Inclusionary housing programs pay for ongoing stewardship and monitoring with revenues from a wide range of different sources.
Local Government Funds: The most common source of financial support for ongoing stewardship, unfortunately, may also be among the least sustainable. Many programs, particularly those managed inside local government, are funded through the local government’s general fund. As they grow, these programs must compete with other city services for increased funding.
Montgomery County, Maryland
Montgomery County’s Moderately Priced Dwelling Unit program, one of the nation’s first inclusionary housing ordinances, currently oversees more than 2,000 affordable homeownership units. The program is managed by a staff of six full-time employees within the Division of Housing and Code Enforcement of the County’s Department of Housing and Community Affairs. The division’s annual budget is funded as part of the county’s general operating budget.
Federal Affordable Housing Funds
Many jurisdictions rely on administrative funding from the federal HOME and CDBG block grants to pay for key administrative costs in their housing departments – including some of the cost of administering local inclusionary housing programs.
A potential problem with use of federal formula funds is that funding amounts will not necessarily be related to the workload of inclusionary program staff. During periods of very heavy development activity, jurisdictions might not have the funds to be able to add staff or outsource work commensurately with increases in their workloads.
Many local government programs pay for administration with a small portion of in-lieu fees paid by developers who opt not to build required units onsite. Generally, using these funds for ongoing administration reduces the funding available for production of new housing opportunities.
Palo Alto, California
The city of Palo Alto requires developers to build affordable housing as part of any new market-rate development. However, under certain circumstances developers can choose instead to pay a fee in lieu of building the affordable units. The city uses a portion of these fees to fund its annual contract with the Palo Alto Housing Corporation for monitoring and oversight of inclusionary homeownership units.
Some affordable homeownership programs charge would-be homebuyers a modest fee at the time that they apply for a unit. This fee can then be used to offset the cost of processing applications and verifying eligibility. Others charge developers a fee when they propose projects that include inclusionary units.
New York, New York
New York City charges developers proposing inclusionary housing projects a one-time application fee of $1,000 per unit for the first 50 units and $500 for each additional unit. The fee must be paid upon execution of the affordable housing regulatory agreement.
Most programs require homeowners to seek approval from the program whenever they refinance their inclusionary homes. Some communities charge homeowners an administrative fee for reviewing the refinance request to ensure compliance with program rules (including ensuring that the loan amount does not exceed the homeowner’s share of home equity) and, if necessary, subordinating the program’s lien on the home.
Sale/Resale Related Fees
Among the most sustainable dedicated sources of revenue are fees charged as part of the sale or resale of restricted units. Programs that take on the lead role in marketing restricted units frequently charge sellers a fee between 1 percent and 4 percent of the sales price to cover administrative expenses. This fee is generally well below 6 percent commission that owners would pay a private realtor for similar service. Even some programs that expect sellers to engage realtors will charge more modest administrative fees at resale.
Eagle County, Colorado
Eagle County acts as realtor for all resales of deed-restricted units and charges a 2 percent sales commission, which is in turn used to pay for administration of the program.
The state of New Jersey requires all jurisdictions to produce affordable housing units and has created uniform housing affordability controls to ensure that these units are kept affordable over time.
The uniform controls require jurisdictions to identify an administrative agent for their affordable units. Recognizing that administrative capacity was uneven across the state, New Jersey created the Housing Affordability Service (HAS), a quasi-public entity within the New Jersey Housing and Mortgage Finance Agency. HAS serves as the default administrative agent for jurisdictions that don’t identify a different agent. It currently oversees 5,000 resale price-restricted affordable homeownership units on behalf of 70 municipalities.
The agency is funded through a variety of fees, but because most of their responsibilities relate to resale of affordable units, they receive much of their revenue from resale fees. HAS charges a fee of 3 percent of the affordable resale price when they are asked to coordinate marketing, and 1.25 percent when they are only screening buyers and certifying that the seller has complied with the state’s affirmative marketing requirements.
Agencies that monitor affordability of rental housing sometimes charge monthly monitoring fees. For some reason these fees are less commonly applied to affordable homeownership units. The notable exception is community land trusts, which generally charge a monthly ground lease fee. While this fee is technically rent for the CLT’s land, the fees are almost always set far below the comparable market rent and are used to offset some of the CLT’s costs of administration and monitoring. These fees generally range from $25 to $100 for single-family homeownership units. This regular source of revenue, combined with other sources such as resale fees, can provide significant financial stability to the program.
A growing number of community land trusts have been asked to perform ongoing stewardship for deed restricted condominium units in inclusionary mixed-income buildings where the land trust does not own the underlying land. In these cases, some CLTs have nonetheless imposed monthly fees analogous to the CLT ground lease fee. The Chicago Community Land Trust, for example, charges a $25 monthly covenant fee to each condo owner to support their ongoing monitoring and administrative work.
San Diego, California
San Diego charges an annual monitoring fee of $150 for each inclusionary rental unit. Their monitoring fee policy also states “In the event that the property utilizes a high volume of monitoring (for example, due to repeated trainings and/or frequent contact to address inaccurate or incomplete reports) the commission, in its sole discretion, may elect to charge an additional fee based on an hourly rate of $100.”