Caution,You,about,enter,Afford finance, share, loan Caution: You're about to enter an Affordable Housing Zone

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Inclusionary zoning ordinances and density bonuses—also known as "below market rate" (BMR) housing programs—can negatively impact the community. These affordable housing programs reward developers who earmark a percentage of new homes or condos for those in the low and moderate income brackets by letting them increase density, build taller structures and curtail open space and parking requirements. This can lead to over-crowding and infrastructure headaches for residents in the area.      But "below market rate" (BMR) housing programs are arguably problematic for other reasons. They are inherently unfair, hurt both market-rate and BMR property owners, rely upon an unfounded evaluation of the home ownership situation, and erroneously see the solution to the housing "crisis" as the weaving of a paternalistic safety net across America.   Nets are vital for hairy high-wire acts, but unnecessary—even deleterious--for the recipients of "below market rate" housing programs, who can earn as much as $126,000 per year in parts of Northern California.  A New York Times article tells of Marin County woman who "likes nice things: fashionable clothes, dinner out with her husband, a private school for her daughter (and has a household income of)... $111,000," but is unable to buy a home without a 30% "inclusionary zoning discount" in her neighborhood of choice, where properties sell for as much as $1.8 million a piece.    This story and the thousands like it amount to an emotional assault on the millions of homeowners who had to make sacrifices (and still do)—forgoing private school tuition, vacations, restaurant dinners and the ability to live in their preferred neighborhood—in order to get into a condo or home. To afford the payments, they may rent out a guest house or share the premises with a "buying partner," such as a relative or friend. In the more expensive real estate markets, they may allocate as much as 50% of their incomes for mortgage payments and acquire a "stated income," "no ratio," or "no doc" loan in order to get bank approval in the first place. Many purchase with little to no down payment because they have no real savings. To know that Uncle Builder and Uncle Sam are handing money to others, especially those with higher incomes, is nothing short of insulting.     "Below market rate" housing programs can assist those who earn up to 120% of the median-income for the area. In Atherton, California—the zip code with the nation's highest median income—this would translate into home-buying subsidies for those who make $240,000 per year. In addition, BMR programs are prone to abuse by investors who hope to shimmy down a loophole.  "Below market rate" housing programs amount to more than an emotional assault: they arguably attack the pocketbooks of everyone. According to the Reason Foundation, a nonprofit that has extensively studied affordable housing issues, BMR programs "increase(s) the cost of market-rate homes in a typical city by $33,000-$66,000 per unit" because developers raise the prices of regularly priced properties to compensate for their losses on the low cost ones. This means that average home-buying Americans may be subsidizing their so-called needy, but oftentimes wealthier, BMR neighbors.   It seems these "needy" BMR neighbors--who initially bubble like lottery winners—are not so lucky after all because affordable housing programs, almost without exception, impose heavy resale restrictions on their new owners. BMR owners cannot obtain much, if any, equity from their new purchases for a period of time—usually between 15-60 years, depending upon the rules of the locality and program. In parts of Vermont, price controls stay in place for 99 years.  BMR owners have less incentive to upgrade their properties because it is questionable—at least in some parts of the country—whether they will be able to recoup fix-up costs. They cannot access their equity for emergencies or better investments. If they get a raise, the higher income may disqualify them from retaining the property. They cannot sublet or move out without becoming ineligible for the program, and they cannot sell to a relative or friend because the city or county gets first right of refusal at the reduced sales price. If the city or county declines, the property goes to the next BMR buyer on the waiting list.   Unless BMR buyers can weather the lengthy resale restriction periods in their "property prisons," they will have to initiate the buying process again only to find themselves in a less favorable position since home prices tend to increase over time. BMR buyers may realize they have erred by unnecessarily delaying the opportunity to accumulate equity like market-rate owners. As a Los Angeles city planner says, "These programs are not for those who want to build wealth."  "Not for those who want to build wealth" are words that express a vote of "no confidence" in the BMRers' ability to stand on their own two feet. Providing crutches for those without broken bones—since most BMRers could be market rate buyers—leads to chronic impairment because when healthy parts are not used, they become weak.   BMR programs effectively lock the door to real homeownership after giving the "needy" a deceptive weekend playing house. It is like the parent who sneaks an Easter egg into a child's basket and smiles, "look what you have," only to snatch it back and give it to another child.   BMR programs will no doubt become more popular as government continues to obsess over affordability statistics rather than consult with real life experts—real estate agents and lenders—who get low and moderate income clients into properties "all day long" in some of the most expensive real estate markets in the country.   When USA Today reports that "the minimum household income needed for a median-priced home at $495,000 (is) $115,910," it is incorrectly assumed that someone with a $55,000 income cannot buy the property.   Government must shed myths that housing is unaffordable and scarce. Potential buyers must be empowered with avenues for property investment, rather than coddled and saddled with wealth-deflating options.   The threats against current homeowners--whether related to high density or the subsidization of BMR buyers—must end. Government should trust in supply and demand and use available resources to clean up lower density, crime-invested neighborhoods where the market would naturally produce a less expensive product.   A BMR program is an RBM (really bad mistake), so use caution when you enter an affordable housing zone.