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One common challenge for IZ programs is that when affordable units are part of home owners associations there is a risk that market rate owners will vote to increase fees beyond the means of lower income owners.

This issue came up on the 12-16-08 Webinar the following brief exchange clarified the concern. If you have ideas or experience about how to best address this issue please post a response to this thread.

Andy Knudtsen:Perhaps the condo fees should be included in the calculation used to set the price of the affordable unit. We have suggested this approach to our clients.

Dena Al-Khatib:The problem with that is that the condo association can raise them or require special assessments. I agree that this would be a topic for a future call.

Heather Shea:That is what we do in Boulder Andy the HOA dues are part of the pricing and affordability calculation. Unfortunately that only helps at the time of the first sale, we have no control over how HOA dues increase in the future

Loryn Clark:We do consider HOA dues in the initial sale, but we're hoping that the 'transfer fee' mechanism will help address the increase in HOA fees over time.

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I was curious about this 'transfer fee' mechanism -- what is it? Also, in the State of NJ municipalities may collect development fees for affordable housing, must use some of the funds for affordability assistance, and have used the funds for loans for special assessments. Affordable housing administrators are advised to make contacts with condo associations to find out if any affordable housing unit owners are in arrears in fees to avoid foreclosure for delinquent fees. Municipalities can also pass legislation to require notice to the municipalities on delinquency of fees. Condo fees are used in the initial pricing of units but are not considered in pricing re-sales. It is a big problem here in NJ.
Barbara - A successful developer in Chapel Hill came up with the transfer fee mechanism. It works like this: each time a market rate unit sells (initial sale and subsequent sales) a 1% fee will be charged. The amount of the fee will be examined by the Town every few years to determine if it’s too high or low. These funds will go into a special fund that will specifically be used to reduce HOA fees for the affordable units. In this particular development, the local Land Trust organization administers the affordable units and will oversee the fund and allocate funds as necessary for HOA expenses in that development. Several condo projects with affordable housing units will also use this mechanism and we believe it will be successful.
Robert Dowling: I work with Loryn Clark implementing inclusionary housing in the Town of Chapel Hill. A developer came up with the idea of charging the market rate owners a transfer fee of up to 1% of the sale price of the market-rate condos. The fee is to be paid whenever a unit sells or re-sells. Those fees are paid into a fund controlled by the nonprofit and are dedicated to the continued affordability and maintenance of the affordable units within the development. The nonprofit, in this case Orange Community Housing and Land Trust, agreed to provide an annual financial report to the developers (and later the HOA board) and the Town Manager.That way everyone sees how the funds are being used. According to our financial model, this transfer fee fund should enable the affordable units to remain affordable in perpetuity. We begin implementing this model in August 2009.
Just to clarify - are fees assessed on the sale/resale all market-rate units, or only those in inclusionary developments? If it's the latter, do the fee proceeds then stay within the development, to support neighboring IZ owners? Given the market downturn, has their been any opposition or call to delay implementation of the program?
In California, a bill was proposed (and recently defeated) that was intended to create a system to protect below market rate owners from facing large increases in HOA-related assessments (Assembly Bill 952: http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_952&...)

The bill, as it was originally proposed in April 2007, contained the following elements: restricted increases regular HOA fees to 2% annually for all BMR owners; required a majority of BMR owners to sign off on any additional assessments for all non-emergency expenses; required HOA board of directors to offer payment plans for a duration up to 3 years to BMR owners that cannot afford additional assessments; prohibited HOAs from charging interest to BMR owners paying back additional fees through payment plan; and prohibited HOAs to conduct lien enforcement procedures on any BMR owners during the period that the payment plan is in place.

By the time it was finally passed in August 2008, most of these provisions had been eliminated or relaxed, to make the bill more amenable to HOAs. Despite this, it was vetoed by Gov. Schwarzenegger in Sept. 2008. The bill is now listed as “inactive”.
The Lincoln Institute of Land Policy and Center for Housing Policy have compiled a brief overview of strategies that local jurisdictions have adopted to address issues related to homeownership association (HOA) fees and inclusionary zoning, based on interviews with IZ administrators and questionnaires submitted by practitioners across the country.

Specific approaches include establishing a dedicated funding source for HOA fee support, as noted in the Chapel Hill example; introducing legislation to control fee increases, as described in the California case; and undertaking outreach and early notification efforts to catch problems before they go too far. Please see the attached document for more details.
The City of Austin does not have inclusionary zoning (illegal in Texas), but we are creating areas of town that developers can qualify for density/height bonuses if they provide a public benefit (mostly affordable housing.) We are dealing with our first application for a condo development in one of these areas and are exploring options to deal with rising HOA fees. My research (including a phone conversation with Rick - thanks Rick!) has led us to want to create a transfer fee to have a reserve fund for special assessments. I have a couple of questions for the group:

1) Do most of you assess the transfer fee for market rate and affordable units?
2) How did you determine your fee? Did anyone do an analysis of how much funding would be generated over time?
3) Did anyone do a Nexus study? If so - would love to hear more about it.


I think that it is still very uncommon for IZ programs to use any kind of transfer fee and I have certainly not heard of anyone doing a nexus study for these fees specifically. If you have to do a nexus study (to show that the fee is proportional to the impact that the project has on the affordable housing need?) that could be a significant barrier to this approach.

How effective are ordinances or condtional/special use permit approvals that specify lower HOA dues rates for affordable units?

I came across a 2007 memo from Chapel Hill (so maybe you can speak to this, Loryn) setting terms for approval of a special use permit for housing including a provision that HOA dues for affordable units would not exceed 50% of those for market rate units (see http://townhall.townofchapelhill.org/agendas/2007/05/21/12c/). But then I read an article noting a similar situation in CA where as soon as the developer was out of the picture, the market-rate owners voted to raise the affordable HOA dues to market-rate levels...

I also found a draft of Midway City, UT's proposed AH ordinance (see http://midwaycityut.org/ordinances/supplement_16.20.pdf) that requires HOA fees for affordable units to be set at lower rates than fees for market rate units (section 16.20.010(i)). Is there a reason why more communities aren't taking this tack?
In some communities, this may be a question of politics and perceived fairness -- in interviews that the Lincoln Institute of Land Policy and Center for Housing Policy conducted with inclusionary zoning practitioners, some noted that condo association members would object to subsidizing affordable owners on an ongoing basis through reduced fees.
Exactly, the issue is that unlike general affordable housing subsidies which are funded with taxes received from everyone, if we cap the HOA dues for the affordable units we are asking a specific handful of homeowners to subsidize their immediate neighbors. There is not only a question of fairness but a more practical issue of maintaining support for integrating affordable units into market rate developments. We want to avoid taking steps to alienate these affordable owners from their neighbors.

My sense is that the right answer, once someone figures it out, is going to involve having the affordable owners pay their full and fair share of the real annual costs of maintenance and other services but somehow prevent the HOA boards from imposing significant increases that fund luxury items and at the same time ensuring that they keep fees high enough to fund reserves on an ongoing basis so that they don't later need to increase fees rapidly to pay for long term replacement due to inadequate reserves. Then if the real costs actually rise (as they sometimes will) the problem of protecting affordable owners from the impact of that should fall to local government rather than to the market rate neighbors. Just as it would for lower income owners of single family homes.
Though approved in 2007, this project has not yet been built so I cannot speak to the effectiveness of the ordinance just yet. Maybe in a year or 2 from now we will have a better sense of how well this requirement works.


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