Will New Ruling Inspire a Return to a Sane Affordable Housing Policy?

Moro Cojo Slough

Moro Cojo Low-Income Housing Project Under Construction – California’s 6th District Court of Appeal has now ruled that low-income housing restrictions placed on these homes before they were sold are valid and enforceable.

What is the purpose of affordable housing programs? Should the goal be to use the available resources to get as many families out of homelessness and substandard housing as possible? Or should the goal be to use those resources to give a, necessarily much smaller, number of low-income families the American Dream, by making them full-fledged homeowners – free of any obligation to use any portion of the equity they accrue to help other families needing shelter?

As part of subdivision approvals, Inclusionary Housing programs generally require developers to build a certain number of rental units that will be managed so as to be affordable to low-income families, or to sell a certain number of units to low-income families at affordable prices. To maintain the number of affordable units available to house low-income families over time, these “ownership units” are generally deed restricted so as to require the owners, should they decide to sell, to sell to another qualifying low-income family at affordable prices. In some jurisdictions, these restrictions on the property are permanent. In others they expire after several decades. 

While the restrictions do limit the amount that inclusionary owners make from selling their property, they do not prevent them from making a good profit. Under the typical inclusionary contract, the equity which the owners hold in their homes increases each year by a set amount, all but guaranteeing them a more than healthy return on their investment if they do eventually sell – and meaning that inclusionary housing owners can see their equity go up, even when home prices decline. Still, inclusionary homeowners tend to feel oppressed by these restrictions and frequently complain (sometimes with good cause) that they were not given adequate notice of the restrictions, or did not understand the restrictions, at the time they bought the home.

As the housing bubble sent home prices through the roof, these complaints got very loud. People saw their non deed-restricted neighbors reaping huge windfalls by selling their homes, or saw their neighbors buying cars and boats with mammoth second mortgages and were outraged to find that their equity wasn’t large enough to allow them to do the same. They found enthusiastic allies in the real estate industry (who profit from high housing prices, of course), and even some low-income housing advocates – who probably should have known better –  jumped on the bandwagon and began demanding the removal of deed restrictions.

As a result of this pressure, politicians – who definitely should have known better – began drawing up plans to loosen deed-restriction requirements. Even while calling lack of affordable housing a crisis and a top priority, they moved away from the goal of providing housing for as many families as possible and toward larger financial rewards for the few. It was in this atmosphere that a group of Moro Cojo homeowners (who bought their homes in 2000 and 2001) filed suit asking the court to remove their deed-restrictions.

Today, as inclusionary housing owners are watching the neighbors whose wealth they envied a few years ago lose their homes to foreclosure, the voices calling for removal of deed-restrictions have fallen silent. And now the District Court has declined to invalidate the Moro Cojo deed-restrictions, but has left the door open for the homeowners to seek damages against the sellers if they did, in fact, fail to adequately disclose the restrictions. How reasonable!

Perhaps this ruling will inspire local policymakers and politicians to rethink the bubble-driven changes they’ve been planning for our affordable housing programs. Now that folks have sobered up – and owning a house has stopped looking like a ticket to instant wealth – maybe our public servants will find that those deed restrictions aren’t such a bad idea after all. For the sake of all those without a roof over their heads, let’s hope so.

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