Most inclusionary housing programs experience very few problems once homes are sold to qualified buyers. However, some degree of ongoing monitoring is always necessary.
Grounded Solutions Network convened dozens of administrators of inclusionary housing and similar programs with long-term affordability restrictions to develop standards for stewardship of these homes. The Stewardship Standards for Homeownership Programs includes a section on ongoing monitoring and recommends the following practices:
Annual Letter
Send an annual letter or e-mail to homeowners explaining their responsibilities related to program restrictions and requirements (e.g. occupancy, insurance, capital improvements, repairs, and maintenance). Owners of resale-restricted homes are usually first-time homebuyers and might lack the knowledge and experience to succeed. Annual communication reminds homeowners of their responsibilities. Letters can also serve as a way for programs to elicit changes of address and returned letters for selective follow up.
Verify Occupancy
Verify evidence of owner occupancy annually. In high-cost markets, owners of affordable ownership units sometimes relocate and convert their homes into income-generating rentals. By requiring evidence of owner occupancy annually, program staff can make sure the community investment in the homes is serving its intent. Some programs also collect proof of homeowner’s insurance.
The Stewardship Standards for Homeownership Programs was developed collaboratively by a number of national organizations, practitioners, and experts for the purpose of providing an educational resource and measurable framework to help homeownership programs with long-term affordability requirements achieve excellence and maximize impact. View Standards
Most programs require homeowners to occupy the unit as their primary residence. This is often defined as living in the unit most of the year. For example, many jurisdictions have a clause such as “The Owner shall be considered as occupying the Home if the Owner is living in the unit for at least ten (10) months out of each calendar year.”
Programs typically allow homeowners to request permission to rent their homes for limited periods of time if they meet certain conditions. For example, the homeowner could receive this permission if she:
Many programs let homeowners rent a bedroom in their home without receiving any permission from the jurisdiction. Other programs allow homeowners to rent their homes for any reason, but for a short duration. In this case, it is still important for programs to have a form for owners to fill out so they can track who is living in the house.
Additionally, some jurisdictions have set limits on the rental price to ensure affordability and prevent any windfall for the owner. This is more common in very high-cost communities or resort locations where potential windfalls are quite large. In other communities, allowing homeowners who meet the exception criteria to possibly earn some modest windfall might be preferable to the administrative burden of verifying that sublease rents are affordable.
Finally, some programs have different standards depending on how long a homeowner has lived in a home. For example, a new homeowner might not be allowed to rent out their home at all, but a long-term resident might be given more latitude.
Some jurisdictions struggle to prevent illegal renting of inclusionary homeownership units. While none describe this as a major problem, some indicated that they were not able to completely eliminate it.
To address this problem, some jurisdictions send out annual occupancy verification forms and closely monitor those that are not returned. Montgomery County, Maryland, for example, works with its code enforcement division to inspect homes that raise this type of red flag. San Mateo, California, conducts an annual review of tax records to see where property tax information is being sent. Some programs also make it easy for neighbors to report illegal occupancy of inclusionary units by circulating program contact information.
Both mortgage lenders and cities have an interest in ensuring that a relevant city department receives notice when owners of inclusionary homes default on their mortgages. With adequate notice, the program can often help a homeowner to refinance or find a buyer rather than proceeding through foreclosure. However, it is difficult for mortgage servicers to reliably provide this notice even when it is required of them.
While there is no single widespread best practice to remedy this situation, some common responses include:
It may also be a good idea to contract with an outside agency (e.g., housing counseling agency, realtor, or local Community Land Trust) to provide a set of administrative and outreach services related to preventing foreclosures. These may include:
Some programs have acknowledged that they do not know exactly how many units they have produced in the past. Often the lack of data on housing production is the result of lax stewardship practices and inadequate systems for monitoring during the early years of the program. In addition, some programs manage portfolios of units with variable terms and affordability periods as a result of program requirements changing over time, which can complicate administrative and monitoring activities
Some jurisdictions have found it helpful to utilize specialized computer software to track not just their large and growing inclusionary portfolio, but also the varying affordability periods, resale restrictions, and regular notifications involved with the constituent properties. Staff at the cities of Cambridge, Massachusetts and San Mateo, California, for example, use HomeKeeper software to manage their for-sale portfolios. To monitor the city’s rental portfolio, Cambridge uses Emphasys software commonly used by housing authorities.
Condominium fees can increase substantially over time, making the overall costs of homeownership unsustainable for low- and moderate-income households. Rising condominium fees are a growing problem for many municipalities that are seeing their new for-sale inclusionary homes primarily built as condominiums, including Washington, DC, Fairfax County, and Cambridge.
Program administrators can set the initial affordable home price low enough to offset high initial condominium fees but, increases in these fees over time for new amenities or building repairs, can in some cases rival mortgage payments on below-market-rate units, leading to high overall housing costs, potential default, or homeowners being forced to sell their units.
Two promising solutions emerged through the research:
