Reimagining Public Housing
Reimagining Public Housing
Montgomery County, MD leads the way in building publicly-owned, mixed-income housing
There’s a growing gap across the country between the affordable units that existing housing policies produce and what communities need. Just outside of Washington, DC, suburban Montgomery County has come up with an innovative way to fill a piece of that gap.
The county has long been on the forefront of housing policy, passing what became the nation’s first inclusionary zoning ordinance in 1974. Now, over 700 communities have such laws that require market-rate developments to include a share of units that are “below market-rate,” producing units affordable to lower- or moderate-income households. But these rules alone can’t meet the need.1
The Low-Income Housing Tax Credit (LIHTC) program helps. Funded by the federal government and administered by state agencies, the LIHTC program is the largest subsidy available for building low-income affordable housing.2 But the tax credits are limited and are understandably used mostly to construct housing for very low-income families and still can’t produce all the units this group needs. So, the housing affordability gap remains.
Montgomery County responded to this problem by issuing $100 million in bonds to create the Housing Production Fund, managed by the county’s Housing Opportunity Commission (HOC)—a joint public housing and housing finance agency. The HOC uses the fund to invest in private developments in return for more below market-rate units and a broader range of affordability than inclusionary zoning and LIHTC can produce. These projects don’t use any other public subsidies, thus preserving tax credits and other affordable housing resources to finance additional projects.
Developers usually rely on private investment to finance construction and the double-digit rates of return that investors demand drive up rents. In contrast, the HOC’s required five percent rate of return means that the projects can offer units with lower rents and still be profitable overall. The agency can offer a lower rate of return because its aim is not to make a profit, but to sustain its fund to continue to finance more developments and create more affordable units.
When interest rates soared recently, housing construction stalled. Building and interest costs haven’t been supported by the rents projects could collect. But, with the HOC’s low rates, several developments in Montgomery County won’t meet that fate. They are proceeding and will provide far more below market-rate units than would have been possible without HOC involvement. The first project financed this way, the Laureate, recently opened with 268 units, 30 percent of which are affordable. Two other projects, each with over 400 units, are in the pipeline.
Projects supported by the HOC’s Housing Production Fund must provide at least 20 percent of their units for low-income households making up to 50 percent of area median income (AMI) and 10 percent for middle-income households earning up to 70 percent AMI. In many regions, a family that earns 70 percent of the area’s median is not middle-income, but Montgomery County has some of the country’s highest earners, so many families headed by teachers, medical technicians, or government employees would qualify for one of these set-aside units.
The county’s inclusionary ordinance mandates only a 15 percent set-aside of units for middle-income households earning up to 70 percent AMI, half as many affordable units as the Housing Production Fund can achieve. Although the LIHTC program can support developments affordable to households earning up to 80 percent AMI, almost half of LIHTC tenants nationwide are very-low income, making less than 30 percent AMI. The Fund, then, creates more units with deeper affordability and meets needs that other programs cannot.
In Just Action, we describe the importance of truly mixed-income housing—developments with units affordable to lower-, middle-, and upper-income families. While the HOC achieves that goal better than other affordable housing programs, it could go even further by requiring a larger percentage of middle-income units. We also stress the importance of mixed-race developments and note that without race-specific preferences, the HOC may not achieve racial integration in its projects. But, with African American and Hispanic renters’ lower average incomes than whites, localities are unlikely to create racially de-segregated communities without providing housing for a range of affordability levels. The HOC’s strategy is a step towards achieving that goal.
The Laureate, with high-end amenities like a pool, gym, clubhouse, and pet-washing room, likely isn’t what most people picture when they hear ‘public housing.’ But it is. The HOC, a public agency, has a 70 percent stake in the development and is the controlling partner. This expansive understanding of what public investments can achieve is necessary if we are to address the overlapping issues of housing unaffordability and residential segregation. The county’s $100 million fund won’t alone solve its housing problems, but it is part of the solution.
Montgomery County established the Housing Production Fund internally, without going through political channels. Last year, the City of Atlanta followed suit, starting a nonprofit tasked with using publicly-owned land and city bond proceeds to build housing developments in which one-third of units are affordable to middle- and lower-income tenants. In other states, local organizing efforts have been pushing for similar programs through legislation, often adopting the term ‘social housing’ to avoid the negative associations many have with public housing.
In Rhode Island, the grassroots group ReclaimRI has led a campaign to support statewide legislation for building publicly-funded, mixed-income housing. While a proposed bill to create a Rhode Island housing production loan fund like Montgomery County’s died in committee in 2023, the state did pass a $10 million pilot program to construct mixed-income public housing. Other states, like Colorado, California, Massachusetts, and Hawaii, have also introduced or passed social housing legislation. Boston’s mayor recently pledged to create publicly-owned mixed income housing. In these localities and others, local organizing and advocacy will be necessary to implement such initiatives. Montgomery County’s success can help fuel these efforts.
For a more detailed explanation of “inclusionary zoning” and examples of jurisdictions that require it, see Just Action (pp 100-103 and 180-182).
Just Action (pp. 183-85) explains in greater detail how LIHTC financing works and how local residents can prevent it from exacerbating segregation in their own communities