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Analysis of Affordability Impact Statement by NHCD

Re: Occupancy Limit Reduction Proposed Code Amendment

The Affordability Impact Statement (“AIS”) states that there would be a negative impact on housing affordability. This conclusion is based on the following numbered assumptions, which we challenge as not based on data and accurate analysis. We note our reasons below each assumption.

1.              “If rental prices stay the same the cost per individual will increase as the rent will only be shared by a maximum of four (unrelated) individuals rather than a maximum of six individuals”

Reasons:

A.              The assumption that “rental prices stay the same …” ignores that in the draft ordinance proposed by neighborhood advocates owners of structures currently occupied by more than 4 unrelated adults may continue to do so as a lawful nonconforming use. These units would see no reduction in the number of renters that are splitting the total rent. Therefore, this assumption is not accurate with regard to the impact on existing housing stock.

B.              For new structures that would be governed by this occupancy reduction, the investor/developers will know in advance that they may not rent out more than to 4 unrelated adults and therefore will not build structures intended for a higher occupancy load.  Almost all of the new dorm-style structures that have replaced affordable single-family houses are rented at much higher rents.

C.              In Northfield, 100+ stealth dorms have been documented. This represents about 7% of the neighborhood. Almost all, if not all, of those 100+ homes that were destroyed were affordable homes. They were all replaced by structures that are less affordable.

D.             This AIS assumption can be expressed mathematically by the equation X/6 is less than X/4 if X is greater than zero. As the AIS has mentioned, the cost of affordable housing is driven by the amount of available housing stock. The value of X is positively affected (cost of affordable housing is reduced) due to occupancy reduction because of the fact that it is more economically advantageous to destroy the more affordable homes. (I.E., a developer will want to acquire the cheapest homes available for redevelopment.) In other words, the effect of the occupancy reduction it helps preserves the existing affordable units as it reduces the incentive to redevelop those properties into an unaffordable unit.

2.              “A reduction in the occupancy limit will most likely result in an increase in the city’s occupancy rate which in turn will act as a disincentive to property owners to offer affordable rental prices and will incentivize property owners to raise rental prices city wide.”

Reasons:

A.              First, the proposed amendment applies only to single-family properties, not to other uses. The AIS offers no data to support its sweeping conclusion. The most affordable residential housing in Austin is multi-family. Austin has had a high occupancy rate for many years, but it has not resulted in wholesale increases in rental rates city-wide. The city-wide rental rate increase generally has been driven more by the inflationary spiraling cost of living, including increasing property taxes.

B.              With the high occupancy levels has come increased development of many multifamily projects providing much more market opportunity than the random replacement of single-family homes with dorm-style structures.  Where is the data of how many multifamily units have come on line and or are being developed now versus the number of single-family homes being converted to dorm-style housing?  The conversion of homes in single-family zoned districts to dorm-style housing is probably a very small percentage of the number of rental units coming into the market and therefore may not have any meaningful impact on overall rental rates.

C.              Many older rental units provide a positive cash flow even with lower rents due to the age of the units and the financing that produced them.  As staff has pointed out in the IACP process even though there may be a market demand, that does not mean individual property owners will enter the redevelopment market since their current situation provides a positive cash flow without incurring addition risk due to redevelopment.

3.              “Decreased options for moderate and low income individuals”

Reasons:

A.              As noted in the Northfield’s neighborhood’s survey of rental rates for new dorm-style structures, it is not uncommon to find rents per bedroom in the $800 to $1000 range.  If you consider this base rental rate plus other housing expenses such as utilities, renter’s insurance, etc., a good assumption is that these total “household” expenses average about $1,000 per person per month.  That then is a yearly household expense of $12,000.  If the HUD guideline of no more than 30% of income were allocated for housing then a single person would need to be making $40,000 per year.  This is about at the 80% MFI level which is not where the most need is for “affordable housing” which is much deeper affordability levels of 30% to 50% MFI.

B.              What is not being considered is that the existing single-family housing stock that is now used as rental property is probably rented at a much lower rate as a whole, on a $/sf basis or on a $/bedroom basis.  But encouraging the demolition of this existing rental housing stock, we are essentially eliminating units that are at a lower price point than the new structures.  So while there may be some more affordable pricing at the higher price point of the new duplexes for people at income level of 80% MFI or above, it is for a much higher income group than for those it is replacing.  The people in the units that are demolished will then find themselves in a much harder situation because the replacement units at the lower price point they would need to find are becoming fewer with every tear-down of older units the city approves.  So the demand on available stock of moderately or lower priced units increases even more.  So by allowing these dorms it may actually be acerbating the problem for people living at less than the 80% MFI level who cannot afford the rental costs of these new units at all.


4.              “Disparate Impact” … “ Occupancy limits can also have a disparate impact on minority residents”

Reasons:

A.              Since the “stealth dorm’ problem is primarily driven by the university student and better-off young adult population, the demographics of that population is very different than that of the city of Austin. Does the city have any data on what the demographic distribution of the student population is versus the city as a whole?  And is there any data on the demographics of the renters in these stealth dorms?  If there is no data to support this assumption, it should be considered antidotal at best.

B.              This assertion is intended to bring up the specter of the City of Austin violating the Fair Housing Act.  The city of Austin does not discriminate in its housing policy. The assertion is not relevant to affordability. The national average for residential occupancy limits is 3.5. At 4, Austin is well over that average, and it is much higher than the Texas average of under 3.  Since the city already has a limitation on the number of unrelated adults residing in a structure, and that has limitation has not been challenged under the Fair Housing Act, it is unlikely that a simple reduction to 4 in single-family neighborhoods would be considered a violation of the act.

C.              And since the city does not define “unrelated” in such a way to discriminate against alternative lifestyles, students, or any other persons, it cannot be seen as having a “disparate impact” on moderate-very low-income residents.

5.              Additional Comments:

A.              The Fort Collins study often cited by Staff has been misinterpreted.  Fort Collins was faced with a decision to evict occupants by deciding to enforce an ordinance already on the books but not theretofore enforced.  The study is mostly irrelevant to Austin’s decision.

B.              For the purposes of affordable unit statistics, it is probable that few of the “stealth dorms” in the affected neighborhoods in the urban core would qualify as affordable units. While obviously there is some demand for units that have an occupancy of six, the only portion of housing market that is affected by this ordinance is the future properties that may have been built for six occupants will be built for four. In either case, it is most likely that none of the aforementioned units would be classified as “affordable.”

C.              For many (if not all) affordable housing programs, the most typical placement is a single family (which would count as an occupancy of one in the proposed ordinance).

D.             The general rule of thumb for multi-family leasing is that two adults per bedroom are allowed to be on the lease. Most multi-family complexes only have two bedroom or smaller units, and thus have a de facto occupancy of four. And many of the available units with more than three bedrooms are rented with an occupancy less than four under the proposed ordinance. What this means is that the occupancy reduction from six to four is much more applicable to “dorm style housing” than to any other type of residential use.

E.              Single-family neighborhoods should not be recipients of unregulated, unsafe, unsanitary and incompatible housing. Only 3 to 5 percent of Austin apartments are three-bedroom[1].  The Texas Apartment Association standard lease permits only 2 adults (related or unrelated) per bedroom, so 95% of most apartments are not available for occupancy by six unrelated adults. One can assume that either there is little demand for apartment dwelling units with up to 6 unrelated adults or that apartment owners have determined that any number over 4 is too many. If the limit is the result of little demand, then a little arithmetic will demonstrate that prospectively reducing occupancy limits for single-family neighborhoods would have a negligible impact on affordability. It is estimated that the percentage of 3-bedroom apartments in Austin occupied by more than 4 adults is 5-10-%, and in cases where the adults are related, those occupancies would probably fall under 4. So, assuming 5 % of apartments are 3-bedrooms, and 10% of them are occupied by more than 4 adults, .05 x .10 = .005 = .5%.  Thus we estimate that, at best, only .5% of Austin apartments are occupied by more than 4 adults, whether related or unrelated.

F.              The Affordability Impact Statement cleanly and with good intentions—frames their position about the impact of the Resolution with a supply and demand model given the tone of social equity explicit in the principles and values of Imagine Austin. It rightly addresses affordability on a “citywide” basis, but it does not use the necessary understanding of land development planning principles required to focus on the real beginnings of an effective and socially layered solution to affordable housing—the location of multi-unit housing in all neighborhoods in the City. This approach—a commonly missed opportunity—would have required the actual framework of the position to be social equity, with supply and demand only a supporting reference model.

G.             The position of the AIS is that it is the responsibility of residential private property owners in stable neighborhood districts described above to ensure that everyone “Citywide” in the City of Austin has access to affordable housing. These wrongly targeted stabile neighborhood districts have in fact achieved over many generations—and continually seek to preserve—a strong feeling of social equity, which is now threatened by exploitation of property, City code ambiguities, and political weakness. The AIS—by targeting the explicit intentions of the Resolution to re-stabilize neighborhoods—actually adds to the weakening of neighborhood districts already established as having a strong sense of social equity in their development history.



[1] Telephone interview with representative of Texas Apartment Association.

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