City might pause development program over equity concerns

With rising rents and a growing population, local leaders are using every tool they have to encourage more affordable developments, including the City of Asheville Land’s Use Incentive Grant program.

City Council members say the program designed to encourage developers to offer affordable housing is good in theory, but in practice it might be shutting out minority families, perpetuating decades of racial discrimination in housing.

Until the city can find a way to make its incentives fair, it might be putting its most used affordable housing tool on the shelf while consultants evaluate its effectiveness across all low-income demographics.

Explaining LUIG

Asheville City Council adopted the Land Use Incentive Grant program in 2010 to increase the development of affordable, workforce and low-income rental housing by offering developers property tax rebates.

To qualify for a rebate, at least 20% of a development’s units must be offered for at least 20 years as affordable — using the city’s scale for rent levels — to households earning 80% or less of the area median income. Developments also must be located within Asheville city limits, and at least 70% of the available square footage must be residential.

As previously reported by Xpress, grant amounts are based on a point system, and the main way for projects to earn points is through increasing affordability. Developers also can earn points from location or design criteria, such as proximity to grocery stores and bus lines or incorporating energy-efficient building practices.

Every five points qualifies for a grant equal to one year of the property tax increase resulting from the new development. In other words, the difference between the tax on the previous property value and that on the higher property value after development. Grants are capped at $80,000 per affordable unit over the lifetime of the grant.

Room for deeper affordability?

All projects approved for LUIG so far have offered housing affordable to those earning 80% AMI or less, says Sasha Vrtunski, the city’s affordable housing officer. LUIG hasn’t been successful at incentivizing housing for those in lower income brackets because the subsidies don’t fully compensate developers for the profits they forgo by renting at those levels.  

“It would be very difficult for a private developer to provide units at 30% AMI without substantial funding from other sources much bigger than our LUIG program — say, [federal] Low Income Housing Tax Credits,” Vrtunski says. “Providing units at 80% AMI is a typical standard across the country, with 60% AMI being even better, but it often needs additional subsidies to make the project pencil out.”

Several Council members have expressed concern over the program’s inability to fund housing projects for those earning lower than 80% AMI.

“Ultimately, I believe that our current policy hinders our ability to leverage tax dollars for more deeply affordable units. When we are talking about 80% AMI, we are talking about households earning around $68,000 per year, which is still not affordable for many minority families,” says Council member Antanette Mosley. “It begs the question: Do we want to get larger numbers of so-called affordable housing for families of four making $68,000, or would we rather have fewer affordable units if we ended up getting more deeply affordable units?”

Thrive Asheville, a local nonprofit that focuses on equity research, recently reported that minority community members, on average, fall below the 80% AMI band. According to the group’s presentation to the City Council in November, only white households surpassed 80% AMI when looking at median incomes for four-person households among different racial demographics in Asheville.

Garrett Raczek, a program director with Thrive Asheville, said during the presentation that even if the city were to lower the bar to 50% AMI, it would still be above the median income for most Black and Hispanic households.

“It really calls into question who is able to access housing that we call affordable,” Raczek said. “What we really need to do to target those who were most harmed by historical and current policies and systems is focus programs, policies and subsidies on those at the 30%-50% AMI level.”

“We say that equitable, affordable housing is our priority,” says Council member Kim Roney. “I want to support Land Use Incentive Grants as a voluntary rent control because I think our community needs that, but if it is not getting us to racial equity, then it is not helping me be responsible for our goals.”

Council member Maggie Ullman says she feels uncomfortable about keeping the LUIG program open while the Council has “fundamental issues” with it and believes the city should pause the program while it figures out what to do.

“It is really important that we sit down and have a policy conversation regarding the future of LUIG,” says Ullman. “I feel a lot of discomfort having a project go through the whole process to get to council, for us to then say, ‘Well we don’t like our rules and incentives.”

Vrtunski says city staff also has concerns regarding the program’s sustainability, particularly with the high number of LUIG projects that have been approved so far. Since the program was launched, 17 developments have been approved for LUIG funding, meaning less tax income for the city.

“We have a lot of projects that we have approved, and when you look at those subsidies, they add up to a lot of money,” Vrtunski says. “Because of the nature of LUIG where we give rebates over an allotment of time, one of our biggest concerns is making sure that the program can be continued long term with our current budget.”

What’s next?

The city hired consulting group Enterprise Community Partners to do an equity assessment of LUIG last July for $146,517, Vrtunski says. Recommendations are expected in May. The city is also updating its overall Affordable Housing Plan, which includes LUIG and the Housing Trust Fund.

“From the very beginning, we asked our consultants to look at all of our programs and evaluate them together when they make their recommendations,” says Vrtunski. “We could try to tweak LUIG independently from our other programs, but then we are not taking into account all of the other ways that we spend and leverage money. We want to assess how the city addresses affordable housing as a whole and then make good decisions from that point of view.”

According to Vrtunski, staff is recommending that Council issue a pause for all LUIG applications until the Affordable Housing Plan is revised. Council is set to vote on the pause at its meeting Tuesday, Feb. 13.

“We are not wanting to end the LUIG program, nor do we want to do anything that would discourage developers from bringing affordable housing to Asheville,” says Vrtunski. “The proposed pause is so that we can take a holistic look at our affordable housing programs to see if there are ways to increase their affordability while also ensuring that the programs are sustainable.”