D.C. lawmakers have overhauled a package of affordable-housing initiatives that Mayor Muriel E. Bowser highlighted as central to her second term, setting up a showdown over the direction of housing policy in the nation’s capital as a final vote on the city’s budget looms next week.

At an initial vote last week, the D.C. Council reduced proposed funding for developers to create affordable housing, eliminated housing-preservation dollars and remade wholesale a new program — heavily publicized by the Bowser administration — that would have catered to middle-class Washingtonians squeezed by the District’s high rents and home prices.

It was a serious setback for Bowser (D), who announced the policies in March at her annual State of the District address — her first rollout of a major legislative priority since her reelection in November. With the council set to finalize the budget Tuesday, the mayor is fighting to preserve the programs’ funding.

The conflict reflects a philosophical difference between Bowser and lawmakers over how best to deal with the inexorable rise of housing costs.

As they reduced funding the mayor wants for construction and preservation of affordable units for residents across a range of income levels — including for families earning up to $141,000 per year — council members increased rental vouchers and other forms of assistance for the homeless and those in extreme poverty. The new investments — like those favored by the mayor — rely on an increase in taxes on high-end commercial property transactions.

Council member Brianne K. Nadeau (D-Ward 1), who oversees homeless services as chair of the council’s human-services committee and sits on the housing committee, said the moves reflect a belief that government dollars should go first and foremost to those most in need.

“We need all of it,” Nadeau said of the mayor’s efforts to expand the housing supply. “We just don’t need to subsidize all of it.”

Nadeau said a better way to spur development of middle-
income housing would be to change permitting and zoning laws to ease the regulatory burden on developers in some areas. A better immediate use of taxpayer dollars is to subsidize the rents of those who would otherwise be homeless, she said.

Last week, the council approved a budget amendment, introduced by Nadeau, that devotes $5.4 million in new funding for permanent supportive-housing vouchers. The vouchers pay most of the rent for units in which the homeless are also given help with problems such as mental illness or addiction.

“The urgency with those units is that people are literally dying on the street every year,” Nadeau said.

Bowser had proposed $20 million for developers of affordable housing for those with moderate incomes — what the mayor had described as “workforce housing” aimed at professionals such as teachers, police officers and firefighters.

Similar initiatives have launched in costly cities across the United States in response to a “missing middle” in urban housing markets, where builders are now focused on high-end apartments and low-income housing that is eligible for federal tax incentives.

But the council redesigned the mayor’s plan, changing it into a property-tax exemption estimated to be worth $2.8 million to developers during the coming fiscal year, compared with the mayor’s proposed $20 million in grants or loans. Over the next four years, the council’s tax exemption would be worth an estimated $14 million.

Brian Kenner, deputy mayor for planning and economic development, said the tax exemption would offer only a meager boost to middle-income housing development when compared with the mayor’s proposal, which was modeled on the District’s existing Housing Production Trust Fund.

“I just think it’s going to create much, much fewer units in the short term,” Kenner said. “We have a structure that the market accepts and understands, and I don’t know why we would change that.”

Jennifer Reed, director of the mayor’s budget office, said Bowser was attuned to the needs of the homeless and those at the bottom of the income scale, noting that the mayor had devoted more than $20 million annually to reducing homelessness in recent years. Reed said that more housing vouchers are needed but that many of those vouchers would not become available until next year anyway because of the city’s procurement process and could be funded in a supplemental budget.

Council member and housing-committee chairwoman Anita Bonds (D-At Large) said the tax exemption would provide a more predictable, long-term incentive for developers to build affordable housing, in contrast with a one-time investment of $20 million.

Bonds said she is also working to restore $10 million of a total $15 million in housing-preservation funding that the council redirected to other housing programs.

Most prominent among those programs are the District’s rental subsidies, given in the form of vouchers whose holders have to pay only 30 percent of their income toward rent.

The council is funding $8.5 million in new vouchers — enough for 470 units — in addition to Nadeau’s $5.4 million in permanent supportive-housing vouchers. Proponents of that approach say such subsidies are needed for newly built affordable-housing complexes to find tenants and be financially viable.

Yesim Sayin Taylor of the D.C. Policy Center, a centrist think tank, said rental vouchers can be looked at as an operating subsidy for affordable-housing developments, as opposed to capital subsidies at a project’s outset.

That kind of front-end funding is the focus of the Housing Production Trust Fund. Bowser sought to budget $130 million for the fund in the next fiscal year — up from the current annual investment of $100 million — but the council opted for $120 million.

To some extent, the conflict between the mayor and council is the result of new budget realities in the District. The city has for years been awash in tax revenue driven by development and a booming population. But there are signs the local economy is slowing. There was fierce competition for dollars in the coming year’s budget, which was balanced by raising taxes.

“I think what’s unique this year is the fact that it became either-or. In prior years the council found more money without cutting the trust fund or other tools to build and preserve affordable housing,” said Ed Lazere, executive director of the left-leaning D.C. Fiscal Policy Institute. “We are a prosperous-enough city where we should be able to find the funding for all of our affordable-housing programs, not feel like we have to pit them against each other.”