Little House in the Suburbs

The nation's most innovative affordable housing program has survived 25 years. The next 25 may be the hard part.
by | April 2000

In Gaithersburg, Maryland, on the wall at the Montgomery County public housing authority, there is a giant map, overloaded with hundreds of pushpins: red, green, blue, yellow and black. The pins cover nearly every inch of the map, from rural Damascus in the north to the crowded suburbs near the Washington, D.C., border. But most of the pins mark places where the county has been growing fastest.

One of them points to a small piece of suburbia called Hallowell. Driving around Hallowell is like driving around almost any subdivision carved out of farmland in 1990s America. Wide streets wind through rolling green grounds and are lined with single-family detached homes. In Montgomery County's expensive housing market, these sell for more than a quarter of a million dollars. There are more modest homes in Hallowell, aluminum-sided townhouses with simple front stoops, but even these sell for upwards of $140,000. Nothing that you see in Hallowell conveys any hint that public housing exists here. But indeed, the housing authority owns 25 of the townhouses, and that is why Hallowell gets a pushpin on the wall map. It is part of the county's affordable housing program, unique in America when it was launched and still unusual 25 years later.

Montgomery County, with a population now pushing 900,000, hasn't built a public housing project in a quarter-century. What it has done is require developers to build low-cost houses in every sparkling new suburban subdivision they create. Some of these homes are sold to moderate-income residents; others are held by the county and rented to the very poor. Today, some of Montgomery County's most impoverished citizens live in well-to-do places such as Hallowell, places they could never afford on their own.

Montgomery isn't the only government that has tried something along these lines, but the scale of its program dwarfs most of the others. One-third of the county's affordable housing stock--10,000 units in all--is in these so-called "moderately priced dwelling units," or "MPDUs," built by developers as part of the natural march of outward suburban growth. By contrast, a court-ordered program in New Jersey has produced 23,000 units statewide, although many of these aren't built yet. In California, the combined effort of some 75 local governments has created about 25,000, for a population of more than 30 million people. A handful of other counties in the Washington, D.C., area and elsewhere tried copying Montgomery in the 1990s, but have only recently seen their first homes produced.

Montgomery County's assisted-housing supporters continue to see their program as an emblem of civic pride. They note that while new subdivisions in most suburban areas have become fortresses for the upper-middle-class, Montgomery's have become famous for the economic diversity of their residents, many of them minorities or immigrants buying their first homes. They insist that affordable housing is vital to the economic future of even an affluent county whose median income is twice that of the nation as a whole. "Without an adequate supply of affordable housing," says William Berry, a Rockville developer and an ardent supporter of the MPDU law, "the quality of life in an area goes downhill."

Not everyone agrees. Over the years, the MPDU law has inflamed many residents who view the idea of mixing incomes in suburbia as ill- advised social engineering. It has produced quite a bit of friction between neighbors. Homeowners continue to worry that poor people renting from the county can detract from the character--and the home values--of their neighborhoods. "Tenants have no responsibility to the community," says Roy Peck, a former Hallowell resident who was active in his homeowner's association before moving recently. "They're more likely to not maintain the appearance of their homes when they have no vested interest."

But as the program heads into its second quarter-century, it faces a dilemma likely to prove more serious in the end than occasional neighbor-to-neighbor tension. The problem is that Montgomery County's innovation has essentially been built on suburban sprawl. As sprawl subsides, it is hard to see where additional units are going to come from. Meanwhile, below-market units now in the system will be converting to market-rate. In the long run, it seems inevitable that the MPDU program will shrink, not grow. "The program," says Eric Larsen, MPDU coordinator in the county's housing department, "will be producing fewer and fewer units."

William Hussmann, chairman of the county planning board, agrees. "We are becoming more urban and mature," Hussmann says. "Taking care of what affordable housing we have got is now our number one priority. It's a whole different agenda."

It was late in the 1960s when the idea of an affordable housing mandate began getting kicked around in Montgomery County. At the time, an embarrassing gap was growing between the expensive homes being built close to D.C. on the one hand, and the trailers that housed a still-sizable population of poor farmworkers on the other. Moreover, the existing zoning laws tended to favor high-end development. Groups such as Suburban Maryland Fair Housing and the League of Women Voters began lobbying the county council, at first seeking a law that would have simply ordered developers to build more low-cost housing.

Legally, however, the county could not impose such a mandate without compensation. So the activists came up with a formula, which the council finally agreed to in 1973. In every new development of 50 units or more, 15 percent of the homes would be priced "affordably." In exchange, the developer would receive a density bonus. That is, he could build 20 percent more units than the zoning would have otherwise permitted. The activists called this "inclusionary zoning." Builders hated it. "The development industry opposed us tooth and toenail every inch of the way," says Peg McRory, who led the coalition that fought for the law.

Once the law passed, all eyes turned to Clarence Kettler, one of the county's biggest builders, who was planning a massive development called Montgomery Village. Kettler had fought bitterly against McRory and other MPDU supporters, and didn't relish turning his property into the law's first test. The affordable housing advocates girded for a legal challenge. But it never came. Kettler decided to give low-income housing a try. He thought up new designs for townhouses that kept costs down, and in the end, built hundreds of MPDUs in Montgomery Village. He even named a section of the development after McRory, his longtime adversary. "Clarence Kettler was the most active in fighting against us," says McRory, now 78. "But once it was enacted, he was the most active in making it work."

The MPDU system has been tweaked periodically, but it still looks more or less as it did in when it took effect in 1974. It is actually two programs, one for moderate-income homebuyers and renters, and the other for the county's poorest residents. Most of the MPDUs fit into the first category. These are sold or rented at sub-market rates to people who meet income requirements. In 1997, for instance, the average MPDU sold for $90,180, and the buyer's average income was $29,014. These for-sale units are price-controlled for 10 years.

The second program is the more controversial one. As many as one- third of the units are reserved for the Housing Opportunities Commission, which has been very aggressive about buying them to use as assisted housing. The poorest residents of these units are asked to pay 30 percent of their earnings in rent, and the rest is subsidized.

The effects of this system were felt very quickly. Previously, any public housing projects considered by the county created an acrid backlash from neighbors and their elected officials. But the MPDU law took politicians off the hook. Not only were the units scattered almost invisibly all over the place but private developers, not the county, were building them. "We got the private sector to do what we wanted through the natural development process," says Bernard Tetreault, who served as HOC's executive director for 24 years. "What the developers could do naturally, we'd have to go through all kinds of machinations to do. Now we were getting five units here and there, and nobody knew where they were."

There was another political plus. No one community had to be singled out to absorb the next wave of affordable housing. The units simply went wherever the new development went, reinforcing the notion that every community had a role in solving the housing problem.

This idea had its ultimate test 10 years ago, in the wealthy suburb of Potomac. Developer Anthony Natelli had begun building Avenel, a posh community of $2 million homes surrounding a professional golf course. Hoping to preserve Avenel's exclusive image, Natelli offered the county $4 million to let him forgo the MPDU requirement and build affordable apartments somewhere else. County officials nearly agreed, but ultimately decided it would send the wrong message to less affluent areas, where thousands of MPDUs had already gone up. In the end, Avenel built 60 attractive brick-faced, Cape Cod-style homes that sold for less than $100,000. HOC bought 18 of them for low-income renters.

If the scattered-site MPDUs have provided opportunities, however, they also have presented serious challenges. Moving poor tenants into posh spots such as Avenel force county housing managers into a nearly constant posture of smoothing things over with neighbors. These managers spend much of their time attending meetings of 180 homeowners' associations, listening to complaints and offering reassurances. They also try to school their tenants in the arts of suburban living, reminding them of rules on parking, noise and trash removal. Every spring, HOC gives away flowers for tenants to plant in their gardens. If a tenant doesn't own a lawn mower or garden hose, HOC will sell one cheap.

Yet for all the effort at public relations, there have been problems. Early in the program, many of the MPDUs built were substandard and clustered together in clumps. Homeowners complained that mini- ghettoes, complete with crime and prostitution, had been dropped into the middle of their suburban neighborhoods. Since then, builders have been required to disperse their MPDUs throughout developments, and HOC has become picky about which units it will buy. In most developments nowadays, it is nearly impossible to tell from the outside which are MPDUs and which are market-rate units (inside, it is easier to tell; MPDUs lack such extras as high-grade carpeting and finished basements).

Dispersed public housing also makes service delivery difficult. While dedicated housing projects are scorned for concentrating poverty in one place, concentration does make the county's task of providing job training and health care simpler. With residents scattered, and generally lacking good public transit links in outer suburbs, HOC has had to divvy up operations into five geographic areas--marked out on the big county wall map by the different-colored pushpins. Each region has one manager, one social worker and a maintenance staff that are responsible for 325 families in 40 or so different developments. "We do a lot of driving," says Sandra Barnes, senior manager at HOC. "With units scattered, we can't provide as many services. It's just impossible. We are hoping for more independence from our residents, and we don't have the withal to provide services to every single one of them unless they call us for help."

The other big challenge has been keeping developers happy. While the MPDU requirement has gradually become an accepted part of doing business in Montgomery County, most developers still would not build the cheaper units if they didn't have to. Indeed, in one notorious case, a developer building in the expensive community of Chevy Chase put up a pricey subdivision of exactly 49 homes, deliberately ducking under the 50-unit threshold that triggers the MPDU requirement.

Most developers say they lose money on their MPDUs. But it is a complicated question. The density bonus allows them to sell extra units at the market rate, frequently offsetting any losses. As president of Classic Community Corp., Steve Eckert has built hundreds of affordable units over the years. "One doesn't really make money building MPDUs," Eckert says. "But if you do it right, you don't really lose money either."

Bernard Tetreault argues that MPDUs have actually been a boon to developers, giving them an entree to a market that they would otherwise neglect. During times when the economy went south and took real estate with it, he says, developers fell back on MPDUs to keep their construction crews working. "MPDUs kept the building industry here alive during the early '80s," Tetreault says. Statistics support his point. MPDU production actually peaked during recessions in the early 1980s and early 1990s.

To be sure, developers have legitimate gripes with the law. One is that they don't always get the density bonus as promised. By the time environmental demands such as setbacks and wetlands preservation get factored in, there isn't always land left for them to build the bonus units. They've successfully lobbied for some changes--among them a "compatibility allowance," which lets them add costly extras such as brick fronts or bay windows to MPDUs if it helps them blend into the neighborhood. "Generally, the program has become accepted within the overall marketplace," says Eckert. "I guess time heals old wounds."

The scabs are still fresh, however, in most places that have tried to replicate what Montgomery County has done. Fairfax County, Virginia, roughly comparable to Montgomery in size and overall affluence, passed an "affordable dwelling unit" ordinance in 1990. But the program got off to a slow start. With the real estate market down, and homebuilders still skeptical of the law, the first homes weren't built under it until about five years later.

Then, when ADUs started hitting the market in Fairfax, eligible buyers didn't seem to want them. Some blamed shoddy construction that made the affordable units into the black sheep of every new suburban neighborhood. Others blamed a provision in the law that controlled the prices of ADUs for 50 years. With little prospect of turning a profit on an ADU in the average buyer's lifetime, some saw the houses as little more than rentals. And some of those who did find them attractive lacked the credit to qualify for a mortgage. Fairfax has begun teaching potential buyers about credit requirements, and dropped the price-control period from 50 years to 15, both of which seem to have helped solve the problem.

The major difference between Fairfax and Montgomery, however, is that the Fairfax housing authority has been much less aggressive about purchasing units. To date, Fairfax has had the option to buy hundreds of homes for assisted housing, but chosen to buy only 40. This is partially a matter of funding: Much of the federal money that Montgomery used to buy MPDUs early on has dried up. But the truth is that Fairfax remains less enthusiastic about the idea of mixing poor public housing tenants into well-off subdivisions.

In 1998, when the county tried to relocate three public housing families from a project in Reston to ADUs in the Westbrook Court Condominiums in Fair Oaks, Westbrook neighbors rebelled, complaining that nobody told them ADUs could be used for public housing tenants. It was one thing to have people of modest means coming in and buying their first homes, they argued. It was quite another to move in poor renters with no financial stake in the neighborhood. The housing authority backed down, although it ultimately placed the tenants in another subdivision. "This was promoted as a `for sale' program, a way for young working couples to get their first opportunity to buy a home," says Supervisor Michael Frey, who represents the Westbrook Court neighborhood. "They're trying to take one housing program, and shoehorn another one into it. And that doesn't work."

If the Fairfax effort has experienced some growing pains, though, others in the Washington area haven't grown at all. Prince George's County, Maryland, passed an inclusionary zoning law in 1993, at the behest of Parris N. Glendening, who was county executive at the time. After Glendening became governor in 1995 and was replaced in his old job by Wayne Curry, the MPDU law was rescinded, having produced only 41 units. In Curry's opinion, Prince George's, which is less affluent than Montgomery or Fairfax, already had enough affordable housing.

Then there is Loudoun County, Virginia, which is growing faster than any county in the Washington area. Fueled by a boom in high-tech companies near Dulles Airport, Loudoun saw its population double in the 1990s, from 80,000 to 160,000, and home prices rose nearly as fast. While the county's affordable dwelling law, passed in 1993, is starting to crank out subsidized homes as part of that growth, there has been an anti-development backlash. Last November, a whole new Board of Supervisors was voted into office on a "smart growth" platform.

One of the supervisors' first targets is the housing law. To be sure, the law is not causing growth, but merely adding to it. Currently, there are 40,000 new homes in Loudoun's construction pipeline. Of those, 3,000 are ADUs, and another 1,200 come from the developer's density bonus. To restrain growth in the future, the board is considering scaling back the amount of affordable housing that developers must provide. Loudoun might even give builders something they have pushed for from the start--the option to "buy out" of the requirement altogether. "The supervisors are still trying to sort out exactly what `smart growth' is," says county housing director Cindy Mester. Whatever they decide it is, however, new assisted-housing units seem destined to be a casualty.

And this is exactly the issue that faces Montgomery County as its program enters its second 25 years. With thousands of acres of still- rural land shielded from development, there isn't much room left to keep pushing out into the suburban fringe. Developers and planners will be turning back toward the county's urban core, seeking infill sites near existing roads and sewers. As they do, they will gradually cut off the fuel that has fed the MPDU engine for so long--big suburban tract developments. "There will be less potential for that kind of development in the future," says Conrad Egan, policy director for the National Housing Conference. "There are only so many cornfields out there."

As urban infill takes hold, the steady stream of MPDUs coming into the program will fall off. At the same time, older units will continue to cycle up to market rates, as the 10-year price-control period on them expires. Over time, the MPDU program will gradually become less significant, unless changes to its underlying formula are made. Some suggest applying the MPDU mandate to smaller developments, but it is not clear whether homebuilders would go along with that.

Meanwhile, county officials are thinking less about building more affordable housing than about preserving what is already there. The county's biggest shortfall these days is in rental housing. In Montgomery County, as elsewhere around the nation, apartment buildings previously reserved for low-income renters under federal financing are being rehabbed and going upscale. As contracts between the landlords and the federal government expire, and buildings are renovated, rents in those buildings are rising an average of 44 percent. Already, according to the HOC, 372 "affordable" apartments in Montgomery County have been lost this way, and another 1,050 are at risk.

So the county is spending a good bit of its housing resources these days buying some of these older buildings to keep them affordable. One such project is the Shady Grove Apartments, a 144-unit complex near the subway line into Washington. All of the building's residents were receiving federal Section 8 rental subsidies when the landlord's federal contract expired. HOC bought the property with bonds and tax credit financing. It then sunk $1.4 million into new kitchens, carpeting, siding and roof repairs, and when the work was all done, didn't have to raise the rent at all.

It is projects such as Shady Grove, rather than Hallowell, that will likely form Montgomery County's affordable housing model for the next 25 years. MPDUs will continue to have their place, but it will be a shrinking place. Meanwhile, county officials will have to dig further into their bag of solutions in order to cope with a problem that seems to have no end. "Even with MPDUs, Montgomery County has only made a dent in the affordable housing problem," says developer William Berry. "But a dent is better than no dent."