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Priced out of Paradise: City in Transition
Miami-Dade is the most expensive metro in the U.S. for renters and one of the costliest for home buyers. This series explains why that’s so and what it means for the region and its residents. Our interactive tool helps renters and buyers match their budgets to affordable neighborhoods. Future stories will explore solutions to South Florida’s housing crisis.
South Florida’s housing affordability crisis is dire, but it’s certainly not unique. Nearly every major city in North America is struggling with the prosperity gap that prevents residents from being able to buy or rent a home within their budgetary means.
What caused the epidemic? Every city has its own unique set of variables at play, but some broad similarities exist.
The report “Attainable Housing: Challenges, Perceptions, and Solutions,” a collaboration between the Urban Land Institute’s Terwilliger Center for Housing and the RCLCO Real Estate Advisors firm, argues that the U.S. home-building industry stopped building middle-class housing over the last 10 years, favoring larger, pricier homes and multifamily construction.
That resulted in a scarcity of non-subsidized housing within reach of households with incomes between 80-120 percent of the area’s median income (AMI). In Miami-Dade, the situation was aggravated by the influx of wealthy foreign buyers who started snapping up properties here in bulk after 2010, causing many developers to cater directly to out-of-towners instead of locals.
The Urban Land Institute report uses U.S. Census data to show that the gap between home price growth and income growth has only gotten bigger since 2010 — and is at its widest since the pre-recession heights of the mid-2000s.
The report, which is geared to the home builder industry, suggests smaller units, higher density and value designs. Specifics include reducing the square footage and bedroom/bathroom counts of new construction to less than 1,400 square feet; building eight to 20 dwelling units per acre and streamlining structural and interior finish options to reduce costs (a strategy known as “value housing”).
But these kinds of tactics will take years to implement, and Miami needs to address its housing affordability crisis now. With so many other cities facing similar challenges, are there practices South Florida can adapt? Failed tactics we can avoid?
Here are some widely-discussed approaches used elsewhere:
From a conceptual perspective, the idea of rent regulation – limiting the amount the rent increase allowed per year, or capping what a landlord can charge for rent in the first place – seems like an effective way of controlling runaway rent prices.
But rent regulation is not an option in Florida. According to state statute 125.0103, no county, municipality, or other entity of local government can impose price controls upon a lawful business activity that is not part of a government agency — which includes home and apartment rent prices.
The only exception is if a county or municipality declares a housing emergency so grave that it “constitutes a serious menace to the general public.” Even in this kind of extreme case, rent control would need to be approved by voters in a public referendum and would only be valid for one year.
Repeated efforts to change the law have failed, most recently in May, when the Florida legislature killed two bills, filed in February by Orlando lawmakers, that would have legalized rent regulation and removed the one-year cap.
Aside from legality, experts debate whether rent control even works. Critics argue rent control rewards people arbitrarily and ends up hurting more than it helps, because developers have less incentive to build new affordable housing if there’s a limit to what they can charge. In a recent episode of the Freakonomics Radio podcast titled “Why Rent Control Doesn’t Work,” economists argued that the practice makes existing housing more affordable for a select group of people — at the expense of the long-term goal of making a city more affordable generally.
But in some large cities around the world, rent regulation works exactly the way it was intended.
One of those is the Austrian capital of Vienna, where 80 percent of the 1.8 million residents are renters. Most of them spend roughly 27 percent of their incomes on rent — making it possible for the musicians that define so much of the city’s culture to afford living there.
How does Vienna do it? In the 1920s, the social Democrats in charge of rebuilding the municipality post World War I, constructed high-density apartment buildings throughout the city. According to the Financial Times, Vienna’s annual budget for new construction and renovations is $665 million, most of it generated by taxes on businesses and individuals.
Those taxes are high. According to PricewaterhouseCoopers, Austrian income tax rates on earners of $19,900-$34,400 are 35 percent; earners between $34,401-$66,633 pay 42 percent; those between $66,634-$99,949 are taxed 48 percent; and incomes from $99,947-$$1.1 million pay 50 percent. Any earnings about that are taxed at a rate of 55 percent. The country’s median income in 2018 was $40,337.
But despite the high taxes, Vienna is consistently ranked among the best cities in the world in terms of housing, transportation, recreation, medical care and socio-cultural environments. Anyone earning up to $53,225 per year is eligible to live in a government-subsidized public housing, and the average rent in the first quarter of 2019 was $587. The city has topped the annual Mercer Quality of Living City Rankings, which ranks 500 cities around the world, for 10 years in a row.
Because Vienna continues to add approximately 5,000 government-subsidized apartments per year, more than half of the city’s population lives in public housing units. That’s a huge contrast to the U.S., where less than one percent of people rely on public housing.
Big cities in the U.S. don’t have the funds to provide housing on such a large scale. But most major urban areas use some kind of rent regulation. New York City, for example, has 3.4 million apartments. One million of those are rent-stabilized.
“To truly impact the crisis in a way that is meaningful, rent stabilization is by far the most cost effective and immediate solution for the biggest population,” said Cea Weaver, campaign coordinator for Housing Justice for All, an advocacy group for tenant rights in New York State.
And despite the legal hurdles that currently prevent rent regulation in Florida, some housing advocates believe it would have a beneficial impact in Miami-Dade — if it were implemented properly.
“Rent control is something that really resonates with folks on the ground, but needs to be part of a much bigger package on the state and local level,” said Alana Greer, co-founder of the Community Justice Project, a non-profit group of lawyers who work with organizers and grassroots groups in low-income communities throughout Florida.
“The criticism over rent control is that it only generates short-term winners,” Greer said. “But right now we have no winners at all. Rent control is an important piece of bringing stability of Miami-Dade renters and huge swaths of our workforce here. If the concern is that developers will not want to build affordable housing in the future, they’re already not building enough of it right now either.”
In Orlando, developers of affordable housing projects have their permits expedited — reviewed by the city for approval before market-rate projects — in order to reduce construction costs.
Maryland’s Montgomery County has a “Green Tape Program” that speeds the processing of permits for developers who devote at least 20 percent of units in a project to affordable housing.
Pinellas County even promises a two-week turnaround time on reviewing permits for affordable housing developers.
But according to the University of Miami’s Housing Solutions Lab, Miami-Dade permit processing delays routinely raise costs for both private and affordable housing developers. And those costs are passed on to tenants, who end up paying an extra $500 in rent per year.
Expediting permits within a specific time frame is one potential addition to Miami-Dade’s existing incentives for affordable housing development.
Many of the incentives used around the U.S. are already in play here, enabling development of projects such as Douglas Enclave, a 199-unit, 10-story apartment building at 63 NW 37th Avenue in Miami.
Forty of the units will be affordable housing for seniors, said Henry Torres, president and founder of The Astor Companies development firm. They will be 420 square-foot apartments with a monthly rent of $741. The remaining units will be dedicated to workforce housing at around $1,300.
In exchange, Torres said he will not be required to pay any impact fees, which would have normally cost around $2 million. The one-acre lot is owned by the city, so he did not have to pay the market value of $5 million to acquire the land. Because the project is located inside a transit-oriented zone, the standard parking requirements (traditionally one and a half spaces per unit) have been lowered, which helps with the construction costs.
And he was allowed to double the density of the development — 10 stories instead of the five allowed by the area’s zoning — which makes the $40 million project a sound business investment.
But despite the existing incentives, there’s always room for more. Torres said he would like to see Miami-Dade implement Tax Increment Financing (TIF), tax deferrals which are currently used in cities such as Fort Myers to incentivize development in blighted areas.
Cities across the country employ an array of other incentives.
In King County, Washington, any surplus county-owned parcels suitable for residential development (including existing zoning designation and sewer/electrical linkage) is required to be leased or sold for affordable housing use. The county reviews its land holdings annually to monitor usage and vacancies.
Maryland’s Montgomery County requires any proposed capital improvement project that includes public facilities such as libraries or train stations to be evaluated for the possible inclusion of a “significant” amount of affordable housing.
Some cities — notably New York — have contributed air rights that allow developers to build above existing public facilities. For the newly-opened Hudson Yards development above a working rail yard on Manhattan’s west side, for instance, New York donated the air rights, increased density and built the city’s first new subway station in 25 years.
In addition to encouraging new affordable developments, experts argue it is also critical to preserve existing affordable housing stock from redevelopment. San Francisco’s Assisted Housing Preservation Ordinance, for example, requires owners of affordable housing projects to offer government and non-profit entities first dibs at buying the property at a fair price 14 months before transferring or selling the development.
“There’s a lot of affordable housing stock that needs to be rehabilitated,” said Jason Kaye, senior vice president/senior relationship manager for Bank of America Merrill Lynch. “If you’re a developer and you’re going to rehab a property, you’re going to see what the highest and best use of a property is so you can get the highest return.
“That’s when you need to have land use rules and regulations in play, or a different set of laws that require affordability, or subsidies that allow the developer to keep the project affordable,” he said. “Developers, politicians, employers and banks need to be creative. We need to come up with new and innovative financing structures not just to create new housing stock but preserve existing stock.”
Equitable development is a broad term used to describe investments, programs and policies that address the needs of existing residents and reduces racial disparities in gentrifying neighborhoods, according to the Government Alliance on Race and Equity (GARE).
The group is a joint venture between the Haas Institute for a Fair and Inclusive Society at the University of California Berkley and the nonprofit racial justice organization Race Forward. GARE lobbies local governments to advance living-wage jobs, prevent displacement of residents and small businesses and expand affordable housing options in neighborhoods on the cusp of “re-urbanization” — areas that are attracting new investments after a long period of neglect.
One current project using an equitable development plan is the 11th Street Bridge Park in Washington, D.C. The ambitious project, due for completion in 2023, will connect two neighborhoods separated by the Anacostia River — one with a median household income of $91,000, the other a largely black area with a median household income of $32,000 — with a pedestrian-only green park that will stretch the length of three football fields. The bridge park, which will include playgrounds, concert stages and educational resources, will be built atop the existing piers of a former span, 30 feet above the river.
The project has attracted funding from various sources, including $5 million from JPMorgan Chase in 2017, that will be dedicated to preserve the affordable housing on the east side of the bridge, where the low-income residents are vulnerable to gentrification.
Locally, the Allapattah Collaborative CDC, a nonprofit community development corporation, is creating an equitable development action plan to protect the neighborhood’s residents from the encroaching gentrification due to follow the completion of two giant projects: The River Landing Residences, a $429 million mixed use development at 1400 North River Drive, will add 528 apartments, 135,000 square feet of office space and 345,000 square feet of retail. A redevelopment of the former Allapattah Produce Center, designed by the star architect firm of Bjarke Ingels Group, would bring an additional 1,200 apartments to the area — with only 100 of them designated as workforce housing.
The River Landing project is due for completion in 2020. The Allapattah Produce Center is winding its way through city commission approval.
Mileyka Burgos, who founded the Allapattah Collaborative, said her group is working on an equitable development action plan that would target the retention and growth of small businesses in the neighborhood — specifically the area along NW 17th Avenue between 20th and 36th Streets.
“When someone is developing a project in Miami Beach, they know they have a water situation and it’s going to cost them a certain amount of dollars to deal with it,” she said. “Imagine if that precursor was community or equitable development. Every single one of our legislators needs to consider a real, robust equitable development plan in to all kinds of development.”
Burgos takes issue with the way the City of Miami hired the commercial real estate firm CBRE to issue a request for information from developers and investors for the 18.75-acre lot in Allapattah that currently houses various city departments, including public works and parks and recreation. Current zoning would allow up to six and a half million square feet of development and 2,800 residential units.
“Everything that belongs to the City of Miami belongs to the community,” she said. “When it comes to public land, the first thing is to ask the community what it needs. Process and transparency are what really matter here.”
Could all the second-home and investment condos in Brickell and Sunny Isles Beach bought by foreign investors turn out to be an additional source of revenue for Miami-Dade, beyond the property taxes the owners already pay?
In 2017, Vancouver became the first city in North America to institute an Empty Homes Tax (EHT), also known as the Vacancy Tax. The move came after a 2016 report by housing planning officials revealed that 4.8 percent of 225,000 homes in Vancouver were vacant — empty more than six months of the year. Some 90 percent of those were condominiums.
Like Miami, Vancouver has experienced a surge in real estate prices driven largely by foreign buyers. There, Chinese buyers have parked an estimated $800 billion into safe assets abroad since mid-2014, according to Bloomberg and the Institute of International Finance.
That influx has pushed up rents in a city where 53 percent of the residents are renters.
The idea behind the tax was to encourage absentee owners to rent out their vacant homes and help ease the housing shortage in Vancouver. The fee is one percent of the annual assessed value of a property deemed “vacant.”
“The tax was created because of the low rental vacancy rates and the number of homes that were vacant,” said Melanie Kerr, director of financial services for the City of Vancouver. “All property owners are now required to submit an annual declaration of occupied, exempt or vacant.”
In its first year of implementation, the Vacancy Tax generated a revenue of $38 million. Of that sum, $10 million was used to cover the one-time implementation costs and first-year operating costs of the program.
The rest of the money was dedicated to affordable housing initiatives, including providing land and resources for affordable housing ($4.175 million), refurbishing existing low-income housing ($3.5 million), assisting cost-burdened renters facing eviction ($175,000), training affordable housing residents in asset management skills ($100,000), and pairing underutilized homes and rooms with renters looking for housing ($50,000).
The Empty Homes Tax has had an immediate impact on foreign buyers. According to the brokerage firm CBRE, Asian investments in Vancouver properties fell from the $1 billion-plus of 2016 and 2017 to $350 million in 2018, the first full year of the tax implementation.
The Empty Homes Tax wasn’t government’s first attempt to address foreign investment in the Vancouver region. In Aug. 2016, British Columbia imposed a 15 percent property tax on foreign buyers in Vancouver, then later increased it to 20 percent in 2017. Foreign buyers must now pay an additional $400,000 tax on a purchase of $2,000,000, for example.
In Miami-Dade, all home owners pay the same property and sales tax rates, regardless of whether they are full-time residents.
The provincial government also created its own Speculation and Vacancy Tax, now in its first year of the program.
Canadian citizens and residents already pay a one percent tax on the first $200,000 of their purchase, two percent on the remaining value up to $2 million and three percent on anything above that.
Miami-Dade, with its large number of foreign investors, would seem like a natural fit for a similar vacancy fee or tax, according to the Connect Capital Miami report released in May. That study, which was funded by the Center for Community Investment and JPMorgan Chase, laid out a path for the creation or preservation of 12,000 affordable housing units by the year 2024, includes a recommendation for a vacancy fee or tax on the estimated 31,779 vacant homes in Miami-Dade, owned by foreign or out-of-town buyers, that would generate an annual revenue of $98 million.
But at the press event to announce the findings of the Connect Capital Miami report, Mayor Francis Suarez said he was wary of a vacancy tax as a way to generate affordable housing funds.
“I’ve usually been against taxes or fees of any kind,” he told an El Nuevo Herald reporter. “I don’t know if I would be in support of a vacancy tax.”
The federally-funded Section 8 Housing Choice Voucher program forms the largest chunk of the Miami-Dade Public Housing and Community Development’s (PHCD) housing assistance: 17,000 households use the vouchers, which allow tenants to choose their unit in the private housing market instead of being limited to public housing developments. That number is nearly double the 9,700 public housing units the county manages and operates.
Based on income limits determined annually by the U.S. Department of Housing and Urban Development, 75 percent of new admissions into the program must be extremely low-income. In Miami-Dade, that means 30 percent of area median income, or $25,410 for a family of four. Households that increase their income are allowed to remain in the program as long as they pay their required share of the rent, which is 30 percent of their adjusted income.
Sixty percent of admissions can make as much as 80% of the area median income ($61,000 for a family of three). The voucher program comprises 44 percent of the PHCD’s annual $460 million budget in annual assistance resources and is funded by HUD.
But demand for the vouchers far exceeds supply. Applicants are placed on a ranked/position waiting list and randomly assigned a slot by computer. The period between the time of application and the announcement of the list rankings can take several months, and the waiting lists are already so long that new applications for the vouchers have been closed since 2014.
“The current waiting list has approximately 35,000 names and goes back to 2008, but these are names only,” said Michael Liu, director of the Miami-Dade PHCD. “When vetted for eligibility requirements and whether or not the names are even traceable, we anticipate that only about 15 percent of them — 5,250 people — will qualify. Still a significant number, and we know that there are those who are not on the list who are waiting to have us open the list up as soon as we exhaust our current list.”
Some other cities, however, are using the voucher concept and applying it in creative ways that don’t rely on federal funds. In 2018, Denver launched a five-year plan to address the consequences of the city’s rapid economic growth and low unemployment: Despite a median income of $65,000 for a single-person household, Denver has 96,000 cost-burdened households (meaning they spent more than 30 percent of their income on housing).
The 160-page report laid out strategies for four core goals: creating affordable housing, preserving existing housing stock, promoting equitable housing options and stabilizing residents at risk of involuntary displacement.
Among the successful tactics: An extra 2% sales tax on recreational marijuana, which was implemented in October 2018 and generated $1.93 million in revenue, and a fee on all new construction — rentals, homes and commercial — based on the number of square feet. That generated $4,383,456.
Laura Brudzynski, manager of housing policy and programs at Denver’s Office of Economic Development, said the city also introduced a lower income voucher program, known as LIVE Denver, that helps buy down market rental prices to make them achievable to medium-income residents.
The two-year pilot program is open to individuals earning between $25,200 to $50,400 annually and is funded through a private-public partnership between the city’s 2017 Affordable Housing Fund and foundations and employers whose employees participate in the program.
A partnership with St. Joseph Hospital, for example, added a $100,000 contribution to the LIVE Denver fund. Because the donation is being made to a non-profit institution, the hospital receives a tax benefit.
“If a unit is $1,500, the Denver Housing Authority connects to a household earning between 40 to 80 percent of the average median income,” she said. “If they can afford to pay $1,000 in rent, the Housing Authority makes up the difference.
“The primary benefit for employers is they can use LIVE Denver as a recruitment and retention program,” Brudzynski said. “Housing challenges in the city are creating recruitment issues.”
Thus far, though, the program has had a tough time helping more than a handful of people due to legal and financial issues, according to a report in the Huffington Post.