Whether to do Payment-in-Lieu

The Herald reports that the Carrboro Board of Alermen discussed whether to allow a payment option for developers to meet their affordable housing obligation. We have debated this issue on the Chapel Hill Planning Board as well. So far we have come out against it every time, but there are also some compelling arguments for it.

Developers in Chapel Hill and Carrboro are currently required to include either a certain number of small (< 1,350 & 1,100 square feet) or affordable (<80% of area median income) homes in all residential developments over a certain size. Payment-in-lieu of housing would allow developers to make a financial contribution instead.

What do you all think? Are we missing a chance to support municipal housing efforts, or would we be letting them off the hook too easily and allowing further economic segregation of housing?



you are right that NCHFA's regulations are more difficult for rehabilitation. In fact, it seems much more likely for a sprawl new construction project to be approved before a rehabilitation project in a "troubled" area, even if the biggest problem on that block is a large abandoned building that a developer is proposing to rehabilitate.

I too believe that interesting things can come out of creative developers. Not all of them have to be as terrible as the old adage says, "Developers don't go to hell, They make it here on Earth." Especially when there are "creative" financing packages out there to attract interested investors.

The so-called selling of the tax credits can be a hindrance to smaller projects, and I am interested in seeing some sort of challenge out there to developers to create interesting and quality projects.

Joe C.

If the problem is use, regulate the use. If the regs are there, then enforce them. Why should others have to give up their rights to help solve a problem they aren't contributing to?

Sounds like poor government to me.

I think the issue is owner occupied versus rental, not necessarily the size of the house that is a problem in Nothside and some of those other neighborhoods. While I am an enthusiastic student supporter in general, there is often a problem when many unrelated students occupy a dwelling. Who mows the grass? Where do you park cars? Who takes care of the trash? I think many of these students would prefer to live in places where they don't have to take care of these issues, but unfortunately the University doesn't have the ability to house them all. I'd like to see the University build some housing like they have on the UNC-C campus (and maybe others)---they are apartments, convenient to campus, but with things like exterior maintenance included in the rent.

I didn't realize that there was a significant number of historic homes that hadn't already been bought up and turned into Southern Living showcase homes. Perhaps I don't have a broad enough definition of what "historic" means in this context.

I agree that Orange County, with one exception, has done a bad job of making use of low-income housing tax credits, both those provided by the state and by the feds. If you go and look at the list of NC awardees in 2003, a fairly typical list, you'll see what I mean:


One problem in applying these programs to the kinds of use that Elizabeth B. is talking about -- rehab -- is that the programs heavily favor new construction, the bigger the development the better. There is a rehab provision in these tax credit programs, but the criteria for qualifying are far more complex than new construction, and you can't just be rehabbing one unit at a time. I talked with one N.C.for-profit affordable housing developer (yes, I said "for-profit") who described a process by which you could "bundle" a bunch of individual properties together and go for the rehab credits, but she said it was rarely approved. More likely, a project to rehab a big apartment complex -- say, Abbey Court -- would get the nod.

(If you look at the 2003 numbers at the site above, you'll see that of the 54 projects approved, all but six were for new construction, and the average size of the project was 45 units. No project was smaller than 24 units.)

The reason why these tax credits skew toward big projects has something to do with who ends up using them, I think. Typically, the tax credits are "sold" by the developer to a bank or other investor looking for tax relief. The competition for these tax credits on the secondary, "syndicate" market has gotten more competitive, and so developers are able to sell them for as much as .$75 on the dollar (the total value of a tax credit: the annual credit x 10 years, which is the life of the credit.) Much, if not all, of the sales price of the credit gets paid at the beginning, usually in a few installments -- money which the developer needs to get the project rolling. In theory, the tax credits could be applied to very small projects. In practice, though, it takes a pretty decent chunk of credits to get an investor interested in buying them up. One theory is that this knowledge of the market has filtered back to those who are making the awards, who tend to want to make the awards to projects that are actually going to have some success. A feedback loop of sorts.

(One perverse aspect of the program: the _best_ kind of project for an investor is one that not only offers tax credits for sale, but also an annual deductible tax loss. Not a project in danger of foreclosure, but one that is likely to annually lose a manageable amount of money.)

Here's an example of a clearinghouse for housing tax credits:


Wow, I didn't mean to write this much. You can probably tell this is one of my little obsessions. Until someone proves me wrong, I still say some creative developers could do a lot of good in this community if they made use of these programs.

Char Ed:

I must respectfully disagree. I live in an older near-to-campus

neighborhood, though not Northside, which is undergoing

a student influx. Large "homes" are being built to house

undergrad students. I use the quotations because they are

not really homes in the traditional sense, rather are, as

Matthew Barton said, dormatories. I don't have a

real problem with the students per se, like any human being,

if you treat them with respect, they'll respond in kind, but there

is a phyical problem with the cars -- way too many and large

ones too, with not enough space to park them, so they

are all over the streets. So it isn't only size in the quantitative

sense, it is the use. We should support a system that requires

builders to take responsibility for the cars they attact and

if they cannot provide adequate space for them, build

smaller, meaning fewer cars, that they can handle.

From reading the papers, I thought the big issue on 'character' was that developers were building huge houses which were really disguised college dorms, right in existing family neighborhoods. A bathroom for every bedroom. Parking for 6 cars. That kind of thing.

Why is the university not planning to build a lot of dorms as part of Carolina North, and absorb some of the student population? It could take the development pressure off the existing neighborhoods. They wouldn't have to be traditional low-budget dorms. Built more like townhomes, they could fit right into the new urbanism style they show in the pictures. And with a dedicated bus route connecting the 2 campuses frequently, it could be attractive even to students who mostly attend class on the south campus.

Good points about the effectiveness of the ordinance. Even new smaller homes may justify very high prices.

As for "character," I don't think it should be a factor at all. There's no problem allowing smaller houses in predominently large house neighborhoods or larger houses in predominently small house neighborhoods.

In general, there's nothing wrong with eclecticism. Regarding requiring small housesin new neighborhoods, it's not the size that bothers people, it's who is going to live there, and they need to get over that. Regarding allowing larger houses, neighborhoods should evolve. Homeowners ought to be able to increase the value of their most valuable asset. Larger homes increase neighboring property values. Larger homes increase the tax base. "Character" is at best a subjective judgement. At worst, it shields economic discrimination (no mcmansions here!).

When there's an overriding public good, restrictions can be justified. Maintaining historic areas, for instance. But in general, homes get old, need updating, people can afford to enlarge them during renovation and should be able to as long as they comply with general (not neighborhood) setback, height, impervious surface restrictions, etc.

"Character" doesn't seem to be firm enough ground on which to base restictive public policy.

Character Ed...

That's a very interesting question and is just one of the problems with the small house requirement. The bigger problem is that it doesn't really ensure affordable housing beyond the first purchaser. Oftentimes, these "small" homes are built for easy addition. Buyers have the opportunity of a great windfall since usually after only 1 year they are allowed to build on and effectively eliminate the affordable element of the home. If we want homes to priced at the 50-80% income level and we want them to stay that way for future purchasers we have to do something else. That's why I'm a strong advocate of Orange County Community Housing and Land Trust that allows builders to build homes that are virtually identical to the other homes in a development yet can be sold at a lower rate to income eligible individuals and can stay that way for 99 years (with an option of 99 more years). Drive around Larkspur. Can you pick out the "affordable" units? Probably not, unless you have a very well trained eye. All the homes fit together very well and the builder's idea of "character" is maintained. It's difficult to imagine how this could work in the reverse -- old neighborhood with a new house 2-4 times bigger than the rest of the homes on the block.

This may be a bit tangential, but Joe C's comment above made me wonder. . .

Why is it okay to require new large home neighborhoods to integrate smaller homes into their mix, while at the same time create zoning restrictions that limit the size of houses to keep large homes out of neighborhoods currently consisting of smaller homes?

The latter has been justified because the larger homes are deemed "out of character."

Don't developers have a right to preserve the character of their neighborhood?

If not, why is "neighborhood character" inconsistently applied?


You bring up some interesting points. All across America, existing housing stock is deteriorating in the inner cities. Meanwhile, the only affordable new housing that is in "good shape" is being built mobile home/tract home style further and further out from jobs and amenities.

One way to change this includes creating a historic homeowner tax credit, that reward individuals through lower rate mortgage or a crdit for actual mortgage payments for fixing lead paint or other abatement issues.

Also, commuity development block grants have been used throughout the country to abate historic properties and turn them into quality affordable housing communities, combining Low income tax credits and rehabilitation credits. but these credits only go to developers and large tax paying corporations. something needs to be done at the individual level.

For more information, please see this excellent article by Donovan Rypkema, at: http://www.nationaltrust.org/issues/housing/Missed_Connection.pdf

The actual proposal was to allow developers in SOME CASES to meet PART of their affordable housing obligation by making a payment-in-lieu to go into a fund for affordable housing only.

Saying 'No way, never" ignores the reality that developers will build housing for people right at 80% if that is the requirement. But what about people at 60% or 50% or even lower?

Why not accept the occasional PARTIAL payment in lieu and use the money to help Habitat for Humanity? Habitat might well be able to create more housing per dollar than the developer to boot.

Yes, a mix of housing types is desirable, but it is not the ONLY objective. Housing affordability problems in our community take many forms. What about existing owner-occupied homes that are in disrepair and in need of emergency repairs (eg toilets not working)? What about lead based paint exposure in lower income rental properties? What about people with disabilities?

How do $135,000 houses in Chapel Hill suburbia help to solve those problems? They don't really. But some funding for our non-profit community might.

And as for letting the developer off too easily, who says the payments would be cheap?

oh gosh , silly me. I reversed how the percentage of median income works in my brain. Disregard that last part of my comment. After realizing how it really works, I say lower the standards to meet the state standards.

so in other words the payment in lieu is a "get out of jail free" card?

yes, it would be letting them off the hook. too much like the deal the corporate enviornmentalists advocate for: the buy clean air credits to pay for your polluting ways. the kind of attitude doesn't work in Kindergarten and it shouldn't work for grown problem creators.

However, 80% of the area median income seems like a high hurdle, since the North Carolina Housing Finance Agency standards for Affordable Housing include residents at 50-60% of the area median income. Is this because the area median income in Orange County is presumably high?

Ruby, would the payment in lieu go into a town "general fund" or would it be directed specifically towards more affordable housing needs? I am not really familiar with town budgets or how $$$ gets distributed.

It isn't only the money, it's the location. It's easier and

better for a developer

to contribute to affordable housing a mile away than to mix

(in fine grains) less-expensive homes with the more expensive

ones. If a town goal is a physical mix of housing types, rather than to separate the affordable ones from the mainstream

(read that expensive) ones, payment-in-lieu alone just

doesn't cut it.


Community Guidelines

By using this site, you agree to our community guidelines. Inappropriate or disruptive behavior will result in moderation or eviction.


Content license

By contributing to OrangePolitics, you agree to license your contributions under a Creative Commons Attribution-NoDerivs 3.0 United States License.

Creative Commons License

Zircon - This is a contributing Drupal Theme
Design by WeebPal.