2019-053 Housing Bonds and Inclusionary ZoningDate: March 15, 2019 Report No. 2019-053
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
On January 27, 2019, Council Member Armintor requested a staff report on the City of Charlotte,
NC's housing bond program for affordable housing. On February 15, 2019, CM Armintor also
emailed a question related to Inclusionary Zoning for affordable housing.
EXECUTIVE SUMMARY:
There are a number of policy priorities, funding mechanisms, and dedicated housing programs that
are available to cities to incentivize and fund the creation and preservation of affordable housing.
This ISR will cover the two requests by Council Member Armintor regarding the City of
Charlotte’s Housing Bonds, issued for a specific purpose of financing housing or programs, and
Inclusionary Zoning, which requires or incentivizes the development of affordable housing units
within new development projects.
BACKGROUND:
HOUSING BONDS
Since 2001, the City of Charlotte has utilized housing bonds as a revenue source for its Housing
Trust Fund, a city-managed financing mechanism directed toward affordable housing. The City
of Austin has similarly used housing bonds to provide for additional affordable housing and to
improve existing housing stock.
The City of Charlotte (pop. 859,035) has utilized housing bonds as a tool, among other tools in
their housing policy, to address a shortage of affordable housing. Revenues from housing bonds
are secured in Charlotte’s Housing Trust Fund (HTF) and provide a financing base for affordable
housing projects and initiatives. The trust fund itself was established in 2001 and since that time
has financed over 8,000 new and rehabilitated affordable housing units, 3,000 of which were for
households earning below 30% of the median area household income.
In recent years, the city has invested $15-$20 million per year in housing bond revenues into the
fund; however, in 2018 voters elected to invest $50 million in housing bond revenues with a goal
to maintain this level of funding on an annual basis. Specifically, these bond revenues would be
used to pay for:
• Capital costs of housing projects;
• Related infrastructure improvements; and
• Land and right-of-way acquisition.
Overall, the City of Charlotte has committed over $136 million toward affordable housing via
housing bonds and the HTF since 2001.
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Program Overview:
The HTF acts as a financing institution that provides gap financing for eligible projects. Eligibility
for funding and funding levels is guided by the City’s affordable housing priorities. For instance,
supportive housing developments, multifamily rental developments, and other types of
developments typically receive funding priority.
Funding is only used for capital costs including land acquisition. Funds are not used for rent
supplementation or down-payment assistance. While most of the financing is structured as soft
loans, high priority developments, such as supportive housing (where a case worker or other social
assistance is provided with the housing), are structured as grants or deferred loans. Among other
requirements, financing is contingent upon retaining affordability, via deed restrictions, for a
minimum of 20 years. Certain tax credit programs or HUD developments may require a longer
period of affordability. For the purposes of the HTF, the program focuses on housing that would
be affordable for a household at or below 60% of the median household income.
Overall Housing Strategy:
The HTF and use of housing bonds fit within a larger affordable housing framework and strategy.
In developing their housing programs, and on an ongoing basis, the City of Charlotte utilizes
consultant expertise to cultivate data, analyze local housing trends, and provide a strategy
framework and program options for the City to consider. These programs take into account the
high-level housing goals set by the City Council and are regularly fine-tuned to ensure the
programs are achieving the intent of the goals.
Charlotte representatives feel their program success is due to the early engagement of the
community and City Council, and the development of a housing strategy to ensure that the best
value was received from public investment.
Cities of Austin and Dallas:
In similar fashion to Charlotte, after 24 months of analysis and engagement by the City, voters in
the City of Austin recently approved $250 million in housing bonds in the November 2018
election. The revenue would implement the Austin Housing Blueprint and be used for land
acquisition, a rental assistance program, a homeownership program, and home repair program.
Specific to rental assistance programs, Austin proposes using the Housing Trust Fund to contract
with external providers to offer education around the eviction process, legal aide, and providing
short term rental assistance to prevent evictions. The City of Austin had previously issued housing
bonds in 2006 and 2013 for a combined $120 million. Previous housing bonds had greater focus
on developer incentives and financing.
In its 2017 bond election, voters in the City of Dallas approved two propositions with affordable
housing component selected based public input from thirty-one community meetings,
recommendations from Citizens Bond Task Force, and a final Bond Package approved by Dallas
City Council. Proposition I granted $55.4 million toward economic development – a portion of
which would be used to promote mixed income housing throughout the city. Proposition J granted
$20 million for homeless assistance facilities including supportive and transitional housing to
Date: March 15, 2019 Report No. 2019-053
target chronic homelessness, rapid rehousing for the elderly, disabled, and families with children,
and provide day centers for seamless wrap-around services.
Applicability to Denton:
Local governments in North Carolina derive their authority to issue housing bonds specifically
from the state legislature through the Local Government Bond Act. As a home rule city, the City
of Denton is not prevented from issuing housing bonds by the State of Texas.
Article IX of the Denton City Charter (specifically, subsection 9.01) states that the City of Denton
“shall have the right and power to issue general obligation bonds to finance any capital project
which it may lawfully construct or acquire or for any other legitimate public purpose”. The City’s
bond counsel believes the “any other legitimate public purpose” charter provision would allow the
City of Denton to issue housing bonds for the purpose of providing affordable housing. Any bond
and its underlying authority would be subject to review and approval by the Attorney General’s
Office prior to issuance. General obligation (“GO”) bonds could be issued pursuant to an
economic development program for administration of the housing projects. The GO bonds would
have to be approved by voters and most likely would be issued on a taxable basis. Also, the city
could finance a multi-family housing project by creating a Housing Finance Corporation that
would issue mortgage revenue bonds to finance the project. These bonds would be issued on a
tax-exempt basis and may include a tax credit component.
INCLUSIONARY ZONING
Inclusionary zoning is a policy approach to create new affordable housing. There are two basic
ways to implement inclusionary zoning strategies:
1. MANDATORY: Mandatory is where new developments above a certain unit count
threshold must include a percentage of affordable housing units or pay a fee in lieu of.
Please note that there are statutes restricting the ability of cities in the State of Texas to
enact mandatory inclusionary zoning, including the following two statutes:
• Section 214.905 of the Texas Local Government Code prohibits cities from
requiring developers to set aside a certain number of homes at a fixed price in
order to increase affordable housing. This would require developers to file a deed
restriction ensuring that the original dedicated percentage of constructed
affordable homes remain affordable when that homeowner sells it to another, and
so forth. To get this requirement, the City would have to pass an ordinance setting
forth the maximum sales price that ensure the homes are affordable, which
violates Section 214.905.
• Section 250.008 of the Texas Local Government Code prohibits the use of “fees
in lieu of”, also known as linkage fees. Revenues from linkage fees, used by cities
in other states, are often put into an account or fund to help subsidize other
affordable housing projects or efforts.
2. VOLUNTARY: Voluntary is where new developments above a certain unit count
threshold would voluntarily include a percentage of affordable housing. They would be
incentivized to do so through a regulatory incentive program commonly known as
Date: March 15, 2019 Report No. 2019-053
density bonuses. Incentives such as reduced street/parking requirements; additional
building height; expedited review and permitting process; fee waivers, exemptions, or
reductions are examples of density bonuses.
Research indicates that there are over 500 cities in the U.S. use inclusionary zoning, including
Boston, Denver, New Orleans, Portland, Sacramento, San Francisco, San Diego, and Washington,
DC.
CONCLUSION:
Housing Bonds and Inclusionary Zoning are tools that cities use within a comprehensive housing
policy and strategy. The comprehensive analysis of affordable housing needs is a critical first step
to understanding what are the housing needs of a community, what are the available tools, and
which tools best meet the needs in order to facilitate a policy discussion and development of a
strategy.
STAFF CONTACT:
Sarah Kuechler
Director of Public Affairs/IGR
sarah.kuechler@cityofdenton.com
940-349-8356