HIP Focus Area: Expensive Housing Markets

  • Promoting affordable housing opportunities in expensive housing markets

What are expensive housing markets?

Areas in which the standard home or rental unit costs more than what the average buyer or renter can afford (30 percent or less of gross monthly income) are considered expensive housing markets. This is characteristic of affluent communities and areas where land values are high and developable land is scarce. But this can also occur more broadly when housing prices and rents are out of balance with incomes and wages. In such markets, the cost of housing is prohibitive or unattainable for not only low- to moderate-income individuals and families, but for a significant number of middle-income households as well.

Why is it important to plan for affordable housing opportunities in expensive housing markets?

Ensuring the availability of housing affordable to persons at all income levels is a stated tenet of Washington’s Growth Management Act (GMA) (RCW 36.70A). Taking proactive measures to address the existing and future need for affordable and diverse housing options is essential to achieving GMA’s planning goals. 

Another important reason to address affordable housing in expensive markets is to help attract and retain a skilled workforce. Every community, even the most affluent, requires workers at a variety of low- to middle-wage levels, including civil servants, educators, public safety professionals, and service industry employees, to thrive. Without affordable housing options near or within a reasonable commute distance of job centers, workers are faced with long and expensive commutes that contribute to traffic congestion and related problems. Employers may also find it more difficult to recruit and retain workers in this type of market.

Affordable housing is also important for age and life-cycle inclusivity. Affordable rentals and starter homes in expensive markets provide housing opportunities for the next generation of young adults and families.

Which communities should consider planning for expensive housing markets?

GMA requirements for local comprehensive plans (RCW 36.70A.070) call for all cities to develop housing elements that include an “inventory and analysis of existing and projected housing needs” and make “adequate provisions for the existing and projected needs of all economic segments of the community.” Cities that are found to have one or more of the following characteristics should consider establishing a strategy and implementation plan to address their affordable housing needs:

  • Significant numbers of households paying more than 30% of income for housing. According to the U.S. Department of Housing and Urban Development (HUD), “the generally accepted definition of affordability is for a household to pay no more than 30% of its annual income on housing.” With over 30% of income devoted to housing costs, households have less money for other necessities like food, clothing, transportation and medical care. Lower-income, cost burdened households are of particular concern, because they are more likely to have to choose between rent or a mortgage payment and other necessities.
  • Shortage of homes affordable to moderate- and middle-income homebuyers. Various indices measure the availability of homes on the market at prices accessible to the typical family or first-time homebuyer. These indices can be used to track and identify ownership affordability trends.
  • Relatively low supply of rental units available at fair-market rents. Fair-market rents (FMRs) are gross rent estimates that include the cost of rent and all utilities except telephone, cable/satellite television, and internet services. HUD determines FMRs to establish rent values for Section 8 vouchers. The current definition used by HUD is the 40th-percentile rent, the dollar amount below which 40 percent of the standard-quality rental housing units are rented in a metropolitan area (HUD). If a jurisdiction has few quality rentals priced at or below FMR, low-income households may have a difficult time affording rental units.
  • Home prices and rents in an established community are increasing rapidly. Redevelopment and renewal in existing communities can increase property values. As property values rise, pressure to redevelop low income properties also rises. Increasing rents and property taxes, and redevelopment pressure can price out or displace lower income households from their homes, neighborhoods, and cities.

What are some strategies to help promote affordable and diverse housing options in expensive housing markets?

Strategies for addressing expensive housing markets include policies aimed at enticing, guiding or compelling developers to build or contribute towards affordable housing. Other strategies focus on assisting and strengthening the ability of residents to purchase, rent or retain their dwellings. Finally, some strategies enable local jurisdictions to procure public or private funding to assist developers and non-profits in producing affordable housing or assisting lower-income residents.

Featured strategies that can be used to promote affordable and diverse housing options in expensive housing markets include density bonuses and other incentive zoning strategies, multifamily tax exemptions, parking requirement reductions, accessory dwelling units and small lot single-family ordinances. Developing a community outreach plan and strategy can also help to facilitate implementation and community acceptance of new housing forms and affordable projects.

What do I need to know to get started planning for housing in transit-oriented and transit-supportive developments?

Housing needs analysis. A housing needs analysis starts by gathering and analyzing relevant data on housing characteristics and costs in your community and the ability of residents to pay for housing. A variety of reports, studies and indices from housing, demographic and real estate sources are available to draw from. Tailoring data to specific neighborhoods or cities may require additional analysis. Establishing a baseline of current conditions, including the quantity and quality of housing types, zoning districts, possible and actual densities, rents, and sale prices, builds a case for prioritizing policies that increase the diversity of units available.

Seek current and trend data on the rental market, real estate market, development market and community and household demographics. The Housing Element Guide will provide more information on various data sources and how to prepare a housing needs analysis.

Development climate. Depending on the strength of demand for housing in a community, the tools selected to instigate and preserve affordable and diverse housing development will vary. Jurisdictions with a strong development market can rely more upon tools that encourage affordable housing in tandem with market-rate housing. These communities also need to be more concerned about displacement and the effect of gentrification on affordable housing. Jurisdictions with weaker demand and development can focus their efforts on fostering development through various regulatory or financial incentives, and streamlining their development approval process for affordable and diverse housing types. Incentives should strike a balance between encouraging development, while remaining rational about market potential and preserving planning goals. Market lulls are good opportunities to plan, reflect, and strategize about how successful, accessible development should unfold. 

Selecting and designing the right tools. Creating a strategy to increase affordable housing options in expensive housing markets will vary by community, potentially even by neighborhood. The tools you select will vary by your housing goals and by the market for development in your jurisdiction. A unique package of tools will need to be created to address the particular conditions in each community.

Education and outreach. Public discourse on affordable housing issues and increased densities can be difficult and contentious. Education, outreach, and ongoing communication are critical to a successful process. Decision makers, developers, and the community may require education on affordable housing issues. Work with housing stakeholders before projects begin or policies are enacted for their input and guidance, and to increase understanding. Concerned residents need to be heard and have their issues addressed during the process. Conversations between affordable housing advocates and supporters and concerned citizens can help address concerns. See Citizen Education & Outreach for more information on soliciting and incorporating citizen input.

Affordable housing assistance programs. A number of funding sources are available to support affordable housing efforts. It is valuable to identify which resources your program/jurisdiction may be eligible for. Note that funding sources may shift in response to market conditions and broader economic forces. Staying current with new programs or objectives sought by government or private funders before they offer funding can provide an advantage in competitive funding bids.

What are some key issues that may come up?

Planning for affordable or diverse housing may give rise to several issues:

  • Cost. The lack of available land and high demand in expensive markets makes land cost a key consideration. In higher-density markets, material and labor costs associated with mid- and high-rise development may be prohibitively expensive. See the Toolkit for tools that reduce costs of housing construction (e.g., density bonuses, parking reduction, multifamily tax exemptions).
  • Lack of awareness of the need. Some residents in the community may not be knowledgeable or aware of the difficulties faced by families and workers struggling with the lack of affordable housing options. See Citizen Education & Outreach for tools to increase citizens’ understanding of these issues.
  • Citizen opposition. Local opposition to affordable housing and increased density can emerge as a concern in many communities, but it especially may be the case in expensive communities. See Citizen Education & Outreach for ways to build community support and address common misconceptions about affordable housing.
  • Municipal resistance. Towns and cities may be resistant to advocate for affordable housing and increased densities for a number of reasons. They may perceive that lower-income residents require a disproportionate share of public services. Some jurisdictions may already feel overburdened with low- and moderate-income households and desire to attract housing in higher-income ranges. Increased density may be met with resistance because of perceived impacts on traffic congestion or service provision, or more general concerns about community character. Opposition towards multifamily housing, and, by extension, affordable housing may also exist. Municipalities will need to address current and future housing needs at all ranges of incomes. For guidance on these themes and on building support among local civic leaders, see the Housing Element Guide (forthcoming), and Citizen Education & Outreach.