By Gary Bennett and Hugh Gordon
A lot of written and spoken words have been devoted to the lack of affordable housing in Frederick County. This periodic column has discussed at length how we got into this mess and the possible long-term fixes for getting out of it.
But what exactly is meant by the terms “affordable housing,” “moderately priced dwelling units” and “payment-in-lieu fees,” among others? We will explain these terms and how the affordable housing market works in Frederick County.
What is affordable housing?
A house that costs $400,000, $500,000 or even up to $1 million can be considered affordable to those with adequate resources. But for local governments and the housing industry, the term “affordable housing” generally means housing (not just owned homes, but also rental homes) that is affordable to those with low to moderate incomes.
How do we judge low to moderate income?
The housing industry and their regulators use “area median income” (AMI) as the statistic for which the concept of affordability is based. The 2022 area median income for Frederick County is around $116,000 per household or about $51,000 for an individual. AMI is based on the most recent U.S. Census Bureau information available.
Many in the affordable housing industry consider those in lower-income households to make 40% to 60% of the AMI. In other words, Frederick County households with incomes of $46,000 (low end) to $70,000 (moderate end) can usually qualify for a government-subsidized home, also known as a moderately priced dwelling unit.
How much of your monthly income should you spend on a home?
It is generally accepted that an individual or family shouldn’t spend more than a third of their disposable income on housing. If you do, you are considered cost-burdened or, in more colloquial terms, “house poor.”
Therefore, if you make around $46,000 per year (low end), you shouldn’t spend more than $14,000 on your home. That works out to a monthly mortgage or rental payment of $1,150. When is the last time you saw a monthly rent payment such as that, much less a monthly mortgage payment, advertised in Frederick County?
Hence, the problem: For folks in this income category and below, there is simply not enough affordable housing to go around in Frederick County. According to United Way’s ALICE report, more than one-third of Frederick County residents cannot afford market-rate housing.
Where do the government’s “moderately priced dwelling unit” (MPDU) programs come in?
For many reasons, it is very difficult for market rate developers to build new homes or rental communities that are affordable to those with moderate to low incomes.
It is often left to nonprofit builders such as Habitat for Humanity or Interfaith Housing Alliance to build moderately priced homes, but their capacity is not adequate to meet the need.
Both the city and county have MPDU ordinances that try to get market-rate builders to do their share. They require market rate builders to build 12.5% of new homes in a development as moderately priced.
If they can’t or won’t, they must pay a fee to the jurisdiction in lieu of building the moderately priced units. In most instances, builders pay this fee instead of building the units.
These substantial MPDU fees go into a housing initiative fund, which helps fund such laudable programs as housing rehabilitation, homebuyer assistance, rental assistance and deferred loans for future affordable housing projects that will come to market several years down the road.
In effect, while the MPDUs are not built when the builder pays the fees, those funds are repurposed into other effective affordable housing programs.
But one thing remains clear: There is no replacement for actually building the affordable units. We’ve heard that loudly and clearly from the Board of Aldermen and County Council.
Payment-in-lieu fee
Both the city and county charge $2 per square foot as a “payment-in-lieu” fee to the developer for the entire size of the development, rather than a flat fee, in the hope that more affordable units will be built rather than the builder simply paying the fee.
Because of the length of the development process, it’s still too early to know if the change to the fee is working as a strategy.
The dwelling units that are constructed, sold or rented under the MPDU ordinance are rent-controlled in order to be affordable to those with low to moderate incomes.
Income eligibility for an MPDU is set at 70% of the area’s median household income and adjusted for family size.
Sales and rental prices are set by the appropriate governmental housing director or their designee. In general, the sales or rental prices are set as to not exceed 30% of the applicant’s monthly household income.
Editor’s note: Gary Bennett is a retired marketing executive. Hugh Gordon is the association executive for the Frederick County Association of Realtors and has decades of experience in the real estate world, including 24 years as a mortgage banker. They are longtime Frederick County residents and members of the Frederick County Affordable Housing Council.