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Housing Hopes Come Up Short
Despite High-Profile Program, Building Of Low-Cost Units Lags in Montgomery

By Miranda S. Spivack
Washington Post Staff Writer
Thursday, February 7, 2008

As expensive high-rises and elegant townhouses began sprouting in downtown Bethesda in the 1990s, Montgomery County officials saw new opportunities to plant moderately priced homes amid the prosperity.

On a single block near the Bethesda Metro station, county officials approved developer Lenny Greenberg's proposal for a project with 29 townhouses, 54 high-rise apartments -- and 12 moderately priced units around the corner on Hampden Lane.

More than seven years later, the posh units have long been occupied, but the less expensive units have not been built. Instead, a boarded-up building sits on the Hampden Lane site.

The case of the missing units on Hampden Lane is hardly unique, according to civic activists and politicians. For years, they say, developers and builders were allowed by the county's housing agency to circumvent county rules aimed at expanding affordable housing.

Montgomery County officials have said for years that creation of affordable housing is one of their highest priorities and that the county's rare public-private venture with developers has done much to ensure that the rich and the not-so-rich can live side by side and enjoy the same schools, shopping and entertainment.

But there are many signs that Montgomery's program has not lived up to its promise.

"It is a badly focused program that doesn't focus on maximum retention of units," said County Council member Marc Elrich (D-At Large), who is examining the county's overall strategy to create and keep affordable housing.

County law requires that the affordable units be built around the same time as more expensive units to promote economic integration. But the county program often has allowed developers to buy their way out of building the units with contributions to a housing fund. It rarely fines developers who don't obey the rules.

In the case of Hampden Lane, construction on the last high-rise units began in 2002. Greenberg signed an agreement in January 2004 to donate the nearby affordable-housing parcel to the county, which said it would take over responsibility for building units that would now be used for formerly homeless residents.

The donation came almost three years after Greenberg was required under county law to signal his interest in making a donation. Neither Greenberg nor P.N. Hoffman, the company that eventually took over the project, told county officials that a donation was planned, according to county records. The records do not explain the delay.

Although it is unclear when or whether the 12 affordable units on Hampden Lane will be built, officials in Montgomery's housing program say they got a good deal.

"As far as we are concerned, it was a perfectly fine transaction," said Joseph T. Giloley, who oversees housing programs at the county Department of Housing and Community Affairs.

Not everyone agrees. Jim Humphrey of the Montgomery County Civic Federation, who lives a few blocks away and has monitored the Hampden Lane project, said the delays are symptomatic of a dysfunctional program. "The affordable-housing program needs more staffing, funding and continued oversight," he said.

Greenberg declined to discuss the arrangement.

Officials at P.N. Hoffman would not give details, either, saying only that they did all the county required.

The story of the unbuilt Bethesda apartments offers a window into the operations of Montgomery's landmark affordable-housing program, established in 1974. The program put the county in the vanguard of affluent communities trying to work with the private sector to resolve the affordable-housing shortage.

Current law requires anyone planning to build more than 20 market-rate units to set aside at least 12.5 percent of what is built for the affordable program, which is designed for working residents whose household income for a family of four in 2006 did not exceed $63,000. In exchange, developers can win the rights to build more of the upscale units than they might otherwise be allowed.

The program has created about 12,000 units since 1974 but now has roughly 3,700 under its supervision; most are owner-occupied. Until recently, the units could be resold on the regular market after 10 years. The County Council tightened those rules in 2004 by keeping units in the program for 30 years, but by then many were already out of the program. About 700 households are on a waiting list for the affordable-housing program. More than 17,000 others are seeking some type of subsidized housing.

One key reason for the dwindling number of units is that developers for years were allowed to make contributions to the county housing fund in lieu of building them, according to data compiled by the County Council's Office of Legislative Oversight, as well as a report by the Montgomery County Civic Federation.

Both found that buyouts caused a deficit of at least 600 to 800 required affordable units and that buyout amounts did not appear to match the cost to the county to replace the lost units. In Bethesda alone, the civic federation estimated, developers made donations totaling about $1.6 million rather than building 65 units. Many market-rate apartments in Bethesda currently sell for more than $1 million.

It is not clear whether the buyouts spurred creation of other affordable housing nearby, another requirement of county law. The county housing agency was unable to provide data that would show how many replacement units were built with funds from the buyouts or where they are located. Giloley said the $39 million fund has had many successes.

Rick Nelson, who was appointed last year to head the county's housing agency, told the County Council this week that the buyout program "clearly did not work, and it didn't get the units produced that we could or should have gotten produced."

The buyouts, according to data in the council study, were often a good deal for the builders and developers.

In one instance, which data show was typical, the Bozzutto Group and Smith Payes LLC -- developers of the Bethesda Theater project on Wisconsin Avenue, which included high-end housing -- in 2000 paid about $16,700 a unit to avoid building some affordable units. In 1996, Natelli Communities paid $100,000 to avoid building two moderately priced houses in Avenel in Potomac. Both areas are surrounded by homes that sell for millions of dollars.

Although buyouts have become less frequent since 2004, when the County Council changed the law and increased the amount required, they remain legal. The council plans to consider proposals to do away with them.

Meanwhile, the fate of the 12 affordable units in downtown Bethesda remains uncertain.

According to county law, construction should have begun in August 2002, three months after work began on the final high-rise units. But nothing happened.

Some of the delays were caused by government agencies and others by frequent changes Greenberg made to his plans, former county housing chief Elizabeth Davison said in an e-mail.

The county can fine developers up to $500 a day if they do not build the affordable units on time. County officials did not do so in the Hampden Lane case and rarely do so on any project. Davison said she preferred persuasion over fines.

A 2007 study by the Office of Legislative Oversight found that the housing agency lacks the tools to ensure that the market-rate and affordable units are built at the same time. The report recommended linking issuance of building permits for upscale units to on-time construction of the affordable units, a rule that would have prevented the Bethesda delay.

In November 2002, Davison wrote to P.N. Hoffman, which was building the high rise on the Greenberg project, informing the company that the affordable housing was on hold because the county was looking at other uses of the site. Those plans apparently had been under discussion since late 2001, county officials said recently, but housing agency files do not reflect that.

Housing agency officials say their files do not explain why Greenberg was allowed to hold off building the affordable units or include the details of arrangements with P.N. Hoffman.

County Attorney Leon Rodriguez said his office, which he did not head at the time, acknowledged that delays occurred. He said the office "did conclude that the appropriate remedy to that situation was to accept a donation of land."

The value of the donation probably was higher than the potential sum the county would have received from Greenberg with a buyout, about $20,000 per unit, according to what the housing agency was charging in downtown Bethesda at the time.

In January 2004, 14 months after Davison's letter to P.N. Hoffman, documents show that the county formally scrapped the plan to have the developer build the affordable units and instead allowed Greenberg to donate the 5,115-square-foot parcel, which he had bought about 10 years earlier for $280,000.

Davison told the County Council in October 2005 that the housing agency also was working to temporarily provide the 12 units elsewhere in Bethesda until the building was constructed. But that does not appear to have occurred, according to county officials and documents. Davison said the nonprofit Bethesda Cares, which helps the homeless, temporarily occupied the Hampden Lane building, now boarded up.

County officials say the plans grew more complicated after they agreed to swap Greenberg's parcel with another developer, Pollinger Co., to allow that company to assemble contiguous parcels for its own planned upscale development. That, too, is supposed to include some affordable units.

That project also has been delayed. Two lawsuits filed by neighbors living in the townhouses are challenging the Pollinger project and the county's procedures. Those cases will be heard in the spring.

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