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Madison must commit to permanently affordable housing

The city should take long-overdue steps to decommodify land and housing.

The city should take long-overdue steps to decommodify land and housing.

Illustration: Pastel-colored maps of Madison neighborhoods are reassembled in fragments, and bordered by a vertical black-and-white photo of an apartment building. Illustration by Tone Madison, source images via City of Madison and pxhere.

Prices of land and housing are exploding while millions are at risk of eviction as we experience a fourth wave of a global pandemic, and inequality is on the rise. As COVID relief funds come down from the Federal government, the question at the front of my mind is: what are we investing in? Where should housing funds be allocated by cities, counties, states, and foundations at this moment? In the housing sector, needs are on the rise while prices are too. Mom-and-pop landlords are increasingly selling to corporate landlords. While the scale of the need for affordable housing may not be matched by the funding available from the Feds, the potential subsidies becoming available are unmatched historically since the New Deal era, and more is expected to come through the Build Back Better Act via budget reconciliation (fingers crossed). While it’s not going to be enough to “solve” the housing crisis, the result will hopefully bring more funding for affordable housing than we have seen in a long time. The State of Wisconsin, Dane County, and the City of Madison will continue to see more funding come in, some of which will be dedicated to housing projects (eg. The Neighborhood Investment Fund recently announced by the governor).

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This funding presents an important opportunity to take more land and housing off of the capitalist market. Over the last century, land and housing have become increasingly commodified, where their exchange value (investment potential and overall price) is prioritized over their use value (having a stable place to live). Real estate is a profitable industry, in part because the amount of land is essentially fixed—we can’t just create more land in most places. So its value goes up even faster in most cases than traditional economic logic might indicate for a regular commodity that can be produced through labor. As land and housing are increasingly sought after for their investment value, and therefore increasingly commodified, they get more expensive, while those in the real estate industry profit at the expense of low-income people looking for a place to live. The perception of real estate and homes as “good” investment opportunities has also played into a neoliberal agenda of increasing homeownership rates, deregulating construction markets, and the development of financial instruments to spur more real estate investment, therefore inflating prices. What we have now is a market dominated by large investment companies and developers, where renters are at the whims of market pricing, and up and coming generations struggle to buy a home.

We could use this moment of possibility, with the influx of federal funding, to get more land off of the market and into permanent affordability. Or we could feed into the neoliberal paradigm of deregulation and the dominant system of commodification, and see the expansion of housing inequality, and wealth inequality. 

We are losing affordable rental units, but we have the tools we need to keep them

Most affordable housing options are still based on market paradigms. The biggest problem with the models we use to subsidize housing is that their affordability period eventually expires, usually within just 15 to 30 years. Why? Most affordable rental units are created using Section 42 of the IRS tax code, Low Income Housing Tax Credits (LIHTC,  pronounced “lie-tech” by those in the know, or sometimes called “section 42 housing”). LIHTC is a Reagan-era affordable housing initiative that allows private investors (private companies basically of any type: banks, oil companies, etc.) to hide money away and get tax breaks because they invest in affordable housing. The trick is that most LIHTC developments are only required to stay affordable for 15 years, or they can renew their tax credit investment to extend it to 30 years. It’s a private investment scheme to create affordable housing that makes European housing advocates laugh, but it’s how most affordable units get funded in the US. When mission-driven nonprofits own a LIHTC project, they may decide to keep the units affordable after the 30-year period, but in most places there is no requirement for them to do so. Many LIHTC projects are owned and managed by for-profit companies that operate them as affordable until they no longer have to.  

Because the first LIHTC properties were created in 1987, a number of developments are just reaching the end of their required affordability period. According to data from City staff, there are at least seven LIHTC-funded buildings in the City of Madison with their affordability period expiring in the next five years. This means we are likely to lose dozens-to-hundreds of affordable units of subsidized housing if no coordinated investment and buy-out takes place to keep them affordable, while prices on the whole in Madison are on the rise. Expiring affordability is a problem across the United States, where  real estate values have exploded nationally, especially in the last year. We should all recognize the loss of affordable units as an emerging shock to the already-dire affordable housing crisis.

Other funding mechanisms for affordable housing do exist, and most big developers will assemble multiple sources of funding for multifamily affordable housing projects. Funders (typically the state, municipalities, and Federal Home Loan Banks) have the opportunity to either incentivize or require the projects to retain affordability longer than a 15 or 30 year period, to essentially add requirements beyond those of LIHTC (in New York, for example, some tax credit projects have 50-60 year affordability requirements). In Madison, 40 year affordability requirements are typical, but it remains rare for any other state, regional, municipal, or private affordable housing funder to make demands on housing developers to retain affordability over 30 years. 

The time has come for that to change. When tax breaks and federal grants create affordable housing, that housing should remain affordable permanently to retain those subsidies. With permanent affordability requirements, we would be able to add to the affordable housing stock over time, rather than replacing units that expire at higher and higher costs (as land values increase). Wisconsin cities and towns (some of which have their own affordable housing funding to distribute), Dane County (through their Affordable Housing Development Fund and HUD funds), Wisconsin Housing and Economic Development Authority (WHEDA), and the Federal Home Loan Bank of Chicago should all commit to adding permanently affordable units with the funding they distribute. At this time it is rarely part of the calculation of who gets money or how much money they get.

There’s already some precedence and recognition for the need for permanently-affordable rental units within the City of Madison. A new project by Rule Enterprises and Movin’ Out, planned for Park Street, will now have a permanent land use restriction agreement (LURA), or deed restriction, requiring the continuing affordability of units in exchange for the transfer of the land for the development. This project is LIHTC funded, in addition to other sources of funding including the City Affordable Housing Fund (see the staff report on the new development). While 40 year land use restrictions have become common-place in Madison, this “permanent” one marks a more radical approach to affordable housing funding for rental projects in Madison and points us in the right direction. City staff have suggested in Common Council meetings that this project’s utilization of a 99-year LURA could be a model for how land banked properties may continue to be treated in the recently approved land banking policy, though they did not write this into the policy requirements.

Another creative option worth exploring is the creation of a publicly-housed development staff to internalize some of the costs of housing development, and create City-financed social housing. Social housing is municipally developed and financed rental housing offered at a variety of prices for a variety of income levels. It is being explored by lawmakers in Maryland and California. The diversity of unit pricing allows for “cross-subsidization” of rents, meaning that a more expensive unit can help pay for a lower-income unit’s costs, and when done well, can mean long-term financial sustainability after initial construction. The incoming Federal funds could offer startup money for such a project, and rents will ensure ongoing operations reserves are paid for. Even for units priced for median-income or “workforce” (120 percent Area Median Income) units, rental prices could be set to increase at a lower rate (eg. 2 percent per year) than is typical for rentals to further reduce the rental squeeze in the area.

Conventional homeownership is the problem, not the solution

The above question of permanently-affordable rental units is less controversial than the question of permanently-affordable ownership options. Most people look confused even at the suggestion; owning a home means you gain the marketable value of your property, right? Isn’t that the point? 

Since World War II, homeownership has been widely considered the primary means to build familial wealth and pass it down to subsequent generations. This has worked well for white people, but Black, Indigenous, and Latino populations have been widely excluded from the opportunity to buy and build wealth in a home due to many racist practices including the 1944 G.I. Bill, government-backed homeownership loans only available in areas with racial covenants (“redlining”), racist lending practices, contract buying arrangements, and broad, systemic injustices such as income inequality, the lack of equitable policies for taxes on inheritance,  mass incarceration, and segregation that leads to lack of opportunity. 

In 1995, the Clinton administration started the National Homeownership Strategy, seeing homeownership as the liberal solution for generating wealth for working class families. How did they do it? HUD formed cross-sector partnerships to fulfill a multi-pronged strategy including: reducing building costs, making lending requirements more flexible, and targeting assistance, education, and down-payment assistance to underserved communities to promote homeownership. The efforts were “successful” by their own standards, and by 2004, the homeownership rate in the United States reached its peak of 69.2 percent. But the success was short-lived.

Much of this homeownership initiative backfired during the Great Recession. Between 2007 and 2009, roughly 8 percent of Black and Latino homeowners lost their homes to foreclosure, compared to 4.5 percent of white homeowners. Ultimately, the gap between Black and white homeownership widened. As of 2019, the Black homeownership rate was back at 1988 levels. During the crisis, of course, corporate real estate financiers took advantage of the opportunity to buy low-cost single-family homes and rent them back to families who had been foreclosed upon, with notoriously poor management practices and high rents. The National Homeownership Strategy and the Great Recession accelerated the commodification of land and housing and the racial wealth gap, throwing into question the wisdom behind homeownership promotion as national policy. 

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Despite this history, the perception of homeownership as the key to generational wealth-building for Black and brown communities lives on. There’s currently a growing interest nation-wide in promoting education, programming, counseling, creative financing options, and subsidies for affordable homeownership, particularly for people of color who have been systematically excluded from the homeownership market for all of US history. 

Typically, subsidies that help bring down the cost of a home to make it affordable for a low-income family will essentially grant the buyer a large chunk of down-payment assistance (or sometimes a deferred-payment or forgivable loan) and then allow the new homeowner to eventually sell the home at market rate (minus any deferred loans, which can be considerable). This model for subsidization may help secure access to homeownership to some who otherwise would not be able to buy a home, but it does have a few shortcomings.

First: there are not enough subsidies being distributed for housing currently to get every low-income person of color into homeownership. And while the families lucky enough to get the option to purchase a subsidized home will individually benefit, the homes will become unaffordable to the next buyer. Without permanently affordable options, some neighborhoods will become completely unaffordable. As home values go up, the next buyer will require a greater public subsidy to access the same good. What this means is that more low-income people will be pushed out of the gentrifying areas of the city to suburbs, other metro areas, family’s couches, cars, and streets. “Racial banishment” is one term urban scholar Ananya Roy has used to describe this phenomenon when policing and housing unaffordability simply push people of color out of a city completely. She writes, “The banishment of black, brown, and poor bodies marks not just the disappearance of these residents from urban cores but also the loss of communities and the places and histories they have created.”

Furthermore, those who gain access to the conventional homeownership market will be subject to other expenses and eligibility requirements that further exclude disadvantaged populations. For example, some programs that assist low income homebuyers require criminal background checks, a clean eviction record, and landlord references, which may exclude previously incarcerated, survivors of domestic violence, or otherwise housing-insecure populations. Qualifying for a mortgage can be another hurdle, and depending on the program, balloon payments can be required of first-time homebuyers. 

In addition to access to entering homeownership, structural racism makes sustaining homeownership harder for Black and brown communities. Homeowners in the Madison area, for example, are subject to high property taxes (typically over $5,000 per year for a “starter home”), plus they have additional expenses for maintenance costs to keep up with (though locally there are some programs to offset these costs such as those offered by Project Home). Homeowners of color have also historically been subject to predatory lending practices—and while the mortgage market is more tightly regulated than it was in 2008, Black people are still more likely to only have access to higher interest mortgages. In today’s market, Black homeowners are more likely than white homeowners to be targets of low-ball cash-buyouts and low appraisals that under-value their homes

Ultimately, one of the biggest challenges for Black homeowners seeking wealth generation is the retention of the home after they buy it. The systematic racism that limits the capacity of Black families to save liquid assets outside of their home was identified by one study as the largest factor affecting home retention. In other words, because Black homeowners are more likely to go into foreclosure or otherwise exit homeownership back to the rental market, conventional homeownership has not proven to be an effective way, on average, for Black families to gain wealth. It would be more beneficial to focus policy on building assets through slow growth investments, baby bonds, and other saving and financial management practices for Black households as more reliable initial strategies to reduce the racial wealth gap.

One could argue that conventional homeownership is a tool of white supremacy and settler colonialism rather than a remedy, seeing how land- and home-ownership primarily benefit white people with wealth. Systematic racism (eg. racism in policing and incarceration, lending and realty, employer and landlord practices) not only limits access to homeownership, but makes homeowners of color more vulnerable to economic shocks and exploitation, so that homeownership actually made people of color more vulnerable to the impacts from the Great Recession in 2008. 

Clinton’s National Housing Strategy and subsequent recession showed how even giving people a leg up to access these neoliberal means to wealth generation actually hurt more than helped on the whole. We need to step outside the box of the conventional view of real estate and neoliberal housing solutions. How do we create housing systems that give historically marginalized populations more opportunities to not just survive, but thrive? 

Limited-equity housing keeps homes affordable, and homeownership accessible

There’s a way to generate alternatives within the current economy—a way to invest in ownership options that also remain permanently affordable, affect multiple generations of buyers, and stabilize housing prices: shared equity housing models such as community land trusts and limited equity cooperatives and condos. These models occupy a “third space” between rental and conventional homeownership, controlling resale prices to create slow and sustainable growth, and balance people’s need for equity building with the community need for permanent affordability

In Madison, there are two examples of permanently affordable, limited equity housing currently: The 60 affordable homes at Madison Area Community Land Trust (MACLT, of which I’m executive director), and the 11 affordable units at Linden Cohousing (governed by a condo association). Both restrict incomes of who can access their affordable units, and both utilize a resale restriction formula to provide a steady return on investment but allow for permanent affordability. In Linden Cohousing, the 11 affordable units have a 2 percent per year increase in value. Currently, at Madison Area Community Land Trust, the resale value is limited to what the buyer paid for it initially plus 25 percent of the increase in appraised value. Limited equity cooperatives work using a similar resale formula based approach, but no coops of this type currently exist in the Madison area. The idea is that the value of all of these limited equity units appreciates reliably, but stays below the rapidly rising prices on the conventional property market.

Importantly, the CLT model was developed by Civil Rights leaders in Georgia in the late 1960s as a response to Black land loss and racist lending practices in the rural south, with founding members including late Senator John Lewis, and Charles and Shirley Sherrod. CLTs are unique in that they take land off of the speculative market and hold that land in perpetuity. Each homeowner on CLT land holds a 99-year ground lease with the CLT, and the CLT maintains the resale value and also has the right of first refusal. When the next low-income buyer moves in, the new homeowner signs a new 99-year ground lease for the property. The CLT stewards these ground leases and supports the homeowners’ access to resources they may need in their homeownership journey. This type of ground lease arrangement can be applied to all kinds of community uses: commercial, rental housing, housing cooperatives, parks and community centers, and urban agriculture (as in Troy Gardens and Farm in Madison).

Rather than prioritizing individual wealth gain by treating housing as a commodity, CLTs treat housing as a source of stability, and a model for community wealth generation, and treat land as a common good. In addition to the collective benefits of stabilized neighborhood home values and long-term affordability that stays in place and prevents gentrification, CLTs benefit individuals through both individual wealth gain and stability. Research on limited equity models across the US over several decades shows that on the whole, owners in limited equity homes saw slow, steady growth in equity, where homeowners on the conventional market witnessed volatile prices. 

In terms of wealth gain, shared equity homeowners actually generate equity gains in a similar range as conventional homeowners. According to the study, limited equity homeowners had a median net home equity gain of $1,658 per year, and homeowners of a similar economic status on the conventional market gained $2,080 in median annual housing wealth, but the difference here is not statistically different. Because most limited equity homeowners were previously only able to rent, the access to equity building in the home is very significant compared to the median wealth gain of similar renters, which was just $100 per year. They are able to refinance just as any other homeowner, and in Madison, CLT homeowners enjoy a reduction in property taxes, saving them several thousands of dollars per year. At our local Madison Area CLT, a 2021 survey of homeowners showed that survey respondents had a median of $55,000 in equity saved in their home. This is beyond the scope that most renters can imagine saving. And the homes stay on average 30 percent below market value (saving homebuyers a median of $56,000). Some homes at MACLT have re-sold 4 times, meaning 5 families have had the benefits of homeownership after just the initial subsidy to get the land off the market. Therefore, the approach of CLTs shifts the goals of homeownership to distributing benefits across many generations of homeowners, rather than seeking to bring the largest economic gain to the initial individual homeowner at the expense of other low-income people.

In terms of stability and homeownership retention, CLTs perform exceedingly well. CLT homeowners experienced foreclosure at one-tenth the rate of conventional homeowners during the Recession, despite lower incomes on average. Homeownership retention is significantly less of a concern for low-income CLT homeowners in part because lenders are vetted by the CLT for responsible lending practices, and the CLT acts as a steward for homeowners to access resources through the CLT when they need to. And while about half of low-income, first-time conventional homeowners return to rental housing within five years, over 90 percent of limited equity homeowners stay in their home or buy another home in that same time period. Limited equity homeowners’ financial investment grows more slowly, but they have much greater stability. In other words, they are able to enjoy the “use value” of their home (a stable place to live) even if its “commodity” value is a little lower. The majority of CLT homeowners go on to buy a conventional home, and some pass their home to a family member.

We need to demand a commitment to permanent affordability

Given that whatever subsidies for affordable housing that become available at the Federal level in the next several years will likely be (1) temporary and (2) not enough, the most sensible way to generate the greatest impact for the largest number of people is to protect the affordability of all units that are created with these funds. Any funder can incentivize or require permanent affordability in the distribution of their funds. They might start by giving extra points for developments that have a 99-year ground lease or other protection on the land, for example, which could make it more competitive to partner with a CLT for certain pots of money. 

The City of Madison is just beginning to offer and sometimes require 99-year land use restriction agreements (LURAS) as conditions on funding affordable housing, as indicated above in the agreement with Rule Enterprises and Movin’ Out, and more recently for some  homeownership funding agreements. These efforts and creative thinking by City staff are heartening as we approach this moment of increased federal funding opportunity. I would like to see the City of Madison codify permanent affordability as a policy priority especially now that we have seen home prices jump 13 percent in the last year. Other housing funders at county, state, and regional levels should take steps to prioritize permanently affordable housing as well. Even individuals who own conventional homes in quickly appreciating markets like Madison’s can contribute to this effort by choosing to sell their homes at a reduced price into permanent affordability.

To decommodify a significant portion of land, we must demand it. Only when we culturally recognize the benefits of holding land as a public good will we see the tides change. Business as usual in affordable housing policy is based on a marketized, neoliberal approach.  No matter if Democrats or Republicans are in charge, the primary strategies have been to reduce taxes for investors in rental housing (LIHTC), deregulate development requirements (like removing inclusionary housing measures, development fees, and zoning requirements to encourage trickle-down supply), and bring low-income people into conventional homeownership. All of these policies can increase property values, rather than restrict their appreciation. This marketized housing system is not working for people of color, millennials without family wealth, and most renters. It’s time to admit that the capitalistic relationships to land have been perpetuated by settler colonialism and racial capitalism and continue to uphold those systems. As corporate land grabs take advantage of wage squeezes and economic shocks, the wealth gap widens on the whole, despite housing advocates’ and practitioners’ best efforts.

Land is a public good and should be treated as such, not resold at market value if it still has beneficial community uses and is kept permanently affordable. We should be aiming to hold land for public benefit and community use with any and all resources that become available, and CLTs can be seen as one strategy, alongside other strategies like rent control and public housing, to limit housing cost appreciation systematically. As former Oakland CLT Staff, Zach Murray, expressed in an interview, “[CLTs] are a model worthy of our reparations, worthy of reparating into […] the reparation has to come, but this is what we reparate into.” While the coming influx of funds will not be enough to “fix” the housing crisis or racial inequality, it is an opportunity to invest in long-term systematic change in how we treat land and housing. After this once-in-a-lifetime opportunity, austerity is likely to resume, and we will be stuck with a continuously appreciating housing market and likely not enough ongoing subsidy to replace the units whose affordability expire. We shouldn’t let this opportunity to invest in permanent affordability pass us by.


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