More than 2 weeks ago, I sent this letter to Smart Growth Madison, Inc. So far . . . no official response. However, two members/developers contacted me about the letter. But so far, no answers to the questions I asked . . .
To: Smart Growth Madison, Inc Members
From: Ald. Brenda K. Konkel
Re: Recent Letter to the Editor regarding Inclusionary Zoning
Date: April 20, 2006
I’ve read the principles that your organization is standing behind regarding inclusionary zoning and I appreciate that you have taken the time to formulate a position. However, we all know that the devil is in the details, and the details are what really matter. I’m wondering if any members would be willing to get together to talk with me further about these issues or if the organization would like to help in answering any of the following questions. I have copied the bullet points in your recent letter to the editor in the Wisconsin State Journal below and provided responses to or questions about each of your points.
*The equity plan must be straightforward, simple to understand, and maximize consumer equity. Unlike other affordable housing programs, IZ is not for the indigent; buyers in the IZ income bracket have other options. A recent MLS search for housing under $200,000 listed 897 available properties with no IZ strings attached.
PROPSOSED EQUITY MODEL WITH EXAMPLES
Is the current equity model that is being proposed (the “Sanborn model”) acceptable to SGM members? The “Sanborn model” works as follows:
At initial sale, the “city share” is determined by taking the percentage value of the difference between the appraised value and the IZ price.
Ex. A house sells for $180,000 due to the IZ pricing, but market rate homes that are exactly the same are selling at $200,000. The difference or the “city share” is 10%.
When the home sells to the next seller, the homeowner gets 5% of the market value of the home for improvements that have been made to the unit. Then, the city gets their percentage share of the remaining value.
Ex. A house is worth $300,000, so the seller gets the first 5% or $15,000. The city gets 10% of the remaining portion ($285,000) or $28,500 to reinvest into that home to make it affordable for the next buyer or put in the IZ fund to purchase other homes or to use to keep other existing IZ homes affordable. The homeowner then receives $271,500.
QUESTIONS REGARDING PROPOSED EQUITY MODEL
This “Sanborn model” seems much more straightforward and simple to understand than the current “Brandon model”. It also provides more equity to the homeowner than the current model. Do the members of SGM agree that this meets the criteria you outlined? If not, what concerns do you have about this model?
LANGUAGE INTRODUCTION/PIECEMEAL APPROVAL & TIMELINE FOR FULL PACKAGE I’ve introduced language, that isn’t quite perfect, that would make this change. I am working with the City Attorney’s office and Ald. Sanborn to get new language. I understand that you don’t want to do this piecemeal, but I’d like to know if this is an item we can cross off our list? Also, if we’re not going to do this piecemeal, what kind of a timeline do you think we can complete this conversation in? Any suggestions to move this conversation along, as I know some projects are waiting for these changes to occur.
*Incentives must be real, measurable and tangible. City staff and developers agree IZ costs developers between $20,000 and $60,000 per unit, despite “incentives”. Without offsetting IZ costs, IZ becomes a tax on consumers. Incentives must be automatic; if it is on the menu, the developer can use it. If cost neutrality is not possible at the 15 percent IZ set-aside, the number must be automatically reduced until neutrality is achieved.
ADDING INCENTIVES
I’ve talked to many of you and your staff repeatedly about what types of incentives you would like to see. I hope that if they were important to you, you made sure that they were on the list of things that the mayor’s workgroup is talking about. If you have any further suggestions for incentives, I would love to hear them and would advocate to add them to the list of potential incentives if they seem feasible.
“COST OF IZ”
I’m a bit concerned about how we are determining the “cost’ of IZ and I think that it is not as simple as taking the difference between the price of an average home in the project and an IZ home. We all know that IZ units can be smaller, have less expensive finishes, are less likely to be in premium locations and that we need to include the value of incentives recieved, which in many cases are hard to assign a specific value. How is this “cost of IZ” to be determined given those variables? Could someone provide and example of how we would determine the “cost of IZ”? Do you have examples that you like from other cities where they have a way to determine the “cost of IZ”?
OFFSETTING INCENTIVES
I also am aware that many people in the industry are upset because members of the Mayor’s workgroup would not agree that the incentives had to be “100% offsetting”. The reason for this is that we could agree, but we don’t know what we are agreeing to and the logistics of this are formidable. Could someone please tell me how we would determine if something was “100% offsetting”? Do you have examples of other ordinances that are “100% offsetting”? How would the city determine if the value of the incentives matched the “cost of IZ”?
AUTOMATIC INCENTIVES
It would be the best of all possible worlds if the staff were just to determine the incentives and it wasn’t a political decision. However, we all know, that is not the way of the world. If a political body doesn’t like a decision or recommendation, they can vote against a project or change the staff recommendation. How do you envision this “automatic” incentive process working? What policies or guidelines would be set in place for staff to work with the development community? What if the developer/builder doesn’t like the staff decision? Above you stated that if something is on the list, the developer automatically gets the incentive, are there any limits to this? Could a developer get every incentive if they asked for them and they could be used in the project?
The current ordinance allows for reduction if the project is not financially feasible. We worked with Tim Sherry from Suby Von Haden and Associates and many of you to develop this tool. This waiver process seems to be the process to determine if the incentives offset the cost of IZ. If the waiver is approved, developers can get a reduction. Can we work within the current framework for the reductions you seek? If not, how would you determine if someone gets a reduction and when they are made whole?
*Developers need maximum flexibility in determining where IZ units are located. A ten-story condo project downtown faces different dispersion issues than new developments on Madison’s periphery. Allowing developers flexibility in dispersion of IZ units accomplishes the goal of more affordable housing, while minimizing economic loss.
We did provide for a 10% “IZ free” zone in projects, for the developer to determine project by project. I have heard very little response to this notion. I agree that penthouse IZ units don’t do anyone much good, nor do IZ homes on premium lots in the periphery. I would very much like feedback on this proposal. I am aware that some folks want the staff to work this out with the developers on a case by case basis. Again, I think we have the same problems with the “automatic” incentives. What if the developer disagrees with the staff, can they appeal? Do we want to argue about this case by case at the plan commission? What guidelines do we give to staff so that they have adequate instructions about what “dispersion” means?
*City government must not mandate IZ marketing methods. Marketing should be left in the hands of private business. Over 40 units went off IZ without a buyer, and only units subsidized by IZ-exempt nonprofits have sold at all. Lack of marketing is not why these units do not sell. The current model lacks appeal to homebuyers given the complexity, restrictions, and equity loss of IZ.
I think there is some confusion regarding the IZ marketing comments made by myself and others. The original concept in developing the IZ ordinance was that the developer would submit a marketing plan. As a member of the plan commission, I have yet to see one. I think that the marketing plan should be submitted and that you can’t “bump out” of IZ unless you have proof you followed the marketing plan. Obviously, each project is different and we can’t create a template marketing plan and it should be up to the individual developer. I think we need agreement on what qualifies as a marketing plan and how to determine if someone has followed through. I believe if a developer is getting incentives to provide homes, doesn’t market the units and then “bumps out” of IZ, therefore not providing the units, the cost of the incentives should be returned to the City if they can’t prove that they marketed the units in good faith and we need some way to measure that.
*Eliminate the rental provision from the ordinance. The private market provides ample moderately priced rental units.
Could you please explain how the market provides ample moderately priced units? I am aware that the Apartment Association has done a study, however, I don’t believe that they accurately determined the housing costs when it comes to utility allowances? What are the conditions of some of these “affordable” units? They also provided no information about how many of these moderately priced units were being provided in the new neighborhoods and projects in the City. Do you have further evidence of ample moderately priced rental units?
*Treat for-profits and nonprofit entities equally. Once a nonprofit organization purchases an IZ unit, all restrictions are lifted. Only nonprofits are purchasing IZ units. This disparate treatment should be eliminated.
This is not accurate; this provision only applies to the option to purchase. The restrictions are lifted for the time that the project is in the non-profit program. The language in the ordinance is as follows:
If the initial sale of an owner-occupied inclusionary dwelling unit is to the CDA or a non-profit entity that has a buy-back provision or a ground lease as part of its specific program operation, the unit shall not be subject to an exclusive option to purchase by the City until such time as the CDA or non-profit entity determines not to buy back the unit. This provision applies to other residential occupancy inclusionary dwelling units administered by a non-profit. If the non-profit entity has no buy-back provision, the income eligible family that purchases the unit shall be subject to the option requirements in a, above. At that time, the purchase price to exercise the option to purchase and the procedure for
exercising or declining to exercise the option shall be as in a. above.
*Eliminate the City’s option to purchase. Homebuyers with options in Madison are deterred by the uncertainty and confusion of this provision.
My question here is how would the units stay affordable if this provision is lifted? What other methods of keeping the housing affordable might you suggest?
As you can see, we have a lot to talk about and we’re not getting there as we slog through the Mayor’s workgroup, though I am confident that we will eventually get there. However, I am anxious to move this process along. I worked with many of you and the SGM staff on the original ordinance, the policies that accompany the ordinance and the waiver process. We can work together again if you want to. I’d encourage any and all communications from your group or individuals to myself so that we can put this issue to rest and have the certainty for the homebuyers and the projects you are working on. If you would like to talk, please do not hesitate to call (345-8720) or email me (brendakonkel@yahoo.com or district2@cityofmadison.com).
