By Mara Lee
Special to The Washington Post
Saturday, May 16, 2009
In most of the Washington area, it's gotten cheaper to buy a townhouse, condo or house. However, the increased affordability has complicated government programs to help moderate- and low-income families own homes.
Each jurisdiction has a different emphasis in affordable housing, including both subsidized rentals and homeownership opportunities. In Montgomery County, for instance, builders are required to sell a few of their new townhouses or condos at cost to families chosen by the county. Those families can't make more than 70 percent of the median income for the region, meaning the limit is about $50,000 for a single person, $72,000 for a family of four.
The District occasionally provides tax dollars to groups of tenants in decaying rent-controlled buildings who want to buy and renovate them. The vacant units available after the buildings have reopened have to be sold to those making less than 80 percent of regional median income.
In both places, demand to buy government-supported affordable housing has waned.
For instance, Las Marias, a condo conversion by low-income tenants in Columbia Heights, opened a little more than a year ago. One of the largest condos in the Northwest Washington building, priced at $363,000, has been on and off the market for a year. Two other subsidized units remain unsold there, too.
A three-bedroom townhouse in Germantown that cost just over $125,000 sold to a nonprofit group in April when no modest-income families applied to buy it.
Chris Anderson, manager of the Moderately Priced Dwelling Unit (MPDU) program for Montgomery County, said finding buyers for the more expensive high-rise condos in Silver Spring and Bethesda has been a problem for years, and it has always been difficult to find buyers for complexes restricted to residents 55 and older. But when there were no takers on a new three-bedroom townhouse -- that was startling.
"That was the first time that happened," Anderson said. "I'm not sure whether that is a harbinger for things to come."
Although government officials still say they have a role in helping working-class families find decent, affordable housing, the shifting market is raising questions. Should governments spend more money and time on rental housing? Does it make sense to sell subsidized units in high-priced condo buildings? What is the most productive use of tax dollars for affordable housing?
There are many reasons why fewer low-income families are lining up to buy these places. These days, buying requires a decent credit history, and many low-income people may use only cash or have a spotty record of paying debts. At some price points, even a subsidized unit is too much of a stretch.
And perhaps most of all, while the income-restricted units are less expensive than some units on the open market, they're more expensive than others.
For instance, two-bedroom units for sale at the Las Marias condo, on Columbia Road NW, are priced at $281,400 and $363,200. There are two-bedroom condos for sale on the same block for $410,000, but there's also a market-rate two-bedroom condo on the next block for $230,000, and another a few blocks away for $290,000.
According to Long & Foster's Web site, there are almost 150 condos and townhouses with at least two bedrooms for sale in Germantown at $115,000 to $190,000. That's the range of prices in the MPDU program this year, excluding one Silver Spring condo that came up for resale. In Gaithersburg, there were 120 listings in that range.
The income-restricted units have limits on resale prices, too, allowing sales at only the inflation-adjusted purchase price to keep them affordable for decades to come.
Because market prices haven't found a bottom, developer Erik Bolog said, it will continue to be tough to sell these subsidized units.
"Deflated market values will only further hurt the restricted world," said Bolog, managing partner of Tenacity Group. Tenacity worked with many D.C. low-income tenants who cashed in on tenant conversions during the boom; now the company is rescuing failed low-income co-ops.
It has also bought one affordable-rental high-rise in Montgomery County.
Seven times this year, Montgomery County held lotteries for the opportunity to buy an MPDU and no one signed up. The townhouses, senior condos and regular condos were in Silver Spring, Damascus, Clarksburg, Boyds and Germantown.
And of the 24 income-restricted units that came up for resale last year, only half found low-income buyers. When none can be found, a buyer who makes too much to qualify for the program is allowed, but that buyer has to agree to the program's limitation on resale prices.
At Las Marias, it has taken 13 months to sell 16 condos, with two more under contract and three still on the market.
The rest of the condos in the building are owned by former tenants.
"There is no demand," said Martin Cuzzi, owner of the real estate company responsible for marketing units in the building. "In a different type of market, those properties would sell in 30 days."
Income-restricted sales are rare in the District; the only other places with these units on the market right now are a W Street NW co-operative and Woodson Heights in Southeast.
Michael Bodaken, president of the National Housing Trust, a nonprofit group dedicated to saving and improving affordable housing, said it's not surprising that for-sale affordable housing would be subject to the same market forces as all other housing.
But he said, "I didn't know until you called that this was an issue."
It's hard for low-income buyers to come up with $7,000 to $12,000, the amount needed for a down payment with a Federal Housing Administration loan at these prices. And with the District's drop in tax revenue, there's less money available for down-payment subsidies.
"We had two under contract under that [purchase assistance] program, and they couldn't close," Cuzzi said, when the city couldn't produce the assistance.
D.C. Council member Jim Graham (D-Ward 1) worked on the tenant conversion of Las Marias, and he had not known that the building was still seeking buyers more than a year after it reopened after renovations.
"The bottom line is there's every reason to believe there are fewer people that are available to pay," Graham said.
He said it makes sense for the city to spend more of its efforts on subsidizing rentals rather than for-purchase units. "The whole terrain here has changed," he said. "We're still in a period of adjustment."
Bodaken agreed. "All local governments need to take a look at their housing policy. It's often just as cost-effective to provide long-term affordable rental." He said affordable-housing efforts have been too heavily weighted toward homeownership. "I don't think that's healthy."
In Arlington, the county once required condo builders to sell affordable units at below cost in exchange for permission to build more densely. Ken Aughenbaugh, Arlington's housing director, said the county abandoned that idea in 2006. Because the market-rate units were selling for $450,000 to $500,000 but the affordable condos needed to cost $150,000, the board decided that giving such large subsidies for a few lucky families was unfair. Instead, the county bought the condos itself at $150,000, sold them at market rates and used the money to underwrite affordable rental housing.
Arlington still spends more than $1 million a year to help low-income families buy property, through a second mortgage that provides up to 25 percent of the house's cost. County board members voted at the end of April to increase the loan limit from $25,000 to just over $90,000. They expect most buyers to borrow $60,000 to $70,000, which would allow them to buy houses for just under $300,000. Fifteen to 20 families can be served with that amount of money; last year, 11 families used the program. For the first five years, there are no payments on the second mortgage. Homeowners get 75 percent of the property's appreciation. The county gets the rest.
The Montgomery County Council has also been reevaluating its MPDU program, although the first drafts of revisions to the legislation won't come any sooner than June, Anderson said.
Currently, builders generally are required to sell MPDUs at cost, but in high-rise condos, that's still more than low-income families feel comfortable paying. The council is considering changing that policy.
But at the right price, demand is still strong. In April, a builder in Clarksburg offered five two-bedroom townhouses at less than $111,000 each, and there were 18 families who entered the MPDU lottery to buy them. "Those are the lowest-price new units we've had in many years," Anderson said.