The entire country is affected by the population growth, which positively impacts the states’ economies, and strains its housing supply. Colorado and states across the nation are tackling housing demands by using creative funding sources and both traditional and non-traditional partnerships, while working within their budgetary and regulatory restrictions. This article looks at how various states, including Colorado, are addressing the nationwide problem of affordable homeownership.
March 26, 2021 Feature
Innovative Housing Solutions: Lessons from Across the Country
by Elizabeth Peetz and Bridget Garcia
Affordable Housing Overview
Housing fees and taxes dedicated to affordable housing are commonly collected only from those who purchase or sell a house. Consequently, when the housing market changes, these fees and taxes from real estate transactions may change accordingly. Therefore, these types of affordable housing funds are often not a sustainable revenue source, even when the dollars are allocated directly to a housing purpose and strategically address goals set by the needs of the state or local community. In response, many states have created innovative funding sources for alternative revenue streams, as discussed below.
State governments generally prioritize a citizen’s ability to own a home. Extraordinarily creative people throughout the country are considering how to breathe new life into housing discussions and find sustainable solutions that work best for communities in widely varying contexts. Federal, state and local governments all play important roles in making policy decisions and creating investment strategies. And the private and nonprofit sectors are increasingly playing a larger collaborative role in creatively leveraging the public sector to address affordable housing challenges.
Innovative Funding Sources
Recent innovations in affordable housing funding include the use of marijuana tax revenue, social impact bonds, and community land trusts and banks.
Marijuana Revenue
The use of marijuana tax revenues as an affordable housing funding source is a growing trend across the country,1 with the city and county of Denver, Colorado, leading the way in pursuing this type of nontraditional revenue source. In 2018, the Denver City Council partnered with the Denver Housing Authority to increase the city’s sales tax on marijuana to use new marijuana taxes to fund the building and preservation of affordable housing units and the purchase of property.2 This approach offers a model for other states that permit marijuana use3 on how to raise revenue to fund affordable housing.
Local jurisdictions that allow marijuana use typically have city tax on marijuana-related sales and can allocate some or all of that revenue for a housing purpose. For example, the municipality of Aurora, Colorado, approved allocating a portion of its marijuana revenue to focus on the homeless population.4 Municipal decisions are local and generally do not require enactment of state laws for their implementation, so this is an expedient affordable housing funding source for municipalities.
Another option for allocating state marijuana revenue to housing needs is through citizen initiatives. This would require collecting signatures to get on the ballot statewide. In Colorado, a less burdensome option could require that new revenue bills introduced into the General Assembly allocate some of the revenue to the Marijuana Tax Cash Fund and that those dollars be used for affordable housing. Each year new allowable purposes can be created by the state legislature to adjust how Colorado marijuana dollars can be spent.5
Social Impact Bonding
Social impact bonds allow governments to use private financing to fund social programs. They are essentially contracts between a private entity and a public sector entity, under which the private entity agrees to pay for a social program. The private investors are repaid if and when contractually agreed-upon objectives are achieved.
The use of social impact bonds is a growing national trend to fund affordable housing. Again, Colorado, and Denver specifically, is a clear leader in this field. In 2016, Denver launched an effort to use social impact bonds to bolster its limited resources by investing in a preventative, permanent supportive housing program for the chronically homeless. This pay-for-success6 model allows the City and County of Denver to partner with lenders and community service providers to pay for services and to shift spending from short-term to long-term solutions. After just a few years this novel approach seems to be working very well, and the program is expanding to address early childhood programs. Colorado passed social impact legislation in 2015 that enabled Denver to initiate this novel approach to supportive housing.7
Several other states have passed social impact legislation8 and many more are taking action to allow these innovative funding approaches. Social impact funding could allow for national partners,9 and potentially combined federal agency and private sector support. To date, at least 24 states and the District of Columbia have enacted state legislation on social impact bonds.10 While many early pay-for-success models have focused on supportive housing or green building, creative uses of partnerships for affordable housing funding are limited only by the imagination.
Community Land Trusts and Banks
Community land trusts and banks are other popular affordable housing resources. These land trusts and banks tend to be localized to specific county, municipal or regional areas. Many perform laudable work in their communities and often offer opportunities to maintain neighborhood character or focus on specific local needs or a particular population, such as those of veterans.
Land banks vary in size, shape and scope, but typically are accountable to a board that targets where and how the funding is spent. Many land banks focus on acquiring and selling unused property for redevelopment in cooperation with both nonprofit and private sector developers and/or cities. They also fund rehabilitation of old residential structures as well as the development of vacant or abandoned property for new, productive uses.
Michigan implemented a unique approach to this funding source by creating a statewide land bank that is focused on promoting economic growth through the acquisition, assembly and disposal of public property.11 The properties include tax-reverted properties that can be redeveloped in a coordinated manner to support land bank operations on the county and local levels.
Michigan passed the Land Bank Fast Track Act,12 effective Jan. 5, 2004, which created the first truly expansive statewide land bank authority in the country.13 Essentially, this law allows the bank’s Board of Directors to enter into intergovernmental agreements with local municipalities and the Michigan Economic Development Corporation. The law created authority for the transfer of funds and established procedures to create opportunities for economic growth across the state through the recycling of land to productive use. Michigan’s statute is considered one of the strongest and is often emulated.14
The enactment of land bank legislation has ebbed and flowed over time,15 but this tool is often cited as an example of good smart growth policy.16
Other Innovative Approaches
Other innovative ideas are evolving from collective partnerships between states and non-traditional partners working toward a common goal. These partnerships often combine creative ideas from the private and nonprofit sectors. Leveraging creative partnerships is an effective way to involve the private and nonprofit sectors in enhancing the impact of affordable housing, especially for financially challenged populations, and as a means to promote workforce development. These partnerships share risk and goals, and ideas create dynamic and flexible plans to suit specific state and local government community needs.
Alaska
The University of Alaska Southeast, the Juneau School District, and the Juneau Housing Trust developed “House Build.”17 This program gives students real-world construction experience that can be applied toward a degree or certification while building homes to address the affordable housing needs in Juneau.
Maryland
The You’ve Earned It Initiative provides a 0.25% discount on the standard Maryland Mortgage Program mortgage rate and $5,000 in down payment assistance to qualified homebuyers that have at least $25,000 of student debt.18 Participants must purchase a home in one of Maryland’s sustainable communities, which are regions across the state where governments, businesses and communities coordinate investments to achieve sustainable growth and thriving neighborhoods.
Maryland also offers the SmartBuy program, which eliminates student debt as a barrier to homeownership by providing debt relief throughout the home purchase process.19 And, the City of Baltimore has developed a Live Near Your Work program,20 a partnership between the city and participating employers that provides a $2,000 to $5,000 grant to be used toward a down payment or to assist with closing costs. The city provides 50% of the funds and the participating employer provides the other half. Under this program, employers can implement eligibility requirements for their employees to participate.
Missouri
Kansas City officials have prioritized the creation of an affordable housing program to encourage low-income families to own their own homes. The Kansas City Housing Committee approved a measure in November 2018 to use scooter fees it collects for affordable housing. The scooter companies Bird and Lime were allowed to deploy up to 500 scooters in Kansas City and pay $1 a day for every scooter, generating about $300,000 per year in additional revenue.
Oregon
Portland is leading the nation in creating flexibility in its zoning codes to allow for accessory dwelling units, or ADUs. Portland was one of the first communities to take affordability a step further with a new start-up called Dweller, which fronts the costs of purchasing and installing a one-size-fits-all prefabricated ADU.21 Third-party property managers rent the units to long-term tenants, and Dweller splits the revenue 70/30 with the homeowner.
Wisconsin
Madison is using a unique aspect of state law to keep a few successful tax increment financing districts, or TIFs, open an extra year to allocate over $15 million in revenue for affordable housing22. This 2009 law allows municipalities to keep TIF districts open if most tax revenues from growth are used for affordable housing within the municipality.
Conclusion
States throughout the country are engaging new ideas to address the supply deficit of affordable housing for their citizens. And, innovation is likely to continue in a post-pandemic world as housing shortages are exacerbated.
Endnotes
1. Denver, Colo. Housing Code §§ 27.150(a) and (j) (2019). https://library.municode.com/co/denver/codes/code_of_ordinances?nodeId=TITIIREMUCO_CH27HO.
2. Press Release, City and County of Denver Mayor’s Office, Mayor Hancock’s Proposal to Double Denver’s Housing Fund and Provide $105 Million Funding Surge Advances (Aug. 8, 2018), https://www.denvergov.org/content/denvergov/en/mayors-office/newsroom/2018/mayor-hancock_s-proposal-to-double-denvers-housing-fund-and-prov.html; Gray, “Denver Passed Its Most Aggressive Housing Affordability Plan Yet,” 5280 (Aug. 29, 2018), https://www.5280.com/2018/08/denver-just-passed-its-most-aggressive-housing-affordability-plan-yet.
3. See, e.g., McCarthy, “Which States Made The Most Tax Revenue From Marijuana In 2018?” Forbes (Mar. 26, 2019), https://www.forbes.com/sites/niallmccarthy/2019/03/26/which-states-made-the-most-tax-revenue-from-marijuana-in-2018-infographic/#590f04857085; Lotus, “States reap tax rewards from legalized marijuana sales,” UPI (Jun. 14, 2019), https://www.upi.com/Top_News/US/2019/06/14/States-reap-tax-rewards-from-legalized-marijuana-sales/7721560462729; Colorado Department of Education, Marijuana Tax Revenue and Education, https://www.cde.state.co.us/communications/2019marijuanarevenue ; Governing.com, State Marijuana Laws in 2019 Map, https://www.governing.com/gov-data/safety-justice/state-marijuana-laws-map-medical-recreational.html; National Conference of State Legislatures, Marijuana Overview (July 26, 2019), http://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx; National Conference of State Legislatures, Deep Dive Marijuana, http://www.ncsl.org/bookstore/state-legislatures-magazine/marijuana-deep-dive.aspx; City and County of Denver, The Denver Collaborative Approach: Leading the Way in Municipal Marijuana Management (2018), https://www.denvergov.org/content/dam/denvergov/Portals/782/documents/Annual_Report_2018.pdf.
4. Mic, “Aurora, Colorado is giving $1.5 million of its wee tax dollars to the homeless,” Business Insider (May 13, 2016), https://www.businessinsider.com/aurora-is-giving-15-million-of-its-weed-tax-dollars-to-the-homeless-2016-5.
5. Kampman, Staff Budget Briefing FY 2019–20: Marijuana Policy Overview (State of Colorado Joint Budget Committee 2018), https://leg.colorado.gov/sites/
default/files/fy2019-20_marbrf.pdf; Colorado Department of Education, Marijuana Tax Revenue and Education, https://www.cde.state.co.us/
communications/2019marijuanarevenue; Staver, “Almost half of Colorado’s marijuana money can go wherever lawmakers wish,” Denver Post (Dec. 30, 2018), https://www.denverpost.com/2018/12/30/colorado-marijuana-tax-cash-fund-general-assembly; Bishop-Henchman and Scarboro, “Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington,” Tax Foundation (May 12, 2016), https://taxfoundation.org/marijuana-taxes-lessons-colorado-washington.
6. Urban Institute, What is pay for success (PFS)?, https://pfs.urban.org/pfs-101/content/what-pay-success-pfs.
7. H.R. 1317, 70th Gen. Assem., Reg. Sess. (Colo. 2015). http://www.leg.state.co.us/clics/clics2015a/csl.nsf/fsbillcont/B86272F9E2CFBB2087257DB10065DBB2?Open&file=1317_enr.pdf. See also Harvard Kennedy School Government Performance Lab , Denver Permanent Supportive Housing Pay for Success, https://govlab.hks.harvard.edu/denver-permanent-supportive-housing-pay-success.
8. National Conference of State Legislatures, Social Impact Bonds, http://www.ncsl.org/research/labor-and-employment/social-impact-bonds.aspx.
9. Jack, “Table: the top global social impact bonds,” Financial Times (Dec. 3, 2018), https://www.ft.com/content/99b49376-eea6-11e8-89c8-d36339d835c0.
10. National Conference of State Legislatures, supra note 10.
11. Michigan.gov, State Land Bank Authority, https://www.michigan.gov/landbank.
12. Land Bank Fast Track Act, ch. 1, Stat. 258 (2003). http://www.legislature.mi.gov/(S(zqunvbpchrgfb3riilwzpium))/mileg.aspx?page=GetObject&objectname=mcl-Act-258-of-2003.
13. Curtis, State of Michigan Biennial Report of the Michigan Land Bank Fast Track Authority (Dec. 18, 2014), https://www.michigan.gov/documents/landbank/MLB_FY_2015-2016_Biennial_Report_-_Final_558723_7.pdf.
14. The Council of State Governments, Policy & Research Question of the Month—March 2014, https://www.csgmidwest.org/policyresearch/0314qom.aspx.
15. Alexander, Land Bank Authorities: A Guide for the Creation and Operation of Local Land Banks (Local Initiatives Support Corporation 2005), https://files.hudexchange.info/resources/documents/LandBankAuthoritiesGuideforCreationandOperation.pdf.
16. Smartgrowthamerica.org, State Policy Toolkit: State Land Bank Enabling Legislation, https://www.smartgrowthamerica.org/app/legacy/documents/sga_statepolicy_toolkit.pdf.
17. http://www.alaskacteplan.com/news/juneau-house-build-project.
18. https://mmp.maryland.gov/EarnedIt/Pages/default.aspx.
19. https://mmp.maryland.gov/Pages/SmartBuy/default.aspx.
20. https://mmp.maryland.gov/Documents/LNYW-State-application.pdf.
22 https://madison.com/wsj/news/local/govt-and-politics/closing-tif-districts-will-generate-million-for-affordable-housing/article_a91c2830-69fc-569d-a9df-5e142c946836.html