Mission: Affordable
Moderate-Income Buyers Get Condos With Government Help

By Aliya Sternstein
Express
Wednesday, November 8, 2006 1:36 PM

In the summer of 2005, Arlington County handed Arlington deputy sheriff Jun Emmanuel Gan what amounted to a golden ticket redeemable for a discounted $220,000 two-bedroom condo, which had a market value of $232,000.

Gan, 29, had been randomly chosen by lottery for a condo unit through the county's employer-assisted housing (EAH) program, which connects condo developers with employees from the Arlington County Government, Arlington Public Schools, nonprofit developer AHC, George Mason University, Marymount University and Virginia Hospital Center.

Through the program, residents such as Gan, who make more than the standard affordable housing income limit, can buy homes at below-market prices. All of these condominiums are located in Arlington.

When Gan and his wife, Rowena, a direct-mail list manager, were given the option to buy in the spring of 2005, they had a combined annual income of $75,000.

Earlier, the Gans had visited a lender to gauge their financing options for purchasing a home. They had been renting a garden apartment in south Arlington for two years.

"We were pretty much turned down," he said. "The way housing prices were at that time, we realized we were not going to be able to buy."

A month later, when Gan saw a memo on his office's bulletin board about homeownership assistance available to government employees, he jumped at the opportunity. After sending in an application, the Gans were soon picked from a pool of work force applicants to purchase a unit at Dominion Terrace, a development off of Lee Highway that IDI Group recently converted into condos.

He and Rowena moved in mid-September of 2005. The 800-square-foot unit came with new carpeting, a refrigerator, dishwasher, stove and oven.

"Now, we're not paying someone else to live here," he said. "The equity is going to [us]."

EAH recipients bought 33 units at the 58-unit property, formerly called Broyhilton Apartments.

Gan's new digs are one bus ride away from the Arlington County Sheriff's Office, so he also saves money on gas and parking. Overall, Gan believes he got a good deal. "One of the biggest complaints you hear at work is how ridiculous housing prices are in this area," he said.

That's an understatement. New condo construction in the Courthouse area usually starts in the mid- to upper-$300s for a one-bedroom condo. New one-bedroom condos in Clarendon usually begin in the upper-$300s.

In the past, government housing-assistance programs in Maryland, D.C. and Virginia focused on apartment residents who earned between 50 percent and 70 percent of the area media income (AMI) figure. The Department of Housing and Urban Development adjusts the AMI annually for specific localities.

The AMI is used to determine eligibility for a variety of subsidized housing programs. HUD publishes AMI tables broken down by family size and locality annually.

Eligibility translates into a ceiling of about $37,000 for a couple in Arlington. In Montgomery County, Md., the maximum income limit for a two-person household purchasing a moderately priced unit is $50,000.

But now, in response to the shortage of reasonably priced homes on sale in the metro area, municipalities are partnering with some developers to set aside below-market-rate units for moderate-income workers who make too much money to qualify for affordable housing and too little money to buy anywhere near their workplaces.

A new stream of homeownership programs target those who earn up to 120 percent AMI. Some of these opportunities are open only to government workers, while others are offered to anyone who makes only a modest living -- somewhere between 80 percent and 120 percent AMI. Some programs are mandated by the local governments, while others are administered by developers, voluntarily, with no government subsidies.

The overarching mentality is that people who contribute to the local economy through toil and taxes deserve an opportunity to own a piece of the real estate pie, according to the government officials who back these programs.

Some jurisdictions use the phrase "work force housing" to label homes reserved for households that fall between 80 percent and 120 percent AMI.

But affordable housing advocates and some government officials say that term is a misnomer because people at or below 60 percent AMI -- new teachers, dental assistants and security guards -- are also part of the work force and should also be encouraged to buy local property.

Ken Aughenbaugh, the housing director for Arlington County, said: "'Work force housing' is a nice buzzword that I think is often abused. We consider all working households as part of the work force." The county has homeownership programs intended for EAH employees and non-EAH employees at or below 60 percent AMI, he said

So how does Arlington's residential raffle work? Any first-time home buyer who lives or works in the county, earns at most 80 percent AMI and wants a below-market price property can get on a notification list.

When a developer works out a deal with the county to deliver units to this population, the county pulls names off the list at random. About 10 homes -- usually condominiums -- become available for sale each year. The chosen few then get the option to buy. Almost all raffle winners do.

"The statistics say a lot," Aughenbaugh said. "Only around 30 percent of the county government work force lives in the county. We have more jobs than we have housing units."

In the case of Dominion Terrace, IDI Group volunteered to work with Arlington County to fill its ranks with EAH employees -- without any government incentives -- and, thus, had the right to set the parameters for ownership: first dibs went to existing tenants, then EAH employees with household incomes under $100,000, then random individuals from the notification list and, finally, people who happened to notice the property on the street. Sales were not advertised to the public.

Typically in Arlington, deals with the developer involve the developer getting something in return -- say, increased density or a subsidy -- for selling a certain number of discounted homes. In those instances, the developer is required to let the county divvy up the discount units among the individuals on the list.

For example, a couple years ago, developer Mark Silverwood, president of Silverwood Associates, arranged with the county to redevelop an old apartment property into 96 new condos, including 10 work force units, with new affordable rental apartments on the side.

In exchange, his company got increased density and a loan for building the reduced-price units. The development, called The Sierra, is situated in Columbia Heights West in south Arlington.

The Sierra's one-bedroom condos started at $255,000 for the general public, while the work force one-bedrooms -- which boasted the same floor plans and amenities -- went for $115,000 each. The market price for its two-bedrooms was between $370,000 and $400,000; reduced-price two-bedrooms sold for between $135,000 and $140,000.

The whole project sold out in three months. "It was a pretty orderly process," Silverwood said. "It also keeps the onus off the developer, so it's not like there's favoritism."

Silverwood said he believes there will be affordable homes nationwide eventually, but acknowledges it will be a tricky maneuver. The Sierra project required five pieces of financing from Arlington County and Wachovia Bank, both of which he credits with making the American dream possible for his customers.

Still, Silverwood's profits would have been about $1.8 million higher without the work force units.

Montgomery County, Md., has taken the bold step of trying to require that developers price some new construction units at levels realistic for working professionals.

In October 2005, the county introduced a bill that would create

a work force housing program for people whose incomes are too high for the county's existing moderately priced dwelling unit (MPDU) homeownership program, which is capped at 70 percent AMI. The new program would cover people who make between 70 and 120 percent AMI -- equivalent to $86,000 for a two-person household.

The law would apply to future developments in certain high-density zones near Metro stations. In addition, some developers who purchase county-owned land would be required to set aside work force housing.

Eligibility requirements for the nascent Montgomery County program haven't been established yet, and there aren't any units available right now, said Montgomery County officials. But in anticipation of the program, work force projects are already under way.

PN Hoffman and Stonebridge Associates are redeveloping a county-owned parking lot into a mixed-use property with retail and condos, including some work force units. The anticipated 245-unit complex in Bethesda will offer about 35 work force units, 27 MPDU units and 183 market-rate units, said Alanna Deal, a PN Hoffman representative. Sales are slated to begin in 2008 with completion projected in 2011.

Work force housing advocates say local governments are in different stages in terms of their attacks on the shrinkage of affordable housing in the region.

Montgomery County, Arlington, Alexandria and D.C. are "far more aggressive in trying to stem the tide of erosion," said Barbara Favola, chairwoman of the Washington Area Housing Partnership and an Arlington County board member.

Favola thinks the term "work force housing" has become a euphemism for "affordable housing" in suburbs like Loudoun, because residents there associate the phrase "affordable housing" with images of congested roads and unsavory new neighbors --things they'd never put up with. Suburbanites are more comfortable with the idea of "work force housing," which summons visions of helping public-sector employees such as teachers and firefighters.

Reduced-price homes are a rare find, Favola said. Often, it takes developers, of their own free will, to convert an existing rental building without making as much money as they would make otherwise.

"Basically, they have the social conscience," she said. "These developers are few and far between."

AHC, a private, nonprofit developer of low- and moderate-income housing, aids Arlington County by selling reduced-price units at Arlington Oaks, also a converted apartment complex.

Arlington resident Jill G., who wished not to be identified, got on the notification list for Arlington Oaks, even though she works in Montgomery County as a social worker. She met the criteria of living in Arlington, earning a modest salary and not owning a home. The 32-year-old had been renting in Crystal City with a roommate for about five years. She wanted to find a place of her own, after her roommate decided to move out, but Jill wasn't willing to give up the Arlington community.

One day in March of this year, she began surfing the Internet to assess whether it would make more sense economically to buy a condo or rent a one-bedroom place in Arlington. The last time she had priced condos was three years ago.

Since housing prices had skyrocketed since then, Jill realized she could no longer afford the area. New construction was stratospherically pricey, and even older buildings like Arlington Oaks were beyond her means. And, yet, the rents were all too high at the apartments she liked. Then, Jill discovered AHC's Web site. She immediately called the organization.

That weekend, Jill took a six-hour class -- a sort of Home Buying 101 -- required for placement on the notification list.

She found the daylong course tedious at times, since she was not a total novice to the home-buying process. She knew all about getting your credit in order. It is part of her job, as a social worker, to teach people about the importance of having good credit. Plus, a lender had already pre-approved her to buy a home when she was looking three years ago.

After the seminar, Jill signed up for the notification list and applied for Arlington County's low-interest loans for first-time home buyers.

Within about six weeks, the county alerted Jill about a condo that had opened up at Arlington Oaks for $180,000. She snapped it up, closing in May and moving in July, after her lease ended.

She said the area's apartment rents are higher than her monthly mortgage payments. Jill likes that she was able to paint the interior of her place sage green without having to ask anyone for permission.

"I love that it's mine. It's just a piece of mind that I feel, like the money is going to come back to me," she said. "And I can change the color tomorrow if I want."

Jill says AHC and Arlington County made the procedure painless.

"I was proactive, but I found it incredibly easy," she said. "It's a very well-oiled machine." In fact, she opted to use one of the lenders she met at the registration seminar as her own lender.

However, there was some fine print. When Jill sells the condo, she has to let AHC buy it back for below the housing market rate at the time of sale. The unit has to go back into the pot of homes reserved for moderate-income families. And because Jill didn't buy the condo at market value, she can't sell it at market price. She will receive the sale price plus 2 to 3 percent appreciation per year.

AHC has renovated and sold about 24 units to people like Jill since purchasing 60 apartments at Arlington Oaks two years ago, said Rick Holliday, AHC's homeownership asset manager. Though the building is more than 60 years old, the condos have new kitchens, new appliances, new floors and, in some cases, new windows and bathrooms.

Holliday agrees that the concept of work force housing -- selling a certain number of units at below-market prices -- is cost-prohibitive.

"We don't really make any money on selling these affordable units," he said. AHC sells some units at market rate -- starting at $250,000 -- just to break even on the whole project.

At present, AHC does not have future plans for another project like Arlington Oaks, but not for lack of trying. "We're always looking. It's very difficult to find projects like this in Arlington, because the prices are so high for condos," Holliday said. He expects that within the next three years, all the reduced-price units at Arlington Oaks will be gone.

In D.C., there are also new homeownership programs aimed at local worker bees. The National Capital Revitalization Corporation, the District's development arm, administers a work force housing policy for both low-income and moderate-income people. Anyone between 30 percent and 80 percent of D.C.'s AMI, which is $90,300 for a four-person household (huduser.org/Datasets/IL/IL06/dc_fy2006.pdf) can apply to purchase affordable-rate condos, while people between 80 percent and 120 percent of D.C.'s AMI can apply for work force condos.

In 2000, the D.C. Council transferred $297 million worth of property to NCRC for redevelopment.

Today, the nonprofit organization requires that housing developers who build on that property sell a certain number of units to people whose incomes fall between the affordable or work force range.

For example, the 29-unit Hayes Street condo building in the Northeast neighborhood of Deanwood plans to sell all units at work force rates. In this instance, the community is open to all home buyers, no matter their income. One-bedrooms and two-bedrooms will likely start in the upper $100s and go up to the low $300s. Units will deliver around late 2007.

The redevelopment of the Skyland Shopping Center in Southeast Washington, envisioned as an 18.5-acre town square, will bring more work force condos to the city.

The details are unknown, but the complex will include retail space on the ground-level with a mix of affordable-, work force- and market-rate condos on a second level. At least 20 percent of the units will be sold below market rate.

Rose Lindsay, NCRC senior portfolio project manager, said: "We are talking to the community and the community is helping us shape the retail that is going into that space."

She says that this kind of mixed-use project can help offset the cost of affordable and work force housing, which could make the concept more palatable to developers.

"Everybody is aware that the Department of Housing and Urban Development tax credits and incentives [cannot] create the housing for the work force individuals who are in the city every day," Lindsay said, adding that NCRC is one of several nonprofit organizations in D.C. attempting to prompt builders to do something about the deficiency.

NCRC markets its work force policy to D.C. Public Schools teachers through fliers on school walls and a link on the DCPS Web site. NCRC also advertises homeowner-ship opportunities on D.C. government payroll stubs.

Brian Friedman, managing director of real estate developer FMG, said he is pursuing a small project, the proposed Unity Square Condominiums, to fill a specific void in D.C.'s work force housing.

The property, which he says will be renamed once it is green-lighted, is a planned conversion of a domed 1907 church, one of the oldest buildings in Adams Morgan. Friedman hopes to get zoning approval by winter, go to construction next year and deliver around summer 2008.

His ideal customers are people with families who grew up in Adams Morgan and now can't afford to live there anymore, as well as anyone else who qualifies for low-income programs.

The objective is to provide family-size, roomy, reduced-rate homes, rather than cramp workers and their families into small efficiencies in 200-unit high-rises where upper-income residents own all the choice property.

"I'd rather have one 1,500-square-foot unit that a family of five can live in than five, 300-square-foot units that only one guy can live in," Friedman said.

"You don't want someone to say, 'I'm living in a million dollar property, and I really don't fit in at all.'"

He is working with mortgage brokers, banks and the D.C. government to establish his own financial assistance program for eligible buyers.

Friedman knows the community's economic conditions firsthand, having bought a condo in the neighborhood for $60,000 in 1997 that he watched appreciate seven-fold by the time another owner recently sold it for $400,000. "I knew that the people I bought it from, they could never come back to the neighborhood," he said.

Today, Friedman bristles when he sees Adams Morgan denizens shoved out of the neighborhood to make room for luxury homes, he adds.

"They have the right to stay," he said. "They are firemen and police officers. Some of them are working the local shops. The people who create revenue for the community should have the ability to live there."

This article first ran in Express on October 26, 2006.