By Adam Pagnucco.
In Part Four, we learned that a consistent, longitudinal time series on affordable housing produced and preserved by the county’s Housing Initiative Fund (HIF) appears to not be published. That’s a problem because the HIF is getting a lot more money nowadays so we need to know how it’s used. What else can we learn from how the county administers the HIF?
The county needs better measurements of the HIF’s actual performance.
This was a major finding of Part Four and needs to be repeated. The county must define preservation and construction and it must release annual measures going back at least a decade. If taxpayers are going to spend more money on affordable housing, we need to be sure that we are actually GETTING more affordable housing.
The county’s housing activities are small compared to the total housing market.
Let’s consider two statistics.
First, the U.S. Census Bureau’s American Community Survey estimated that MoCo had 405,755 total housing units in 2021. Of these, 255,211 were owner-occupied, 133,185 were renter-occupied and 17,359 were vacant.
Second, back in 2019, the Metropolitan Washington Council of Governments (COG) calculated that the region would need to add 320,000 more housing units to the region with MoCo’s proportionate share set at 41,000. The county council passed a resolution supporting COG’s goal but County Executive Marc Elrich blasted it.
These two measures make the point that the county needs to operate on a scale of building tens of thousands of units from all sources, be they government, non-profits or for-profit developers. The scanty and problematic performance measures revealed in Part Four show that the county government’s activities are on the scale of single-digit thousands of units. That’s not enough to meet demand for housing alone and cannot affect the economics of the broader market.
We need private sector developers to meet our housing challenges.
The county received positive press in January for its new affordable housing project on Randolph Road. The project, which will add 195 “deeply affordable” units, involves two non-profit developers and depended on a $24 million HIF loan as part of its $86 million cost. Let’s recognize that the economics of projects can differ greatly. In this case, the county spent $123,000 per “deeply affordable” unit. At that rate, the HIF’s current $371 million fund balance could pay for roughly 3,000 units. That is FAR, FAR less than demand.
Speaking of that fund balance, I asked my source network about why the county has it and why it has been growing. Several sources criticized the Elrich administration for “sitting on the money” and being picky about projects for investment. Well, guess what? Elrich should be careful with public money and private developers can be slow and picky too. But a healthy large housing market has dozens – even hundreds – of developers in the mix, so even if some of them are slow, enough of them have projects going that housing supply can still grow. All of this illustrates that the county can’t go it alone. The private sector and especially the for-profit community is the only sector with the resources to build all the units we need.
Another source told me that the HIF’s fund balance may be already committed to specific projects. That’s encouraging to hear but it suggests that there are bottlenecks in the process if the fund balance is growing. Maybe the county needs help in evaluating projects and getting the money out the door in a responsible way.
On our current trajectory, we are not likely to get substantial developer participation in increasing construction of housing.
One of the most important powers of the county executive – any county executive – is to set the tone of the county’s agenda. Elrich did just that in March, 2021 when he appeared at a forum of non-profit housing developers. Elrich told them:
Part of me wonders whether we ought to be looking at not partnering with developers but just partnering with construction companies, where basically, here’s the – I want to build a building. What’s the price? I modified my own house, I have lots of experience in this. But I also did three tenant conversions in Takoma Park while I was a council member in Takoma Park and, you know, we took – there was no developer involved. We just looked at what’s the cost of the building, the units, what’s the cost of bringing in repair, and we dealt with it as a straight up transaction and we took anybody out of it who was going to take money out of the project in addition to the costs of just doing the physical work. And you know, it may be that we look more toward builders on a contract basis rather than developers. Because then I don’t have to deal with their rate of return.
Elrich told developers – even the non-profit developers – that the county did not need them to build housing. This is reminiscent of former County Executive Neal Potter’s infamous statement in 1991 that the county did not need jobs from General Dynamics. What executives say matters, and when they tell businesses not to come, some of them probably won’t.
This is not just a rhetorical matter. The county is looking at a combination of rent control, higher property taxes, higher impact taxes, higher recordation taxes and a potential vacancy tax – all of which discourage real estate development. That comes on top of a host of other problematic measures in recent years.
Why exactly should the private sector build here with all of these risks if they can get equal or better returns at lower risk elsewhere in the region? And without the private sector, how are we supposed to build all of the affordable units we need?
The X factor is population loss.
In April, I revealed that the county had lost population for two years in a row, the first time that has happened in many decades, and that several other jurisdictions in the region had been losing population too. This is a hugely important trend that should be studied. Why is population declining? Is it a temporary response to COVID or something more fundamental? What is the relationship of this trend to the demand and supply of housing? And is the trend even real or is it a product of faulty data?
COG needs to study this trend and examine whether its housing targets need to be updated. And Montgomery County, along with all the other jurisdictions, should examine whether this should affect its policy decisions on housing.