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Balanced Housing for a Smart Region: Policies for Addressing the Housing Problems of the New York Metropolitan Region July 2006 Balanced Housing for a Smart Region: Policies for Addressing the Housing Problems of the New York Metropolitan Region is part of an ongoing collaboration between the Citizens Housing and Planning Council (CHPC) and Regional Plan Association (RPA) to analyze housing problems, propose solutions, and support policy implementation in the New York-New Jersey-Connecticut metropolitan area. The goal of the partnership is to provide a regional, interdisciplinary perspective on a challenging set of issues that cut across political and geographic boundaries. The first product of the collaboration, Out of Balance: The Housing Crisis from a Regional Perspective, measured how well the region was meeting objectives of a balanced housing market that provides affordable, quality housing choices across income, racial and geographic boundaries. This second report takes a more in-depth look at the questions raised by these findings and provides recommendations for a metropolitan housing strategy. Balanced Housing for a Smart Region was researched and written by Frank Braconi, Elaine Toribio, and Jeffrey Otto of the Citizens Housing and Planning Council with the assistance of Christopher Jones and Alexis Perrotta at RPA. Jeffrey Ferzoco of Regional Plan Association designed the maps. CHPC and RPA extend their gratitude to the Fannie Mae Foundation, Ford Foundation, Washington Mutual, Surdna Foundation, Independence Community Foundation, GreenPoint Foundation, Wachovia Foundation, the Met Life Foundation, and Bank of America for their crucial financial support for this study. CHPC particularly thanks Sheila Maith for her steadfast support of this project. Board Members Daniel Z. Nelson Sandra Acosta Daniel Nissenbaum Mark Alexander David L. Picket Debra C. Allee Rebecca Robertson Frank J. Anelante, Jr. Bernard Rothzeid Naomi S. Bayer Peter D. Salins Alan R. Bell Marian Sameth Stanley Berman Philip Schorr Robert F. Borg Denise Notice Scott Diane Borradaile Avery Seavey BOARD OF Howard Chin Ethel Sheffer DIRECTORS Peter Claman Paul D. Selver Nina DeMartini-Day Jane Silverman President Sylvia Deutsch Carole S. Slater Marvin Markus Ruth Dickler Ann M. Soja Elaine Dovas Mark Strauss Secretary Douglas D. Durst Michael D. Sullivan Sander Lehrer William Frey David J. Sweet Treasurer Mark E. Ginsberg Robert V. Tishman Robert Berne Elliott M. Glass William Traylor Vice Presidents Simeon H.F. Goldstein Gerard F. Vasisko Shirley Bresler Colvin W. Grannum Philip Weinberg Robert S. Cook, Jr. Amie Gross Adam Weinstein Robert W. Jones Rosanne C. Haggerty Alan Wiener Deborah Lamm James A. Himes David J. Wine Henry Day Lanier Kent Hiteshew Barry Zelikson Michael D. Lappin William N. Hubbard Howard Alan Zipser Frances W. Magee Marc Jahr Hal K. Negbaur Carol Lamberg CHPC STAFF Vincent L. Riso Charles S. Laven Senior Policy Analyst Robert C. Rosenberg Robert O. Lehrman Elaine R. Toribio Richard J. Scheuer Jeffrey E. Levine Mark A. Levine Policy Analyst Flora Schnall Kenneth K. Lowenstein Jeffrey L. Otto Robert W. Seavey Richard C. Singer Marvin A. Mass Program Associate Mark A. Willis John McCarthy Marsha Nicholson Louis Winnick Lucille L. McEwen Bookkeeper David McGregor Jane Schneiderman Howard D. Mendes Ronay Menschel Felice L. Michetti Ron Moelis Preston C. Moore Michael C. Finnegan Timur Galen Michael Golden BOARD OF DIRECTORS Mark B. Goldfus Maxine Griffith Kenneth T. Jackson Chairman Ira H. Jolles Peter W. Herman Richard A. Kahan Richard D. Kaplan Vice Chairman and Co-Chairman, New Jersey Shirley Strum Kenny, Ph.D. Christopher J. Daggett Matthew S. Kissner Robert Knapp Vice Chairman and Co-Chairman, New Jersey John Z. Kukral Hon. James J. Florio Susan S. Lederman Vice Chairman and Co-Chairman, Richard C. Leone Connecticut Charles J. Maikish John S. Griswold, Jr. Joseph J. Maraziti, Jr. John L. McGoldrick Vice Chairman and Co-Chairman, Robert E. Moritz Connecticut The Very Reverend James Parks Michael P. Meotti Morton Peter H. Nachtwey Vice Chairman and Co-Chairman, Jan Nicholson Long Island Bruce P. Nolop Robert A. Scott, Ph.D. Kevin J. Pearson James S. Polshek President Richard Ravitch Robert D. Yaro Gregg Rechler Thomas L. Rich Treasurer Claire M. Robinson Brendan J. Dugan Elizabeth Barlow Rogers Janette Sadik-Khan Robert F. Arning Stevan A. Sandberg Hilary M. Ballon H. Claude Shostal Laurie Beckelman Susan L. Solomon Stephen R. Beckwith Luther Tai J. Max Bond, Jr. Sharon C. Taylor George Campbell Karen E. Wagner Frank S. Cicero Paul T. Williams Jr. Jill M. Considine William M. Yaro Kevin S. Corbett Alfred A. DelliBovi Directors Emereti Nancy R. Douzinas Roscoe C. Brown, Jr., Ph.D. Douglas Durst Robert N. Rich Barbara Joelson Fife Mary Ann Werner Regional Housing Advisory Committee John Atkin, Regional Plan Association Naomi Bayer, Fannie Mae NY Partnership Office Robert W. Burchell, Center for Urban Policy Research, Rutgers University Ross Burkhardt, New Neighborhoods, Inc. William Carbine, NYC Dept Housing Preservation & Development Rafael Cestero, NYC Dept Housing Preservation & Development Thomas Dallessio, Regional Plan Association Hendrick Davis, Habitat for Humanity - Newark Joseph Devonshuk, Zoning and Planning Department, Fairfield, CT Elaine Dovas, Housing Consultant Peter Elkowitz, Long Island Housing Partnership Marilyn Gelber, Independence Community Foundation Philip Grossman, Banc of America Securities Nancy Hadley, Office of Planning and Economic Development, Bridgeport, CT Gary Hattem, Deutsche Bank Americas Foundation Martin Johnson, Isles Corporation, NJ Peter Kasabach, New Jersey Housing Mortgage Finance Agency Marcie Kesner, Kramer Levin Naftalis & Frankel LLP Sarah Lansdale, Sustainable Long Island Stanley Moses, Department of Urban Affairs and Planning, Hunter College Seila Mosquera, Mutual Housing Association of South Central Connecticut David Muchnick, New York Housing Conference Frank Piazza, Plainsboro Non-Profit Housing Corporation Ilene Popkin, NYC Dept Housing Preservation & Development Lee Porter, Fair Housing Council of Northern NJ Merilyn Rovira, Fannie Mae NJ Partnership Office Thomas Ruhle, East Hampton Office of Housing & CD Cynthia L. Russell, Connecticut Housing Investment Fund, Inc. Wanda Saez, Wachovia Ethel Sheffer, APA NY Chapter Lucy Voorhoeve, Council on Affordable Housing (COAH) Joseph Weisbord, Fannie Mae NY Partnership Office Marian Zucker, Suffolk County Department of Economic Development and Workforce Housing Table of Contents Page Summary i - vi Introduction 1-7 I. Housing and Land Use in the Metropolitan Region 8 - 48 Trends in Land Use and Housing Development 10 - 16 Patterns of Housing Development 10 Trends in Land Consumption 13 Commuting & Transportation 15 Local Land Use Strategies 16 - 37 Bridgeport, Connecticut 19 Montclair, New Jersey 23 Gateway to the Highlands, New Jersey 27 Croton-on-Hudson, New York 30 East Hampton, New York 33 Statewide Land Use Strategies 37 - 41 Land Use Strategies for Balanced Housing 41 - 48 II. Transportation Investment and Education Funding 49 - 70 Transportation and Regional Housing 50 - 58 Critical Need for Modal Choice 52 Housing-Sensitive Transportation Policies 53 Key Regional Initiatives 55 Financing Transportation Infrastructure 57 Housing and Local Government Finance 58 - 67 School Finance and Fiscal Zoning 60 School Finance in Connecticut 64 School Finance in New Jersey 65 School Finance in New York 66 Transportation and Education Finance Strategies to Support Housing Balance 67 - 71 III. Housing Finance Challenges 72 - 95 Regional Housing and the Private Mortgage Market 73 - 83 Selling the American Dream to All 75 Subsidizing Homeownership 79 State Homeownership Efforts 80 Subsidized Rental Housing 83 - 92 Tax-Exempt Multifamily Financing 86 LIHTCs and Local Priorities 87 State & Local Funds for Rental Housing 90 Housing Finance Strategies for Balanced Housing 92 - 95 Sources 96 - 101 Tables and Maps Page Five Year Change in Metropolitan Housing Prices, 2000-2005 5 Population and Employment Changes in the Metropolitan Region, 1990-2003 10 New Residential Building Permits, 1990-2003 By Sub-Area and Type of 11 Structure Housing Permits in Low-Density Counties, 1990-2003 12 Connecticut and New Jersey Changes in Land Cover, 1995-2002 13 Map: Change in Share of Urbanized Land as Percentage of Acres, 1985 - 1995 14 Map: 5 Case Studies 18 Bridgeport's Land Use Trends, 1996-2000 21 Montclair's Multifamily Building Permits, 1998-2004 24 Housing Characteristics and Tenure in the Gateway, 1990-2000 28 East Hampton's Land Use Trends, 1984-2004 33 Population Changes in Regional Cities, 1990-2000 42 Map: 10 Largest Municipalities Outside New York City 43 Ridership Change on Regional Commuter Rail Systems 53 Transit Share of Journey to Work 54 Prices and Tax Burdens for a Modest Home in the Metropolitan Area, 2004 59 Average Number of Children by Housing Type and Tenure 62 Regional Applications for Conventional Mortgages by Income Group, 1997- 75 2003 Regional Homeownership Rate by Race, 1990-2000 76 Regional Mortgage Approval Rate, 1997-2003 76 National Fixed- and Adjustable-Rate Mortgages, 2001 - 2005 79 HFA Financed Single-Family Mortgages, 1998-2003 81 Map: Share of Rental Units that are Federally Assisted 84 Federally-Assisted Rental Housing by County 85 Summary As the region has grown in population and geographic expanse, the range of choices Housing costs in the New York available to many residents has, ironically, metropolitan area are among the highest in contracted. Households of modest means the country. That is primarily due to the have been virtually priced out of entire unparalleled size and wealth of our region, counties, and in many areas, there is an not to a massive failure of the private or acute shortage of suitable housing for public institutions that influence the young people, singles, and seniors. The housing market. In and of themselves, growing mismatch between housing need relatively high housing costs do not pose an and availability is revealed by an alarming immanent danger to the prosperity of our increase in commuting times throughout region; in fact, they can even be interpreted the region. as a market valuation of its high quality of life and promising future. Moreover, thousands of dwellings in our inner-city districts suffer from serious Nevertheless, there are significant deterioration and neglect, and even much of imbalances in the metropolitan housing our stock of middle-income, suburban market that can impede future economic homes, built a half-century or more ago, is growth, impose hardships on its residents, modest and outdated when compared to its and increase our vulnerability to resource equivalent in Sunbelt growth cities. Even disruptions. Comparative measures of more alarmingly, a growing portion of our "median home prices" and "median population is being forced into a incomes" provide only a statistical burgeoning illegal housing sector, putting shorthand that mask millions of individual at risk their own health and safety and circumstances with respect to housing overburdening both the structures and the affordability, choice, and quality. In our communities in which they are located. region, too many of those circumstances are precarious and inadequate and can only be Our regional economy appears to be rectified through purposeful and creating more well-paid, professional jobs coordinated public policies. and more modestly-paid, service jobs than it has in the past, with a consequent decline Rising home prices over the past several in the number of middle-income, blue-collar years have benefited millions of families positions. At the same time, the relative throughout the metropolitan area, number of elderly households, immigrant increasing their net worth and enhancing households, and single-person households their economic security. At the same time, is growing. For our region to prosper in it has exacerbated the divide between the coming decades and for its residents to region's "haves" and "have nots" and enjoy the highest possible quality of life, our raised the cost of entry for low-income housing stock will have to be realigned with families, immigrants, young people, and such changing needs of the metropolitan singles trying to establish a foothold on the economy and with the changing economic ladder. While a majority of the demographics of its population. This study population is comfortably housed, about identifies three fundamental areas of public thirty percent of the region's households policy that must be addressed so that both pay more than one-third of their incomes private and public agencies can effectively for housing. meet our 21st century housing needs. i 1) Land Use Practices and Patterns. As our • Encourage and control accessory units. region's population grows beyond 20 Informal or illegal accessory units in million, reliance on the traditional suburban private homes are proliferating formula of low-density ownership housing throughout the region because they is no longer viable. The distances between satisfy a huge unmet housing need. the developable suburban fringe and the The encouragement and proper region's major employment centers have regulation of such units can grown too great, the traffic has grown too increase our affordable stock while thick, and our reliance on petroleum- better protecting resident safety and powered cars has grown too perilous. neighborhood character. Moreover, the increasingly diverse demographics and individual lifestyles of • Focus greater attention on the our population demand a correspondingly affordability of existing housing. With diverse housing stock, the creation of which many of our communities fully the traditional suburban development developed, the emphasis of formula does not easily accommodate. Our affordable housing efforts needs to region needs to aggressively adopt a "smart shift from new development growth" approach to development, not only towards existing housing. That for environmental and preservation means both preserving existing reasons, but to satisfy its housing needs as affordable housing assets and well. Land use regulations and practices designing new programs to increase need to permit and encourage more access to the private market. sustainable, varied, and affordable housing development. Among the most important • Create programs that link open space measures that are needed are: preservation and affordable housing. In theory, communities can protect • Focus on the region's smaller cities. their open space by allowing Smaller cities like Bridgeport, greater density in designated Newark and Yonkers are among development zones. State and our region's greatest potential county programs are needed that assets. With land available for explicitly link and incentivize these redevelopment and good complimentary land use goals. transportation infrastructure, they can accommodate much of the • Adopt inclusionary zoning. There are region's future housing needs almost as many variations of without exacerbating low density inclusionary zoning as there are sprawl. jurisdictions that employ it. At its core, inclusionary zoning requires • Promote 2-family home construction. or encourages developers to set Construction of owner-occupied, aside a share of housing units for two-family homes can promote the lower income households every creation of rental housing and time they build. State and county dwelling diversity where it is governments must encourage acutely needed, but they can still be inclusionary zoning programs made highly compatible with consistent with local needs and suburban aesthetics. aspirations. ii they buy. In addition, government's choice • Encourage the development of of methods for financing its investments transit villages. Our region has over and operations fundamentally affects the 300 transit stations, many of which cost of housing and the spatial patterns of could anchor attractive mixed use, wealth and poverty. For our region's mixed income development. housing problems to be solved, they must be analyzed and addressed within this • Promote mixed-use main streets. A broader public policy context. number of towns and villages in our area have recently begun to Two aspects of this complex of government appreciate the advantages of mixed- activities stand out from a housing use town centers. Aside from viewpoint. The first is transportation. The creating new rental housing association between transportation opportunities for young people, investment and residential development singles, and the local workforce, the patterns is intimate and obvious, with the approach adds life and activity to development of railroads, subways, and main streets after hours, keeps highways stimulating and channeling our purchasing power in the local retail region's development throughout the past districts, and enhances local tax two centuries. In the coming years, we will bases. be making important transportation decisions that will have a similarly • Adopt meaningful statewide growth profound effect on future residential plans. While still a work in patterns. progress, New Jersey's statewide planning process is a national The other area of critical importance is model. Connecticut's plan is purely public school finance. Elementary and advisory, and New York does not secondary education dominates the budgets have one. Establishment or and politics of local governments. When improvement of statewide planning land use decisions affecting residential processes would greatly facilitate development and its character are made, or implementation of the previous siting decisions involving affordable recommendations and the rational housing are considered, the impact on local development of our unique schools is usually among the most metropolitan area. prominent and contentious issue that arises. Historically, a reliance on local property taxes to finance public education has 2) Public Infrastructure and Local Finance. encouraged jurisdictions to exclude housing Government's influence on the housing types and demographic groups that were market goes far beyond the land use perceived to generate more school regulations it establishes and the housing expenditures than local taxes. This practice subsidies it provides. Its decisions about of "fiscal zoning," has for decades distorted where and when to improve public housing development patterns and infrastructure determine where housing is heightened the segregation of economic and built and what type is feasible. The quality racial groups. With the school finance of public schools and other services it systems of New York, New Jersey, and provides influences consumers' locational Connecticut all under legal challenge and preferences and the prices of the homes financial pressure, it is an opportune time iii for planners and housing professionals to • Devise fiscally-neutral housing models. become actively engaged on these issues. Different housing types have different, but fairly predictable, Among the most important necessary steps impacts on local school budgets and are: tax collections. Housing developers, especially those engaged in • Create intra-suburban and reverse affordable housing creation, need to commute transit connections. After exploit those differences to make several decades of suburban job projects more appealing to local growth, commutation patterns have officials, planning boards, and become increasingly complex. To voters. increase transit usage in our region and simultaneously create new • Compensate communities for fiscal housing opportunities, suburban job impacts. Many communities are centers must be connected to the reluctant to accept affordable regional transit grid. housing projects for fear of adverse impact on local school budgets. • Select transit with associated land use State legislation should be enacted potential. Public transit investments to compensate communities for in recent decades have more often school costs incurred by districts been made to eliminate traffic that contribute to satisfying regional bottlenecks rather than to housing need. consciously guide development patterns. Future transportation • Break the link between education improvements need to be evaluated funding and local property taxes. The more explicitly on the basis of the ultimate goal of housing and amount and type of housing planning professionals in the realm development they will stimulate. of local public finance should be to develop alternatives to local • Finance transit adequately and revenues sources, particularly appropriately. Several important property taxes, to fund education. regional transportation projects are The traditional reliance on local contemplated that could sources for funding schools is the significantly enhance opportunities major incentive for fiscal zoning and for transit-oriented housing a root cause of residential development. It is imperative that segregation by income and race. these projects proceed with the necessary financial support. It is equally important that the region's 3) Housing Finance. The housing finance major transit agencies have stable, system is a sophisticated network of private sufficient operating and capital businesses and public agencies that is subsidies, and that debt payments continually innovating and adapting to new from financing capital projects do market realities. A number of innovations not unduly burden the in recent decades, such as the creation of transportation system. mortgage-backed securities, have lowered the cost of mortgage capital, facilitated housing development, and broadened iv opportunities for homeownership. organizations to ensure permanent Nevertheless, even a perfectly efficient affordability. private housing finance system cannot make new housing, and even much existing • Increase grant subsidy programs for housing, affordable to moderate- and low- low-income housing. Equity raised income households. Only government can through the sale of tax credits and provide the below-market loans or grants low-interest financing provided by that are needed to make homeownership a federal tax-exempt bonds are often reality for moderate-income working not sufficient to reach low-income families or any decent housing affordable to households. Additional state and the poor. local grants for low-income housing development are essential. The following should be the housing finance priorities of state and local • Provide additional support for low-and governments in our region: moderate-income homeowners. As federal and state programs increase • Create dedicated state housing trust the number of lower-income funds. The creation of a dedicated homeowners, it is crucial that the source of revenue, independent of assistance not end when the home federal subsidies and limitations, mortgage loan is closed. Additional would allow state housing finance supports may be needed to sustain agencies and localities to create their ownership. sustainable mixed-income housing that blends public and private • Coordinate state and local advocacy for investments and serves families at a housing subsidies. Recognizing that broader range of incomes. the federal government provides the majority of housing subsidies, the • Provide tax credits for employer-assisted region's government officials, housing. All employers benefit from business and real estate groups, and affordable workforce housing. community development and Employer-assisted housing housing advocates, need to coalesce programs are particularly promising around certain key issues: public because they allow firms to directly housing; Section 8 rental assistance; benefit, through a more stable and and Community Development Block productive workforce, from housing Grants. they sponsor. The New York metropolitan region, • Create acquisition funds to preserve comprised of four states, 32 counties, a existing low-rent housing. Many dozen significant cities, and numerous privately-owned assisted projects towns and villages, functions as a single are reaching the end of their economy and as one, integrated housing mandated affordability periods. market. Firms and households make their Acquisition funds could allow for locational decisions across political borders some of the expiring affordable on the basis of price, transportation, developments to be purchased by services, taxes and the like. In such an local housing agencies or nonprofit integrated regional economy, the decisions and policies of every jurisdiction have v reverberations on every other, even if the effects are sometimes difficult to detect. No single county, city, or town can "solve" its housing problems without the cooperation of its neighbors. The recommendations listed above may apply to one state more than another, to one town more than the next. Nevertheless, one common principle unites them all: only by approaching their land use, infrastructure, and financing challenges in a regional context will individual jurisdictions make headway in solving their housing problems and preparing the ground for a prosperous future. The remainder of this report outlines the logic of a coordinated and cooperative approach to our region's housing challenges. vi Introduction: Housing for a is once against asserting itself as the economic engine of the region. Some of the Smart Region region's smaller central cities are also showing signs of revival, suggesting that they are ready to recapture their once- strategic positions. The geographic limits of Through the slow decades of metropolitan auto-dependent development are quickly evolution, new eras are ushered in and old being reached, while gasoline price spikes ones pass without much notice; there are portend a new location-transportation rarely single moments to mark the calculus. While it is too early to say who transition. Only in hindsight do we the visionary figures of the era will prove to recognize that the economic basis of our be, it is clear that new approaches to community has shifted, and with it our planning, real estate development, and preferences, priorities, and challenges. social welfare are required. The decades following the Civil War were It has been at least 20 years since a distinctly one such period. New York City and its knowledge-based regional economy close cousins along the north shore of the emerged from the remnants of the Sound and the west bank of the Hudson "industrial northeast." The undisputed began their transition into industrial leaders now are finance and business urbanization, generating a huge demand for services, culture and design, and education immigrant labor, transportation and health care. Those growth sectors are infrastructure, public schools and centered in Manhattan, but they also thrive sanitation, and new government in Stamford, White Plains, Melville, institutions. Visionary planners such as Princeton, and other important subcenters. Andrew Haswell Green, builders like Edward Clark, and reformers like Lawrence The labor force needs and housing issues of Veiller appeared on the scene and helped this knowledge-based regional economy are guide the development of the region onto a also becoming increasingly clear. Our post- modern and prosperous path. industrial economy rewards creative, educated workers, stimulating demand for Another transitional period unfolded in the high quality housing and neighborhoods in 1950s. The automobile opened up vast new both city and suburb. It also generates a areas for residential development, setting in high demand for less-educated business motion a rapid dispersion of population and personal service workers—security and industry and changing the ideal of guards, cooks, gardeners, maintenance and middle-class life. Planners such as Robert home improvement workers, receptionists, Moses and builders like William Levitt and clerks. Those workers need affordable facilitated the new era, while reformers housing proximate to their jobs or feasible such as Ira Robbins spoke up for those left transportation to them; a shortage of both is out. becoming a major economic constraint and quality-of-life problem throughout the It is becoming increasingly obvious that we region. are emerging from a similar period of fundamental change. New York City Another characteristic of the new regional appears to have completed its painful economy is that its demand for traditional transition to a post-industrial economy, and middle-income, middle-class workers is 1 dwindling, at least in relative terms. Many housing projects that depend upon the of them—teachers, drivers, mechanics, and goodwill and support of the community. municipal employees—are either leaving the region for greener pastures or feeling Just as tenement housing accommodated squeezed by rising prices and declining the labor force needs of industry in an expectations. earlier era, and streetcars and subways supported that tenement housing, the Added to these labor force trends are coming decades will require an alignment demographic reverberations from the 20th of our region's economic base, its labor century's momentous events. The original force housing, and its physical post-war suburbanizers are now retired and infrastructure. But it is important to realize elderly, with greater service needs and that in no era has the necessary public and reduced mobility. Even the early waves of private infrastructure been developed the baby-boom generation are beginning to spontaneously by an invisible hand; public ponder how they can remain in their water and sanitation, schools, subways and suburban homes with property taxes rising highways, and even housing was always and social security and private pensions the product of close cooperation between under assault. In both city and suburb, the private and public sectors (sometimes so young people born in the 1970s and 1980s close as to be corrupt). To meet the struggle to find the housing they need to challenges of a new era, our region will become independent and to begin families. need deliberate and wise public policies to guide private motives into socially desirable It may seem that the challenges of pursuits, and will need reformers and providing a housing infrastructure to fit advocates to speak up for those who are today's workforce and demographic is marginalized by progress. much less daunting than the task earlier generations faced. In a sense that is true— Analyzing Regional Housing Needs our region already has a marvelous housing stock and the schools, roads, and This is the second in a series of studies infrastructure necessary to serve them. In conducted by Regional Plan Association relative terms, the magnitude of housing and the Citizens Housing and Planning expansion we must manage is modest by Council aimed at analyzing regional historical standards. But the difficulty of housing needs and strategies. The first the task is magnified because our region is report, Out of Balance, focused on already substantially built. There are few identifying the important trends and issues orchards, farms, or forests left that offer that affect our region's housing easy development opportunities, and for infrastructure.1 This study builds upon the those that remain, preservation is a high former by surveying regional housing and priority. Most importantly, all new land use policies at the state, county, and development must now occur within a local levels and by suggesting some of the thicket of political interests: communities most promising policies for solving regional that want to preserve their traditional housing problems. character, motorists who fear more traffic, and governments concerned about fiscal balance. It is increasingly difficult for any 1"Out of Balance: The Housing Crisis from a Regional Perspective." Regional Plan proposed development to satisfy all Association and Citizens Housing and Planning constituencies, least of all affordable Council. April 2004. 2 Our research in the first phase of the project We find that our region scores very high in led us to question the familiar "housing terms of housing choice. We have an crisis" paradigm for interpreting the unparalleled range of housing types, from region's housing conditions. First and city lofts to suburban ranches to colonial foremost, that picture obscures the fact that farmhouses. Our extensive public the diversity of our housing and the transportation network magnifies that character of our neighborhoods is a regional diversity, as it allows commuters to the advantage that allows us to accommodate urban core to choose from the full range of migrants from all over the world in residential environments. Economic and hundreds of vibrant communities. While demographic changes are, however, our region may be at a cost disadvantage eroding this advantage. An acute shortage with respect to some growing cities in the of rental housing in many suburban areas Sunbelt, it has an enormous advantage in and a worrying increase in commuting the variety and quality of the residential times throughout the region are signs that environments it can offer. residential choices are becoming more constrained. Secondly, we concluded that the crisis framework does not lend itself to a careful While our housing is of a high quality analysis of the strengths and weaknesses of compared to that in many areas of the a housing infrastructure valued in excess of country, its age and inadequate rate of $2.5 trillion. Within our region, there are replacement are cause for concern. The thousands of cases of acute and chronic housing stock of many metropolitan areas is housing need that demand immediate significantly newer than ours, and while attention, there are subtle inequities and newer is not necessarily better, the disadvantages that require persistent effort amenities and conveniences our housing to redress, and there are millions of provides is falling behind national satisfactory outcomes that should be standards. A growing "bathroom gap" appreciated and carefully built upon. Our between our region's housing and the region faces significant housing challenges national norm may be meaningful in itself, but there is no prospect that they will be but more importantly, it proxies for a host solved easily or quickly, and a crisis of modern design features and amenities mentality can be a barrier to the formulation that may be in short supply in our central- of long-term policies that may provide city and older suburban housing. The structural and lasting solutions. current boom in residential improvements will help to mitigate some of those In both phases of our research we have shortcomings, but regional and local preferred the analytical framework of a policies aimed at modernizing, and balanced housing market, and identified sometimes replacing, the existing stock three core components of such a market: need to be considered. choice, quality, and affordability. We find that that approach allows us to evaluate It is the cost of housing in our region that housing issues in a more comprehensive usually generates the most concern among and integrated manner, and to more clearly housing advocates, public officials, and the identify policies that target immediate or general public. Our cost problems are structural problems as each case requires. sometimes exaggerated; comparing housing prices in our region to those in amorphous Sunbelt suburbs or stagnant rustbelt towns 3 is not particularly meaningful. When our social policies that generate and perpetuate costs are compared to those of other poverty. A balanced view suggests that we populous, high-income coastal need to augment our stock of low-income metropolises, such as Boston, Washington, housing, but cannot afford to be complacent San Francisco, and Los Angeles, they about the poverty that creates that need. appear more reasonable. Nevertheless, housing affordability is a persistent A larger, and in some ways more problem for the region's competitive perplexing, affordability problem is that of position. Even among high-income regions, the low- to moderate-income families and New York is among the most expensive. individuals who are growing as a Moreover, all of these high-cost proportion of the region's population. They metropolitan areas are at an economic are almost always working households disadvantage to Sunbelt cities that have (often with more than one earner), often fewer topographical or environmental recent immigrants, and are clearly crucial to constraints on housing development. Those the knowledge-based economy. It is this geographic disadvantages are unlikely to group, usually not eligible or given priority abate regardless of the public policies that for subsidized housing, that is increasingly are adopted; cost-sensitive businesses and being forced into over-crowded conditions households will continue to migrate to or into an informal and illegal housing metropolitan areas where land is plentiful market. Allowing that trend to continue is and development costs are low. The task neither fair nor smart. Much of the policy for our region is to ensure that our premium focus of this report is aimed at developing housing costs are fully justified by income solutions for the housing problems of this differentials and the quality of our housing economically important group. and neighborhoods. One affordability issue that must be taken For the poor and disadvantaged, housing into account, but is inherently often consumes more than half of total unpredictable, is the so-called "housing income, and the recent escalation of housing bubble." In the popular press, the term is costs is squeezing these households often misused as a reference to any rapid particularly hard. The problem would be increase in housing prices. In a technical even worse were it not for a stock of sense, however, market bubbles exist only subsidized, low-rent housing that is when the price of an asset exceeds the price significantly larger, in both absolute and justified by its fundamental value—when relative terms, than that found in other the price increase is purely speculative. The major metropolitan areas. In excess of 6 distinction is important. percent of the region's housing inventory is public housing or federally-assisted We do not believe that the housing price housing and is available to low-income increases experienced throughout our households. That percentage is much region during the past five years are higher in the central cities of our region primarily due to speculative factors. To a than in the suburban counties, of course, degree, it is a market correction after a and distributing subsidized housing more period of real home price declines that evenly should be an objective of regional lasted for much of the 1990s, and thus housing policy. The overall adequacy of the represents a favorable market judgment of assisted stock, however, cannot be assessed our region's economic future. A bigger entirely independent of the economic and element, perhaps accounting for a majority 4 of the price increase, is the effect of which historically tend to be resistant to historically low mortgage rates. Low current-dollar price declines. An alternative mortgage rates allow buyers to bid up the scenario is that housing prices do fall in an price of homes as they compete for absolute sense, creating widespread desirable properties. If mortgage rates financial distress among recent homebuyers, especially those with Five-Year Change in Metropolitan adjustable rate or high loan-to-value House Prices, 2000-2005* mortgages. 5-year Metropolitan Area Change At the very least, the recent surge in home prices is further evidence of the price Santa Barbara-Santa Maria, CA 127.98 volatility to which our region, along with San Diego-Carlsbad, CA 118.27 other major metropolitan areas on the East Los Angeles-Long Beach, CA 115.09 and West coasts, is vulnerable. The sales Miami-Kendall, FL 107.94 price of existing single-family homes in Washington-Arlington, VA 101.22 many parts of the region has nearly doubled Sarasota-Bradenton, FL 100.77 in the past five years, trailing only a handful Nassau-Suffolk, NY 92.35 of metropolitan areas concentrated in Edison, NJ 88.46 California and Florida. A similar run-up in Poughkeepsie-Newburgh, NY 87.05 home prices was experienced in the late Baltimore-Towson, MD 83.45 1980s, which was followed by a long period NYC-Wayne-White Plains 80.46 of eroding real home values. Such volatility Trenton-Ewing, NJ 77.54 complicates the housing decisions of Boston-Quincy, MA 74.67 millions of families and impedes the Newark-Union, NJ 74.38 implementation of a consistent set of Philadelphia, PA 68.10 affordable housing policies. New Haven-Milford, CT 68.04 Phoenix-Mesa, AZ 67.31 Formulating Regional Housing Policies Bridgeport-Stamford, CT 67.03 San Francisco-San Mateo, CA 62.08 In discussions between RPA and CHPC Minneapolis-St. Paul, MN 56.35 staff, with housing and land use experts on Chicago-Joliet, IL 47.20 our respective Boards and throughout the Syracuse, NY 36.37 region, and in our statistical and policy Kansas City, MO 29.62 research, three broad conclusions emerged Denver-Aurora, CO 29.01 that served to frame and guide our more Atlanta-Marietta, GA 28.12 specific policy recommendations. They are: Houston-Sugar Land, TX 24.66 Durham, NC 23.84 The metropolitan area's housing problems can Rochester, NY 21.79 only be solved on a regional basis. This is a rather obvious conclusion given the theme *Percentage change in repeat sales price index, from 2Q 2000 to 2Q 2005. of the project, but it bears explicit Source: OFHEO articulation. Our region is a single, functional economic unit in which each increase significantly in the coming years, it jurisdiction complements, and influences, could cause an even bigger affordability the others. For example, the persistently crunch, as more costly mortgage money is higher rate of housing price increase on not fully offset by falling home prices, Long Island has and will continues to affect 5 housing prices in other parts of the region, Our region has grown too large and as households arbitrage price differences intensively developed for the majority of across county and state lines. Similarly, our projected housing needs to be satisfied decisions made by New Jersey officials primarily with additional single-family, regarding commuter transit will inevitably low-density housing development on the increase or decrease demand pressures in suburban fringe. Higher-density housing in New York City's housing market. Those revitalized central cities and transit-oriented intra-regional spillovers exist in housing, villages is the only way we can meet future land use, transportation, income support, housing demand while mitigating the public finance, and a host of other policy adverse impacts of a growing population. areas, and no single jurisdiction can "solve" Our region now faces a fundamental choice: its problems in any of those areas in Smart Growth or no growth. isolation from the actions of the others. Solutions arise from common interests. There It has been a central argument of both RPA have been some important court mandates and CHPC for many years that our that affect the region's housing metropolitan area needs more and stronger environment, notably New Jersey's Mount institutions for regional governance. That Laurel rulings and New Jersey's and remains a core principle of both Connecticut's Supreme Court rulings on organizations but this study does not school finance. While we believe that on explicitly address the creation of such balance the effects of those rulings have institutions. Rather, it takes existing been positive, the implementation of governmental structures as given, and seeks progressive housing policies cannot wait for to identify potentially useful policies that distant and unpredictable court decisions. can be implemented by the individual Regional policies that can be implemented states, counties or localities within the voluntarily by villages, towns, and cities existing governing framework. To the because they are perceived to be in their degree that policies are implemented in a own interests promise the most effective coordinated and consistent fashion, strategy for meeting our housing however, they will be more effective. challenges. However, the entrenched attitudes generated by our system of local Smart Growth is crucial to balanced housing. government finance are formidable barriers. The priorities associated with the term These challenges will be difficult to "smart growth," including open space overcome without new approaches to preservation, redevelopment of urban regional dialogue and statewide reforms of centers and greater density around land use and fiscal incentives. improved transit networks, have become central tenets of mainstream urban Many of the imbalances we find in our planning and environmental advocacy. For present housing environment arose from housing advocates and professionals, Smart political rivalries and divergent interests Growth is more often viewed as a benign between and among cities and suburbs. For embellishment of their core mission. It is example, the shortages of affordable rental more than that. We are convinced that our housing, or of multi-family housing of any region cannot address its current and future kind in many suburban areas, is a result of housing challenges without embracing and zoning practices motivated by local fiscal implementing Smart Growth principles. considerations. But there are opportunities to reduce those obstacles, as the courts 6 intervene in school finance decisions and changing demographics alter the logic of local finance. In the coming years multi- family housing can be made a much more appealing proposition for localities worried about public school budgets and rising property taxes. Similarly, higher-density housing, especially when it is supported by an effective transit infrastructure, can be made preferable to low-density sprawl for communities concerned about growing traffic congestion and dwindling open space. Housing policies that restructure incentives to appeal to a new definition of local interests may be as effective, or more so, than those that are mandated by court orders or legislative fiat. 7 I. Housing and Land Use With 37 percent of the metropolitan area's population concentrated in the five in the Metropolitan Region boroughs of New York City and a land mass of over 13,000 square miles, it is easy to underestimate the challenges continued population growth will pose. It is not only The New York metropolitan region faces a the city, however, that has already attained formidable land use challenge in the years unusually high population densities by ahead. Already the largest and most national standards. In addition to the five densely populated region in the country, boroughs, Hudson, Essex, Union, Bergen the metropolitan area will need to house and Nassau counties are developed at over 2 million additional residents within densities above those usually associated the next 15 years. This challenge will have with central cities.1 Furthermore, Passaic, to be met while protecting environmentally Middlesex, Westchester, Mercer, Fairfield, sensitive watersheds and other open spaces, New Haven, Rockland, Suffolk, and while maintaining and expanding an Monmouth are developed at densities efficient and resilient transportation system, commonly associated with mature suburbs. and while maintaining a high quality of life In those counties, encompassing a land area for its residents. To accomplish these goals, of over 5,000 square miles, developable land and at the same time ameliorate an already is scarce and most future residential acute housing shortage, the land use construction will face high land costs and policies of hundreds of jurisdictions will will come at the expense of other pressing need to adapt and adjust to new conditions land use needs. and challenges. Only in the outer ring of metropolitan Although the metropolitan area is a counties, arcing through Connecticut, New relatively mature, slow-growing region, the York and New Jersey's highland areas and absolute quantity of its population growth into central New Jersey, are there still large remains enormous and will continue to tracts of land available for conventional affect the character of its cities, towns and subdivision development. While those counties. During the 1980s, the 32-county counties will undoubtedly absorb a good region added about 700,000 residents, portion of future metropolitan growth, representing about 3 percent of the nation's there are environmental, financial and population increase. During the 1990s, due logistical difficulties with allowing growth both to a larger national increase and its to focus there. greater share of the national growth, the region added over 1.6 million residents, Although our region's ecology is not more than any other metropolitan area save unusually fragile, there are regional, as well Los Angeles. Even with a projected slowing as global, environmental constraints on of national population growth, our area is expected to add about 1.4 million new 1The incorporated cities of Albuquerque, residents during this decade and a similar Atlanta, Charlotte, Denver, Dallas, Houston, number during the next. In the next fifteen Kansas City, Las Vegas, Los Angeles, years, we will have to accommodate Minneapolis, Orlando, Phoenix, Portland, Salt population growth equal to the entire Lake City, San Antonio, San Diego and Seattle population of Houston, Texas. have a combined population density of 3,609 persons per square mile. The five counties listed have a density of 5,204 per square mile. 8 further development. In particular, Mountain and shore areas are easily watershed protection has become a major reachable for second home getaways or consideration in the New Jersey Highlands, weekend recreation. Few regions can the lower Catskills, in the Croton watershed compare with ours in the diversity of and Litchfield County east of the Hudson, residential choice, and that gives it an and in Eastern Suffolk County. These inherent advantage over metropolitan areas concerns have prompted a number of land where suburban homogeneity appeals to a conservation measures, most recently and narrower range of lifestyle preferences. As dramatically New Jersey's Highlands our region struggles to accommodate the Protection Act. Coastal zone management, population pressures of coming years, land wetlands protection and other use policies that preserve the rich history environmental considerations also place and diversity of the region, and at the same constraints on the type and extent of time satisfy housing demand and development in our region. Beyond those transportation necessity, will have to be local or regional concerns are global devised. environmental challenges, such as energy conservation and global warming, that our Of course, not all lifestyle preferences metropolitan area should want to be an should be tolerated or accommodated. Our international model in addressing, both as a region still exhibits unacceptably high levels matter of environmental ethics and as a of racial and economic segregation,1 and no means of reducing economic risk. regional housing agenda should fail to place fair housing and equal opportunity Most of the recent population growth has foremost among its priorities. Fortunately, come at the region's perimeter in the form many of the same land use policies that can of low-density suburban development. help to ameliorate environmental, economic Such urban sprawl forfeits our region's and other quality of life problems can also relative energy and transportation promote integration and equal opportunity. advantages. As the world's petroleum reserves dwindle in coming decades and Although the continuous suburbanization private automotive transportation becomes following World War II created many relatively more expensive than public appealing communities that nurtured a transit, our extensive public transportation generation and a culture, it also created a infrastructure can enhance our competitive deep rivalry between city and suburb. Not advantage compared to more auto- all of that rivalry has yet dissipated, but it is dependent metropolitan areas. But increasingly obvious that the continued transportation efficiency is a function of health of the city and the suburb are both investments in transit infrastructure mutually dependent. The shared and promotion of development patterns experience of growing congestion, that encourage its use. environmental necessity, and housing scarcity now opens up new opportunities Another of our region's competitive for mutually beneficial approaches to advantages is its broad diversity of solving regional problems. Just as some residential environments. It offers urban European nations gradually realized that neighborhoods with rich cultural influences, suburban communities with 1Iceland, Weinberg and Steinmetz, Racial and good housing and schools, and historic Ethnic Segregation in the United States: 1980-2000. towns that evoke an idyllic Americana. US Census Bureau, Series CENSR-3, 2002. 9 cooperation offered greater gains to all than reported and celebrated in the press. continued rivalry, so may the states, Although it is remarkable that the city's counties and municipalities of our region population has grown while many other come to realize that coordinated policies are the best means of preserving their identities Population and Employment Changes in and achieving their goals. the Metropolitan Region, 1990-2003 (thousands) Net Area 1990 2003 Change Trends in Land Use and Population: Housing Development New York City 7,322.6 8,085.7 763.1 Long Island 2,609.2 2,807.5 198.3 Between 1990 and 2003 the metropolitan E Hudson & CT 3,024.3 3,259.8 235.5 area added about 2.1 million residents.2 West Hudson 847.8 964.4 116.6 That population growth brought with it North Jersey 3,765.1 4,072.6 307.5 changes obvious to all residents of the region, many of which were beneficial. In Central Jersey 2,332.0 2,761.3 429.3 particular, once forbidding expanses of New York and other regional cities have Region 19,901.0 21,951.3 2,050.3 been revitalized and are today much safer and more attractive places than they were a Employment: decade or two ago. In addition, population New York City 3,549.5 3,518.9 -30.6 growth facilitated the region's recovery Long Island 1,123.0 1,222.2 99.2 from the deep recession of the early 1990s E Hudson & CT 1,359.6 1,363.3 3.7 and the economically sluggish decades that West Hudson 247.2 278.2 31.0 preceded it. North Jersey 1,858.3 1,907.1 48.8 Central Jersey 886.5 1,056.6 170.1 At the same time, the population increase has had many adverse impacts. Traffic Region 9,024.1 9,346.3 322.2 congestion has increased significantly and with it, there has been a dramatic Sources: Census Bureau; Bureau of Labor Statistics; lengthening of commuting times to work. compiled by CHPC & RPA Open space has dwindled, causing a diminishment of the charm and ambiance of mature American cities continue to many of our neighborhoods, towns and depopulate, the city's growth was not faster villages. Furthermore, housing prices have than the metropolitan area's as a whole. In risen substantially, benefiting many 1990, New York City had about 37 percent homeowners but limiting choice for many of the region's population, and it captured young families and the less well off. 37 percent of the population growth in the subsequent 13 years. Growing more slowly Patterns of Housing Development were Long Island and the areas north of the city and east of the Hudson, including The growth of New York City's population Westchester, Putnam and Dutchess and to over 8 million persons has been widely southwestern Connecticut. Those areas contained 28 percent of the region's 2At the time of this writing, US Census Bureau population in 1990, but registered only 21 estimates of population at the county level were percent of the subsequent regional increase. available through July 1, 2003. Moreover, Suffolk County alone accounted 10 for over one-third of that population were for one-family homes, and in the low- growth. Northern New Jersey also grew relatively slowly and lost share of the New Residential Building Permits, 1990-2003 regional population. By Sub-Area and Type of Structure The outstanding growth areas of the region SubArea Total Percent since 1990 have been the suburban and All Permits: rural counties north of the city and west of Total Region 631,521 100.0 the Hudson, and the counties of central New York City 141,838 22.5 New Jersey. The New York counties west New Jersey-PA 272,833 43.2 of the Hudson, plus Pike County, Long Island 70,036 11.1 Pennsylvania, increased their population by Hudson Valley-CT 146,814 23.2 about 117,000 residents, or 14 percent, between 1990 and 2003. Even more Single-family: impressive was the growth of central New Total Region: 421,852 100.0 Jersey, which gained as many residents as New York City 37,347 8.9 did the entire suburban area east of the New Jersey-PA 212,305 50.3 Hudson and grew by nearly a fifth in Long Island 58,095 13.8 thirteen years. Hudson Valley-CT 114,105 27.0 While the development of the areas to the 2-family: northwest and southwest of New York City Total Region: 54,017 100.0 may have brought prosperity to many New York City 35,006 64.8 businesses there and home ownership New Jersey-PA 12,493 23.1 opportunities to thousands of families, such Long Island 1,774 3.3 sprawling development also poses Hudson Valley-CT 4,744 8.8 environmental challenges, alters the rural character of those areas, increases our 3- and 4-family: region's dependence on automobiles, and Total Region 25,012 100.0 reinforces a homogenous form of housing New York City 17,692 70.7 development on the exurban fringe. From New Jersey-PA 3,884 15.5 1990 to 2003 building permits were issued Long Island 698 2.8 for 631,500 new residential units throughout Hudson Valley-CT 2,738 10.9 the region. Counties with a population density of less than 2,000 people per square Multi-family: 139,130 100.0 mile had only 36 percent of the initial New York City 59,818 43.0 population but accounted for 62 percent of New Jersey-PA 44,046 31.7 the new housing permits. In those counties, Long Island 10,049 7.2 single-family homes accounted for 84 Hudson Valley-CT 25,217 18.1 percent of the unit permits issued. Source: HUD Permits Database; calculations by CHPC & RPA There are important differences in the type of residential construction taking place even density counties of New York, about 81 among low-density counties in the four percent. In low-density New Jersey, despite states. In the Connecticut portions of our its Mount Laurel rules and the state's efforts region, only 80 percent of the new permits to implement smart growth planning, 88 percent of the residential permits were for 11 single-family homes. In the counties of certain demographic group and does not Hunterdon, Mercer, Monmouth, Ocean, begin to meet the housing needs of our Warren and Sussex, 92 percent of the new diverse society. Over 70 percent of buyers housing units were single-family homes. of new homes in the areas of our region outside of New York City are married couples with children, a family type that, in Housing Permits in Low-Density Counties, 1990-2003 recent years, has accounted for little if any of the region's net increase in household formations. Moreover, they have an Area 1-fam 2-fam 3-fam+ Total average income more than 50 percent New York: higher that the suburban household Suffolk 49,056 1,052 7,503 57,611 average. Young people, the elderly, Rockland 6,055 154 2,282 8,491 families of low or moderate income, and Putnam 3,967 8 730 4,705 those with small families who desire less Orange 15,992 446 4,785 21,223 space, are left behind when local land use Dutchess 1,053 80 1,627 2,760 policies encourage only single-family home Ulster 6,279 184 810 7,273 development. Sullivan 4,392 460 166 5,018 NY Total 86,794 2,384 17,903 107,081 There are two primary factors behind the Percent 81.1 2.2 16.7 100.0 continued predominance of single-family Connecticut: home production, even as the demographic Fairfield 20,995 890 6,998 28,883 composition of the region is changing in NewHaven 22,477 634 4,494 27,605 favor of other housing types. Because new Litchfield 9,095 36 381 9,512 homebuyers are often two-earner couples in CT Total 52,567 1,560 11,873 66,000 their prime earning years, it is one of the few market segments in which Percent 79.6 2.4 18.0 100.0 unsubsidized housing can be profitably New Jersey: built and sold. Municipal land use policies Hunterdon 9,052 2 208 9,262 amplify that market bias, encouraging the Mercer 12,689 90 2,507 15,286 building of single-family homes on large Monmouth 31,815 76 3,236 35,127 lots while restricting the opportunities for Ocean 42,733 208 2,472 45,413 multi-family or garden apartment Morris 20,535 108 4,662 25,305 development. Somerset 20,154 104 5,449 25,707 Warren 7,541 38 340 7,919 If the fringe areas where new construction is Sussex 6,837 8 443 7,288 almost exclusively single-family homes NJ Total 151,356 634 19,317 171,307 served only as "bedroom communities" for Percent 88.4 0.4 11.3 100.0 a labor force that commutes to work in urbanized places, the resulting housing Source: HUD Permits Database; calculations by imbalances would not be so severe. CHPC & RPA However, between 1990 and 2003 over 85 percent of the new jobs created in the region were located in low-density suburban Obviously, construction of new single- communities, including 170,000 new jobs in family homes does not occur unless there is central New Jersey alone. Many of those demand for them. However, it is a housing jobs are in the retail and service sectors and type that is economically practical for only a are filled by a labor force reverse 12 commuting from areas with a larger rental The disappearance of the natural land housing stock. The resulting pressure on cover, as well as of agriculture, also has an housing markets in the denser jurisdictions aesthetic and spiritual cost, which many inflates housing prices and contributes to communities around the region are road congestion. increasingly resisting. Trends in Land Consumption The USDA's Census of Agriculture indicates that our region has lost about Connecticut and New Jersey Changes in 100,000 acres of farmland, nearly all of them Land Cover, 1995-2002 due to development, since 1987. Nearly three-quarters of the decline occurred in New Jersey. Dutchess, Suffolk and Orange (thousand acres) Net counties in New York have also lost Connecticut 1995 2002 Change substantial amounts of farmland. Overall, Developed 572.8 595.2 22.4 the region's farmland continues to decline Turf & Farm 518.4 523.5 5.1 by about 6,000 acres per year. Forest 1,808.0 1,774.7 -33.3 Wetlands 140.2 141.4 1.2 Data compiled by the New Jersey Barren 33.9 39.0 5.1 Department of Environmental Protection Utility 10.0 10.0 0.0 and the Walton Center for Remote Sensing Water 101.8 96.6 -5.2 and Spatial Analysis at Rutgers University indicates that the developed "land cover" of Net New Jersey increased by about 278,000 New Jersey 1995 2002 Change acres between 1984 and 2001.4 That Developed 1,427.3 1,483.2 55.9 development came at the expense of 157,000 Turf & Farm 883.6 850.0 -33.6 acres of cultivated land and grassland, Forest 1,421.1 1,388.9 -32.2 77,000 acres of forest and scrubland, and Wetlands 984.5 981.0 -3.5 63,000 acres of wetlands. Between 1995 and Barren 45.5 59.0 13.5 2000 New Jersey land used for residential Water 515.0 514.9 -0.1 purposes increased by about 57,000 acres and for commercial, service and industrial purposes by about 12,000 acres. On a more Sources: Walton Center for Remote Sensing and encouraging note, however, the loss of Spatial Analysis, Rutgers University; Center for Land wetlands has slowed in recent years, Use Education and Research, University of Connecticut although it has not yet reached the "no net The need for a more balanced flow of new housing production is also urgent from an acres. This is because the methodology most environmental prospective. Single-family often used to determine land cover does not home construction is highly consumptive of capture land uses. Using the current important natural land areas such as forests, methodology, for example, a house surrounded scrublands, and wetlands.3 by trees in the summer is categorized as forested, while its use is clearly not the same as forest. The trends in these numbers are still 3 It should be noted that all the numbers used in somewhat revelatory, however. this section tend to underestimate the amount of 4 NJ Department of Environmental Protection, land that is urban while overestimating forested New Jersey land Use/land Cover Update: 2000-2001. 13 14 loss" standard embodied in Federal The increase in commuting times is due to a wetlands policy. complex interaction of factors that is not fully understood; it cannot be directly Data based on similar methodology for attributed to continued low-density Connecticut watersheds are available from development on the region's fringes.2 In the Center for Land Use Education and general, workers in the outer ring of the Research of the University of Connecticut.1 metropolitan area—in counties such as Their figures indicate that, in the Suffolk, Orange, and Morris—have watersheds roughly comprising New commutes that are no longer than those of Haven, Fairfield and Litchfield counties, workers in the more centrally-located developed acreage increased by about 5,700 counties. That reflects, in large part, the between 1995 and 2002. decentralization of jobs throughout the region, which allows the holders of those Although there are no up-to-date jobs to seek less expensive housing even tabulations on the change in land use and further into the countryside, maintaining a land cover in New York State, imputations fairly constant commuting time among can be made using the New Jersey and residents of the diverse parts of our region. Connecticut data in conjunction with an analysis of the location of building permits. About 30 percent of the workers in our In New Jersey, each single-family home metropolitan area either walk or take public built outside of already urbanized areas is transportation to work, a proportion far associated with about .5 acre loss of higher than in any other metro area in the agricultural, forest, scrub or wetland, while country. That proportion has held steady in Connecticut the loss appears to be about over the past ten to fifteen years, as the one-third of an acre. For the region as a surge in New York City's population, as whole, new residential development well as important improvements made by outside of urbanized areas is consuming New Jersey Transit, have increased the about 10,700 acres per year of vegetated share of workers using public land annually. transportation in the most densely populated counties. Nevertheless, the Commuting and Transportation development patterns detailed above are moving us away from public transportation Residents of the New York Metropolitan toward private automobiles, at a time when area already have, on average, the longest economic, environmental, and national commuting times to work in the country. security considerations would seem to With a mean travel time of 34 minutes, their signal movement in the other direction. commutes are rivaled only by those of workers in Washington D.C. (31.7 minutes), The means of commuting to work changes Atlanta (31.2 minutes) and Chicago (31.0 dramatically as the housing stock and minutes). The first phase of this project, population decentralizes. In particular, the published by RPA and CHPC as "Out of proportion of workers driving to work Balance," documented in detail the alarming increase in commuting times for 2 A recent study finds that both dispersion of people workers in our region between 1990 and and jobs, as well as a declining sensitivity of workers 2000. to commuting distance, have contributed to the trend. Jason Bram and Alisdair McKay, Current Issues in Economics and Finance, Vol. 11, No. 10, October 1 http://clear.uconn.edu 2005. Federal Reserve Bank of New York. 15 alone increases, and the proportion using Under almost any plausible scenario, public transportation decreases, the further however, the real costs of private the area is from the urbanized core. Moving automotive transportation will rise in the east from Manhattan, for example, 34 future. At current rates of vehicle efficiency percent of workers living in Queens, 69 and use, a $1.00 per gallon increase in the percent of workers living in Nassau, and 78 price of gasoline costs consumers in New percent of workers living in Suffolk drive to York, New Jersey and Connecticut work alone. The percentages using public approximately $15 billion annually. transportation fall accordingly. Similar Because of those staggering costs and patterns are evident in the Hudson Valley, profound uncertainties, it seems a matter of Connecticut, and in New Jersey's prudent regional planning that as much population corridors. As our region's resiliency and flexibility should be built into population growth continues to occur our transportation system, and the land use disproportionately in the more distant patterns it serves, as is economically and counties, in large part because that is where politically feasible. less expensive housing can be produced, our region will become more auto- In a system in which housing decisions are dependent and economically vulnerable to made by individual consumers, and land petroleum shortages and gasoline price use decisions by numerous and relatively increases. small jurisdictions, reversing population sprawl is a daunting challenge. However, It is exceedingly perilous to predict the individual housing choices are influenced future of private automotive transportation. by the relative costs of different options, We know that the world's petroleum and those costs are in turn influenced by reserves are dwindling, and that its demand land use policies. It is a basic premise of is increasing. Responsible estimates suggest this study that the interests of individual that at projected rates of world demand, jurisdictions largely coincide with the proven supplies will last several more broader regional interests, and that decades.3 We do not know whether the significant progress in providing affordable transition to alternative fuels and housing and economic sustainability can be automotive technologies will occur made without degrading the character and gradually and seamlessly, or will be distinctiveness of our diverse communities. accompanied by political strife and supply In the following section, we look at the interruptions. Furthermore, we do not problems faced by several representative know whether global warming will occur jurisdictions and the solutions they have incrementally, allowing ample time for devised to address them. gradual political and technological measures to be implemented, or catastrophically, requiring dramatic and sudden changes in our economy and Local Land Use Strategies lifestyles. Land use decisions affecting our region's housing, transportation, environment, and economy are made by over 1,000 autonomous jurisdictions whose policies are 3Energy Information Administration, US set primarily according to the desires of Department of Energy, International Energy their local electorates. The 32 counties and Outlook—2004. 16 four state governments, as well as the The five case studies that follow federal government, establish the legal and demonstrate how the intersection of three financial parameters within which local state regulatory environments with several decisions are made, but ultimately most distinct types of place result in a range of land use decisions are made on a highly land use decisions and housing outcomes: decentralized basis. As the region and its challenges become more complex, the Bridgeport, CT represents one of the several problem of coordination among those small cities in the region that has not jurisdictions grows more urgent. experienced a downtown revival to the same degree as New York City. It also The decentralized system of land use functions in a state with an advisory state authority also makes it difficult to catalogue land use plan but no procedure for local and analyze the region's land use policies. compliance and no county governments To what extent are trends discussed in the that can act as a quasi-regional authority. previous section the product of freely exercised consumer choice, and how much Montclair, NJ is an affluent, transit-oriented are those choices shaped by local policies? municipality that typifies many of the older To what extent are local policies helping to inner ring suburbs in northern NJ, Nassau, ameliorate, or exacerbate, regional Westchester and Fairfield. Unlike its problems? Because of the complexity and counterparts in New York and Connecticut, variety of local conditions, and the its land use decisions operate in the context numerous jurisdictions which address of a state with a detailed land use plan and them, an accurate characterization of local cross-acceptance process (although regional land use policy is virtually one with limited enforcement provisions), impossible. and housing mandates derived from the Mount Laurel court decisions. One approach is to observe the collective results, as was done above, and to impute a Gateway to the Highlands, NJ is a regional policy context from them. Although that center made up of three municipalities at approach offers some insight, its focus is too the edge of a sparsely populated highlands wide to understand the nuances of local region with state-protected open space. It policies and the considerations that shape demonstrates the potential and limitations them. In the following section, we attempt of a regional approach that is driven by to illuminate strategies to promote environmental necessity, encouraged by the economic sustainability and balanced state plan and administered by county housing by discussing the policies of four government. representative communities. Each community was selected because we believe Croton-on-Hudson, NY is one of the region's that its concerns capture important aspects many small villages that have nearly built of regional land use decisions, and to some out all the land available under their low- degree, are representative of many density zoning provisions. It functions in a counterpart communities throughout the state with home rule provisions that are region. They were chosen because their arguably as strong as those in New Jersey land use challenges reveal the complexity of and Connecticut, but with no our regional problems, not because they comprehensive state land use plan. have been notably successful or ineffective in meeting them. 17 18 East Hampton, NY typifies the challenges of continued following the end of the Cold places at the rural edge of the region that War, as some of the city's largest employers are transforming from agricultural to such as Sikorsky Aircraft, Remington recreational uses. While there are no Products, and Bryant Electric eliminated statewide land use incentives to guide its thousands of jobs. Nevertheless, the development, it is influenced by county manufacturing sector still employs 20 open space and housing policies and state percent of the city's workers. In addition to environmental regulations. causing high unemployment among city residents, deindustrialization marred Bridgeport, Connecticut Bridgeport's landscape with abandoned industrial sites, including 350 brownfields, Like many small cities in the Northeast, many of which are located in residential Bridgeport has experienced job loss, areas. Heated debates over cleanup and use demographic change, and inner-city decline of brownfield sites continues to this day, associated with the transition from a most recently concerning the Steel Point manufacturing to a service-based economy. plan and United Illuminating Company. Bridgeport's experience, however, was more dire than most and its budget crisis At the same time that the city's economic led to the creation of a state authority to outlook was worsening, Bridgeport oversee its finances from the late 1980s experienced a population decline from its through the mid 1990s. Although peak in 1950 as affluent families began to Bridgeport remains severely distressed—its move to suburban towns like Fairfield, median household income is 65 percent of Trumbull, and Monroe. The relative the state's while its unemployment rate is stability of the population in the last 20 40 percent higher—it is actively pursuing a years at a round 140,000, however, does not slum clearance and jobs-based community convey the dramatic racial change that has development strategy in the hopes of occurred in the city. Between 1990 and reversing its trajectory. 2000, the non-Hispanic white population declined by 34 percent. Moreover, city Bridgeport is the largest city in Connecticut. residents are younger, have completed less At a mere 16 square miles, it is also the most schooling, and have a higher poverty rate densely populated with almost 9,000 than residents of the greater Bridgeport persons per square mile. Approximately 25 region and the state. percent of the city's land area is high- density residential (30 or more units per The economic distress of the city and its acre), another 22 percent is medium-density residents has had a disastrous impact on the residential (5 to 30 units per acre), and 6 physical condition of the housing stock as percent of the city's area is low-density well as its affordability. According to the housing (4 units or less per acre). Industrial 2000 Census, two-thirds of Bridgeport's uses occupy approximately 12 percent 54,367 housing units were built before 1960 while commercial land consumes another and 31 percent before 1940. During the 10 percent of the city. 1990s, the city built only 2,200 new residential units for a net loss of 5 percent. Since the mid-nineteenth century, the city's Since 2000, demolitions have continued to fate has been tied to industry. Bridgeport lost over 30,000 manufacturing jobs between the 1960s and the 1980s. This trend 19 outpace the issuance of building permits at state can influence local land use decisions a rate of roughly five to two.1 by state infrastructure investments. Many of the residential buildings are In 1971, Connecticut's General Assembly historic, which raises the rehabilitation passed a resolution calling for the costs. In addition, the older stock often development of a State Plan of contains environmental hazards such as Conservation and Development. A Plan lead paint that require specialized was drafted as executive policy in 1974 and remediation. The high rehabilitation costs implemented through Executive Order. make these properties difficult to reuse as Two years later, new legislation created a affordable housing. The obstacles to process by which the Office of Policy and increasing the affordable housing supply Management (OPM) would revise the State exacerbate an already grave situation given Plan every five years with input from that many city residents have high housing legislative committees and public hearings costs. In 2000, 43 percent of renters and 37 before being presented to the General percent of homeowners paid more than 30 Assembly for approval. State Plans were percent of their incomes on housing. Even developed and adopted in 1979, 1983, 1987, more alarming, the proportion that paid 1992, and 1998. more than 50 percent of their monthly income on housing was 23 and 13 percent, The State Plan provides a policy and respectively. planning framework for state actions. Specifically, the State Plan serves as a In response to the changing economic base, guideline for evaluating proposals the environmental repercussions of former submitted to OPM for review. In addition, industrial uses, and the high poverty rate state agencies must conform to the Plan for among its residents, Bridgeport devised a projects over $100,000. However, the extent comeback plan in the mid-1990s built to which the State Plan is implemented at around the elimination of blight, an the local level remains in the category of aggressive redevelopment of the downtown suggestion: "municipalities must consider district and the waterfront, as well as a the Plan and note any inconsistencies when diversification of its housing supply with a they update their own plans, but they are focus on homeownership. not required to reconcile any differences."2 The revision of the State Plan was delayed Under Connecticut's system of home rule, during the past two years in the General the 169 municipalities have the autonomy to Assembly by a controversy involving a regulate their local land use through separate bill that would have required subdivision control, zoning regulations, municipal plans to be consistent with both transfer of development rights, and the regional and State plans. establishment of village and local historic districts. However, state law does not The State Plan for 2005-2010, finally generally allow municipalities to impose adopted in June 2005, was heavily development impact fees. In addition, the influenced by three substantive studies— the Connecticut Strategic Economic 1 City of Bridgeport Comprehensive Economic 2Conservation and Development Policies Plan for Development Strategy (Annual Update, June Connecticut, 2005-2010, Connecticut Office of 2005), Urban Land Institute, page 36. Policy and Management, page 2. 20 Framework (Gallis Report), Connecticut Plan must undergo a minor revision every Metropatterns (Orfield report), and Blue five years and a major revision every ten. Ribbon Commission Report on Property Bridgeport's current Master Plan was last Tax Burdens and Smart Growth—which revised in 1996. The city did not allocate concluded that the state's development the necessary funds for the 2001 revision. patterns were not sustainable. Over the OPED is in the process of securing funding past three decades, the amount of developed land in Connecticut increased at Bridgeport's Land Use Trends, 1996-2000 more than eight times the rate of population increase. The continuous expansion of low- Total Land Area: 10,240 acres density housing development toward 1996 2000 distant areas not only harms the Residential 5,455 5,393 environment but also requires new high density n/a 2,556 infrastructure and an expansion of medium density n/a 2,250 municipal services. This development low density n/a 587 pattern strains municipal coffers while Commercial 930 982 leaving the poor concentrated and isolated Industrial 744 1,214 in the inner city. Institutional 965 903 Utility/Transportation 429 460 Influenced by these reports and in response Open Space 890 850 to criticisms that the State Plan has not been Vacant 950 423 sufficiently prescriptive to municipalities and regional planning organizations, the Source: 2003 Regional Profile, Greater Bridgeport 2005-2010 revision promotes growth Regional Planning Agency management principles. Those include the revitalization of regional centers, an to undertake a major revision of the Master expansion of housing choices, concentration Plan as well as to revise the zoning of development around transportation regulations to accommodate higher density nodes, conservation of natural resources, residential development along the and integrated planning across all levels of waterfront and in formerly industrial areas. government. The city expects to have this done by late 2007 or early 2008. In addition to the State Plan, Connecticut law requires municipalities to prepare, Given Bridgeport's declining adopt, and amend a plan of development manufacturing base, high unemployment every ten years. Although the law does not and poverty, combined with a large number require municipalities to implement their of abandoned buildings and brownfield own plans, they can do so through their sites, it is hardly surprising that its Master zoning regulations, capital improvement Plan set out a job-growth and aggressive projects as well as through their use of redevelopment land use plan. The Plan community and economic development focused on revitalizing the city's economic programs. outlook by reinvesting in the central Since the 1950s, Bridgeport law has business district and other commercial required the city's Office of Planning and corridors. It also outlined transportation Economic Development (OPED) to draft a improvements meant to facilitate the Master Plan of Development. This Master intermodal transfer of goods in order to establish the Port of Bridgeport as the state's 21 hub for international trade. In anticipation neighborhoods. Through 1998, the city had of increased service and office-related dedicated $13.5 million for acquisition, employment, the Plan set out various demolition, and clean-up costs. In 1997, infrastructure improvements. It proposed Bridgeport's program was selected by the waterfront redevelopment for industrial use U.S. Conference of Mayors as a Best Practice as well as for entertainment and tourism award recipient. purposes. Between 1992 and 2000, Bridgeport The 1996 Master Plan designated demolished approximately 2,000 housing redevelopment as the primary land use units, accounting for the majority of the 5 objective through 2016: "the city must focus percent housing loss recorded in the 2000 its attention on effectively infilling these Census. Most of the units eliminated were vacant lots and buildings with new in public housing developments. The development, such as innovative industrial largest was the demolition of the Father uses for the West End and new and Panik Village, a 1,100-unit complex built in improved housing for the East Side."3 The 1939 that had become notorious for drugs, rationale was to assist the economic crime, and other social ills. As a result of a recovery of the city following the decline of lawsuit, the city's Housing Authority the manufacturing base that left vast agreed to replace almost three-fourths of the sections of the city vacant and abandoned. units by 1997. However, as of November 2005, only 500 replacement units have been In addition to the industrial redevelopment built and the Authority continues to look goals, the Master Plan set out to improve for funding for the remainder. the housing stock of the city. The strategy included demolishing blighted structures, The demolition of public housing has rehabilitating the older stock, and providing continued. In 2004, the city spent $1.5 a balanced housing stock with single- and million of its own funds to raze the multi-family as well as townhouse options. Pequonnock Apartments, a 256-unit public The Plan emphasized homeownership as a housing complex. The site currently has 800 means of stabilizing neighborhoods. It parking spaces that serve the nearby Harbor proposed marketing the city as a desirable Yard Stadium and Arena. Although the city place for homeownership, targeting not agreed to create at least 100 replacement only city residents but also people from units, none have been built so far. In the surrounding communities and as far as meantime, two-thirds of the former Westchester County, New York. residents have received Section 8 vouchers. Since 1990, the Bridgeport Housing The housing goals of the 1996 Master Plan Authority has lost 25 percent of its public built upon efforts began earlier in the housing stock. decade. Established in 1992, Bridgeport's Anti-Blight Committee identified over 450 While the city's demolition efforts have industrial and residential structures for succeeded in removing blight, another demolition to make room for open space, result has been the creation of vacant lots. new housing, and revitalized The city is making an effort to rationalize its disposition strategies. It created a task force to sell appropriate lots to investors for 3Bridgeport Master Plan of Development—1996, development, to sell others to business prepared by the Greater Bridgeport Regional owners for expansion, or to donate the land Planning Agency, page 54. 22 to nonprofit organizations like Habitat for risk losing them through city foreclosure Humanity. However, it remains to be seen actions and subsequent Requests for whether Bridgeport's community Developers. Instead of simply demolishing development corporations have the capacity the blighted buildings, resulting in empty to absorb large numbers of cleared lots for lots, the city hopes to maintain vibrant housing and economic development neighborhoods. opportunities. Despite some progress, Bridgeport One notable example of housing continues to struggle for the resources and preservation efforts is rehabilitation of 10 political coordination required for the large- vacant Victorian homes in 2000. The 19th scale redevelopment projects. While the century homes were converted into 35 units commercial and industrial projects have of affordable housing in the historic district been more successful at securing private of Washington Park. The project used investment, the plans for housing approximately $800,000 in Low Income redevelopment and increasing Housing Tax Credits and $500,000 in CDBG homeownership have faltered. funds as equity and secured $5 million in permanent financing. The National Trust Montclair, New Jersey for Historic Preservation highlighted the project as a model for historic preservation Relatively diverse and sometimes described and affordable housing. as 'the Upper West Side of New Jersey,' Montclair township is situated 12 miles In addition to blight removal and housing west of Manhattan and is home to just preservation, Bridgeport's other main under 39,000 residents. It is a family- housing goal is to increase the oriented community; more than 80 percent homeownership rate from its current 43 of the population lives in households with a percent. However, this goal is made more spouse and/or children. Approximately 57 difficult by declining income and home percent of the population is non-Hispanic values. In inflation-adjusted terms, white, and 31 percent is African American. Bridgeport experienced a 10 percent decline Montclair is a bedroom community where in median household income and 40 percent most residents work in New York City and decline in median home value between the Newark. There is no industrial activity left 1990 and 2000 Census. This made the in Montclair. possibility of homeownership among lower income families more difficult to achieve The town has a variety of neighborhoods and strained some existing owners who and housing types. Upper Montclair is found themselves owing more than their home to wealthier residents and higher homes were worth. priced, newer homes. The south side of the town is divided between an African The current city administration has American neighborhood with a mix of committed to building or rehabilitating 500 single- and multi-family housing, some of units of affordable housing and 1,000 new historical significance. Just outside of this market rate housing units over the next two area is an older part of town with large years. In 2005, the city launched another estates set back on huge tracts of land. The anti-blight campaign, focusing on town has several traditional main streets enforcement and fines. Owners will be with apartments above the stores. There is compelled to invest in their properties or only one strip mall with a grocery store 23 anchor and large parking lot in front, and Montclair will be reassessed. Residents fear no homogenous big box stores and office this will lead to a steep hike in taxes and parks. will expedite Montclair's shift to a homogenous, wealthy town. The town is in Montclair understands and appreciates the the process of building a new 550-student value of a transit village, main street elementary school. There is some concern environment: when construction began in that the town will not be able to cope with 2005 on a 10-unit, loft-style apartment the cost of adding capacity for more building within walking distance of the families to move into town.5 Walnut Street train station, local business owners, concerned about maintaining an Montclair's Multifamily Building Permits, active street life, complained that the 1998-2004 building will have no commercial space on Montclair 1998 2000 2004 its ground floor. Multi-Family Permits 0 5 21 Total Permits 12 13 33 In 1996, Montclair added Midtown Direct MF as Share of Total 0% 38% 64% service to Manhattan. A one-seat ride is Public School now possible between Montclair and Penn Students (thousands) 5.9 6.1 6.6 Station. It takes about half an hour and costs less than $5 each way. When New Jersey 1998 2000 2004 Midtown Direct service was added, Multi-Family Permits 5,886 9,325 13,507 property values and rents increased and Total Permits 31,345 34,585 35,936 interest in development was revived. The MF as Share of Total 19% 27% 38% median price of a home rose from $425,000 Public School in 2000 to $725,000 in the first six months of Students (thousands) 1,264.3 1,313.4 1,391.2 2005, and only 10 homes sold below $300,000 in 2005. Conversely, the number Sources: US Department of Housing & Urban of homes that sold for more than $1 million Development; Montclair Township nearly quadrupled over the same time period.4 The median household income was about $75,000 in 2000 and grew quickly to Residents of the historic Pine Street district $84,000 in 2003. are facing higher rents and there is a well- documented need for affordable housing Montclair faces the same housing and throughout the town. Two hundred ninety planning issues as those faced by similarly families receive Section 8 rent vouchers and prosperous communities in the inner like many places, Montclair has not suburbs. Gentrification and loss of received new Section 8 vouchers for years. community character is a main concern. As The waiting list has over 200 eligible people property taxes rise, more upper income and has been closed since 2000. While households are moving in, and retirees and many of the town residents are politically lower income households are moving out. progressive and pro-affordable housing, a In 2006-2007, all taxable properties in sizable contingent, most of who live in Upper Montclair, are against spending any 4 Paul Brubaker, "Inclusionary zoning ordinance previewed: New Housing 5 Paul Brubaker, "Officials affirm commitment Commission positioned to maintain diversity." to school; public split over costs." The Montclair The Montclair Times, July 13, 2005. Times, March 09, 2005. 24 tax dollars on affordable housing or the construction of new affordable housing promoting diversity. or renovation of affordable housing in Redevelopment Areas. Montclair's three-person planning department, like many inner suburban Essex County provides some programs that towns in New Jersey, finds itself benefit lower income households in understaffed, overburdened, and unable to Montclair, including deferred payment keep up with state, county, and resident loans of up to $15,000 to homebuyers, loans demands as it struggles to address these for home improvements that are paid off issues. For example, to comply with the last upon sale of the property, rental property round of regulations of the Council on rehabilitation loans, and low interest loans Affordable Housing (COAH), the planning for affordable housing development. The department was required to forecast United Way also makes funds available to commercial and residential growth by lower income homeowners for repairs. examining 10 years of past permits and certificates of occupancy. This process, In 2004, the Montclair Affordable Housing necessitated for all of New Jersey's 566 Strategy was drafted, and shortly afterward municipalities, was extremely time its recommended Housing Commission was consuming. In the end the planning formed. The Commission meets monthly. department forecasted a need for 123 Its main task has been to produce an affordable housing units. In June 2004, inclusionary zoning rule for the town: 20 Montclair developed an affordable housing percent of all residential developments of 6 strategy that recommended hiring a or more units are to be affordable to lower Housing Specialist (along with forming a income households, or the developer must Montclair Housing Commission, and make a large payment in lieu of developing implementing inclusionary zoning, along the affordable units. If the development is with 5 other key strategies). The Housing comprised of less than 6 units, the Specialist position was funded at only developer must make a lower payment to $15,000; that money is being used for support affordable housing. There is some discrete consulting projects. provision for alternative agreements such as donation of land and offsite development. Working toward its affordable housing Affordability is described in terms of goals, Montclair has in place a variety of workforce housing and is defined as 80 regulatory requirements and funding percent of median income. There is some programs. The Township requires a movement toward making the income developer's fee, which was increased in targets toward 100 or 120 percent of area February 2005. The residential developer's median income. fee is now 1 percent and the nonresidential fee is 2 percent. These are the maximum The inclusionary regulation did not work fees allowed by COAH. The fees feed the very well. In one case, a developer changed town's Housing Trust Fund. In 2004, it was his plans specifically to avoid the estimated that these fees would generate requirement. He had planned to build 9 $150,000 to $200,000 by 2010. Montclair also units of moderate to high-end housing, but has four designated Redevelopment Area. after learning that 20 percent of his An inclusionary housing requirement of 10 development would need to be affordable, percent applies to these areas, and he changed his plans and is building 5 units Montclair offers five year tax abatements for of luxury housing; he will make a payment 25 in lieu of building the affordable units. In town consortium in Essex County that fall 2005, the town is undertaking a revision receives HUD money, much of which goes of the Master Plan and will address ways to to fund social service programs. better implement inclusionary zoning. As the Master Planning process begins in In addition to making strides through fall 2005, Montclair has numerous planning, Montclair has directly addressed affordable housing challenges to face. The the increase in housing values caused by housing agenda is much the same as it was Midtown Direct service. The town worked when the Affordable Housing Strategy was with the local transit agency to ensure drafted in 2004 with some important affordable housing would be part of the differences: there has been a marked new development that resulted from increase in residents with physical improved transit accessibility. When the disabilities and there is a call for more tracks were laid down for Midtown Direct accessible housing; there is a proposal for through an older part of Montclair, NJ the town to enter a regional contribution Transit took the land around the tracks on agreement6 and receive funds for fulfilling Pine Street by eminent domain. The town another town's affordable housing began negotiations with NJ Transit real obligation; and the agenda now includes estate representatives. Transit intended to consideration of legalizing accessory sell the land it acquired at market prices. dwelling units, again pursuant to COAH The properties on the land were guidelines. Preservation is also a key traditionally lower cost, and the town concern as there are 120 units in Montclair stepped in to preserve these affordable that may lose their affordability restrictions units. The town was successful in two by 2010. cases. In one, Transit sold the property at the below-market rate of $430,000 to the The 2004 report recommended that town, which flipped it to a nonprofit Montclair create a community land trust, developer who rehabilitated the property where the township would acquire and and put up affordable units. In the second manage land as a nonprofit, sell the case, Transit sold the property at a reduced residential structures to lower income rate of $180,000 and the town flipped it to a households (or sell rental structures to first time homebuyer in the private market nonprofits), and put profit restrictions on who rented the upper floor to a lower the resale prices. The township's main role income household. The homebuyer would be to provide financial contributions received a property tax abatement from to the CLT. Developers could donate land Montclair. to the CLT as part of meeting their inclusionary zoning requirements, and Montclair's small planning department has private land owners could donate property. also been successful at obtaining state and This was not pursued and does not appear federal grant money. The town has been on the present Master Planning agenda. the recipient of grants from the Department of Community Affairs, Balanced Housing According to its affordable housing money, Neighborhood Rehabilitation strategy, Montclair measures success by money, and federal funds including HOME, Community Development Block Grant, and 6 Regional contribution agreements allow one the coveted, flexible Section 202 subsidy for municipality to pay another $25,000 per unit to senior housing. Montclair is part of an 18- take part of its fair share obligation 26 diversity of age, race and income over time, the highlands region, the State of New share of units with price restrictions, extent Jersey passed the Highlands Act of 2004. of households overpaying for housing, and The Act covers an area approximately 1250 distribution of affordable units by square miles (800,000 acres of land). The geographic area. Its attempts to succeed by area was divided into two parts, the these measures have been hampered by lack Highlands Preservation Area where the of resources in the past. As property values strictest land use controls are in place, and increase and higher income residents move the Highlands Planning Area where home to town, it is possible that meeting these rule still governs land use decisions. goals will lose their political appeal just as the need for lower income and workforce The Highlands Regional Gateway covers 6 housing grows. square miles of the most densely developed areas in each borough. While the center lies Gateway to the Highlands, New Jersey within the Planning Area, other portions of the three boroughs lie within the The Gateway to the Highlands is a preservation areas. The center is within 25 proposed regional center made up of the miles of Midtown Manhattan and other boroughs of Pompton Lakes, Wanaque, and large employment centers. A major Bloomingdale. This trio of northern New interstate highway, I-287, and a state Jersey municipalities is uniquely positioned highway, Route 23, bisect the boroughs and at the nexus between the densely populated make the regional center highly accessible suburban portions of Passaic County to the to vehicular traffic. NJ Transit has also southeast and sparsely populated proposed extending commuter service Highlands region to the northwest. The along a currently unused rail corridor and regional center concept, originally creating a regional transit village in conceived of by Passaic County planners in Pompton Lakes. accordance with State Plan guidelines, has won wide support from some quarters, and Because of this connectivity, proximity to criticism from others. Though still in a the numerous recreational opportunities in nascent stage of planning, understanding the highlands, and rapid regional economic the political struggles, development growth, there has been a strong demand for processes, and regulatory framework housing. From 1990 to 2000 the Borough of involved in this smart growth project can Pompton Lakes authorized less than 50 new yield valuable clues about the future of the residential building permits, while from region and how smart housing policy can 2001 to 2005 the number was over 300. This complement such efforts. demand has led to a rapid increase in housing prices over the past few years. In The three boroughs are home to about Pompton Lakes, Wanaque, and 30,000 people spread over 24.5 square miles Bloomingdale average home prices grew of land area. The Wanaque Reservoir, more than 60 percent from 2000 to 2004 and Pompton Lake, and a series of smaller lakes the median home value now tops $175,000. and tributaries dominate the landscape of the area. Together these water features The Highland Regional Gateway is within constitute a major portion of the Highlands the Highland Planning Area and the watershed, which supplies water to much of boroughs are still largely responsible for northern and central New Jersey. Because land use decisions that have the greatest of the critical environmental sensitivity of impact on housing production. A seven- 27 member borough council is responsible for groups regarding the need for continuing zoning regulations and infrastructure expansion of the economic base. Local decisions. The mayor serves as the seventh planners are quick to note that channeling member and only votes in a tie-breaking growth into the borough town centers role. The mayor appoints municipal reduces development pressures in more administrators with the advice and consent environmentally sensitive outlying areas. of the borough council who in turn The dialogue between those who seek limits implement policy within the boroughs. on new development and those who seek greater development channeled into the In all three gateway towns, a strong town centers is ongoing and most recently environmental constituency exists. Non- has been co-opted into the state mandated profit interest groups such as Skyclean and cross-acceptance process. the Highlands Coalition are made up of local environmentalists and property The 1992 State Development and owners seeking to promote environmentally Redevelopment Plan originally laid out the sound land use decisions. The borough of cross-acceptance process. It is a two-year Bloomingdale is the least developed of the process undertaken every three years in three and has been the most receptive accordance with state law. The key players regarding the need to curtail development in the cross-acceptance process are the not only in the Highlands Protection Area, towns themselves, the county but within the Highlands Planning Area as administrators, the state, and in some cases well. county freeholders who represent the interests of constituents outside individual municipalities. The two-year cross- Housing Characteristics and Tenure in acceptance process involves three stages. the Gateway First, county administrators formulate a Total Housing Units 9,819 10,464 plan in conjunction with local officials. This 1990 2000 initial stage relies heavily on mapping and Units in Structure as % of Total is focused on deviations from previous 1 unit 77.4 75.8 plans. Once the first stage is complete, a 2-4 units 12.6 10.7 cross acceptance report is submitted to the 5 + units 9.9 13.4 State Office of Smart Growth, which then Tenure as % of Total deliberates on the report. After state Own 75.6 75.7 assurance that the plan fits within the Rent 24.3 24.2 overall state plan, the report is then submitted to local officials for adoption. Source: U.S. Census Bureau; CHPC & RPA calculations Once adopted, local officials then use the plan to guide land use decisions. Adherence to the plan makes both the At the same time, borough officials, most county and the municipalities eligible for notably in Wanaque, have pressed for state funding on critical infrastructure and continuing economic development and an transportation projects. In February 2005, expansion of municipal ratables, which will Passaic County completed the first stage of allow for the continual upgrading of the cross-acceptance process and identified municipal services. The local chamber of two regional centers, the Preakness Center commerce has been one of the most vocal in Paterson and the Highlands Regional 28 Gateway. The State Office of Smart identified redevelopment corridors, none of Growth is currently negotiating with each the three boroughs have plans that seek to of the three boroughs. expand the range of residential options in the borough. One of the primary smart growth aims of a regional center is to channel development There are still a few remaining parcels of into concentrated areas. According to the land for green-field development in the State Plan, such regional centers generally three boroughs, but much of this lies share common economic, social, and outside of the regional center. The cross- cultural activities. In the case of the acceptance report envisions such Gateway to the Highlands, the shared development as occurring incrementally economic activity is service to the resort and and with densities no greater than 5 units recreational communities within the per acre. This represents a substantial highlands. Currently, the regional center is increase in density as the three boroughs as home to about 9,000 jobs. The State Plan a whole currently have only slightly more generally identifies regional centers as than one unit per acre. Local environmental having jobs to housing ratios of groups argue that many of the largest approximately 3:1. The Highlands Regional parcels of land slated for development lie in Gateway currently has a 1:1 jobs to housing flood plains and that development will be ratio. Job growth in the Gateway is harmful to the existing water resources. expected to grow faster than housing growth over the next 15 years. As the Another factor that has limited employment base continues to expand, it is development in Wanaque is the ability to critical that housing opportunities match treat the amounts of water required for the needs of the service-oriented workforce. commercial and residential use. As of early 2006, the borough has been relying on an One of the problems that County officials inflow of treated water from Ringwood, an foresee is a mismatch of jobs and housing. adjacent borough. Despite being rich in Because of the rapid rise in housing prices, water resources, both surface and many of the people employed in the local underground, the borough has not had the service industries will not be able to find ability to keep up with water demand from housing within the area. In addition, nearly its own citizens over the past decade. 80 percent of the housing stock is owner occupied and recent building permits Another factor that will potentially limit the indicate that this trend not likely to change supply of new housing in the near future is in the near future. To combat this problem, the need for open space preservation. The the most recent cross acceptance report New Jersey Department of Environmental plans for the redevelopment of several Protection administers the Green Acres arterials in the three boroughs. It Program. Green Acres, created in 1994, recommends that main street retail allows the state, in conjunction with local establishments be constructed with second municipalities, to purchase land for floor rental units and that surface parking preservation purposes. Generally the lots be developed into small two to four purchase is made by the localities with family residential buildings. In many cases matching funds from the state and the land this limited scale development will be is then deeded to local non-profit possible without overburdening existing organizations who maintain the land. The infrastructure. Beyond these three borough of Wanaque recently held a 29 referendum on funding a local open space family home in January 2003 was $350,000, program. The referendum called for a $.01 well below the average price for tax on every $100 of assessed property Westchester County at $525,000, but from value. The referendum passed with over 75 2000 to 2003 housing prices in Croton percent of the vote in favor highlighting a increased by 25 percent. strong will among residents to protect surrounding areas from development. The As stated in its 1977 Master Plan, and money will be used in conjunction with the supported in the Comprehensive Plan of Green Acres Program. 2003, "the essential character of Croton-on- Hudson is a community of individual As the region continues to expand the house-owners, residing in single-family Highlands Regional Gateway will be a dwellings on separate lots." With only 110 critical test case for the regional center acres of vacant, undeveloped land, the concept. The boroughs of Pompton Lakes, village is close to reaching its build-out. Wanaque, and Bloomingdale, like many The undeveloped land consists of select other regional municipalities on the areas along the Hudson River zoned for suburban fringe, have taken the first steps commercial or recreational use and that, if done correctly, will allow for a scattered one-acre parcels throughout the continued expansion of the local housing Village. Given these development market while protecting environmentally constraints, Croton is challenged with critical outlying areas. According to the addressing the regional needs of housing regional master plan for the Highlands demand and affordability while preserving Planning Area, one of the essential its waterfront open space, environmental components of the Highlands Act is to resources, historic commercial corridors, "protect and maintain the essential and single-family residential character of the Highlands environment." neighborhoods. With a strong emphasis on regional planning and smart growth the prospects In the last 25 years, the planning process in for success in the Gateway to the Highlands Croton-on-Hudson has been characterized hinges upon balancing both environmental by the revitalization of the Hudson protection and economic development. riverfront. The entire village was designated as a New York State Coastal Zone in 1982, Croton-on-Hudson, New York and in 1992, the village adopted its Local Waterfront Revitalization Plan (LWRP), a Croton-on-Hudson, is a 4.9 square-mile water and land use plan developed locally Village of 7,606 residents located in the in partnership with NYS Division of Coastal Cortlandt Township of Westchester County, Resources. The plan serves as a strategy 30 miles north of New York City along the that brings together state waterfront policies east bank of the Hudson River. It is with the needs of the local community. characterized by open space along the Some of the planning issues include riverfront, historic amenities, single-family waterfront development, historic resources, housing, and a small town bucolic setting. scenic resources, public access, and After experiencing a decline in population preservation of environmental resources. from 7,523 in 1970 to 6,889 in 1980, Croton- on-Hudson once again has a burgeoning Croton is one of 242 communities within residential population reaching 7,606 in thirteen counties of New York State that are 2000. The median sales price for a single- included in the Hudson River Valley 30 Greenway Act of 1991. The Greenway Act town character, the Hudson and Croton was officially incorporated in Croton's riverfronts, and open spaces. The Master Plan in 1997. The Greenway weaknesses included sidewalk conditions, Communities Council offers financial and rate of new development, appearance of technical assistance for communities that commercial districts, lack of housing voluntarily adopt a local plan that includes opportunities, and rising housing costs. the greenway "criteria" of natural and Thus, Croton is faced with a dilemma: cultural resources protection, regional maintain the character of the village by planning, economic development, public limiting or even excluding future access, and heritage and environmental development, while at the same time, education. As part of the regional address the workforce and senior housing component of the Greenway Act, needs in a region with rapidly increasing Westchester County has developed an housing costs. economic development strategy by promoting the "Historic River Towns of Since 2003, the Village has taken an active Westchester", a consortium of thirteen role to "update of Village Zoning Code and towns and villages committed to open- Map," which was one of the space, historic preservation, and main street Comprehensive Plans recommendations for revitalization. preserving local character. The village has already implemented two of three phases. In accordance to the Greenway Act and Phase 1 was to establish Gateway Districts LWRP, the Comprehensive Plan of 2003 sets to the three main commercial corridors. a framework for "preserving Croton-on- These Gateway Districts establish use, area, Hudson's traditional qualities, bulk, and design regulations in the main strengthening its assets, and protecting its entry points to the Village in order to give resources." The Plan focuses on ways of the visitor or resident a sense of "arrival" or preserving the village character by "community." Phase 2 was to create FAR protecting open-spaces and environmental and site plan review regulations for resources, revitalizing the four commercial residential zones. The FAR limits the size districts, creating architectural design and bulk of single-family housing and the standards, and establishing FAR regulations site plan review establishes architectural for residential districts. In order to protect and design guidelines set by the Planning the Village's character from development Board. Phase 3 is a "general clean-up" of pressure, the Plan "strongly recommends" definitions and building codes. This phase "discourag[ing] any further large-scale is currently underway. residential developments and that, in the future, no rezoning should occur which Though Croton has nearly reached its build- would permit commercial development out, it is still under development pressure outside of those areas currently zoned for from regional population growth and commercial development." At the same market demand. There is a portion of time, in order to preserve the diversity of its undeveloped "double-lots" throughout the residents, the Village must also "maintain Village, which are two adjacent lots with a economic diversity" and find ways to sole owner with only one developed lot. prevent residents from being "priced-out." Many of these vacant lots that were previously deemed undevelopable due to From a residential survey included in The high construction costs because of Plan, the strengths of Croton included small topographical limitations such as steep- 31 slopes are now economically viable due to programs and offers municipalities funding, rising housing demand. The new site plan planning, and technical assistance for review for residential districts and FAR housing and community development. In regulations should help maintain the the mid-1980s, it created the Housing character of these neighborhoods. Implementation Fund, which provides infrastructure improvements for affordable There are two 2-family home districts in the housing development. It has also created Village, and grandfathered from the pre- the New Homes Construction Fund and 1977 Master Plan zoning code, there are New Homes Land Acquisition Fund. The some 3-family homes. Therefore, there are County also administers the federal some multi-family rental housing options, Community Development Block Grant but still only 24.2 percent of the total program. occupied units are rentals, way below the Westchester average of 40 percent. Half Croton's Comprehensive Plan does not give Moon Bay is the Village's largest multi- a specific framework for addressing family development. Construction began in affordable housing development, but the the late-1980s, and after the five phase Village is involved with the county-wide project is completed in the mid-2000s, the affordable housing program and locally subdivision will total 276 units; only a small based Croton Housing Network. In 1995, a portion of these units are affordable. This development by the Croton Housing development will undoubtedly be the last Network included 12 affordable units in large-scale subdivision development in the which all of the development costs were Village. covered by County sponsored or administered grants. The development did Despite the Village's active approach come under some controversy as the land towards preservation, it is still committed to was originally granted to the village as an the development of affordable housing. In open-space requirement for the approval the mid-1980s the Village formed the for nearby housing subdivision of 32 single- Croton Housing Task Force to address family homes. Given the limited housing affordability issues prompting a availability of land, the village has made more active approach from local some concessions for affordable housing government. In 1990, members of this task development. force formed The Croton Housing Network, a not-for-profit affordable housing The Croton Housing Network's most recent developer that has since completed a total proposal is for 11 units of affordable of "17 rental units and 7 individually housing for seniors on the adjacent owned homes." The organization uses property. The Village purchased the land a funds from federal, state, and county few years ago, it then sold the land to sources. Westchester County, and the Croton Housing Network will then buy the land for In response to the growing housing $1. Some opponents to the development affordability crisis across the county, the argue that the affordable housing should be Westchester County Department of better distributed throughout the Village. Planning has taken an active role in This a reasonable concern since the affordable housing development. Outlined neighborhood had to forfeit its open-space in the County Plan, Patterns for Westchester, for the previous affordable housing project, the county administers federal and state but in general, the residents of Croton are 32 sympathetic to affordable housing The planning process in Croton-on-Hudson development, especially for seniors. Since is a culmination of community action and the development requires a height variance regional participation. Croton sets an to build three-stories (the zoning allows example of a municipality that reaps its 2.5), some say the development does not fit own benefits by voluntarily participating in into the character of the neighborhood. In regional planning initiatives. Croton has accordance to the preservationist nature of emerged as a vibrant waterfront community the Village, the Planning Board says the since its implementation of the Hudson aesthetic quality of the building will be the Valley Greenway Plan and Local Waterfront deciding factor for approval. Revitalization Program. After endorsing the Westchester County Plan, Croton has In order to address some of the housing used the County's help to provide much needs for seniors, the Village permits needed affordable housing. It expects a accessory units. The Planning Board must revitalization of its commercial areas from first grant a special permit prior to its participation in the County sponsored construction, and the owner of the "Historic River Towns of Westchester" accessory unit must renew the permit every economic development and historic three years. The owner or lessee must be 55 preservation program. Finally, by years of age or older. Though the use of considering TOD options, it is addressing accessory units is not widespread, and only its regional responsibilities for a few are approved, the Comprehensive accommodating population growth and Plan does list "regulation of accessory transportation needs. units" as one of the main housing issues for the Village. East Hampton, New York The Croton-Harmon Metro-North station The Town of East Hampton comprises 74.3 lies on the Southern border of the Village. square miles on the easternmost end of On average, 2,860 commuters board trains Long Island's South Fork. With more than on the way to New York City during peak half of its 20,000 housing units used by AM hours and close to 7,100 people use the seasonal or weekend residents, the town station daily. The Village provides a 2,000- space parking lot with 1,600 monthly permit spaces. The Village has recently hired a East Hampton's Land Use Trends consultant to investigate transit oriented development (TOD) opportunities for the Total Land Area: 43,753 acres area around the station. Since over 1,000 of 1984 2004 the monthly spaces are used by commuters Land Uses as % of Total: who live outside of Croton, this station Residential 23.5 37.7 serves as an important commuter hub for Commercial 1.1 1.5 other nearby towns and villages, therefore Industrial 0.6 0.8 any future development could not have a Institutional 1.3 1.1 net decrease in parking. Some development Agricultural 3.6 3.3 possibilities include condominiums, mixed- Trnspt & Utility 8.8 10.0 use developments, a small commercial strip, Open Space 16.6 34.7 or nothing at all. Vacant 45.5 11.0 Source: 2004 Draft Comprehensive Plan 33 epitomizes the housing and land use there were numerous subsequent dilemmas characteristic of vacation or amendments. A new Plan, which was recreational areas around the region. Many adopted by the Town Board in May 2005, is towns in Litchfield County, the Hudson the product of the town's Planning Valley, the Catskills and along the Jersey Department, its other administrative shore share East Hampton's problems of agencies, three paid planning consultant workforce housing and scenic preservation, studies, and an extensive process of but perhaps nowhere are those issues more community outreach and public severe or urgent. participation. Several other conservation With approximately 3,000 hotel/motel and revitalization plans, including a water rooms in addition to its seasonal homes, resource management plan and an condominiums and co-ops, the town's year- affordable housing plan, were incorporated round population of 20,000 can swell to as into the Comprehensive Plan. many as 90,000 on summer weekends. Beyond the famous traffic congestion that The Plan lists eleven goals of the planning causes, the summer population surge brings process; the first three relate to maintaining with it enormous housing demand from a or restoring the town's "rural and semi- seasonal workforce on which the local rural character," the fourth goal relates to economy depends. Exacerbating the local affordable housing. Other goals include and seasonal demand for housing, recent retention of traditional industries, historic years have witnessed skyrocketing home preservation, development of water and prices, as more affluent professionals from wastewater infrastructure, and reducing the city seek summer getaways and real reliance on private automobiles. estate investment opportunities. The median home price has soared beyond Development pressure was the principal $500,000, making it increasingly difficult for impetus to the planning process. Between the local labor force to buy homes or find 1990 and 2000 the year-round population of housing of any sort. the town increased by an estimated 22 percent and the number of dwelling units Despite the shortage, most residents rose from 17,068 to 19,640. It is believed recognize that the town's housing problems that about 70 percent of the new units were cannot be solved simply by encouraging built for seasonal or weekend use. That more development. The town's scenic proportion is expected to rise even further coastline and wooded back roads are in the future, although some seasonal valuable natural assets that, if degraded by residents will transition to year-round over-development, will undermine the local residence upon retirement. economy. Moreover, the town is lacking a sewer and wastewater treatment system, so Residential uses currently account for about the potential for "smart" town-centered 38 percent of the Town's land area, growth is strictly limited. Caught between compared to 24 percent in 1984. About 65 an urgent preservation need and a percent of the residential land is categorized workforce housing crisis, the town has as low density, at one or less dwelling unit sought to strike a balance with a new per acre. About 2 percent is categorized as Comprehensive Plan. high density, at 5 or more dwellings per acre. The residential area includes a 3,300- The town's Comprehensive Plan was acre island, largely undeveloped, that has previously overhauled in 1984, although been in possession of the same family since 34 1639. Whereas 45 percent of the Town's lots reduced the build-out from about 3,200 land area was categorized as vacant in 1984, units to about 900 units. that proportion is only 11 percent today, as the proportion used for housing or In 2004 the Town Board proposed a preserved open space has expanded. moratorium on building in Urban Renewal Areas, but retracted it after an outcry from An explicit goal of the new plan is to reduce local businesses. The Comprehensive Plan, the total build-out of the Town. Under however, makes several further present zoning, the number of dwellings recommendations to reduce density in the existing in 2004 can increase by about 33 areas. One is to require them to comply percent. The Plan proposes to reduce the with the Suffolk County Sanitary Code, total build-out from 6,000 additional which would limit buildable lot sizes to one housing units to about 4,500. This is to be or one-half acre, depending on achieved primarily through rezoning and groundwater conditions. Another land acquisition. Nearly 100 separate recommendation is to develop a tax proposed remapping actions would reduce incentive or similar program to encourage the build-out by approximately 1,450 units. homeowners to acquire and permanently merge adjacent vacant lots. The Town's zoning ordinance strictly limits building height to 25 feet and does not While the Urban Renewal Areas have been permit multi-family housing other than a focal point of contention regarding the attached housing. One of the most Town's density and character, they have controversial aspects of the Town's land use also been the focal point of its affordable policies, however, relates to subdivision housing efforts. Because the sites tend to be maps filed with the Suffolk County Clerk's less expensive than other vacant parcels and Office prior to the adoption of a Town because many are located near commercial zoning code. Some of these subdivision strips, the Town has acquired a number of maps created 20' by 100' foot lots which them for affordable housing projects since would allow residential development 1980. One site was divided into 14 half-acre incompatible with the Town's character, in parcels that were sold at reduced prices to the view of the Planning Board and most eligible buyers. The buyers were required residents, and that would create to build their own houses, and the Town environmental and infrastructure problems. retained a 78 percent interest in the land. In 1976, pursuant to Article 15 of New On another acquired site 32 single-family York's General Municipal Law, the Town homes were built and sold to eligible buyers designated 38 Urban Renewal Areas for prices ranging from $47,600 to $73,700, covering the pre-zoning subdivisions. with the Town retaining an interest in the Rules were adopted requiring that non- land. conforming parcels be assembled into larger building lots and that certain infrastructure Although the Town has facilitated or built improvements be completed or bonded for several rental projects, including two before building permits are issued. owned and managed by its housing Although there have been differing authority, its affordable housing strategy estimates of the build-out potential in these has emphasized homeownership. To date, areas, the Comprehensive Plan indicates 166 single-family homes, or the land to that the rules regarding non-conforming build them, have been made available to low- and moderate-income households. 35 Given the extraordinary prices for apartment per house is permitted. The Plan residentially-zoned land (one 13.7-acre site proposes to liberalize rules regarding the reported sold for over $30 million), the creation of accessory apartments, in Town's strategy has focused on land particular by making post-1985 homes subsidies, with the Town retaining an eligible. interest in the land to facilitate recapture of the subsidy upon resale. Another unique Another proposal in the Comprehensive aspect of its approach has been to require Plan is to create a Seasonal Employees affordable land buyers to build their own Housing Overlay District in the Montauk homes, thus reducing administrative costs hamlet, which already has resort zoning. and utilizing the Town's network of small, Restaurant and resort owners have been custom home builders. seeking to purchase dilapidated motels in order to refurbish or rebuild them as Another element of the town's housing seasonal employee housing. The existing strategy is its Affordable Housing Overlay unit densities of those motels, however, District zoning. In such districts apartment exceed the current permitted densities of density is allowed to rise to eight units per County health regulations and Town acre and to two per acre for single-family zoning. The proposed district would allow homes. The town also encourages those units to be refurbished or rebuilt at apartments over stores through a special the existing density provided that the units permit process. With the approval of the have common bath and cooking facilities, Fire Prevention Inspector, up to three small bedrooms, and are closed for a apartments, with a minimum size of 450 portion of the year. square feet and maximum of 1,000 square feet, are permitted on second stories of The new Plan also includes a new focus on commercial buildings. A separate entrance the affordability of the existing housing for residential tenants must be provided as stock. The proposal would allow eligible well as one on-site parking spot per home buyers to find an existing home on apartment. The Plan proposes to liberalize the open market, and the Town would have those rules by giving the Planning Board the sales price verified as a fair market discretion over parking requirements and value by an independent appraiser. The by removing the 3-apartment limit. It also buyer would pay no more than three times proposes to facilitate the creation of their annual income, and the Town would apartments over stores by allowing the make up the difference, retaining an equity development rights from environmentally interest in the property. The Plan also sensitive land the Town purchases to be proposes to take a similar equity interest in transferred to such sites. certain new residential construction, and recommends exploring inclusionary zoning The town's zoning code encourages the and impact fees. creation of accessory apartments in private homes under strictly regulated While affordable housing is a priority of circumstances. They are only permitted in East Hampton's planning, land preservation houses built before 1985 and must be is the centerpiece. The Town's aggressive between 450 and 1,000 square feet, with no land preservation program has increased its more than two bedrooms. The house must area devoted to preserved open space from have at least 1,600 square feet of livable 11 percent to 36 percent since 1984. The floor area and no more than one accessory 16,000 acres of open space include several 36 state parks, two county parks, over 500 neither of those claims are convincing on acres of preserves owned by the Nature economic or environmental grounds. Conservancy, town parks and almost 900 acres of preserved farmland. Land preservation has been accomplished through a variety of state and county Statewide Land Use Strategies programs, including Suffolk County's Farmland Development Rights Program, State governments play a critical role in the country's first program designed to establishing an environment within which preserve farmland through the purchase of localities are encouraged to cooperate or to development rights. compete. In our region, the state governments vary in their ability to foster In 1998, state legislation authorized the five cooperation among localities or guide local Suffolk towns surrounding Peconic Bay to land use decision making. New Jersey's impose a real estate transfer tax for the state government has the greatest impact on purpose of creating a dedicated fund for local decisions, including a statewide, active land purchase and preservation. The policy on affordable housing provision. legislation authorized them to levy a 2 However, both have been criticized as percent tax on real property transfers above ineffective. New York has an $500, subject to voter referendum, with all environmental review process that can proceeds to be deposited into a Community mitigate adverse land use patterns but lacks Preservation Fund. Proceeds of the Fund a state plan or coherent set of land use are to be expended only for the principles to promote sustainable "preservation of community character," development. Connecticut has a state plan including the acquisition of properties for but no real means to implement it. environmental and scenic conservation, Improvements are needed in all three states open space, recreation and historic to realize the potential of state level policy preservation. The Town of East Hampton for smart growth, yet it's in planning-rich proposed a 2 percent tax on the value of real New Jersey that most aggressive suburban property transfers above $250,000, which sprawl development patterns are found. voters overwhelmingly approved in 1998 and again in 2004. New Jersey Between 1999 and 2003 the tax raised $43 Of all three states, New Jersey has perhaps million for the Community Preservation the greatest challenges to implementing Fund and 821 acres of open space were smart growth land use policies. It is permanently preserved. Some supporters extremely fragmented with 566 of the program disingenuously claim that municipalities, and has the highest reliance the tax, which by law is paid by the buyer, on local property taxes of any state. has no effect on existing homeowners, However New Jersey has also made the although economic theory suggests that it is most ambitious attempts at state-level at least partially capitalized into property planning and affordable housing policy. values. At the same time, opponents argue that by adding to closing costs and New Jersey is one of the few states in the withdrawing land from the market the nation with a statewide land use plan. program is adverse to affordable housing; Compliance with the plan by local governments is voluntary, although the 37 state provides some incentives. The plan is Raritan Canal Comprehensive Plan and the intended to act as a policy guide for Highlands Regional Master Plan.7 localities, and to promote growth in urban Similarly, some state agencies make full use areas and compact centers while protecting of the plan while others disregard it. A open space. Critics have noted that New coordinating council was formed in 2002 to Jersey's intensive state planning efforts resolve these issues, but has not been active. have not resulted in smart growth: state New Jersey's statewide affordable housing land consumed per incremental resident policy is also supposed to be coordinated compares unfavorably with that in New with the State Plan; making this linkage has York and Pennsylvania, two neighboring actually created a negative perception of the states with no state land use plan. New State Plan in some municipalities. In the Jersey is also the only state in the region view of some, there have been affordable with an affordable housing policy that is housing decisions made at the state level governed from the state level and affects that have directly contradicted the State every municipality. Plan, despite the fact that since 1992 the Council on Affordable Housing (COAH) New Jersey's statewide planning process has been required to act consistently with has gone through a number of incarnations, the State Plan. starting with the 1934 map of Future Land Utilization, importantly marked by the 1976 Perhaps even more so than the State Plan Municipal Land Use Law firmly itself, COAH and the affordable housing establishing home rule, and culminating in policy that resulted from the 1980s Mount the 1985 State Planning Act that created Laurel judgments have had an impact on what is now called the Office of Smart local land use decisions. COAH sets out Growth. The current plan was first adopted "fair share obligations," or numbers of in 1992 through a much celebrated cross income-targeted units that must be built in acceptance process, wherein county, state each municipality. Municipalities enter the and local levels of government are all process voluntarily and can be certified by involved. It has since been revised using COAH by filing a fair share plan that shows that process. The Plan's impact on local the town has a realistic opportunity for land use is difficult to measure. While New affordable housing provision. COAH- Jersey may fall short of smart growth goals, certified municipalities are protected from it may have been even worse off without lawsuits from developers, and COAH the plan. Court cases have tended to certification can be considered an support the state plan, and private litigation "administrative shield" from developers' has given towns pause before enacting lawsuits. About half of all municipalities more restrictive zoning. Gubernatorial are certified. Certification lasts for six years. promotion of the plan has been the most COAH now uses a 'growth share' approach important factor in localities' compliance at to develop its fair share obligations. It asks any given time. municipalities to determine what future residential and commercial growth will be, Coordination with other plans can be and then determines how many affordable problematic. Other plans often come out of units the municipality must provide based regional coalitions and are for targeted on fractions of those numbers. purposes. Some examples are the Meadowlands Master Plan, the Pinelands 7The Highlands Regional Master Plan is Comprehensive Plan, the Delaware and expected to be released in summer 2006. 38 ten years by over 80,000 households.9 The Municipalities meet their fair share Coalition on Affordable Housing and the obligations through a variety of means. Environment projects the need for One, which is promoted by COAH, is to affordable housing between 1999 and 2014 require developers to make 20 percent of at 650,000.10 Yet overall statewide fair share new residential units affordable to lower obligation is projected at 75,681 units from income households. Municipalities can also 1999 to 2014. Another criticism is that meet a portion of their obligations through although the issue comes under the rubric rehabilitation of existing units, creation of of the State Plan and COAH, New Jersey's accessory dwelling units, and through development patterns are leading to an regional contribution agreements. These increasing jobs-housing mismatch. Finally, agreements allow one municipality to pay there is considerable criticism around another $25,000 per unit to take its fair share regional contribution agreements. Critics requirement. COAH also determines rules say that allowing municipalities to buy their around impact fees. way out of up to half their fair share obligation is a better deal for wealthier Since COAH was initiated, over 30,000 units municipalities than it is for poorer, of affordable housing have been created receiving municipalities. It also statewide. Some observers say those units concentrates poverty, and exacerbates an would have been produced regardless of unfair distribution of affordable housing COAH, while others argue that those units throughout the state. Many of the same weren't produced in the places where they groups argue that too large a share of the are most needed or where sustainable fair housing obligation can be met with age- growth policies indicate growth should go. restricted housing, limiting affordable Still others claim that COAH has made New housing development for families and the Jersey a leader in provision of affordable working poor. housing and prevented home rule from translating directly into exclusion and New York homogeneity. Regardless of the COAH debate, the need for affordable housing is New York does not have a state plan or still evident8 and COAH represents a coordinated land use policy. Land use unique model for meeting statewide planning powers are held by more than affordable housing needs. 1,600 municipalities, but municipalities are not required to write plans. The State, There are some aspects of COAH that draw however, provides a number of resources to particular criticism. One is that COAH's help build planning capacity in needs numbers seem exceptionally low municipalities and to encourage smart compared with those from other sources. growth (but not using that terminology). According the US Census, affordable housing need in the Garden State has, by 9 In 1990, 46% of households earning under conservative estimates, grown over the last $35,000 paid more than 35% of income for housing in NJ; in 2000, 47% of households earning under $50,000 paid more than 35%, an increase of about 83,000 households. 10 Council on Affordable Housing and the 8The National Low Income Housing Coalition Environment. How Much Affordable Housing Do "Out of Reach" report (2004) ranked New Jersey We Need? COAH vs. Reality, A Preliminary the third least affordable state in the nation. Assessment. December 2003. 39 Most of these resources are provided by the Connecticut Department of State. Connecticut has a State Plan of The one way in which New York State has a Conservation and Development. The plan direct, state-level impact on local land use is was drafted in the 1970s and implemented the through the 1978 State Environmental through executive order. The Office of Quality Review Act (SEQR). The Act Policy and Management was then created to expands on federal legislation from the draft and revise the plan every five years. 1960s such as the National Historic There is public input to the plan, although Preservation Act and the National nothing as complex as the cross acceptance Environmental Policy Act that require an process in New Jersey. The most recent examination of a proposed development's revision was in 2005. impact with various interests in mind. SEQR requires all state, county and local Compliance with the Plan is considered agencies, including local planning and voluntary. The one mandatory component zoning boards, to consider environmental requires State agencies to conform to the impacts equally with social and economic Plan for projects over $100,000. The extent factors. While SEQR is 'enforced' by each to which the State Plan is implemented at agency that must conform to it, the local level remains in the category of independent entities can use noncompliance suggestion: "municipalities must consider with SEQR to legally stop a development. the Plan and note any inconsistencies when New York State's court system has they update their own plans, but they are consistently ruled in favor of strong not required to reconcile any differences."11 compliance with the provisions of SEQR. The SEQR process is intended to determine In the years preceding the 2005 revision of whether a proposed project would have a the State Plan, three substantive studies— significant environmental impact. If it will, the Connecticut Strategic Economic then an Environmental Impact Statement Framework (Gallis Report), Connecticut must be prepared as a next step toward Metropatterns (Orfield report), and Blue development. Ribbon Commission Report on Property Tax Burdens and Smart Growth—all New York also has a statewide affordable concluded that the state's development housing trust fund. Currently the trust patterns were not sustainable. Over the fund is funded by annual appropriations past three decades, the amount of from the state legislature unlike most developed land in Connecticut increased at housing trust funds that are funded by a more than eight times the rate of population dedicated revenue stream. Its primary increase. The continuous expansion of low- function is to manage various HUD-funded density housing development toward programs and to disburse federal funds. distant areas not only harms the Although New York's HTF does not impact environment but also requires new land use directly, it is still notable for being infrastructure and an expansion of a statewide effort. As such, it has the municipal services. This development potential to be used as a starting point by pattern strains municipal coffers while political leaders who want to develop and promote a smart growth land use agenda 11Conservation and Development Policies Plan for for the state. Connecticut, 2005-2010, Connecticut Office of Policy and Management, page 2. 40 leaving the poor concentrated and isolated its state funded programs. While the state in the inner city. plan may echo the wisdom of smart growth, the actual decision making that could Influenced by the findings of these reports implement a smart growth agenda is in the and in response to criticisms that the State hands of 169 independent municipalities Plan has not been sufficiently prescriptive Connecticut has no county level to municipalities and regional planning government, however there are 15 planning organizations, the 2005-2010 revision sub-regions, mostly formed in the 1950s, promotes growth management principles. that assist planning and development These generally follow a smart growth efforts through their state-sanctioned agenda: revitalization of regional centers, an regional councils of government, regional expansion of housing choices, concentration planning agencies, and regional councils of of development around transportation elected officials. nodes, conservation of natural resources, and integrated planning across all levels of government. Land Use Strategies for Balanced One of the explicit principles of Housing Connecticut's state plan is centered on housing, specifically "to expand housing If planners could devise and implement opportunities and design choices to their policies with impunity, facilitating a accommodate a variety of household types balanced housing market while meeting and needs." The plan notes the gap other important land use challenges would between the cost of construction and the be an easy task. Some infrastructure here, a market value of new housing in cities, as little upzoning there, perhaps a tax and well as the gap between market value and subsidy or two, and the region could be affordability. The plan points to programs reorganized on much more efficient lines. of the Department of Economic and Community Development and the In the real world of American democracy, Connecticut Housing Finance Agency as the where the electorates of towns and villages means of reaching the plan's objectives. It determine land use policies, where owners discusses the merits of regional planning for have the right to seek the highest return for housing and inclusionary zoning, and the their property's use, and where households importance of the municipality in creating can freely "vote with their feet," resolving housing opportunities. The strongest housing and land use priorities is far more statement in the housing section of the plan difficult. Unless they are justified by says that the state should consider requiring constitutional rulings or unambiguous municipalities to adopt inclusionary zoning environmental exigency, and often not even regulations. then, policies are not traditionally imposed on self-ruled jurisdictions. Rather, they In addition to the State Plan, Connecticut must be accepted on their own merits, and law requires municipalities to prepare, diffused throughout the region through a adopt, and amend a plan of development painstaking process of advocacy, education every ten years. However, the law does not and consensus-building. require municipalities to implement their own plans. Connecticut's state-level impact In our metropolitan area the task is on local land use is essentially confined to complicated further by the fragmentation of 41 fiscal and legislative power among three tax revenues, brownfield contamination, state governments (or four, as the and racial isolation. commuter shed reaches into eastern Pennsylvania). With the competition for Population Changes in Regional Cities, jobs and tax revenues never far below the 1990-2000 surface of cordial interstate relations, the respective states cannot easily serve as City 1990 2000 % Change regional planning authorities, establishing (thousands) common rules and balancing out winners New York City 7,320.2 8,008.3 9.4 and losers. Newark 275.2 273.5 -0.6 In the following pages CHPC and RPA offer Jersey City 228.4 240.1 5.1 a number of suggestions for reconciling the Yonkers 188.2 196.1 4.2 region's housing needs and other land use priorities. Some of them are long-standing Paterson 158.1 149.2 -5.6 positions of one or the other organization, Bridgeport 141.5 139.5 -1.4 some emerged from the analysis presented New Haven 130.1 123.6 -5.0 above, and still others arose from a lengthy Elizabeth 110.1 120.6 9.5 process of out-reach and discussion with Waterbury 108.2 107.3 -0.9 practitioners throughout the metropolitan Stamford 108.1 117.1 8.3 area. The key screening criterion for Trenton 88.6 85.4 -3.6 inclusion, however, was that each Norwalk 78.3 83.0 5.9 recommended strategy is justifiable on the East Orange 73.7 69.8 -5.2 basis of a community's best interests. Clifton 72.0 78.7 9.3 Strategies that would need to be imposed New Rochelle 67.4 72.2 7.1 on communities from state governments or Mt. Vernon 67.0 68.4 2.0 state courts, though sometimes necessary, 1,895.0 1,924.4 1.6 were left for another day and another study. Suburban Areas 10,645.6 11,559.2 8.6 1. Focus Resources on Regional Cities. One of our region's most undervalued Source: US Census Bureau; CHPC & RPA resources is its system of mid-sized, regional cities. Although the list of them is somewhat arbitrary, the largest is Newark One regional advantage to focusing on and the 15th most populous is Mount these centers is that they would benefit Vernon. from, and generally would welcome, greater population density. Their These cities all play, or once played, an residential land is typically zoned at urban important part in the regional economy, densities and much of it is vacant; a number often specializing in a particular of them, including Newark, Jersey City, manufacturing or trade sector that supplied, New Haven and Bridgeport, now have or drew upon, components made elsewhere populations significantly lower than their in the region. While several of them have 1950 counts. Even during the 1990's, when prospered in recent years, as a group they New York City's population increased by have languished with the familiar urban 9.4 percent and that of our region's burdens of deindustrialization, declining suburban areas by 8.6 percent, these 15 regional cities saw population growth of 42 43 suburban areas of New Jersey—indicative only 1.6 percent. As a group, they could of a zoning bias against them. absorb a significant amount of high-density residential development, and would benefit Two-family homes have been a popular from repopulation as did the Bronx and urban housing form for many years, and the Brooklyn during the 1990s. recent production trends in parts of the region indicate that they remain favored by Another important advantage of regional buyers. Since the secondary units are growth focused on mid-sized cities is that usually rented, construction of two-family they are all connected by rail and other homes can add significantly to the rental public transit, either with New York City or stock in urban and suburban areas alike, with each other. Those connections can providing a critical housing resource for facilitate fast and convenient day-to-day populations for whom ownership is not a commerce and would provide an immense sensible option—young people and singles, strategic advantage during times of future in particular. In their classic "mother- petroleum supply interruptions. daughter" configuration, 2-family homes also create more opportunities for housing Being that New York City is four times the elderly, often in situations where family more populous than the next 15 largest members can provide care and familial regional cities combined, this strategy will companionship without entirely sacrificing require an enlightened view of its self- their privacy. interest from New York's government. Rather than seeing these centers as potential 3. Encourage and Control Accessory Units competitors for jobs and taxpayers, joint in Private Homes. economic development programs that Although little hard data is available, all exploit hub-and-spoke efficiencies could be anecdotal evidence suggests that accessory pursued, for example. units, and often illegal unit subdivisions, are proliferating throughout the region. In 2. Encourage 2-Family Home Construction New York City and Long Island, and Conversion. unacceptably crowded and dangerous During the recent real estate cycle, conditions have been discovered, construction of 2-family homes has boomed sometimes only after tragic fires have wherever they are permitted by zoning. In occurred. While local housing safety and New York City, building permits for new 2- health regulations should be rigorously family homes increased by 112 percent enforced, it is also important to recognize between 1998 and 2004.1 They also that the profusion of informal housing units increased as a share of all new residential is a market response to a shortage of lawful permits throughout the Hudson Valley and housing supply. Encouragement of legal southern Connecticut. accessory apartment creation can be an important source of inexpensive housing In contrast, construction of 2-family homes supply and a complement to more vigorous has been flat on Long Island and in most housing code enforcement. 1 Department of Housing and Urban Unlike many other forms of rental housing, Development, State of the Cities Data System accessory units in private homes need not Building Permit Database. 112% is the increase change the built character of a community. in number of units in 2-unit structure for which Depending on the design standards that are building permits were issued. 44 adopted, they can be made visually Community Land Trust model also has indistinguishable from single-family houses potential for this region. and from a community's existing housing stock. The major constraint on such programs is initial capitalization. Whether created With nearly 4,500,000 existing single-family through state funding or through local homes in the metropolitan area, there is also transfer or other real estate taxes, initial a huge retrofit potential in the existing capitalization requirements would be stock. If even one in ten single-family significant. However, depending on the homes were retrofitted with an accessory market conditions prevailing in particular apartment, a good portion of the region's communities and the parameters they set rental housing shortage would be met. for eligibility, the per-unit capital costs need Properly regulated, a substantial supply of not be greater than for conventional accessory apartments could be created with homeownership programs. Furthermore, very little architectural or social impact on recapture of the public subsidy is automatic, the communities in which they are located. and on average a positive real rate of return East Hampton's accessory apartment rules, can be expected on the public funds. discussed above, provide a good example of how this can be done. 5. Link Open Space Preservation and Affordable Housing Production. 4. Focus on the Affordability of Existing In theory, communities can conserve their Housing. open space by allowing greater density in Many of our region's suburban areas are designated development zones; the higher nearly built out and there is little land densities also facilitate rental and affordable available for new affordable housing housing development. In practice however, development. By targeting their there is no direct link between open space affordability efforts toward the existing preservation and high-density or affordable housing stock, communities can protect housing creation. their remaining open space and their Open space and other land preservation existing built character while addressing programs have proven to be highly popular pressing workforce and lifecycle housing with voters, even when new taxes are needs. proposed to pay for them. New Jersey's Green Acres program and Long Island's East Hampton's novel proposal to create a Peconic Bay Community Preservation Fund homeownership program with shared program are evidence of that. While such public/private equity in the homes is an programs are valuable in their own right idea of great promise. The program would and should be expanded, they do not utilize the existing housing stock to create directly reward communities that zone for affordable homeownership opportunities, or accept higher-density housing, thereby preserve economic incentives characteristic easing development pressures on the entire of private housing markets, and avoid the region's store of open land. Statewide or siting issues that often thwart affordable regional preservation funds, along the lines housing programs. It would also be of the New Jersey and Long Island extremely flexible, allowing different programs, could be adapted to encourage communities to adjust parameters communities to directly balance their according to their preferences and needs or willingness to accept higher-density with changing market conditions. The 45 housing with their desire to preserve open incentives are provided to encourage space. developers to do so. In 1987, Vermont created a statewide Within the New York metropolitan area, program intended to link the dual goals of villages such as Port Chester and Hastings- land preservation and affordable housing. on-Hudson, towns including Bedford, Funded through its state property transfer Greenburgh, North Salem, Somers and tax, the Vermont Housing and Conservation Southold, and cities including White Plains Trust Fund awards grants to public and Yonkers, and Stamford have adopted private projects that create affordable inclusionary housing. New York City has housing or conserve the state's historical, expanded its inclusionary housing program agricultural and natural resources. Projects in Manhattan and extended it to parts of that achieve more than one of these goals Brooklyn, and of course, the entire state of are given priority status. Statewide or New Jersey has implemented a form of regional programs based on the Vermont inclusionary zoning through its Mt. Laurel model, but which make the link between requirements. State legislators from Nassau affordable or higher-density housing and and Suffolk counties have been trying to preservation even more direct, would be pass a mandatory inclusionary program relatively easy to design. since 2003. The Long Island Workforce Housing Incentive Program would require Since it would be difficult from a political 10 percent of all future residential viewpoint, and possibly undesirable from developments with more than five units to an environmental viewpoint, to attach be sold at a price affordable to households affordable housing requirements onto earning 80 percent of the median income or existing open space preservation programs, less. new programs and funding sources would probably be required to implement this There are as many variations of approach. Given the region's escalating inclusionary zoning as there are property values, new transfer taxes or communities that have adopted it. The impact fees on new development might be critical variable is whether the program is viable funding sources. To compensate mandatory or voluntary. There is probably jurisdictions that would generate large no one best answer to that choice. Because revenues but have relatively little open of the region's need to satisfy its aggregate space left to preserve, other uses of the housing demand and to create more funds, such as transit improvements or compact, transit-oriented nodes of housing historic preservation, could be also be development, inclusionary programs that permitted. offer density incentives are probably preferable to mandatory programs that do 5. Adopt Inclusionary Zoning. not. However, local land use and political Throughout the country and region, there conditions differ widely, and a mandatory has been a movement toward the adoption approach may be more feasible in some of inclusionary zoning. Typically, the jurisdictions. approach involves either a mandatory requirement that some of the units in new 6. Encourage Transit Village Development. residential subdivisions or multi-family Transit-oriented development has been a developments be set aside as affordable popular term within planning circles for the housing, or density bonuses and other past decade but only recently has the transit 46 village concept engaged the public "vacant land and/or underutilized or imagination. A transit village is an area of deteriorated buildings within walking moderate- to high-density, mixed-income, distance of transit where redevelopment mixed-use development or redevelopment can take place." centered upon a node in an existing or planned transit network. An obvious prerequisite for transit village development is a transit system, preferably This connection between land use and commuter rail. Our region is fortunate to transportation is not a new concept, but in already have an extensive, comparatively the past fifty years most land use decisions efficient public transportation have been linked to highways, interstates, infrastructure. Some jurisdictions have and other automotive forms of already begun to capitalize on that transportation. For a variety of reasons, it is infrastructure while others remain wary. only recently that there has been a renewed State financial incentives can help to interest in centering development around convince communities that transit village transit. Public agencies have realized the development is advantageous; in the longer potential to reduce congestion and limit air run, the ability to attract a high tax, low- pollution by encouraging transit use, to service taxpayer base may be even more curtail inefficient sprawl by concentrating convincing. development, and to strengthen local coffers by diversifying the housing stock. 7. Promote Mixed-Use Main Streets. A number of towns and villages in our area It is this final reason that has the most have recently begun to appreciate the potential to affect positive change in the advantages of mixed-use town centers, regional housing market. In suburban particularly in the form of apartments over places, transit villages have the potential to stores. Pompton Lakes, New Jersey and attract young professionals interested in a Mount Kisco, New York are among the more communitarian lifestyle. For regional communities encouraging this low-rise, cities, transit villages have the potential to mixed-use building type. In other areas of reinvigorate dormant local economies by the country, even new subdivision spurring new retail investment and creating developers are adopting the style for village new entertainment venues supported by an centers and shopping districts. expanded local population. Aside from creating new rental housing New Jersey has been at the forefront of opportunities for young people, singles, and transit-oriented development in our region. the local workforce, the approach has a Looking at just a few of the 13 key criteria number of advantages. The residential that New Jersey uses to identify potential density adds life and activity to main streets transit villages gives a sense of how such after hours, keeps purchasing power in the places will eventually contribute to the local retail districts, and can help to stabilize creation of a balanced housing market in the the finances of small retail businesses. region. For instance, one of the criteria Furthermore, the second or third stories states that transit villages will have a often enhance streetscapes and, because "strong residential component [which] can they are by definition in commercial include mid-rise buildings, townhouses, or districts, arouse little opposition from local apartments over first floor businesses." homeowners. Another notes that such villages have 47 8. Adopt Meaningful Statewide Growth Plans. While New York has not yet begun the process of articulating statewide growth objectives, all three states need to create stronger incentives and disincentives to ensure local and state agency compliance and coordination. Gubernatorial leadership is critical and each of the region's governors can play a galvinizing role in promoting smart growth. Creation of true housing trust funds with dedicated revenue streams could be important tools for realizing affordable housing components of statewide growth plans. In New Jersey, the state with the most elaborate statewide planning apparatus, several specific steps need to be taken. For example, COAH should either significantly increase the amount of money per unit for Regional Contribution Agreements or terminate the provision entirely. COAH's "Growth Share" should be changed to an explicit inclusionary zoning requirement and the state should adopt a "smart growth shield" to protect towns compliant with the State Plan from lawsuits and other challenges. 48 II. Transportation Investment development patterns in parts of the region are constrained by the lack of such public and Education Funding infrastructure. Although initially developed by private interests, our transportation infrastructure Government's influence on the housing has had an equally profound effect on market goes far beyond the land use housing patterns. The dense urban regulations it establishes or the housing character of Brooklyn and the Bronx was subsidies it provides. Its decisions about facilitated by private trolley systems and where to expand highways, how to improve later by subways, while many of the public transportation, or whether to extend villages that characterize Long Island and sewer systems determine where housing is Westchester congealed around 19th century built and what type is feasible. The quality commuter rail lines. Eventually the public of public schools and other services it sector assumed responsibility for that provides influences consumers' locational transit infrastructure, while playing an even preferences and the prices of the homes larger role in developing the roadways that they buy. And government's choice of paved the way for low-density suburban methods for financing its investments and housing development. Today's operations fundamentally affects the cost of transportation investments may be less housing and the spatial patterns of wealth revolutionary, but they continue to and poverty. influence where housing can be feasibly built and marketed. Much of the discussion of housing policy at the state or local level ignores such Government's role in creating a healthy foundations of governmental housing housing environment does not end with the policy and focuses instead on finance and development of physical infrastructure. subsidy programs that affect relatively few Modern urban densities would be households. But in a region where over 90 impossible without public provision of percent of all housing is privately police, fire and sanitation services. While developed and financed, government those services are now taken for granted, decisions on infrastructure investments and the quality and cost of public education public services may actually have a far continues to be a central concern of housing greater impact on housing outcomes than developers and consumers. The perceived its direct housing programs. shortcomings of public school systems in many of our region's central cities impede Since the earliest settlement of our region, market-rate housing development in them, government decisions regarding public and correspondingly heighten housing infrastructure and services have shaped the demand in high-quality suburban school housing landscape and altered the choices districts. Further, a decentralized system of available to consumers. The high density financing public services, especially schools, core of our region could never have exacerbates fiscal disparities and distorts developed were it not for the far-sighted housing choice. decision to build a water supply aqueduct 150 years ago and the subsequent public For our region to meet its future housing development of a sewage collection and challenges, more attention must be paid to treatment system. Even today, the housing implications of these 49 fundamental government policies and carefully integrated into regional housing practices. That political sensitivity will only policy. There are presently a number of arise, however, if housing experts and major transportation projects under planners inject their professional consideration throughout our region; the perspectives more assertively into the decisions we make in allocating our debates on broad public policy issues. In transportation dollars among them will recent decades, both the fields of urban help to determine the character of planning and affordable housing residential development for decades to development have grown more come. sophisticated and professional, with an inevitable narrowing of focus to matters of The second, public school finance, is not technique and financing. That part of the usual Smart Growth agenda but professionalization has led to better local is a critical issue in regional housing policy. planning practices and to more sustainable Political resistance to higher-density and affordable housing developments, but also income targeted housing may have many to the neglect of the public policy context in sources, including a preference for which residential development takes place. traditional suburban forms, concerns about The sweeping social vision of the early congestion, and racial prejudice. But the housing reformers and city planners has logic of Smart Growth may offset some of been replaced by the more immediate that resistance while there is abundant technical focus of the practitioner. evidence that racial prejudice is suffering a slow but certain demise. Nevertheless, by The Smart Growth movement arose, in part, financing public schools primarily through from a recognition that isolated housing local property taxes, government has and planning initiatives cannot adequately created a huge incentive for communities to challenge a development logic that engage in "fiscal zoning," a practice that simultaneously degrades the environment works against rational regional housing and restricts housing opportunities. Smart solutions. In New York, New Jersey and Growth has been critical in uniting housing, Connecticut that system of public finance is transportation and environmental concerns increasingly unpopular with voters and is into a policy framework that stresses their under attack on legal grounds, yet the interdependence, and it has been perspective of housing and planning enormously successful in shaping policy professionals has been largely absent from debates about land use and development the debate. trends. It has been less successful in actually changing those trends, in good measure because the fiscal structures that support sprawl and housing segregation remain intact. Transportation and Regional Housing In this section we discuss two public policy issues that fundamentally affect our In the late 1970s, the waterfront district of region's housing environment, although Norwalk, CT was in steep decline and new neither addresses housing opportunity investment was minimal. The nineteenth- directly. The first, transportation century housing stock was dilapidated and infrastructure, is a central concern of Smart vacancy rates in some areas were as high as Growth planning that needs to be more 50 76 percent. Despite calls by some for urban Transit District bus service; to New York renewal, William Collins, then mayor of and New Haven via the Metro-North Norwalk, suggested that the historic Railroad; and to upper Fairfield County on housing stock could be preserved and the Danbury Branch line, mean that revitalized through a program of adaptive residents have easy access to several of the reuse made possible by enhancement of the largest employment centers in the region. city's excellent transportation linkages. The combination of renewed housing and top- For potential housing consumers in South quality accessibility could then be used to Norwalk, calculations about accessibility encourage new residential, commercial, and are second nature. Before choosing to retail developments in the area. purchase or rent a particular unit of housing, consumers instinctively assess The primary transportation improvements their ability to access employment, schools, were centered on the aging Metro-North daily necessities, recreation, and station, which lies close to the midway entertainment in that location. They also point on the New York/New Haven main size up the ease with which they will be line. In the early 1990s poor physical able to travel from one location to another, conditions and safety concerns deterred what planners call mobility. Together, investment around the station. By the mid- accessibility and mobility form the nexus 1990s, however, the city had secured funds between housing and transportation at the to construct a new station and adjoining ground level of analysis. parking garage and today the station is consistently recognized as one of the line's Both for-profit and non-profit housing best. In 2004, a $24 million, 58,000 square developers must respond to the intuitive foot police headquarters was completed decision-making of individual consumers. directly across from the station to provide Thus within the housing development enhanced security. More recently the city industry, knowledge of accessibility and secured $250,000 in the 2005 federal mobility is critical to creating successful Transportation Equity Act to study the developments that meet market demands. possibility of developing transit-oriented Even transportation planners, often uses around the station itself. Though in a criticized for their failure to provide nascent stage of planning, the study will consumers with multi-modal choices, now look to the possibility of expanding the continually stress the relationship between station into a multimodal transit hub for the their endeavors and land uses which region with a significant number of ultimately affect the housing market. residential units. As second nature as the connection between Today, as urban redevelopment efforts have housing and transportation may be for produced over 1,500 new units of housing consumers, housing developers, and and reached their final stages, planners in transportation planners, it is startlingly Norwalk are quick to credit the successful absent from higher-level policy dialogues redevelopment to one critical factor— among housing experts and advocates. As accessibility. While not a major regional argued in Out Of Balance, for the center on the scale of Stamford or White metropolitan region to increase its economic Plains, its transportation linkages to the competitiveness in relation to other Southwestern Connecticut region via metropolitan regions, the existence of a Interstate 95, Route 7, and the Norwalk balanced housing market defined by 51 affordability, choice, and quality, is vitally The core of this dependence is rooted in a important. Thoughtful transportation complex web of federal, state, and local planning can and must play a key role in public policies, private sector decision- the constitution of such a housing market. making, and consumer preferences defined For this to become a reality, housing experts over the previous half-century. At the same must embrace transportation as an issue of time, post-war suburbanization ushered in great importance—a means not only for an unprecedented period of housing increasing accessibility and mobility that improvement for working families. From will facilitate housing opportunity, but also 1950 to 1980, homeownership rates in the for ameliorating urban poverty and United States increased from 55 percent to increasing social mobility. 64 percent. Low-density suburban development gave millions of working Although transportation and housing families access to more space, healthier priorities sometimes conflict, it is equally living conditions, and good schools. true that they are dependent upon one another. The policies of one will affect the What was crucially missing from the policies of the other. Transportation calculus of many post-war subdivisions, policies are often carried out by states or however, was transportation choice. Older large regional entities such as the Port communities were often connected to the Authority or the Metropolitan region's extensive rail network, geared to Transportation Authority (MTA), whereas moving commuters into and out of local governments often craft housing Manhattan. Newer communities, however, policy. Resolving the disparate nature of provided automobile access primarily to the the relationship is particularly vexing. For suburban office parks and retail complexes the purposes of this section, the goal is to that grew up around major highway articulate the ways in which transportation interchanges. For a time those development affects housing through land use decision- patterns served the region well, making making and to identify regional projects suburban housing more available to that have significant potential to contribute working families while facilitating to a balanced housing market. economic growth and job creation in suburban counties. The Critical Need for Modal Choice Today, owning a personal automobile is a When it comes to transportation policy in necessity for a great majority of the region's our region, policy-makers and the general 22 million inhabitants. In fact, of the nearly public alike are often predisposed to 70 million trips that are made on an average exceptionalism. The metropolitan area is weekday in our region, approximately 85 home to one of the busiest transit systems in percent are made by car.1 The number the world and the proportion of those varies greatly with location. In Manhattan, commuting to and from work via public only 10 percent of trips are made by transportation is greater than any other automobile, while in Hunterdon County, North American region. However, there New Jersey, 90 percent of all trips are made are many more similarities than differences between this and other metropolitan regions. One of the most critical is a 11997/98 Region Travel – Household Interview dependence on the personal automobile. Survey, New York Metropolitan Transportation Council and North Jersey Transportation Planning Authority. 52 by auto. This latter number reflects the lack a more balanced approach to new of transportation choices in one of the transportation infrastructure. fastest growing counties in the region. Housing-Sensitive Transportation Policies Unimodal overdependence negatively affects the region's housing market. Traffic The metropolitan region is fortunate to have congestion, security concerns, and pollution an extensive transit infrastructure in place. are the byproducts that receive most of the Within the City of New York itself, the attention. In terms of the regional housing MTA's New York City Transit operates 468 market, though, other consequences, such subway stations that connect 26 subway as the spatial mismatch between people lines. MTA subways carry 4.5 million riders and jobs and resulting lengthened per day and are supplemented by an commutes, the loss of open space, extensive network of local and regional environmental inefficiencies, increased costs buses. In addition, the MTA operates the of living, higher labor costs, and public Staten Island Railroad, a 14-mile heavy rail health concerns are also important. Such line that connects to the Staten Island Ferry costs are directly related to housing and at the north end of the island. land use decision-making. The Port Authority also operates a regional Even if many of these costs could be heavy rail subway line, the PATH, which mitigated or contained, there is another connects Manhattan to the cities of major problem with continuing to do things Hoboken, Jersey City, and Newark, New the way we have for the past half-century: it Jersey. Manhattan is further connected to is simply no longer possible. Many the region by three major commuter rail remaining greenfield sites suited for systems—the Long Island Railroad, the suburban development are too far from the Metro-North Railroad, and New Jersey core—and even from suburban job Transit—which feed into one of two main centers—to make daily commuting a viable terminals, Grand Central and Penn Station. option. Further in, developers often meet with strong political opposition to proposed developments that might impact local traffic Ridership Change on Regional Commuter flow. Rail Systems There is no doubt that suburban Average Weekday Ridership (000's) development will continue to occur in our region, but we can no longer rely on auto- 2000 2005 % change dependent, low-density development to Long Island RR 336.6 336.8 0 satisfy our region's growing housing needs. Metro North RR 242.1 247.5 2.2 While there are places in the current infrastructure of roads, highways, bridges, NJ Transit 207 222.6 7.5 and tunnels where expansion may be possible, it is important that housing Source: APTA, CHPC experts look to transit alternatives that will help satisfy the increasing diversity of In addition to the transit network that housing needs that the region's changing connects Manhattan with the region, there demographics and lifestyles demand. A are also developed transit networks in some balanced regional housing market requires of the region's other centers. For instance, 53 New Jersey Transit operates a light rail more geographically distant centers such as subway line in the city of Newark and an Newburgh, Trenton, and Waterbury, at-grade light rail line that connects Hudson Connecticut have the ability to play an River shore communities. Extensive bus important role in the creation of a balanced systems serve other regional centers housing market if regionally integrated throughout the area. 2 transportation policies are undertaken over the coming decades. Doing so not only While transportation policy discussions increases transportation options, but also often revolve around connecting the core to serves as a tool of community development the periphery, it is important from a and helps meet regional housing demand. housing perspective that the need to connect these regional centers not be Many regional and sub-regional centers, neglected. Only 37 percent of the region's like South Norwalk, have already jobs are within the five boroughs and 60 successfully used transit to encourage a percent of the regional population lives broad range of development. Others, such outside of the five boroughs. The sheer as Montclair, New Jersey, have specifically geographic size of our region dictates that used transit nodes to construct new, higher residents on the fringe are unlikely to be density, mixed-use, mixed-income commuting into the core. Viable transit development, also known as Transit options that can deliver commuters to Oriented Development (TOD). Growing regional job centers must continue to be transit ridership in the region suggests created. potential for even more TOD. A continued expansion of reliable, properly Transit Share of Journey to Work maintained service would allow developed Totals (000's) regional centers such as Stamford and 1980 1990 2000 White Plains to capitalize on their strong office and retail markets. In addition, such Regional Employment 7,914 8,555 9,319 regional centers have the potential to Transit to Work 2,287 2,272 2,320 facilitate even greater housing development Market Share 28.8% 26.5% 24.8% at greater densities in surrounding localities. The Nassau Hub, for example, is Source: US Census being developed with a significant housing Planners in the San Francisco metropolitan component, but county officials expect the region have estimated that 50 percent of the largest portion of new residential next one million inhabitants in their region construction to occur in the nearby area. can be accommodated in transit hubs and corridors.3 Similar goals are not out of the Older regional centers such as Paterson and question for this region. TODs are in part Newark, New Jersey, and Bridgeport, defined by pedestrian accessible amenities Connecticut need further investment. Even that reduce the amount of vehicular trips. 2 The regional transit network extends more broadly than presented here. For a more comprehensive analysis of commuter flow in the region and trends over time, see Out of Balance 3According to the Association of Bay Area and visit the websites of the New York Governments (2002), doing so would preserve Metropolitan Transportation Council and NJ 79,000 acres of open space and allow 163,000 TRANSIT. households to avoid auto ownership. 54 Increasing the number and success of TODs Key Regional Initiatives may not always require massive investments in reshaping the built The housing community does not have a environment. Little improvements can tip way to empirically judge transportation the balance of commuting choice and, in initiatives based on their contribution (or turn, make different types of housing lack thereof) to a balanced regional housing development viable. Fast, frequent, market. There are certain mega-projects, comfortable service can make public transit however, that are so compelling in terms of more appealing. Seemingly small creating a balanced regional housing conveniences can also go a long way. For market that housing experts can scarcely example, the introduction of the MTA's afford to be unaware of them. MetroCard fare allowed bulk fares for unlimited rides and free transfers between Two of the transportation mega-projects bus and subway trips for the first time and currently vying for funding in our region ridership surged. As a follow up to the address growth west of the Hudson. This successful introduction of the MetroCard, half of the region—which includes New the MTA and other regional transportation Jersey, Rockland, Orange, Ulster, and agencies have begun exploring the use of Sullivan counties in New York, and Pike Smart Card technology that would allow all County in Pennsylvania—is the fastest transit trips in the region to be accessed growing part of the region. In fact, 89 with a single card. percent of the increase in suburban commuters to Manhattan in the 1980s and Another crucial component to improving 1990s came from west of the Hudson. In the overall vehicular transportation system total, 300,000 people commute each in favor of housing is devising ways to weekday into Manhattan from New Jersey manage demand, thereby reducing and Rockland and Orange counties. congestion. The Transportation Equity Act of 2005 seeks to control demand on urban Managing the supply and demand of highways through the use of High regional highways and transit west of the Occupancy Toll (HOT) lanes. Such lanes Hudson River (particularly where there is are a combination of High Occupancy not a one-seat ride option to Midtown Vehicle (HOV) lanes and value pricing. Manhattan) is crucial to ensuring both the Using sophisticated transportation health of New York City's economy and the technologies such lanes allow non-HOV continued feasibility of commuting suburbs vehicles to use HOV lanes for a variable in Bergen, Rockland, and Orange counties. price that ensures traffic will continue to The shape of the housing market—density flow freely in the lane. Implementing and affordability—in these suburbs will be pricing strategies for limited access directly tied to transportation highways also has the potential to ease improvements made there. congestion and generate revenue for enhanced transit service. Congestion The first project considered here is a new pricing, similar to what is done in London passenger rail tunnel under the Hudson. and Stockholm, could also be considered to Nearly 250,000, or 83 percent, of those manage demand for road space in our commuting from New Jersey use some form region's central business districts. 55 of public transportation.4 By 2010, however, New Jersey and Rockland and Orange NJ TRANSIT has estimated that its service Counties. to Penn Station will be operating at 110 percent capacity. With the proposed The second transportation project of note is development of 26 million square feet of the Tappan Zee Bridge/I-287 corridor. The office space in the Hudson Yards, demand current bridge is an aging structure that for trans-Hudson crossings will be even opened for its first crossing in 1955. It greater. carried 18,000 vehicles during its first year of operation. The seven-lane bridge, Currently, a maximum of 23 trains per hour originally designed with a 50-year can travel from New Jersey into Penn maximum lifespan, today carries 140,000 Station. NJ TRANSIT and the Port vehicles a day. At peak hours, it operates at Authority are proceeding with plans for a capacity. Approximately two thousand trans-Hudson commuter tunnel into vehicles per hour can use each of four lanes, Midtown Manhattan. The project, dubbed and additional demand regularly causes Trans Hudson Express Tunnel or Access to backups. the Region's Core (ARC), involves not only the construction of a new commuter tunnel, Sixty four percent of automobile commuters but also seeks to increase commuter using the Tappan Zee bridge come from capacity throughout Northern New Jersey. Rockland and Orange country. As the fringes of Rockland and Orange counties In addition to alleviating the current have increasingly been developed with bottleneck of trains that occurs during peak auto-friendly land uses, the bridge has periods between Secaucus and Penn become a major bottleneck on the regional Station, and creating more one-seat ride transportation grid. options, ARC would construct a new eight- track passenger station underneath 34th The Tappan Zee/I-287 corridor project was Street to absorb the additional rail service initiated in 2001 and is currently into Midtown. The new station, which has undergoing a comprehensive won the support of several prominent New Environmental Impact Statement. The York state elected officials, would have study is assessing transit options that could pedestrian connections to Penn Station and be built in addition to a replacement bridge. the new Moynihan Station. These include bus rapid transit (BRT), light rail, and commuter rail. Specifically, one The construction of a second trans-Hudson option would built bus rapid transit across rail tunnel feeding into an expanded Penn the bridge to a Metro-North station on the Station would more than double existing New Haven line; two options include rail capacity from West of the Hudson. In building commuter rail across the bridge to addition, ARC would create new the Hudson line; and the fourth would connections at the Secaucus transfer station build commuter rail the whole way, that would allow a one-seat ride into Penn connecting at the Hudson and the New Station for riders on the Main, Bergen, and Haven lines. Pascack Valley lines that serve Northern It is safe to assume that the final version of the corridor will include 8 lanes for vehicular traffic, whether via a span or a 4New Jersey Transit, Access to the Region's tunnel, and some form of public Core, www. Accesstheregionscore.com 56 transportation accommodation, such as communities in Queens, Nassau, and commuter rail, light rail, or BRT. Suffolk counties will have greater options when assessing the desirability of zoning The final outcome will have a major impact for greater densities around transit stations on the regional housing environment. in a new context. Many of the proposed stops on a commuter rail line would be ideal for park-and-ride Financing Transportation Infrastructure commuters. Such a connection has the potential to encourage smart growth in the These and other transportation mega- area by providing multi-modal choice to projects will require investments of billions potential housing consumers. While both of dollars. Determining how we, as a region, ARC and the Tappan Zee bridge capacity are going to pay for future transportation expansion could spur additional housing, mega-projects is vital. both will need to be justified on the basis of ridership and cost. For either to be feasible, The interdependence between housing and there needs to be coordinated land use- transportation is implicitly recognized by transportation strategy to insure that cost- some existing financing mechanisms. For effective transportation investments example, a portion of New York's mortgage support housing and development. recording tax surcharge goes to funding the MTA and other regional transit authorities. A third mega-project that has the potential Originally, the surcharge was assessed to to greatly enhance the regional housing fund SONYMA's mortgage insurance market and relieve congestion at Penn operations, but in 1987 the state amended Station is East Side Access for the Long the law to divert revenues from 13 Island Railroad (LIRR.) The LIRR is the downstate counties to the MTA. largest commuter railroad in the country, serving approximately 270,000 riders on a Most regional transportation infrastructure typical weekday. Currently, about 240,000 is financed through federal and state taxes. of those riders utilize Penn Station. The The federal gas tax of $0.184 per gallon goes East Side Access project would relieve some into the Federal Highway Trust Fund that of that burden by utilizing the existing 63rd was established with the passage of the Street tunnel to provide a link into Grand Highway Revenue Act of 1956. Central Terminal. Nationwide, about $0.1544 of that sum is used to fund highways and other road The project would increase tunnel capacity infrastructure, $0.0286 is used to fund from the east into Manhattan by 67 percent. public transportation infrastructure, and the Current forecasts suggest that nearly final $0.010 of it is used to assist with the 165,000 riders will utilize the service by clean up of underground storage tanks. 2020. In addition, access to the East Side of Manhattan will reduce commuting time for State gas taxes range considerably from a a significant portion of commuters by high of $0.35 in Hawaii to a low of $0.08 in obviating their crosstown trip. This Alaska.5 Even gas taxes within our region combination of additional capacity and vary considerably. Connecticut effectively reduced commuting times will significantly increase both accessibility and mobility via 5 State gas taxes noted here include excise, wholesale the LIRR. Once the LIRR is able to make a and other state taxes, many of which vary by market conditions. They are expressed here in per gallon stop in Grand Central Station, many equivalents. Source: American Petroleum Institute 57 taxes consumers $0.297 per gallon, New Housing and Local Government York $0.303 (although it varies by locality), Finance and New Jersey $0.145 per gallon. New Jersey, because of its low gas tax, finances a In 1956, Charles Tiebot published his greater portion of its transportation seminal article on the allocation of public infrastructure from general revenue and has goods, which laid the foundation for the recently seen its Transportation Trust Fund modern theory of local public finance. One nearly exhausted. In Connecticut, unlike in of Tiebot's central insights was that in the New York and New Jersey, the state American federal system, the purchase or constitution mandates that gas tax revenues rental of a home is much more than a real be used for highway infrastructure only. estate transaction. It also reflects the consumer's preference for a certain mix of Another form of transportation finance that public services and reveals their reciprocal seeks to address the negative externalities of willingness to pay for those services. In that elevated peak-period demand is congestion regard local taxes serve as the public-sector charging. Just as airlines manage seasonal analog of the market price system, allowing demand through pricing, or electrical consumers to "vote with their feet" for the utilities set wholesale prices according to public services they desire. demand, localities can do the same to improve surface transportation flows. After That localities, both nationally and in our London successfully implemented region, finance most public services through congestion charging in its core business property tax levies is more an accident of district in 2003, business and transportation history than a necessity of public finance. groups in our own region have called for Americans' familiar property tax descends similar measures which, by some estimates, from medieval England, where most wealth could capitalize $19 billion for other was in the form of land or its produce.7 transportation improvements.6 At the same Taxing property was particularly time, smaller scale programs, such as the convenient because property wealth could addition of High Occupancy Toll (HOT) be easily assessed without the cooperation lanes could help to create flow efficiencies of its holder. For at least a century, on heavily congested highways throughout economists have argued that the property the region. tax is antiquated, as wealth is now held in many intangible forms and there are With the recent rise in fuel prices, many reliable ways of monitoring and taxing politicians and motor vehicle lobby groups monetary income and wealth. have called for reductions or moratoriums on state and federal gas taxes. That is Nevertheless, property taxes remain a precisely the wrong approach, and mainstay of local government finance. symptomatic of why our nation is Nationally, property taxes generate over 70 dangerously dependent on imported oil. It percent of local tax revenues. In New Jersey is important that transportation finance and Connecticut nearly all local tax mechanisms are sustainable and preferably revenues come from the property tax. immune to short-term political pressures. 7Dennis Hale, "Evolution of the Property Tax: A 6Regional Plan Association, An Exploration of Study of the Relation Between Public Finance Motor Vehicle Congestion Pricing in New York, and Political Theory," Journal of Politics, Vol. 47, November 2003. 1985. 58 Because of New York City's diversified tax considered property taxes the "most base, New York State's average is about 56 important voting issue" in New Jersey's percent, but it is much higher in suburban gubernatorial election.9 In a poll conducted jurisdictions and small municipalities. by the Center for Survey Research of SUNY Further, county governments in New Jersey Stony Brook for the Rauch Foundation, raise virtually all of their own-source "taxes" or "property taxes" were cited as revenues from property taxes, while the "most serious" problem by respondents property taxes account for about 42 percent in the metropolitan area's suburbs. On of New York counties' tax revenues Long Island, 41 percent cited it as the most (Connecticut has no county level serious problem, as did 26 percent in government). All told, state, county, and northern New Jersey and 18 percent in the local governments in the three states raised city's northern suburbs.10 $48.5 billion from property taxes in fiscal year 2001-02.8 Prices and Tax Burdens For A Modest Home in the Metropolitan Area, 2004* Property taxes, whether billed directly to Purchase Monthly Annual the homeowner or disguised in the tenant's Area Price Taxes Tax Rate monthly rent bill, are a major component of housing costs. For example, we estimate (dollars) (dollars) (percent) that a family buying a modest home in a typical suburban area of our region would New York City 625,730 275 0.53 pay, on average, about $600 in property Long Island 549,282 666 1.45 taxes per month, or about 20 to 25 percent West-Rock-Orng 405,998 672 1.99 of their monthly carrying costs (mortgage, New Jersey 424,252 594 1.68 insurance, and taxes). Connecticut 381,119 421 1.32 High and escalating property taxes have *Estimated price and property tax bill for a 30-year naturally caused anxiety and consternation old, 3-bedroom, 2-bath house on a 7,260 square foot lot, in a typical neighborhood. Figures estimated from among homeowners throughout the region. a sample of 273 published home sales. Unlike in Maine, Indiana, or most famously, in California, there is not yet a "taxpayer Property tax payments finance necessary revolt" that could lead to precipitous public services and, in theory, if a number limitations on taxes and local government of efficiency conditions are met, they should budgets. However, in New Jersey there is not distort housing prices from area to area. increasing voter and legislative pressure for However, because those taxes are levied on a constitutional convention or special housing, as opposed to other items (auto or legislative session to address the issue. In general sales taxes) or general income, they 2004 the legislature mandated the creation raise the cost of housing relative to other of a special task force to develop consumer expenditures. If homes are taxed recommendations regarding such a and autos are not, for example, consumers convention and Governor Corzine is will purchase relatively less housing and expected to call a special session in 2006. In relatively more autos, compared to a August 2005, a Rasmussen Reports poll found that 34 percent of likely voters 9http://www.rasmussenreports.com. 10Long Island Index. Where Do We Grow From 8US Census Bureau, 2002 Census of Here? Land Use On Long Island. December, 2004. Governments. http://www.census.gov. http://www.longislandindex.org. 59 situation in which there is no or professionals will continue to be frustrated proportional taxation. From that viewpoint in their efforts to create a balanced housing alone, property taxes are an issue that market and to increase housing should concern housing advocates. opportunities. The effect of property taxes on housing School Finance and Fiscal Zoning outcomes goes much deeper, however. Because most local public services are While a number of important public funded with property taxes, jurisdictions services are provided and funded at the have a strong incentive to exclude housing local level, elementary and secondary types which are anticipated to place a education dominates the budgets and greater demand on public services than politics of local governments. When land they will pay in taxes. Thus, communities use decisions affecting residential adopt large-lot zoning or other techniques development and its character are made, or intended to discourage the creation of siting decisions involving affordable modestly-priced homes; limit the areas housing are considered, the impact on local zoned for multi-family residential schools is usually among the most development, and neglect or oppose the prominent and contentious issues that arise. creation of subsidized housing. These practices are generally referred to as "fiscal In New York, New Jersey, and Connecticut zoning," and over the decades have collectively, about 37 percent of all local contributed to monolithic housing government spending is on public schools; development, low-density sprawl, and in New Jersey and Connecticut it is over economic and racial segregation. half. Those budget shares are enough to make education the principal concern of There are many reasons why communities local government, but other aspects of may discriminate against multi-family or public school economics heighten its affordable housing: an authentic preference prominence. Unlike many other local for low-density environments; an aesthetic public services, the marginal cost of preference for attractive, fashionable, and providing education is fairly constant; each well-landscaped homes; fear of increased additional student entails a large and fairly congestion and a decrease of property predictable annual expenditure. Moreover, values; the desire to maintain economically each time enrollment reaches a threshold or racially homogenous communities. that necessitates construction of a new Some of those reasons are understandable school, local spending can jump while others are offensive. Nevertheless, dramatically. 11 Local schools also play a fiscal zoning is the economic foundation of key role in community life and in the residential exclusion. Even if communities aspirations parents hold for their children; gain an appreciation for the benefits and voters are more aware of and emotionally conveniences of denser town centers, learn involved with their local schools than with that affordable housing can be attractive any other public service. and well-designed, and rise above historic economic and racial prejudices, the economic logic of fiscal zoning will remain 11Marginal costs may in fact decline with small an obstacle to rational development. Unless increases in enrollment, if there are underutilized classrooms or teachers. However, that economic basis of exclusion is as a general rule, marginal costs in public addressed, planners and housing education are relatively constant. 60 proportion of school expenditures, the Total spending per pupil in the public incentive for jurisdictions in our region to schools of New Jersey, New York, and engage in fiscal zoning is particularly great. Connecticut reached $11,948 in the 2002-03 This is surely a contributing factor to the academic year. The three states rank first, persistently high levels of segregation in second and third, respectively, in per-pupil our region and a source of the notable spending among the fifty states.12 Real per- resistance of many communities to multi- pupil spending in the region increased family housing, which is perceived to rapidly during the 1980s but slowed relative generate more school enrollments per tax to the national trend during the 1990s; dollar than single-family homes. nevertheless, by 2002-03 it was about 5 percent greater in real terms than it was ten Although the figure differs widely from years earlier. Combined with increasing jurisdiction to jurisdiction, each additional enrollments, total public school spending school-age child in the three states imposes had increased by about 17 percent, adjusted a school funding obligation on the locality for inflation. The increase in real spending of about $6,000 per year. When the cost of has been fastest in New Jersey and slowest other public services are also considered, it in New York. is easy to see that most new housing development does not pay for itself in fiscal When public school systems were first terms if even one new enrollment is established in the late 19th century, they generated per unit. If new housing were funded almost entirely by municipal generates more than one new enrollment, governments. The local funding share then the fiscal trade-off is significantly negative. declined through most of the 20th century, with the federal and state governments Census data indicate that there are about picking up ever greater shares. The federal 0.93 children per single-family home in our government's share peaked in 1979-80, region, excluding New York City. however, and has since declined. Over the However, new home buyers are likely to past 25 years state government's share of have more school-age children than the public school funding has inched upwards general population of homeowners, which while the local share has been essentially includes many "empty-nester" families. stable. In all three states in our region Recent homebuyer families in suburban (four, if Pennsylvania is included), local areas have an average of 1.09 children and governments pay a significantly higher many of them are still in their child-bearing share of public school costs than they do years. Among all homeowner families in nationally, although in New York, state which the household head is between 30 funding has grown much faster than local and 40 years old, the average number of funding over the past ten years. children is 1.51.13 With New Jersey, New York, and Connecticut the national leaders in per- pupil education spending and all requiring local governments to fund a high 122002 Census of Governments, Vol. 4, Government Finances. Public Education Finances, 13CHPC and RPA calculations from Census 2002. 2000 microdata. 61 Overall, however, the perception that new Average Number of Children by Housing housing development creates fiscal strains Type and Tenure, New York Metropolitan on a community that can necessitate higher Area property taxes for all residents is not mistaken. There are then, two approaches Suburban Housing Type Number of Children that can mitigate the fiscal bias against new housing development. One is to All Owners 0.933 compensate communities for the fiscal costs Head Age 31-40 1.508 new housing imposes. The second is to Recent Owners 1.094 break the link entirely between local services, especially public schools, and local All Renters 0.734 taxes. Head Age 31-40 1.110 Recent Renters 0.770 The first strategy has been advocated by 1-bedroom 0.314 housing experts for many years with little 2-bedroom 0.859 success.14 A compensatory program is 3 or more 1.587 currently under most active consideration in Massachusetts. In 2004, the state enacted Source: 2000 Census the Smart Growth Zoning and Housing Production Act, known as Chapter 40R. That law provides payments to While it appears to be true that most prime- communities that adopt "smart growth age homeowning families will not pay local zoning districts" based on the number of taxes commensurate with the local projected new units, and additional expenditures they generate, that may not be payments based upon the number actually the case for multi-family housing. Recent built. As initially drafted, the law would movers in suburban rental housing in our also have provided offsets to the region have, on average, 0.73 children per jurisdiction's school costs but that provision household and 30 to 40 year-old renters was not included in the final version of the have 1.11 children per household. Those law, which instead required a study of the figures vary, however, with the size of the impact of housing development on school rental apartment. Recent movers into 1- costs. That study was completed in mid- bedroom apartments have, on average, 2005 by the Center for Urban and Regional significantly fewer children than movers Policy at Northeastern University,15 and the into 2- or 3-bedroom and larger apartments. compensatory program was reintroduced in Many suburban renters moving into small the legislature as "Chapter 40S." apartments are singles and young couples who place very few demands on local The CURP study found that new single- public services and generate large "tax family homes would have negative fiscal surpluses." It appears, then, that the fiscal consequences for 238 of Massachusetts' 351 effects of multi-family housing depend on the mix of units in the development. With 14 Edward J. Logue, "President's Statement." the proper mix of unit sizes, rental housing New York State Urban Development can actually help improve the local fiscal Corporation, Annual Report 1970. balance. 15 Center for Urban and Regional Policy, Northeastern University. Chapter 40R School Cost Analysis and Proposed Smart Growth School Cost Insurance Supplement. May, 2005. 62 communities with independent school sales tax, a statewide property tax, local systems. In the other 113 communities non-residential property taxes, a real estate school spending is no higher than the state's transfer tax and certain excise taxes. On the "foundation level" and so state payments expenditure side, a "foundation grant" would automatically increase to fully cover system was adopted, under which low- the increase in enrollments. Fewer spending districts would be brought up to a communities would be adversely impacted minimum per-pupil spending level while by multi-family housing, because such high-spending districts could supplement development generates fewer new their state grants with local residential enrollments. The proposed legislation property taxes, but only within state- would offer school expense compensation specified limits. An analysis of the new only for housing built within Smart Growth system released in 2003 found that local Zoning Districts, and would cost about $35 property taxes for the average homeowner million annually by 2014, less than 1 percent had declined by about $2,000 annually; that of the state's education aid to localities. local school districts had lost virtually all control over the amount of money spent on A second strategy is to pursue more their schools; and that school funding had sweeping educational finance reform, become more equitable.16 Whatever their leveraging voter dissatisfaction with high effect on public education, Michigan's property taxes or state constitutional localities no longer have a school finance requirements for educational equity. incentive to oppose affordable housing, insofar as all property taxes are paid into a Michigan is the most prominent example of general state fund. In fact, the study also reform spurred by voter demands for found that the new system rewards districts property tax relief. A number of other that have growing enrollments and states, including New Jersey, are more penalized those with flat or declining school recently considering reform for similar enrollments. reasons. Michigan's case is notable because reform came without direct pressure from In most states, however, the pressure for the courts and in a state with intense central school finance reform arises from concern city-suburban rivalries. In the early 1990's about educational equity and is mandated Michigan's high and rising property taxes or otherwise forced by the courts. (on average, it had the fifth highest level of Litigation based on state constitutional property taxes in the nation) made them a requirements has been successful or is prominent issue in local and statewide pending in at least 37 states.17 The litigation elections. In 1993, after several of Governor usually argues that the state's constitution John Engler's fiscal reform proposals were requires equity in educational resources, or rejected by voters, the legislature of educational outcomes, regardless of a dramatically forced the issue by banning all community's property wealth. Litigation use of local property taxes to fund public along these lines has been pursued schools. To fill a potential $6 billion gap in public school funding, the state's voters 16 David Arsen and David N. Plank, Michigan subsequently approved a ballot initiative School Finance Under Proposal A: State Control, known as "Proposal A." Local Consequences. The Education Policy Center, Michigan State University, 2003. 17 The US Supreme Court's ruling in San Antonio Proposal A replaced local property taxes School District v. Rodriguez, 1973, effectively with a 50 percent increase in Michigan's ended such litigation at the federal level. 63 successfully in states as diverse as considerations from local land use decision California, West Virginia, and Connecticut. making. One of the earliest and most significant From Texas to Maine, legislatures and school finance cases was California's Serrano school districts are grappling with the v. Priest in 1971. Originally decided on the implications of school finance litigation. In basis of the U.S. Constitution's equal our own region, Connecticut and New protection clause, it was later upheld on Jersey have both been influenced by state constitutional grounds, with California successful equalization lawsuits while New courts ruling that an unequal distribution of York is resisting court rulings that could educational resources based solely on shatter its present school finance system. In differences in local property wealth is New Jersey and New York especially, unconstitutional. A legislative remedy vigorous participation by planners and adopted under Governor Ronald Reagan housing experts can help to ensure that was soon complicated by the voters' reforms adopted to minimize educational adoption of Proposition 13 in 1978, which inequities also work to reduce incentives for strictly limited property tax rates. The fiscal zoning. combined effect of Serrano and Proposition 13 was to slash the share of public school School Finance in Connecticut funding provided by property taxes and to give the state almost total control over local Connecticut's Horton v. Meskill in 1977 was school spending levels. one of the earliest and most definitive school finance equalization cases. The The distinctive feature of California's Connecticut Supreme Court held that while system is its "revenue limits." Localities the state's constitution did not require raise property tax revenues within the complete educational spending equality constraints set by Proposition 13, and the from district to district, a system in which state makes up the difference between those spending varied according to the wealth of collections and the nearly uniform per- the district violated its equal protection student revenue limits. The system has provisions. substantially equalized spending between poor and affluent districts, but, many critics Connecticut's school districts are roughly argue, has equalized them at too low a coterminous with its 169 town level.18 The state's spending on elementary governments. Prior to Horton, the towns and secondary education, on a cost-of-living funded virtually all school operations adjusted per-student basis, has sunk toward through local property taxes, with some the bottom of the national ranking over the state aid. After the Horton decision, the past 25 years, as has its educational state has sought to preserve local spending achievement. While few educational autonomy, initially by adopting a finance experts suggest that California's guaranteed tax base (GTB) approach. In a system is a model to be emulated, it has GTB approach, localities with small per- entirely removed school finance pupil property tax bases are compensated by the state for the amounts they would have collected at their chosen tax rate had 18Jon Sonstelie, Eric Brunner and Kenneth their tax base attained a certain minimum Ardon, For Better or Worse? School Finance standard. One advantage of a GTB Reform in California, Public Policy Institute of approach is that, with each locality having a California, 2000. 64 guaranteed tax base, communities can Connecticut's ECS system of school finance choose to set their tax rates higher or lower, appears to enjoy broad support from elected depending on local preferences for school officials and voters, and from an quality. Connecticut set its guaranteed base educational perspective has maintained the at a high level, thereby insuring that almost state's relatively high level of per-pupil every community got some equalizing aid spending. Although a high proportion of and that school spending levels would be local property taxes goes towards schools, generous. property tax rates are among the lowest in the region. The state's equalization formula The GTB system was in place until 1989-90, mitigates, but does not entirely eliminate, when the deep regional recession plunged the incentives for fiscal zoning. The the state into fiscal crisis. The cost and authority districts retain to spend above the complexity of the system worked against it, foundation level gives communities reason and it was replaced with the current to resist dilution of the tax base, while the foundation grant system. Connecticut also state's formula for determining community adopted a statewide income tax in 1991, in property wealth, which is based on a per- part to pay for the school equalization capita rather than a per-pupil calculation, program. creates a bias against family housing. Under the current system, known as School Finance in New Jersey Education Cost Sharing (ECS), each district receives a per-pupil grant from the state New Jersey's school equity litigation has that is the difference between the been long and complicated. In a landmark legislatively-determined "foundation level" 1973 case, Robinson v. Cahill, the state's of spending and the amount that can be Supreme Court ruled that a heavy reliance generated at a standardized tax rate given on the local property tax to fund education the town's wealth. About 40 percent of the is unconstitutional. A subsequent statewide foundation level of spending is legislative impasse over funding an funded through these grants, with the alternative system led to a court shut-down wealthiest towns receiving a negligible of the state's public schools during 1976 and amount. The state does not cap the amount to the enactment of a state income tax. A localities can spend above the foundation subsequent case, Abbott v. Burke, challenged level, so wealthier districts can and do set the new system and led to a Supreme Court their tax rates above what is necessary to ruling that the state must ensure urban generate the foundation level of spending. school district children an education that Because the system preserves local enables them to compete with their discretion over spending, it has not suburban counterparts. The Abbot v. Burke eliminated spending differences entirely, litigation has dominated New Jersey's but they are significantly less than they educational funding decisions for almost a were prior to Horton.19 quarter century, with the most recent court mandate, known as Abbott X, issued in 2004. The Abbot v. Burke case was filed on behalf of children in the 28 poorest school districts 19Legislative Program Review and in the state. The initial Supreme Court Investigations Committee, Connecticut General ruling in 1990, Abbott I, required the state to Assembly. Connecticut's Public School Finance provide children in those districts with a System, Annual Report 2001. 65 "thorough and efficient education," as is Jersey has a state income tax that was stated in New Jersey's constitution, and as a created primarily to fund education, it has practical matter, to equalize funding the lowest and least progressive rate of any between those districts and the wealthiest of the mid-Atlantic states. districts. That requirement, focusing on the spending of the poorest and wealthiest Like Connecticut's system, New Jersey's districts, has steered the state's school method of financing public education finance decisions ever since. mitigates the incentive for fiscal zoning but does not eliminate it. Districts can and do The current aid formula is governed by the spend in excess of the mandatory amount, state's Comprehensive Educational and those in which the voters wish to spend Improvement and Financing Act of 1996. more have cause to limit housing Under the CEIFA, a district's mandatory development that may dilute their per-pupil per-pupil expenditures are based on what property tax base. Moreover, New Jersey's the state determines is necessary to provide system places most of the funding burden students a "thorough and efficient" on local property taxes, making housing in education. The amount of state aid a the state relatively more expensive. district receives is the difference between the amount it is required to spend and the School Finance in New York amount it is required to raise through property taxes. That amount is based on its New York has not had a school equalization property wealth and income levels. A ruling analogous to Horton or Abbott. district can spend more that the "T & E" However, recent court rulings in the case of level, but only if the district's voters directly Campaign for Fiscal Equity, Inc. v. State of New approve the expenditures at the ballot box. York have the potential to destabilize the state's education budget and force the Despite the effect that the Abbott litigation legislature to devise a new school finance has had on the educational resources system. available to disadvantaged urban children, it has not dramatically altered New Jersey's The current system in New York allows heavy reliance on local property taxes for local districts to spend amounts as they see funding public school systems. In 2002-03, fit on local schools, without state-mandated local sources accounted for 53 percent of the maximum or minimum amounts. Those state's public school system revenue, amounts are then supplemented through compared to a national average of 43 over 40 separate state aid programs. Basic percent. 20 A Federal Reserve Bank of New Operating Aid, which accounts for about York study found that from 1977 through half of all state aid to local school districts, 1997, state aid financed only 25 percent of is based on average daily attendance with increased K-12 spending, compared to 70 an equalization adjustment based on the percent in New York.21 Although New district's real property wealth and the average gross income of residents. The formula is not dependent on the level of 20 US Census Bureau. Annual Survey of Local local effort, although there is a special Government Finances. category of aid for districts with 21 Andrew F. Haughwout, "Fiscal Policy in New exceptionally high tax rates. York and New Jersey: 1977-97." Current Issues in Economics and Finance, Federal Reserve Bank of New York. 66 Although the state share of total school funding has been increasing since the early The CFE case provides an opportunity to 1980s, the high degree of local autonomy reform both the state's educational finance and the state's wide wealth disparities system and its tax structure. Although create strong incentives for fiscal zoning. Governor Pataki has delivered increasing The Education Trust ranks New York as the state aid to public education, he has not state with the largest funding gap between indicated a willingness to undertake the highest and lowest poverty districts.22 fundamental school finance reform during his final year in office. It should be a high The Campaign for Fiscal Equity case is priority of housing and planning unusual in that it is not based on a professionals to make school finance reform constitutional notion of equal protection; a central issue of the state's 2006 rather, the plaintiffs argued that the state's gubernatorial election, with the goal of school finance system did not provide New removing the incentives for fiscal zoning York City's school children with a and lightening housing's burden for constitutionally-required "sound basic financing education. education." A series of trials and appeals relating to the proper interpretation of that phrase led, in June 2003, to a state Court of Transportation and Education Appeals ruling that the funding system Finance Strategies to Support must be reformed to ensure that every school in New York City has sufficient Housing Balance resources to provide its students with a The areas of public policy discussed in this meaningful education through the high section—transportation and education—are school level. The court ordered the state to but two of the ways the public sector implement a three-part remedy by July 30, supports, or obstructs, the development of 2004. The state missed that deadline and, balanced housing. Others that need to be after receiving a report from a special panel evaluated in light of their housing impacts of referees, the court ordered the state to include environmental policies, especially provide New York City School Districts relating to water supply and sewage with an additional $18.25 billion in treatment facilities, tax policy, and public operating funding over the four years safety. However, we believe that these two beginning July 2005. The state is appealing areas are of particular importance at this that ruling. point in time, because in these areas state and regional officials are faced with critical Although the Court's order relates only to policy decisions that will affect the housing funding for New York City's schools, few environment for decades to come. observers believe that the state could actually provide such sums to the city It is especially critical that housing experts without addressing inequities elsewhere. It and advocates involve themselves in the is the stated goal of the Campaign for Fiscal public discourse on these topics, to ensure Equity to bring about statewide school that the housing implications of decisions finance reform that will ensure a "sound are fully recognized. If that is done it can basic education" for all students in the state. not only improve housing outcomes in our region, it can contribute to better 22Education Trust. The Funding Gap, 2004. transportation and educational outcomes as http://www2.edtrust.org/ 67 well. Housing demand and transportation regional centers and far-flung residential demand, for example, are simultaneously suburbs. determined by market forces and public policies, and experts in each area need to be In certain cases, light rail lines can use "at the table" when critical decisions on existing rail track in a cost efficient manner. either are being made. In the educational In other areas, light rail lines are being arena, that interdependence of policy planned without the utilization of existing decisions is even more true: the difficult infrastructure. The costs of these lines can problem of educational equity is, at root, a be much higher and more difficult to justify matter of economically and racially if estimated ridership is low due to lower segregated residential patterns. density residential development. From the discussions presented above, a Bus Rapid Transit (BRT) lines can provide a number of transportation and educational cost-efficient means of connecting regional policy strategies that are conducive to centers to residential suburbs built at a balanced housing development arise. variety of densities. BRT service is very similar to light rail—service stations are 1. Create intra-suburban and reverse connected to the line and riders pay before commute transit connections. boarding—in which vehicles travel on a After several decades of suburban job fixed guideway so they are not caught in growth, 7 of every 12 work trips made in traffic. Besides their low cost compared to our region are from one suburban location light rail, they have the flexibility of buses, to another. Currently, getting to suburban which fixed light rail lines do not. job centers is much easier via automobile on congested highways and arterials. To Creating intra-suburban transit connections facilitate increased transit usage in our has the potential to alleviate congestion on region and simultaneously create new the region's highways and partially housing opportunities, many of these facilitate greater amounts of Transit locations need to be better connected to the Oriented Development (TOD). It also can regional transit grid. It must be possible for serve to reduce peak flow inefficiencies that employees to have fast, reliable, currently occur on the commuter rail lines comfortable service. that flow into and out of Manhattan. Additionally, intra-suburban service There are many potential ways to create particularly assists households with low these types of connections—some better and moderate incomes, leading to greater than others. There are existing tracks and accessibility and mobility. TOD will not, right of ways that could be converted from however, spontaneously arise near transit commercial freight to commuter use. nodes. For mixed use, higher density Expanded capacity on existing lines, such as development to occur near transit, affected a third track in LIRR's main line, would communities need to be directly involved better facilitate both reverse commutes and from the outset, and strong commitment intra-island travel. Beyond these, new and planning is needed from local commuter lines generally require expensive jurisdictions. right-of-way corridors, which usually mean costly spans and tunnels. While there may be ways to increase commuter rail in our region, it is a limited option for connecting 68 2. Select Transit with Associated Land Use Potential. As much as is possible, housing In the current planning climate, professionals and planners should seek to transportation infrastructure is rarely built ensure that transportation improvements on a speculative basis. Yet it is important are funded through transportation-related for housing experts to understand that not sources or general state revenue. all transportation proposals are created with equal ability to spur new growth. As There are significant sources of housing experts and transportation transportation-related revenue that remain planners decide which projects merit their underutilized. Most obvious are taxes on attention, it is important that they assess gasoline. New York and Connecticut have each project with an eye toward the among the highest taxes on gasoline in the potential for creating a balanced regional country, but even then they are only about housing market. $.30 or $.40 per gallon. New Jersey, on the other hand, has among the lowest state An example of this can be found when taxes on gasoline. Higher gasoline taxes can assessing the transit future of commuters raise substantial revenues for transportation from west of the Hudson River, specifically improvements, encourage conservation, those from Rockland and Orange Counties. reduce roadway congestion, and reduce One of the current proposals that is being dependence on foreign energy. At discussed involves a transit line that will minimum, New Jersey's tax rate should be run roughly parallel to I-287, bisecting raised closer to the regional average. Rockland County from east to west. Much of the I-287 corridor in Rockland County is Congestion pricing has the potential to already developed around auto uses. While generate significant new revenue streams a new transit connection would make park while at the same time encouraging greater and ride options more attractive for use of the region's existing public residents, it would be much more difficult transportation infrastructure. In to create the density that would allow Manhattan, congestion charging would housing to capitalizing on the line's value. reduce the number of annual vehicle miles that are lost to congestion. In other parts of 3. Finance Transit Adequately and the region, congestion pricing in the form of Appropriately. High Occupancy Toll lanes and other It is critical to the further development of a demand pricing schemes has the potential balanced regional housing stock that to create greater efficiency on regional transportation improvements, especially highways and throughways. It is important public transportation, are financed that these revenue streams be dedicated to adequately. Several significant regional making transit options more attractive and transportation projects are in planning or viable in places that are currently development that could significantly underserved. enhance opportunities for transit oriented housing development in coming decades. 4. Devise Fiscally-Neutral Housing The vagaries of transit funding, and in Models. particular the financial difficulties of the When evaluating proposals for new MTA that came to light in late 2004, could housing development, municipalities are jeopardize those projects and the associated necessarily concerned with their impacts on housing that could be built. local budgets. Especially scrutinized are the 69 potential revenue enhancements the collections can easily entail a "hidden developments will produce and the subsidy" of several thousand dollars per demands on local school budgets they will unit per year. If communities are place. Housing developers, especially those compensated for that subsidy they will be engaged in affordable housing creation, more welcoming of affordable housing should exploit the difference in fiscal projects. impacts of different types of dwelling units to make them more appealing to local Compensation can be provided in several officials, planning boards, and voters. ways. Communities can be awarded the present value of the fiscal subsidy up-front The data indicate that certain types of multi- from a statewide fund established for that family housing generate fewer school purpose. The present value of a $3,000 per enrollments than does new single-family year fiscal subsidy might range from housing. A rental development with an $30,000 to $60,000 depending on the equal proportion of 1-, 2- and 3-bedroom discount rate applied. Although that units will generate, for example, about as strategy would be front-loaded and initially many school enrollments as a single-family expensive from the housing viewpoint, it subdivision with the same number of may have great appeal to local officials and dwelling units. If the distribution of taxpayers facing large capital costs dwelling unit sizes is skewed towards associated with school expansions or other smaller units, the rental development can public facilities. generate significantly fewer enrollments than the equivalent single-family Alternatively, communities could be subdivison. Although the fiscal "break- compensated for the fiscal subsidy out of even point" will differ depending on the state educational budgets. Each state relative value of the units and a provides aid to local districts under community's property tax rates, rental or formulas for special education, school condominium developments can be transportation, school facility construction configured to be fiscally neutral or even to and the like. Offsetting state aid to create a positive fiscal impact for the host communities that accept affordable housing community. projects could easily be written into school finance laws. This is in fact the approach This model can be extended to multi-family taken in the Massachusetts bill. It is developments that include both affordable important to recognize that such measures and market-rate dwelling units, or mixed would not necessarily increase the residential and commercial space. aggregate amount of state aid going to education or the total tax bill for state 5. Compensate Communities for Fiscal residents; it is merely a way of eliminating Impacts. beggar-thy-neighbor incentives in the As the Massachusetts legislation recognizes, existing school finance systems. 23 communities will be resistant to siting affordable housing if it is expected to have negative fiscal consequences, particularly with respect to school district finances. An affordable housing development that 23 "Fundamental Property Tax Reform: Land Use generates proportionately more school Implications of New Jersey's Tax Debate." Regional enrollments than it does property tax Plan Association. October 2005. < http://www.rpa.org>. 70 areas – and higher taxes where growth is 6. Break the Link Between Education discouraged. On the funding side Finance and Local Property Taxes. Michigan's system is attractive; property The ultimate goal of housing and planning taxes were significantly lowered and the professionals in the realm of local public vast majority of them now go into a finance should be to develop alternatives to statewide educational fund, a system which property taxes and other local funding. The almost entirely eliminates the logic of local traditional reliance on local sources for fiscal zoning. GTB systems for disbursing funding schools is the major incentive for aid, such as those used by Vermont and fiscal zoning and a root cause of residential formerly by Connecticut, permit some local segregation by income and race. autonomy in school funding without giving communities fiscal cause for resisting Fundamental school reform has been affordable or family housing. In any case, undertaken elsewhere, notably in Michigan, the interest of housing equity and planning in the absence of direct pressure from the efficiency is not in raising more or less courts. In most states, including New Jersey money for public education, but in ensuring and Connecticut, it has been undertaken as that whatever system is adopted does not a result of court orders. In New York, distort housing and land use decisions. where the incentives for fiscal zoning are greatest, the CFE case and resulting court orders provide an opportunity to reform the state's antiquated, arcane, and counterproductive system of school finance. Reform of the state's system may come suddenly, especially as a new Governor takes office in 2007, and housing and planning professionals should not allow themselves to be caught on the sidelines when it does. Fundamental reform is needed in New Jersey's and Connecticut's school finance systems as well. Their systems mitigate, but far from eliminate, the incentives for fiscal zoning. Moreover, their systems continue to rely on property taxes as the primary source of school funding, with a consequent effect on housing costs in the states. The optimal system from a housing viewpoint would probably be a combination of statewide taxes for funding coupled with a guaranteed tax-based system for disbursement. Another possibility is to vary taxes according to planning areas, with lower taxes where growth is encouraged – such as older urban 71 III. Housing Finance ($69 billion) and the exclusion of state and local property taxes ($17 billion). Tax- Challenges exempt mortgage subsidy bonds and the tax credit for low-income housing add another $5 billion in foregone federal tax revenues. The subsidy programs administered by the The usual portrayal of the region's housing Department of Housing and Urban as being in a state of crisis glosses over the Development cost the federal government complex interaction between public and $43 billion in direct spending in 2005, a 43 private housing investments as well as the percent increase from 1990 after adjusting demographic characteristics of our for inflation. population. Most of the region's 8.6 million housing units,1 including those that are In 2002, the most recent survey year for the "affordable" by federal guidelines, are in Census of Governments, the combined state fact privately financed and do not receive and local governments of New York, New direct government subsidy. However, Jersey, and Connecticut spent almost $5.2 except for public housing that is almost billion on housing and community completely subsidized and luxury single- development-related expenditures: New family homes, cooperatives, and York spent $3.8 billion; New Jersey $940 condominiums that are fully market rate, million; and Connecticut $440 million. In all the vast middle segment of the housing cases, the vast majority of housing resources market requires some degree of assistance. were federal with the state and municipal How the region provides affordable and governments directing and overseeing their diverse housing options for the current use. population of 22 million while preparing for the 2 million additional residents expected Tax-exempt single-family and multifamily by 2020 will require an unprecedented level housing bonds are the primary source of of housing investment from both the public funding for the ownership and rental and private sectors. programs of the state housing finance agencies. In the last two decades, the states The federal government continues to be the have also become the primary conduit for primary source for housing subsidy. In the production of rental housing using the 2005, the housing-related expenditures and federal Low Income Housing Tax Credit budget outlays of the federal government and HOME programs. Since they rely so surpassed $172 billion.2 The bulwark of heavily on these federal housing resources, federal support for housing is the favorable the role of the states and their HFAs have tax treatment of homeownership, been to channel the resources and, to the particularly the mortgage interest deduction extent allowed by the complex federal regulations governing each program, decide 1 At the time of this writing, US Census Bureau how and where to invest the federal funds. estimates of housing units at the county level were available through July 1, 2004. Population In addition to direct subsidies and tax Division, U.S. Census Bureau, "Table 4: Annual expenditures for housing, federal policies Estimates of Housing Units for Counties: April provide vital support for the private 1, 2000 to July 1, 2004" Released: July 21, 2005. housing market. Federal regulation of the 2 This figure does not include the cost of banking industry, particularly the housing programs administered by the enactment of the Home Mortgage departments of Agriculture and Defense. 72 Disclosure Act and the Community dedicated revenues from a new document Reinvestment Act in the 1970s, have recording fee. In August 2005, New Jersey significantly reduced barriers to mortgage announced a Special Needs Housing Trust lending in low-income neighborhoods and Fund that will be supported by existing for minority families. The role of the unused bond capacity to create 10,000 units government-sponsored enterprises in the over 10 years. secondary mortgage market has also been essential to opening up the residential In addition to these statewide funds, more finance market to securitization. localities are funding local solutions to their pressing housing problems. Between 1999 Despite the federal resources devoted to and 2005, New York City spent an average assisting low-income families and the $600 million per year to supplement federal regulatory push to boost private housing and state resources for its primary housing investment, almost 30 percent of the and homeless services agencies. Suffolk households in our region paid more than 35 County has recently appropriated $15 percent of their income on housing, million for infrastructure improvements to according to the 2000 Census. This simple stimulate workforce housing developments. measure of the state of the region's housing excludes other alarming aspects such as the To alleviate the existing housing imbalance large number of families that live in and to increase its competitive advantage, overcrowded or physically dilapidated regional policymakers and housing homes, the limited residential options advocates will need to act in concert to available, increasing commuting times, and defend and expand the federal subsidies the increasing need for renters and owners that are so crucial to the provision of low- to hold more than one job. income housing. Beyond this important first step, additional sources of state and In response to reduced federal support for local housing subsidies must be established heavily-subsidized housing and recognizing to further stimulate private investments. the challenges facing our mature, high-cost These coordinated efforts could area, state and local governments have significantly facilitate the financing for a begun to increase their funding for housing balanced housing market. development and preservation. The state HFAs have raised modest internal resources, which have been used as another layer of subsidy for low-income projects Regional Housing and the that use federal programs. On a larger Private Mortgage Market scale, state housing trust funds have become an increasingly popular response to Although the overwhelming majority of the addressing housing needs. In 1985, New region's households do not receive direct York State created an Affordable Housing subsidy, federal policies provide crucial Corporation and a Housing Trust Fund support for privately-financed housing. supported with annual appropriations that Government mortgage insurance provide subsidy grants for ownership and guarantees provided by the Federal rental opportunities for moderate-income Housing Administration (FHA) and the households. In 2005, Connecticut created a Department of Veterans Affairs, as well as multi-purpose Housing Trust that will be the mortgage interest tax deduction, are funded by general obligation bonds and by well-known housing support policies. 73 Beyond these obvious efforts, the private The size of the GSEs portfolio, the housing finance system, and the perception of a government guarantee for government's broad support of it, has their securities, and access to a federal line continued to evolve and the net effect has of credit have prompted some competitors made the financing of homes accessible to and federal regulators to call for their more segments of the population than ever reform. These efforts have intensified since before. both Freddie Mac and Fannie Mae disclosed accounting irregularities meant to spread The evolution of the housing finance earnings and avoid market volatility. system, including the shift from heavily- regulated thrift institutions to less regulated In 2005, then Federal Reserve Chairman mortgage bankers and brokers, the Alan Greenspan urged policymakers to development of a secondary mortgage limit the mortgage portfolio of the GSEs, market, and the securitization of mortgages, pointing to an increased systemic risk has spurred efficiencies that better integrate should the GSEs experience financial strain. it into worldwide capital markets. However, some lawmakers like New York's Although homebuyers may not recognize Senator Charles Schumer, a member of the the profound impact of this restructuring Senate Banking Committee, have argued and the government's role in it, they benefit that portfolio limits may harm the ability of from the greater availability of mortgage the GSEs to provide considerable liquidity funds on more favorable terms than was to the mortgage market and thereby available to earlier generations. compromise their affordable housing mission. The major force in the residential mortgage market in the past two decades has been the Consensus opinion seems to have formed government-sponsored entities Fannie Mae around the need for a more powerful and Freddie Mac. Since Fannie Mae's federal regulator than the current Office of creation in the 1930s, and Freddie Mac's in Federal Housing Enterprise Oversight 1970, the GSEs have played a growing and (OFHEO). Unresolved issues remain crucial role in the nation's housing finance regarding portfolio limits and whether to system. Congress has entrusted GSEs with dedicate a small portion of GSE profits for buying and securitizing mortgage loans. an affordable housing trust fund. No They do so by purchasing mortgages from matter which vision of reform ultimately primary market originators, thereby freeing prevails, the impact of the GSEs has been to up their capital for further mortgage open the mortgage market to international lending. In 2004, the GSEs purchased 34 capital flows, allowing mortgage funds to percent of all single-family mortgage be continuously available, and at better originations, down from 54 percent the rates, than previously. previous year. While they hold some mortgages in their portfolios, they package Better access to mortgage capital has others as mortgage-backed securities. The apparently been matched by a greater GSEs have come to dominate the secondary desire for homeownership. In our region, mortgage market because their special the number of conventional mortgage status allows them to raise funds at rates applications rose significantly for all income lower than many financial institutions. groups between 1997 and 2003, ranging from a 51 percent increase for low-income families to 67 percent for those of middle 74 income and above. The total number of among households with the highest mortgage applications approved rose from incomes (over $79,000), this income group 224,000 to 364,000 during that period. had 5,400 fewer homeowners in 2000. One Likewise, the number of loans originated can assume that the decline among the rose from 165,000 to 246,000, a 49 percent highest income households was a matter of increase from 1997 to 2003. Although it is choice and not inaccessible financing. The tempting to attribute the increase in data suggest that the private mortgage mortgage applications and approvals to market, through which the majority of falling interest rates, home prices have housing is purchased, has become more increased at a rate that exceeds the carrying- accessible and affordable to families looking cost savings attributable to lower rates. It is to become homeowners. truly remarkable that so many families in our region have sought to buy homes in Selling the American Dream to All recent years, and have succeeded in doing so, despite the unprecedented increase in Since the 1960s, federal policy has aimed at home prices. reducing the mortgage credit barriers faced by minority and low-income families. This goal has been pursued through the Fair Regional Applications for Conventional Housing Act of 1968, the Equal Credit Mortgages by Income Group Opportunity Act of 1974, the Home 1997 2003 Change Mortgage Disclosure Act of 1975, and the HHs below 50% AMI 10,507 15,816 51% Community Reinvestment Act of 1977. HHs at 50-79% AMI 33,736 54,129 60% These laws essentially extended civil rights HHs at 80-99% AMI 30,064 45,600 52% and equal opportunity into the realm of HHs at 100-199% AMI 29,153 45,924 58% housing and housing finance. Nevertheless, HHs at 120% AMI or more 120,748 202,245 67% the homeownership gap between whites and minorities remained steady, and even Source: HMDA aggregate data by MSA, 1997 and 2003. rose slightly, through 1990. According to the 2000 Census, the region's homeownership rate stood at 53 percent, a The past decade witnessed a renewed 1-percentage point increase from 1990. In federal effort that featured a revised and absolute terms, almost 380,000 families in expanded HMDA, lower FHA insurance our region became homeowners during the premiums, and more diligent enforcement 1990s.3 In addition, the gains in efforts of discrimination cases by the homeownership occurred at almost all Department of Justice. Perhaps most levels of income. By 2000, the number of important was the enactment of the Federal homeowners with incomes in the bottom Housing Enterprises Financial Safety and quintile (roughly under $17,000) grew by Soundness Act of 1992, which required the more than 45,000 families since 1990. GSEs to increase the mortgages purchased Households with incomes in the middle from low- and moderate-income quintile (between $32,000 and $50,000) households and neighborhoods.4 In 1994, added more than 148,000 families to the Fannie Mae announced its "Trillion Dollar ranks of homeowners. Surprisingly, the only net loss of homeowners occurred 4Lance Freeman and Darrick Hamilton, "The Changing Determinants of Inter-racial Home 3CHPC and RPA calculation of 1990 and 2000 Ownership Disparities: New York City in the Census microdata. 1990s" in Housing Studies 19:3 (May 2004). 75 Commitment," which was followed by the The region's African-Americans $2 trillion "American Dream Commitment" households, however, increased their six years later. Together, the two initiatives ownership at almost twice the rate of other facilitated access to homeownership for 28 black households in the country. Although million first-time, minority, and low-income it is unclear why this occurred, a recent families. In January 2004, Fannie Mae study of the homeownership gap between expanded its commitment, targeting an racial groups in New York City suggested additional 6 million families with the goal that the decreasing homeownership deficit of raising the minority homeownership rate among blacks might be due to a decline in to 55 percent. discriminatory treatment as a result of public policies that encouraged ownership Nationally, the minority homeownership and discouraged lending bias.6 rate increased by almost 8 percentage points between 1990 and 2004, from 43.1 percent to Regional Mortgage Approval Rate, 1997- 51 percent, respectively. Because white 2003 homeownership rates also rose, the gap Approval Rate 1997 2000 2003 between the white and minority rates White HHs below 120% AMI 82% 80% 82% declined only slightly, to 25 percentage Black HHs below 120% AMI 65% 60% 68% points in 2004.5 Asian HHs below 120% AMI 80% 80% 80% Hispanic HHs below 120% AMI 71% 69% 73% Regional Homeownership Rate by Race 1990 2000 Change Source: HMDA aggregate data by MSA, 1997, 2000, 2003. Overall 52.4% 53.3% 0.9 White 60.7% 63.4% 2.7 The HMDA data for our 15 subregional Black 26.1% 30.7% 4.6 MSAs show steady or improving mortgage Asian 42.4% 44.2% 1.8 approval rates for households with incomes Hispanic 19.2% 22.5% 3.3 below 120 percent of area median for all Source: 1990 & 2000 Census. racial groups. However, one should not draw conclusions about the approval The New York metro region experienced a disparities based on race. Further analysis similar trend between 1990 and 2000. The of the microdata is necessary to better ownership rate increased for all racial understand the impact of other household groups while the inter-racial disparity characteristics, beyond race and income, remained almost unchanged, with only a such as credit and employment history as small reduction for both blacks and well as debt to income ratios. Hispanics and a slightly larger gap for Asians. Although the region's overall Although families in the region appear ownership increased only half as fast as the increasingly willing to commit to nation's, the metro area's minority homeownership, their financial households generally matched the national circumstances may not allow it. The pace. HMDA data shows that in addition to the rise in applications, the number of households not approved rose in absolute 5U.S. Census Bureau, Current Population number as well as percent. In 1997, almost Survey March Supplement, Table 6-- Homeownership Rates by Race and Ethnicity: 1975 to Present. 6 Freeman and Hamilton, 2004. 76 20 percent (roughly 44,000) of the regional ownership among households that are not mortgage applications were rejected. In able to buy.8 2003, those cases grew to over 22 percent or more than 81,000.7 Put another way, in In the 15 MSAs that roughly make up our 2003, more than 2 percent of the region's metro area, applications for FHA-insured households sought to buy a home and one- loans decreased by 27 percent from almost fifth of them were not approved for a 38,000 in 1997 to about 28,000 in 2003. conventional mortgage. This suggests that Although many parts of our region qualify the region has not reached its latent as high cost areas for FHA mortgage limit homeownership potential and that some purposes, the increase in the loan ceiling families require some degree of assistance from $160,950 in 1997 to $280,745 in 2003 to become homeowners. did not keep pace with the increases in home prices. In more than one third of the For families such as these who are shut out counties in our region, the median sales of the conventional mortgage market due to price exceeded the FHA loan ceilings.9 poor credit quality, lack of downpayment, Even the conforming loan limit of the GSEs, or insufficient income requirements, various generally 15 percent higher than the FHA, federal programs offer an alternative path may not be high enough to serve to homeownership. The best known of homebuyers in counties such as Bergen, these programs is the Federal Housing Hunterdon, Nassau, Westchester, and Administration mortgage insurance for one- Fairfield. to four-family homes, begun during the Great Depression. Whether due to the homeownership base expanding to lower income groups or to Historically, the Section 203(b) insurance higher home prices, the number of program has been critical in expanding homebuyers who do not make a 20 percent homeownership opportunities for first-time downpayment has increased since the homebuyers who would not otherwise 1980s. Nationally, the share of single-family qualify for conventional mortgages. It only mortgages with loan-to-value ratios over 90 requires a 3 percent downpayment and uses percent increased dramatically from less more flexible household income and than 10 percent of the originations in 1990 payment ratio underwriting guidelines, to a peak of 25 percent by 1995. In 2004, the which were adopted by conventional last year for which this data is available, 18 lenders and the GSEs to meet Congressional mandates. However, some have suggested that the FHA insurance program today only serves to accelerate the purchase of a new home and does not actually enable 8 Rachel G. Bratt, "Financing Production of Low- and Moderate-Income Housing" Presented at Community Development Finance Research 7 The HDMA database categorizes the Conference, Federal Reserve Bank of New York, applications as follows: received, loans December 8-10, 2004. originated, approved but not originated, denied, 9 RPA/CHPC, Out of Balance (April 2004). Table withdrawn, and closed as incomplete. In this 5 (Median Home Prices) shows 11 counties in case, applications not approved include denials, our region had median sale prices that are withdrawals, and closed as incomplete higher than the FHA limit and that data does applications. not include the 5 counties of New York City. 77 percent of single-family loan originations OFHEO, originations of single-family had an LTV higher than 90 percent.10 subprime mortgages reached a new peak for the third year in a row. A record $530 For homebuyers who do not qualify for billion of single-family subprime mortgages federal mortgage insurance, the availability were originated in 2004, an increase of 60 and decisions of private insurers may mean percent over the record level reached in the difference between buying and renting 2003. The surge in subprime lending in their home. In 2003, over 77,000 regional 2004 represented almost 19 percent of total mortgages received private mortgage mortgages originated that year, surpassing insurance, 9 percent higher than in 2000. the previous peak of 14 percent in 1999. Further research is needed to determine whether previous findings of bias and Although some fear that subprime lending discrimination in the private mortgage may lead to a rash of defaults and insurance market affects the functioning of foreclosures, a recent report finds that the the finance system in our region. A 1994 credit quality of subprime originations has study found that private mortgage insurers steadily increased in recent years, as lenders were less likely to insure mortgages for have focused more on the low-risk end of condominiums or with adjustable interest the spectrum. Approximately 81 percent of rates.11 If this finding holds true in our the subprime originations in 2003 were Alt metro area, it would be particularly A or A- loan risks.13 Previous research has troubling since more than 411,000 or almost shown that three-fourths of subprime loans 10 percent of the owner-occupied housing is in the New York City area were in multifamily structures, compared to less refinancings, which may explain why the than 3 percent nationally. The following risk profile of subprime loans has year, a Boston Federal Reserve report based improved.14 Nevertheless, some subprime on a small survey of Boston lenders found lending, particularly among low-income evidence that the racial composition of the and elderly homeowners, may be predatory neighborhood where the property was in nature. Predatory lenders often require located, not the race of the applicants borrowers to pay excessive mortgage fees, themselves, determined whether the private include abusive prepayment penalties, and insurers granted the PMI.12 insist on mandatory arbitration. Although very troubling, this does not appear to be Since 1990, the amount of home financing bulk of subprime lending activity in our available to individuals with tarnished or region. inadequate credit histories has grown significantly. According to the 2004 Mortgage Market and the Enterprises report by 10 Office of Federal Housing Enterprise Oversight, Mortgage Markets and the Enterprises in 2004, August 2005. 11 Glenn B. Canner, Wayne Passmore and Monisha Mittal, "Private Mortgage Insurance" Federal Reserve Bulletin (October 1994). 13 OFHEO, MME 2003 report. The 2004 report 12 Geoffrey M.B. Tootell, "Discrimination, did not provide updated figures. Redlining, and Private Mortgage Insurance" 14 HUD, "Unequal Burden in New York: Income Federal Reserve Bank of Boston, Working Paper and Racial Disparities in Subprime Lending" No. 95-10 (October 1995). May 2000. 78 The minimum payment option can lead to negative amortization although this is limited to 110 or 125 percent of the original loan amount. Borrowers who choose the minimum payment option risk significantly higher payments as interest rates rise and when the loan becomes fully amortizing. As the new mortgage products show, the private finance system continues to evolve as it attempts to meet the changing needs of prospective buyers and reacts to changing Even though the interest rates on fixed-rate financial conditions. Likewise, the mortgages have reached historic lows in government's role continues to be vital as it recent years, the private mortgage market ensures that all segments of society have has produced a broad array of mortgage access to capital and regulating the markets products to enable borrowers to buy homes to prevent or correct abuses. they could not otherwise afford either due to rising sales prices or due to limited Subsidizing Homeownership income. Adjustable-rate mortgages (ARMs) have become a standard consideration for For some families however, facilitating prospective homebuyers. In 2004, the ARM mortgage credit through the GSEs and FHA share of conventional single-family insurance is not enough to make originations was 34 percent, compared to 19 homeownership a reality for them. The percent in 2003, and 17 percent in 2002. federal government has provided interest The lower initial interest rates of ARMs save rate subsidies, reduced acquisition and money for households that expect to move rehabilitation costs, as well as before the interest rate readjusts and enable downpayment assistance grants to make other families to qualify for larger home homeownership possible for families with loans. However, the biggest concern with low incomes. These efforts have succeeded this type of loan is the potential for higher to varying degrees. For example, from 1968 monthly mortgage payments when interest through 1973, the Section 235 program rates increase. assisted almost 400,000 families to become homeowners. Partly as a result of poor Interest-only mortgages give the borrowers management under the FHA, by 1979 the option of paying only the monthly almost 18 percent of the Section 235 interest for a specified period, usually 5 or mortgages had been foreclosed compared to 10 years. After that, the payments would rates of 6 percent for standard FHA-insured increase as borrowers begin paying off the loans. Although the program was revived principal like a regular fixed-rate mortgage. in modified form and assisted another A newer, and many believe, riskier product 125,000 moderate-income families, it offering is the flexible payment ARM, or ultimately was eliminated in 1987.15 option ARM. With interest rates that adjust monthly and payments adjusting annually, borrowers have the option of making interest-only or a minimum payment that 15 Michael S. Carliner, "Development of Federal may be less than the interest-only payment. Homeownership 'Policy' " Housing Policy Debate 9:2 (1998) 79 In 1990, Congress created the HOME homeownership option to its Section 8 Investment Partnerships program, which families because the program imposes provides federal funds to state and local additional administrative costs without governments for affordable rental and providing an increase in federal funds. homeownership programs. Since the mid- Even among the handful of agencies that 1990s, this block grant program has have a Section 8 homeownership program, received an average appropriation of $1.7 many believe that in response to a reduction billion. Program regulations require in overall Section 8 funds, the ownership participating jurisdictions to match every option will become the first casualty. dollar of federal subsidy with 25 cents in local funds. The HOME-funded homebuyer The American Dream Downpayment programs require that assisted units remain Initiative, enacted in 2003 as a suballocation affordable for a minimum of 5 to 15 years, of the HOME program, allows localities to depending on the level of subsidy. In 2002, grant first-time homebuyers the greater of roughly one-third of HOME funds were $10,000 or 6 percent of the purchase price committed to homeownership activities for downpayment or closing assistance. such as downpayment or closing cost Although it is too early to assess, the assistance, development, acquisition and interim regulations were only published in rehabilitation, interest subsidy, loan March 2004, the generous subsidy amount guarantee, and lease/purchase assistance. as well as the broad eligibility for home Between 1990 and 2003, HOME funds options (1- to 4-family homes, helped approximately 250,000 families buy condominiums, and cooperative shares) a home of their own.16 may prove useful to the local agencies and the low-income families they serve. To More recent federal homeownership date, our region's housing agencies have initiatives have tended to be much smaller received $18 million in ADDI funding, in scale and rely on existing sources of including $11 million for New York City funding. The Section 8 Homeownership alone. So far, 338 families have become Program, authorized in the Quality homeowners with this latest DAP vehicle. Housing and Work Responsibility Act of 1998, allows public housing agencies to use State Homeownership Efforts their Section 8 voucher allocation to cover the gap between 30 percent of a family's The main sources of funding for state HFA income and their monthly mortgage. This homeownership programs are federal tax- option has been little used in our region, exempt bonds.17 The basic HFA with only 120 families achieving homeownership program relies on the sale homeownership through this program. of tax-exempt bonds to offer homebuyers Many PHAs in our region and throughout lower mortgage interest rates; usually 1 or 2 the country have chosen not to offer this percentage points lower than the prevailing market. Some have estimated that the 16Jennifer Turnham, Christopher Herbert, Sandra Nolden, and Judith Feins, Study of 17The calendar year 2006 tax-exempt private Homebuyer Activity through the HOME Investment activity bond cap is set at the greater of $80 per Partnerships Program. Prepared by Abt capita or $247 million per state. The states then Associates, Inc. for the U.S. Department of allocate their volume cap for various allowed Housing and Urban Development, Office of uses. For example, Connecticut dedicates Policy Development and Research, January almost 60 percent of their $281 million bond cap 2004. for single- and multiple-family housing. 80 actual subsidy provided is relatively result of reduced incomes, in 1987, shallow, with the typical homeowner Congress created an FHA-insured, reverse saving approximately $100 a month mortgage demonstration program to assist compared to a conventional mortgage 2,500 elderly homeowners. The Home loan.18 Although this may be true in low Equity Conversion Mortgage (HECM) interest rate environments, the flexible program allows homeowners age 62 or underwriting guidelines used by the HFAs older to access the equity on their homes as are still an important factor in facilitating monthly payments, lump sum, or as homeownership. unscheduled installments against a line of credit. The loan is repaid when the elderly HFA Financed Single-Family Mortgages, borrower no longer occupies the home. The 1998-2003 FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed equity when the property is sold. Although Loans Annual Average the program has been positively reviewed New York 10,569 1,762 and was made permanent in 1998, the New Jersey 7,697 1,283 program remains little known. According Connecticut 11,088 1,848 to an Abt Associates report, between 1987 Pike County, PA 123 21 and 1999, only 38,000 reverse mortgage NY Metro Area 29,477 4,913 loans were made nationwide. 19 Source: Housing Finance Agencies of Connecticut, With more than half of the region's housing New Jersey, New York, and Pennsylvania. stock built before 1960, the state HFAs have A growing trend among state HFAs has focused on offering a variety programs to been the creation of niche mortgage facilitate financing for the renovation of programs for particular occupations or existing homes. These programs serve to populations. In our region, New Jersey and stabilize neighborhoods while expanding Connecticut have taken the lead in such homeownership opportunities. These efforts. These niche programs often offer purchase/rehab programs build off the interest rates below the standard HFA federal 203(k) insurance program, which homeownership program. The additional combines the cost of renovation and the reduction is usually funded by agency purchase within one mortgage loan up to reserves or an outside source of support. the FHA loan maximum, requires a For example, special mortgages for police minimum amount of work, and requires a officers are popular with politicians and HUD-approved consultant to identify the state legislatures have been able to secure most urgently needed rehabilitation additional subsidy for them in the past. projects. Use of the 203(k) program did not expand until 1994, when HUD streamlined Homeownership programs targeted at the the program to make it easier to use for elderly are the most numerous type of niche both borrowers and lenders. As a result, the program. Recognizing the high housing number of 203(k) insured loans grew from costs among many elderly homeowners as a 19David T. Rodda, Christopher Herbert and 18Sylvia Martinez, "The Housing Act of 1949: Its Hin-Kin (Ken) Lam, "No Place Like Home: An Place in the Realization of the American Dream Evaluation of FHA's Home Equity Conversion of Homeownership" in Housing Policy Debate Mortgage Insurance Program" Prepared by Abt 11:2 (2000), pg. 473. Associates, Inc. for HUD. March 2000. 81 about 4,000 in 1994 to more than 18,000 in 1997.20 In the mid- to late-1990s, the Aside from the ownership programs that program gained attention for fraud and employ federal tax-exempt bonds to lower higher claim rates.21 Nevertheless, both the the interest rates for homeowners, some 203(k) insurance and purchase/rehab HFAs also offer locally-funded grant products offered by Fannie Mae have programs to assist homeownership in our facilitated the purchase of existing homes. region. New York has taken the lead in such efforts. The Affordable Home One standout homeownership program Ownership Development Program and the designed by the Pennsylvania HFA to NYS Housing Trust Fund offer $20,000 and prevent foreclosures is unparalleled in our $55,000 per unit subsidies for homebuyers region. In 1983, PHFA created a with incomes up to 80 percent of area Homeowners' Emergency Mortgage median. New York funds these programs Assistance Program (HEMAP) that offers through its Housing Trust Fund, which was owners loans to help bring delinquent created in 1985. Although traditional trust payments current. In addition to one-time funds are funded by a dedicated revenue assistance, families may be eligible for stream, New York's HTF relies on annual continuing monthly assistance up to 24 appropriations from the state legislature. months or a total of $60,000. Depending Since its creation in 1985, the HTF has upon their financial situation, homeowners generally received between $25 to $35 may be required to pay up to 40 percent of million annually. In real terms however, their income for total monthly housing the $39 million appropriated for the current expenses. HEMAP covers the difference fiscal year, represents 14 percent less than between the borrower's contribution and the funding in 1985. the lender's required payment, sending mortgage payments directly to the lender New Jersey has also committed state on the homeowner's behalf. In the last general funds to create a revolving loan decade, PHFA has made an average of 20 fund to promote the production of HEMAP loans per year in Pike County.22 homeownership housing by nonprofit, community-based organizations. Begun in 20 U.S. Government Accountability Office. 2003 with a $5 million appropriation, the Problems Persist With HUD's 203(k) Home Predevelopment Loan & Acquisition Non- Rehabilitation Mortgage Insurance Program. GAO- Profit Fund (PLAN) will work in 01-1124T (September 10, 2001). conjunction with the Market Oriented 21 New York City was particularly hard hit by Neighborhood Investment Program that fraud in its 203(k) properties in Brooklyn, the provides low-interest construction loans, Bronx, and Harlem. In some cases, appraisers grants, and below-market permanent loans. inflated their valuations of these properties, while borrowers and lenders colluded to obtain PLAN addresses the lack of 203(k) insured loans, repair funds were diverted predevelopment funding necessary to from their intended use and borrowers maintain an active pipeline of projects. ultimately defaulted on the loans. See testimony of John C. Weicher (Assistant Secretary for In addition to federal and state Housing-Federal Housing Commissioner at homeownership efforts, public-private HUD) before House Financial Services partnerships have also played a key role of Subcommittee on September 10, 2001. producing affordable homeownership 22 Electronic communications with Lori Toia, opportunities. The New York City Housing Manager of HEMAP Loans for the PHFA, Partnership is probably the best known of September 2004 and August 2005. 82 the affordable development intermediaries. mostly in Suffolk and a small number in The NYCHP was established in 1982 to Nassau. create affordable ownership opportunities in collaboration with city government. Subsidizing Rental Housing Their flagship New Homes program, begun in 1984, relies on a generous combination of Public housing, Section 8 tenant-based subsidies to reduce the cost of the homes. subsidies, as well as Section 202 and 811 In addition to providing the land, the city housing for the elderly and disabled, provides a $10,000 per unit grant and a 20- represent the majority of the federally- year partial real property tax exemption for subsidized rental stock in our region. These the homeowner. The subsidized ownership programs along with federal Low Income housing may also receive $15,000 from the Housing Tax Credits (LIHTC) have New York State Affordable Housing produced or otherwise facilitated more than Corporation to further reduce the 544,000 housing units, approximately 12 homeowner's mortgage debt. percent of all rentals in our region. Since the program's inception in 1984, the NYCHP has produced approximately Public housing, often maligned by policy 15,000 housing units, concentrated in makers and taken for granted by housing Brooklyn and the Bronx. During its peak advocates, forms the bedrock of low-income production years in the early to mid-1990s, housing, representing more than 6 percent the New Homes program built almost 1,300 of the metro area's rental stock. The federal per year. As the city's inventory of vacant government provides the majority of capital land has dwindled, the production has and operating funding for these agencies fallen to an average of 400 units in the last although this has declined by more than 12 five years. In addition to creating percent since 1990 when adjusted for homeowner opportunities, this program has inflation. Between fiscal years 2000 and resulted in the new construction of over 2005, public housing has lost $700 million in 5,000 rentals units. A 2001 study analyzed federal funding, a 26 percent decline. the program data through 1999 and found that 70 percent of the New Homes The stark change in the funding production had been two- and three-family environment has compelled public housing homes that included an owner's unit and authorities to seek new ways of covering one or two rentals. their costs. In 2001, the Chicago Housing Authority became the first to securitize The Housing Partnership's program quickly future subsidies to address current capital became a model for other cities and needs. In this fashion, the PHAs have not organizations. One such example is the only raised much needed repair funds but Long Island Housing Partnership, formed have also locked HUD into providing in 1988. The LIHP provides mortgage sufficient subsidy to cover the bonds. counseling, develops housing, and Others cities around the country have facilitates financing for affordable followed suit; New York City joined the ownership and rental units in Nassau and trend in February 2005. The city's Housing Suffolk counties. According to the most Development Corporation issued $600 recent available data, LIHP has developed million in bonds on behalf of the city's almost 800 ownership and 150 rental units public housing agency. In addition to these bond transactions, some PHAs have 83 84 Federally-Assisted Rental Housing by County Assisted Assisted Units Units (% of (% of Total Assisted Public Section 8 Section LIHTC Rentals) Housing) Units Housing Vouchers 202/811 Allocations Bergen, NJ 7.6% 2.5% 9,422 2,261 5,555 864 742 Dutchess, NY 6.4% 2.0% 2,436 604 1,012 355 465 Essex, NJ 14.8% 8.0% 26,069 9,766 7,797 1,840 6,666 Fairfield, CT 13.9% 4.2% 15,373 5,456 5,982 983 2,952 Hudson, NJ 10.4% 7.2% 18,354 8,971 5,013 1,142 3,228 Hunterdon, NJ 9.9% 1.6% 751 0 377 14 360 Litchfield, CT 6.1% 1.4% 1,290 379 507 147 257 Mercer, NJ 12.1% 4.0% 6,130 2,270 222 817 2,821 Middlesex, NJ 10.1% 3.3% 9,716 2,328 3,834 573 2,981 Monmouth, NJ 12.9% 3.2% 8,563 2,062 3,676 860 1,965 Morris, NJ 8.4% 2.0% 3,722 1,039 1,415 218 1,050 Nassau, NY 8.0% 1.6% 7,775 3,881 2,426 551 917 New Haven, CT 16.0% 5.9% 21,235 5,652 10,137 1,142 4,304 NYC 15.5% 10.6% 355,512 180,851 116,183 16,996 41,482 Ocean, NJ 10.3% 1.6% 4,114 725 1,996 174 1,219 Orange, NY 7.9% 2.5% 3,387 270 1,124 276 1,717 Passaic, NJ 12.0% 5.3% 10,002 2,505 4,786 974 1,737 Pike, PA 1.3% 0.1% 36 0 0 0 36 Putnam, NY 2.0% 0.3% 147 0 0 29 118 Rockland, NY 11.5% 3.3% 3,717 346 2,400 605 366 Somerset, NJ 3.4% 0.8% 1,155 100 394 283 378 Suffolk, NY 6.5% 1.2% 7,722 484 4,781 1,312 1,145 Sullivan, NY 11.4% 2.6% 1,241 138 653 92 358 Sussex, NJ 1.3% 0.2% 124 80 0 4 40 Ulster, NY 5.1% 1.5% 1,213 226 561 56 370 Union, NJ 11.3% 4.4% 8,917 2,762 3,431 496 2,228 Warren, NJ 13.7% 3.7% 1,739 580 876 205 78 Westchester, NY 9.7% 3.8% 14,340 4,950 7,146 938 1,306 NY Metro Area 14.3% 6.5% 544,202 238,686 192,284 31,946 81,286 Sources: Public Housing and Section 8 voucher data from HUD PHA Profiles; LIHTC data from CT HFA (through 2005), NY DHCR (through 2005), NYC HPD 2005 QAP, NJMHFA (through 2004); Section 202/811 from HUD; and 2000 Census; compiled by CHPC. 85 decided to unpeg their rents from the Tax-Exempt Multifamily Financing tenant's income with the goal that rental revenues cover the cost of operating them. Tax-exempt bonds are issued by the states and their suballocating agencies to assist The other segment of the rental housing single-family homeownership, multifamily stock that is significantly subsidized by the rentals, infrastructure, and other activities. federal government is even more vulnerable Currently, the federal government and subject to changing budget priorities. authorizes each state to issue up to $80 per Tenant-based Section 8 vouchers and Low capita in bonds and the states decide for Income Housing Tax Credits units comprise themselves how to allocate their bond cap another seven percent of the rental stock in among the allowable uses. To receive bond the region. These developments are subject financing, multifamily rental housing to annual appropriations and expiring developers must agree to reserve 20 percent affordability requirements. As a result, of the apartments for families with incomes policymakers as well as advocates have below 50 percent of area median or 40 focused on new production of rental percent of the units for families below 60 housing to replace the dwindling affordable percent AMI for a period of 20 years or the stock. life of the bonds, whichever is greater. To date, tax-exempt bonds have financed In addition to direct spending through 800,000 rental units nationwide. HUD programs, which totaled over $43 billion in 2005, the federal government Since the majority of developers choose the leverages private sector investment in low- first set-aside option, tax-exempt bond income housing through tax-exempt bonds developments are commonly referred to as and LIHTCs, adding another $5 billion in 80/20 housing. In addition to the favorable foregone federal tax revenues. Despite the financing these projects receive, the market- sizeable subsidies, housing developers must rate units are essential to the financial often cobble together various sources of viability of the development and often funding to make the housing affordable to cross-subsidize the affordable housing. low- and moderate-income families. This This explains why 80/20 projects tend to be sort of "creative finance," although located in upscale neighborhoods where necessary, makes it more challenging to market rate rents are sufficiently high to produce low-income housing.1 Each source help offset the foregone rents on the of federal subsidy comes with a complex set affordable units. In New York City, for of regulations that significantly limit the example, few 80/20s have been developed range of state and local flexibility. The outside of Manhattan. piggybacking of subsidies also makes it difficult to inventory the actual number of New York State's HFA and its related assisted housing as the same unit is counted agencies administer seven multifamily in the production data of each separate rental programs, all of which depend on program. federal subsidies of one type or another. The All Affordable, HOPES, and Senior Housing Financing programs employ combinations of tax-exempt and taxable 1Michael A. Stegman, "The Excessive Costs of bonds as well as LIHTCs to achieve 100 Creative Finance: Growing Inefficiencies in the percent affordable units. In some cases, the Production of Low-Income Housing" Housing NYS HFA also funds the gap that remains Policy Debate 2:2 (1991). 86 for a LIHTC-funded project after the sale of PennHOMES, offers interest-free, deferred tax credits and the maximum available payment loans to support the development mortgage loan based on the expected rental of affordable rental housing for low-income revenue from the assisted units. The NYS residents. The financing is structured as HFA uses a variety of resources to provide primary or secondary mortgage loans. The gap financing, it can provide per unit grants PennHOMES program combines LIHTC using federal HOME funds or it can provide allocations with additional resources from no- or low-interest loans using HFA monies the unrestricted reserves of the PHFA and raised by the refunding of agency bonds. the federal HOME program. New Jersey's HMFA stands out in its LIHTCs and Local Priorities variety of supportive and special needs programs. The agency provides loans for Since its inception in 1986, the Low Income transitional housing for homeless, AIDS- Housing Tax Credit (LIHTC) program has impacted individuals, and for youth aging helped finance almost 1.8 million low- out of foster care. The agency also offers income housing units. Shortly after its gap financing for supportive and special creation, federal law amended the program, needs projects receiving loans and grants requiring states to establish a Qualified from HUD. These efforts will continue to Allocation Plan (QAP) to evaluate and expand now that New Jersey has select projects for tax credit awards. While established a Special Needs Housing Trust these plans must be compatible with broad Fund. federal criteria,3 the QAP must be revised annually to reflect changing housing needs The Connecticut HFA's Rental Housing and state-level or administering-agency Program couples its share of federal priorities. This built-in adaptability is one resources with agency's own discretionary of its great programmatic and political financing to require developers to set aside strengths. a higher share of the units as affordable. Generally, no units in the subsidized Housing agencies typically employ two developments may be rented to households broad mechanisms to direct the allocation of earning above 150 percent AMI and units their tax credits: set asides and preferences. must remain at affordable rent levels for 30 Set asides are credit allocations that are years beyond the term of the CHFA reserved each year for specific uses. While mortgage. Of the 10,500 affordable rentals federal law requires a 10 percent set aside in the CHFA portfolio,2 over 70 percent for projects sponsored by non-profit relied on federal tax credit allocations. The organizations, states often specify remainder also used federal housing additional set-aside categories such as resources, especially project-based Section 8 senior or family developments. In general, contracts and tax-exempt bond financing. however, credit allocation agencies rely on preferences more than on strict set asides to The Pennsylvania HFA's primary guide tax credit development. multifamily production program, 3 According to the Revenue Reconciliation Act of 1989, the QAP must take into account project 2Connecticut Housing Finance Authority, location, housing needs characteristics, sponsor Multifamily Housing Units by County, July 2003, characteristics, participation of local non-profit updated with data from LIHTC allocations and organizations, tenant populations with special Annual Reports. housing needs, and public housing waiting lists. 87 recent study found that, while almost 42 Preferences consist of housing priorities that percent of tax credit units were built in are awarded extra points when scoring a suburban areas, compared to 24 percent of credit application. Nationally, the most other types of federally-assisted housing, common preferences are designed to LIHTC projects continue to be sited in encourage developments that leverage disproportionately black neighborhoods.8 funding from other government programs New York or that serve special needs populations. Federal law now requires 30-year The Division of Housing and Community affordability although many states have Renewal (DHCR) is the primary tax credit adopted longer lock-in periods as part of allocating agency for New York State. their allocation plans.4 While QAPs DHCR has three suballocation agencies: the typically do not specify the length of the NYS HFA; the New York City Department affordability period sought, researchers of Housing Preservation and Development believe that the average lock-in period (HPD); and the Development Authority of nationwide is approximately 42 years.5 The the North Country.9 DHCR and the NYS most common geographic preference was HFA allocate tax credits to projects mandated in 2000 by federal law to favor throughout the state while HPD serves the projects sited in HUD-designated qualified five boroughs of New York City. census tracts (QCTs).6 DHCR's QAP does not contain set-aside Although tax credits are increasingly sought requirements. Instead, it gives scoring after by investors and the program is the preferences to projects that serve very low primary federal housing production income families, that use public housing program, recent research has questioned waiting lists or give preference to special whether the program is functioning as well needs population for tenant selection, and as it might. Although the National that agree to an extended regulatory period Affordable Housing Act of 1990 requires by waiving its right to request a Qualified that the housing needs stated in the state's Contract.10 Consolidated Plan govern the allocation of federal funds, a 2002 Urban Institute study Department of Housing and Urban commissioned by HUD found no Development, May 2002. 8 Lance Freeman, "Siting Affordable Housing: correlation between statewide indicators of housing needs and the local QAP.7 Another Location and Neighborhood Trends of Low Income Housing Tax Credit Developments in the 1990s," The Brookings Institution, Center on 4 New Jersey typically requires 45-year income Urban and Metropolitan Policy, March 2004. and rent restrictions. 9 The Development Authority of the North 5 E&Y Kenneth Leventhal Real Estate Group, Country facilitates affordable housing in the The Low-Income Housing Tax Credit: The First counties of Jefferson, Lewis, and St. Lawrence in Decade. Prepared for the National Council of New York. State Housing Agencies, May 1997. 10 Projects receiving a tax credit allocation after 6 Defined as areas in which 50 percent of the 1989 agree to maintain the percentage of low- households are below 60 percent of area median income tenants for at least 15 years beyond the income. LIHTC compliance period, this is commonly 7 Jeremy Gustafson and J. Christopher Walker, referred to as the "extended use period"[IRC § Analysis of State Qualified Allocation Plans for the 42(h)(6)]. However, in the last year of the Low-Income Housing Tax Credit Program. compliance period or subsequently, the taxpayer Prepared by the Urban Institute for the U.S. may enter into a qualified contract with the 88 In addition to these preferences, DHCR has Like DHCR, HPD's QAP does not contain allowed itself a parallel allocation method. set-aside requirements. It does include a Regardless of the applicant's point ranking, wide array of preferences for tax credit DHCR can allocate tax credits "in a manner projects that target special needs which yields an equitable distribution of populations (homeless, mentally ill, credit, based on population, throughout the disabled, HIV, victims of domestic state." If employed, this method could violence), use other forms of government potentially work against New York City's financing, agree to extended low-income affordable housing efforts since the 5 use agreements, and are located in target boroughs have only 42 percent of the state's areas (SONYMA target area, in-rem population but 62 percent of the individuals acquisition, or high-poverty living below the federal poverty line. neighborhoods). By 2005, LIHTCs allocated DHCR can also deny a credit allocation though HPD helped create or preserve more request irrespective of the applicant's point than 25,200 housing units. ranking if the DHCR Commissioner deems the project inconsistent with the state's New Jersey housing goals. The New Jersey Housing Mortgage Finance It is unclear if DHCR has bypassed the Agency (NJHMFA) administers the state's competitive credit allocation process in the LIHTC allocations. Each year the agency past but the data do not suggest that has holds four funding cycles with set aside occurred frequently. By 2004, DHCR tax allocations. The 2005 QAP reserved $5 credit allocations have helped create million for the Family Cycle, $2.4 million for approximately 23,000 units in the New York Seniors, $1.2 for Special Needs, and $1.8 counties within our metro area, including million for the catchall Final Cycle. To over 16,000 apartments in New York City. prevent the concentration of LIHTC developments in one area, the QAP limits The NYS HFA typically reserves its tax the LIHTC allocations to two per funding credits for projects that receive financing cycle or three annually for projects located from the agency. Both applications for in the same municipality or sponsored by private activity bonds and LIHTC requests the same developer. are received and processed on a rolling basis. In addition to federal threshold Within each cycle, NJHMFA has created requirements, the NYS HFA has preferences preferences for projects that a serve a very for tax credit projects that serve very low low income population, utilize HOPE VI income populations, special needs groups funding, create housing for such as homeless or elderly, and that waive developmentally disabled persons, and their right to request a Qualified Contract. preserve the existing stock. The agency also strongly favors projects that help fulfill credit-allocating agency. The agency has one New Jersey's court-ordered "fair share" year in which to find a buyer for the taxpayer's distribution of affordable housing among interest in the project and continue to operate communities. By the end of 2004, the building as a qualified low-income property. approximately 25,500 tax credit units had If no buyer is found, the extended use period been placed in service in the 14 New Jersey ends the day after the expiration of the qualified counties within the NYC metropolitan contract. See Novogradac & Company's LIHTC region. Monthly Report, Volume XV, Issue V (May 2004). 89 Pennsylvania. It was a 36-unit elderly Connecticut housing development built in 1996. The Connecticut HFA's QAP establishes State & Local Funds for Rental Housing three allocation priority classes: Class I is for developments in Urban Regional Long waiting lists for public housing and Centers, that serve the homeless, or that Section 8 vouchers are only one indication meet the federal 40-60 test; Class II is for of the excess demand for low-cost housing. developments in Urban Neighborhood Recognizing the continued unmet needs, Conservations areas, Urban Growth Areas, states and localities have sought new or Rural Community Centers in specific sources of funds. These efforts have been towns; and Class III covers all other relatively modest given competing remaining applications. Each tax credit priorities in state and city budgets. request is evaluated, rated, and ranked Moreover, the additional sources have been within its Class with preferences given to generally used to add another layer of projects that target households below 25 subsidy for projects that already receive percent AMI, use public housing waiting federal housing funds. lists for tenant selection, utilize other federal funding, target large families, and are The State of New York created a Housing sponsored by women/minority-owned or Trust Fund in 1985 and a state tax credit Connecticut-based organizations. By 2005, program in 2000 to further advance the CHFA's credit allocation process had production and preservation of affordable created or preserved approximately 7,400 housing. The HTF provides funding for the units of housing in Fairfield, Litchfield, and construction, rehabilitation, and conversion New Haven counties. of property for occupancy by low-income renters, tenant-cooperators, and Pennsylvania condominium owners. It is currently funded by a $39 million appropriation. The Pennsylvania HFA is the sole Commonwealth agency responsible for the New York's State Low-Income Housing Tax administration of the LIHTC program. Credit (SLIHC) is patterned after the federal PHFA allocates 75 percent of its tax credits LIHTC program, except that it requires 40 through regional set asides, 20 percent to percent of the units to be affordable to preservation projects, and 5 percent to households earning up to 90 percent AMI.11 developments that have previously been Like the federal credit, the SLIHC offers a awarded credits. It holds two application dollar-for-dollar reduction in state tax cycles and gives preferences to projects that liability to the project owners. Housing reserve half of the units for households produced under the program must remain below 50 percent AMI, that serve special affordable for a period of 15 years or more. needs populations and provide supportive Since its inception, the state tax credit has services, and that waive their right to received $2 million in annual request a Qualified Contract or offer appropriations. homeownership to qualified residents after the initial 15-year compliance period. To date, the PHFA has allocated LIHTCs to only one development in Pike County, 11For New York City projects, the maximum household income is 80% AMI. 90 In addition to state efforts to increase the percent of the units for low-income families, production of affordable housing, New uses NewHOP subsidies for 30 percent of York City's housing agencies, particularly the units while the other half of the units the Housing Development Corporation rent at market rate. Begun in 2002, the first (HDC), have expanded the resources for 50-30-20 building was completed in 2004 assisted housing. Very similar in structure with 231 residential units. Other 50-30-20 to a state HFA, the city's housing finance developments with 500 housing units are corporation issues tax-exempt and taxable under construction. bonds,12 while using its sizeable reserves to offer housing opportunities beyond those In 1985, New Jersey raised its realty transfer available with federal subsidy. tax to serve as a dedicated revenue stream to fund the implementation of the Fair HDC's creation of the New Housing Housing Act of the same year. The Opportunities Program (NewHOP) in the Neighborhood Preservation Balanced late 1990s was welcomed by housing Housing program provides grants and advocates as an important step toward loans to municipalities seeking to fulfill stabilizing and renewing New York's their fair share obligations under the state's neighborhoods. NewHOP provides Fair Housing Act. Among the eligible uses families with incomes up to 175 percent of the funds are: rehabilitation of AMI with the opportunity to find modern substandard housing units; creation of housing that is within their financial reach. accessory apartments; conversion of The NewHOP program offers developers a nonresidential space to residential first mortgage financed with the proceeds of purposes; construction of new housing; and the sale of taxable bonds. HDC reserve providing assistance to local housing funds provide up to $45,000 per unit to authorities, nonprofit organizations or reduce the interest rate on the second limited dividend housing corporations. mortgage to one percent. In many instances, the city also donated the land on In addition to its low-income housing which the NewHOP developments were efforts, New Jersey has also focused in built. Since its implementation in 1998, the recent years on financing market-rate NewHOP program has financed housing in poor urban areas of the state. In approximately 5,000 units of middle-income response to former Governor McGreevey's housing.13 housing plan that focused on urban redevelopment, the NJHMFA created HDC's newest multifamily financing various rental programs that emphasize vehicle, the 50-30-20 Mixed Income market-rate and mixed-use housing. The At program, combines LIHTCs to produce 20 Home Downtown program assists the construction or rehabilitation of 1- to 4-unit 12 In 2004, the NYC HDC became the number 1 buildings with commercial space on the issuer of multifamily bonds in the nation ahead ground floor. The City Living new of the NYS HFA ranked 2nd and the 8th ranked construction program, supported with $15 NJHMFA. SDC & Bear Stearns Ranking of million of agency administrative funds, Multifamily Bond Issues finances market-rate developments with 50 http://www.nychdc.com/pdf/about/rankings. or more residential units. pdf. 13 NYC Independent Budget Office, A Closer In addition to allocating federal housing Look at the New Housing Opportunity Program, resources, Connecticut's housing finance Background Paper (July 2004). 91 agency administers the state's Housing Tax Housing Finance Strategies for Credit Contribution (HTCC) and Employer Balanced Housing Assisted Housing Tax Credit (EAHTC) programs. The HTCC is a nonprofit The housing finance challenges facing our multifamily rental program that allows region will require continued federal nonprofit developers and managers to subsidies to support the preservation and apply to CHFA for an allocation of up to creation of housing affordable to our lowest $400,000 in state tax credits. Investors income residents. Increasing federal receive a dollar-for-dollar reduction in their support for housing is a commonly stated state tax liability in exchange for their goal that has been neither consistently nor financial support of the affordable housing aggressively pursued by state and local program. CHFA allocates $5 million in representatives. A higher level of HTCC credits annually, which produced coordination is needed to press for the 439 affordable units in 2003. housing concerns of our region. Begun in 1994, the EAHTC program allows In addition to increasing federal, state and participating employers to set up a local housing resources, the private sector revolving loan fund from which eligible must be further induced to invest in employees can borrow to purchase a home housing for families at a broader range of or rent housing within Connecticut. The incomes. This could be accomplished by company's contribution into the fund earns the judicious use of new subsidy sources a dollar-for-dollar reduction in tax liability and through tax expenditure policies. for their investments. The tax credits are applied to business taxes incurred in the 1. Coordinate State and Local Advocacy for income year the investment is made. After Housing Subsidies. a minimum five-year period, the unused Recognizing that the federal government remainder of the initial capital investment is provides the majority of housing subsidies, returned to the firm. A company that does the region's government representatives, not loan at least 60 percent of the fund's business and real estate groups, as well as capital within three years is subject to community development and housing recapture of some or all of its credits. advocates need to coalesce around certain key issues—public housing, Section 8 rental Although this program has the potential to assistance, and the Community ease employees' housing needs, there has Development Block Grant programs—to been little demand on the part of businesses present a unified front. for these tax credits because many companies are now exempt from the Any reduction in federal subsidy programs Connecticut business tax, some small firms will affect the most vulnerable families in are discouraged by the administrative our region. To prevent this from requirements of the program, and the happening, state and local housing agencies recapture provision put in place in 1998 in our region could better coordinate their cooled the interest of even experienced response and efforts in Washington, DC. A participants. small public housing agency in Litchfield County may seem like a world apart from the New York City Housing Authority with its 500,000 residents, and yet they all rely on the same sources of funding. One possible 92 strategy is to establish a coordinating group by the traditional federal subsidies such as that would create a housing database tax-exempt bonds and LIHTCs. As related to Congressional districts. In such a discussed earlier, New York City's Housing way, regional representatives in Development Corporation has developed Washington DC would better understand several middle-income housing programs the budget impact in their areas. A better that could serve as models. coordinated policy analysis and advocacy campaign is sorely needed to resist Connecticut is now in an excellent position proposed budget cutbacks and detrimental to break the 80/20 mold with its new program changes. dedicated source of funding. On July 2005, Connecticut Governor Jodi Rell approved 2. Create State and Local Housing $100 million in general obligation bonds to Resources to Fund Housing for Moderate- fund a Housing Trust Fund for Economic and Middle-Income Families. Growth and Opportunity for 5 years. More A new source of revenue, independent of importantly, the new law also created an federal subsidies and limitations, would additional $30 document recording fee that allow HFAs and localities to take a lead role will support a multi-purpose fund. With $4 in creating truly sustainable mixed-income remaining at the local level, the rest of the housing that blends public and private document fee will be evenly divided among investments to serve families at a broader four established purposes: farmland range of incomes. Federal subsidies have preservation, open space, historic income targets of 80 percent AMI or below. preservation, and affordable housing. It is Only a few programs in the region address estimated that CHFA will receive $6 million the large income gap between the assisted annually to fund existing or new housing and market-rate housing. programs. In strong market areas such as Manhattan, 3. Promote Tax Credits for Employer- these federal subsidies are used to produce Assisted Housing Opportunities. 20 percent of the units for families with Employer-assisted housing programs incomes in the bottom quintile while the benefit all parties involved. Companies other 80 percent of the housing is market benefit by building employee loyalty and rate (80/20 projects). In weaker real estate reducing turnover. Employees gain access environments, government agencies often to homeownership education as well as couple various subsidies in order to achieve downpayment or rental assistance while larger affordable set asides or even to reducing their commuting time. The ensure 100 percent low-income housing. community as a whole benefits from a more stable population, higher real estate tax In both cases, the 80/20 and the all- revenues, and decreased traffic congestion. affordable models exclude moderate- and middle-income families whose incomes States can take the lead in encouraging exceed the limits for the low-income units employer-assisted housing opportunities. and yet, are not high enough to compete for Like Connecticut's Employer-Assisted the market-rate units. As a result, these Housing Tax Credit program, states can families often cannot afford the modern, provide local businesses that offer their multifamily housing being created in our employees downpayment or rental region. Local sources of housing funds assistance a reduction in tax liability. To should be devoted to fill the large gap left lessen the problems experienced by the 93 Connecticut program, future initiatives in broader GSE reforms and the latest our region might benefit by borrowing incarnation is part of the Hurricane Katrina features from other established programs. recovery legislation introduced in February 2006. One such example is the Illinois Housing Tax Credit, which was begun in 2002 as a However, if the proposal regains five-year initiative to encourage private momentum in the current legislative corporations to invest in affordable housing session, it might be more effective to and which was recently extended for structure it specifically for acquisition another five years. The Act provides a 50- purposes for permanent affordability of cent tax credit for every dollar invested in rental housing. Increasingly, privately- homeownership or rental assistance. The owned assisted projects are reaching the tax credit can be carried forward for up to end of their mandated affordability periods. five years and can be transferred under Given the strong demand for housing and some circumstances. Moreover, the Illinois rising market rents in some areas of our Housing Development Authority matches region, some owners are choosing not to the employer's contribution up to $5,000 per renew their assisted contracts or are eligible household. The Chicago prepaying their government-insured Metropolitan Planning Council's Regional mortgages. Employer Assisted Collaboration for Housing has publicized the state tax credit. HUD's Mark-Up-To-Market program and The MPC has also helped companies design other local efforts have delayed the flow of their employer-assistance housing program opt-outs and buy-outs by increasing the and have matched employers with local financial incentives for the owner in housing counseling organizations. exchange for an additional period of regulation. However, these efforts only A program similar to Illinois' is currently delay the conversion to market-rate housing under consideration in both chambers of the since these developments will once again U.S. Congress. Senator Hillary Clinton and reach their maturity date and the owners Congresswoman Nydia Velazquez of New may wish to exercise their legal right to York sponsored the bills although, to date, leave the subsidy program. they have garnered few other cosponsors from our regional delegation. Lack of funding has prevented the adoption of a permanent preservation strategy. A 4. Create Acquisition Funds to Preserve national or regional acquisition fund could Existing Low-Rent Housing. allow for some of the expiring affordable A bill proposing the creation of a national developments to be purchased by local housing trust fund has been introduced in housing agencies or nonprofit organizations the last three sessions of the U.S. Congress to ensure permanent affordability. The but has yet to be adopted. The various acquisition fund might also provide the proposals would set aside a percentage of new owners with technical assistance as the after-tax profits of the GSEs for the new needed. Such capacity-building efforts construction or rehabilitation of rental and would increase the likelihood that the ownership housing for low- and extremely properties are operated in a way that low-income households. While the first ensures their long–term physical and attempt was a stand-alone bill, other trust financial viability. fund efforts have been incorporated into 94 5. Create and Expand Subsidy Grant Low-income homeowners may already be Programs for Low-Income Housing. stretched financially by the monthly As has been discussed previously, the mortgage and tax payments, leaving some equity raised through the sale of tax credits, of them unable to afford maintenance and the low-interest financing provided by repairs. For these owners, any decrease in federal tax-exempt bonds, and state HFA income due to divorce, job loss, or illness programs are often not enough to could significantly jeopardize or potentially sufficiently lower rents for very low income terminate their ownership. More households. In the past, Section 8 vouchers homeowner programs are needed to have been utilized to afford the address repair needs and to provide a safety development to carry a larger mortgage net for owners who experience income loan. However, this option is increasingly declines. unavailable as Congress has barely maintained its funding for existing Section 8 A few such models currently exist in our vouchers. region although they can be expanded and replicated throughout our metropolitan In the years ahead, state and local subsidies area. New York City's Home Improvement for low-income housing developments must Program, which is funded with city general be offered as grants rather than as revenues, provides up to $20,000 as a low- additional low-interest loans. The New interest repair loan for small homeowners. York HFA already operates several The flexibility of the Pennsylvania HEMAP programs that offer per unit grant subsidies program, discussed previously, allows for a funded through the state's Housing Trust variety of ways to help homeowners avoid Fund. New York City's HDC also foreclosure. They can receive up to 2 years structures some of its subsidies as grants of mortgage assistance and caps their that lower the development costs for housing costs at 40 percent of income. multifamily housing. These programs should be expanded and replicated in other parts of the region in order to meet the needs of our region's growing low-income population. 6. 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