile Homes 3. 1 4. 4 4.6 4.4 + 1.3
4. Trends in Household Characteristics
Median household size declined from 2.7 to 2.4 persons in the period 1970-1980, while average household size declined from 3.11 to 2.75 persons. All households with from one to four persons increased in number, while households with six or more persons decreased both in absolute and relative numbers. The trend towards smaller households sizes through 1980 emerges clearly in Table B-6, reflecting the significant change in the median number of persons per household.
From 1970 to 1980, the number of single-person households increased 58 percent, while multiperson households


have increased about 19 percent. Among the households o-f two or more persons, the predominant type, composed o-f husband and wife, and without non-related persons in the same housing unit, increased by only 8.5 percent.
Table B-6
Households by Size, 1970 to 1980
Number of Households Change in Occupied
(mill ions) Hsq. Units
# of Persons 1970 1973 1976 1980 Number 1970 Percent 1980
One 11.2 13.9 14.8 17.7 + 6.5 +58.0
Two 18.8 21.0 23.0 25.0 + 6.2 +33.0
Three 10.9 11.9 12.7 13.8 + 2.9 +26.6
Four 9.8 10.4 11.6 12.8 + 3.0 +30. 6
Five 6.2 6.3 6.5 6.2
Si x 3.4 3. 1 3.0 2.7 - 0.7 -20.6
Seven or more t n J>a Z 2.7 2.3 1.8 - 1.4 -43.7
Total * 63.4 69.3 74.0 80. 1 + 16.7 +26.3
^Numbers may not add to totals because of rounding.
In contrast, female-headed households (without spouse present) grew 69.8 percent, and other male-headed households of two or more persons increased by 79.2 percent during the 1970-1980 period. The increasing importance of "female head" and "other male head" households and the dramatic increases in oneperson households have been responsible, in part, for the declining size of the American household, and have contributed to the changing character of American housing needs.
Income increased more rapidly for homeowners than for renters from 1970 to 1980. The median annual income of all owner households in 1980 was $19,800, an increase of 104 percent over the 1970 median of $9,700. Renter households in
101


1980 reported a median income o-f $10,500, 67 percent higher than the $6,300 reported in 1970.
Although incomes o-f more owners and renters have risen markedly, housing costs have risen more rapidly -for part o-f the population. Rental and income data available -from the 1970 Census o-f Housing indicate that some 39.6 percent o-f renters were paying onefourth or more o-f their incomes -for rent. The proportion o-f renters paying onefourth or more o-f income in 1980 was 53.0 percenta clear indication o-f the increasing burden o-f rent.
Table B-7
Changes in Household Composition, 1970 to 1980*
Number Change
(in millions) Number Percent
1970 1973 1976 1980 1970 1980
All Occupied Units 63.4 69.3 74.0 80. 1 16.7 23.6
2 or More Person HH Married Couple Families, Non 52.3 55.4 59.2 62.3 10.0 19. 1
Relatives 43.6 45. 5 47.4 47.3 3.7 3.5
Other Male HHs 2.4 3.0 3.4 4.3 1.9 79.2
Other Female HHs 6.3 6.9 8.4 10.7 4. 4 69.8
One Person HH 11.2 13.9 14.8 17.7 6.5 58.0
HH (households) HHs (householders)
Units may not add to totals because o-f rounding.
City & County of Denver Housino Needs Assessment
The City & County o-f Denver housing strategy re-fects the housing assessment drawn from the Unified Housing Plan. The housing assessment indicates a current abundant supply o-f most types of housing, capable of meeting the needs of most
segments of the housing market.


X M
DEMOGRftFHIC5 S< HOUSING STATISTICS
1980 Population (.7. Change from 70) 492,365 (-5.0)
1980 Total Housing Units (7. Change -from 70) 227,819 (18.0)
1980 Median Value of Home (X Change from 70)
62,000 (269.0)
1980 Median Contract Rent (X Change from 70)
213 (129.0)
Fami1v
X of Families in Poverty, 1979 10.3
X of Families in Poverty, 1969 9.4
1980 Median Family Income 19,527
7. of Families in Poverty, 1979 12.4
Elderly (65 or older)
7. of Families in Poverty, 1969 21.4
1980 Median Family Income 14,484
Female Single Head of Household
7. of Families in 7. of Families in
Poverty, 1979 Poverty, 1969
30.2 11.5
Housing Stock Condition
1980 Median FSHH Income 10,519
1980 Total Housing Units
Change from 1970 HH to 62 years
27,819 (18.0) 3,494
HH 62 years + 3,022
Renters
HH to 62 years 36,507
HH 62 years + 9,610
(No information available on manufactured housing construction in Denver although some use has been indicated.)
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SUMMARY
Creatino Housing Policy
Clearly, communities have several options i-f they wish to pursue low- and moderateincome housing programs, whether infill or subdivision development. Cities, such as Denver, can adopt one or several of the mechanisms discussed in the preceding chapters and adopt them to meet specific localized needs. The public sector, private sector, and neighborhood groups all have different goals and objectives when defining housing policy. Before the individual actors can sit down at one table and design city-wide housing programs, each needs to have defined its own housing objectives. Each group needs to determine its level of commitment, both in time and resources. Once this important exercise is completed, a program that reflects a consensus by the various actors can be readily devised.
The Public Sector Housing Policy
The public sector housing policy is, perhaps, the most crucial element in the formation of a housing program. The public sector, particularly at the local level, is likely to be responsible for the administration and implementation of a housing program. Thus, the city needs to support the program
105


vigorously. Programs that -fail to represent public policy will be difficult to effectuate at the local level.
The public sector has many assets and liabilities that ultimately impact policy decisions. The city and state control many federal resources and must decide whether to use these funds to improve housing conditions. The public sector controls land use through the powers of taxation, zoning, and eminent domain. Again, the powers can be used to achieve social goals, should the public sector so choose. Government also has a neutral position. While this makes the public sector an excellent mediator between grassroot organizations and the private sector, it may be reluctant to take positions which affects this neutrality or alienate any housing actor. Similarly, the government may be reluctant to take on any unpopular policies because it is essentially a political animal that frequently bases decisions on political expediency rather than social gains. In addition, the government is not one singular entity and different representatives may have differing objectives. Because of declining federal subsidies to cities and states, localities are increasingly basing decisions on tax base impacts rather than social impacts. This, too, ultimately affects low- and moderate-income housing policy.
Thus, the private sector has to make one important decision in order to establish housing policy. This decision is the basic question of willingness to achieve housing needs. City, state, and local officials all need to be involved in
1 06


this decision-making process. Input should be sought from representatives from a variety of departments and agencies as well as from elected officials. Decisions need to be politically palatable to politicians and administratively feasible to administrators. This process may not be easy and the impacts of each decision need to be thoroughly explored. However, these decisions, which will become the basis for housing policy and programs, need broadbased support to be successfully implemented.
The Private Sector Housing Policy
The formulation of private sector housing policy is much more arduous than formulating public policy. The private sector is intricately distinct actors, each with its own goals and objectives. In addition, the private sector is less committed to the public good than the public sector. Because of competition, intergroup cooperation may also be less than desirable. Thus, a task force or an independently established arm of the private sector may work best to decipher private sector housing policy and achieve group consensus. If broad support is difficult to obtain, the other partners may only involve those private sector members that have favorable attitudes toward affordable housing programs.
Most of the nations urban area is owned by private sector, thus, they can greatly impact low- and moderate-income housing construction. Additionally, the private sector finances or builds most residential development and
107


there are -few housing production programs that do not rely on the private sector -for some assistance in the development process. Thus, private sector involvement is crucial in any housing program.
However, the private sectors primary motivation is profit maximization. Projects that do not have ample profit margins or low risks are likely to be outside the interest of the private sector. Therefore, the private sector generally will not get involved in lower-income, inner city housing wherein the profit margin is small and the risks great. Despite this, many private sector entities, particularly foundations and larger corporations, have a strong sense of public commitment and altruism. Hence, private sector housing policy must attempt to fulfill this sense of social responsibility while maintaining healthy profit margins.
Thus, devising private sector housing policy is a difficult task. The private sector will face many issues when formulating policy including:
- their level of social commitment to low and moderate-income housing;
- can this commitment be achieved with minimal impacts to profits;
- does this policy affect other private sector, inner city development policies such as the renovation/ gentrification of older neighborhoods and developments of mixed used projects;
- will incentives be sufficient to encourage the production of low- and moderate-income housing; and


- will the private sector utilize mechanisms that maximize tax benefits.
Because the private sector consists of many independent entities, one definitive policy may be difficult to achieve. The private sectors housing policy is not likely to be a concise document; rather, it is likely to be acceptable parameters for private sector participation in low- and moderate-income housing. However, polling the private sector to determine their level of commitment to this civic cause is necessary to create a broadbased and widely supported housing policy.
Community and Neighborhood Groups Housing Policy
These groups need to determine their housing policy. This will help communities have better control over their own destiny as well as help create a housing program that reflects grassroot needs. Defining these policies will be no easy task. Each community participant is likely to have individual goals and objectives. Developing policies could come as the result of a long community planning process. Workshops on this specific issue may help to accelerate the process while maintaining broad-based community partici-pati on .
Community input is crucial in developing a workable housing policy. However, new town community development will be the direct relationship of public/private involvement. Further, community support is necessary for zoning changes or


other regulatory adjustments that are part o-f the adopted housing policy. Determining the level o-f grassroot support -for these changes is necessary -from the earliest stage of
program formulation. Finally, neighborhood based development organizations are likely vehicles -for developing low- and moderate-income in-fill housing. These organizations will take on projects with greater risks and lower profits than traditional developers. Thus, housing policy and the resultant programs must maximize neighborhood based developers' capabilities and enfranchise community groups.
Neighborhood groups, like any other housing actors, must define their housing policy. Some issues that neighborhood groups must resolve include:
- What are acceptable zone changes that neighborhoods will support to achieve low- and moderate-income housi ng?
- What do neighborhood groups need to leverage their finances successfully?
- Are neighborhoods willing to make trade-offs to encourage low- and moderate-income infill housing? Are density increases or middle income housing palatable to lowincome neighborhood groups?
- What are the neighborhoods development priorities? Which lots are ripe for development? What are appropriate interim uses for lots? Can housing programs be tied to other types of development?


As with the private sector, a singular neighborhood housing program is unlikely to be unanimously supported. Every neighborhood has its own housing goals. Thus, a policy may again only be broad parameters. A consortium o-f neighborhood groups, like Denver's Neighborhood Partnership or Inter-Neighborhood Cooperation, may be best able to hash out workable parameters -for neighborhoods. These rough outlines will then be given -final -form by the individual neighborhood groups.
A-fter the private sector, public sector, and neighborhoods determine their own housing policies, the next step is to create a city-wide policy that reflects the constraints and commitment o-f each groups' policy document. A task -force may be created to re-fine this housing policy. The task may be easy if each individual policy compliments the others. Policy formulation will be far more difficult if the goals and objectives of the housing policies conflict. However, the creation of a city-wide housing policy that is satisfactory to all housing actors is an extremely important step. This policy will become the foundation of a housing program. The degree of commitment and participation by each housing actor, as laid out in this policy, will determine the tone and impact of the final housing program.
With this groundwork laid, the creation of a workable housing program is considerably easier. Essentially, members of the public sector, private sector, and neighborhood groups must select new mechanisms that will leverage existing re


sources and meet the goals o-f the housing policy. The mechanisms in the previous chapter are all highly combinable with one another and with existing resources. However, these mechanisms all reflect varying levels o-f commitment and effectiveness. Thus, the selection of mechanisms should reflect the degree of commitment that is evidenced in the city-wide housing policy.
If the city's private sector and community groups are all moderately committed to low- and moderate-income housing, an inclusionary housing program is a workable solution. This program relies heavily on public and private sectors to utilize the incentives if it is to be broadly effective. Incentives include mechanisms such as fast-track development review, bonus density, fee waivers, and tax abatements. The city may adopt one or several mechanisms. It can use its existing resources as further incentives to build low- and moderate-income housing as well.
Regulations has proven to be a feasible program. Essentially, the city requires developers to build low- and moder rate-income housing or donate funds to help achieve this goal. Regulations may vary in their severity. Some may exact a good deal at the risk of alienating developers from developing in the community. Others may be weak or unenforceable and may yield very little new construction of affordable units. Obviously, the best program strikes a balance between the two: they are broadly effective and do not hinder the level of community development.
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San Franciscos Office/Housing Production Program o-f inclusionary zoning is an example o-f a regulatory mechanism. It could work in Denver, but would have to be massaged to reflect local constraints. Denvers downtown office glut affects the current viability of the Office/Housing Program and limited open space negatively impact inclusionary zoning programs. Because the impact of the program is determined by the degree of requirements and the level of development within the city, long term effectiveness is hard to gauge.
While the public sector, private sector, neighborhood groups may all be committed to lower-income housing, the private sector may not willingly invest in it unless the city takes on a share of the financial responsibility. In such cases, programs that include a public sector subsidy may be feasible. These programs would vary from the traditional subsidy program by the type of subsidy that is utilized. While in the past subsidies have been largely grants or low interest loans to developers, these programs use innovative mechanisms to create new sources of revenue.
Some new public subsidies include fee waivers, tax abatement, sale of tax delinquent properties, low cost land leasing, and general obligation bonds. The city and state must be willing to aggressively use their power of taxation as well as shift funds from other programs. Thus, this program requires a strong degree of municipal commitment; the city must be willing to invest in the goals in which it truly believes. These subsidies can be combined with one another
1 1 3


or with existing resources to lower housing costs. As in any program, its final form determines the level of effectiveness.
It is possible that, upon defining housing policy, the public sector commitment to affordable housing is less than that of community groups and the private sector. In this case, a program which utilizes tax benefits may work. In this program, the private sector and non-profit neighborhood groups form partnerships that maximize tax advantages and the city assumes a more passive role. These tax mechanisms, although used on a small scale at present, would have to be implemented on a much broader level if a substantial amount of new housing is to be constructed. However, because the tax benefits free up less capital than other housing mechanisms, they are less than perfect substitute for public participation in housing programs.
A recent study (Schwartz and Johnson: 1982) found that inclusionary zoning programs that combined incentives with regulations were best able to achieve public objectives. This study found that incentive-only programs did not provide broad enough enticement and regulation-only programs caused developers to seek areas unencumbered by regulations. In addition to combining different types of mechanisms, cities may also want to adopt several programs in order to encourage a variety of development projects. This flexible format can respond to the differing needs of communities better than
one,
rigid program.
Thus, cities have a variety of options


when establishing low and moderate-income housing programs that re-flect public policy.
Manu-factured houses are not only cost-e-f-feetive afforda-able housing, its a sensible solution toward -future housing needs. Manu-factured houses are ideal in-fill housing compo-ponents. They can easily be installed and utilities connected to existing infrastructure. Two recent studies have been conducted to measure the impact o-f the presence o-f manufactured houses on residential property values. The North Carolina A 2< T State University report (September, 1986), "A Report to the North Carolina Manufactured Housing Institute and the Joint Center for Housing Studies of the Massachusetts Institute of Technology and Havard University conclusively asserts manufactured housing integration with conventional stick built housing does not depreciate property values. In most cases the resale of property increased. Manufactured houses now constitute a substantial proportion of the year-round housing stock of the country, an estimated 5 million households (over 5% of this total population) live in manufactured housing as of the mid 1980s.
Despite this significant contribution to meeting U.S. housing needs, manufactured housing has led many to view them as an unusual and complicated component of the housing stock. Part of this unusualness comes from manufactured houses being legally defined as personal property. The practices of realtors, registrars of deeds, appraisers, assessors, and other participants in the housing market have dubbed manufac-


tured houses as "second rate housing." Paradoxically, manufactured houses are built as well and in some instances, better than stick built conventional houses.
By the mid 1970's, manu-factured houses had come under the purview o-f the -federal government. In 1974, the Congress passed the National Manufactured Housing Construction and Safety Standards Act (Title VI of the Housing Act of 1974). This mandated a preemptive code of construction and safety standards for manufactured houses effective as of June 15, 1976. Thus, construction standards ensured that any home built to what has become known as the HUD Code (because the congressional1y mandated code is administered by the U.S. Department of Housing and Urban Development) would meet at least minimal, publicly adopted construction codes, tailored specifically to this nature of construction.
Federal Government Initiatives/Fair Housing Act of 1968
Inclusionary housing programs can be an effective low cost housing vehicle in an effort toward meeting the initiatives promulgated by the Fair Housing Act of 1968. The Fair Housing Act marked a significant redefinition of the rationale for federal housing policy. The Act makes housing discrimination unlawful, whether on the basis of race, color, religion, sex, or national origin.-73 It also includes stipulations against discrimination in housing finance and brokerage services, and sets out procedures by which com-
plaints are mediated.
The Act is a major federal government


initiative in promoting the dispersal o-f low-income housing opportunities through policies regarding housing construction, rehabi1itation, rent subsidization, and discrimination.
The -federal government has an extensive involvement -for over five decades in subsidizing low-income housing, so its potential for promoting dispersal which seem to be far greater than that of the states.74 This mandate would remove any local political barriers toward promoting dispersal of low and moderateincome housing through inclusionary housing programs. Further, it might be argued that because the federal government has been instrumental in fostering the emergence of the city suburban dichotomy through its past policies, it should now play a remedial role. Manifestation of this contention is reflected in antedated channeling of housing resources to the middle class, supplying suburban infrastructure, and restricting minority and low-income suburban access.
The other major federal initiative promoting lowincome suburban dispersal is the Housing and Community Development Act (HCDA) of 1974 as amended. This complex legislation more directly addresses the problem of insufficient supplies of low-income housing in suburban municipalities. It requires every municipality and "urban county" that is qualified to, and desirous of receiving a CDBG. The CDBG can be used to writedown the cost of land and the provision of infrastructure. In the past, more than 3/4 of each grant was principally to serve lowerincome households. Unfortunately, this
117


manner of use has been altered by a Reagan Administration di recti ve. 7'!3 The HCDA also restructured and consolidated all o-f the major -federal low-income housing assistance programs to the "Section 8" program. This has also changed and all that remains in the -form o-f housing assistance is the voucher program. The voucher program does not assist any new housing construction, but subsidizes a portion of household rent or mortgage based on need. Opponents believe that this program is a temporary solution to a long term problem. That is, subsidized rents or mortgages does nothing to increase affordable housing stock, but exacerbates competition for existing stock and increases overal1 costs for decent housing.
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APPENDIX A. MANUFACTURED HOUSING MANUFACTURERS/PRODUCERS
The -following is a listing o-f manu-facturers contacted by letter survey to ascertain information concerning trends in manufactured home production. Of the letter surveys, responses were received from only five companies and the majority of them didnt respond to questions about production output. Those replies are indicated by asterisk.
Century Housing Corporation sells homes through a dealer /developer network in Colorado and surrounding states. Their homes are used on an infill basis throughout these states. Their plant manufactures approximately 200 homes annually, plus commercial buildings, townhomes, etc. Their finished product sells in excess of $125,000.00 completed by a developer. However, this includes land costs, and on-site work by the developer, such as basements, foundations, garage construction, brick/stone work., etc. It is their contention that manufactured housing can be mixed any where, but depends upon the dealer/developer expertise.
Champion Home Builders Co. 2221 Clayton St.
Berthoud, CO S0513 Bill Day GM
Skyline Corporation 2520 By-Pass Road P.0. Box 743 Elkhart, IN 46515 Jim Boyts Staff
Schult Homes Corporation P.0. Box 409 PIainvilie, KS 67663 Rod Cellmer GM
Champion Home Builders Co. 920 W. 6th North P.0. Box 638 Brigham City, UT 84302 Bob Cushman Sales Manager
119


fCentury Housing Corp.
P.0. Box 737 U.S. Highway 34 East Fort Morgan, CO 80701 G. G. Toman GSM
Advance Structures F'.O. Box 5363 Walnut Creek, CA 94596 Gerald W. Wiggen,President
Amwood Custom Homes Box 311
Janesville, WI 53545 Gene Scott, Pres.
Arthur Industries, Inc.
P.0. Box 74/South Main St. Terryvilie, CT 06786 Gregory R. Conlan, Pres.
Baron Homes, Inc.
P.0. Box 805/13821 Redwood Av.
Chino, CA 91710
Don R. Stwart, Chrm.
Boozer Lumber CO.
P.0. Box 9244 Columbia, SC 29290 Dale Boozer, Pres.
Burlington Homes of New England Inc.
P.0. Box 263/Rte. 26 Oxford, ME 04270
Design Homes
P.0. Box 239/600 Marquette Rd Prairie du Chien, WI 53821 Frank Weeks, Pres.
Alan Pre-Fab Building Corp. 2132 E. South St.
Long Beach, CA 90805 John W. Andrus, Pres.
American Living Systems, Inc. P.0. Box 729/Industrial Blvd. Ashburn, GA 31714 Robert Blanton, Pres.
Architectural Specialties, Inc./5911 Loomis Rd.
Victor, NY 14564 John R. Malta, Pres.
Astro Mfg. Co., Inc.
P.0. Box 189
Shippervi11e, PA 16254
Raymond Peltes, Exec. V.P.
Bonnell Enterprises, Inc.
P.0. Box 789/Hwy. 72 West Athens, AL 35611 LeRoy Bonnell, Pres.
Burlington Homes, Inc.
P.0. Box 7/State Hwy. 621 St. Clair, PA 17970 Francis Beviock, Pres.
Canton Trailer Co.
1701 Gamnbranus S.W.
Canton, Oh 44706 Larry D. Paul, Pres.
Fairmont Homes, Inc.
P.0. Box 27/502 S. Oakland Nappanee, IN 46550 Edward M. Ludwick, Pres.
Mr. Tony Hadley, Land Use Coordinator of Manufactured Housing Institute, has been very helpful in preparing the following information on national trends utilizing manufactured homes in inclusionary housing programs.
In New Jersey, several communities are considering manufactured homes as a means of fulfilling their fair share
120


housing quotas. Recently, Mt. Laurel Township signed an agreement for construction of 950 homes for low and modera ate-income households in four residential developments which are currently in various phases of planning and construction. f these, 92 homes will be required in a new 456unit, HUD Code manufactured home landlease community, Tricia Meadows, which is currently about one-half completed. Under the agreement, low income is defined as less than 50 percent of the area's median income and moderate income is 50-80 percent of the median income.
The crudest measure of affordability is simply the ratio of rents to incomes. Under this measure of affordable, households spending more than 25 or 30 percent of their income for rent are spending "too much." Rent to income ratios have risen since 1950, when some 32 percent of all renters are paying more than a quarter of their income for rent, by 1979 this fraction had risen to 51 percent.
Mr. Hadley also stated several constraints are inherent in HUD Code manufactured homes that limits its use in inclusionary programs. First and foremost is the fact that HUD Code homes are singlefami 1y homes. Presently, there are not any manufacturers that produces multi family or townhouse units. The constraint inherent is that most inclusianary housing programs, as currently practiced, focus on the construction of multi family apartments and townhomes to meet quotas for low- and moderate income households to procure overall development costs. Another constraint indicated is


in an inciusionary policy for single-family districts is the pervasive myth that manufactured homes inherently depreciate
surrounding property values. This myth may discourage developers from proposing projects utilizing manufactured homes.
The following is a list of information provided on national manufactured housing production and marketing trends.
MANUFACTURED HOME TRENDS
MH: Lenoth Width 1982 1983 1984 1984 1985
Si ngle-Sec. 48 767 12' 14 767. 797. 737. 717. 677.
Multi secti on 36--70- 24 -' -28- 247. 217. 277. 297. 337.
1007. 1007. 1007. 10071 1007.
Type of Home 1933 1984 1985
Si ngle-Secti on
Retail Price $ 8,000-35,000 $ 8,250-36,000 $ 8,400-37 , 000
Average Price Multi secti on 17,600 17,700 17,800
Retail Price 15,000-65,000 15,000-65,000 15,000-70 , 000
Average Price 30,500 30,450 30,100
COST AND SIZE COMPARISONS OF MANUFACTURED HOMES AND SITE-BUILT HOMES SOLD
Manufactured Heme* 1981 1982 1983 1984 1985
Avg. Sales Price $19,900 $19,700 $21,000 $21,500 $21,800
(All L & W>
Cost Per Sq. Foot $19.61 $19.70 $20.29 $20.48 $20.19
Avg. Sq. Footage 1,051 1,000 1,035 1,060 1,080
1981 1982 1983 1984 1985
SiteBuilt Homes
Avg. Sales Price $83,000 $83,900 $89,800 $97,600 $100,800
Land Price* 16.600 16.780 17.960 19.520 20.160
Price Structure $66,400 $67,120 $71,840 $78,080 $ 80,640
Cost Per Sq. Foot $38.60 $39.25 $41.65 W 4* W CO Nl $45.18
Avg. Sq. Footage 1,720 1,710 1,725 1,780 1,785
(Living Space)
Lengths & Widths (L & W)
Source: U.S. Department of Commerce and Jon Whitney
Associates
National Association of Home Builders Research Foundation
1 22


COMPARISON OF MANUFACTURED HOME SHIPMENTS
TO ALL PRIVATELY OWNED SITE- -BUILT HOMES
19S1 1982 1983 1984 1985
Si te-Bui11 Homes* Sold (in Thousands) 436 412 623 639 688
Percent of Total 647. 637. 687. 687. 717.
Manufactured Homes Shipped (in Thousands) 241 239 295 295 283
Percent of Total 367. 377. 327. 327. 297.
Total New (in Thousands) 767 651 918 934 972
*U.S. Department of Commerce, Bureau of Census Data Conventional Homes, C25 Construction Reports
COMPARISON OF MANUFACTURED HOME SHIPMENTS TO ALL PRIVATELY OWNED SITE-BUILT HOUSING STARTS
SiteBuilt Homes 1981 1982 1983 1984 1985
(in Thousands) 1,084 1,062 1,703 1,750 1,742
Percent of Total 827. 827. 857. 867. 867.
Manufactured Homes
(in Thousands) 241 239 295 295 283
Percent of Total 187. 187. 157. 147. 147.
Total New
(in Thousands) 1,325 1,301 1,998 2,045 2,025
Source: U.S. Department of Commerce, Bureau of Census Hous-
ing Starts, C20 Construction Reports
ANNUAL MANUFACTURED HOME SHIPMENTS
Manufacturers Shipments
Year to Retailers
1985 283,489
1984 294,993
1983 295,079
1982 238,808
1981 240,907
1980 221,616
1979 277,372
1978 275,871
1977 267,289
1976 246,120
123


NOTES
1. Mallach, Alan. Inclusionary Housing Programs: Policies
Practices. (New Brunswick, NJ: Rutgers University,
Center -for Urban Policy Research, 1984), p. 2.
2. Wright, Robert R. and Gitelman, Morton. Land Use: Cases
and Materials. (3rd ed.; St. Paul, MN: West Publish-
ing Co., 1982), pp. 933.
3. Sanders, Wel-ford, et al. A-f-fordable Si nql e-Fami 1 y Hous-
sino: A Review o-f Development Standards. (Chicago, IL:
American Planning Association, 1984), p. 1.
4. Denver Census Data, U.S. Census Bureau, 1980.
5. Better Homes St Garden, Sep, 1986, p. 24.
6. Manufactured Housing Institute. "1986 Quick Facts,
(Jul 1986), Arlington, Virginia.
7. McKenna, William F. and Hills, Carla A. The Report o-f
the President's Commission on Housing. (Washington, D.C., 1982), p. 85.
8. Wallis, Alan. Mobile Homes in Rural Community. (Center -for Community Development and Design College of Design and Planning), p. 49.
9. Ibid., p. 160.
10. Ibid., p. 5.
1113. Ibid. ,p. 6.
14. Wright, op. ci t. p. 900.
15. Mallach, op. ci t. p. 9.
16. Ibid., p. 10.
17. Wright, op ci t.. p. 935.
18. Mallach, op ci t. p. 112.
19. Ibid., p. 13.
20. Schwarts, Seymour I. and Johnston, Robert A. Local
Government for Affordable Housing: An Evaluation of
Inclusionary Housing Programs in California. (Univer sity of California, Davis: Environmental Quality Series No. 35, 1981), p. 4.
21.
Ibid. p.
Cl.


22.
>
P- 6.
Ibid.
23. Mai 1ach, dd. cit.. P- 11.
24. Ibid., p. 12.
25. Schwartz, dp. cit. P- 26.
26- 27. Ibid., p. 27.
28. Mai 1ach. od. cit.. P- 13.
29. Schwartz, op. cit. P- 27.
30. Mai1ach, op. cit.. P- 21.
31-32 . Ibid, f a a n
33. Ibid., p. 15.
34. Ibid., p. 17.
35. Ibid., p. 18.
36-37 . Ibid., p. 22.
38. Ibid., p. 23.
39. Ibid., p. 24.
o Wright, op. cit., pp. 957-958.
41. Ibid., p. 960-966.
42. Willi ams. Norman. American Land Planning Law, (Chica
go: Callaghan St Co.) , Vol. 5 (1975), p- 77.
43-47. Wright . op. cit.. pp. 9661003.
CD a Mai1ach, op. cit., p. 31.
49. Wriaht. op. cit., pp. 966-1003.
O in Ibid. p. 968.
51. Ibid. p. 969.
N in Mai 1ach, op. cit. p. 37.
FIT i f-k<=.nr i, Robert C. The Ironv o-F Inclusionary Zon-
inq, (San i Francisco: Pacific Institute for Public Poli-
cy Research, 1983).
a t in Ibid. p. 49.
55. Ibid. p. 51.


56. Mallach, op. cit.. p. 89.
57. Ibid., P- 90.
53. Ibid., P- 91.
59. Ellick son . op. cit.. p. 162.
60. Wright . op. cit.. pp. 966-1003
61. Mai 1ach, op. cit. p. 107.
62. Ibid., P- 113.
63. Ibid. P- 115.
64. Ibid., P- 116.
65. Ibid., P- 118.
66. Ibid., PP . 118-120.
67. Ibid. P- 122.
68. Ibid. P- 123.
69. Ibid., P- 125.
O Ibid., P- 127.
71. Ibid., P- 128.
72. Ibid., P- 133.
73. Ibid., P- 134.
74. Ibid., P- 142
75. Clark, Thomas A. "Federal Initiatives Promoting The Dispersal 0-f LowIncome Housing In Suburbs." Professional Geographer. (Association Of American Geographers, 34(2),
1982), P- 136
76. Ibid., P- 137
77. Ibid., P- 138
Other Notes:
Clark, Thomas A. "Suburban Economic Integration Ex-
ternal Initiatives and Community Responses. (Chapter 6 in R.J. Johnston ed.). Geography and The Urban Environment . (N.Y, John Wiley, 1983).
- Hartman, Chester. America's Housing Crisis. (Routledge & Kegan Paul; Boston, MA, 1983).


1 ^
Research-Federal Housing Policy.
Denver Zoning Ordinance Review.
U-fal Margy. "Housing" Thesis.
U.S. Annual Housing Survey, 1980.
Denver Census Data, 1980.
Interviewed Chuck Perry Denver Planning O-f-fice.
Interviewed Les Tingle Denver Building Inspector.
Interviewed L.C. Brown Colorado Manufacturing Housing Association.